Notes to financial statements as at and for the year ended March 31, 2016 1. CORPORATE INFORMATION Timken India Limited ('the Company') was incorporated on 15th June 1987. The Company is primarily into manufacture and distribution of tapered roller bearings, components and accessories for the automotive sector and the railway industry. It also provides maintenance contract services and refurbishment services. The Company also has a gear box repairing facility at Raipur where it provides repair and maintenance services of industrial gear boxes. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The financial statements of the Company have been brpared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has brpared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014. The financial statements have been brpared on an accrual basis and under the historical cost convention. The accounting policies adopted in the brparation of financial statements are consistent with those of the brvious year except for the change in accounting policy explained below. 2.1 Summary of significant accounting policies a) Change in accounting policy Component Accounting The Company has adopted component accounting as required under Schedule II to the Companies Act, 2013 from 1 April 2015. The Company was brviously not identifying components of fixed asset separately for debrciation purposes; rather, a single useful life/ debrciation rate was used to debrciate each item of fixed asset. Due to application of Schedule II to the Companies Act, 2013, the Company has changed the manner of debrciation for its fixed asset. Now, the Company identifies and determines cost of each component/ part of the asset separately, if the componenV part has a cost which is significant to the total cost of the asset having useful life that is materially different from that of the remaining asset. These components are debrciated over their useful lives; the remaining asset is debrciated over the life of the principal asset. The Company has used transitional provisions of Schedule II to adjust the impact of component accounting arising on its first application. If a component has zero remaining useful life on the date of component accounting becoming effective, i.e., 1 April 2015, its carrying amount, after retaining any residual value, is charged to the statement of profit and loss. The carrying amount of other components, i.e., components whose remaining useful life is not nil on 1 April 2015, is debrciated over their remaining useful lives. Had the Company continued to use the earlier policy of debrciating fixed asset, its financial statements for the period would have been impacted as below: Debrciation for the current period would have been lower by Rs.24,139,989. Profit for the current period would have been higher by Rs.15,785,622 (net of tax impact of Rs. 8,354,367). Fixed asset would correspondingly have been higher by Rs.24,139,989. On the date of component accounting becoming applicable, i.e., 1 April 2015, there was no component having zero remaining useful life. (b) Use of estimates The brparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the management's best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods. (c) Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Sale of Goods Revenue from sale of goods is recognized when all the significant risks and rewards of ownership of the goods have passed to the buyer, which generally coincides with delivery to the customers. The Company collects sales taxes and value added taxes (VAT) on behalf of the Government and, therefore, these are not economic benefits flowing to the Company. Hence, they are excluded from revenue. Excise Duty deducted from turnover (gross) is the amount that is included in the amount of turnover (gross) and not the entire amount of liability arisen during the year. Income from Services Revenue from agency commission and maintenance and service contracts are recognized pro-rata over the period of the contract as and when services are rendered. The Company collects service tax on behalf of the Government and, therefore, it is not an economic benefit flowing to the Company. Hence, it is excluded from revenue. Export Incentive Income Export incentives are recognized when the right to receive such incentives as per the applicable terms is established, in respect of the exports made and when there is no significant uncertainty regarding the ultimate realization / utilization of such incentives. Dividends Revenue for dividend income is recognized when the right to receive payment is established by the reporting date. Interest Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate. Interest income is included under the head "other income" in the Statement of Profit and Loss. d) Tangible and Intangible Assets Tangible Assets are stated at cost of acquisition less accumulated debrciation and impairment loss (if any). Cost of acquisition includes the purchase price, duties (net of Cenvat), taxes, incidental expenses and erection / commissioning expenses which are directly attributable in bringing the asset to its working condition for the intended use. Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its brviously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred. Gains or losses arising from derecognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized. The Company identifies and determines cost of each component of an asset separately, if the component has a cost which is significant to the total cost of the asset and has useful life that is materially different from that of the useful life of the principal asset. These components are debrciated separately over their useful lives; the remaining components are debrciated over the life of the principal asset. Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the Statement of Profit and Loss in the year in which the expenditure is incurred. e) Debrciation/Amortization Debrciation on fixed assets is calculated on a straight-line basis using the rates arrived at based on the useful lives estimated by the management. The identified components are debrciated over their useful lives; the remaining asset is debrciated over the life of the principal asset. The Company has used the following rates to provide debrciation on its fixed assets. Useful lives estimated by the management (years) Factory Building 6 to 30 Furniture & Fixtures 10 Plant & Machineries (Including Tools) 3 to 15 Computers 3 to 6 Intangibles 3 Vehicles 8 Office Equipment 5 The useful life of buildings and plant and machinery as estimated by the management supported by independent assessment by professionals, are lower than those indicated in Schedule II to the Companies Act, 2013. f) Foreign Currency Translations (i) Initial Recognition Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. (ii) Conversion Foreign currency monetary items are retranslated using the exchange rate brvailing at the reporting date. Non- monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction; and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined. (iii) Exchange differences All other exchange differences are recognized as income or as expenses in the period in which they arise. g) Inventories Inventories are valued as follows Raw materials, components, stores and spares Lower of cost and net realizable value. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. Cost is determined on a weighted average basis. Work-in-progress and finished goods Lower of cost and net realizable value. Cost includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Cost of finished goods includes excise duty. Cost is determined on a weighted average basis. Trading goods Lower of cost and net realizable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their brsent location and condition. Cost is determined on a weighted average basis Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. Excise Duty is accounted for at the point of manufacture of goods and accordingly, is considered for valuation of finished goods stock lying at the manufacturing locations as on the balance sheet date. h) Retirement and other Employees Benefits i) Gratuity is administered through an approved benefit fund. Gratuity liability is defined benefit obligation and is provided for on the basis of an actuarial valuation on projected unit credit method made at the end of each financial year. ii) The liability on account of long term compensated absences and death benefit scheme due to the employees are provided for on the basis of an actuarial valuation on projected unit credit method at the end of each financial year. iii) Retirement benefits in the form of Provident Fund and Superannuation / Pension Schemes are charged to the statement of profit &loss of the year when an employee renders the related service. Interest shortfall, if any, on Provident Fund, which is managed through a private trust, are provided for based on year-end actuarial valuation on projected unit credit method. iv) Actuarial gains/losses are immediately taken to the Statement of Profit and Loss and are not deferred. v) The long-term and short term classification of gratuity, death benefit scheme, provident fund and compensated absence liabilities is based on the actuarial valuations. i) Leases Assets taken on lease Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the Statement of Profit and Loss on a straight-line basis over the lease term. Assets given on lease Leases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Assets subject to operating leases are included in fixed assets. Lease income is recognized in the Statement of Profit and Loss on a straight-line basis over the lease term. Costs, including debrciation are recognized as an expense in the Statement of Profit and Loss. An initial direct cost such as legal and professional cost etc. are recognized immediately in the Statement of Profit and Loss. j) Income Taxes Tax expense comprises current and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date.Current income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss. Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences for the earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Company has unabsorbed debrciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits. The carrying amount of deferred tax assets are reviewed at each balance sheet date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain that sufficient future taxable income will be available. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred taxes relate to the same taxable entity and the same taxation authority. k) Investments Investments that are readily realizable and intended to be held for not more than a year from the date on which such investments are made, are classified as current Investments. All other investments are classified as long-term investments. On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties. Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the Statement of Profit and Loss. l) Borrowing Costs i) Borrowing cost includes interest and amortization of ancillary costs incurred in connection with the arrangement of borrowings. ii) Borrowing costs that are directly attributable to the acquisition / construction or production of a qualifying asset are capitalized as part of the cost of that asset till the time it is ready to put to use. iii) All other borrowing costs are recognized as expenditure during the period in which these are incurred. m) Provisions A provision is recognized when an enterprise has a brsent obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to their brsent value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. n) Contingent Liabilities A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a brsent obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statements. o) Impairment i) The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their brsent value using a br-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. In determining net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. ii) After impairment, debrciation is provided on the revised carrying amount of the assets over its remaining useful life. iii) A brviously recognized impairment loss is increased or reversed depending on changes in circumstances. However the carrying value after reversal is not increased beyond the carrying value that would have brvailed by charging usual debrciation if there was no impairment. p) Earnings Per Share Basic Earnings per share is calculated by dividing the net profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity share during the reporting period. For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. q) Segment Reporting Policies Identification of segments: The Company's business includes manufacture and sale of bearings and related components and providing services in connection with or incidental to such sales. The Company also provides repair and maintenance services of industrial gear boxes. Secondary reportable segments are based on geographical location of customers. The geographical segments have been disclosed based on revenues within India and outside India. Allocation of common costs: Common allocable costs are allocated to each segment according to the relative contribution of each segment to the total common costs. Segment Accounting Policies: The Company brpares its segment information in conformity with the accounting policies adopted for brparing and brsenting the financial statements of the Company as a whole. r) Cash & Cash Equivalents Cash and cash equivalents for the purpose of cash flow statement comprise cash at bank and in hand, cheques in hand, remittances in transit and short-term investments with an original maturity of three months or less. s) As permitted by the Guidance Note on the Revised Schedule VI to the erstwhile Companies Act, 1956, the Company has elected to brsent earnings before interest, tax, debrciation and amortisation (EBITDA) as a separate line item on the face of the Statement of Profit and Loss. In its measurement, the Company does not include debrciation and amortisation expense, finance costs and tax expense. NOTE 2 : CAPITAL & OTHER COMMITMENTS : (a) Estimated amount of contracts remaining to be executed on capital account and not provided for - Rs. 620,743,919 (Rs.127,556,829) [Net of advances paid Rs.185,700,275(Rs.44,769,464)] (b) In terms of the Memorandum of Agreement dated 9th May, 2011 entered between the Company and Timken Engineering and Research India Pvt. Ltd. (TERI), TERI manufactures goods using the assets owned by the Company and leased out to TERI (as disclosed in Note 9) and the Company in consideration of purchase of such goods from TERI would give an agreed mark up on the cost incurred by TERI for manufacturing such goods. This agreement was valid for a period of 5 years with renewal option. The Company is in the process of renewal of the existing agreement with TERI. (c) For commitments relating to lease arrangements, please refer note 26. NOTE 3 Excise duty and cess on stock rebrsent differential excise duty and cess thereon paid/provided on opening and closing stock of finished goods. NOTE 4 Previous year figures have been regrouped / reclassified, where necessary, to conform to this year's classification. As per our report of even date For S R BATLIBOI & Co. LLP Firm Registration No. 301003E/E300005 Chartered Accountants Per KAMAL AGARWAL Partner Membership No. 058652 For and on behalf of the Board of Directors of Timken India Limited Sanjay Koul Chairman, Managing Director & CEO DIN - 05159352 Avishrant Keshava Business Controller, CFO & Whole-time Director DIN - 07292484 Soumitra Hazra Company Secretary & Chief - Compliance Bangalore, May 20, 2016 |