SIGNIFICANT ACCOUNTING POLICIES:
1. Basis of Accounting
The Company maintains its accounts on accrual basis following the historical cost convention in accordance with generally accepted accounting principles ["GAAP"] except for the revaluation of certain fixed assets, and in compliance with the Accounting Standards referred to in Section 211(3C) and other requirements of the Companies Act, 1956. However, certain escalation and other claims, which are not ascertainable/ acknowledged by customers, are not taken into account.
The brparation of financial statements in conformity with GAAP requires that the management of the Company makes estimates and assumptions that affect the reported amounts of income and expenses of the period, the reported balances of assets and liabilities and the disclosures relating to contingent liabilities as at the date of the financial statements. Examples of such estimates include the useful life of tangible and intangible fixed assets, provision for doubtful debts/advances, future obligations in respect of retirement benefit plans, etc. Actual results could differ from these estimates.
2. Revenue Recognition
(a) Sales and service include excise duty and adjustments made towards liquidated damages, price variation and charges paid for discounting of receivables on a non-recourse basis as per construction/project contracts, wherever applicable.
(b) Revenue is recognised based on the nature of activity, when consideration can be reasonably measured and there exists reasonable certainty of its recovery.
(i) Revenue from sale of goods is recognised when substantial risks and rewards of ownership are transferred to the buyer under the terms of the contract.
(ii) Revenue from construction/project related activity and contracts for supply/commissioning of complex plant and equipment is recognised as follows:
a) Cost plus contracts: Contract revenue is determined by adding the aggregate cost plus proportionate margin as agreed with the customer.
b) Fixed price contracts received up to March 31, 2003: Contract revenue is recognised by applying percentage of completion to the contract value. Percentage of completion is determined as follows:
i. in the case of item rate contracts, as a proportion of the progress billing to contract value; and
ii. in the case of other contracts, as a proportion of the cost incurred-to-date to the total estimated cost.
c) Fixed price contracts received on or after April 1, 2003: Contract revenue is recognised by adding the aggregate cost and proportionate margin using the percentage completion method. Percentage of completion is determined as a proportion of cost incurred-to-date to the total estimated contract cost.
Full provision is made for any loss in the period in which it is foreseen.
(iii) Revenue from property development activity is recognised when all significant risks and rewards of ownership in the land and/or building are transferred to the customer and a reasonable expectation of collection of the sale consideration from the customer exists.
(iv) Revenue from service related activities is recognised using the proportionate completion method.
(v) Commission income is recognised as and when the terms of the contract are fulfilled.
(vi) Revenues from construction/project related activity and contracts executed in Joint Ventures under work-sharing arrangement [being Jointly Controlled Operations, in terms of Accounting Standard (AS) 27 "Financial Reporting of Interests in Joint Ventures"], are recognised on the same basis as similar contracts independently executed by the Company.
(c) Other operational income is recognised on rendering of related services, as per the terms of the contracts.
(d) Profit/Loss on contracts executed by Integrated Joint Ventures under profit-sharing arrangement [being Jointly Controlled Entities, in terms of Accounting Standard (AS) 27 "Financial Reporting of Interests in Joint Ventures"], is accounted as and when the same is determined by the Joint Venture. Revenue from services rendered to such Joint Ventures is accounted on accrual basis.
(e) Other items of income are accounted as and when the right to receive arises.
3. Research and Development
Revenue expenditure on research and development is charged under respective heads of account. Capital expenditure on research and development is included as part of fixed assets and debrciated on the same basis as other fixed assets.
4. Employee Benefits
(a) Short Term Employee Benefits
All employee benefits payable wholly within twelve months of rendering the service are classified as short term employee benefits. Benefits such as salaries, wages, short term compensated absences, etc. and the expected cost of bonus, ex-gratia are recognised in the period in which the employee renders the related service.
(b) Post-Employment Benefits
(i) Defined Contribution Plans:
The Company's superannuation scheme, state governed provident fund scheme, employee state insurance scheme and employee pension scheme are defined contribution plans. The contribution paid/payable under the schemes is recognised during the period in which the employee renders the related service.
(ii) Defined Benefit Plans:
The employees' gratuity fund schemes, post-retirement medical benefit plan, pension scheme and provident fund scheme managed by Trust are the Company's defined benefit plans. The brsent value of the obligation under such defined benefit plans is determined based on actuarial valuation 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 rates 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 balance sheet date, having maturity periods approximating to the terms of related obligations. Actuarial gains and losses are recognised immediately in the Profit & Loss Account.
In case of funded plans, the fair value of the plan assets is reduced from the gross obligation under the defined benefit plans, to recognise the obligation on net basis.
Gains or losses on the curtailment or settlement of any defined benefit plan are recognised when the curtailment or settlement occurs. Past service cost is recognised as expense on a straight-line basis over the average period until the benefits become vested.
(c) Long Term Employee Benefits
The obligation for long term employee benefits such as long term compensated absences, long service awards etc. is recognised in the same manner as in the case of defined benefit plans as mentioned in (b) (ii) above.
(d) Termination Benefits
Where termination benefits such as compensation under voluntary retirement cum pension scheme are payable within a year of the balance sheet date, the actual amount of termination benefits is amortised over a defined period. Where termination benefits are payable beyond one year of the balance sheet date, the discounted amount of termination benefits is amortised over the defined period. The defined period of amortisation is five years or the period till March 31, 2010, whichever is earlier.
5. Fixed Assets
Fixed assets are stated at original cost net of tax/duty credits availed, if any, less accumulated debrciation, accumulated amortisation and cumulative impairment and those which were revalued as on October 1,1984 are stated at the values determined by the valuers less accumulated debrciation, accumulated amortisation and cumulative impairment. Assets acquired on hire purchase basis are stated at their cash values. Specific know-how fees paid, if any, relating to plant and machinery is treated as part of cost thereof.
Revenue expenses incurred in connection with project implementation insofar as such expenses relate to the period prior to the commencement of commercial production are treated as part of project cost and capitalised.
Own manufactured assets are capitalised at cost including an appropriate share of overheads.
(Also refer to policy on Leases, Borrowing Costs, Impairment of Assets and Foreign Currency Transactions, infra.)
(a) Lease transactions entered into prior to April 1, 2001:
Assets leased out are stated at original cost. Lease equalisation adjustment is the difference between capital recovery included in the lease rentals and debrciation provided in the books of account.
Lease rentals in respect of assets acquired under lease are charged to Profit and Loss Account.
(b) Lease transactions entered into on or after April 1, 2001:
(i) Assets acquired under leases where the Company has substantially transferred all the risks and rewards of ownership are classified as finance leases. Such assets are capitalised at the inception of the lease at the lower of fair value or brsent value of minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on the outstanding liability for each period.
(ii) Assets acquired on leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease rentals are charged to the Profit and Loss Account on accrual basis.
(iii) Assets given under finance lease are recognised as receivables at an amount equal to the net investment in the lease. Lease income is recognised over the period of the lease so as to yield a constant rate of return on the net investment in the lease.
(iv) Assets leased out under operating leases are capitalised. Rental income is recognised on accrual basis over the lease term.
(v) Initial direct costs relating to assets given on finance leases are charged to Profit and Loss Account. (Also refer to policy on Debrciation, infra)
(a) Owned assets
(i) Revalued Assets:
Debrciation is provided for based on straight line method on the values and at the rates given by the valuers. The difference between debrciation provided based on revalued amount and that on historical cost is transferred from Revaluation Reserve to Profit and Loss Account.
(ii) Assets carried at historical cost:
Debrciation on assets carried at historical cost is provided on written down value basis on assets acquired up to March 31, 1968 (at the rates brscribed under Schedule XIV to the Companies Act, 1956) and on straight line basis on assets acquired subsequently (at the rates brvailing at the time of their acquisition) on assets acquired up to September 30, 1987 and at the rates brscribed under Schedule XIV on assets acquired after that date). However, in respect of the following asset categories, debrciation is provided at higher rates in line with their estimated useful life.
Category of assets: Rate of Debrciation (% p.a.)
Furniture and Fixtures: 10.00
Plant and Machinery:
i) Office Equipment: 6.67
ii) Cranes above 1000 ton capacity used in construction activity: 6.67
iii) Minor Plant & Machinery used in construction activity: 20.00
iv) Heavy Lift Equipment used in construction activity: 5.00
v) Earthmoving, tunnelling & transmission line equipment (other than employed in heavy construction work): 10.00
vi) Air conditioning and Refrigeration Equipment: 8.33
vii) Laboratory and Canteen Equipment 12.50 Motor cars: 14.14
(iii) Debrciation for additions to/deductions from owned assets is calculated pro rata from/to the month of additions/deductions. Extra shift debrciation is provided on a location basis.
(iv) Debrciation charge for impaired assets is adjusted in future periods in such a manner that the revised carrying amount of the asset is allocated over its remaining useful life, (b) Leased assets
(i) Lease transactions entered into prior to April 1, 2001:
Assets given on lease are debrciated over the primary period of the lease. Accordingly, while the statutory debrciation on such assets is provided for on straight line method as per Schedule XIV to the Companies Act, 1956, the difference is adjusted through lease equalisation and lease adjustment account.
(ii) Lease transactions entered into on or after April 1, 2001:
Assets acquired under finance leases are debrciated on a straight line basis over the lease term. Where there is reasonable certainty that the Company shall obtain ownership of the assets at the end of the lease term, such assets are debrciated at the rates brscribed under Schedule XIV to the Companies Act, 1956 or at the higher rates adopted by the Company for similar assets.
8. Intangible Assets and Amortisation
Intangible assets are recognised as per the criteria specified in Accounting Standard (AS) 26 "Intangible Assets" issued by the Institute of Chartered Accountants of India and are amortised as follows:
(a) Leasehold land: over the period of lease
(b) Specialised software: Over a period of three years
(c) Lump sum fees for technical know-how: Over a period of six years in the case of foreign technology and three years in the case of indigenous technology
Amortisation on impaired assets is provided by adjusting the amortisation charges in the remaining periods so as to allocate the asset's revised carrying amount over its remaining useful life.
9. Impairment of Assets
As at each Balance Sheet date, the carrying amount of assets is tested for impairment so as to determine:
(a) the provision for impairment loss required, if any, or
(b) the reversal required of impairment loss recognised in brvious periods, if any.
Impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount. Recoverable amount is determined:
(a) in the case of an individual asset, at higher of the net selling price and the value in use;
(b) in the case of a cash generating unit (a group of assets that generates identified, independent cash flows), at higher of the cash generating unit's net selling price and the value in use.
(Value in use is determined as the brsent value of estimated future cash flows from the continuing use of an asset and from its disposal at the end of its useful life)
Long term investments including interests in incorporated Jointly Controlled Entities, are carried at cost, after providing for any diminution in value, if such diminution is of other than temporary nature. Current investments are carried at lower of cost or market value. The determination of carrying amount of such investments is done on the basis of specific identification. Investments in Integrated Joint Ventures are carried at cost net of adjustments for Company's share in profits or losses as recognised.
Inventories are valued after providing for obsolescence, as under:
(a) Raw materials, components, construction materials, stores, spares and loose tools at lower of weighted average cost or net realisable value.
(i) Work-in-progress (other than project and construction-related) at lower of cost including related overheads or net realisable value.
(ii) Project and construction-related work-in-progress at cost till such time the outcome of the job cannot be ascertained reliably and at realisable value thereafter.
In the case of qualifying assets, cost includes applicable borrowing costs vide policy relating to Borrowing Costs,
(c) Finished goods at lower of weighted average cost or net realisable value. Cost includes related overheads and excise duty paid/payable on such goods.
(d) Property development land at lower of cost or net realisable value.
12. Securities Premium Account
(a) Securities brmium includes:
(i) The difference between the market value and the consideration received in respect of shares issued pursuant to Stock Apbrciation Rights Scheme.
(ii) The discount allowed, if any, in respect of shares allotted pursuant to Stock Option Schemes.
(b) The following expenses are written off against securities brmium account:
(i) Expenses pertaining to issue of shares.
(ii) Expenses pertaining to issue of debentures/bonds, net of tax.
(iii) Premium on redemption of debentures/bonds, net of tax.
13. Borrowing Costs
Borrowing costs that are attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of cost of such asset till such time as the asset is ready for its intended use or sale. A qualifying asset is an asset that necessarily requires a substantial period of time to get ready for its intended use or sale. All other borrowing costs are recognised as an expense in the period in which they are incurred.
14. Employee Stock Ownership Schemes
In respect of stock options granted pursuant to the Company's Employee Stock Option Schemes, the intrinsic value of the options (excess of market price of the share over the exercise price of the option) is treated as discount and accounted as employee compensation cost over the vesting period.
15. Miscellaneous Expenditure
Lump sum compensation paid under Voluntary Retirement-cum-Pension Schemes are amortised over a period of five years. The future pensions under Voluntary Retirement-cum-Pension Schemes are amortised over the period for which pensions are payable.
16. Foreign Currency Transactions, Foreign Operations, Forward Contracts and Derivatives
(a) The reporting currency of the Company is the Indian Rupee.
(b) Foreign currency transactions are recorded on initial recognition in the reporting currency, using the exchange rate at the date of the transaction. At each balance sheet date, foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried at historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. Exchange differences that arise on settlement of monetary items or on reporting at each balance sheet date of the Company's monetary items at the closing rate are:
(i) adjusted in the cost of fixed assets acquired upto March 31, 2004 and specifically financed by the borrowings to which the exchange differences relate.
(ii) adjusted in the cost of fixed assets specifically financed by borrowings contracted after April 1, 2004 and to which the exchange differences relate, provided the assets are acquired from outside India.
(iii) recognised as income or expense in the period in which they arise, in cases other than (i) and (ii) above.
(c) Financial statements of foreign operations comprising jobs contracted prior to April 1, 2004, are translated as follows: (i) Closing inventories at rates brvailing at the end of the year.
(ii) Fixed assets as at April 1, 1991 at rates brvailing at the end of the year in which the additions were made. Subsequent additions are at rates brvailing on the dates of the additions. Debrciation is accounted at the same rate at which the assets are translated.
(iii) Other assets and liabilities at rates brvailing at the end of the year.
(iv) Net revenues at the average rate for the year.
(d) Financial statements of foreign operations comprising jobs contracted on or after April 1, 2004, are treated as Integral operations and translated as in the same manner as foreign currency transactions, as described in (b) above. Exchange differences arising on such translation are recognised as income or expense of the period in which they arise.
(e) Forward contracts other than those entered into to hedge foreign currency risk on unexecuted firm commitments or of highly probable forecast transactions are treated as foreign currency transactions and accounted accordingly. Exchange differences arising on such contracts are recognised in the period in which they arise and the brmium paid/received is accounted as expense/income over the period of the contract.
Cash flows arising on account of roll over/cancellation of forward contracts are recognised as income/expense of the period in line with the movement in the underlying exposures.
(f) Derivative transactions are considered as off-balance sheet items and cash flows arising therefrom are recognised in the books of account as and when the settlements take place in accordance with the terms of the respective contracts over the tenor thereof.
17. Segment Accounting
(a) Segment accounting policies
Segment accounting policies are in line with the accounting policies of the Company. In addition, the following specific accounting policies have been followed for segment reporting:
(i) Segment revenue includes sales and other income directly identifiable with/allocable to the segment, including inter segment revenue.
(ii) Expenses that are directly identifiable with/allocable to segments are considered for determining the Segment Result. Expenses which relate to the Company as a whole and not allocable to segments are included under "Unallocable Corporate Expenditure."
(iii) Income which relates to the Company as a whole and not allocable to segments is included in "Unallocable Corporate Income".
(iv) Segment Result includes margins on inter-segment capital jobs, which are reduced in arriving at the profit before tax of the Company.
(v) Segment assets and liabilities include those directly identifiable with the respective segments. Unallocable corporate assets and liabilities rebrsent the assets and liabilities that relate to the Company as a whole and not allocable to any segment. Unallocable assets mainly comprise trade investments in Subsidiary and Associate companies that constitute or relate to the portfolio of the Company's core/thrust areas of business such as infrastructure development and software solutions. Unallocable liabilities include mainly loan funds, provisions for employee retirement benefits and proposed dividend.
(b) Inter-segment transfer pricing
Segment revenue resulting from transactions with other business segments is accounted on the basis of transfer price agreed between the segments. Such transfer prices are either determined to yield a desired margin or agreed on a negotiated basis.
18. Taxes on Income
Tax on income for the current period is determined on the basis of taxable income and tax credits computed in accordance with the provisions of the Income Tax Act, 1961, and based on the expected outcome of assessments/appeals.
Deferred tax is recognised on timing differences between the accounting income and the taxable income for the year, and quantified using the tax rates and laws enacted or substantively enacted as on the Balance Sheet date.
Deferred tax assets are recognised and carried forward to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.
19. Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised for liabilities that can be measured only by using a substantial degree of estimation, if
(a) the Company has a brsent obligation as a result of a past event,
(b) a probable outflow of resources is expected to settle the obligation; and
(c) the amount of the obligation can be reliably estimated.
Reimbursement expected in respect of expenditure required to settle a provision is recognised only when it is virtually certain that the reimbursement will be received.
Contingent liability is disclosed in case of
(a) a brsent obligation arising from past events, when it is not probable that an outflow of resources will be required to settle the obligation,
(b) a brsent obligation when no reliable estimate is possible; and
(c) a possible obligation arising from past events where the probability of outflow of resources is not remote. Contingent Assets are neither recognised, nor disclosed.
Provisions, Contingent Liabilities and Contingent Assets are reviewed at each Balance Sheet date.
NOTES ON ACCOUNTS
1. a) Of the Equity Shares of Rs.2 each comprised in the subscribed and paid-up capital of the Company:
i) 9,19,943 (brvious year 9,19,941) Equity shares were allotted as fully paid up, pursuant to contracts, without payment being received in cash.
ii) 15,70,84,226 (brvious year 1,70,64,871) Equity shares were issued as bonus shares by way of capitalisation of General Reserve: Rs.2.35 crore (brvious year Rs.2.35 crore), Securities Premium: Rs.28.97 crore (brvious year Rs.0.97 crore) and Capital Redemption Reserve: Rs.0.10 crore (brvious year Rs.0.10 crore).
iii) 1,25,98,166 (brvious year 78,96,749) Equity shares were allotted as fully paid up on exercise of grants under Employees' Stock Ownership Scheme.
iv) 63,05,167 (brvious year 51,75,099) Equity shares were allotted as fully paid up pursuant to exercise of options by bond-holders of 5 Year 1.25 % US$ denominated Foreign Currency Convertible Bonds convertible into International Global Depository Shares rebrsenting equity shares of the Company.
v) 34,129 (brvious year NIL) Equity shares were allotted as fully paid up pursuant to exercise of options by bondholders of 5 Year Zero Coupon Japanese Yen Foreign Currency Convertible Bonds convertible into International Global Depository Shares rebrsenting equity shares of the Company
2. a) Loans in foreign currencies equivalent to Rs.46.16 crore (forming part of Loans from Banks - 'Other Loans') are secured by a first mortgage on the Company's immovable properties at certain locations and / or by hypothecation of movables at those locations (save and except book debts) both brsent and future, having pari passu rights, subject to prior charges, on specific assets in favour of the Company's bankers.
b) Cash Credit facilities including Working Capital Demand Loans from banks are secured by hypothecation of stocks, stores and book debts. The total charge on these assets is Rs.724.07 crore, including bank guarantees as on March 31, 2007.
c) Other loans and advances from banks grouped under Unsecured Loans include loans availed from banks outside India amounting to Rs. 132.94 crore secured by corporate guarantee & project-specific receivables.
Loans and advances include:
i) amount due from an officer of the Company: Rs. Nil (brvious year Rs.0.04 crore). Maximum amount outstanding at any time during the year: Rs.0.04 crore (brvious year Rs.0.06 crore).
ii) Rent deposit with whole-time directors: Rs.0.07 crore (brvious year Rs.0.07 crore). Maximum amount outstanding at any time during the year: Rs.0.07 crore (brvious year Rs.0.07 crore).
iii) Amount, including interest, due from the Managing Director and whole-time directors in respect of Housing Loan: Rs.0.76 crore (including interest accrued) (brvious year Rs.1.13 crore). Maximum amount outstanding at any time during the year: Rs.1.79 crore (brvious year Rs.1.13 crore).
Sundry creditors include overdue amounts (mainly unclaimed) of Rs.1.35 crore (including interest of Rs.0.39 crore) payable to Small Scale and Ancillary Industries.
Sundry creditors - Others include Rs.4.61 crore (brvious year Rs.12.25 crore), being contribution received from the employees of the Company and some of its Subsidiary & Associate Companies, on behalf of L&T Employees' Welfare Foundation Trust and held on account for it.
Sales and Service include Rs 119.24 crore (brvious year Rs.23.74 crore) for price variations net of liquidated damages in terms of contracts with the customers and receivable discounting charges.
3. Other income for the year ended March 31, 2007 includes:
i) Profit on sale of long-term investments: Rs.22.88 crore on sale of investments in Equity shares of Tullow India Operations Limited.
ii) Gain on extinguishment of debt of Rs.0.51 crore (brvious year Rs. 1.01 crore).
4. The Company has reviewed the useful life of certain categories of fixed assets during the year. Consequently, debrciation rates of these categories of assets have been revised, resulting in additional charge of debrciation of Rs.21.39 crore and profit before tax for the year is lower to that extent.
5. The expenditure/charge on account of Post Retirement Medical Benefit Plan was accounted on cash basis till March 31, 2006. The liability on this account has now been determined based on actuarial valuation as on March 31, 2007. Due to this change in accounting policy, the profit for the year is lower by Rs.46.36 crore.
6. i. Pursuant to the transitional provisions of Accounting Standard (AS) 15 (Revised) on "Employee Benefits", an amount of Rs.35.45 crore (net of tax) has been debited to the General Reserve. The said amount rebrsents the difference between the liability in respect of various employee benefits determined under AS 15 (Revised) as on April 1, 2006 and the liability that existed as on that date as per AS 15 prior to the revision.
Basis used to determine the overall expected return:
The Trust formed by the Company manages the investments of Provident Fund and Gratuity Fund. Expected rate of return on investments is determined based on the assessment made by the Company at the beginning of the year on the return expected on its existing portfolio, along with the estimated incremental investments to be made during the year. Yield on the portfolio is calculated based on a suitable mark-up over the benchmark Government securities of similar maturities.
a) 1. Gratuity Plan-
The Company operates gratuity plan wherein every employee is entitled to the benefit equivalent to fifteen days salary last drawn for each completed year of service. The same is payable on termination of service, or retirement, whichever is earlier. The benefit vests after five years of continuous service. The Company's scheme is more favorable compared to the obligation under Payment of Gratuity Act, 1972.
2. Post-retirement Medical Benefit Plan:
The Post-retirement Medical Benefit plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling sanctioned at the time of retirement. The ceiling is based on cadre of the employee at the time of retirement.
3. Company's Pension Plan:
In addition to contribution to State managed Pension plan (EPS scheme), the Company operates a pension scheme, which is discretionary in nature, for certain cadre of employees wherein a br-determined percentage of salary is provided as pension, post retirement. The quantum of pension depends on the cadre of the employee at the time of retirement.
4. Trust Managed Provident Fund Plan:
The Company manages Provident Fund plan through a Provident Fund Trust for its employees which is permitted under The Employees' Provident Fund and Miscellaneous Provisions Act, 1952. The plan envisages contribution by employer and employees and guarantees interest at the rate notified by the Provident Fund Authority. The contribution by employer and employee, together with interest, are payable at the time of separation from service or retirement, whichever is earlier. The benefit under this plan vests immediately on rendering of service.
5. Uncalled liability on shares partly paid is Rs.102.88 crore net of advance paid against equity commitment (brvious year: Rs. Nil).
c) Contingent liabilities, if any, incurred in relation to interests in Joint Ventures as at March 31, 2007: Rs. Nil (brvious year: Rs. Nil): and share in contingent liabilities incurred jointly with other venturers as at March 31. 2007: Rs. Nil (brvious year: Rs. Nil).
d) Share in Contingent Liabilities of Joint Ventures themselves for which the Company is contingently liable as at March 31, 2007: Rs.68.75 crore (brvious year: Rs.26.10 crore).
e) Contingent liabilities in respect of liabilities of other venturers of Joint Ventures as at March 31, 2007: Rs. Nil (brvious year: Rs. Nil).
f) Capital commitments, if any, in relation to interests in Joint Ventures as at March 31, 2007: Rs.0.19 crore (brvious year: Rs. Nil).
6. Advances recoverable in cash or in kind includes:
a) an interest-free loan of Rs.225 crore (brvious year: Rs.250 crore) to L&T Employees' Welfare Foundation Trust to part-finance its acquisition of the equity shares in the company held by Grasim Industries Limited and its subsidiary. The loan is repayable in 9 years commencing from May 2005, with a minimum repayment of Rs.25 crore in a year.
b) Rs.69.11 crore, being portfolio of financial assets (comprising lease/hire purchase receivables and term loans) purchased from L&T Finance Limited, a wholly-owned subsidiary of the Company. The income from the portfolio is accounted as and when the cash flows are realised, by using the implicit rate of discount at which the portfolio was acquired.
c) Segment Reporting: Segment Identification, Reportable Segments and definition of each reportable segment:
i) Primary/Secondary Segment Reporting Format:
(a) The risk-return profile of the Company's business is determined brdominantly by the nature of its products and services. Accordingly, the business segments constitute the primary segments for disclosure of segment information.
(b) In respect of secondary segment information, the Company has identified its geographical segments as (i) Domestic and (ii) Overseas. The secondary segment information has been disclosed accordingly.
ii) Segment Identification:
Business segments have been identified on the basis of the nature of products/services, the risk-return profile of individual businesses, the organizational structure and the internal reporting system of the Company.
iii) Reportable Segments:
Reportable segments have been identified as per the criteria specified in Accounting Standard (AS) 17 "Segment Reporting" issued by the Institute of Chartered Accountants of India.
iv) Segment Composition:
• Engineering & Construction Segment comprises execution of Engineering and Construction projects to provide solutions in civil, mechanical, electrical and instrumentation engineering (on turnkey basis or otherwise) to core sectors/infrastructure industries, shipbuilding and supply of complex plant and equipment to core sectors. The segment capabilities include basic/detailed engineering, equipment fabrication/supply, erection & commissioning, procurement/construction and project management.
• Electrical & Electronics Segment comprises manufacture and sale of low voltage switchgear and control gear, custom-built switchboards, petroleum dispensing pumps & systems, electronic energy meters/protection (relays) systems, control & automation products and medical equipment.
• Machinery & Industrial Products Segment comprises manufacture and sale of industrial machinery & equipment, marketing of industrial valves, construction equipment and welding/industrial products.
• Others includes (a) ready mix concrete (b) property development activity, and (c) e-engineering services & embedded systems
7. The expenditure on Research and Development activities, as certified by the Management, is Rs.55.47 crore (including capital expenditure of Rs.4.12 crore) [brvious year: fte.39.26 crore including capital expenditure of Rs.1.80 crore].
8. The exchange difference arising on foreign currency transactions amounting to Rs.43.22 crore (net gain) has been accounted under respective revenue heads.
9. As a part of Company's risk management policy, the various financial risks mainly relating to changes in the exchange rates, interest rates and commodity prices are hedged by using a combination of forward contracts, swaps and other derivative products, besides the natural hedges.
10. Estimated amount of contracts remaining to be executed on capital account (net of advances): Rs.346.39 crore (brvious year Rs.80.70 crore).
11. The Company has given, inter alia, the following undertakings in respect of its investments:
a) To the debenture holders of India Infrastructure Developers Limited (IIDL), a wholly owned subsidiary, in connection with financing the lease of a captive power plant to a third party:
i. not to reduce its shareholding in IIDL below 100% and/or relinquish management control and/or majority rebrsentation on the Board of Directors, without the specific approval of the Trustees, and
ii. to compensate the subsidiary for any shortfall in receivables on account of variations in rates of interest, debrciation, corporate taxes, other statutory levies etc. during the currency of the lease.
b) Jointly with L&T Infrastructure Development Projects Limited (a subsidiary of the Company), to the term lenders of its subsidiary companies L&T Transportation Infrastructure Limited (LTTIL) and Narmada Infrastructure Construction Enterprise Limited (NICE):
i. not to reduce their joint shareholding in LTTIL & NICE below 51% until the financial assistance received from the term lenders is repaid in full by LTTIL & NICE, and
ii. to jointly meet the shortfall in the Working Capital requirements of LTTIL & NICE until the financial assistance received from the term lenders is repaid in full by LTTIL & NICE.
c) To one of the term lenders of NICE to meet the shortfall, if any, in repayment of the FCNR-B loans availed by NICE on account of fluctuation in exchange rates.
d) In terms of Company's Concession Agreement with Government of India and Government of Gujarat, not to change the control over L&T Western India Tollbridge Limited (a subsidiary of L&T Infrastructure Development Projects Limited) during the period of the Agreement.
e) To the debenture holders of L&T Infrastructure Development Projects Limited (a subsidiary of the Company) and to the lenders of its subsidiaries L&T Panipat Elevated Corridor Private Limited & L&T Krishnagiri Thopur Toll Road Limited, not to dilute Company's shareholding below 51%.
12. a) The Company's investment in HPL Cogeneration Limited (a subsidiary of the Company) has been pledged as security in favour of the consortium of lenders in respect of the term loans provided to HPL Cogeneration Limited.
b) The Company's investment in 12,00,000 shares of Rs.10 each of City Union Bank Limited has a lock-in period of 1 year starting from the date of allotment i.e. March 29, 2007.
13. The Scheme of Amalgamation (the Scheme) of L&T Power Investments Private Limited (a wholly owned subsidiary of the Company) [Transferor Company] with India Infrastructure Developers Limited (a wholly owned subsidiary of the Company) [Transferee Company], has been sanctioned by the High Court of Judicature at Bombay on May 26, 2006. In terms of the Scheme, the assets and liabilities of the Transferor Company have been transferred at book value to the Transferee Company with effect from April 1, 2005. Consequent upon the Scheme becoming effective on June 5, 2006, the shares held by the Company in the Transferor Ccompany have been extinguished and in lieu thereof, the Transferee Company has allotted to the Company 2,10,60,000 fully paid up equity shares of Rs.10 each in the proportion of one share for each equity share of Rs.10 held in the Transferor Company.
14. a) Datar Switchgear Limited (hereinafter referred to as "the Transferor Company"), engaged in electrical business, was acquired by way of amalgamation, with effect from April 1, 2005 ("the Transfer Date") under the Scheme of Rehabilitation sanctioned by the Board for Industrial and Financial Reconstruction ("the BIFR Scheme").
b) The amalgamation was given effect on October 3, 2006 ("the Effective Date") consequent upon compliance with requirements under the BIFR Scheme.
c) The result (net of tax) of operations of the Transferor Company during the financial year April 1, 2005 to March 31, 2006 has been adjusted against the opening balance of Profit and Loss account.
d) The financial transactions arising out of operations of the Transferor Company during the current financial year have been incorporated in the books of the Company under respective heads of account.
The amalgamation has been accounted for under the 'Purchase' method as brscribed under the Accounting Standard (AS) 14 "Accounting for Amalgamations" issued by the Institute of Chartered Accountants of India as follows:
i. The assets (except deferred tax assets) and liabilities of the Transferor Company have been incorporated in the financial statements of the Company as on the Effective Date at their respective carrying value.
ii) The deferred tax assets have been recognised as on March 31, 2007 to the extent there is a virtual certainty of realisation.
iii) Two fully paid equity shares of face value of Rs.2 each have been issued as consideration for the amalgamation.
15. There are no amounts due and outstanding to be credited to Investor Education & Protection Fund as at March 31, 2007.
16. According to the Company, Construction is a service activity and therefore, the same is covered under para 3(ii)(c) of Part II of Schedule VI to the Companies Act, 1956.
17. Figures for the brvious year have been regrouped/reclassified wherever necessary.