Ispat Industries

(Rs. in crores)
 
 1.  Contingent liabilities not provided for
     in respect of:                           As at 31st    As at 31st  
                                              March, 2009   March, 2008
 
 a) Claims against the Company not 
    acknowledged as debts                        25.65           2.22
 b) Excise and Custom Demands under dispute
    /appeal                                       1.48           1.27
 c) Income Tax demands under appeal               3.66           3.57
 d) Sales Tax matters (under dispute/appeal)      1.68           3.87
 e) Letters of Credit, Bills discounted and 
    Bank Guarantees outstanding                 216.17         425.96
 f) Corporate Guarantees issued to Financial 
    Institutions and others on behalf of
    various bodies corporate                    370.44         258.00
 g) Custom Duty on import of equipments and
    spare parts under EPCG-scheme (including
    Rs. 38.22 crores (Rs. 48.89 crores) 
    relating to Ispat Energy Ltd., a
    subsidiary company)                         229.05         252.29
 2. Estimated amount of contracts remaining 
    to be executed on Capital
    Account and not
    provided for [Net of Advances Rs. 
    19.35 crores (Rs. 23.99 crores)]             85.12         115.87
 3. Arrear Dividend (including tax) on 
    Cumulative Redeemable Preference
    Shares for the period from 1999 -2000 
    to the balance sheet date                   658.48         582.58
 
 4.  a) In respect of cancellable operating leases, the significant
 leasing arrangements relate to premises (residential, office, etc.) and
 oxygen plant, which are renewable by mutual consent and lease rentals
 payable are accordingly charged as Rent & Hire under Schedule 20.
 
 5.  The Company has given undertakings to financial institutions not to
 dispose off its shareholding in Ispat Profiles India Ltd. till its loan
 is repaid in full.
 
 6.  Excise Duty & Cess on Stocks represents differential excise duty &
 cess on opening and closing stock of finished goods, saleable scrap and
 by-products.
 
 7.  During the year, the Company has issued and allotted 11,32,44,580
 Equity Warrants to the eligible promoters, on preferential basis. Each
 equity warrant can be converted into one equity share of Rs. 10/- each
 of the Company within a period of eighteen months from the date of
 allotment, at the option of the warrant holder. In accordance with
 applicable guidelines of Securities & Exchange Board of India, the
 price of each equity share of Rs. 10/- each, arising upon conversion of
 the equity warrant, has been determined at Rs. 44.69.
 
 The Company has received Rs. 51.98 crores towards part of the
 subscription amount payable in respect of the above equity warrants.
 
 8.  a) In terms of changes in accounting policy as disclosed in
 Schedule 22 A(2) above, the Company has adjusted foreign exchange
 differences of Rs. 519.14 crores (net), arisen during the year
 2008-2009, on long term foreign currency monetary items relating to
 acquisition of depreciable capital assets, to the carrying amount of
 the respective assets and Rs, 11.87 crores relating to other cases, to
 Foreign Currency Monetary Item Translation Difference Account,
 
 Further, the foreign exchange gains of Rs, 192.48 crores arisen on long
 term foreign currency monetary items relating to the acquisition of
 depreciable capital assets and Rs, 5,94 crores relating to other cases,
 which were reeognised in the profit and loss account during the year
 2007-08, have also been reversed and adjusted to the carrying amount of
 the respective fixed assets and Foreign Currency Monetary Item
 Translation Difference Account respectively, by adjusting the same to
 the profit and loss account debit balance as on 1st April 2008.
 Consequently, the corresponding reversal of depreciation, amortisation
 and deferred tax credit of Rs. 6.44 crores, Rs. 1.48 crores and Rs.
 64.75 crores respectively, have also been adjusted with the profit and
 loss account debit balance as on 1st April 2008.
 
 Had the Company continued to use the erstwhile policy of accounting for
 exchange differences arising on long-term foreign currency monetary
 items, the loss for the current year would have been higher by Rs.
 345.09 crores (net of depreciation, amortisation and deferred tax
 charge of Rs. 5.75 crores, Rs. 2.47 crores and Rs. 177.69 crores
 respectively) and the Profit & Loss Account Debit Balance would have
 been Rs. 2051.49 crores instead of Rs. 1832.15 crores.
 
 b) Exchange differences of Rs. 97.65 crores (Rs. Nil) to the extent
 they are regarded as an adjustment to interest costs, have been
 considered as Borrowing costs and charged to the Profit & Loss Account.
 
 9.  During the year, the instalments of term loans falling due between
 October 2008 and March 2010 amounting to Rs. 586 crores (approx.) have
 been rescheduled by the Corporate Debt Restructuring- Empowered Group
 and these loans are now repayable in 36 equal monthly instalments
 commencing from April 2010.
 
 10.  a) Exceptional items include Rs. 327.20 crores being the value of
 raw material inventory written down during the year, in line with
 
 Accounting Standard-2 Valuation of Inventories, issued by the
 Institute of Chartered Accountants of India. The Company had procured
 various inputs in line with its planned production programme. However,
 steel prices have since fallen significantly due to severe global
 economic meltdown and recessionary conditions in the steel industry.
 The value of raw material inventories have been written down to
 consider them at the net realisable value of the finished goods in
 which they will be used.
 
 b) The financial results for the current year have been adversely
 affected due to significant depreciation in the value of Indian Rupee
 against various foreign currencies owing to abnormal financial
 conditions prevailing globally. Such differences in relation to the
 operating balances / forward exchange contracts aggregating to Rs.
 321.50 crores have also been included in exceptional items.
 
 11.  In terms of Accounting Standard - 22, net deferred tax assets
 (DTA) of, Rs. 338.81 crores (Previous Year : Deferred Tax charge of Rs.
 77.04 crores) has been recognised during the year and consequently DTA
 as on March 31, 2009 stands at Rs. 950.13 crores (Rs. 546.57 crores).
 There is carried forward unabsorbed depreciation and business losses as
 at the Balance Sheet date. However, based on the future profitability
 projections, the Company is virtually certain that there would be
 sufficient taxable income in future, to claim the above tax credit.
 
 12.  Sundry Debtors include Rs. 247.73 crores (Rs. 220.94 crores)
 recoverable from Peddar Realty (P) Ltd towards sale consideration of
 landed property along with Interest thereon, which was sold in the last
 year. The management is certain about the realisation of the total
 outstanding amount.
 
 13.  Directors Remuneration aggregating to Rs. 9.71 crores for the
 year and Rs. 4.57 crores paid in earlier years to the Managing and/or
 other Whole time directors, is in excess of the limit specified under
 Section 198 of the Companies Act, 1956. The above remuneration has
 already been approved by the Remuneration Committee and Shareholders of
 the Company. The necessary approval from the Central Government for
 such excess remuneration is in the process of being obtained by the
 Company.
 
 14.  Other Income in Schedule 17 includes Rs. 285.87 crores (Rs. 318.11
 crores), being the gain arising on pre-payment of deferred Value Added
 / Sales Tax liability, in terms of Section 94(2) of Maharashtra Value
 Added Tax Act 2002 read with Rule 84 of Maharashtra Value Added Tax
 Rules 2005. Based on the computation made as per the said Scheme, the
 Company has paid Rs. 67.89 crores (Rs. 75.85 crores), equivalent to the
 net present value of the deferred Value Added / Sales Tax liability of
 Rs. 353.76 crores (Rs. 393.96 crores) payable in future years and the
 balance amount of Rs. 285.87 crores (Rs. 318.11 crores) has been taken
 to profit & loss account, being the gain accrued on such pre-payment.
 
 15.  Advances recoverable in Schedule 13 include Regulatory Liability
 Charges (RLC) amounting to Rs. 170.33 crores (Rs. 201.57 crores) due
 from Maharashtra State Electricity Distribution Company Limited
 (MSEDCL). In terms of Tariff Order dated 20th June, 2008 issued by
 Maharashtra Electricity Regulatory Commission (MERC), a sum of Rs.
 31.24 crores has, however, been received during the current year.
 
 16.  A Captive Power Plant is being installed by Ispat Energy Ltd
 (IEL), a subsidiary company. The Company has paid/ spent a total sum of
 Rs. 337.50 crores (Rs. 329.50 crores) as on the balance sheet date,
 which includes unsecured loan of Rs. 28 crores (Rs. 28 crores).  The
 management is certain about the realisation of the above amount.
 
 17.  Investments of Rs. 119.32 crores in certain wholly owned
 subsidiaries are pending approval of the monitoring committee of the
 lenders for which application has been made by the Company.
 
 18.  In terms of Accounting Standard 28 Impairment of Assets issued
 by the Institute of Chartered Accountants of India, the management has
 carried out the impairment test during the year. The carrying value of
 each cash generating unit (CGU) is lower than their respective
 recoverable value, arrived at based on their value in use and hence,
 no impairment charge has been recognised in the books of accounts. The
 value in use is computed based on the managements latest operational
 and profitability projections, which have been extrapolated till the
 remaining useful life of the respective assets. The cash flows have
 been discounted at an appropriate rate representing the weighted
 average cost of capital of the Company.
 
 19.  The management is in the process of reconciling outstanding
 balance of Rs. 1001.40 crores appearing as on the balance sheet date
 with respect to certain major suppliers of raw materials. The
 management does not expect any material impact on the financial
 statements on account of such reconciliation.
 
 20.  The company has incurred substantial losses during the year and
 the accumulated losses as on the balance sheet date aggregate to Rs.
 1832.15 crores. These losses have been incurred primarily due to the
 global economic meltdown, significant decrease in Steel prices and
 depreciation in the value of Indian Rupee against various currencies to
 which the Company is exposed.
 
 The Company had preponed the upgradation and modernisation of its Blast
 Furnace for achieving better productivity, efficiency and reducing cost
 of production. The Blast Furnace has since been re-commissioned on 6th
 May, 2009. The Corporate Debt Restructuring- empowered group has also
 approved the re-scheduling of the installments of term loans which
 would now be repaid in 36 equal monthly installments commencing from
 April, 2010. The revised business plan and profitability estimates have
 been noted by the Board of Directors at its meeting held on 11th May
 2009. These projections reflect that the Company would be in a position
 to generate positive cash flows and operational surplus in the near
 future. Further, the net worth of the company as at 31s1 March, 2009 is
 positive.
 
 Considering the strategic plans and the future profitability
 projections, these financial statements have been drawn up as per the
 going concern assumption, which is appropriate in the opinion of the
 management.
 
 21.  (a) The company has provided for losses amounting to Rs. 18.89
 crores (Rs. 31.28 crores) in respect of all outstanding derivatives
 contracts as at the balance sheet date by marking them to market in
 line with principle of prudence.
 
 (b) Derivative instruments outstanding at the year end represent the
 following:
 
 1.  Forward Cover Contracts of US$ 5,000,000 (Previous Year: Euro
 10,309,121 and USS 17,617,888) for minimizing the risk of currency
 exposure on trade receivables, USS 28,873,214 (USS 3,000,000) for
 minimizing the risk of currency exposure on trade payables and USS
 45,692,000 (USS 49,846,000) for minimizing the risk of currency
 exposure on long term loan from a bank.
 
 2.  Outstanding Principal only Swap (POS) contracts for INR /¥
 (Japanese Yen) for ¥ 1,868,631,051 at various strike price [Previous
 Year: USS / CHF (Swiss Franc) for S 30,000,000 at various strike price
 with a window knockout barrier on S 20,000,0001 together with a right
 to receive differential interest on principal amount.
 
 3.  Interest swap contract payable at LIBOR plus 5.05% Margin vis-a-vis
 predetermined fixed rate relating to loans of US $ Nil (Previous Year:
 US $ 50,000,000).
 
 4.  Outstanding options and futures purchase hedge contracts for Zinc
 is Nil (Previous Year: 100 MT).
 
 22.  Gratuity and Other post-employment benefit plans :
 
 The Company provides for gratuity and leave liabilities on the basis of
 actuarial valuation. The Company does not have any fund for Gratuity
 liability and the same is accounted for as provision.
 
 The following tables summarise the components of net benefit/expense
 recognised in the profit and loss account and balance sheet for the
 respective plans.
 
 23.  Related Party Disclosures:
 
 (a) Name of the related parties:
 
 Subsidiary Companies
 
 Nippon Ispat Singapore (Pte) Ltd. 
 Ispat Energy Ltd.  Erebus Ltd.
 Arima Holdings Ltd. (w.e.f. 7th April 2008) 
 Lakeland Securities Ltd.(w.e.f. 7th April 2008) 
 Rewa Infrastructures Pvt Ltd. (w.e.f. 8th August, 2008) 
 Ispat Jharkhand Steels Ltd. (w.e.f. 16th September, 2008)
 Associate Company
 Kalyani Mukand Limited
 Key Management Personnel and their Relatives
 Mr. M. L. Mittal (Father of Mr. Pramod Mittal and Mr. Vinod Mittal)
 Mr. Pramod Mittal
 Mr. Vinod Mittal
 Mr. Vinod Garg
 Mr. Anil Sureka
 Mr. B K Singh
 Mr. P M Balasubramanian
 Ms. Natasha Mittal (Daughter of Mr. Vinod Mittal)
 Mr. Atulya Mittal (Son of Mr. Vinod Mittal)
 Enterprises over which Key Management Personnel / Share Holders /
 Relatives have significant influence
 
 Balasore Alloys Ltd.  Global Steel Holdings Ltd.  Ispat Holdings (P)
 Ltd. # Ispat Finance Ltd. # Mudra Ispat Ltd. # Denro Holding (P) Ltd. #
 Mita Holdings (P) Ltd. # Goldline Tracom (P) Ltd. # Gontermann Peipers
 India Ltd. # Kartik.Credit (P) Ltd. # Ushaditya Investments (P) Ltd.#
 Kanoria Plastokem Pvt Ltd. # Elephanta Gases Ltd. # Geetapuram Port
 Services Ltd. # Peddar Realty (P) Ltd. # Amba River Coke Ltd. #
 Chattisgarh Energy Limited Radiant Stars International Ltd.  Shinning
 Stars Ltd.
 
 24.  Previous years figures are presented in brackets, which have been
 rearranged / regrouped wherever considered necessary.