Reliance MediaWorks

Background
 
 Adlabs Films limited (Adlabs or the Company) was incorporated in
 1987 as a private limited company and is currently a publicly listed
 company. The Company is listed on Bombay Stock Exchange limited and
 National Stock Exchange of India limited. Adlabs is primarily engaged
 in flm processing, exhibition, distribution, production and related
 services.
 
 The Board of Directors (Board) of the Company at their meeting held on
 25 October 2008 approved the scheme of delmerger of the Radio Division
 of the Company to its wholly owned subsidiary Reliance Unicom limited
 (RUl). The shareholders of the Company accorded their approval to the
 Scheme at their meeting held on 22 January 2009. The Scheme was
 approved by the Honble High Court of Judicature at Bombay vide its
 order dated 4 April 2009 and fled with the Registrar of Companies on 30
 June 2009 after the approval of the Ministry of Information and
 Broadcasting (MIB). Further, the Board of the Company approved the
 merger of its wholly owned subsidiaries Mahimna Entertainment Private
 limited (MEPl), Rave Entertainment Private limited (REPl), Adlabs
 Multiplex limited (AMl) and Adlabs Multiplex and Theatres limited
 (AMTl). The scheme was approved by the Honble High Court of
 Judicature at Bombay vide its order dated 8 May 2009 and was fled with
 the Registrar of Companies on 29 May 2009. The above schemes have been
 given effect to in the books of the Company for the year ended 31 March
 2009.
 
 1.  Demerger of the Radio Division of the Company to Reliance Unicom
 limited
 
 The Board of the Company in their meeting held on 25 October 2008
 approved a Scheme of Arrangement (the Radio Scheme) between Reliance
 Unicom limited (RUl), a wholly owned subsidiary and the Company for
 the delmerger of the Radio business (constituting the Radio Segment) of
 the Company into RUl.
 
 The shareholders of the Company accorded their approval in a court
 convened meeting of members of the Company held on 22 January 2009. The
 Scheme was approved by the Honble High Court of Judicature at Bombay
 vide its order dated 4 April 2009 and fled with the Registrar of
 Companies (ROC) on 30 June 2009, as required under Section 391(3) of
 the Act after obtaining approval from the Ministry of Information and
 Broadcasting (MIB) for vesting of radio licenses held by the Company
 in the name of RUl.
 
 As per the Scheme, the Radio business of the Company stands transferred
 to RUl with effect from 1 April 2008, the Appointed Date and has been
 given effect to on 30 June 2009, being the Effective Date and the
 accounting treatment prescribed by the Scheme has been given effect to
 in the financial statements for the year ended 31 March 2009.
 
 All the assets of and liabilities, directly allocable and as mutually
 determined by the Board of Directors of RUl and the Company, of the
 Radio business as at 1 April 2008 have been transferred at their
 respective book values. Further, general borrowings of the Company as
 on 1 April 2008 have been allocated between the Company and RUl on the
 basis of ratio of total assets of the Company immediately before giving
 effect of the Scheme. In consideration of the demerger, RUl will allot
 equity shares of Rs 5 each in the ratio of 1:1 and upon issue of shares
 as above the Companys investment in shares of RUl will stand
 cancelled.
 
 2.  Scheme for merger of wholly owned subsidiaries with the Company
 
 The Board of the Company in their meeting held on 30 January 2009
 approved the Scheme of Amalgamation (Amalgamation Scheme) of the
 Company (Transferee) with its wholly owned subsidiaries AMTl, AMl,
 MEPl and REPl (collectively referred to as the Transferor Companies).
 The Scheme was approved by the Honble High Court of Judicature at
 Bombay vide its order dated 8 May 2009 and fled with the Registrar of
 Companies (ROC) on 29 May 2009, as required under Section 391(3) of
 the Act.
 
 AMTl, AMl, MEPl and REPl are engaged in the exhibition business and has
 been included in the exhibition segment. MEPl has been included in the
 unallocated corporate segment.
 
 As per the Scheme, AMTl, AMl, MEPl and REPl amalgamate with the Company
 with effect from 1 April 2008, the Appointed Date and has been given
 effect to on 29 May 2009, being the Effective Date and the accounting
 treatment prescribed by the Scheme has been given effect to in the
 financial statements for the year ended 31 March 2009.
 
 In accordance with the requirements of the Amalgamation Scheme, the
 credit aggregating Rs. 582.62 to Capital reserve has been arrived at as
 follows:
 
 - All assets and liabilities of the transferor companies as at 1 April
 2008 which have been identified by the Board of Directors have been
 recorded at their respective fair values (as determined based on
 valuation reports from government approved valuer / management
 estimates) as on 31 March 2009. Investments in the equity shares of the
 transferor companies as appearing in the books of the Transferee
 Company as at 31 March 2009 have been cancelled. The excess of net
 assets of the transferor companies taken over at fair value (as
 determined on 31 March 2009) over the cost of investment in these
 companies, aggregating Rs 360.58 has been credited to capital reserve.
 
 - The Company has recorded a increase in the value of its assets based
 on revaluation of certain assets of the Company pertaining to the
 Exhibition and Film Services business. The total increase in value of
 assets of the Company is Rs. 1,789.01, based on revaluation reports
 obtained from government approved external valuers. The Company has
 also reduced the value of its assets by Rs. 1,566.97 (Fixed assets and
 intangible rights Rs. 398.95, Debtors Rs. 205.07, loans and advances
 including capital advances Rs. 618.85 and Investments Rs. 344.10). The
 net increase in the value of assets of the Company Rs. 222.04 has been
 credited to Capital reserve Pursuant to the provisions of the Scheme.
 
 - The authorised share capital of the transferor Companies was
 considered as authorised share capital of the transferee Company.
 Hence, the authorised share capital of the Company has been increased
 by Rs. 160.29 divided into 32,058,000 shares of Rs. 5 each.
 
 The above mentioned accounting treatment is in accordance with the
 Scheme, had the Company followed accounting treatment prescribed by AS
 – 14 “Accounting for Amalgamations” / Indian GAAP:
 
 - The excess of investments over net assets acquired for the Company
 amounting to Rs. 193.91 would have been transferred to Goodwill and
 would have been amortised over 5 years
 
 - The appreciation in the value of the Companys assets aggregating Rs
 1,789.01 would have been credited to the Revaluation Reserve instead of
 being credited to the capital reserve.
 
 - The diminution in the value of the Companys assets aggregating Rs
 1,566.97 would have been debited to the profit and loss account instead
 of capital reserve Accordingly, had the schemes as referred above been
 accounted for as per the requirements of AS – 14 “Accounting for
 Amalgamations” / Indian GAAP, the loss for the year would be higher by
 Rs. 1,605.76, capital reserve would have been lower Rs 28.12,
 revaluation reserve would have been higher by Rs 1,789.01 and balance
 of Goodwill would have been Rs. 155.13.
 
 3.  Contingent liabilities
 
         On Account of                    31 March      31 March
                                              2009          2008
 
 Dispute with excise department
 
 Disputed Central Excise demand 
 pending with the Central Excise Appellate   130.88       111.09
 Tribunal in respect of the film 
 processing division
 
 Entertainment tax
 
 In respect of a multiplex, the Company 
 has made an application for availing 
 exemption                                    39.13        28.03
 
 under the relevant Act retrospectively from 
 the date of commencement of operations
 of the said multiplex and the application 
 is pending approval
 In respect of certain multiplexes, the 
 Company is in dispute with the 
 entertainment tax                            29.34        21.94
 
 authorities regarding eligibility for 
 availing exemption under the relevant Act.
 In respect of demand orders received for 
 payment of entertainment tax collected and    6.29         5.69
 
 not paid to the authorities, the Company has made an appeal against
 said demand orders as it believes that the same is not payable, being
 exemption from payment available to it.
 
 The Company shall be liable to pay the entertainment tax in the event
 that the                                    574.75       440.44
 
 multiplexes do not continue operations for a period of 10 years from
 the respective
 dates from which they commenced their operations
 Disputed property tax                         7.40         7.40
 
 Guarantees given by the Company to a bank(s) in respect of credit
 facilities given /                         1,125.84          -
 
 sanctioned to its overseas Subsidiaries
 
 Guarantee given to a Service provider of 
 an overseas Subsidiary for indemnity of 
 losses in respect of                           3.37          -
 expenses, suits, litigation, etc
 
 Guarantees given to Ministry of Information 
 and Broadcasting for Radio licenses           230.20         -
 
 (since transferred to Reliance Unicom 
 limited pursuant to scheme of demerger
 (Refer note 1 of Schedule 22))
 
 Value Added Tax:
 
 The Maharashtra Value Added Tax Act, 2002 lists the Scheduled entry,
 interalia, “Copy right” w.e.f. 1.4.2005. Pursuant to this enactment/
 scheduled entry, the entertainment industry has made a written
 representation to the Finance Minister, Maharashtra for deletion of the
 scheduled entry from the Act. Similar representation was made by the
 industry in some other states, as a result of which the Act was
 modified to delete this scheduled entry. The Company is awaiting a
 positive response from the Ministry of Finance in respect of the
 assurance given. Accordingly, no provision (amount not currently
 ascertainable) has been made in the books of accounts.
 
 Note:
 
 The amounts are excluding penalty and interest, if any, that could be
 levied at the time of final conclusion.
 
 4.  Secured loans
 
 Cash credit is secured by pari passu first charge on the Inventories
 and Book Debts of the Company.
 
 Term loan from the banks are secured by pari passu first charge on
 fixed assets, Inventories, Book Debts and loans and Advances of the
 Company.
 
 5.  Sundry creditors
 
 Under the Micro, Small and Medium Enterprise Development Act, 2006
 which came into force from 2 October 2006, certain disclosures are
 required to be made relating to micro and small enterprises. The
 Company has taken necessary steps to seek relevant information from its
 suppliers about the coverage under the Act. According to the
 information available with the management, no amounts are outstanding
 pertaining to covered creditors for a period of more than 45 days.
 
 6.  Disclosure of Segment Reporting under AS 17
 
 As per Accounting Standard (AS) 17 on “Segment Reporting”, segment
 information has been provided in the Notes to Consolidated Financial
 Statement.
 
 7.  Disclosure of Related Party under AS 18 Parties where control
 exists Holding Company
 
 - Reliance land Private limited (Upto 30 November 2007) Subsidiary
 Companies
 
 - Adlabs Films (UK) limited
 
 - Adlabs Films USA Inc.
 
 - Adlabs Films Netherlands B.V. (with effect from 8 February 2008)
 
 - Adlabs (Mauritius) limited (with effect from 29 March 2008)
 
 - Adlabs Multiplex and Theatres limited (formerly known as Mukta Adlabs
 Digital Exhibitors limited) (Refer note 2 above)
 
 - Adlabs Distributors and Exhibitors limited
 
 - Synergy Adlabs Media limited
 
 - Adlabs Multiplex limited (formerly known as Runwal Multiplex Private
 limited) (with effect from 20 December 2007) (Refer note 2 above)
 
 - Rave Entertainment Private limited (Refer note 2 above)
 
 - Reliance Unicom limited (up to 31 March 2008) (Refer note 1 above)
 
 - Sri Ramakrishna Theatre Private limited
 
 - Rave Entertainment and Food Nepal Private limited (with effect from
 24 August 2008) Step down Subsidiary Companies
 
 - Adlabs Entertainment LLC
 
 - Adlabs Entertainment (DE) LLC
 
 - Adlabs Forum LLC
 
 - Adlabs laurel LLC
 
 - Adlabs Falls Church LLC
 
 - Adlabs Heritage LLC
 
 - Adlabs Norwalk LLC
 
 - Adlabs Galaxy LLC
 
 - Adlabs Sahil LLC
 
 - Adlabs Sar LLC
 
 - Phoenix Adlabs Theatre Management LLC
 
 - Adlabs Union LLC
 
 - Adlabs Phoenix LLC
 
 - Adlabs Exhibitions LLC
 
 - Adlabs IMC LLC
 
 - Reliance Big Entertainment Inc. (with effect from 1 September 2008)
 
 - Adlabs Digital Media USA LLC (with effect from 27 March 2009)
 
 - Big Pictures USA Inc. (with effect from 30 March 2009)
 
 - Reliance Big Entertainment Malaysia Sdn Bhd (with effect from 18
 Apri- 2008)
 
 - Reliance lotus Five Star Cinemas Sdn Bhd (with effect from 1 November
 2008) Other related parties with whom transactions have taken place
 during the period (a) Signifcant Shareholders, Key Management Personnel
 and their relatives
 
 - Manmohan Shetty (till 30 November 2007)
 
 - Pooja Shetty (till 30 November 2007)
 
 - Kirti Desai - Manager appointed under section 269 of the Companies
 Act, 1956.
 
 - Reliance land Private limited
 
 (b) Enterprises over which company has significant influence /
 Associates
 
 - HPE / Adlabs lP
 
 - Sultan Production Private limited
 
 (c) Joint Ventures
 
 - Divyashakti Marketing Private limited
 
 - Cineplex Private limited
 
 - Swanston Multiplex Cinemas Private limited
 
 - Adlabs Multiplex limited (formerly known as Runwal Multiplex Private
 limited) (up to 19 December 2007)
 
 8.  Mark to market (MTM) losses on derivative contracts
 
 The Company has assigned the derivative contracts pertaining to Options
 for FCCB and Interest rate swap for long term loans to a Company
 (Assignee), who has advised the Company regarding entering into these
 contracts. The Assignee had advised the Company with regards to
 entering into these derivative contracts and has indemnified the
 Company with regards to any mark to market losses that the Company will
 have to incur on termination of these contracts. Consequently, the
 total mark to market loss of Rs. 1,403.70 have not been recognised by
 the Company in its Profit and loss Account.
 
 For the same reason, the Company has also not recognised a liability
 for these MTM losses and amounts receivable from the Assignee Company.
 
 9.  Changes in the method of depreciation
 
 Hitherto it was the policy of the Company to charge depreciation as per
 the Written Down value method for assets pertaining to the Film
 Services, the Production and Distribution business and other
 unallocated assets as per rates specified in Schedule XIV of the
 Companies Act, 1956. Starting 1 April 2008, the Company has changed its
 policy to charge depreciation as per the Straight line method as per
 rates specified in Schedule XIV of the Companies Act, 1956. This change
 in policy has resulted in reduction in depreciation charge for the
 current period by Rs.194.35 (including Rs. 83.43 in respect of prior
 periods) as compared to the amount of depreciation that would have been
 charged had there been no change in the method of providing for
 depreciation.
 
 10.  Foreign Currency Convertible Bonds
 
 On 25 January 2006 the Company (Issuer) issued Zero Coupon Foreign
 Currency Convertible Bonds (Bonds or FCCB) aggregating Euro 84
 million. The Bonds are convertible at any time on or after 7 March 2006
 and up to the close of the business on 19 January 2011 by the holders
 of the Bonds (the Bondholders) into newly issued equity shares of the
 Company with full voting rights with par value of Rs 5 each (Shares)
 at an initial conversion price (as defined in Terms and Conditions of
 the Bonds) of Rs 543.42 per share with a fixed rate of exchange on
 conversion of Rs 54.26=EUR 1.00. Of the above bondholders holding bonds
 of value Euro 63.35 million opted for conversion in the previous period
 ended 31 March 2008. The balance bondholders holding bonds value
 aggregating to Euro 20.65 million have not opted for conversion and
 outstanding as on the balance sheet date. During the year, pursuant to
 the Scheme of Demerger (Refer Note 1 of Schedule 22) the conversion
 price is subject to adjustment, after agreement with bondholders and
 the Company. Pending finalisation of agreement, the revised conversion
 price is not yet decided. Consequently the equity shares issuable on
 conversion of FCCB have been computed based on initial conversion
 price. The Bonds are listed on the Singapore Exchange Securities
 Trading limited (SGX ST).
 
 The Bonds may be redeemed, in whole but not in part, at the option of
 the issuer at any time on or after 25 January 2009 and on or prior to
 26 January 2011 subject to satisfaction of certain conditions. Unless
 previously redeemed, converted or purchased and cancelled, the bonds
 will mature on 26 January 2011 at 121.679 per cent of the principal
 amount.
 
 11.  Translation of foreign subsidiaries
 
 The Company in the current year has classified its operations in the
 United States of America, as non-integral to the business of the
 Company in India considering the size of the operations, autonomy of
 management of the subsidiary and the local sources of funding of the
 operations. The effect of the above change on the loss of the US
 operations for the period ending 31 March 2009 is not signifcant.
 
 12.  Impairment Disclosure
 
 During the current year, the Company has impaired certain fixed assets
 pertaining to the:- Exhibition Division on the basis of determination
 of value in use of each property, which the Company considers as the
 relevant Cash Generating Unit (CGU) for the purpose of impairment
 testing. The Company has considered a discount rate of 11.68%. The
 amount of impairment loss of Rs. 55.17 has been debited to the Capital
 Reserve pursuant to Scheme of Amalgamation. (Refer note 2 of Schedule
 22)
 
 13.  Scheme and arrangement made in previous period ended 31 March 2008
 
 A. Modified Composite scheme of amalgamation and arrangement The Board
 of the Company at their meeting held 23 April 2006, approved the
 composite scheme of amalgamation and arrangement (the Scheme) between
 the Company, Entertainment One India limited (E-ONE), Mukta Adlabs
 Digital Exhibition Private limited (MADE-) and Reliance Unicom limited
 (RUl).  The shareholders of the Company accorded their approval to the
 Scheme at the Annual General Meeting on 29 July 2006.  The Scheme was
 approved by the Honble High Court of Judicature at Bombay vide its
 order dated 15 September 2006. The Scheme interlalia provided for the
 following:
 
 1 the amalgamation of E-ONE with the Company effective 1 April 2005;
 
 2 the merger of the digital business of MADE- with the Company
 effective 1 April 2005; and
 
 3 the demerger of the radio business of the Company to RUl effective 31
 March 2006.
 
 The Company had made an application to the Ministry of Information and
 Broadcasting pursuant to the Scheme for transfer of Radio licenses held
 by the Company to RUl. Pending, receipt of approval from the Ministry,
 the Company gave an inlprincipal effect of the scheme in the accounts
 for the 15 months period ended 30 June 2007 and recorded the following
 amounts in a special account “Amounts pending transfer to Securities
 Premium account and/or General reserve account as per the Scheme of
 amalgamation and arrangement”:
 
 1 The excess of net assets taken (at fair value) over the cost of
 investment in EONE amounting to Rs 27.26 was credited to Amounts
 pending transfer to the Securities premium account and/or General
 reserve account as per the Scheme of amalgamation and arrangement
 
 2 The excess of liabilities over the assets taken over (at book value)
 amounting to Rs 4.47 was debited to Amounts pending transfer to the
 Securities premium account and/or General reserve account as per the
 Scheme of amalgamation and arrangement.
 
 3 An amount of Rs. 796.54 was debited to Amounts pending transfer to
 the Securities premium account and/or General reserve account as per
 the Scheme of amalgamation and arrangement for excess net assets
 transferred to RUl.
 
 4 Pursuant to provisions of the scheme, the Company recorded a
 reduction in the value of the Companys assets of Rs.
 
 205.03 and has debited the amount to Amounts pending transfer to the
 Securities premium account and/or General reserve account as per the
 Scheme of amalgamation and arrangement
 
 Subsequently, during the period ended 31 March 2008 the Board of the
 Company modified the aforesaid Scheme vide circular mode pursuant to
 Section 289 of the Companies Act, 1956 on 13 February 2008. The modified
 composite scheme of amalgamation and arrangement (the modified Scheme)
 between the Company, E-ONE and MADE- was approved by the Honble High
 Court of Judicature at Bombay vide its order dated 7 March 2008 and was
 fled with the ROC as required under Section 391(3) of the Companies
 Act, 1956 (the Act) on 31 March 2008. The modified scheme was
 substantively similar to the original scheme with respect to merger of
 E-ONE and MADE- and provided for adjustment of results of the Radio
 Division from 1 April 2006 upto the effective date of the modified
 scheme (31 March 2008) to be adjusted against the general reserves of
 the Company.  Pursuant to the modified scheme, the Company made the
 following adjustments to its reserves
 
 1 Rs. 4.47 pertaining to merger of the digital business of MADE- was
 transferred to Securities premium account
 
 2 Rs. 205.03 pertaining to reduction in the value of Companys assets
 was transferred to Securities premium account
 
 3 Rs. 796.54 which was earlier debited to Amounts pending transfer to
 the Securities premium account and/or General reserve account as per
 the Scheme of amalgamation and arrangement was reversed pursuant to
 the provisions of the modified scheme and results of the Radio Division
 for the period 1 April 2006 to 31 March 2008 of Rs. 1,436.33 (net of
 tax beneft of Rs. 190.76) were debited to the General reserve.
 
 4 Rs. 27.26 pertaining to merger of E-ONE was transferred to general
 reserve.
 
 B.  Acquisition of Rave Entertainment Private limited (REP-)
 
 On 31 May 2007, the Company entered into a Share Purchase Agreement
 (SPA) with the shareholders of Rave Entertainment Private limited
 (REPl), a company engaged interlalia in the business of owning and
 operating multiplexes, for acquisition of 100% stake in that company.
 One of the conditions precedent to the SPA was the approval by the
 Honble High Court of Judicature at Allahabad of the Scheme of demerger
 fled by REPl for demerger of Kanpur properties. Pending approval of the
 scheme of demerger by the said Court, the shares of REPl were held in
 Escrow. On 12 December 2007, the Honble High Court of Judicature at
 Allahabad approved the said scheme of demerger. Consequently, REPl is
 now a wholly owned subsidiary of the Company and the amounts placed in
 Escrow and those disclosed under loans and advances have been adjusted
 as per the terms of the SPA.
 
 C.  Acquisition of Katch 22 Entertainment Private limited (Katch 22)
 
 On 23 April 2007, the Company acquired 100% stake in Katch 22, a
 company engaged in the production and distribution of flms.
 Subsequently, pursuant to the board of directors approval vide
 resolution dated 26 April 2007, the Company had fled the Scheme of
 amalgamation of Katch 22 (the Katch 22 Scheme) with the Honble High
 Court of Judicature at Bombay for the merger of Katch 22 with the
 Company effective 1 April 2006. The Katch 22 Scheme was approved by the
 Honble High Court of Judicature at Bombay vide its order dated 14
 September 2007 and fled with the ROC on 9 October 2007. The Katch 22
 Scheme interlalia provides for the amalgamation of Katch 22
 Entertainment Private limited with the Company effective 1 April 2006.
 
 1 The excess of net assets taken over at fair value (as determined on
 the effective date i.e. 9 October 2007) over the cost of investment in
 Katch 22 amounting to Rs. 20.18 has been credited to General Reserve
 Account.
 
 2 The Company has also recorded the reduction of Rs 200 in the value of
 its assets (debtors, unamortised rights and loans and advances) by
 debit to General Reserve account as per the provisions of the Katch
 22 Scheme.
 
 14.  Prior year comparatives
 
 The fgures for the previous period are strictly not comparable to those
 of the current year, which comprises 12 months and the effect of the
 scheme of delmerger of the Radio Division and amalgamation of
 subsidiaries (Refer notes 1 and 2) and have been regrouped rearranged
 as necessary to conform to current years presentation.