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Notes to Accounts of Kennametal India Ltd.

Jun 30, 2015

1. GENERAL INFORMATION

Kennametal India Limited ("the Company") incorporated under The Companies Act, 1956, is in the business of manufacturing and trading of hard metal products and machine tools. The Company has its registered office and manufacturing facility at Bangalore and sells its products and services through sales and support offices. The Company is a public limited company listed on the Bombay Stock Exchange (BSE).

2. Rights, preferences and restrictions attached to shares

The Company has only one class of equity shares having a par value of Rs. 10 per share. Each shareholder is eligible for one vote per share held.The dividend proposed by the Board of Directors is subject to approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, if any, in proportion to their shareholding.

3. DEFERRED TAX ASSETS (NET)

The major components of Deferred Tax assets and liabilities arising on account of timing difference are as follows:

4. CAPITALAND OTHER COMMITMENTS:

Capital Commitments (net of advances) Rs 1005 (2014: Rs 263)

5. CONTINGENT LIABILITIES

Nature of Contingent Liability 2015 2014

Income Tax matters [Note (a)] 2804 2294

Excise Duty/ Service Tax matters under dispute 101 101

Sales Tax matters under dispute [Note (b)] 65 65

6. Notes:

a) Mainly relates to transfer pricing adjustments made by the Income Tax Department for the tax assessment years 2008-09, 2009-10, 2010-11 and 2011-12, which is disputed by the Company and the matter is lying under appeal with The Income Tax Appellate Tribunal, Bangalore/ The Commissioner of Income Tax, (Appeals), Bangalore. The Company has paid "under protest" an aggregate of Rs 2271 (2014: Rs 1774) to the Income Tax Department in this regard.

b) There are certain non-quantifiable disputes pending before labour tribunal/ court under labour laws.

c) Considering the very nature of the above contingent liabilities, the estimate/ timing of cash outflow, if any, is not readily ascertainable.

7. EMPLOYEE BENEFITS

a) The Company operates defined benefit plans in the nature of post-employment gratuity, which is funded, and in the nature of post retirement provident fund (which is managed by a Trust set up by the Company) where interest shortfall, if any, is met by the Company. The disclosure as per AS-15 "Employee Benefits".

8. The Provident Fund expense other than contribution is not recognised in Statement of Profit and Loss as the Fair Value of Plan Assets exceeds the PresentValue of Obligation.

9. The Guidance Note on implementation of AS I5 Employee Benefits" issued by the Institute of Chartered Accountants of India states that Provident Fund set up by employers that guarantee a specified rate of return and which require interest shortfall to be met by employer would be a defined benefit plan in accordance with the requirements of para (26b) of AS I5. Pursuant to the Guidance Note, during the year, the liability in respect of the shortfall of interest earned by the Fund is determined on the basis of actuarial valuation carried out as at June 30, 2015 is Rs Nil (2014:Rs Nil).

i) The discount rate is based on the prevailing market yield on Government securities as at the balance sheet date for the estimated term of obligation.

ii) The expected return on plan assets is determined considering several applicable factors mainly the composition of plan assets held, assessed risk of asset management, historical results of the return on plan assets, and the Company's policy for plan asset management.

iii) The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market.

10. segment reporting.

The Company is in the business of manufacturing and trading of hard metal products and machine tools, which have been identified as separate business segments, for primary segment reporting as envisaged in AS 17 "Segment Reporting". The Company's products are sold in the domestic and export markets, which have been identified as geographic segments for secondary segment reporting.

11. Secondary Segment Reporting

Secondary segment disclosures are based on geographical location of customers, which includes the domestic market (India), Europe (comprising Germany), USA and Rest of the World.

12. Operating Leases:

The Company has operating leases for premises, motor vehicles and office facilities. These lease arrangements range for a period between eleven months and five years, which include both cancellable and non-cancellable leases. Non-canceilable lease arrangements are up to a period of 36 months. Cancellable leases are generally with options of renewal against increased rent and premature termination of agreement through notice period of I to 3 months.

A) Names of related parties and description of relationship:

a) Parties where control exists:

(i) Ultimate holding company Kennametal Inc, USA

(ii) Intermediate holding companies Kennametal Widia GmbH Co. KG, Germany

Kennametal Holding GmbH, Germany Kennametal Europe GmbH, Switzerland

Kennametal Luxembourg Holding S.A.R.L

Kennametal Holdings , LLC, Luxembourg S.C.S

Kennametal Holdings Europe Inc,USA

(iii) Immediate holding company Meturit A.G. Zug, Switzerland

b) Parties under common control with whom transactions have taken place during the year:

Fellow Subsidiaries Kennametal Australia Pty Ltd, Australia

Kennametal Produktions GmbH & Co. KG, Germany

Kennametal Ltd., Canada

Kennametal (Baotou) Co. Ltd, China

Kennametal Widia Produktions GmbH & Co. KG, Germany

Kennametal (Singapore) Pte. Ltd., Singapore

Kennametal Korea Ltd., Korea

Kennametal Japan Ltd., Japan

Kennametal South Africa (Proprietary) Ltd., South Africa

Kennametal (Thailand) Co., Ltd., Thailand

Kennametal Do Brasil LTDA, Brazil

Kennametal Hard Point (Shanghai) Co. Ltd., China

Kennametal Distribution Services Asia Pte. Ltd., Singapore

Kennametal Shared Services Pvt Ltd., India

Kennametal (China) Co Ltd., China

Hanita Metal Works Ltd. (P), Israel

Kennametal Shared Services GmbH, Germany

Kennametal Extrude Hone Corporation, USA

Kennametal Extrude Hone Ltd., England

Extrude Hone Shanghai Co. Ltd., China

Kennametal (Xuzhou) Company Ltd., China

Kennametal Stellram SARL, Italy

Kennametal Stellite GmbH, Germany

Kennametal Stellite India Pvt. Ltd., India

c) Key Management Personnel: Managing Directors Bhagya Chandra Rao Santanoo Medhi (upto September 17, 2012)

Notes;

i) The above information has been determined to the extent such parties have been identified on the basis of information available with the Company.

ii) The above does not include related party transactions with retiral funds, as management personnel of the Company who are trustees of funds cannot individually exercise significant influence on the retiral funds transactions.

13. In accordance with AS 29 on "Provisions, Contingent Liabilities and Contingent Assets'', the disclosure with respect to certain classes of provisions are as under;

Notes:

a) The Company sets up and maintains provisions for trade and other demands when a reasonable estimate can be made. These provisions are made based on estimates made by the management that are reviewed annually. These matters involve settlements not exceeding a period of two to three years in most cases.

b) Relates to provision toward disputed taxes and duties. Considering the very nature of such disputes, the timing/ uncertainties of cash outflow is not readily ascertainable.

c) Addition and utilisation is shown at gross as against net in the prior year. Figures in brackets relate to prior year.

14. Remittance in foreign currency during the year on account of dividends to non-resident shareholders:

In accordance with the Institute of Chartered Accountants of India announcement dated March 28, 2008 on 'Accounting for Derivatives' the Company has accounted for mark-to-market losses on forward contracts taken on firm commitments.

15. The Company does not have a scheme for grant of stock options either to the Executive Directors or employees for the shares issued in India. However, the Managing Director and certain senior management employees of the Company are granted stock options in a share based compensation plan of Kennametal Inc. USA, the ultimate holding company.These plans are assessed, managed and administered by the ultimate holding company and no cross charges/ debits have been made on the Company.Accordingly, disclosures as envisaged in the Guidance Note on Accounting for Employee Share Based Payments issued by Institute of Chartered Accountants of India is not applicable.

16. Prior year's figures have been reclassified/ regrouped, wherever necessary.


Jun 30, 2014

1. CONTINGENT LIABILITIES

Nature of Contingent Liability 2014 2013

Income Tax matters [Note (a)] 2294 1763

Excise Duty/ Service Tax matters under dispute 101 111

Sales Tax matters under dispute 65 86

Notes:

a) Mainly relates to transfer pricing adjustments made by the Income Tax Department for the tax assessment years 2007-08, 2008-09, 2009-10 and 2010-11, which is disputed by the Company and the matter is lying under appeal with The Income Tax Appellate Tribunal, Bangalore/ The Commissioner of Income Tax, Appeals, Bangalore. The Company has paid "under protest" an aggregate of Rs. 1774 (2013: Rs.1489) to the Income Tax Department in this regard.

b) There are certain non-quantifable industrial disputes pending before various judicial authorities.

c) Considering the very nature of the above contingent liabilities, the estimate/ timing of cash outflow, if any, is not readily ascertainable.

Note: The above excludes reimbursement of expenses from related parties Rs. 140 (2013: Rs.117)

Note: The above disclosure is based on requirements stipulated by the Department of Scientifc & Industrial Research (DSIR), Ministry of Science and Technology, Government of India.

* Amount is below the rounding of norm adopted by the Company.

Note: The information has been given in respect of such suppliers to the extent they could be identifed as "Micro" or "Small" enterprises on the basis of information available with the Company.

2. EMPLOYEE BENEFITS

a) The Company operates Defined benefit plans in the nature of post-employment gratuity, which is funded, and in the nature of post retirement provident fund (which is managed by a Trust set up by the Company) where interest shortfall, if any, is met by the Company. The disclosure as per AS-15 "Employee benefits" is given below

* The Provident Fund expense other than contribution is not recognised in Statement of Profit and Loss as the Fair Value of Plan Assets exceeds the Present Value of Obligation.

(All amounts in Rs. Lakhs unless otherwise stated) *The Guidance Note on implementation of AS 15 -" Employee benefits" issued by the Institute of Chartered Accountants of India states that Provident Fund set up by employers that guwarantee a specifed rate of return and which require interest shortfall to be met by employer would be a Defined benefit plan in accordance with the requirements of para(26b) of AS 15. Pursuant to the Guidance Note,during the year the liability in respect of the shortfall of interest earning by the Fund if any is determined on the basis of actuarial valuation carried out as at June 30th, 2014 and ascertained to be Nil (2013:Nil).

i) The discount rate is based on the prevailing market yield on Government securities as at the balance sheet date for the estimated term of obligations.

ii) The expected return on plan assets is determined considering several applicable factors mainly the composition of plan assets held, assessed risk of asset management, historical results of the return on plan assets, and the company''s policy for plan asset management.

iii) The estimates of future salary increases, considered in actuarial valuation, take account of infation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market.

b) The Company has recognised in the Statement of Profit and Loss for the year ended June 30, 2014 an amount of Rs. 410 (2013: Rs. 408) as follows:

3. SEGMENT REPORTING

The Company is in the business of manufacturing and trading of hard metal and hard metal products, and machine tools, which have been identifed as separate business segments, for primary segment reporting as envisaged in AS 17 "Segment Reporting". The Company''s products are sold in the domestic and export markets, which have been identifed as geographic segments for secondary segment reporting.

B. Secondary Segmental Reporting

Secondary segment disclosures are based on geographical location of customers, which includes the domestic market (India), Europe (comprising Germany), USA and Rest of the World.

4. Accounting and disclosure for leases has been made in accordance with the AS 19 as follows:

Operating Lease:

The Company has operating leases for premises, motor vehicles and offce facilities. These lease arrangements range for a period between 9 months and 5 years, which include both cancellable and non-cancellable leases. Cancellable leases are generally with options of renewal against increased rent and premature termination of agreement through notice period of 1 to 3 months.

B) Names of related parties and description of relationship:

a) Parties where control exists:

(i) Ultimate Holding Company Kennametal Inc, USA

(ii) Enterprises holding, directly Kennametal Widia GmbH Co. KG, or indirectly, substantial interest in Meturit A.G. Zug Germany(Formerly Widia GmbH, Germany) Kennametal Holding GmbH, Germany Kennametal Europe GmbH, Switzerland (iii) Immediate holding company Meturit A.G. Zug, Switzerland

b) Parties under common control with whom transactions have taken place during the year:

Fellow Subsidiaries Kennametal Australia Pty Ltd, Australia

Kennametal Produktions GmbH & Co. KG, Germany

Kennametal Widia Produktions GmbH & Co. KG,

Germany

Kennametal (Singapore) PTE. Ltd., Singapore

Kennametal Korea Co., Ltd., Korea

Kennametal Japan Ltd., Japan

Kennametal South Africa (Pty) Ltd., South Africa

Kennametal (Thailand) Co., Ltd., Thailand

Kennametal Do Brasil LTDA, Brazil

Kennametal Hard Point (Shanghai) Ltd., China

Kennametal Distribution Services Asia PTE. Ltd., Singapore

Kennametal Shared Services Pvt Ltd., India

Kennametal (China) Co Ltd., China

Hanita Metal Works Ltd. (P), Israel

Kennametal Shared Services, GmbH, Germany

Kennametal Extrude Hone Corporation, USA

Kennametal Extrude Hone Ltd., England

Kennametal Extrude Hone Ltd, Ireland

Kennametal Extrude Hone GmbH, Germany

Extrude Hone Shangai Co. Ltd., China

Kennametal (Xuzhou) Co. Ltd., China

Kennametal (Malaysia) Sdn. Bhd., Malaysia

Kennametal Logistics GmbH, Germany

Kennametal Stellram, USA

Kennametal Stellram SARL, Switzerland

Kennametal Stellite GmbH, Germany

Kennametal Stellite India P. Ltd., India

c) Key Management Personnel: Managing Directors Bhagya Chandra Rao Santanoo Medhi (upto September 17, 2012)

Notes:

i) The above information has been determined to the extent such parties have been identifed on the basis of information available with the Company.

ii) The above does not include related party transactions with retiral funds, as management personnel of the Company who are trustees of funds cannot individually exercise signifcant infuence on the retiral funds transactions.

Notes:

a) The Company sets up and maintains provisions for trade and other demands when a reasonable estimate can be made. These provisions are made based on estimates made by the management that are reviewed annually. These matters involve quick settlements not exceeding a period of two to three years in most cases.

b) Relates to provision toward disputed taxes and duties. Considering the very nature of such disputes, the timing/ uncertainties of cash outflow is not readily ascertainable.

c) Figures in brackets relate to prior year.

5. The Company does not have a scheme for grant of its stock options either to the Executive Directors or employees for the shares issued in India. However, the Managing Director and certain senior management employees of the Company are granted stock options in a share based compensation plan of Kennametal Inc. USA, the ultimate holding company.

These plans are assessed, managed and administered by the ultimate holding company and no cross charges/ debits have been made on the Company.


Jun 30, 2013

1. GENERAL INFORMATION

Kennametal India Limited ("the Company") is incorporated under The Companies Act 1956. The Company is in the business of manufacturing and trading of hard metal and hard metal products, and machine tools. The Company has its registered offce and a manufacturing facility at Bangalore and sells its products and services through sales and support offces. The Company is a public limited company listed on the Bombay Stock Exchange (BSE).

2. CAPITAL AND OTHER COMMITMENTS: Capital Commitments (net of advances) Rs. 186 (2012: Rs. 905)

3. Accounting and disclosure for leases has been made in accordance with the Accounting Standard 19 as follows:

Operating Lease: Company as Lessee:

The Company has various operating leases for motor vehicles, offce facilities, residential premises for employees, etc. Such leases are generally with options of renewal against increased rent and premature termination of agreement through notice period of 1 to 3 months. The particulars of these leases are as follows:

4. The Company has paid remuneration to its Managing Director in excess of limits stipulated under Schedule XIII of the Companies Act 1956. The excess remuneration of Rs. 30 has been approved by the Remuneration Committee and is proposed to be approved by the shareholders in the ensuing Annual General Meeting. The excess remuneration has been disclosed as Advance to Managing Director in note 18 above

5. In accordance with Accounting Standard 29 on "Provisions, Contingent Liabilities and Contingent Assets" the disclosure with respect to certain classes of provisions are as under:

6. The Company does not have a scheme for grant of its stock options either to the Executive Directors or employees for the shares issued in India. However, the Managing Director and certain senior management employees of the Company are granted stock options in a share based compensation plan of Kennametal Inc. USA, the ultimate holding company.

These plans are assessed, managed and administered by the ultimate holding company and no cross charges/ debits have been made on the Company.

7. Previous year''s fgures have been reclassifed / regrouped, wherever necessary


Jun 30, 2012

Notes:

1. The Cash Flow Statement has been compiled from and is based on the Balance Sheet as at June 30,2012and the related Statement of Profit and Loss for the year ended on that date.

2. The Cash Flow Statement has been prepared under the indirect method as set out in the Accounting Standard 3 on Cash flow Statement as notified under Section 211(3C) of the Companies Act, 1956 and reallocation required forthis purpose are as made by the Company.

* Current Investments in debt based Mutual Funds are readily convertible into cash and having insignificant risk of changes of value have been included in Cash and Cash Equivalents

4. Figuresin bracket indicate cash outgo, except foradjustments for operating activities.

5. Previous year's figures have been reclassified / regrouped, wherever necessary.

1. GENERAL INFORMATION

Kennametal India Limited ("the Company") is incorporated under The Companies Act 1956. The Company is in the business of manufacturing and trading of hard metal and hard metal products, and machine tools. The Company has its registered office and a manufacturing facility at Bangalore and sells its products and services through sales and support offices. The Company is a public limited company listed on the Bombay Stock Exchange (BSE).

(a) Rights, preferences and restrictions attached to shares

The Company has only one class of equity shares having a par value of Rs.10 per share. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, if any, in pro portion to their shareholding.

2. CAPITAL AND OTHER COMMITMENTS:

2.1 Capital Commitments (net of advances) Rs.905 (2011: Rs.2100)

3. CONTINGENT LIABILITIES

Nature of Contingent Liability 2012 2011

Income Tax matters [Note (a)] 1259 654

Excise Duty /Service Tax matters under dispute 93 70

Sales Tax matters under dispute 48 24

Notes:

a) Relates to transfer pricing adjustments made by the Income Tax Department for the assessment years 2007-08 and 2008-09 which is disputed by the Company and the matter is lying under appeal with The Income Tax Appellate Tribunal, Bangalore, and The Commissioner of Income Tax, Appeals, Bangalore respectively. The Company has paid "under protest" Rs.1237 (2011: Nil) to the Income Tax Department in this regard.

b)Thereare certain non-quantifi able industrial disputes pending before various judicial authorities.

Note: The above disclosure of tangible fixed assets categories is based on Department of Scientific & Industrial Research (DSIR), Ministry of Science and Technology, Government of India requirements.

* The Guidance Note on implementation of AS15 " Employee Benefits" issued by the Institute of Chartered Accountants of India states that Provident Fund set up by employers that guarantee a specified rate of return and which require interest shortfall to be met by employer would be a Defined Benefit plan in accordance with the requirements of para (26b) of AS15. Pursuant to the Guidance Note, the liability in respect of the shortfall of interest determined on the basis of an independent actuarial valuation [carried out as per the Guidance Note (GN29) issued by Institute of Actuaries of India effective fromApril 1,2011], as at June30,2012is Nil.

i) The discount rate is based on the prevailing market yield on Government securities as at the balance sheet date for the estimated term of obligations.

ii) The expected return on plan assets is determined considering several applicable factors mainly the composition of plan assets held, assessed risk of asset management, historical results of the return on plan assets, and the company's policy for plan asset management.

iii) The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market.

4. SEGMENT REPORTING

The Company is in the business of manufacturing and trading of hard metal and hard metal products, and machine tools, which have been identified as business segment, for primary segment reporting. The Company's products are sold in domestic and export markets, which have been identified as geographicsegmentsforsecondary segment reporting.

Note: Revenue from export sales is below threshold set out in Accounting Standard 17 "Segment Reporting" and accordingly, disclosure of revenue by geographical location of the customer and carrying amount of segment assets by geographical location is notapplicable.

5. Accounting and disclosure for leases has been made in accordance with the Accounting Standard 19 as follows:

Operating Lease:

I) Company as Lessee:

The Company has various operating leases for motor vehicles, office facilities, residential premises for employees, etc. Such leases are generally with options of renewal against increased rent and premature termination of agreement through notice period of 1 to 3 months. The particulars of these leases are as follows:

Notes:

a) The Company sets up and maintains provisions for trade and other demands when a reasonable estimate can be made. These provisions are made based on estimates made by the management that are reviewed annually. These matters involve quick settlements not exceeding a period of two to three years in most cases.

b) Relates to provision toward disputed taxes. Considering the very nature of such disputes, the timing/ uncertainties of cash outflow is not readily ascertainable.

c) Figures in brackets relate to prioryear.

6. The Company does not have a scheme for grant of its stock options either to the Executive Directors or employees for the shares issued in India. However, the Managing Director and certain senior management employees of the Company are granted stock options in a share based compensation plan of Kennametal Inc. USA, the ultimate holding company.

These plans are assessed, managed and administered by the ultimate holding company and no cross charges/ debits have been made on the Company.

7. The financial statements for the year ended June 30, 2011 had been prepared as per the then applicable, pre revised Schedule VI to the Companies Act, 1956. Consequent to the notification of Revised Schedule VI under the Companies Act, 1956, the financial statements for the year ended June 30, 2012 are prepared as per Revised Schedule VI. Accordingly, the previous year figures have also been reclassified to conform to this year's classification. The adoption of Revised Schedule VI for previous year figures does not impact recognition and measurement princi pies followed fo r pre paration of fi nancial statements.


Jun 30, 2011

1. Commitments

Capital Commitments (net of advances) Rs. 210,020 (2010: Rs. 30,442)

2. Contingent Liabilities

Nature of Contingent Liability (Claims against Company not 2011 2010 Acknowledged as Debts)

Income Tax 65,392 -

Excise Duty / Service Tax 7,021 2,319

Sales Tax 2,428 157

Total 74,841 2,476

Note: There are certain non-quantifiable industrial disputes pending before various judicial authorities.

3. Segment Reporting

The Company is manufacturing

(i) Hard metal and hard metal products and

(ii) Machine Tools

for the domestic and export markets. Accordingly, the primary segmental reporting is based on the products manufactured while the secondary segmental reporting is restricted to the domestic sales and exports.

4. Accounting for Lease has been made in accordance with the Accounting Standard - 19 notified under section 211 (3C) of the Companies Act, 1956 and the relevant provisions of the Companies Act 1956.

B) Names of related parties and description of relationship: a) Parties where control exists:

(i) Holding Company Meturit A.G. Zug, Switzerland

(ii) Ultimate Holding Company Kennametal Inc, USA

(iii) Enterprises holding, directly or indirectly, substantial interest in Meturit A.G. Zug

Kennametal Widia GmbH Co. KG, Germany * (Formerly Widia GmbH, Germany) Kennametal Europe Holding GmbH, Germany * Kennametal Hertel Europe Holding GmbH, Germany* Kennametal Holding GmbH, Germany * Kennametal Europe GmbH , Germany Kennametal Europe L.P., Bermuda * Kennametal Holdings Europe Inc, USA * Kennametal Widia Produktions GmbH & Co. KG*

b) Parties under common control with whom transactions have taken place during the year:

Fellow Subsidiaries

Kennametal Australia Pty Ltd

Kennametal Produktions GmbH & Co. KG

Kennametal (Singapore) Pte. Ltd.

Kennametal Korea Co., Ltd.

Kennametal Japan Ltd.

Kennametal Ltd.

Kennametal South Africa (Pty) Ltd.

Kennametal Engineered Products B.V.

Kennametal (Thailand) Co., Ltd.*

Kennametal (Malaysia) SDN. Bhd.

Kennametal DO Brasil LTDA

Kennametal Hard Point (Shanghai) Ltd

Kmt Distribution Services Asia Pte. Ltd.,

Kennametal Shared Services Pvt Ltd. (KSSPL)

Kennametal (China) Co Ltd

Kennametal AMSG GmbH

Hanita Metal Works Ltd.

Kennametal Shared Services GmbH

Hanita-1 P G*

Kennametal Extrude Hone Corporation

c) Key Management Personnel Santanoo Medhi - Managing Director

* No transaction during the year

Note: The above information has been determined to the extent such parties have been identified on the basis of information provided by the company. The above does not include related party transactions witli retiral funds, as management personnel who are trustees of funds cannot individually exercise significant influence on the retiral funds transactions.

5. Company does not have a scheme for grant of its Stock options either to the Executive Directors or Employees for the shares issued in India. However the Managing Director and certain senior management employees of the company are granted stock options in a share based compensation plan of Kennametal Inc., the ultimate holding company.

These plans are assessed, managed and administered by the ultimate holding company and no cross charges/debits have been made on the company.

6. The company had obtained licenses under the EPCG scheme for importing capital goods at a concessional rate of custom duty. The scheme required the company to manufacture and export goods equivalent to eight times the duty saved within a period of 8 years from the date of respective Licenses. During the previous year, after evaluating various options, the company was of the opinion that it will not be able to meet the said export obligation within the stipulated time period and decided to close the pending licenses on payment of duty saved and interest.

Accordingly during the year the company has paid duty saved amount of Rs. 57,313 [Customs duty Rs. 22,072 and Counter Vailing Duty of Rs. 35,241] and interest of Rs. 47,585 and discharged all the pending export obligation. Such Customs Duty paid is capitalized and Cenvat Credit availed on the Counter Vailing Duty. Interest to the extent of Rs. 45,241 was provided during previous year and the balance of Rs. 2,344 charged during the year.

7. During the year, Company has changed the rate of Depreciation charged on Computers, forming part of Data Processing Equipments under Plant and Machinery, from 20% to 33.33% with retrospective effect, resulting in additional depreciation charge for the year by Rs. 4,122 and decrease in the profit for the year to the same extent.

8. Previous year's figures have been reclassified / regrouped, wherever necessary.


Jun 30, 2010

1. Commitments

There exists Capital Commitments (net of advances) Rs.30,442 (2009: Rs. 43,381)

2. Contingent Liabilities

(a)

Nature of Contingent Liability 2010 2009

Excise Duty 2,319 20,684

Sales Tax (Includes differential tax liability on account of

pending declaration forms) 53,415 60,557

Total 55,734 81,241

(b) The company has obtained licenses under the EPCG scheme for importing capital goods at a concessional rate of custom duty. The scheme requires the Company to manufacture and export goods equivalent to eight times the duty saved within a period of 8 years from the date of respective Licenses.

Accordingly the Company is required to manufacture and export the committed licensed products and fulfill the export obligation of Rs 762,142 (2009: Rs.1,295,600) to be met over a period ending in 2013, based on block periods. In case of non-fulfillment of export obligation the Company is liable to pay total duty saved of Rs.45,501 (2009: Rs.58,268) [(Customs duty Rs.17,413 (2009: Rs.22,575) and Counter Vailing duty of Rs.28,088 (2009: Rs. 35,693)] and interest . Such Customs duty paid will be capitalized and Cenvat credit will be availed on the Counter Vailing duty.

Company during the year, after evaluating various options, is of the opinion that it will not be able to meet the said export obligation within the stipulated time period and has decided to close the licenses on payment of duty saved and interest. Accordingly interest of Rs 45,241 (2009: Rs.Nil) has been provided during the year.

Note: There are certain non-quantifiable industrial disputes pending before various judicial authorities.

Notes:

(i) The capacities specified under ‘Licensed Capacity’ are the capacities as per the carry on business licenses, registration letters and industrial licenses, issued under the Industries (Development and Regulation) Act 1951. However, licensing of products of the Company has since been discontinued.

(ii) The Installed Capacity has been certified by the Company’s management and relied upon by the Auditors, this being a technical matter.

(iii) Production has been arrived at on the basis of opening stock plus purchases less sales and closing stock after adjustment towards shortage/excess, write off, etc.

(iv) Figures in brackets relate to previous year.

a) Note: Figures in brackets relate to previous year

b) Includes Trial and Development related materials consumption amounting to Rs.24,467 (2009:Rs.29,105) included under miscellaneous expenses [Refer Schedule 14]

Note:

a. The value of raw material consumed (Note 5) and stores and spare parts consumed (Note 6) has been arrived at on the basis of opening stock plus purchases less closing stock.

b. Consumption therefore includes adjustment for shortage/ excess, write-off/(back) and provision for old/ damaged/ obsolete inventory of Rs. (3,367) (2009: Rs. 12,409)

Note:

a. Excludes provision for leave encashment and gratuity.

b. Includes remuneration of

Mr. Dinakar A for the period July 1, 2009 to September 4, 2009 as Managing Director.Mr. Sarathy D for the period September 5, 2009 to April 23, 2010 as Manager u/s 2(24)of the Companies Act, 1956. Mr. Santanoo Medhi for the period April 24, 2010 to June 30, 2010 as Managing Director

c. Mr. Santanoo Medhi was appointed as Managing Director on April 24, 2010 and the Company has applied for approval from the Central Government as per Part 1(e) of Schedule XIII of the Companies Act, 1956 and the approval is awaited. The above said appointment is subject to approval from the Shareholders in the ensuing annual general meeting.

Note: The information has been given in respect of such suppliers to the extent they could be identifed as “Micro and Small” enterprises on the basis of information available with the Company and this has been relied upon by the auditors.

Note: Units sold includes units cumulated upto the date of sale.

3. Employee Benefits

i) The Company has recognised, in the profit and loss account for the year ended June 30, 2010 an amount of Rs. 23,433 (2009: Rs. 23,426) expenses under defined contribution plans

The Companys Provident Fund is exempted under Section 17 of Employees Provident Fund Act, 1952. Conditions for grant of exemption stipulates that the employer shall make good deficiency, if any, in the interest rate declared by Trust over statutory limit. Having regard to the assets of the Fund and the return on the investments, the Company does not expect any deficiency in the foreseeable future.

i) The discount rate is based on the prevailing market yield on Government securities as at the balance sheet date for the estimated term of obligations.

ii) The expected return on plan assets is determined considering several applicable factors mainly the composition of plan assets held, assessed risk of asset management, historical results of the return on plan assets, and the Companys policy for plan asset management.

iii) The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market.

4. Segment Reporting

The Company is manufacturing

(i) Hard metal and hard metal products and

(ii) Machine Tools

for the domestic and export markets. Accordingly, the primary segmental reporting is based on the products manufactured while the secondary segmental reporting is restricted to the domestic sales and exports.

5. Taxation

i. Transfer Pricing

For the year ended March 31, 2010 the Company is in the process of complying with the Transfer Pricing regulations.

ii. Accounting for taxes on income disclosure as per AS-22.

Major components of Deferred Tax Assets and Liabilities on account of timing difference as at June 30, 2010 are:

6. Accounting for Lease has been made in accordance with the Accounting Standard – 19 notified under section 211(3C) of the Companies Act, 1956 and the relevant provisions of the Companies Act 1956.

Operating Lease:

The Company has various operating leases for motor vehicles, equipments, office facilities, residential premises for employees etc. Such leases are generally with options of renewal against increased rent and premature termination of agreement through notice period of 1 to 3 months. The particulars of these leases are as follows:

B) Names of related parties and description of relationship:

a) Parties where control exists:

(i) Holding Company Meturit A.G. Zug, Switzerland

(ii) Ultimate Holding Company Kennametal Inc, USA

(iii) Enterprises holding, directly or indirectly, Kennametal Widia GmbH Co. KG, Germany * substantial interest in Metruit A.G. Zug (Formerly Widia GmbH, Germany)

Kennametal Europe Holding GmbH, Germany * (Formerly Widia Holding GmbH, Germany) Kennametal Hertel Europe Holding GmbH, Germany Kennametal Holding GmbH, Germany * Kennametal Widia Holdings Inc, USA * Kennametal Europe GmbH , Germany Kennametal Europe L.P., Bermuda * Kennametal Holdings Europe Inc, USA * Kennametal Widia Produktions GmbH & Co. KG

b) Parties under common control with whom transactions have taken place during the year:

Fellow Subsidiaries Kennametal South Africa (Pty) Ltd., South Africa Kennametal (Malaysia) Sdn.Bhd, Malaysia Kennametal Hardpoint (Shanghai) Ltd., China Kennametal (Singapore) Pte. Ltd., Singapore KennametalJapan Ltd., Japan Hanita Metal Works Ltd., Israel Kennametal Korea Ltd., Korea Kennametal Australia Pty. Ltd., Australia Kennametal (Thailand) Co. Ltd., Thailand * Kennametal Engg ProdHardenburg, Nederland KMT Distribution Services Asia Pte. Kennametal Shared Services Private Limited Conforma Clad * Extrude Hone Corporation Kennametal Do Brasil Limited Clapp Dico Corporation Kennametal (China) Co. Ltd Breakthrough Engineering Components * Kennametal Logistics GmbH Kennametal Shared Services, GmbH IPG - Hanita, Cleveland Kennametal Ltd, Canada Kennametal Technologies GmbH Kennametal Italia S.P.A. Kennametal HTM AG (HTM), Switzerland

c) Key Management Personnel ** Dinakar A. - Managing Director D. Sarathy - Manager Santanoo Medhi - Managing Director

d) Director related entities Nil



* No transaction during the year ** Refer Note 7A (b) and (c) above

Note: The above information has been determined to the extent such parties have been identifed on the basis of information provided by the Company which has been relied upon by the auditors. The above does not include related party transactions with retiral funds, as Management personnel who are trustees of funds cannot individually exercise signifcant infuence on the retiral funds transactions.

7. In accordance with Accounting Standard 29 on “Provisions, Contingent liabilities and Contingent assets” as notifed under section 211(3C) of the Companies Act, 1956 and the relevant provisions of the Companies Act 1956, certain classes of liabilities have been identifed as under:

Note:Figures in bracket relates to previous year

The Company sets up and maintains provisions for trade and other demands when a reasonable estimate can be made. These provisions are made based on estimates made by the management that are reviewed annually. These demands/ issues involved quick settlements not exceeding a period of two to three years in most cases.

8. Remittance in Foreign currency during the year on account of Dividends to Non-Resident Shareholders.

9. Company does not have a scheme for grant of its Stock options either to the Executive Directors or Employees for the shares issued in India. However the Managing Director and certain senior management employees of the Company are granted stock options in a share based compensation plan of Kennametal Inc., the ultimate holding Company.

These Plans are assessed, managed and administered by the ultimate holding Company and no cross charges/debits have been made on the Company

10. Previous years fgures have been reclassified/ regrouped, wherever necessary.

Notes:

1 The Cash flow statement has been compiled from and is based on the Balance sheet as at June 30, 2010 and the related Profit and Loss account for the year ended on that date.

2 The Cash flow statement has been prepared under the indirect method as set out in the Accounting Standard 3 on Cash flow statement as notified under section 211(3C) of the Companies Act, 1956 and reallocation required for this purpose are as made by the Company.