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| 8-K - MILLENNIUM INDIA ACQUISITION COMPANY INC. - Millennium Investment & Acquisition Co Inc. | f8kwrapper.htm |
| EX-99.2 - Millennium Investment & Acquisition Co Inc. | miac_fy11q3pressreleasefinal.htm |
SMC Global Securities Limited
Index to Condensed Consolidated Financial Statements
Pages
Statements of Income
2
Balance Sheets
4
Statements of Cash Flows
6
Statements of Changes in Shareholders‘ Equity
8
Notes to Financial Statements
9
SMC Global Securities Limited
Condensed Consolidated Statements of Income
(Unaudited)
For the quarter ended December 31,
2009
2010
2010
(` in thousands, except per share data)
Convenience
translation
into US$
Revenues:
Commission income
352,536
401,208
8,956
Proprietary trading, net
261,264
282,171
6,298
Distribution income, net
10,985
11,620
259
Interest and dividends
57,337
80,277
1,792
Other income
9,983
19,147
427
Total revenues
692,105
794,423
17,732
Expenses:
Exchange, clearing and brokerage fees
276,081
276,579
6,174
Employee compensation and benefits
240,100
273,744
6,110
Information and communication
30,764
23,066
515
Advertisement expenses
26,645
54,757
1,222
Depreciation and amortization
32,353
40,170
897
Interest expense
27,498
60,516
1,351
General and administrative expenses
88,818
120,239
2,684
Total expenses
722,259
849,071
18,953
Earnings before income taxes
(30,154)
(54,648)
(1,221)
Income taxes
(9,498)
56,013
1,250
Earnings after income taxes
(20,656)
(110,661)
(2,471)
Share in (Profits)/Loss of equity investee
1,840
(1,415)
(32)
Earnings before extraordinary gain
(22,496)
(109,246)
(2,439)
Extraordinary gain
29,756
-
-
Non Controlling Interest
(7,232)
(50,895)
(1,136)
Net Income/(Loss)
14,492
(58,351)
(1,303)
Earnings per share:
Basic Earnings before extraordinary gain
(1.46)
(5.57)
(0.12)
Basic Extraordinary gain
2.85
-
-
Basic Net income
1.39
(5.57)
(0.12)
Weighted average number of shares used to compute basic earnings per
share
10,430,759 10,478,387
10,478,387
Diluted Earnings before extraordinary gain
(1.46)
(5.57)
(0.12)
Diluted Extraordinary gain
2.85
-
-
Diluted Net income
1.39
(5.57)
(0.12)
Weighted average number of shares used to compute diluted earnings
per share
10,430,759 10,478,387
10,478,387
The accompanying notes are an integral part of these financial statements
Page 2 of 26
SMC Global Securities Limited
Condensed Consolidated Statements of Income
(Unaudited)
For the nine months ended December 31,
2009
2010
2010
(` in thousands, except per share data)
Convenience
translation
into US$
Revenues:
Commission income
1,022,355
1,179,397
26,326
Proprietary trading, net
864,543
746,374
16,660
Distribution income, net
27,776
45,077
1,006
Interest and dividends
179,394
197,723
4,413
Other income
19,343
55,604
1,241
Total revenues
2,113,411
2,224,175
49,646
Expenses:
Exchange, clearing and brokerage fees
916,233
822,341
18,356
Employee compensation and benefits
645,747
849,022
18,951
Information and communication
86,055
75,658
1,689
Advertisement expenses
95,884
97,432
2,175
Depreciation and amortization
90,569
114,600
2,558
Interest expense
75,186
135,188
3,018
General and administrative expenses
239,382
322,392
7,196
Total expenses
2,149,056
2,416,633
53,943
Earnings before income taxes
(35,645)
(192,458)
(4,297)
Income taxes
(10,080)
17,151
383
Earnings after income taxes
(25,565)
(209,609)
(4,680)
Share in (Profits)/Loss of equity investee
3,823
(180)
(4)
Earnings before extraordinary gain
(29,388)
(209,429)
(4,676)
Extraordinary gain
29,756
-
-
Non Controlling Interest
(9,846)
(79,144)
(1,767)
Net income/(Loss)
10,214
(130,285)
(2,909)
Earnings per share:
Basic Earnings before extraordinary gain
(1.87)
(12.43)
(0.28)
Basic Extraordinary gain
2.85
-
-
Basic Net income
0.98
(12.43)
(0.28)
Weighted average number of shares used to compute basic earnings per
share
10,430,759 10,478,387
10,478,387
Diluted Earnings before extraordinary gain
(1.87)
(12.43)
(0.28)
Diluted Extraordinary gain
2.85
-
-
Diluted Net income
0.98
(12.43)
(0.28)
Weighted average number of shares used to compute diluted earnings
per share
10,430,759 10,478,387
10,478,387
The accompanying notes are an integral part of these financial statements
Page 3 of 26
SMC Global Securities Limited
Condensed Consolidated Balance Sheets
(Unaudited)
As of
March 31, 2010
December 31,
December 31,
(` in thousands)
2010
2010
Convenience
translation into
US$
Assets
Cash and cash equivalents
78,447
130,439
2,912
Receivables from clearing organizations (net of allowance
for doubtful debts of ` Nil as of March 31, 2010 and ` Nil
126,462
115,668
2,582
as of December 31, 2010)
Receivables from customers (net of allowance for doubtful
debts of ` 76,384 as of March 31, 2010 and ` 83,173 as of
1,275,797
1,431,118
31,943
December 31, 2010)
Due from related parties
125,697
18,476
412
Securities owned: at market value
Securities
1,751,136
1,452,903
32,431
Commodities
453,551
313,131
6,990
Derivatives assets held for trading
17,208
332,944
7,432
Investments
581,873
374,053
8,349
Deposits with clearing organizations and others
1,408,080
2,397,693
53,520
Property and equipment (net of accumulated depreciation
of ` 281,420 as of March 31, 2010 and ` 369,906 as of
375,735
331,070
7,390
December 31, 2010)
Intangible assets (net of accumulated amortization of `
79,197 as of March 31, 2010 and ` 101,398 as of
48,835
39,154
874
December 31, 2010)
Deferred taxes, net
173,945
197,251
4,403
Other assets
1,287,778
1,293,401
28,871
Total Assets
7,704,544
8,427,301
188,109
Liabilities and Shareholder’s Equity
Payable to broker-dealers and clearing organizations
37,746
119,373
2,665
Payable to customers
1,964,270
2,301,588
51,375
Derivatives held for trading
8,652
-
-
Accounts payable, accrued expenses and other liabilities
219,160
292,823
6,536
Due to related parties
3,521
-
-
Overdrafts and long term debt
1,162,983
1,619,044
36,139
Total Liabilities
3,396,332
4,332,828
96,715
Commitments and contingencies (Note 23)
The accompanying notes are an integral part of these financial statements
Page 4 of 26
SMC Global Securities Limited
Condensed Consolidated Balance Sheets
(Unaudited)
As of
March 31, 2010
December 31,
December 31,
(` in thousands)
2010
2010
Convenience
translation into
US$
Shareholders' Equity
Common Stock
104,784
104,784
2,339
(15,000,000 common stock authorized; 10,478,387 and
10,478,387 equity shares issued and outstanding as of
March 31, 2010 and December 31, 2010; par value ` 10)
Subscription received in advance
10,536
6,000
134
Additional paid in capital
2,779,175
2,779,175
62,035
Retained earnings
1,020,798
1,014,511
22,645
Other reserves
123,998
-
-
Accumulated other comprehensive income / (loss)
8,020
8,246
184
Total Shareholders' Equity
4,047,311
3,912,716
87,337
Non controlling interest
260,901
181,757
4,057
Total Liabilities and Shareholders' Equity
7,704,544
8,427,301
188,109
The accompanying notes are an integral part of these financial statements
Page 5 of 26
SMC Global Securities Limited
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended December 31,
2009
2010
2010
(` in thousands)
Convenience
translation
into US$
Cash flows from operating activities
Net profit
10,214
(130,285)
(2,908)
Adjustments to reconcile net profit to net cash provided/
(used) in operating activities:
Depreciation and amortization
90,569
114,600
2,558
Deferred tax expense / (benefit)
(71,943)
(23,306)
(520)
Share of profits in equity investee and extraordinary gain
3,823
(180)
(4)
(Profit) / loss on sale of Property & equipment
(219)
(573)
(13)
(Profit) / loss on sale of Investment
-
(8,234)
(183)
Fair value (gain) / loss on investment
-
13,652
305
Fair value (gain) / loss on trading securities
12,750
(5,125)
(114)
Non Controlling Interest
9,846
(79,144)
(1,767)
Unrealized foreign exchange (gain) / loss
-
-
-
Extraordinary gain
(29,756)
-
-
Provision for doubtful debt
5,000
-
-
Provision for gratuity
4,631
6,232
139
Changes in assets and liabilities:
Receivables from clearing organizations
403,025
10,794
241
Receivables from customers
537,455
(155,321)
(3,467)
Dues from related parties
30,495
107,221
2,393
Dues to related parties
(642,729)
(3521)
(79)
Securities owned
(594,988)
303,358
6,771
Commodities
(146,025)
140,420
3,134
Derivatives held for trading
(142,370)
(324,388)
(7,241)
Deposits received from customers
(7,792)
-
-
Deposits with clearing organizations and others
(26,604)
(989,613)
(22,090)
Membership in exchanges
(2,655)
-
-
Other assets
(76,930)
(5,623)
(126)
Payable to broker-dealers and clearing organizations
98,363
81,627
1,822
Payable to customers
250,906
337,318
7,529
Accrued expenses
117,325
67,431
1,505
Net cash provided by operating activities
(167,609)
(542,660)
(12,115)
Cash flows from investing activities
Purchase of property and equipment
(145,392)
(57,991)
(1,294)
Purchase of investments
(714,304)
(117,402)
(2,621)
Acquisition of intangible assets
(24,090)
(12,520)
(279)
Page 6 of 26
Proceeds from sale of property & equipment
1,233
10,831
242
Other Comprehensive income (loss) movement
6,570
-
-
Proceeds from sale of investment
-
319,984
7,143
Acquisition of business, net of cash acquired
29,756
-
-
Net cash used in investing activities
(846,227)
142,902
3,191
Cash flows from financing activities
Net movement in overdrafts and long term debt
368,937
456,061
10,180
Movement in Non Controlling Interest
239,175
-
-
Proceed from issue of share capital
1,110
-
-
Proceed from issue of share warrant
123,998
-
-
Proceed from share application
6,000
-
-
Foreign Exchange Currency Reserve
(11,889)
226
5
Additional paid in capital
308,892
-
-
Subscription refunded
-
(4,536)
(101)
Net cash provided by financing activities
1,036,223
451,751
10,084
Effect of exchange rate changes on cash and cash
equivalents
16
(1)
(8)
Net increase/(decrease) in cash and cash equivalents
during the period
22,403
51,992
1,161
Add : Balance as of beginning of the period
51,727
78,447
1,760
Balance as of end of the period
74,130
130,439
2,912
The accompanying notes are an integral part of these financial statements
Page 7 of 26
SMC Global Securities Limited
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
Nine months ended December 31, 2009
Common Stock
Subscription
Additional
Retained
Other
Accumulated
Non
Total
(` in thousands)
received in
Paid in
earnings
reserves
other
controlling
Shares
Par value
advance
Capital
comprehensive
interest
income / (loss)
Balance as of March 31, 2009
8,992,146
89,921
-
1,999,726
746,913
-
(1,041)
36,852
2,872,371
Issue of common share
1,486,241
14,863
6,000
409,172
-
123,998
-
-
554,033
Addition on amalgamation
-
-
-
353,953
454,020
-
-
-
807,973
Extra ordinary gain
-
-
-
-
29,756
-
-
-
29,756
Stake dilution/acquisition in subsidiary
-
-
-
-
-
-
-
249,021
249,021
Net income for the period
-
-
-
-
(19,542)
-
(5,320)
(9,846)
(34,708)
Balance as of December 31, 2009
10,478,387
104,784
6,000
2,762,851
1,211,147
123,998
(6,361)
276,027
4,478,446
Balance as of December 31, 2009
Convenience translation into US$
2,258
129
59,544
26,102
2,673
(137)
5,949
96,518
Nine months ended December 31, 2010
Common Stock
Subscription
Additional
Retained
Other
Accumulated
Non
Total
(` in thousands)
received in
Paid in
earnings
reserves
other
controlling
Shares
Par value
advance
Capital
comprehensive
interest
income / (loss)
Balance as of March 31, 2010
10,478,387
104,784
10,536
2,779,175
1,020,798
123,998
8,020
260,901
4,308,212
Subscription refunded
-
(4,536)
-
-
-
-
-
(4,536)
Forfeiture of share warrants
-
-
-
123,998
(123,998)
-
-
-
Net income for the period
-
-
-
(130,285)
-
226
(79,144)
(209,203)
Balance as of December 31, 2010
10,478,387
104,784
6,000
2,779,175
1,014,511
-
8,246
181,757
4,094,473
Balance as of December 31, 2010
Convenience translation into US$
2,339
134
62,035
22,645
-
184
4,057
91,394
The accompanying notes are an integral part of these financial statements
Page 8 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
1. Description of Business
SMC Global Securities Limited (the ―Company‖ or ―SMC Global‖) is a limited liability company
incorporated and domiciled in India. The Company is a trading member of the National Stock
Exchange of India Limited (―NSE‖) in the capital market and trading and clearing member in the
futures and options market. Further, the Company is trading and clearing member of NSE and
MCX Stock Exchange Limited in currency segment of the Exchange. Consequent to
amalgamation of SAM Global Securities Limited (―SAM‖) with the Company, now the Company
is also a trading member of the Bombay Stock Exchange Limited (―BSE‖) in the capital market,
trading and clearing member in the futures and options market and also provides depository
participant services through Central Depository Services (India) Limited and National Securities
Depository Limited. Its wholly owned subsidiary, SMC Comtrade is a trading and clearing
member of National Commodity Exchange of India (―NCDEX‖), Multi Commodity Exchange of
India (―MCX‖), Indian Commodity Exchange Limited (―ICEX‖), National Multi Commodity
Exchange of India Limited (―NMCE‖) and NCDEX Spot Exchange & National Spot Exchange
Limited (―NSEL‖) in the commodity market. SMC Comex International, DMCC (―SMC
Comex‖), a wholly owned subsidiary of SMC Comtrade holds trading and clearing membership
for Dubai Gold Commodity Exchange (―DGCX‖) and SMC Insurance Brokers Private Limited is
also wholly owned subsidiary of SMC Comtrade Limited holds direct insurance broking license
from IRDA (Insurance & Regulatory Development Authority of India) in the life and non life
insurance. The Company is a holding company of SMC Wealth Management Services which is
engaged in the business of portfolio management consultancy. In the year 2008 the Company has
also become holding company of Moneywise Financial Services Private Limited, registered as
Non- Banking financial Company with Reserve Bank of India (―RBI") and SMC Capitals Limited,
registered as Category I Merchant Banker with SEBI. The Company has formed a wholly owned
subsidiary, SMC ARC Limited to enter into the business of asset reconstruction. SMC ARC is in
the process of compliance of statutory requirements and for obtaining necessary regulatory
approvals to commence the business.
During the fiscal year 2009-10, SMC Comtrade has acquired trading and clearing membership of
NSEL and ICEX.
During the quarter ended September 2010, SMC Comtrade has also acquired trading and clearing
membership of ACE Derivatives and Commodity Exchange Limited.
The Company‘s shares are listed on the Delhi Stock Exchange, Ludhiana Stock Exchange,
Ahmedabad Stock Exchange and Calcutta Stock Exchange in India. Consequent to amalgamation
of SAM with the Company, now the Company is also listed on the Guwahati Stock Exchange in
India.
The Company engages in proprietary transactions and offers a wide range of financial services to
meet client‘s needs including brokerage services, clearing member services, distribution of
financial products such as mutual funds and initial public offerings, wealth management and other
financial services.
2. Summary of Significant Accounting Policies
Basis of preparation
The consolidated financial statements include the accounts of SMC Global Securities Limited, its
wholly-owned subsidiaries (‗Group‘) and their equity affiliates. The statement of income includes
the results of SMC Comtrade, SMC Wealth Management, SMC Capitals, SMC ARC, SMC
Insurance, SMC Comex & Moneywise Financial from the date of acquisition. All significant
intercompany transactions have been eliminated. The Group accounts for investments in entities
Page 9 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
that are not variable interest entities where the Group owns a voting or economic interest of 20%
to 50% and/or for which it has significant influence over operating and financing decisions using
the equity method of accounting. The Group‘s equity in the profits/(losses) of affiliates is included
in the statements of income unless the carrying amount of an investment is reduced to zero and the
Group is under no guaranteed obligation or otherwise committed to provide further financial
support.
The Group consolidates investments in which it holds, directly or indirectly, more than 50% of the
voting rights or where it exercises control.
Interim financial information
The accompanying condensed consolidated financial statements of SMC Global Securities
Limited and its wholly-owned subsidiaries (‗Group‘) for the nine months ended December 31,
2009 and 2010 are unaudited. In the opinion of management, the condensed consolidated financial
statements include all adjustments that management considered necessary for a fair statement of
its financial position, operating results and cash flows for the interim periods presented. Operating
results and cash flows for interim periods are not necessarily indicative of results for the entire
year. The Condensed Consolidated Balance Sheet as of March 31, 2010, was derived from audited
financial statements, but does not include all disclosures required by accounting principles
generally accepted ("GAAP") in the United States of America for full financial statements. These
financial statements should be read in conjunction with the audited financial statements and notes
thereto for the year ended March 31, 2010.
Use of Estimates
In preparing these financial statements, management makes use of estimates concerning certain
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and certain revenues and expenses during the reporting period. Estimates, by their
nature, are based on judgment and available information. Therefore, actual results could differ
from those estimates and could have a material impact on the financial statements, and it is
possible that such changes could occur in the near term. Significant estimates and assumptions are
used when accounting for certain items, such as but not limited to, valuation of securities,
allowances for uncollectible accounts receivable, future obligations under employee benefit plans,
useful lives of property and equipment, valuation allowances for deferred taxes and contingencies.
Foreign Currency and Convenience Translation
The accompanying financial statements are reported in Indian rupee (―INR‖ or `). The Indian
rupee is the functional currency for the Group and its affiliates, other than SMC Comex. The
functional currency of SMC Comex is its local currency i.e. AED. Assets and liabilities of SMC
Comex are translated at year-end/quarter-end rates of exchange, and income statement accounts
are translated at weighted average rates of exchange for the year/period. Gains or losses resulting
from foreign currency transactions are included in net income.
For the convenience of the reader, the financial statements as of and for the period ended
December 31, 2010 have been translated into U.S. dollars (US$) at US$1.00 = ` 44.80 based on
the spot exchange as on December 31, 2010 declared by the Federal Reserve Board, United States
of America. Such translation should not be construed as representation that the rupee amounts
have been or could be converted into U.S. dollars at that or any other rate, or at all. The
convenience translation is unaudited.
Page 10 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
Revenue Recognition
a) Proprietary Trading
Revenues from proprietary trading consist primarily of net trading income earned by the Group
when trading as principal. Net trading income from proprietary trading represents trading gains net
of trading losses. Proprietary revenue includes both realized and unrealized gains and losses. The
profit and loss arising from all transactions entered into for the account and risk of the Group are
recorded on a trade date basis.
Derivative financial instruments are used for trading purposes and carried at fair value. Market
value for exchange-traded derivatives, principally futures and options is based on quoted market
prices. The gains or losses on derivatives used for trading purposes are included in revenues from
proprietary trading. Purchases and sales of derivative financial instruments are recorded on trade
date. The transactions are recorded on a net basis when the legal right of offset exists.
b) Commission Income
Commission income is recognized on trade date basis as securities transactions occur.
Commission income from insurance broking business is recognized on the logging in or placement
of policies with the respective insurance company. The Group reports commission income on
transactions as revenue on gross basis and reports commissions paid to sub brokers as commission
expense.
c) Distribution Income
The Group earns distribution income on distribution of initial public offerings, mutual funds and
other securities on behalf of the lead managers of those offerings, mutual funds and other
securities. The Group‘s primary obligation is distribution and collection of the subscription forms
through its sub-broker network for which it is compensated by the lead managers. It recognizes
distribution income net of distribution revenues attributable to sub-brokers when significant
obligations have been fulfilled and the right to recognize revenue has been established.
d) Portfolio Management and Consultancy Services
The Group renders portfolio management services and management consultancy. It recognizes the
fee income on an accrual basis in accordance with the terms of agreement and completion of
service.
Securities Transactions
Securities owned consist of securities and derivative instruments used for trading purposes and for
managing risk exposure in trading inventory. Proprietary security transactions are recorded on a
trade date basis at fair value. Changes in fair value of securities (i.e., unrealized gains or losses)
are recognized as proprietary trading revenues in the current period.
Marketable securities are valued at market value, based on quoted market prices and securities not
readily marketable are valued at fair value as determined by management.
Investments
Equity securities held for purposes other than trading which do not have a readily determinable
fair value, are accounted at cost or equity method of accounting subject to an impairment charge
for any other than temporary decline in value. The impairment is charged to income statement. In
Page 11 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
order to determine whether a decline in value is other than temporary, the Group evaluates, among
other factors, the duration and extent to which the value has been less than the carrying value, the
financial condition of and business outlook for the investee, including key operational and cash
flow indicators, current market conditions and future trends in the industry and the intent and
ability of the Group to retain the investment for a period of time sufficient to allow for any
anticipated recovery in value.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with maturities of 90 days
or less at the date of acquisition.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is provided
over estimated useful life using the straight-line method. The estimated useful lives of assets are as
follows:
Buildings
50 years
Equipment, vehicles and furniture
5 years
Computer hardware
3 years
Satellite equipment (―VSAT‖)
10 years
Purchased Intangible Assets
Purchased intangible assets are amortized over their useful lives unless these lives are determined
to be indefinite. Purchased intangible assets are carried at cost, less accumulated amortization.
Amortization is computed over the estimated useful lives of three years using the straight-line
method.
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Indefinite lived intangible assets are tested annually for
impairment. Determination of recoverability of long-lived assets and certain identifiable intangible
assets is based on an estimate of undiscounted future cash flows resulting from the use of the asset
and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain
identifiable intangible assets that management expects to hold and use is based on the fair value of
the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported
at the lower of carrying amount or fair value less costs to sell.
Receivables and Payables
Customer Receivables and Payables
Customer‘s securities transactions are recorded on a settlement date basis. Receivables from and
payables to customers include amounts due on cash transactions, including derivative contracts
transacted on behalf of the Group‘s customers. Securities owned by customers, including those
that collateralize margin or other similar transactions, are not reflected on the financial statements.
Page 12 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
Brokers-Dealers and Clearing Organizations Receivables and Payables
Amounts due from and due to other broker-dealers and clearing organizations include net
receivables or payables arising from unsettled regular-way transactions, failed settlement
transactions and commissions.
Allowance for Doubtful Accounts
Management estimates an allowance for doubtful accounts to reserve for potential losses from
unsecured and partially secured customer accounts deemed uncollectible. The facts and
circumstances surrounding each receivable from customers and the number of shares, price and
volatility of the underlying collateral are considered by management in determining the allowance.
Management continually evaluates its receivables from customers for collectability and possible
write-off. The Group manages the credit risk associated with its receivables from customers
through credit limits and continuous monitoring of collateral.
Membership in Exchanges
Exchange memberships owned by the Group are originally carried at cost. Adjustments to carrying
value are made if the Group determines that an ―other-than-temporary‖ decline in value has
occurred. In determining whether the value of the exchange memberships the Group owns are
impaired (that is, fair market value is below cost) and whether such impairment is temporary or
other-than-temporary, the Group consider many factors, including, but not limited to, information
regarding recent sale and lease prices of exchange memberships, historical trends of sales prices of
memberships, the current condition of the particular exchange‘s market structure, legal and
regulatory developments affecting the particular exchange‘s market structure, trends in new
listings on the particular exchange, general global and national economic factors and the Group‘s
knowledge and judgment of the securities market as a whole.
Advertising Costs
The Group expenses all advertising costs, as incurred.
Employee Benefits
i) Provident Fund
In accordance with Indian law, employees are entitled to receive benefits under the Provident
Fund, which is a defined contribution plan. Both the employee and the employer make monthly
contributions to the plan at a predetermined rate (presently 12.0%) of the employees‘ basic salary.
These contributions are made to the fund administered and managed by the Government of India.
The Group‘s monthly contributions are charged to income in the period they are incurred. The
Group has no further obligations under the plan beyond its monthly contributions.
ii) Gratuity Plan
The Group has a defined benefit retirement plan (the ―Gratuity Plan‖) covering all its employees
in India. The Gratuity Plan provides a lump sum payment to vested employees at retirement or
termination of employment based on the respective employee's salary and years of employment
with the Group.
Page 13 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
The Group provides for the Gratuity Plan on the basis of actuarial valuation. All actuarial gains or
losses are expensed off in the year in which they arise.
The funded status of the Group‘s retirement related benefit plan is recognized in the balance sheet.
The funded status is measured as the difference between the fair value of plan assets and the
projected benefit obligation at December 31, the measurement date.
Income Taxes
In accordance with the provisions of SFAS 109, "Accounting for Income Taxes", income taxes are
accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the statement of income in the period of enactment. Based on
management‘s judgment, the measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits for which it is more likely than not that some portion or
all of such benefits will not be realized. Due to the intent and the ability of the Group to receive
dividends and/or to liquidate investments in a tax-free manner, the Group has not recorded a
deferred tax liability on the undistributed earnings of equity accounted associates.
Earnings Per Share
In accordance with the provisions of SFAS 128, "Earnings Per Share", basic earnings per share is
computed on the basis of the weighted average number of shares outstanding during the period.
Now, the Company has dilutive securities and hence the basic and diluted earnings per share are
different.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (―FASB‖) issued Accounting Standards
Update No. 2009-01, ―Generally Accepted Accounting Principles‖ (ASC Topic 105) which
establishes the FASB Accounting Standards Codification (―the Codification‖ or ―ASC‖) as the
official single source of authoritative U.S. generally accepted accounting principles. All existing
accounting standards are superseded. All other accounting guidance not included in the
Codification will be considered non-authoritative. The Codification also includes all relevant
Securities and Exchange Commission guidance organized using the same topical structure in
separate sections within the Codification. Following the Codification, the FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. Instead, it will issue Accounting Standards Updates (―ASU‖) which will serve to update
the Codification, provide background information about the guidance and provide the basis for
conclusions on the changes to the Codification. The Codification is not intended to change GAAP,
but it will change the way GAAP is organized and presented. The Codification is effective for the
Group‘s second quarter financial statements and the principal impact on the financial statements is
limited to disclosures as all future references to authoritative accounting literature will be
referenced in accordance with the Codification. In order to ease the transition to the Codification,
the Company is providing the Codification cross-reference alongside the references to the
standards issued and adopted prior to the adoption of the Codification.
In September 2006, the FASB issued ASC 820-10 (SFAS No. 157, ―Fair Value Measurements‖
(―SFAS 157‖)). ASC 820-10 (SFAS 157) defines fair value, establishes a framework for
Page 14 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
measuring fair value, and enhances fair value measurement disclosure. In February 2008, the
FASB issued ASC 820-10-15 (FASB Staff Position (―FSP‖) 157-1), ASC 820-10 (―Application of
FASB Statement No. 157‖) removes certain leasing transactions from its scope. ASC 820-10-55
(FSP 157-2) delays the effective date of ASC 820-10 (SFAS 157) for all nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually), until the beginning of the first quarter
of fiscal 2010. The adoption of ASC 820-10 (SFAS 157), effective April 1, 2009, for all
nonfinancial assets and nonfinancial liabilities did not have a material impact on it‘s results of
operations or financial position.
In December 2007, the FASB issued ASC 810-10 (SFAS No. 160, ―Non controlling Interests in
Consolidated Financial Statement—Amendments of ARB No. 51‖). The standard changes the
accounting for non controlling (minority) interests in consolidated financial statements including
the requirements to classify non controlling interests as a component of consolidated stockholders‘
equity, and the elimination of ―non controlling interest‖ accounting in results of operations with
earnings attributable to non controlling interests reported as part of consolidated earnings.
Additionally, ASC 810-10 (SFAS 160) revises the accounting for both increases and decreases in
a parent‘s controlling ownership interest. The Group adopted ASC 810-10 (SFAS 160) effective
April 1, 2009.
In April 2008, the FASB issued ASC 350-30 (FSP FAS 142-3, ―Determination of the Useful Life
of Intangible Assets‖). ASC 350-30 (FSP No. FAS 142-3) amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under ASC 350-10 (SFAS No. 142 ―Goodwill and Other Intangible
Assets‖) (―ASC 350-10‖). ASC 350-30 (FSP No. FAS 142-3) became effective for the Group with
its fiscal year beginning April 1, 2009 and did not have a significant impact on the Group‘s
consolidated financial statements.
In August 2009, the Financial Accounting Standards Board (―FASB‖) issued Accounting
Standards Update (―ASU‖) No. 2009-05, ―Measuring Liabilities at Fair Value‖ (―ASU 2009-05‖).
The amendments in this ASU apply to all entities that measure liabilities at fair value and provides
clarification that in circumstances in which a quoted price in an active market for the identical
liability is not available, an entity is required to measure fair value using one or more techniques
laid out in this ASU. The guidance provided in this ASU is effective for the first reporting period
(including reporting periods) beginning after issuance. The Company does not expect the
adoption of this ASU to have a material impact on its consolidated financial statements.
3. Business Combination
The excess purchase price over those fair values is recorded as goodwill. Any negative goodwill
being the excess of fair value of the acquired net assets over cost is initially adjusted in accordance
with SFAS 141R ―Business Combinations‖ against the values assigned to specified assets and the
unadjusted balance is recognized as an extraordinary gain. The fair value assigned to assets
acquired is based on valuations using management's estimates and assumptions.
The company has subscribed 1,000,000 shares (Face value of `10) of its subsidiary SMC Capitals
Limited through fresh issue as on April 1, 2009 after this allotment the ownership of the company
raised to 97.18%. The company has also acquired the balance 100,000 shares (Face value of ` 10)
of SMC Capitals Limited as on February 25, 2010, resulting the ownership of 100%. On acquiring
this non controlling interest, company has earned an extra ordinary gain of ` 192 in the financial
year 2009-10.
Page 15 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
The company has acquired balance 1,114,650 shares (Face value of ` 10) of Moneywise Financial
Services Pvt. Limited as on July 1, 2009 for a consideration of ` 22,293/- resulting it a 100%
subsidiary of the company. On acquiring non controlling interest, company has earned an extra
ordinary gain of ` 13,693 in the financial year 2009-10.
The Group allocates the purchase price of its acquisitions to the tangible assets, liabilities and
intangible assets acquired, based on their estimated fair values. The excess purchase price over
those fair values is recorded as goodwill. Any negative goodwill being the excess of fair value of
the acquired net assets over cost is initially adjusted in accordance with SFAS 141 ―Business
Combinations‖ against the values assigned to specified assets and the unadjusted balance is
recognized as an extraordinary gain. The fair value assigned to assets acquired is based on
valuations using management's estimates and assumptions.
Unaudited pro forma financial information
The unaudited financial information in the table below summarizes the combined results of
operations of SMC Global, SMC Comtrade, SMC Capital, SMC Wealth and Moneywise Financial
on a pro forma basis, as though the companies had been combined as of the beginning of each of
the periods presented. The pro forma financial information is presented for information purpose
only and is not indicative of the results of operations that would have been achieved if the
acquisition or dilution had taken place at the beginning of each of the periods presented. The pro
forma financial information for all periods presented also includes adjustments to depreciation on
acquired property and equipment, amortization charges from acquired intangible assets.
Nine months ended, December 31
2009
2010
2010
US $
Total revenue
2,113,411
2,224,175
49,646
Earnings before extraordinary gain
(29,806)
(209,429)
(4,676)
Net income
9,796
(130,285)
(2,909)
Earnings per share before extraordinary gain
(2.86)
(12.43)
(0.28)
Earnings per share
0.94
(12.43)
(0.28)
4. Deposits with Clearing Organizations and Others
SMC Global is a member of the clearing organization at which it maintains cash on deposits
required for the conduct of its day-to-day clearance activities. The Group also maintains deposits
with its bankers as margin for credit facilities availed.
5. Receivables from Exchange and Clearing Organizations
As of
March 31,
December December
2010
31, 2010
31, 2010
US $
Receivable from clearing organizations
126,462
115,668
2,582
Total
126,462
115,668
2,582
Page 16 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
6. Securities Owned
Securities consist of trading securities at market values, as follows:
As of
March 31,
December December
2010
31, 2010
31, 2010
US $
Equity shares
1,751,136
1,452,903
32,431
Total
1,751,136
1,452,903
32,431
7. Derivatives assets held for trading
These consist of exchange traded futures and options at market values, as follows:
As of
March 31, December December
2010
31, 2010
31, 2010
US $
Exchange traded derivatives held for trading
17,208
332,944
7,432
Total
17,208
332,944
7,432
8. Other Assets
Other assets consist of:
As of
March 31,
December
December
2010
31, 2010
31, 2010
US $
Advance to BCCL
602,736
547,977
12,232
Prepaid expenses
27,215
29,643
662
Security deposits
59,144
48,448
1,081
Advance tax, net
109,178
73,438
1,639
Others
489,505
593,895
13,257
Total
1,287,778
1,293,401
28,871
Advances to BCCL reflect the amount paid as advance against advertisement expenses to Bennett
Coleman & Co Limited for the period of five year ending on April 14, 2013.
Prepaid expenses primarily include the un-expired portion of annual rentals paid for use of leased
telecommunication lines, insurance premiums and bank guarantee charges.
Security deposits primarily include deposits for telecommunications, VSAT and assets taken on
operating lease.
Advance tax primarily includes taxes paid to Indian taxation authorities for income tax and service
tax, net off amount of provision for income tax.
Others primarily include advances paid for property being taken on lease, connectivity,
advertisement and legal expenses.
Page 17 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
9. Property and Equipment
Property and equipment consist of:
As of
March December December
31, 2010
31, 2010
31, 2010
US $
Land
10,022
10,022
224
Building
64,637
56,084
1,252
Equipment
95,396
105,335
2,351
Furniture and Fixture
167,659
181,419
4,050
Computer Hardware
255,750
280,871
6,269
Vehicle
27,516
30,580
683
Satellite Equipment
36,175
36,665
818
Total property and equipment
657,155
700,976
15,647
Less: Accumulated depreciation
281,420
369,906
8,257
Total property and equipment, net
375,735
331,070
7,390
Depreciation expense amounted to ` 30,932 and ` 92,399 for the three and nine months ended
December 31, 2010 respectively. Depreciation expense amounted to ` 24,581 and ` 69,342 for the
three and nine months ended December 31, 2009 respectively.
Property and equipment includes following assets under capital lease:
As of
March December December
31, 2010
31, 2010
31, 2010
US $
Vehicle
4,775
7,365
164
Total leased property and equipment
4,775
7,365
164
Less: Accumulated depreciation
915
1,333
30
Total leased property and equipment, net
3,860
6,032
134
10. Intangible Assets
Intangible assets consist of:
As of
March December
December
31, 2010
31, 2010
31, 2010
US $
Intangible assets subject to amortization
Software
115,105
127,640
2,850
Customer relationship
7,500
7,500
167
Intangible assets not subject to amortization
Goodwill
1,500
1,500
33
Membership in exchanges
3,927
3,912
87
Total intangible assets
128,032
140,552
3,137
Less: Accumulated amortization
79,197
101,398
2,263
Total intangible assets, net
48,835
39,154
874
Amortization expense amounted to ` 9,238 and ` 22,201 for the three and nine months ended
December 31, 2010 respectively. Amortization expense amounted to ` 7,771 and ` 21,227 for the
three and nine months ended December 31, 2009 respectively.
Page 18 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
11. Investments
Investments consist of:
As of
March December December
31, 2010
31, 2010
31, 2010
US $
Investments accounted for by equity method
170,440
170,620
3,809
Trading Investment
372,671
63,115
1,408
Other investment
38,762
140,318
3,132
Total
581,873
374,053
8,349
As part of its corporate strategy and in the normal course of its business, the Group makes
investments in the equity of companies which are engaged in businesses similar to Group‘s core
business.
SMC Global holds 49,000 shares, representing 40% interest in Trackon Telematics Pvt. Ltd. The
Group accounts for its investment in Trackon Telematics Pvt. Ltd. under equity method of
accounting. The carrying amount of equity investments without readily determinable market value
is ` 13,616 as of December 31, 2010.
The group has entered into the business of asset management along with Sanlam Investment
Management Company Limited through equity participation. The Company has invested `
159,900 to acquire 15,990,000 equity shares of Sanlam Investment Management (India) Limited
representing 39% interest. The Group accounts for its investment in Sanlam Investment
Management (India) Limited under equity method of accounting. The carrying amount of equity
investments without readily determinable market value is ` 153,037 as of December 31, 2010.
Further, the Company has invested ` 3,900 to acquire 390,000 equity shares of Sanlam Trustee
Company (India) Limited representing 39% interest. The Group accounts for its investment in
Sanlam Trustee Company (India) Limited under equity method of accounting. The carrying
amount of equity investments without readily determinable market value is ` 3,967 as of
December 31, 2010.
Trading investment as of December 31, 2010 ` 63,115 includes investment in shares, mutual fund
and derivatives and include net unrealized gain/(loss).
12. Overdrafts and Long Term Debt
Bank Overdrafts
The Group‘s debt financing is generally obtained through the use of overdraft facilities from
banks. The interest rates on such borrowings reflect market rates of interest at the time of the
transactions. The balance of these facilities was ` 1,021,815 and ` 938,034 as of March 31, 2010
and December 31, 2010, respectively, at average effective interest rates of 8.73% and 7.31%,
respectively. Deposits have been pledged by the Group with bankers to secure these debts. These
deposits are classified in the balance sheet under ―Deposits with clearing organizations and
others‖.
Book Overdraft
Book overdrafts were ` 138,526 and ` 151,649 at March 31, 2010 and December 31, 2010,
respectively.
Page 19 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
Long Term Debt
Long term debt outstanding comprises of loans taken against vehicles and movable assets. The
long term debt was ` 2,642 and ` 529,361 at March 31, 2010 and December 31, 2010,
respectively, at average effective interest rates of 9.6% and 12.59%, respectively. Long term debt
is secured by hypothecation of vehicles, movable assets and pledge of promoter‘s shares.
13. Net Capital Requirements
The Group is subject to regulations of SEBI and stock exchanges, which specifies minimum net
capital requirements. The net capital for this purpose is computed on the basis of the information
contained in Company‘s statutory books and records kept under accounting principles generally
accepted in local jurisdiction. The Company submits periodic reports to the regulators.
SMC Global is subject to regulations of SEBI, NSE and BSE in India. The Company is required to
maintain net capital of ` 100,000 in NSE and ` 30,000 in BSE. As of March 31, 2010 and
December 31, 2010, the net capital as calculated in the periodic reports was ` 1,147,891 and
` 1,542,950, which was in excess of its net capital requirement.
SMC Comtrade is subject to regulations of MCX, NCDEX, ICEX, NMCE/ NCDEX (Spot) and
NSEL in India, which specifies minimum net capital requirements of ` 70,000 in aggregate. As of
March 31, 2010 and December 31, 2010, the net capital as calculated in the periodic reports was `
442,617 and ` 703,092, which was in excess of its net capital requirement.
SMC Comex is subject to regulations of DGCX in Dubai. The Company is required to maintain
net capital of USD 350 thousand which is equivalent to ` 15,680. As of March 31, 2010 and
December 31, 2010, the net capital as calculated in the periodic reports was ` 16,324 and `
21,941, which was in excess of its net capital requirement.
SMC Capital is subject to regulations of SEBI in India. The Company is required to maintain net
capital of ` 50,000. As of March 31, 2010 and December 31, 2010, the net capital as calculated in
the periodic reports was ` 62,209 and ` 62,678, which was in excess of its net capital requirement.
14. Exchange, Clearing and Brokerage fees
As per regulations in India, specified securities transactions are liable for securities transaction tax
(―STT‖). Until March 31, 2008, under the Indian Income Tax Act, the Company can set-off the
amount paid for STT towards its liability for taxes on income arising from taxable securities
transactions. By the amendment in Indian Finance Act 2008, STT has been allowed as business
expenses from the fiscal year 2008-09 and thereafter STT charged as expense amounted to `
492,296 and ` 246,333 for the year ended March 31, 2010 and nine months ended December 31,
2010 respectively.
15. Payable to Broker Dealers and Clearing Organizations
As of
March 31,
December
December
2010
31, 2010
31, 2010
US $
Payable to clearing organizations
29,224
20,391
455
Commission payable
8,522
98,982
2,210
Total
37,746
119,373
2,665
Page 20 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
16. Accounts Payable, Accrued Expenses and Other Liabilities
As of
March 31,
December
December
2010
31, 2010
31, 2010
US $
Security deposits
25,974
26,109
583
Accrued expenses
95,952
124,084
2,770
Other liabilities
20,924
44,676
997
Provision for gratuity
16,599
22,776
508
Salary payable
44,913
43,698
975
Other Liabilities
14,798
31,480
703
Total
219,160
292,823
6,536
Security deposits primarily include deposits taken from sub-brokers for satellite equipment and
deposits from employees.
Other liabilities primarily include statutory liabilities payable to Indian tax authorities and other
staff welfare funds.
Other Liabilities primarily include revenue received in advance, provision for leave encashment
and temporary finance for IPO from a financing company.
17. Distribution Income
The net distribution income comprises of:
Quarter ended December 31,
December
December
December
31, 2009
31, 2010
31, 2010
US $
Gross distribution revenue
42,795
68,600
1,531
Less: Distribution revenues attributable to sub-
31,810
56,980
1,272
brokers
Net distribution income
10,985
11,620
259
Nine months ended December 31,
December
December
December
31, 2009
31, 2010
31, 2010
US $
Gross distribution revenue
105,640
175,442
3,916
Less: Distribution revenues attributable to sub-
77,864
130,365
2,910
brokers
Net distribution income
27,776
45,077
1,006
Page 21 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
18. Employee benefits
The Gratuity Plan
Net gratuity cost for the three months ended December 31, 2009 and 2010 comprises the
following components:
Quarter ended December 31,
2009
2010
2010
US $
Service cost
150
1,782
40
Interest cost
348
150
3
Amortization
20
(45)
(1)
Net gratuity costs
518
1,887
42
Nine months ended December 31,
2009
2010
2010
US $
Service cost
2,110
5,850
131
Interest cost
8,540
544
12
Amortization
(6,340)
(162)
(4)
Net gratuity costs
4,310
6,232
139
The Group has contributed ` Nil and ` Nil in the three and nine months ended December 31, 2010
and expects to contribute approximately ` 7,400 to the gratuity trust during the remainder of fiscal
year 2010-11.
Provident Fund
The Company‘s contribution towards the provident fund amounted to ` 4,582 and ` 13,270 for the
three and nine months ended December 31, 2010 respectively.
The Company‘s contribution towards the provident fund amounted to ` 3,086 and ` 7,512 for the
three and nine months ended December 31, 2009 respectively.
19. Income Taxes
The effective tax rate was 33.22% and 33.22% for the three and nine months ended December 31,
2010 respectively. The effective tax rate was 33.99% and 33.99% for the three and nine months
ended December 31, 2009 respectively.
The Group‘s major tax jurisdiction is India. In India, the assessment is not yet completed for the
financial year 2008-09 and onwards. The Group continues to recognize interest and penalties
related to income tax matters as part of the income tax provision.
Page 22 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
20. Collateral and Significant Covenants
The Group has provided its assets as collateral for credit facilities availed from banks and for
margin requirements with exchanges. Amounts that the Group has pledged as collateral, which are
not reclassified and reported separately, consist of the following:
As of
March 31,
December
December
2010
31, 2010
31, 2010
US $
Fixed deposits
1,301,329
2,102,127
46,923
Securities owned
960,062
235,485
5,256
Total
2,261,391
2,337,612
52,179
The fixed deposits are classified in the balance sheet under ―Deposits with clearing organizations
and others‖.
State Bank of Bikaner and Jaipur, one of the bankers to the Group, has created first pari-passu
charge over the current assets of SMC Group (‗Group‘), as a security for credit facilities provided
to the Group.
The Company has obtained overdraft facility against pledge of shares from Kotak Mahindra Bank,
Kotak Mahindra Prime Ltd, Morgan Stanley, Citi Bank and HDFC Bank. The Company has
obtained overdraft facility against pledge of Term Deposits from HDFC Bank.
The Company has taken term loan amounting of ` 525,000 repayable in 36 months.
SMC Global has executed an undertaking in favour of Yes Bank, one of the bankers to the Group,
agreeing to continue to maintain more than 26.0% holding in SMC Comtrade.
21. Concentration
The following table gives details in respect of percentage of commission income generated from
top two, five and ten customers:
Quarter ended December 31,
2009
2010
(in %)
Revenue from top two customers
1.48
1.90
Revenue from top five customers
2.89
3.60
Revenue from top ten customers
4.77
5.40
Nine months ended December 31,
2009
2010
(in %)
Revenue from top two customers
1.57
1.58
Revenue from top five customers
2.90
2.85
Revenue from top ten customers
4.39
4.38
22. Segment
The Group follows the provisions of SFAS 131 ―Disclosures about Segments of an Enterprise and
Related Information‖. SFAS 131 establishes standards for reporting information regarding
operating segments in annual financial statements and requires selected information for those
segments to be presented in interim financial reports issued to stockholders.
Page 23 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
The Group has recognized the following segments on the basis of Business activities carried on
(including by its subsidiaries), in respect of which financial statements are consolidated with the
financial statements of the Company.
The accounting policies of the segments are the same as those described in note 2 – Summary of
Significant Accounting Policies. Revenues and expenses are directly attributable to segments.
Management evaluates performance based on stand-alone revenues and earnings after taxes for the
companies in Group. The Group‘s operations and customers are primarily based in India.
Quarter ended December 31,
2010
Capital and
derivatives
Commodities
Insurance
Wealth
NBFC
Merchant
markets
Management
Services
Banking
ARC
Elimination
Total
US $
Revenue from external customer
excluding interest income
527,245
112,975
46,533
24,012
(4,184)
14,268
1,352
(8,055)
714,146
15,940
Earnings after taxes
23,488
(7,989)
(25,120)
(101,792)
702
(737)
787
-
(110,661)
(2,471)
Total assets
7,923,162
897,822
244,426
382,310
672,937
69,945
24,233
(1,787,534)
8,427,301
188,109
Quarter ended December 31,
2009
Capital and
derivatives
Commodities
Insurance
Wealth
NBFC
Merchant
markets
Management
Services
Banking
ARC
Elimination
Total
US $
Revenue from external customer
excluding interest income
489,325
62,727
61,356
11,305
7,843
3,383
-
(1,171)
634,768
13,680
Earnings after taxes
11,701
12,315
(34,822)
(12,101)
6,990
(3,805)
141
(1,075)
(20,656)
(445)
Total assets
7,118,077
1,034,269
240,910
562,540
548,342
58,829
25,838
(1,731,810)
7,856,995
169,332
Nine months ended December 31,
2010
Capital and
derivatives
Commodities
Insurance
Wealth
NBFC
Merchant
markets
Management
Services
Banking
ARC
Elimination
Total
US $
Revenue from external customer
excluding interest income
1,403,586
365,323
195,911
62,125
(7,152)
27,715
(143)
(20,913)
2,026,452
45,233
Earnings after taxes
13,187
14,144
(68,020)
(158,290)
(301)
(9,531)
(798)
-
(209,609)
(4,680)
Total assets
7,923,162
897,822
244,426
382,310
672,937
69,945
24,233
(1,787,534)
8,427,301
188,109
Nine months ended December 31,
2009
Capital and
derivatives
Commodities
Insurance
Wealth
NBFC
Merchant
markets
Management
Services
Banking
ARC
Elimination
Total
US $
Revenue from external customer
excluding interest income
1,539,478
182,452
157,246
20,864
27,425
7,724
-
(1,172)
1,934,017
41,681
Earnings after taxes
78,304
22,458
(106,114)
(28,413)
23,504
(14,809)
579
(1,074)
(25,565)
(551)
Total assets
7,118,077
1,034,269
240,910
562,540
548,342
58,829
25,838
(1,731,810)
7,856,995
169,332
Page 24 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
23. Commitments and Contingent Liabilities
a) Operating Leases
SMC Global has certain operating leases for office premises. Rental expenses for operating leases
are accounted for on a straight line method. Rental expense amounted to ` 43,012 and ` 123,285
for the three and nine months ended December 31, 2010 respectively. Rental expense amounted to
` 36,397 and ` 96,822 for the three and nine months ended December 31, 2009 respectively. There
are no non-cancelable lease arrangements.
b) Guarantees
As of March 31, 2010 and December 31, 2010, guarantees of ` 2,835,275 and ` 1,767,525 are
provided by various banks to exchange clearing houses and sale tax authorities for the Group, in
the ordinary course of business, as a security for due performance and fulfillment by the Group of
its commitments and obligations.
The initial term of these guarantees is generally for a period of 12 to 15 months. The bankers
charge commission as consideration to issue the guarantees. The commission charged generally is
in the range of 1.0% to 1.25% of the guarantee amount. The Group recognizes commission
expense over the period of the guarantee and classify in the income statement under ‗interest
expense‘. The unamortized commission expense is included in prepaid expenses and classified in
the balance sheet under ―other assets‖. The potential requirement for the Group to make payments
under these agreements is remote. Thus, no liability has been recognized for these transactions.
The fair value of the guarantees is considered to be insignificant given the risk of loss on such
guarantees at the date of its inception and, therefore, no amount was recognized towards fair value
of guarantees given in the financial statements on the inception date.
c) Litigation
The Group is involved, from time to time, in investigations and proceedings by governmental and
regulatory agencies, certain of which may result in adverse judgments, fines or penalties. Factors
considered by management in estimating the Group‘s reserves for these matters are the merits of
the claims, the total cost of defending the litigation, the likelihood of a successful defense against
the claims, and the potential for fines and penalties from regulatory agencies. As litigation and the
resolution of regulatory matters are inherently unpredictable, the Group cannot predict with
certainty the ultimate loss or range of loss related to matters where there is only a reasonable
possibility that a loss may be incurred. The Group believes, based on current knowledge and after
consultation with legal counsel, that the resolution of loss contingencies will not have a material
adverse effect on the financial statements of the Group.
Show Cause Notice No. EAD-4/ENQ/PKB/EIF-13/OW/22480/2010 dated Oct 6, 2010
On default of a few trading members on the historic downfall of Indian Stock Market in 2008,
under Regulations 25 of SEBI (Intermediaries) Regulations, 2008 SEBI initiated inspection of
margins and clearing operations and thereafter issued above mentioned show-cause notice on
06.10.2010 to enquire into the possible violations of the provisions of law, by SMC.
We have filed our written submission vide our letter dated 25th November, 2010.
Note: Except the above show cause notice, all the inquiry and investigation matters initiated by the
SEBI has been closed / disposed off in terms of consent orders of different dates.
Page 25 of 26
SMC Global Securities Limited
Notes to Condensed Financial Statements (Unaudited)
(` in thousands, except per share data)
24. Subsequent Events
(a) The Company has entered into an agreement, on December 01, 2010, with SIM for sale of 5%
of its current holding in Sanlam Investment & Advisors (India) Limited (formerly SMC
Wealth Management Services Limited, a subsidiary company). The enforceability of the said
agreement is subject to approval of RBI and SEBI. After the approval of these authorities, The
Company will sell its holding of 750,000 Shares for a consideration of ` 30,000 and as a
result will be ceased to be the holding company of the said subsidiary.
(b) The company has also entered into an agreement, on December 01, 2010, with SIM for
issuance of 4.27% of equity share, on preferential basis, of SMC Global Securities Limited.
The enforceability of the said agreement is subject to approval of regulatory authorities. After
the approval of these authorities, The Company will issue 467,371 Shares for a consideration
of ` 468,750.
Page 26 of 26