Detail Scope of Work for Due Diligence of Balmer Lawrie Van Leer Limited

Transcription

1 Detail Scope of Work for Due Diligence of Balmer Lawrie Van Leer Limited Property Owned properties o Schedule of owned real property. Leasehold properties o Schedule of leases and subleases for real property and facilities, including location, square footage, rent and lease term and renewal options Employees & Management Significant employee relations problems, past or present Details of attrition during the reporting period Employee benefit plans Intellectual Property Schedule of owned or proprietary technology (including software, databases and systems). Schedule and copies (if applicable) of the following: o Trade names, brand names, trademarks, service marks, logos and slogans o Internet domain names (including lower level domain names) o Patents, patent rights, innovations and designs o Copyrights o Trade secrets and other industrial property rights, including all processes, know-how, technical data and shop rights; and o Registrations, issuances, applications, additions, affidavits, continuations, divisional and other filings related to the foregoing items, if any Schedule of third party intellectual property if any used by the company The name(s), address (es) and phone number(s) of counsel and any other person(s) responsible for application, maintenance and protection of trademarks, copyrights, patents and other intellectual property rights. Products & Services Description of each product & services offered and its applications Positioning of the Company and its products / services Marketing, Sales, and Distribution / Services / Support channel Product / Services wise historical and projected growth rates Market share Cost structure and profitability Customer & Suppliers List of major customers for the past two fiscal years and current year-to-date by application, location etc. and description of key contractual terms, if any Revenue by customer for last two years and current year-to-date Product / Services wise major customers o Status and trends of relationships o Prospects for future growth and development o Pipeline analysis Page 1 of 6

2 Principal avenues for generating new business List of strategic relationships, if any and key contractual obligations Brief description of any significant relationships severed within the last two years. List of major suppliers and third party service providers for the past two fiscal years and current year-to-date and key contractual obligations Competition Description of the competitive landscape within each market segment including: o Market position and related strengths and weaknesses as perceived in the market place o Basis of competition (e.g., price, service, technology, distribution) Legal & Related Matters Pending lawsuits (complain case, civil suits etc.) against the Company o Detail on claimant, claimed damages, brief history, status, anticipated outcome, and name of the Company s counsel Pending lawsuits (complain case, civil suits etc.) initiated by Company o Detail on defendant, claimed damages, brief history, status, anticipated outcome, and name of Company s counsel Description of environmental and employee safety issues and liabilities New regulations and their consequences History of regulatory agency problem, if any Filings, registrations, reports and correspondence filed with local, state or federal regulatory agencies and any reports issued by such agencies. Governmental licenses, permits, approvals and authorizations necessary to conduct business (including any export licenses) Summary of the transport, use, handling, location, storage, treatment and/or disposal of any hazardous substances (including by any predecessor) Financial & Tax Related Matters The due diligence review to be performed on the historical financial statements of the target company covering the two preceding fiscal years and current year-to-date. Read and summarize relevant background information made available by the management, including key accounting policies and highlight significant departures, if any, from Indian Generally Accepted Accounting Principles. Profit and Loss Account Perform analytical review of the profit and loss account for the reporting period to understand revenues and gross margin; Trends by SBUs, Products / Services Trends by customers to understand any dependency, loss of customers etc; Accounting policy followed for revenue recognition and relevant computations for the same Understand the trends in quarterly sales, SBU/Product wise (as mentioned above), and analyze any significant fluctuations. Analyze impact of intercompany sales transactions. Page 2 of 6

3 Examine the quality of earnings (EBITDA) to seek to identify non-recurring or unusual income and expenditure items; Perform analysis for key costs (i.e. freight, warehouse rentals, fuel, employee costs and selling and distribution expenses) and obtain explanations for significant variances/ trends. Analyze the mix between fixed and variable costs Understand and comment on the pricing policies including discounts, if any, offered to customers (Volume / Contractual Discount). Review the allocation of common and shared expenses from/to group companies. Details of employee cost by department together with details of number of employees for the period under review, reconciled to the financial statements; Details of any common employees used for across the group companies and basis of bifurcation of their costs if any; Balance Sheet Share Capital and Reserves & Surplus Obtain the authorized and issued share capital (split by various classes) Obtain a schedule of all the reserves at balance sheet date. Analyze the terms of the statutory reserves. For all reserves, understand details regarding (i) purpose of reserve, (ii) period reserves were originally established, and (iii) all movements to the reserve (i.e., roll forward payments against, reversals, transfers, and reclassifications). Investment in other companies Loans & Borrowings Summary of all debt instruments/bank lines with key terms and conditions: Read the debt agreements or other related documents to understand the salient terms including (i) repayment, (ii) liens, security interests and assets pledged as collateral, (iii) restrictive covenants, (iv) guarantees provided by group companies. Observations of loan documents, Loan agreements, Register of charges Tabular representation of secured and unsecured loans Off balance sheet liabilities Understand, based on discussions with management, the compliance with the terms, restrictive covenants, or other provisions of debt agreements. In the case of noncompliance, understand if any waivers obtained. Obtain details of loans availed from group companies, if any and comment on the terms and conditions including repayment schedule Full details of intra-corporate borrowings and borrowings from promoters / individuals. Fixed assets Comment on the maintenance of the fixed assets registers and the controls and frequency of physical verification procedures of fixed assets and procedures for identifying obsolete/ redundant assets and assets lying with third parties, if any. Understand the significant additions/deletions to fixed assets and comment on the basis of capitalization of the same. Understand capitalization policy of the Company. Obtain and read copies of significant lease agreements, if any, to determine whether leases are appropriately classified as capital or operating and to determine whether the proper accounting has been performed. Page 3 of 6

4 Study the depreciation rationalization performed by the Company to evaluate the reasonableness of the depreciation charge on fixed assets for the period. Obtain breakup of warehouses owned and taken on lease. Obtain copies of warehousing agreements entered into. Working capital Comment on the level of working capital and unusual trends and distortions including significant intra quarter movements; Comment on typical working capital terms and compare to historical debtor, creditor and stock days; Gain an understanding of one off/ nonrecurring items, extraordinary and non-operating items included in the quarterly working capital and summarize the impact on adjusted working capital Inventory Details of slow moving/obsolete items/ damaged items giving description, nature, quantity, value, reasons and the provisioning for such items Treatment of stores and spares held for replacement purposes Sundry debtors Understand the credit policies offered by the Company and the recording of the same. Obtain and comment on the ageing analysis of the accounts receivables. Understand the provisioning policy and comment on provisions for uncollectible amounts and write-offs. Determine whether there are any significant long outstanding/litigated/disputed amounts and obtain management s comments about realisability. Understand procedures for obtaining balance confirmations/reconciliations with significant parties. Cash and Bank Balances Obtain and study bank reconciliations for significant bank accounts as of 30 Sep 2013 and obtain reasons and the nature of unusual reconciling items, if any. Briefly discuss the treasury systems of the Company to understand the recording of financial transactions, especially pertaining to cash receipts, etc. Copy of balance confirmation certificates from banks to be seen. Loans and advances Obtain and analyze schedule of the components of loans and advances i.e. deposits, advances, and others, including its ageing and confirmations received by the Company, if any. Describe the nature and terms of significant advances, deposits and other current assets. Analyze the ageing of employee loans and advances. Current liabilities and provisions Summaries a broad composition of current liabilities and provisions. Obtain and analyze a party-wise accounts payable ageing schedule, if available. Understand the procedures for obtaining balance confirmations/reconciliations with significant parties. Agree a selection of significant supplier balances to supporting supplier statements or supplier confirmations/correspondence received by the Company, if any. Page 4 of 6

5 Understand 'cut-off' procedures adopted for the closure of financials for FY Obtain and analyze a summary of the components of accrued and other current liabilities. Analyze accruals for staff benefits gratuity, leave encashment, post-retirement benefits, and pension. Commitments, contingencies and litigations Obtain and analyze for the financial impact of (i) Investments not fully paid up, (ii) Bills discounted, (iii) Performance guarantees, (iv) Guarantees to third parties, (v) Litigations against and by the Company, (vi) contractual obligations, (vi) product and liability claims and (vi) claims not acknowledged as debts (vii) post-retirement benefits. Related party transactions Obtain a list of all related parties and schedule of amounts due to and from related parties. Comment on the recoverability of amounts due from related parties and guarantees issued. Highlight the impact of significant related party transactions on the profit and loss account. Review the transaction with major parties and comment whether treated as related party transaction or not. Fund Flow Statement Study and analyze the fund flow for presiding two financial years and current year yearto-date and report significant findings, observations, especially if there are multiple / repeated instances of deficits (Quarter on Quarter) Study of deficits, if any and how are they been funded / managed by the company Taxation Direct taxes Obtain the corporate tax returns of income for past two financial years in respect of which the assessment order is yet to be issued and for which the time period to initiate and complete assessment proceedings has not expired and understand the key positions adopted. Understand and comment on the tax records where the Revenue authorities have issued the assessment order and/ or penalty order in respect of any financial year, and where these orders have been challenged in appeal by the Company/Revenue authorities, and the said appeals are pending. Read relevant correspondence with the Tax Authorities related to the same. Obtain and analyze computation of deferred taxes and ascertain accuracy as also appropriateness of recording of the same. Understand the maintenance of tax records with specific emphasis on deductions and/or exemptions claimed under various provisions of the Income-tax Act. Comment on the transfer pricing report, study and analysis done by the Company, if any. Comment on availment of carried forward tax losses available to Company, if any. Study of assessment orders for the last two financial year for which assessment is complete. Details of disputed demands from Income Tax as on 31 st March Page 5 of 6

6 Indirect taxes Understand the key positions adopted for collection and payment of indirect taxes, i.e. Excise duty, customs duty, service tax and sales tax. Understand any tax concessions/deductions/exemptions availed by the Company. Read demand notices and show cause notices pending disposal - the related adjudication and appellate proceedings and the submissions made in such proceedings. Read memoranda, legal opinions or other documentation regarding positions taken by the company in respect of indirect taxes in respect of its operations or any adjudication and appellate proceedings. Details of disputed demands in respect of Indirect Taxes as on Page 6 of 6