Mohsin Annual Report-Final 1-91:Layout 1.qxd - Siemens Pakistan

Notes to the Financial Statements 11110. SHORT-TERM BORROWINGS 2007 2006Note (Rupees in ‘000)Due to an associate- Short-term loans - Unsecured 10.1 330,646 - .- Short-term running finances - Secured 10.2 2,357,180 784,7782,687,826 784,77810.1 Short-term loansThe facility for short-term loans has been arranged from Siemens Financial Services (SFS) of Siemens AG, (the parent company) at a mark up rateof 5.33% per annum for an initial period of one month. The amount and period is extendable under a frame agreement.10.2 Short-term running financesShort term running finance facilities available from various banks and financial institutions including SFS aggregating to Rs 5,342.180 million(2006: Rs 1,979.200 million). The mark-up on these facilities ranges between 5.35% to 11.81% (2006: 8.75% to 11.06%) per annum and thefacilities are secured, where applicable, by joint hypothecation of inventories of finished goods, work-in-process, raw materials and componentsand present and future trade receivables. These include facilities aggregating Rs 2,357.180 million (2006: nil) obtained in UAE at 5.35% to 5.76%per annum (2006: nil).Other facilities granted by the banks and amounts remaining unutilised thereof as at September 30, 2007 are as follows:2007 2006(Rupees in ‘000)Letters of credit- limit 6,571,250 4,493,309- unutilised portion 3,534,249 3,007,684Guarantees- limit 9,143,365 4,540,491- unutilised portion 4,526,682 623,70911. CONTINGENCIES AND COMMITMENTS11.1 As at September 30, 2007 capital expenditure contracted for but not incurred amounted to Rs. 88.692 million (2006: Rs. 152.051 million).11.2 The Company has been made party to a legal suit along with two other Siemens entities for infringement of intellectual property rights of anindividual. The plaintiff has prayed the court for recovery of cost and damages of Rs. 20 billion. The Company considers that the suit has no meritand accordingly no provision has been made thereagainst.11.3 The Company is defending various cases in the High Court of Sindh for the recovery of claim aggregating to Rs 129.600 million (2006: Rs 183.859million) alongwith liquidated damages. The Company’s management is confident, based on the advice of its legal advisor, that the matter will bedecided in its favour and accordingly no provision has been made in these financial statements in respect of the amounts claimed.11.4 The Company has filed a case in the High Court of Sindh against a claim of Sui Southern Gas Company Limited amounting to Rs 7.690 million. TheCompany’s management is confident, based on the advice of its legal advisor, that the matter will be decided in its favour and accordingly noprovision has been made in these financial statements in respect of the amount claimed.11.5 The Company alongwith two Siemens entities is defending a law suit filed by a supplier to seek damages in excess of USD 7.4 million for an allegedbreach of an agreement to purchase certain equipment. The Company has moved to dismiss the claims against it for lack of personal jurisdiction.As the case is still proceeding, the likely outcome cannot be predicted nor the amount of potential loss, if any, can be estimated at this stage.11.6 The Company served notice of termination of the Operation and Maintenance Contract (O & M Contract) to KESC on account of material defaultby KESC on payments against the O & M Contract and hiring of Company’s officials without the Company’s consent. However, pending theresolution by KESC, the Company filed suites on October 8, 2007 against KESC for the recovery of outstanding payments in respect of the fixed andvariable fee plus mark-up accrued thereon and against unauthorized access to Company’s intellectual property (i.e. SAP system) by KESC. Inresponse to the notice KESC has accepted the Company's desire to terminate the O & M Contract while reserving its rights to initiate legalproceedings interalia for recovery of amounts paid to the Company and the alleged damages and losses caused to KESC.