Notes forming part of the Financial Statements 1. Corporate Information International Paper APPM Limited ('IP APPM'/'the Company') is an integrated pulp and paper manufacturer. IP APPM was incorporated on June 29, 1964 in pursuance to an agreement dated May 13, 1964 between Government of Andhra Pradesh (GOAP) and Mr. G.D. Somani. By an agreement dated February 10, 1966, Mr. G. D. Somani transferred all his rights, powers and authorities contained in the Agreement dated May 13, 1964 in favour of The West Coast Paper Mills Limited (WCPM). By an agreement dated April 16, 1981, WCPM assigned to Digvijay Investments Limited (DIL) all its rights and obligations under the agreement dated February 10, 1966. Consequent upon disinvestment of its entire shareholding in favour of DIL in December, 2003, GOAP and DIL vide an agreement dated December 12, 2003 agreed that all subsisting rights and obligations of GOAP and DIL arising out of the above agreements dated February 10, 1966 and April 16, 1981 stand terminated with effect from December 18, 2003. In October 2011, IP Holding Asia Singapore Pte. Limited acquired controlling stake of 75% of paid up share capital in the Company from the promoters and public shareholders. Pursuant to such acquisition, IP Holding Asia Singapore Pte. Limited, became the Holding Company of IP APPM and International Paper Company, USA, being the Ultimate Holding Company. The Company owns and operates two manufacturing units located in the State of Andhra Pradesh India, one at Rajahmundry and the other at Kadiyam, in East Godavari District. 2. Significant accounting policies a. Basis of accounting and brparation of financial statements The financial statements of the Company have been brpared in accordance with the Generally Accepted Accounting Principles in India ('Indian GAAP') to comply with the Accounting Standards brscribed under Section 133 of the Companies Act, 2013, as applicable. The financial statements have been brpared on accrual basis under the historical cost convention. The accounting policies adopted in the brparation of the financial statements are consistent with those followed in the brvious year, except for the change in accounting policy for debrciation as more fully described in Note 38(a). b. Use of estimates The brparation of the financial statements in conformity with Indian GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities on the date of the financial statements and reported amounts of revenues and expenses for the year. The management believes that the estimates used in brparation of the financial statements are prudent and reasonable. Actual results could differ due to these estimates and the differences between the actual results and the estimates are recognized in the periods in which the results are known/materialize. c. Inventories Inventories are valued at the lower of cost and net realizable value after providing for obsolescence and other losses, where considered necessary. Cost includes all charges in bringing the goods to the point of sale, including octroi and other levies, and receiving charges. d. Cash and cash equivalents (for purposes of cash flow statement) Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. e. Cash flow statement Cash flows are reported using the indirect method, whereby profit/(loss) before tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information. f. Debrciation and amortization Tangible assets Debrciation on buildings is provided on straight-line method as per useful life brscribed in Schedule II of the Companies Act, 2013. Debrciation on plant and equipment is provided on straight-line method over 10 to 25 years, based on the useful life assessed as per technical assessment, taking into account the nature of asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement, anticipated technological changes, maintenance support etc. Debrciation on components of fixed assets has been provided in accordance with the requirements of Schedule II and the technical assessment as discussed above. Debrciation on other tangible fixed assets is provided on written down value method as per the useful life brscribed in Schedule II of the Companies Act, 2013. Leasehold improvements are amortized over the primary period of lease or the estimated useful life of such assets, whichever is shorter. Debrciation is calculated from the first day of the month based on the capitalization date. Intangible assets Goodwill arising on amalgamation is amortized over a period of 10 years. Software is amortized over a period of five years or estimated useful life, whichever is shorter. Individual assets costing less than or equal to Rs.15,000 are debrciated in full in the year of acquisition. g. Revenue recognition and other income Revenue from sale of goods is recognized net of returns and applicable trade discounts, when significant risks and rewards of ownership is transferred to the customers. Sales include excise duty but exclude sales tax/value added tax. Export entitlements are recognized as income when the right to receive credit as per the terms of the related scheme is established in respect of the exports made and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds. Dividend income is recognized when the unconditional right to receive the income is established. Interest income is recognized on a time proportionate method using underlying interest rates. Insurance and other claims/refunds are accounted for as and when admitted by appropriate authorities. h. Fixed assets Tangible/intangible assets Fixed assets are carried at cost less accumulated debrciation and impairment losses, if any. The cost of fixed assets includes the cost of acquisition/construction, non-refundable taxes, duties, freight, borrowing costs attributable to acquisition of the qualifying fixed assets up to the date the asset is ready for its intended use and other incidental expenses related to the acquisition and installation of the respective assets. Exchange differences arising on restatement/settlement of long-term foreign currency borrowings relating to acquisition of debrciable fixed assets are adjusted to the cost of the respective assets and debrciated over the remaining useful life of such assets in accordance with the provisions of para 46/46A of AS11 'The Effects of Changes in Foreign Exchange Rates.' Fixed assets retired from active use and held for sale are stated at the lower of their net book value and net realizable value and are disclosed separately. Capital work-in-progress Projects under which assets are not ready for their intended use are carried at cost, comprising direct cost, related incidental expenses and attributable borrowing costs. i. Foreign currency transactions Transactions in foreign currencies entered into by the Company are accounted at the exchange rates brvailing on the date of the transaction or at rates that closely approximate the rate at the date of the transaction. Foreign currency monetary items (other than derivative contracts) of the Company, outstanding at the balance sheet date are restated at the year-end rates. Non-monetary items of the Company are carried at historical cost. Exchange differences arising on settlement/restatement of short-term foreign currency monetary assets and liabilities of the Company are recognized as income or expense in the Statement of Profit and Loss. The exchange differences arising on settlement/restatement of long-term foreign currency monetary items are capitalized as part of the debrciable fixed assets to which the monetary item relates and debrciated over the remaining useful life of such assets. In respect of forward contracts entered into to hedge risks associated with foreign currency fluctuation on its existing assets and liabilities, the brmium or discount at the inception of the contract is amortized as income or expense over the period of contract. Any profit or loss arising on the cancellation or renewal of forward contracts is recognized as income or expense in the period in which such cancellation or renewal is made. j. Employee benefits Defined Contribution Plans Employee benefits in the form of provident fund, superannuation, employees' state insurance fund and labour welfare fund are considered as defined contribution plans and the contributions are charged to the Statement of Profit and Loss during the year when the contributions to the respective funds are due as and when services are rendered by employees. Provident fund Eligible employees receive benefits from a provident fund. Both the employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee's salary. Rajahmundry unit of the Company makes the contributions to 'The Employees' Provident Fund of The Andhra Pradesh Paper Mills Limited' trust maintained by the Company. The rate at which the annual interest is payable to the beneficiaries by the trust, is administered by the government (notified interest rate). The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate. The Company has no further obligations. Superannuation Certain employees of the Company are participants in the superannuation plan ('the Plan') which is a defined contribution plan. The Company contributes to the superannuation fund maintained with Life Insurance Corporation of India. Defined Benefit Plans The Company's liabilities towards gratuity and compensated absences are determined based on actuarial valuation carried out by an independent actuary using the projected unit credit method as on the date of the balance sheet. Gratuity In accordance with the Payment of Gratuity Act, 1972, the Company provides for gratuity, a defined benefit retirement plan ('the Gratuity Plan') covering eligible employees. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee's salary and the tenure of employment with the Company. Liabilities with regard to the Gratuity Plan are determined by actuarial valuation at each Balance Sheet date using the projected unit credit method. The Company fully contributes all ascertained liabilities to the gratuity fund maintained with Life Insurance Corporation and Birla Sun Life Insurance. The Company recognizes the net obligation of the Gratuity Plan in the Balance Sheet as an asset or liability, respectively in accordance with Accounting Standard (AS) 15, 'Employee Benefits.' The Company's overall expected long-term rate of return on asset has been determined based on consideration of available market information, current provisions of Indian law specifying the instruments in which investments can be made, and historical returns. The discount rate is based on the Government securities yield. Actuarial gain or losses arising from experience adjustments and changes in actuarial assumptions are recognized in the Statement of Profit and Loss in the period in which they arise. Compensated absences The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The Company fully contributes all ascertained liabilities to the fund maintained with Birla Sun Life Insurance. The expected cost of accumulating compensated absences is determined by actuarial valuation based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognized in the period in which the absences occur. k. Borrowing costs Borrowing costs include interest, amortization of ancillary costs incurred and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Costs in connection with the borrowing of funds to the extent not directly related to the acquisition of qualifying assets are charged to the statement of profit and loss over the tenure of the loan. Borrowing costs, allocated to and utilised for qualifying assets, pertaining to the period from commencement of activities relating to construction/development of the qualifying asset upto the date of capitalization of such asset is added to the cost of the assets. l. Leases Lease arrangements where the risks and rewards incidental to ownership of an asset substantially vest with the lessor are recognized as operating leases. Lease payments under operating lease are recognized as an expense in the Statement of Profit and Loss on a straight line basis over the lease term. m. Earnings per share Basic earnings per share is computed by dividing the profit/(loss) after tax (including the post-tax effect of extraordinary items, if any) by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit/(loss) after tax (including the post-tax effect of extraordinary items, if any) as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. n. Taxes on income Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961. Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognized as an asset in the Balance Sheet when it is probable that future economic benefit associated with it will flow to the Company. Deferred tax is recognized on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantially enacted as at the reporting date. Deferred tax liabilities are recognized for all timing differences. Deferred tax assets in respect of unabsorbed debrciation and carry forward losses are recognized only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realize such assets. Deferred tax assets are recognized for timing differences of other items only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realized. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each Balance Sheet date for their realizability. o. Investments Long-term investments are carried individually at cost less provision for diminution, other than temporary, in the value of such investments. Current investments are carried individually, at the lower of cost and fair value. Cost of investments includes acquisition charges such as brokerage, fees and duties. p. Impairment of assets The Company assesses at each balance sheet date whether there is any indication that an asset/ cash generating unit may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Statement of Profit and Loss. If at the balance sheet date there is an indication that if a brviously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of debrciated historical cost and such reversal of impairment is recognized in the Statement of Profit and Loss. q. Provisions and contingencies A provision is recognized when the Company has a brsent obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to their brsent value and are determined based on the best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. Contingent liabilities are disclosed in the Notes. r. Service tax input credit Service tax input credit is accounted for in the books in the period in which the underlying service received is accounted and when there is reasonable certainty in availing / utilising the credits. s. Operating cycle Based on the nature of products/activities of the Company and the normal time between acquisition of assets and their realization in cash or cash equivalents, the Company has determined its operating cycle as 12 months for the purpose of classification of its assets and liabilities as current and non-current. 3. Disclosure as per Regulation 34(3) and 53(f) of Securities and Exchange Board of India (Listing Obligations and Disclosures Requirements) Regulations, 2015: Loans and advances in the nature of loans given to subsidiaries, associates, firms/companies in which directors are interested Nil (March 31, 2015: Nil). 4. The Board of Directors of the Company at their meeting held on April 22, 2016 approved, subject to the approval of the Members, stock exchanges, Hon'ble High Court of Andhra Pradesh and Telangana or National Company Law Tribunal and other statutory authorities, a Scheme of Arrangement amongst the Company and its Members under the provisions of Sections 391 to 394 of the Companies Act, 1956, to transfer on the Appointed Date, the entire amount of Rs.28,876.29 lakhs lying in the General Reserve to the Profit & Loss Account of the Company. As per the Scheme, the Appointed Date is the close of the business hours of March 31, 2016, or such other date as may be fixed by the High Court. The Company is in the process of obtaining the necessary approvals as aforesaid, pending which, no adjustments as envisaged by the Scheme have been made in these accounts. 5. Previous year's figures have been regrouped/reclassified wherever necessary to correspond with the current year's classification/disclosures. For International Paper APPM Limited Rampraveen Swaminathan Chairman & Managing Director Badrinath Chellappa Vice President & CFO C. Prabhakar Senior Vice President (Corporate Affairs) & Company Secretary Place: Hyderabad Date: April 22, 2016 |