NOTES TO THE FINANCIAL STATEMENTS 1. General information 3M India Limited ('the Company') is a subsidiary of 3M Company, USA. The Company manages its operations in five operating segments: Industrial, Health Care, Safety and Graphics, Consumer and Energy. In India, the Company has manufacturing facilities at Ahmadabad, Bangalore, Pune and has a R&D Center in Bangalore. 3M India's five business segments bring together common or related 3M technologies that enhance the development of innovative products and services and provide efficient sharing of business resources. The Company is a public limited Company and is listed on the Bombay Stock Exchange Ltd (BSE) and the National Stock Exchange Ltd (NSE). 2. Summary of significant accounting policies a) Basis of brparation These financial statements have been brpared in accordance with the generally accepted accounting principles in India under the historical cost convention on accrual basis. Pursuant to section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014, till the standards of accounting or any addendum thereto are brscribed by Central Government in consultation and recommendation of the National Financial Reporting Authority, the existing Accounting Standards noised under the Companies Act, 1956 shall continue to apply. Consequently, these financial statements have been brpared to comply in all material aspects with the accounting standards notified under Section 211(3C) of the Companies Act, 1956 [Companies (Accounting Standards) Rules, 2006, as amended] and other relevant provisions of the Companies Act, 2013. The Ministry of Corporate Affairs (MCA) has notified the Companies (Accounting Standards) Amendment Rules, 2016 vide its notification dated March 30, 2016. The said notification read with Rule 3(2) of the Companies (Accounting Standards) Rules, 2006 is applicable to accounting period commencing on or after the date of notification i.e., April 01, 2016. All assets and liabilities have been classified as current or non-current as per the Company's operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current and non-current classification of assets and liabilities. b) Fixed assets Tangible Assets Tangible Assets are stated at acquisition cost, net of accumulated debrciation and accumulated impairment losses, if any. Subsequent expenditures related to an item of fixed asset are added to its book value only if they increase the future benefits from the existing asset beyond its brviously assessed standard of performance. Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realizable value and are shown separately in the financial statements. Any expected loss is recognized immediately in the Statement of Profit and Loss. Losses arising from the retirement of, and gains or losses arising from disposal of fixed assets which are carried at cost are recognized in the Statement of Profit and Loss. Debrciation on fixed assets including leasehold improvements are provided on straight line method over the useful lives of the assets. During the brvious year, the Company has adopted estimated useful life of fixed assets as stipulated by Schedule II to the Companies Act, 2013, applicable for accounting periods commencing 1st April 2014 or re-assessed useful life based on technical evaluation. Intangible Assets Intangible Assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortized on a straight line basis over their estimated useful lives. Gains or losses arising from the retirement or disposal of an intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of the asset and recognized as income or expense in the Statement of Profit and Loss. The amortization rates used are c) Impairment At the Balance Sheet date, the Company assesses whether there is any indication that an asset may be impaired. If such an indication exists, the Company estimates the recoverable amount. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized in the Statement of Profit and Loss to the extent carrying amount exceeds the recoverable amount. d) Inventories Inventories are valued at the lower of cost and estimated net realizable value, after providing for cost of obsolescence and other anticipated losses, wherever considered necessary. The costs of raw materials and traded goods are ascertained on First-In-First-Out basis, whereas work-in-progress and finished goods are ascertained on weighted average method. Finished goods and work-in-progress include costs of conversion and other costs incurred in bringing the inventories to their brsent location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. e) Foreign currency transactions Foreign currency transactions are recorded at the rates of exchange brvailing on the dates of the transactions. At the period end all monetary foreign assets and liabilities are restated at the rates ruling at the period end and all exchange gains/ losses arising there from is recognized in the Statement of Profit and Loss. f) Revenue recognition Sales are recognized when significant risks and rewards of ownership in the goods are transferred to the buyer and are recorded net of sales returns, trade discount, rebates and sales tax collected but includes excise duty, where applicable. Income from services rendered is booked based on agreements/ arrangements with concerned parties net of service tax. Income from duty drawback, scrap sales, contract research and management support services etc., is recognized on an accrual basis. g) Other income Interest income is recognized on a time proportion basis taking into account the amount outstanding and the rate applicable. h) Employee benefits Provident fund Contribution towards provident fund for certain employees is made to the regulatory authorities, where the Company has no further obligations. Such benefits are classified as Denied Contribution Schemes as the Company does not carry any further obligations, apart from the contributions made on a monthly basis. Superannuation The Company makes contribution to the Superannuation Scheme for certain employees participating in the scheme, a defined contribution scheme, administered by fund manager, based on a specified percentage of eligible employees' salary. The Company's obligation to the scheme is restricted to the contributions to the scheme. Gratuity The Company has an obligation towards gratuity, a denied benefit retirement plan covering eligible employees. The Company has an Employees Gratuity Fund where the investments are administered by a Fund Manager. The Company accounts for the liability of Gratuity Benefits payable in future based on an independent actuarial valuation (using the Projected Unit Credit method). Actuarial losses/ gains are recognized in Statement of Profit and Loss in the year in which they arise. Compensated absences The Company provides for the encashment/ availment of leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits, for future encashment/ availment. The liability is provided based on the number of days of unutilized leave at each balance sheet date on the basis of an independent actuarial valuation (using the Projected Unit Credit method). Actuarial losses/ gains are recognized in Statement of Profit and Loss in the year in which they arise. i) Current tax and deferred tax Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period. Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws brvailing in the respective jurisdictions. Deferred tax is recognized for all the timing differences, subject to the consideration of prudence in respect of deferred tax assets. Deferred tax assets are recognized and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. At each Balance Sheet date, the Company reassesses unrecognized deferred tax assets, if any. Current tax assets and current tax liabilities are of set when there is a legally enforceable right to set of the recognized amounts and there is an intention to setle the asset and the liability on a net basis. Deferred tax assets and deferred tax liabilities are of set when there is a legally enforceable right to set of assets against liabilities rebrsenting current tax and where the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws. j) Provisions and Contingent liabilities Provisions Provisions are recognized when there is a brsent obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to stele the obligation and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to setle the brsent obligation at the Balance sheet date and are not discounted to its brsent value. Where the Company expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when reimbursement is virtually certain. Contingent liabilities Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a brsent obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made. k) Leases Finance leases: The Company leases certain tangible assets and such leases where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the inception of the lease at the lower of the fair value of the leased asset and the brsent value of the minimum lease payments. Each lease payment is apportioned between the finance charge and the reduction of the outstanding liability. The outstanding liability is included in long-term borrowings and other current liabilities as appropriate. The finance charge is charged to the Statement of Profit and Loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Operating leases: Leases in which a significant portion of the risks and rewards of ownership are retained by the lesson are classified as operating leases. Payments made under operating leases are charged to the Statement of Profit and Loss on a straight line basis over the period of the lease. l) Segment reporting The accounting policies adopted for segment reporting are in conformity with the accounting policies adopted for the Company. Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the segment. Revenue and expenses, which relate to the Company as a whole and are not allocable to segments on a reasonable basis, have been included under "Unallocated income/ expenses". m) Cash and cash equivalents In the cash low statement, cash and cash equivalents includes cash in hand, demand deposits with banks with original maturities of three months or less. n) Earnings per share Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earnings per share, the net profit/ loss for the period attributable to the equity shareholders and the weighted average number of shares outstanding during the period is adjusted for the effects of all dilutive potential equity shares. o) Expenditure Expenses are accounted for, on accrual basis and provision is made for all known losses and liabilities. Excise duty is accrued on the goods lying at the factory brmises. Revenue expenditure on Research and Development is charged against the profit for the period in which it is incurred. Capital expenditure on Research and Development is shown as an addition to fixed assets. p) Use of estimates The brparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the period reported. Actual results could differ from those estimates; a revision to accounting estimates is recognized prospectively in the current and future periods. 1. Stock option 3M Company, USA (3M), the parent Company has offered 'General Employees Stock Purchase Plan' to all the employees of the Company. In accordance with the plan, the Company during the year has deducted for remittance a sum of Rs. 105.45 lakhs (2015: Rs. 73.05 lakhs) and cumulatively amounting to Rs. 552.01 lakhs (2015: Rs. 446.56 lakhs) from the salary of the employees who have opted for the plan. As of the year end a sum of Rs. 8.72 lakhs (2015: Rs. 7.24 lakhs) is pending remittance to the holding Company and the same is included under Other Current Liabiliies (refer note 8). 3M Company, USA (3M) has established 3M Company Long Term Incentive Plan (LTIP) / Management Stock Ownership Program (MSOP). As a part of the plan, Executive Directors and Senior Executives of 3M India Limited (3M India) are eligible to acquire shares of 3M Company, USA via stock options, stock apbrciation rights (SARs), restricted stock units (RSUs) and performance shares. The eligible employees are granted stock options / stock apbrciation rights (SARs)/ restricted stock units (RSUs) which will vest with the employees over a period of 3 years from the date of the grant and they can exercise the stock option within a stipulated period mentioned in the plan. 3M measures compensation expense for stock apbrciation rights (SARs) at their fair value determined using Black - Schools Model and restricted stock units (RSUs) based on fair market value of shares of 3M USA on the date of Grant for respective countries including India. Accordingly, an amount of Rs. 678.59 lakhs (2015: Rs. 449.35 lakhs) has been debited to the Statement of Proit and Loss for the year and included under Employee beneit expenses. During the year the Company has granted to employees of the Company 14,735 stock apbrciation rights (SARs) (2015: 11,258) and 3,515 restricted stock units (RSUs) (2015: 2,727) on various dates of which none are vested. However 2,502 stock apbrciation rights (SARs) (2015: 3,867) and 2,991 restricted stock units (RSUs) (2015: 2,678) were settled on account of being fully vested and exercised/forfeited resulting in an outstanding balance of 69,379 stock apbrciation rights (SARs) (2015: 57,146) and 12,465 restricted stock units (RSUs) (2015: 11,941) at the end of the year. The above disclosure as per Guidance Note on Accounting for Employee Share based Payment issued by Institute of Chartered Accountants of India is made to the extent the necessary information is available with the Company. 2. Inter-company agreements/ arrangements a) Intellectual property agreement - The Company has entered into Intellectual Property agreement with 3M Innovative Properties Company and 3M Company, USA effective July 1, 2006 for the payment of license fees in the form of royalties. Payments were waived off for a period of 3 years effective from July 1, 2006 to June 30, 2009. These payments have been reinstated with effect from July 1, 2009. The Intellectual Property Agreement with 3M Innovative Properties Company and 3M Company, USA has been revised effective July 1, 2013. Accordingly, the Company has incurred an expenditure of Rs.2,405.25 lakhs (2015: Rs. 1,970.22 lakhs) for the year ended March 31, 2016. b) (i) Support services/ corporate management fees - The Company has entered into support services agreement with 3M Company, USA (having expertise in establishing, operating and managing international business and incurring costs in developing, manufacturing, marketing and selling a diverse portfolio of products) with effect from April 1, 2009. The Company is charged with combrhensive support services charges by 3M Company USA for the services received from all the 3M group companies in the areas of Laboratory, Technical Assistance and Manufacturing, Selling and Marketing, Strategic and Managerial, Information Technology, Routine Administration and Foreign Services Employees Expenses. This agreement supersedes the agreement entered by the Company with 3M Asia Paciic Pte Limited dated January 1, 2003 which was terminated on March 31, 2009. The Company has also entered into support services agreement with 3M Hong Kong Ltd with effect from January 1, 2011. The Company is charged with combrhensive support services charges by 3M Hong Kong Ltd for the services rendered in 3. Previous year's figures have been regrouped/ reclassified wherever necessary to conform to current year classification. For Lovelock & Lewes Firm Registration No: 301056E Chartered Accountants Dibyendu Majumder Partner Membership No: 057687 For and on behalf of the Board Amit Laroya Managing Director [DIN - 00098933] Panagiotis Goulakos Chief Financial Officer B V Shankaranarayana Rao Whole-time Director [DIN - 00044840] V. Srinivasan Company Secretary [ACS - 16430] Place: Bangalore Date: May 27, 2016 |