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Notes to Accounts of 3M India Ltd.

Mar 31, 2014

1. GENERAL INFORMATION

3M India Limited (''the Company'') is the 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 Ahmedabad, Bangalore, Pune and has a R&D Center in Bangalore.

With effect from April 1, 2013, the Company internally aligned its operating divisions to new segments viz., Industrial, Health Care, Safety and Graphics, Consumer and Energy from its old segments viz., Industrial and Transportation Business, Health Care Business, Safety, Security and Protection Services Business, Consumer and Office Business, Display and Graphics Business. 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. RESEARCH AND DEVELOPMENT

In the year 2012-13, the Company has received approval under section 35 (2AB) of the Income Tax Act 1961 for its recognised In- House Research and Development Center at Bangalore with effect from July 20, 2012 to March 31, 2015. Accordingly, total revenue expenditure (net of recoveries) on Research and Development for the year 2013-14 is proposed to be considered for certain Income Tax benefits.

3. EMPLOYEE BENEFITS

a) The Company has recognised, in the Statement of Profit and Loss account for the period ended March 31, 2014 an amount of Rs. 1,273.64 lakhs (2013: Rs. 1,550.06 lakhs) expenses under defined contribution plans.

4. The Finance Act, 2001 has introduced, with effect from assessment year 2002-03 (effective April 1, 2001), detailed Transfer Pricing regulations for computing the taxable income and expenditure from ''international transactions'' between ''associated enterprises'' on an ''arm''s length'' basis. In addition to above, The Finance Act, 2012 has amended/inserted, with effect from assessment year 2013-14 (Effective April 01, 2013), Transfer Pricing Regulations for computing the taxable income and expenditure from ''Specified Domestic Transactions'' not being an international transaction between ''associated enterprises'' on an ''arm''s length'' basis. These regulations, inter-alia, also require the maintenance of prescribed documents and information including furnishing a report from an Accountant within due date of filing the Return of Income. For the year March 31, 2013 prescribed certificate of the Accountant has been obtained and this did not envisage any tax liability. For the fiscal year March 31, 2014, the Company is in the process of obtaining the certificate of the Accountant. The Company does not envisage any tax implication arising based out of such study. For the financial year ending March 31, 2012, the Company had undertaken a study to comply with the said transfer pricing regulations for which the prescribed certificate of the Accountant has been obtained and accordingly Company in the previous year had recognised an amount of Rs. 58.94 lakhs towards tax on voluntary Transfer Pricing adjustments relating to the financial year ended March 31, 2012 for Consumer and Office Business segment.

5. RELATED PARTY TRANSACTIONS: Names of related parties and nature of relationship: i) Holding Company 3M Company, USA

ii) Key Management personnel

Ajay Nanavati (up to 30th September, 2013) Amit Laroya (from 1st October, 2013) B.V. Shankaranarayana Rao Sadhana Kaul (up to 31st October, 2013)

6. ASSETS TAKEN ON LEASE Operating Lease:

The Company has taken office premises, warehouse, residential premises, vehicles and office equipment under operating lease agreements that are renewable on a periodic basis at the option of both the lessor and lessee. The initial tenure of the lease is generally for eleven months to ninety six months. The minimum rental payments under the operating leases under non- cancellable lease term as at March 31, 2014 is as under:

7. DERIVATIVE INSTRUMENTS AND UNHEDGED FOREIGN CURRENY EXPOSURE

a. Derivatives outstanding as at the reporting date

Particulars Purpose

Forward Contracts to Sell USD Hedge of firm commitment and - highly profitable forecast transaction

Forward Contracts to buy USD Hedge of external commercial borrowings -

Segments have been identified in line with the Accounting Standard on Segment Reporting (AS-17), taking into account the organisation structure as well as the differential risks and returns of these segments.

Segment revenue, results and capital employed figures include the respective amounts identifiable to each of the segments. Other unallocable income net off unallocable expenditure are towards common services to the segments which are not directly identifiable to the individual segments as well as those at a corporate level which relate to the Company as a whole.

The Company operates mainly to the needs of domestic market and export turnover is not significant in context of total turnover.

Accordingly, there are no reportable geographical segments.

With effect from April 1, 2013, the Company internally aligned its operating divisions to new segments viz., Industrial, Health Care,

Safety and Graphics, Consumer and Energy from its old segments viz., Industrial and Transportation Business, Health Care

Business, Safety, Security and Protection Services Business, Consumer and Office Business, Display and Graphics Business.

The products included in each of the reported segments are as follows:

(a) Industrial: Major products under this segment include vinyl, polyester, foil and specialty industrial tapes and adhesives: Scotch Masking Tape, Scotch Filament Tape and Scotch Packaging Tape; Functional and Decorative Graphics; Abrasion- Resistant Films, Masking Tapes and Other Specialty Materials.

b) Health Care: Major products include medical and surgical supplies, medical devices, skin & wound care and infection preven- tion products & solutions, drug delivery systems, dental and orthodontic products and food safety products.

c) Safety and Graphics: Major product under this segment include personal protection products, brand & asset protection solutions, border control products, passive fire protection products for industries and commercial establishments, track and trace products, cleaning and hygiene products for the hospitality industry.

Graphics Business consists of four divisional subsets- the Traffic Safety Systems Division (TSSD), the Commercial Graphics Division (CGD), the Architectural Markets Division (AMD) and the Mobile Interactive Solutions Division (MISD). TSSD products include retro reflective traffic signs for highways and cities, pavement marking and vehicle registration products and services. CGD portfolio includes products like films, inks and digital signage products. AMD products includes wall and glass cladding products coupled with architectural interior services and environmental graphics for home and office spaces. MISD products include projection systems, computer and ATM-screen privacy filters and brightness enhancement films for televi- sion, avionics and automotive displays.

d) Consumer : Consumer and Office Business includes products such as Scotch brand, addressing the Home & Office tapes, Adhesives, Packaging protection platforms; Post-it brand with a product range of Note Pads, Dispensers, Flagging solution, Labels and Scotchguard brand addressing the stain protection market.

e) Energy: Energy includes products such as Fusion Bonded Epoxy coatings, Sun films and renewable energy.

8. 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. 63.13 lakhs (2013:Rs. 49.31 lakhs) and cumulatively amounting to Rs. 373.51 lakhs (2013: Rs. 310.38 lakhs) from the salary of the employees who have opted for the plan. As of the year end a sum of Rs. 5.87 lakhs (2013: Rs. 4.69 lakhs) is pending remittance to the holding company and the same is included under Other Current Liabilities (refer note 9).

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 appreciation rights (SARs), restricted stock units (RSUs) and performance shares. The eligible employees are granted stock options / stock appreciation 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 appreciation rights (SARs) at their fair value determined using Black – Scholes 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. 615.38 lakhs (2013: Rs. 299.59 lakhs) has been debited to the Statement of Profit and Loss account for the year and included under Employee Benefit Expenses.

During the year the Company has granted to employees of the Company 14,621 stock appreciation rights (SARs) (2013: 16,600) and 4,847 restricted stock units (RSUs) (2013: 3,320) on various dates of which none are vested. However 14,978 stock appreciation rights (SARs) (2013: 3,917) and 3,151 restricted stock units (RSUs) (2013: 3,233) were settled on account of being fully vested and exercised/forfeited resulting in an outstanding balance of 43,826 stock appreciation rights (SARs) (2013: 44,283) and 12,626 restricted stock units (RSUs) (2013: 10,930) at the end of the year.

The above disclosure as per Guidance Note on Accounting for Employee Share based Payment issued by ICAI is made to the extent the necessary information is available with the Company.

9. INTERCOMPANY AGREEMENTS/ ARRANGEMENTS:

a) Intellectual property agreement – The Company had 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. 1,375.71 lakhs (2013: Rs. 1,051.96 lakhs) for the period April 1, 2013 to March 31, 2014.

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 comprehensive 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 Pacific Pte Limited dated January 1, 2003 which was terminated on March 31, 2009.

The Company has also entered into support services agreement (MOU''s) with 3M Hong Kong Ltd with effect from January 1, 2011. The Company is charged with comprehensive support services charges by 3M Hong Kong Ltd for the services rendered in the area of Laboratory, Technical Assistance and manufacturing, Selling and marketing and strategic and managerial. This agreement is in addition to the agreement already entered by the Company with 3M Company USA dated April 1, 2009.

The Company has accrued an amount of Rs. 1,550.00 lakhs (2013: Rs. 1,300.00 lakhs) in respect of estimated liability for the above services during period January 1, 2014 to March 31, 2014; the actual liability would be ascertained by December 2014.

(ii).The support service agreement enables the Company to recharge expenses relating to Foreign Service Employees (FSEs) of 3M Company and its affiliates consistent with 3M Company''s Global Financial Standard on FSEs. Accordingly the Company has recognised a receivable of Rs. 1,019.89 lakhs (2013: Rs. 702.98 lakhs).

c) Contract research agreement – The Company has entered into contract research agreement with 3M Innovative Properties Company and 3M Company, USA effective July 1, 2006 for carrying out contract research activities. During the year, Company has recognised an income of Rs. 2,424.62 lakhs (2013: Rs. 1,725.45 lakhs).

10. The company during the year has recognised incremental service tax input credit pertaining to previous years. Accordingly, an amount of Rs. 123 lakhs pertaining to financial year 2011-2012 and Rs. 461.27 lakhs pertaining financial year 2012-13 has been included under other income.

11. Previous year''s figures have been regrouped / reclassified wherever necessary to conform to current year classification.


Mar 31, 2013

1. GENERAL INFORMATION

3M India Limited (''the Company'') is the subsidiary of 3M Company, USA. The Company markets several products in India in health care; industrial markets; display and graphics; consumer and office; safety, security and protection services; and transportation. In India, the Company has manufacturing facilities at Ahemdabad, Bangalore, Pune and has a R&D Center in Bangalore.

The Company manages its operations in five operating business segments: Industrial and Transportation Business; Health Care Business; Display and Graphics Business; Consumer and Office Business and Safety, Security and Protection Services Business. 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. RESEARCH AND DEVELOPMENT

During the year, the Company has received approval under section 35 (2AB) of the Income Tax Act 1961 for its recognised In- House Research and Development Center at Bangalore with effect from July 20, 2012 to March 31, 2015. Accordingly, total revenue expenditure (net of recoveries) on Research and Development for the period July 20, 2012 to March 31, 2013 is proposed to be considered for certain Income Tax benefits.

3. EMPLOYEE BENEFITS

a) The Company has recognised, in the Statement of Profit and Loss account for the period ended March 31, 2013 an amount of Rs. 1,550.06 (2012: Rs. 1,551.08) expenses under defined contribution plans.

4. The Finance Act, 2001 has introduced, with effect from assessment year 2002-03 (effective April 1, 2001), detailed Transfer Pricing regulations for computing the taxable income and expenditure from ''international transactions'' between ''associated enterprises'' on an ''arm''s length'' basis. These regulations, inter alia, also require the maintenance of prescribed documents and information including furnishing a report from an Accountant within due date of filing the Return of Income. For the financial year ending March 31, 2012, the Company had undertaken a study to comply with the said transfer pricing regulations for which the prescribed certificate of the Accountant has been obtained and accordingly company has recognised an amount of Rs. 58.94 towards tax on voluntary Transfer Pricing adjustments relating to the financial year ended March 31, 2012 for Consumer and Office Business segment.

For the fiscal year March 31, 2013, the Company is in the process of updating the transfer pricing study to comply with the said regulation. The management do not envisage any tax implication arising based out of such study.

5. ASSETSTAKEN ON LEASE

Operating Lease:

The Company has taken office premises, warehouse, residential premises, vehicles and office equipment under operating lease agreements that are renewable on a periodic basis at the option of both the lessor and lessee. The initial tenure of the lease is generally for eleven months to ninety six months. The minimum rental payments under the operating leases under non- cancellable lease term as at March 31, 2013 is as under:

Segments have been identified in line with the Accounting Standard on Segment Reporting (AS-17), taking into account the organization structure as well as the differential risks and returns of these segments.

Segment revenue, results and capital employed figures include the respective amounts identifiable to each of the segments. Other unallocable income net off unallocable expenditure are towards common services to the segments which are not directly identifiable to the individual segments as well as those at a corporate level which relate to the Company as a whole.

The Company operates mainly to the needs of domestic market and export turnover is not significant in context of total turnover. Accordingly, there are no reportable geographical segments.

Presently, the Company''s operating results were managed on the basis of its existing segment structures viz., Industrial and Transportation, Health Care, Display and Graphics, Consumer and Office and Safety, Security and Protection Services through April 2012 to March 2013.

The products included in each of the reported segments are as follows:

(a) Industrial and Transportation Business: Major products under this segment include vinyl, polyester, foil and specialty industrial tapes and adhesives: Scotch Masking Tape, Scotch Filament Tape and Scotch Packaging Tape; Functional and Decorative Graphics; Abrasion-Resistant Films, Masking Tapes and Other Specialty Materials.

b) Health Care Business: Major products include medical and surgical supplies, medical devices, skin & wound care and infection prevention products & solutions, drug delivery systems, dental and orthodontic products and food safety products.

c) Safety, Security and Protection Services Business: Major product under this segment include personal protection products, brand & asset protection solutions, border control products, passive fire protection products for industries and commercial estab- lishments, track and trace products, cleaning and hygiene roducts for the hospitality industry.

d) Consumer and Office Business: Consumer and Office Business includes products such as Scotch brand, addressing the Home & Office tapes, Adhesives, Packaging protection platforms; Post-it brand with a product range of Note Pads, Dispensers, Flagging solution, Labels and Scotchguard brand addressing the stain protection market.

e) Display and Graphics Business: Display & Graphics Business consists of four divisional subsets- the Traffic Safety Systems Division (TSSD), the Commercial Graphics Division (CGD), the Architectural Markets Division (AMD) and the Mobile Interactive Solutions Division (MISD). TSSD products include retro reflective traffic signs for highways and cities, pavement marking and vehicle registration products and services. CGD portfolio includes products like films, inks and digital signage products. AMD products includes wall and glass cladding products coupled with architectural interior services and environmental graphics for home and office spaces. MISD products include projection systems, computer and ATM-screen privacy filters and bright- ness enhancement films for television, avionics and automotive displays.

Consistent with 3M''s global strategy of building relevance and presence in the marketplace, the Company will also align resources and management towards a new revised structure comprised of five business groups: Consumer; Industrial; Health Care; Safety and Graphics; and Energy, with the intention that results be managed under the new alignment once it is fully effective from April 1, 2013 onwards.

6. 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. 49.31 (2012: Rs. 44.36) and cumulatively amounting to Rs. 310.38 (2012: Rs. 261.07) from the salary of the employees who have opted for the plan. As of the year end a sum of Rs. 4.69 (2012: Rs. 3.42) is pending remittance to the holding company and the same is included under Other Current Liabilities (refer note 9).

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 via stock options, stock appreciation rights (SARs), restricted stock units (RSUs) and performance shares. The eligible employees are granted stock options / stock appreciation 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 appreciation rights (SARs) and restricted stock units (RSUs) at their fair value determined using Black - Scholes Model on the date of Grant for respective countries including India. Accordingly, an amount of Rs.299.59 (2012: Rs. 319.81 ) has been debited to the Statement of Profit and Loss account for the year and included under Employee benefit Expenses.

During the year the Company has granted to employees of the Company 16,600 stock appreciation rights (SARs) (2012: 8,858) and 3,320 restricted stock units (RSUs) (2012:1,968) on various dates of which none are vested. However 3,917 stock appreciation rights (SARs) (2012: 2,547) and 3,233 restricted stock units (RSUs) (2012: 2,848) were settled on account of being fully vested and exercised resulting in an outstanding balance of 44,283 stock appreciation rights (SARs) (2012:34,734) and 10,930 restricted stock units (RSUs) (2012:10,371) at the end of the year.

The above disclosure as per Guidance Note on Accounting for Employee Share based Payment issued by ICAI is made to the extent the necessary information is available with the Company.

7. INTERCOMPANY AGREEMENTS/ ARRANGEMENTS:

a) Intellectual Property Agreement - The Company had 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. Accordingly, the Company has incurred an expenditure of Rs. 1,051.96 (2012: Rs. 1,195.72) for the period April 1, 2012 to March 31, 2013.

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 comprehensive 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 Pacific Pte Limited dated January 1, 2003 which was terminated on March 31, 2009.

The Company has also entered into support services agreement (MOU''s) with 3M Hong Kong Ltd with effect from January 1, 2011. The Company is charged with comprehensive support services charges by 3M Hong Kong Ltd for the services rendered in the area of Laboratory, Technical Assistance and manufacturing, Selling and marketing and strategic and managerial. This agreement is in addition to the agreement already entered by the Company with 3M Company USA dated April 1, 2009.

The Company has accrued an amount of Rs. 1,300.00 (2012: Rs. 1,250.00) in respect of estimated liability for the above services during period January 1, 2013 to March 31, 2013; the actual liability would be ascertained by December 2013.

(ii).The Support Service Agreement enables the Company to recharge expenses relating to Foreign Service Employees (FSEs) of 3M Company and its affiliates consistent with 3M Company''s Global Financial Standard on FSEs. Accordingly the Company has recognized a receivable of Rs. 702.98 (2012: Rs. 696.44).

c) Contract Research Agreement - The Company has entered into contract research agreement with 3M Innovative Properties Company and 3M Company, USA effective July 1, 2006 for carrying out contract research activities. During the year, Company has recognized an income of Rs. 1,725.45 (2012: Rs. 1,410.92).

8. Previous year''s figures have been regrouped / reclassified wherever necessary to conform to current year classification.

 
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