3M India AR 2006

8/7/2019 3M India AR 2006

1/47

1

3M India Limited

DIRECTORS Mr. Yashovardhan Birla Chairman

Mr. Bert ODonoghue Managing Director

Mr. Thomas P. Spencer Director

Ms. Mary B. McCormick Director

Dr. Carlisle S. Boyce Director

Mr. B.S. Iyer Director

Mr. D.J. Balaji Rao Director

Mr. B.C. Prabhakar Director

Mr. B.V. Shankaranarayana Rao Director

COMPANY SECRETARY Mr. K. Ramesh Chandra

AUDIT COMMITTEE Mr. B.S. Iyer Chairman

MEMBERS Mr. D.J. Balaji RaoMr. B.C. Prabhakar

Ms. Mary B. McCormick

SHAREHOLDERS Mr. D.J. Balaji Rao Chairman

GRIEVANCE COMMITTEE Mr. B.S. Iyer

Mr. B.C. Prabhakar

Mr. Yashovardhan Birla

Mr. Bert ODonoghue

BANKERS Bank of America

BNP Paribas

Canara Bank

Citibank N. A.

Deutsche Bank

HDFC Bank

Hongkong & Shanghai Banking Corporation Limited

ICICI Bank Limited

State Bank of India

AUDITORS M/s. Lovelock & Lewes, Chartered Accountants

LEGAL ADVISORS J. Sagar Associates

Advocates & Solicitors

4121/B, 19 A Main, 6th Cross

HAL II Stage Extension, Bangalore - 560 038

SHARE TRANSFER AGENTS Karvy Computershare Pvt. Ltd.46, Avenue Ford

Street No. 1, Banjara Hills

Hyderabad - 500 034

Tel: 040-23420816 / 824

Fax: 040-23420814

WEBSITE www.3m.com/intl/in

INVESTORS QUERIES [email protected]

8/7/2019 3M India AR 2006

2/47

2

3M India Limited

Registered Office

Plot No. 48-51, Electronics City

Hosur Road

Bangalore - 560 100

Tel : 080 - 28520203

Fax : 080 - 28520576

Corporate Office

Raheja Paramount

138, Residency Road

Bangalore - 560 025

Tel : 080 - 22231414

Fax : 080 - 22231450

innovate, grow, deliver

Contents

Message from the Chairman .................................................................................................................................................... 4

Message from the Managing Director ............................................................................................................................. 5

Report of the Directors ...................................................................................................................................................................6

Management Discussion and Analysis..............................................................................................................................9

Report of the Corporate Governance .............................................................................................................................13

Auditors Report ..................................................................................................................................................................................23

Annexure to Auditors Report ................................................................................................................................................ 24

Balance Sheet ...................................................................................................................................................................................... 26

Profit and loss Account ...............................................................................................................................................................27

Notes to Accounts ........................................................................................................................................................................... 34

Cash Flow Statement ........................................................................................................... .........................................................46

New Corporate Office(w.e.f. 2nd April, 2007)

Concorde Block, UB City

24, Vittal Mallya Road

Bangalore - 560 001

Tel : 080 - 22231414

Fax : 080 - 22231450

8/7/2019 3M India AR 2006

3/47

3

3M India Limited

Vision

To be the most innovative enterprise

and the preferred supplier

3M

Performance

Initiatives

Six Sigma

3M Acceleration

Sourcing effectiveness

eProductivity

Values

Satisfy customers with superior

quality value and service.

Provide investors an attractive

return through sustained

quality growth.

Respect our social and physical

environment.

Be a Company employees are

proud to be part of.


8/7/2019 3M India AR 2006

4/47

4

3M India Limited

MESSAGE FROM THE CHAIRMAN

The year ended December 31, 2006 has done me proud. We achieved extremelystrong double digit growth on the top & bottom line. However, growth in isolation isnot the only barometer of long term and sustained success. We strengthened thecompetitive ability of the businesses we are in and developed local solutions to addressthe needs of the Indian market. 3Ms uniqueness lies in the innovativeness and diversityof its technologies and our efforts continue to propel us towards offering our customersproducts and solutions that enable them to succeed in their work and daily life.

Indeed, it has been a landmark year in the history of this Company. Oureconomic environment has ably supported our growth agenda & efforts. The countryhas moved to a new growth trajectory in terms of GDP & per capita income and 3MIndia firmly delivered strong double-digit growth at 33%

Ultimately, a performance as laudable as the one 3M India has had in 2006 isa direct result of a top-notch management and a committed, dedicated team of employees.It is my belief that results such as these come from a team that pursues excellencesteadfastly while maintaining the strongest ethical standards. Stay on course!

We have set ourselves a solid vision for this company and I believe we have

now internalised this vision. To make this vision a reality, we need to reignite ourcompetitive hunger and use this to drive growth and world-class performance.We will pursue all growth opportunities systematically and aggressively and welook for your continued support and goodwill.

Yashovardhan Birla


8/7/2019 3M India AR 2006

5/47

5

3M India Limited

MESSAGE FROM THE MANAGING DIRECTOR

2006 has been my first full year as the Managing Director of 3M India and I am proud to report that it has beenanother excellent year for the company. Your company was committed to delivering solid, consistent profitable growth,driven by top-line growth and continuous improvements in operational efficiency. In 2006, we witnessed a net sales growth of33% and a solid earnings growth of 31%, with our volume growth gathering momentum throughout the year, taking the overallturnover to Rs. 510 crores. We have also maintained a very strong and healthy financial position.

We have over the past few years been steadfast in implementing a well structured strategic roadmap to fulfill ourvision and goals. This has included a judicious mix of organic and inorganic growth that focused on increasing our productportfolio, greater technology capability, developing and deepening our relationships with a wider customer base, expansion ofour network and strengthening our operational scales. In the year under review, we have taken several significant strides inour journey towards leadership in the markets we serve.

In line with this, 3M India has also taken steps to increase its manufacturing footprint in India. The Board of Directors ofyour Company approved investments of Rs.114 crores for the new manufacturing facility at Ranjangoan, MIDC IndustrialPark, Pune. Construction works are currently underway and I expect the new plant to become operational by the 1st half of 2008.The long-term plan is to utilize this site for manufacturing of core 3M products for both the Industrial and Consumer Markets.In addition, the current manufacturing facility at Electronics City, Bangalore is undergoing expansion and is expected to becomplete by April 2007. This expansion will mean a 20% increase in capacity which is significant to meet customer needs

All in all, I consider 2006 to have been a solid year for your company. A year that has shaped the course for ourleadership and success

Everyone at 3M recognizes that we live in an era where speed and simplicity trump bureaucracy and complexity. I dobelieve we have ample opportunity to improve both speed and efficiency. We are moving forward with a conscious focus onstreamlining and supercharging both our decision-making and our operations. At the same time, the challenge is to unlock and

unleash 3Ms technological creativity and prowess, and transform ideas into products and ultimately into sustainable growth andprofits streams. Albert Einstein said that imagination is more important than knowledge. While we will invest increased energyand resources in commercialization, marketing and new product launches, we will not forget what makes 3M great imagination.

Your company is a dynamic and changing enterprise in many ways. Among the elements that will not change, however,is 3Ms commitment to achieving results ethically, with honor and with integrity. The trust of our customers, employees andshareholders is of paramount importance to me and to the entire leadership of 3M India. We will continue to dedicate ourselvesto operating in the right way.

My optimism is rooted in my confidence in the people of 3M. I have been deeply impressed with the professionalism andpassion of 3Mers - it is really quite amazing to see the depth of it. I see a renewed commitment to growth through innovationand to helping our customers succeed. Those things are vital for our success.

A brand new year ushers in myriad opportunities, new partnerships, exciting ventures a year of more promises tokeep, higher goals to achieve and more smiles to bring on the faces of all those associated with us. The people of 3M reaffirm ourcommitment to excellence as we look ahead to another year with a determination to sustain our momentum and success.

Finally, I want to thank our Board of Directors for their advice and guidance during the past 12 months. My specialthanks to Mr.Amit Mukherjee who retired from our Board late in 2006 for many years of active involvement. We aredelighted that we were able to find such a wonderful replacement in Mr.B.C.Prabhakar.

Bert O Donoghue


8/7/2019 3M India AR 2006

6/47

6

3M India Limited

Your Directors have pleasure in presenting their 20 th Annual Report and the Audited Accounts for the year ended December 31, 2006.

FINANCIAL RESULTS

(Rs. in lakhs)

For the year ended For the year endedDecember 31, 2006 December 31, 2005

Total Income 51,039.59 38,306.05

Less : Total Expenditure 42,597.01 31,574.69

Profit before Depreciation 8,442.58 6,731.36

Less : Depreciation 645.54 673.06

Profit before Taxation 7,797.04 6,058.30

Less : Provision for Taxation 2,754.99 2,216.53

Profit after Taxation 5,042.05 3,841.77

COMPANY PERFORMANCE

The Company has recorded a good performance during the year under review. The total income was at Rs.51,039.59 lakhs for the year

ended December 31, 2006 as against Rs.38,306.05 lakhs for the same period during the previous year, higher by 33%. Profit after

taxation was at Rs. 5,042.05 lakhs for the year ended December 31, 2006 as against Rs. 3,841.77 lakhs for the same period during the

previous year, an increase by 31%.

DIVIDEND

In view of the on-going investment and further expansion, it was decided to retain the earnings. Hence, no dividend has been

recommended.

MATERIAL CHANGES AND COMMITMENTS

There were no material changes and commitments affecting the financial position of the Company that have occurred betweenDecember 31, 2006 and the date on which this report has been signed.

DIRECTORS

Mr.Amit Mukherjee resigned from directorship of the Company on December 11, 2006 and Mr.B.C.Prabhakar was appointed as a

Director of the Company on December 11, 2006 in the casual vacancy caused by the resignation of Mr.Amit Mukherjee. The Board

places on record their sincere appreciation for the services rendered by Mr.Amit Mukherjee. The Directors also welcomed

Mr.B.C.Prabhakar to the Board.

The term of office of Mr.B.V.Shankaranarayana Rao, Whole-time Director will expire on March 31, 2007 and the Directors recommend

his re-appointment at the ensuing Annual General Meeting.

Ms. Mary B. McCormick and Mr.B.C.Prabhakar are retiring by rotation at the ensuing Annual General Meeting and being eligible, offer

themselves for re-election / appointment.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 217 (2AA) of the Companies Act, 1956 with respect to the Directors ResponsibilityStatement, your Directors state:

i) that in the preparation of annual accounts, the applicable accounting standards have been followed along with proper explanation

relating to material departures;

ii) that they have selected such accounting policies and applied them consistently and made judgements and estimates that are

reasonable and prudent so as to give a true and fair view of the state of affairs of the Company for the year ended December

31, 2006 and of the profit of the Company for that period;

REPORT OF THE DIRECTORS


8/7/2019 3M India AR 2006

7/47

7

3M India Limited

iii) that they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the

provisions of this Act, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv) that they have prepared the financial statements for the year ended December 31, 2006 on a going concern basis.

CORPORATE GOVERNANCE

Pursuant to Clause 49 of the Listing Agreement with Stock Exchanges, a separate section titled Corporate Governance has beenincluded in this annual report, along with the report of Management Discussion and Analysis and additional shareholder information.

FIXED DEPOSITS

During the year under review, the Company has not accepted any deposits under Section 58A and 58AA of the Companies Act, 1956

read with the Companies (Acceptance of Deposits) Rules, 1975.

AUDITORS

M/s. Lovelock & Lewes, Chartered Accountants, Bangalore, Auditors of the Company will retire at the conclusion of the ensuing

Annual General Meeting and being eligible, offer themselves for re-appointment. The Company has received a certificate from the

Auditors to the effect that their re-appointment, if made, would be in accordance with Section 224(1B) of the Companies Act,1956.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Information required under Section 217(1)(e) of the Companies Act,1956 read with Companies (Disclosure of Particulars in the Report

of the Board of Directors) Rules, 1988 enclosed as Additional Information and forms an integral part of this Report.

LISTING

The shares of your Company are presently listed on Bombay Stock Exchange Limited (BSE) and The National Stock Exchange of India

Limited (NSE). The delisting application, was filed with Calcutta Stock Exchange Association Limited and the formal approval is awaited.

PERSONNEL

The Board wishes to place on record its appreciation to all employees in the Company, for their sustained efforts and immensecontributions to the high level of performance and growth that your Company has achieved during the year.

PARTICULARS OF EMPLOYEES

The Annual Report and Accounts are being sent to all shareholders of the Company without the statement of particulars of

employees Under Section 217 (2A) of the Companies Act, 1956 read with (Particulars of Employees) Rules, 1975. Member who is

interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.

ACKNOWLEDGEMENT

Your Directors wish to place on record their sincere appreciation for the continued support and valuable co-operation extended by

all the Stakeholders. The Directors also wish to express their gratitude to all the Shareholders for the faith that they continue to

repose in the Company.

On behalf of the Board of Directors

Place : Bangalore Bert ODonoghue B.V. Shankaranarayana Rao

Date : February 26, 2007 Managing Director Whole-time Director


8/7/2019 3M India AR 2006

8/47

8

3M India Limited

ADDITIONAL INFORMATION AS REQUIRED UNDER SECTION 217(1)(e) OF THE COMPANIES ACT,1956 READ WITH COMPANIES

(DISCLOSURE OF PARTICULARS IN THE REPORT OF THE BOARD OF DIRECTORS) RULES, 1988

A. CONSERVATION OF ENERGY

The Company plant engineering team periodically reviews and monitors energy consumption. During the previous year under

review, there were no additional investments made and implemented for reduction of consumption of energy.

B. TECHNOLOGY ABSORPTION AND RESEARCH & DEVELOPMENT1. Specific areas in which Research &

Development carried out by the Company - Industrial Business: Adhesives, Abrasives & Tapes

- Corrosion Protection Products: Powder and liquid epoxies for

corrosion protection

- Consumer Business: Cleaning solutions

- Transportation Business: Automotive aftermarket formulations

- Localized manufacturing of products

2. Benefits derived as a result of the above

Research & Development - New applications developed to serve Indian market needs

- Reduced cost solutions for our customers and end users

- Business growth3. Future plan of action - Localized manufacturing of products

- Development of products for India in the areas of Corrosion

Protection, Automotive, Industrial, Medical, Construction,

and Consumer Markets

4. Expenditure on Research & Development (Rs.in Lakhs)

a) Capital Nil

b) Recurring 36.12

c) Total 36.12

d) Total Research & Development expenditure as

a percentage of total turnover 0.07

3. FOREIGN EXCHANGE EARNINGS AND OUTGO

During the year, the foreign exchange earnings were Rs.622.03 lakhs and foreign exchange outgo was Rs.729.28 lakhs.




8/7/2019 3M India AR 2006

9/47

9

3M India Limited

Investors are cautioned that this discussion contains statements that involve risks and uncertainties. Words like anticipate, believe, estimate, intend,

will & expect and other similar expressions are intended to identify such forward looking statements. The Company assumes no responsibility to

publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events. Besides, the

Company cannot guarantee that these assumptions and expectations are accurate or will be realized and actual results, performance or achievements

could thus differ materially from those projected in any such forward looking statements.

MANAGEMENT DISCUSSION AND ANALYSISThe previous year under review was a significant year in the Companys journey to achieving substantial progress in respect of its strategicobjectives. During the year under review, the Company remained steadfast in its pursuit of goals and achieved several breakthroughs.

The Management of the Company presents its analysis covering the performance of the Company during the previous year and an

outlook for the future. The future outlook is based on the current business environment, which is dynamic and variable.

The Company has a wide spectrum of products to cater to the requirements of Industrial, Automotive, Healthcare, Consumer & OfficeMarkets, etc., to name a few.

a) INDUSTRY STRUCTURE AND DEVELOPMENTS

The Company total income grew by 33% during the year 2006.The economic growth of the country continues to present

several attractive opportunities. The Company continues its focus on Industrial Segments due to its technological advantageof products and expertise. Your Company sources its requirement of materials both for manufacturing & trading from its 3M

Affiliates around the globe as the products are technologically advanced.

Major portion of the revenue comes from traded goods which 3M has technological advantage worldwide. A few of our power

brands are Scotchkote, Scotchtint, Micropore, Thinsulate, Post-it , Filtrete , Scotch..

b) OPPORTUNITIES AND THREATS

Company faces normal market competition in all its businesses from Indian as well as international companies. 3Ms globally

competitive cost positions and well crafted business strategies enables it to retain its leading market positions. We strongly

believe in our Brand Equity.

c) SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

INDUSTRIAL MARKETS

Industrial Markets segment represents some of our original businesses, such as tape, coated and non-woven abrasives, and specialty

adhesives. As industrial brands are continuously transformed through technological innovation, this business segment also aptly represents

3M innovations at work. This segment market now offers the broadest line of products for markets in automotive, aerospace and automotive

after-markets. Product applications range from grinding, surface conditioning and super abrasives to packaging systems.

Rs. in lakhs

31.12.06 31.12.05

Financial Highlights Segment Revenue 9,434.86 6,456.68

Profit before Interest & Tax 1,797.04 1,388.86

Capital Employed 2,167.72 1,361.93

Highlights The Industrial Business grew by 46% in 2006 and this was driven by:

- Development and implementation of specific programs aimed at focus segments likeConstruction Components, Automotive, Auto-Parts, Metal Fabrication and Industrial Utility.

- Sales from the launch of new products into the above segments.

8/7/2019 3M India AR 2006

10/47

10

3M India Limited

AUTOMOTIVE & SPECIALTY MATERIALS MARKETS

This segment provides a range of design and engineered solutions to Automotive OEMs and a very wide range of automotive repair and car

grooming solutions to the Automotive Aftermarkets. 3M is acknowledged as a innovative supplier of solutions for the Automotive Industry and

is a market leader in the non-paint consumables segment in the Auto-Aftermarkets space. 3M is a pioneer in the car care business and is forging

partnerships at a majority of car dealerships by way of Auto OEM approvals. This segment also serves the oil and gas pipeline, automotive

ancillary industries, paints and water infrastructure.

Rs. in lakhs

31.12.06 31.12.05




Highlights The Business showed impressive growth of over 39% in 2006.

- Several new applications and approvals gained with Indian and Global automotive

companies.

- Blue print of 5 year strategic plan in place for accelerating growth significantly.

- There are a number of new oil and gas pipeline projects that have been announced.

The products from Corrosion Protection Plant, Ahmedabad supports the pipelinemanufacturing industry, with the introduction of dual layer coating that will provide

significant benefits to our customer, both in cost and productivity. Similarly, the

introduction of 3M microspheres in oil wells has given improved light weight cement

applications.

HEALTH CARE MARKETS

Health Care Markets segment holds leading position in a broad array of market segments in medical, surgical and dental products and also provides

technologies for other health care manufacturers.

Rs. in lakhs

31.12.06 31.12.05

Financial Highlights Segment Revenue 7,090.37 5,501.07Profit before Interest & Tax 427.12 335.08


Highlights - Continued focus and efforts on knowledge transfer and sharing between the

Company and customers to ensure better patient outcomes.

- Contacted over 60000 customers by our marketing, technical and international

speaker programs in the medical and dental markets. Continued reinforcement of our

association with governing bodies and local chapters of nurses clubs and infection

control societies, etc.

- Medical business expanded its reach to 110 cities and increased penetration indressings and asepsis categories by new product launches and successful customer

engagement. Littmann stethoscopes recorded a large increase due to promotional

efforts with some pharmaceutical companies.

- Dental business recorded high growth primarily driven by prosthodontics products.

The customer loyalty programs continued to reap dividends and sales grew by over 100 %.The new initiatives with Dental schools in the country has helped to develop close

relationships with customers.

- Continued engagement with key customers in the medical business through

six sigma projects thereby improving relationships and business with these

customers.

8/7/2019 3M India AR 2006

11/47

11

3M India Limited

TRAFFIC AND SAFETY MARKETS

This segment offers products that enhance worker, public and vehicle safety. Major product lines include advanced reflective materials for traffic

and personal safety; graphic films, hardware, software, inks and toners for large-format identity and advertising graphics; respirators & hearing

protection products for worker safety, library security systems & computer filter screens for eye protection.

Rs. in lakhs

31.12.06 31.12.05




Highlights - Expansion of the road network at the national and state levels resulted in increased

demand for the Companys reflective sheeting products for traffic signage.

- The Companys reflective sheeting was used in the prestigious Mumbai Metropolitan

Regional Development Authority (MMRDA) road projects. City DevelopmentAuthorities in Jaipur, Lucknow, Ahmedabad, Noida & Mysore also used the Companys

reflective sheeting. The products are also used by many other States around the country.

- The Companys Commercial Graphics division continues to be a preferred supplier of

commercial fascia signage material (vinyl and flexible substrate) to several large national

Corporate.

- During the year, the Companys Occupational Health & Environment Safety Division

strengthened its leadership position as the preferred supplier of respiratory and

hearing protection products to Indian industry.

- The Companys Optical System division launched a new product called XRVS screensfor retail display which has met with a very encouraging response from the market.

CONSUMER & OFFICE MARKETS, CONSTRUCTION MARKETS

This segment offers an array of products that help keep homes cleaner, offices organized and buildings maintained. Thisbusiness segment features some of the worlds best-known brands, from Scotch to Scotch-Brite and Post-it .

Rs. in lakhs

31.12.06 31.12.05


Profit before Interest & Tax 917.68 566.35

Capital Employed 936.57 946.22

Highlights - During the year under review, Home Care division introduced steel ball product to expand

the brand usage of Scotch-brite. The product was well accepted, with free scrub

pad offer.

- Consumer division office business, under the Post-it brand, was introduced Lined & Matrixnotes which are doing well in the modern trade. The 25% free offer with the original notes

is also been a great success.

- Construction division, developed basics for the strong Commercial Care portfolio.

OTHERS

Rs. in lakhs

31.12.06 31.12.05

Financial Highlights Segment Revenue 604.45 671.40

Profit before Interest & Tax 37.53 101.95

Capital Employed - -


8/7/2019 3M India AR 2006

12/47

12

3M India Limited

d) OUTLOOK

Indian GDP is expected to grow at a robust rate of 8% to 9%. The economic growth presents several attractive opportunities. TheCompany will continue to strive to attain global leadership in markets, in products and in its manufacturing process. Technology

will be the key to success and newer products need to be introduced at a fast pace on a regular basis.

Forward looking statements are based on certain assumptions and expectations of the future events that are subject to risks

and uncertainties. Actual future results and trends may differ materially from historical results depending on a variety of

factors.

e) RISKS AND CONCERNS

All key functions and divisions of the Company are independently responsible to monitor risks associated within their

respective areas of operations such as production, treasury, insurance, legal and others like health, safety and environment. TheCompanys high levels of integration, globally competitive operations and domestic leadership position have helped it in

mitigating the adverse impact of generic industry risk factors. Foreign exchange rate volatility has had an impact on the

business. The Company has identified various risks and procedures to mitigate the same.

f) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has adequate systems of internal control in place. This is to ensure that assets are safeguarded against loss from

unauthorized use or disposition, and that transactions are authorized, recorded and reported correctly. The Internal audit

function is empowered to examine the adequacy, relevance and effectiveness of control systems, compliance with policies,

plans and statutory requirements. The top management and the Audit Committee of the Board review the findings andrecommendations of the internal audit panel.

The Internal Auditor functionally reports to the Audit Committee and administratively to the Managing Director. The AuditCommittee periodically reviews the audit plans, audit observations of both internal and external audits, risk assessment and

adequacy of internal controls. The Company has developed adequate internal control systems commensurate to its size and

nature of its business. Reports of the Internal Auditor are submitted to the Management and Audit Committee. The Statutory

Auditors also review their findings with the Senior Management and the Audit Committee.

g) DEVELOPMENTS IN HUMAN RESOURCES /INDUSTRIAL RELATIONS

In keeping with Companys policy of enhancing the individuals growth potential within the framework of corporate goals,

training of technical and marketing personnel continued to receive maximum attention. Considering the importance of

Human Resources, the Company regularly undertakes training activities and other HR initiatives. The Company has been

continuously focusing on people and processes to encourage and realize their full potential. Cordial and harmonious relations

with employees continued to prevail throughout the year under review.





8/7/2019 3M India AR 2006

13/47

13

3M India Limited

REPORT ON CORPORATE GOVERNANCE

No.of Directorships and Committee

Name & Designation No. of Meetings Memberships/Chairmanships Whether

of the Director Category Attended

Other Committee Committee Last AGM

Held Attended Directorships* Memberships# Chairmanships#

Mr.Yashovardhan Birla (a) Non-Executive

Promoter (Indian Promoter 4 1 6 2 1 NoGroup)

Mr. Bert ODonoghue (b) Executive 4 4 Nil Nil Nil Yes

(Managing Director) (Promoter Group)

Ms.Mary B.McCormick Non-Executive

Director (Promoter Group) 4 1 Nil Nil Nil Yes

Mr.Thomas P. Spencer Non-Executive

Director (Promoter Group) 4 2 Nil Nil Nil No

Dr. Carlisle S. Boyce N on-Execut iveDirector (Promoter Group) 4 2 Nil Nil Nil No

Mr. B.S. Iyer Non-Executive &

(Chairman, Audit Committee) Independent 4 4 Nil Nil Nil Yes

Mr. D.J. Balaji Rao Non-Executi ve &

(Chairman - Shareholders Independent 4 4 7 7 3 Yes

Grievance Committee)

Mr. Amit Mukherjee ** Non-Executive &

Director Independent 4 3 1 Nil Nil Yes

Mr. B. C. Prabhakar *** Non-Executive &Director Independent Nil N.A 2 2 Nil N.A.

Mr. Brad C. Sweet **** Non-Executive 1 0 Nil Nil Nil N.A.

A lt er na te Di re ct or (Promoter Gr oup)Mr. B. V. Shankaranarayana Rao Executive

(Whole-time Director) (Promoter Group) 4 4 Nil Nil Nil Yes

2. BOARD OF DIRECTORS

The Board of Directors of the Company is headed by the Non-Executive Chairman and renowned Industrialist, Mr. Yashovardhan

Birla. The Board of the Company comprises of proper blend of Executive, Non-Executive and the Independent Directors, with

professional background and experience in Business, Industry, Finance and Law. During the year 2006, four Board Meetingswere held, the dates being, February 20, 2006, April 24, 2006, July 26, 2006 and October 26, 2006. The last AGM was held on

April 24, 2006. The details of Board composition, attendance, their other directorships / committee memberships as of

December 31, 2006 are appended below:

In compliance with Clause 49 of the Listing Agreement with the Stock Exchanges, a report on the Corporate Governance for the year

under review is given below.

1. PHILOSOPHY ON CORPORATE GOVERNANCE

3M India Limited believes that transparent accounting policies, appropriate disclosure norms, best in class board practices and

consistently high standards of corporate conduct towards its stakeholders are essential for sustained corporate growth. The

Corporate Governance comprises of a unique combination of factors like regulations, compliance, policies and economicenvironments, voluntary practices and disclosures.


* Excludes alternate directorship, directorship in foreign companies and private companies, which are neither a subsidiary nor a holding Companyof a public Company.

# Excludes committees other than Audit Committee, Shareholders / Investors Grievance Committees

(a) Nominee of Shearson Investment and Trading Company Limited

(b) Nominee of 3M Company, USA* * Resigned as a Director on December 11, 2006

** * Appointed as a Director on December 11, 2006

** ** Alternate Director to Mr. Thomas P. Spencer (Resigned on February 20, 2006)

8/7/2019 3M India AR 2006

14/47

14

3M India Limited

Code of Conduct

The Companys Board has laid down a code of conduct for all Board Members and Senior Management of the Company. The codeof conduct is available on the website of the Company, www.3M.com/intl/in. Requisite annual affirmations of compliance with

respective codes have been made by the Directors and Senior Management of the Company.

3. AUDIT COMMITTEE

The Audit Committee of the Company is functioning in accordance with the requirements of Section 292A of the Companies Actand the Listing Agreement.

Constitution of Audit Committee : The current Audit Committee, re-constituted on February 20, 2006, consists of four

Non-executive Directors, three of which are independent directors and all of them have financial and accounting knowledge.

Mr. B.S. Iyer having financial expertise and experience acted as Chairman of the Audit Committee. The Company Secretary acted

as the Secretary to the Committee. At the invitation of the Committee, the Internal Auditor, the Managing Director, the Head ofFinance, Head of Legal Department & Statutory Auditors attended the Audit Committee meetings, to answer and clarify the

queries that were raised at the Committee meetings.

Composition of Audit Committee and No. of Meetings Attended : During the year under review, four meetings of the Audit

Committee were held, the dates being, February 20, 2006, April 24, 2006, July 26, 2006 and October 26, 2006. The composition of the

Audit Committee and the number of meetings attended during the year under review as under:

Name of the No. of Meetings held No. of Meetings

Committee Member during the tenure attended

Ms. Mary B. McCormick 4 1

Mr. Thomas P. Spencer 4 1

Mr. B.S. Iyer 4 4

Mr. Amit Mukherjee * 4 3

Mr. D.J. Balaji Rao 4 4

Mr. B.C. Prabhakar** Nil N.A.

* Resigned as Member on December 11, 2006** Inducted as Member on December 11, 2006

The Terms of Reference of Audit Committee: The role and terms of reference of the Audit Committee include the following :

Overview of the Companys financial reporting process and the disclosure of its financial information to ensure that the

financial statements are correct, sufficient and credible. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the Statutory

Auditors and the fixation of audit fees.

Approval of payment to Statutory Auditors for any other services rendered by them.

Reviewing, with the management, the annual financial statements before submission to the Board for approval, with particular

reference to:

- Matters required to be included in the Directors Responsibility Statement to be included in the Boards report in terms of

clause (2AA) of Section 217 of the Companies Act, 1956.

- Changes, if any, in accounting policies and practices and reasons for the same.

- Major accounting entries involving estimates based on the exercise of judgment by Management.

- Significant adjustments made in the financial statements arising out of audit findings.

- Compliance with listing and other legal requirements relating to financial statements.

- Disclosure of any related party transactions.

- Qualifications in the draft audit report.

Reviewing, with the Management, the quarterly financial statements before submission to the Board for approval.

Reviewing, with the Management, performance of Statutory and Internal Auditors, adequacy of the internal control systems.

Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and

seniority of the official heading the department, reporting structure coverage and frequency of internal audit.

Discussion with Internal Auditors on any significant findings and follow-up there on.

Reviewing the findings of any internal investigations by the Internal Auditors into matters where there is suspected fraud orirregularity or a failure of internal control systems of a material nature and reporting the matter to the Board.

Discussion with Statutory Auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion

to ascertain any area of concern.


8/7/2019 3M India AR 2006

15/47

15

3M India Limited

To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of

non-payment of declared dividends) and creditors.

Carrying out any other function as is mentioned in the terms of reference of the Audit Committee.

Powers of the Audit Committee: The Audit Committee has the following powers:

to investigate any activity within its terms of reference

to seek information from any employee to obtain outside legal or other professional advice

to secure the attendance of outsiders with relevant expertise, if it considers necessary

Review of information by Audit Committee: The Audit Committee reviews the following information:

Management discussion and analysis of financial condition and results of operations.

Statement of significant related party transactions (as defined by the Audit Committee), submitted by Management.

Management letters / letters of internal control weaknesses issued by the Statutory Auditors.

Internal audit reports relating to internal control weaknesses.

The appointment, removal and terms of remuneration of the Chief Internal Auditor.

4. REMUNERATION TO DIRECTORS:

The Company has not constituted a separate Remuneration Committee. None of the Non-Executive Directors have any pecuniaryrelationship with the Company. The Company has currently two Executive Directors, Mr. Bert O Donoghue, Managing Director and

Mr. B. V. Shankaranarayana Rao, Whole-time Director. The terms of appointment of the Executive Directors were fixed by the Board

and approved by the Shareholders.

Details of remuneration paid to Executive Directors during the year 2006:

In Rupees

Particulars Mr.Bert O Donoghue Mr.B.V.Shankaranaryana Rao

(Managing Director) (Whole-time Director)

Salary and Allowances 7,517,895 4,022,407

Contribution to provident fund

and other funds - 456,838

Estimated value of benefits 2,460,000 570,000

Total 9,977,895 5,049,245

Presently, the Company does not have a scheme for grant of stock options either to the Executive Directors or to other employees.

The Non-Executive Directors do not draw from the Company any remuneration other than sitting fees.

Sitting fees paid to the Non-Executive Directors during the year 2006 are given below :In Rupees

Name of the Director Board Meeting Committee Meetings Total

Mr.Yashovardhan Birla 20,000 20,000 40,000

Mr.B.S. Iyer 80,000 160,000 240,000

Mr.Amit Mukherjee 60,000 120,000 180,000

Mr.D.J. Balaji Rao 80,000 160,000 240,000

Ms. Mary McCormick, Mr. Thomas P. Spencer, Dr. Carlisle Boyce and Mr. Brad C. Sweet have waived payment of sitting fees.


8/7/2019 3M India AR 2006

16/47

16

3M India Limited

5. SHAREHOLDERS / INVESTORS GRIEVANCE COMMITTEE :

During the year under review, four Shareholder s/Investors Grievance Committee meetings were held, the dates being, February20, 2006, April 24, 2006, July 26, 2006 and October 26, 2006.The attendance of the members at the Shareholders Grievance Committee

Meeting held during the year was as follows:

Name of the No. of Meetings held No. of Meetings

Committee Member during his tenure attended

Mr.Yashovardhan Birla 4 1

Mr.Bert ODonoghue 4 4

Mr.B.S. Iyer 4 4

Mr.Amit Mukherjee * 4 3

Mr.D.J. Balaji Rao 4 4

Mr.B.C.Prabhakar** Nil N.A.

* Resigned as Member on December 11, 2006

** Inducted as Member on December 11, 2006

Mr. D. J. Balaji Rao, Non-Executive and Independent Director is the Chairman of the Committee and Mr. K. Ramesh Chandra, Company

Secretary is the Compliance Officer of the Company.The Shareholders Grievance Committee is authorised to :

1. Monitor the system of share transfer, transmission, sub-division, consolidation of share certificates and issue of duplicatecertificates.

2. Deal with all investor related issues including redressal of complaints from shareholders relating to transfer of shares, non-

receipt of balance sheet, etc.

3. To delegate such powers to Companys officers, as may be necessary including powers to approve transfers, transmissions,authenticate share certificates and to take other actions in relation to Shareholders related matters.

The Company through its Registrar and Share Transfer Agents has resolved most of the investor grievances / correspondence within

a period of 7 days from the date of their receipt except in cases that are constrained by disputes or legal impediments. The Statistics of

Shareholders Complaints received / redressed, during the year 2006, is furnished below :

No. of complaints relating to non-receipt of dividend warrants, redemption /interest warrants, annual reports, share certificates, endorsement stickers & others 51

received during the year

No. of Shareholders complaints resolved during the year 51

No. of pending share complaints as on December 31, 2006 Nil

6. General Body Meeting :

Details of Annual General Meetings of the Company for the last three years:

Date Meeting Location Time

22nd April 2004 AGM Hotel Leela Palace, 23, Kodihalli, Airport Road, Bangalore 560 008 10.00 a.m.

29th

April 2005 AGM Hotel Leela Palace 23, Kodihalli , Airport Road, Bangalore 560 008 10.00 a.m.24th April 2006 AGM Hotel Leela Palace 23, Kodihalli , Airport Road, Bangalore 560 008 10.00 a.m.

Details of special resolutions passed in the previous three AGMs :

Date of Passing Subject Matter

22nd April 2004 Delisting from Ahmedabad, Bangalore, Calcutta and DelhiStock Exchanges

22nd April 2004 Re-appointment of Mr. Lee M. Kennedy as

Managing Director


8/7/2019 3M India AR 2006

17/47

17

3M India Limited


Postal Ballot

During the year 2006, there was no business, which had to be conducted through a postal ballot. At present, the Company does not have anyresolution to be decided by the Members by Postal Ballot.

7. DISCLOSURES

Related party transactions

The Company follows the following policy in disclosing the related party transactions to the Audit Committee :

A statement in summary form of transactions with related parties at arms length price in thenormal course of business.

All material individual transactions with related parties, which are not in the normal course of business and which are not onan arms length basis.

Disclosure of Accounting Treatment

The guidelines/accounting standards laid down by The Institute of Chartered Accountants of India (ICAI) have been followed inpreparation of the financial statements of the Company.

Risk Management

The Company has identified various risks and procedures to mitigate the same. The Audit Committee and the Board have reviewedthe same. When new risks are identified, the same would be then assessed, controls designed, put in place and enforced within afixed timeframe, as set.

Subsidiary Companies

The Company does not have any subsidiaries.

Capital Issues

The Company has not made any capital issues during the year 2006.

Details of non-compliance by the Company, penalties, and strictures imposed on the Company by Stock Exchange or SEBI or anystatutory authority, on any matter related to capital markets, during the last three years:

There have been no instances of non-compliance by the Company on any matter related to Listing Agreement with the StockExchanges.

Whistle Blower Policy and affirmation that no personnel has been denied access to the Audit Committee

Presently, the Company does not have a Whistle Blower Policy. No personnel of the Company has been denied access to any of the

Directors of the Company

Compliance with Mandatory Requirements

The Company has complied with all the mandatory requirements of this clause. As regards the non-mandatory requirements theextent of compliance has been stated in this report against each item.

8. MEANS OF COMMUNICATION :

Quarterly financial results, including the half year results are published in Business Line (All India edition) and Udayawani / SamyuktaKarnataka (Bangalore edition). The annual audited accounts are likewise published. The half-yearly report was not separately sent toeach household of the shareholders. In accordance with the listing regulations, the Companys audited and unaudited quarterly / halfyearly / annual results are also posted in the SEBIs website under EDIFAR (Electronic Data Information Filing And Retrieval System).The Companys financial results are also displayed in the Companys website, www.3M.com/intl.in

The Management Discussion and Analysis report on the Companys activities during the year published as part of the Companys

Annual Report. This report has been placed to the Companys Audit Committee.9. MANAGEMENT DISCUSSION AND ANALYSIS

The Management Discussion and Analysis Reports forms part of the Annual Report is in the Directors Report.

10. SHAREHOLDERS

Details of the Directors seeking appointment/re-appointment at the ensuing AGM are provided in the Notice convening the AGM.

8/7/2019 3M India AR 2006

18/47

18

3M India Limited

Stock Performance :

BSE Sensex Vs. 3M Share Price(Monthly Closing Price)

Crisil Index : Not applicable

Sensex 3M India

20001800

1600140012001000

800600400200

0

14000

1200010000

8000

6000

4000

2000

0

Jan0

6

Feb0

6

Mar06

Apr06

May0

6

Jun0

6Jul06

Aug0

6

Sep0

6Oc

t06

Nov0

6

Dec0

6

Bombay Stock Exchange (BSE) National Stock Exchange (NSE)

(in Rs.) (in Rs.)

High Low High Low

January 06 970.00 845.00 973.00 850.20

February 06 1,321.00 866.10 1,335.00 860.05March 06 1,531.55 1,240.00 1,540.00 1,280.00

April 06 1,749.00 1,318.00 1,720.00 1,320.00

May 06 1,540.00 1,046.00 1,500.00 1,050.85June 06 1,257.00 851.00 1,215.00 827.00

July 06 1,200.00 1,026.00 1,199.00 1,045.00

August 06 1,249.00 1,066.00 1,297.30 1,100.00

September 06 1,405.00 1,117.55 1,399.00 1,117.00October 06 1,450.00 1,302.00 1,450.00 1,283.00

November 06 1,640.00 1,350.00 1,645.00 1,360.00

December 06 1,610.00 1,465.50 1,600.00 1,460.00

Stock Price Data :

11. GENERAL SHAREHOLDER INFORMATION :

April 27, 2007

Hotel The CapitolAnnual General Meeting 2007

Raj Bhavan Road, Bangalore - 560 001

Time 10.00 a.m.

Financial Calendar :

a) Date of Book Closure April 21, 2007 - April 27, 2007 (both days inclusive)

b) Dividend payment date N. A.

c) Financial results Third / Fourth week of April 2007 - unaudited results for the quarter ended March 2007.

Third / Fourth week of July 2007 - unaudited results for April / June 2007 and half year

results for Jan - June 2007.

Third / Fourth week of October 2007 - unaudited results for the quarter ended September 2007.

Third / Fourth week of February 2008 - audited results for the year ended December 31, 2007.

d) Listing on Stock Exchanges The National Stock Exchange Limited, Mumbai (Code - 3MIndia)

Bombay Stock Exchange Limited, Mumbai (Code - 523395)

The Calcutta Stock Exchange Association, Calcutta (Code - 12027) *

* applied for voluntary delisting. Final Certificate of delisting is yet to be received.

The Company has paid annual listing fees, as prescribed, to The National Stock Exchange Limited, Mumbai and Bombay Stock Exchange

Limited, Mumbai for the financial year, 2006 - 2007.

8/7/2019 3M India AR 2006

19/47

19

3M India Limited

Registrar & Share Transfer Agents :

Share registration and other investor related activities are carried out by our Registrar and Transfer Agents, M/s. Karvy ComputersharePrivate Limited for both physical and demat securities. Their address is appended below :

Karvy Computershare Private Limited

46, Avenue Ford, Street No. 1, Banjara Hills, Hyderabad - 500 034

Tel: 040-23420816 / 824 Fax: 040-23420814

E-mail : [email protected]; Contact person: Mr. K. Subba Reddy

Share Transfer System :

Shares sent for transfer in physical form are registered and despatched within 15 days of receipt of the documents, if documents are

found to be in order. Shares under objection are returned within 15 days.

Monitoring of share transfers and other investor related matters are dealt with by the Shareholders Grievance Committee. The

Companys Registrars, M/s. Karvy Computershare Private Limited process the share transfers in respect of physical securities on a

fortnightly basis and the processed transfers are approved by the authorized Executives of the Company also on a fortnightly basis.

All requests for dematerialization of shares, which are in order are processed within 15 days and the confirmation is given to the

respective depositories, i.e., National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

Distribution of Shareholding as on December 31, 2006

Range of Shares No. of Shareholders % to total Shareholders No. of Shares held % to Total Shares

1 to 500 7,953 94.96 629,801 5.59

501 to 1000 191 2.28 149,962 1.33

1001 to 2000 114 1.36 171,413 1.52

2001 to 3000 41 0.49 97,631 0.87

3001 to 4000 15 0.18 51,391 0.46

4001 to 5000 8 0.10 37,084 0.335001 to 10000 30 0.36 229,453 2.04

10001 and above 23 0.27 9,898,335 87.87

Total 8,375 100.00 11,265,070 100.00

Shareholding Pattern as at December 31, 2006

Category No of Shares Held Percentage of Shareholding

A Promoters holding

1 Promoters

Indian Promoters 810,900 7.20

Foreign Promoters 8,562,000 76.00

Sub Total: 9,372,900 83.20

B Non-Promoters holding

2 Institutional Investors

a Mutual Funds and UTI 10,640 0.09

b Banks, Financial Institutions,

Insurance Companies (Central / State Govt., Institutions,

non-Government Institutions) 80 0.00

c FIIs 108,497 0.96

Sub Total 119,217 1.06

C 3 Others

a Private Corporate Bodies 436,796 3.88

b Indian Public 1,271,746 11.29

c NRIs/OCBs 61,365 0.54d Any Other

- Trusts 100 0.00

- Clearing Members 2,946 0.03

Sub Total 1,772,953 15.74

Total 11,265,070 100.00


8/7/2019 3M India AR 2006

20/47

20

3M India Limited

Plant Locations :

Plot No. 48-51, Electronics City, Hosur Road, Bangalore 560 100173/2, Madivala, Bandapura, Anekal Taluk, Bangalore 562 106

Plot No.8, Moraiya Industrial Area; Tal Sanand,

Sarkhej Bavla Highway, Ahmedabad 382 213

Address for correspondence

Registered Office :

Plot No. 48-51, Electronics City, Hosur Road, Bangalore - 560 100

Corporate Office :

Raheja Paramount, 138, Residency Road, Bangalore - 560 025


DEMATERIALISATION OF SHARES AND LIQUIDITY

22.45 % of the total equity capital was held in dematerialised form as on December 31, 2006.

Outstanding GDRs/Warrants, convertible bonds, conversion date and likely impact on equity:Not applicable

NON-MANDATORY REQUIREMENTS

The Company has a Non-Executive Chairman and his expenses are reimbursed. However, no separate Chairman office is maintained

at the Companys expense.

As on date, there is no Independent Director having term of office exceeding nine years on the Board of the Company.

Remuneration Committee

Presently, the Company does not have a Remuneration Committee.

Shareholders Rights

The Companys half yearly results are published in English Newspaper having a circulation all over India and in Kannada newspaper

(having circulation in Bangalore) the same are not sent to the shareholders of the Company. Significant events of the Company are

being disclosed to the Stock Exchanges from time to time.

Audit qualifications

There were no qualifications by the Auditors in their report for the previous financial year ended December 31,2006.

Training of Board Members

Presently, the Company does not have any training programme for the Board members.

Mechanism for evaluating non-executive Board Members

Presently, the Company does not have such a mechanism as contemplated for evaluating the performance of non-executive Board

members.

Whistle-Blower policy

Presently, the Company does not have a Whistle Blower policy. No personnel of the Company has been denied access to any of the

Directors of the Company.




8/7/2019 3M India AR 2006

21/47

21

3M India Limited

Certificate by Chief Executive Officer (CEO) and Chief Financial Officer (CFO)

We hereby certify that :

(a) We have reviewed financial statements and the cash flow statement for the year ended December 31, 2006 and that to the best of

our knowledge and belief:

(i) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might

be misleading;

(ii) these statements together present a true and fair view of the Companys affairs and are in compliance with existing accounting

standards, applicable laws and regulations.

(b) To the best of our knowledge and belief, no transactions entered into by the Company during the year which are fraudulent, illegal

or violative of the Companys code of conduct.

(c) We accept responsibility for establishing and maintaining internal controls for financial reporting and that we have evaluated the

effectiveness of internal control systems of the Company pertaining to financial reporting and we have disclosed to the auditors

and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which we are aware and the

steps we have taken or propose to take to rectify these deficiencies.

(d) We further confirm that:

(i) there were no significant changes in internal control over financial reporting during the year;

(ii) there were no significant changes in accounting policies during the year and(iii) there were no instances of significant fraud of which we are aware and the involvement therein, of the management or an employee

having a significant role in the Companys internal control system over financial reporting.




8/7/2019 3M India AR 2006

22/47

22

3M India Limited

To the members of 3M India Limited

We have examined the compliance of conditions of corporate governance by 3M India Limited for the year ended December 31, 2006,

as stipulated in clause 49 of the Listing agreement(s) of the said Company with the stock exchange(s) in India.The compliance of conditions of corporate governance is the responsibility of the Companies management. Our examination was

carried out in accordance with the Guidance Note on Certification of Corporate Governance (as stipulated in Clause 49 of the Listing

Agreement), issued by the Institute of Chartered Accountants of India and was limited to procedures and implementation thereof,

adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor anexpression of opinion on the financial statements of the Company.

In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company has

complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement(s).

We state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness withwhich the management has conducted the affairs of the Company.

Usha A NarayananPartner

Membership Number 23997

For and on behalf of

Place : Bangalore Lovelock & Lewes

Date : February 26, 2007 Chartered Accountants

AUDITORS CERTIFICATE ON COMPLIANCE WITH THE CONDITIONS OF CORPORATE GOVERNANCE

UNDER CLAUSE 49 OF THE LISTING AGREEMENT(S)


8/7/2019 3M India AR 2006

23/47

23

3M India Limited

AUDITORS REPORT TO THE MEMBERS OF 3M INDIA LIMITED

1. We have audited the attached Balance Sheet of 3M India Limited as at December 31, 2006, and the related Profit and Loss Account

and Cash Flow Statement for the year ended on that date annexed thereto, which we have signed under reference to this report.

These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on

these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as

well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our

opinion.

3. As required by the Companies (Auditors Report) Order, 2003, as amended by the Companies (Auditors Report) (Amendment)

Order, 2004 (together the Order), issued by the Central Government of India in terms of sub-section (4A) of Section 227 of The

Companies Act, 1956 of India (the Act) and on the basis of such checks of the books and records of the Company as we

considered appropriate and according to the information and explanations given to us, we give in the Annexure a statement on

the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:

(a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary forthe purposes of our audit;

(b) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our

examination of those books;

(c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the

books of account;

(d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the

accounting standards referred to in sub-section (3C) of Section 211 of the Act;

(e) On the basis of written representations received from the directors, as on December 31, 2006 and taken on record by the

Board of Directors, none of the directors is disqualified as on December 31, 2006 from being appointed as a director in terms

of clause (g) of sub-section (1) of Section 274 of the Act;

(f) In our opinion and to the best of our information and according to the explanations given to us, the said financialstatements together with the notes thereon and attached thereto, give, in the prescribed manner, the information required

by the Act and give a true and fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at December 31, 2006;

(ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and

(iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

Usha A NarayananPartner



Place : Bangalore Lovelock & LewesDate : February 26, 2007 Chartered Accountants


8/7/2019 3M India AR 2006

24/47

24

3M India Limited

Referred to in paragraph 3 of the Auditors Report of even date to the members of 3M India Limited on the financial statements for the

year ended December, 31, 2006

1. (a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed

assets.

(b) The fixed assets are physically verified by the management according to a phased programme designed to cover all the items

over a period of three years, which in our opinion, is reasonable having regard to the size of the Company and the nature of

its assets. Pursuant to the programme, a portion of the fixed assets has been physically verified by the management during

the year and no material discrepancies between the book records and the physical inventory have been noticed.

(c) In our opinion and according to the information and explanations given to us, a substantial part of fixed assets has not been

disposed off by the Company during the year.

2. (a) The inventory (excluding stocks with third parties) has been physically verified by the management during the year. In respect

of inventory lying with third parties, these have substantially been confirmed by them. In our opinion, the frequency of

verification is reasonable.

(b) In our opinion, the procedures of physical verification of inventory followed by the management are reasonable and

adequate in relation to the size of the Company and the nature of its business.

(c) On the basis of our examination of the inventory records, in our opinion, the Company is maintaining proper records of

inventory. The discrepancies noticed on physical verification of inventory as compared to book records were not material.

3. (a) The Company has not granted any loans, secured or unsecured, to Companies, firms or other parties covered in the register

maintained under Section 301 of the Act and accordingly, paragraphs iii(b), iii(c) and iii(d) of the Order, are not applicable.

(b) The Company has not taken any loans secured or unsecured, from Companies, firms or other parties covered in the register

maintained under Section 301 of the Act and accordingly, paragraphs iii(f ) and iii(g) of the Order, are not applicable.

4. In our opinion and according to the information and explanations given to us, having regard to the explanation that certain items

purchased are of special nature for which suitable alternative sources do not exist for obtaining comparative quotations, there is

an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase

of inventory, fixed assets and for the sale of goods and services. Further, on the basis of our examination of the books and records

of the Company, and according to the information and explanations given to us, we have neither come across nor have been

informed of any continuing failure to correct major weaknesses in the aforesaid internal control system.

5. In our opinion and according to the information and explanations given to us, there are no transactions made in pursuance of

contracts or arrangements entered into the register in pursuance of Section 301 of the Act and exceeding the value of Rupees Five

Lakhs in respect of any party during the year, which have been made at prices which are not reasonable having regard to the

prevailing market prices at the relevant time.

6. The Company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA of the Act and the rules

framed there under.

7. In our opinion, the Company has an internal audit system commensurate with its size and nature of its business.

8. The Central Government of India has not prescribed the maintenance of cost records under clause (d) of sub-section (1) of Section

209 of the Act for any of the products of the Company.

9. (a) According to the information and explanations given to us and the records of the Company examined by us, in our opinion,

the Company is generally regular in depositing undisputed statutory dues including investor education and protection fund,

employees state insurance, income-tax, wealth tax, service tax, customs duty, excise duty and other material statutory dues as

applicable with the appropriate authorities.

(b) According to the information and explanations given to us and the records of the Company examined by us, there are no

dues of income-tax, sales tax, wealth tax, service tax, customs duty, excise duty and cess which have not been deposited on

account of any dispute.

10. The Company has no accumulated losses as at December 31, 2006 and it has not incurred any cash losses in the financial year

ended on that date or in the immediately preceding financial year.

ANNEXURE TO AUDITORS REPORT

8/7/2019 3M India AR 2006

25/47

25

3M India Limited

11. In our opinion, and according to the information and explanations given to us, the Company has not given any guarantee for

loans taken by others from banks or financial institutions during the year except in respect of a guarantee given on behalf of a

third party in an earlier year, for which the Company is carrying a provision of Rs.10,200,000, as the recovery of related dues are not

certain.

12. During the course of our examination of the books and records of the Company, carried out in accordance with the generally

accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across

any instance of fraud on or by the Company, noticed or reported during the year, nor have we been informed of such case by the

management.

13. The other clauses, xi, xii, xiii, xiv, xvi, xvii, xviii, xix and xx of paragraph 4 of the Order are not applicable in the case of the Company

for the current year, since in our opinion there is no matter which arises to be reported in the aforesaid order.

Usha A Narayanan

Partner



Place : Bangalore Lovelock & Lewes

Date : February 26, 2007 Chartered Accountants

8/7/2019 3M India AR 2006

26/47

26

3M India Limited


Schedule 2006 2005Number Rs. Rs.

Sources of Funds

Shareholders Funds

Share Capital 1 112,650,700 112,650,700

Reserves and Surplus 2 2,125,620,320 1,621,414,810

2,238,271,020 1,734,065,510

Application of Funds

Fixed Assets

Gross Block 3 793,730,647 701,261,487

Less: Depreciation 475,370,162 410,816,523

Net Block 318,360,485 290,444,964

Capital work-in-progress 124,849,724 2,866,538

443,210,209 293,311,502

Net Deferred Tax Asset [Schedule 14, Note 17(b)] 30,372,112 12,486,997

Current Assets, Loans and Advances

Inventories 4 661,683,173 601,544,384

Sundry Debtors 5 626,161,390 499,880,606

Cash and Bank Balances 6 996,541,909 762,014,155

Other Current Assets 7 4,209,958 2,460,175

Loans and Advances 8 374,887,773 325,978,247

2,663,484,203 2,191,877,567

Less: Current Liabilities and Provisions

Liabilities 9 838,325,538 710,478,649

Provisions 10 60,469,966 53,131,907

898,795,504 763,610,556

Net Current Assets 1,764,688,699 1,428,267,011

2,238,271,020 1,734,065,510

Notes to accounts 14

The schedules referred to above and notes thereon form an integral part of the Accounts

This is the Balance Sheet referred to in our For and on behalf of the Board

report of even date

Usha A Narayanan Bert ODonoghue B. V. Shankaranarayana Rao K. Ramesh Chandra

Partner Managing Director Whole-time Director Company SecretaryMembership No. : 23997


Lovelock & Lewes

Chartered Accountants

Place : Bangalore

Date : February 26, 2007

BALANCE SHEET AS AT DECEMBER 31, 2006


8/7/2019 3M India AR 2006

27/47

27

3M India Limited

Schedule 2006 2005Number Rs. Rs.

Income

Sales 5,404,869,176 4,029,457,944

Less: Excise Duty 347,344,663 230,639,389

5,057,524,513 3,798,818,555

Other income 11 46,434,521 31,786,183

5,103,959,034 3,830,604,738

Expenditure

Finished Goods purchased (traded) 1,515,352,812 1,203,926,577

Manufacturing and other Expenses 12 2,777,563,556 2,062,675,464

Depreciation 64,553,639 67,306,310(Increase) / Decrease in inventories 13 (33,215,356) (109,133,077)

4,324,254,651 3,224,775,274

Profit for the year before taxation 779,704,383 605,829,464

Provision for Income Tax (Schedule 14, Note 17)

- Current Tax 280,300,000 222,000,000

- Excess Provision of earlier years (2,619,538) -

- Deferred Tax (17,885,115) (15,350,862)

- Fringe Benefit Tax 15,703,526 15,003,456

Profit for the year after taxation 504,205,510 384,176,870

Profit brought forward from previous year 1,523,199,810 1,139,022,940

Profit carried to Balance Sheet 2,027,405,320 1,523,199,810

Earnings Per Share - Basic and Diluted 44.76 34.10

(Schedule 14, Note 19)

Notes to accounts 14

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2006

The schedules referred to above and notes thereon form an integral part of the Accounts

This is the Profit and Loss Account referred to in our For and on behalf of the Board

report of even date

Usha A Narayanan Bert ODonoghue B. V. Shankaranarayana Rao K. Ramesh ChandraPartner Managing Director Whole-time Director Company Secretary

Membership No. : 23997


Lovelock & Lewes

Chartered Accountants

Place : Bangalore

Date : February 26, 2007

8/7/2019 3M India AR 2006

28/47

28

3M India Limited


2006 2005

Rs. Rs.

Schedule 1

Share Capital

AUTHORISED

11,265,070 Equity Shares of Rs. 10 each 112,650,700 112,650,700

Issued, Subscribed and Paid up

11,265,070 Equity Shares of Rs. 10 each 112,650,700 112,650,700

Note : Of the above 8,562,000 equity shares (2005 : 8,562,000 equity

shares) are held by 3M Company, USA

112,650,700 112,650,700

Schedule 2

Reserves and Surplus

Capital Reserves 2,000,000 2,000,000(State Investment Subsidy received from the Government of Karnataka)

Share Premium Account 94,990,000 94,990,000

Investment Allowance Reserve (utilised) 1,225,000 1,225,000

Profit and Loss Account 2,027,405,320 1,523,199,810

2,125,620,320 1,621,414,810

SCHEDULES TO ACCOUNTS

8/7/2019 3M India AR 2006

29/47

29

innovate,grow,deliver

GROSS BLOCK AT COST DEPRECIATION/AMORTISATION

Sale / Sales /

2005 Additions Deletions 2006 2005 Additions Deletions

Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Freehold Land 7,806,562 2,500,000 - 10,306,562 - - -

Leasehold Land 27,854,456 17,955,000 - 45,809,456 - - -

(Refer Note (a) below)

Goodwill 60,017,170 - - 60,017,170 60,017,170 - - 60

Factory Building 62,725,227 9,784,063 - 72,509,290 19,310,837 2,219,994 - 2

Leasehold Improvements 33,557,683 600,152 - 34,157,835 24,999,703 6,624,679 - 31

(Refer Note (b) below)

Plant and Machinery 299,883,555 5 3,520,431 - 353,403,986 1 49,791,892 27,228,103 - 177

Data Processing Equipments 98,000,911 - - 98,000,911 88,092,979 4,526,584 - 92and Software

Furniture, Fixtures and

Office Equipments 108,848,407 6,924,948 - 115,773,355 66,036,426 23,795,255 - 89

(Refer Note (b) below)

Vehicles 2,567,516 1,184,566 - 3,752,082 2,567,516 159,024 - 2

701,261,487 92,469,160 - 793,730,647 410,816,523 64,553,639 - 475

2005 663,325,878 47,602,589 9,666,980 701,261,487 353,177,193 67,306,310 9,666,980 410

Capital Work in Progress

[ including capital advance Rs. 89,563,610 (2005: Rs. 2,529,035)]

Note:

a) Leasehold land represents amount paid to Maharashtra Industrial Development Corporation for land to be purchased on 95 years lease, for wh

mentioned in the License Agreement and registration is pending as on date.

b) Current year depreciation includes additional depreciation of Rs. 11,907,984 (2005: Rs. 6,942,289) on account of management reassessment of re

Improvements and Furniture & Fixtures.

SCHEDULE TO ACCOUNTS

Schedule 3

Fixed assets [Schedule 14, Note 1 (b) and (c)]

8/7/2019 3M India AR 2006

30/47

30

3M India Limited


2006 2005

Rs. Rs.

Schedule 4

Inventories[Schedule 14, Note 1(d)]

Raw Materials 262,798,920 237,292,076

[including in-transit Rs.39,442,553 (2005 : Rs.49,195,668)]

Packing Materials 11,970,536 11,138,983

Semi Finished Goods 16,808,024 20,972,615

Finished Goods 118,053,803 79,817,694

Traded Goods 251,177,223 252,033,385[including in-transit Rs. 59,192,818 (2005 : Rs.73,793,501)]

Stores & Spares 874,667 289,631

661,683,173 601,544,384

Schedule 5

Sundry debtors

(Secured)

Over six months 4,050,187 3,712,091

Others 23,295,051 24,098,298

(Unsecured)

Over six months

- considered good 449,318 5,734,301

- considered doubtful 73,388,002 70,046,986

Others- considered good 598,366,834 466,335,916

699,549,392 569,927,592

Less: Provision for doubtful debts 73,388,002 70,046,986

626,161,390 499,880,606

Schedule 6

Cash and bank balances

Cash and Cheques on hand 20,875,836 19,402,424

With Scheduled Banks:

- Current Accounts 164,543,888 137,290,046

- Deposit Account * 810,200,000 605,000,000

- Margin Money Account ** 922,185 321,685

* Includes Rs. 10,200,000 under lien (2005 : Rs.10,200,000) 996,541,909 762,014,155

** Held against guarantees issued


8/7/2019 3M India AR 2006

31/47

31

3M India Limited


2006 2005

Rs. Rs.

Schedule 7

Other current assets

Interest Accrued but not due 4,209,958 2,460,175

4,209,958 2,460,175

Schedule 8

Loans and advances

(Unsecured, considered good unless otherwise stated)

Advances recoverable in cash or in kind or for value to be received* 146,783,137 129,517,001

Taxation 24,935,478 20,488,206

[Net of provision Rs. 792,969,437 (2005 : Rs.776,586,723)]

Deposits with Government departments and others 150,155,339 128,257,420

Balances with Excise and Customs Authorities 61,030,508 55,886,905

382,904,462 334,149,532

Less: Provision for doubtful advances 8,016,689 8,171,285

374,887,773 325,978,247

* Includes doubtful advances of Rs. 8,016,689 (2005 : Rs. 8,171,285)

Schedule 9

Liabilities

Sundry creditors for goods, expenses and services

- Small Scale Industries (Schedule 14, Note 12) 3,716,610 2,931,260

- Others 721,656,726 614,084,981

Advance from customers/distributors 73,159,551 51,788,588

Unclaimed debentures and accrued interest thereof - 2,509,324

Other Liabilities 39,792,651 39,164,496

838,325,538 710,478,649

Schedule 10

Provisions

Retirement Benefits

- Gratuity (Schedule 14, Note 13) 14,739,367 14,677,411

- Leave Encashment 15,651,423 11,051,040

Fringe Benefit Tax 2,406,982 5,203,456

[Net of Advance Tax Rs.28,300,000 (2005 : Rs.9,800,000)]

Sales Tax (Schedule 14, Note 18) 17,472,194 10,200,000

Other trade Payable (Schedule 14, Note 18) 10,200,000 12,000,000

60,469,966 53,131,907

8/7/2019 3M India AR 2006

32/47

32

3M India Limited

2006 2005

Rs. Rs.

Schedule 11

Other income

Interest [Gross, tax deducted at source Rs. 9,627,734 (2005 : Rs. 6,725,775)] 45,662,260 30,141,040

Profit on Sale of Assets - 1,645,143

Provision for advances written back (net) 154,596 -

Bad Debts Recovered 617,665 -

46,434,521 31,786,183

Schedule 12

Manufacturing and other expenses

Raw materials consumed 1,293,705,553 872,328,381

Stores and spares consumed 30,961,787 28,314,968

Packing materials consumed 65,516,441 49,670,885Excise Duty 9,004,464 18,433,773

Power, fuel and water 37,898,295 28,542,287

Salaries , wages and bonus 505,610,043 344,978,904

Contribution to Provident and other funds 51,271,173 39,103,126

Provision for retiring gratuities (Schedule 14, Note 13) 61,956 4,174,943

Staff welfare expenses 56,512,119 68,831,055

Rent, Rates and taxes 83,391,075 69,789,408

Lease rentals (Schedule 14, Note 16) 36,394,151 33,365,573Repairs

- Building 9,790,625 6,064,284

- Plant and machinery 22,334,672 13,645,582

- Others 7,873,820 6,974,197Telephone and postage 21,160,010 20,201,175

Travel and conveyance 94,901,991 83,810,449

Insurance 14,042,512 11,414,867

Legal and professional charges 24,191,041 8,810,578

Selling, Distribution and Advertisement Expenses 187,047,754 165,850,161

Corporate Management Fees (Net) 74,773,101 72,592,873

Auditors Remuneration (Schedule 14, Note 5) 3,452,807 2,902,632

Interest to others 2,808,573 1,468,469

Directors sitting fees 700,000 660,000

Bad debts written off 5,887,283 7,934,145

Provision for doubtful debts 3,341,016 5,770,500Advances written off 1,652,992 -

Commission on sales 28,594,882 22,982,879

Foreign exchange loss (net) 4,208,996 1,100,701

Freight outward (net) 27,191,692 22,044,414

Miscellaneous expenses 73,282,732 50,914,255

2,777,563,556 2,062,675,464


8/7/2019 3M India AR 2006

33/47

33

3M India Limited


2006 2005

Rs. Rs.

Schedule 13

(Increase)/decrease in inventories

Opening Stock

- Semi Finished Goods 20,972,615 13,982,465

- Finished Goods 79,817,694 57,424,633

- Traded Goods 252,033,385 172,283,519

352,823,694 243,690,617

Less : Closing Stock

- Semi Finished Goods 16,808,024 20,972,615

- Finished Goods 118,053,803 79,817,694

- Traded Goods 251,177,223 252,033,385

386,039,050 352,823,694

(Increase)/Decrease in Inventories (33,215,356) (109,133,077)


8/7/2019 3M India AR 2006

34/47

34

3M India Limited

NOTES TO ACCOUNTS


Schedule 14

1 Statement on Significant Accounting Policies

a Method of Accounting

The Company adopts the historical cost concept and accrual basis in accordance with generally accepted accounting principles(GAAP) in India for the preparation of its accounts.

b Fixed assets

Fixed assets are stated at original cost less accumulated depreciation. Cost includes invoice price and wherever applicablefreight, duties and taxes, related interest on specific borrowings upto the date of acquisition / installation and expenses

incidental to acquisition and installation. Operating Software is capitalised along with fixed assets. Application softwares are

amortised based on management estimation of useful life.

c Depreciation and amortisation

Depreciation on fixed assets other than leasehold improvements and Goodwill is provided on straight line method at the following

rates specified which are equal to or higher than the principal rates specified in Schedule XIV to the Companies Act, 1956:

Per Annum

Building 3.34%

Plant and Machinery 10.00%

Data Processing Equipments and Software 20.00% to 33.33%

Office Equipment 20.00%

Furniture & Fixtures 6.67%

Vehicles 20.00%

Leasehold improvements are amortised over the period of lease. [Schedule 3, Note (b)]

Goodwill purchased in earlier years is amortised over a period of 5 years. Goodwill purchased subsequent to April 1, 2004 is

evaluated based on impairment test annually.

d Inventories

Inventories are valued at lower of cost and net realisable value except in case of stores and spares which are valued at cost.

The costs are, in general, ascertained as under:

Raw Materials :

- First in first out method based on actual cost

Traded goods :

- First in first out method based on actual cost. Goods lying at bonded warehouse are valued inclusive of customs duty.

- Stock in transit is valued excluding customs duty.

Finished goods and Work in Progress :

- Material cost on weighted average method plus labour and appropriate overheads and, where applicable, excise duty.

Provision for obsolescence is made wherever considered necessary based on the age of the stocks.

e Sundry Debtors and Loans and Advances

Sundry Debtors and Loans and Advances are stated after making adequate provision for doubtful balances.

f Foreign Currency Transaction

Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. Monetary assets

and liabilities denominated in foreign currency are translated at the rate of exchange at the Balance Sheet date and resultant

gain or loss is recognized in the Profit and Loss Account. In case of forward contracts, the difference between the forward rateand the exchange rate at the inception of a forward exchange contract is recognised as income or expense over the life of

contract. Exchange differences relating to fixed assets are adjusted to the cost of the assets.

8/7/2019 3M India AR 2006

35/47

35

3M India Limited

g Retirement / Post Retirement Benefits

The Gratuity liability is funded with the Life Insurance Corporation of India. The charge to profit and loss account comprises

of contribution to fund and estimated amount determined by the Company in accordance with the Payment of Gratuity Act,

1972.

The Company makes contribution to the Superannuation Scheme administered by the

3M India AR 2006

Documents

Transcript of 3M India AR 2006