3M India AR 2005

1

3M India Limited(formerly Birla 3M Limited)

innovate, grow, deliver

DIRECTORS Mr. Yashovardhan Birla Chairman

Mr. Bert O’Donoghue 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. Amit Mukherjee Director

Mr. B.V. Shankaranarayana Rao Director

ALTERNATE DIRECTOR Mr. Brad C. Sweet Alternate to Mr. Thomas P. Spencer

COMPANY SECRETARY Mr. K. Ramesh Chandra

AUDIT COMMITTEE Mr. B.S. Iyer Chairman

MEMBERS Mr. D.J. Balaji Rao

Mr. Amit Mukherjee

Mr. Thomas P. Spencer

Ms. Mary B. McCormick

SHAREHOLDERS’ Mr. D.J. Balaji Rao Chairman

GRIEVANCE COMMITTEE Mr. B.S. Iyer

Mr. Amit Mukherjee

Mr. Yashovardhan Birla

Mr. Bert O’Donoghue

BANKERS Bank of America

BNP Paribas

Canara Bank

Citibank N. A.

Corporation Bank

Deutsche Bank

Hongkong & Shanghai Banking Corporation Limited

ICICI Bank Limited

State Bank of India

Vijaya Bank

HDFC Bank

AUDITORS M/s. Lovelock & Lewes, Chartered Accountants

LEGAL ADVISORS J. Sagar Associates

Advocates & Solicitors

4121/B, 19 ‘A’ Main, 6th Cross

HAL II Stage Extention, 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]

BOARD OF DIRECTORS


2 innovate, grow, deliver

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

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Vision

S To be the most innovative

enterprise and the preferred

supplier

3M Performance

Initiatives

S Six Sigma

S 3M Acceleration

S Sourcing effectiveness

S eProductivity

S Indirect Cost Control

Values

S Satisfy customers with superior

quality value and service.

S Provide investors an attractive

return through sustained quality

growth.

S Respect our social and physical

environment.

S Be a company employees are

proud to be part of.



MESSAGE FROM THE CHAIRMAN

The year ended December 31, 2005 was indeed a momentous one for us. Our

Company witnessed excellent growth on the top & bottom line & is well ahead of the

industry average in terms of growth. I am delighted with our performance.

For Companies, scaling up is vital for longevity and prosperity. The growth it

generates feeds customer demand for stronger, more stable partners, who consistently

deliver value at competitive costs. Strong growth permits companies to build their brand

and human capital, to seize market share, to amortize costs on sales, administration

and R&D, not to mention financial stability as I always believe, 3M’s drive to scale-up

will come from it’s innovative and diverse product line and most certainly, our ability to

offer long-term value to our customers.

Our strong product base coupled with a sound business model, is fortified by a

leadership that leads by example. A leadership that rolls up its sleeves and dives into the

details, be it project reviews or scoping customer needs or for that matter motivating their

teams. I thank them for leading 3M India so well and I am confident of their ability to

lead our company to an even stronger & greater future.

Finally, I believe that such strong results are a product of a dedicated, committed

& hard-working team. I thank them for their stellar performance and I exhort them to

continue to foster their culture of excellence, while sticking to the highest ethical standards.

Defining a vision of the future, far ahead of where we stand today, is essential to

unlock the imagination and passion of people. We need to internalise each facet of this

vision, see where we are found wanting, and systematically address each shortcoming.

Once the vision becomes part of our bloodstream, growth is automatic & a certainty.

YYYYYaaaaassssshhhhhooooovvvvvararararardddddhan Bhan Bhan Bhan Bhan Biririririrlllllaaaaa

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MESSAGE FROM THE MANAGING DIRECTOR

The people at 3M India are committed to delivering solutions to our customers problems, using innovative 3M technologiesand products, growing faster than the economy we serve and delivering strong results. In 2005, they continued to transform the waywe operate, achieving several new milestones – both financial and in other key areas of operating performance.

I am delighted to report to you that your Company registered a top line growth of 45.4% over 2004, way above industryaverages. We posted another all-time high in earnings growth of 50.4%. Our results were driven primarily by a combination of solidtop-line growth and continued improvements in operational efficiency. In addition, cost-reduction projects related to our corporateinitiatives had a direct impact on our bottom line. Needless to say, the very core of our raison d’etre are our customers – workingclosely with them, creating and sustaining customer loyalty has contributed significantly to our results.

A rejuvenated culture of accountability is reinforcing the delivery of broad-based business results and all of our businessescontributed to our sales and profit growth in 2005.

We enter 2006 with strong momentum, confident in our ability to sustain double-digit earnings growth both this year andlonger-term. We’re delivering strong results by leading change and leveraging the power inherent in the 3M business model. A culture ofcustomer-inspired innovation is at the core of this business model. Our people apply multiple technologies to a broad spectrum of markets,and they continue to transform the process of innovation – from idea creation to successful product commercialization – by making betterchoices and at a faster pace. We have substantially reduced cycle time – the number of months it takes for a qualified product idea to gofrom concept to successful commercialization. That means sales start earlier and add up more quickly.

Six Sigma is 3M’s overarching initiative, and it continues to drive growth, reduce costs and increase cash flow in 3M businessesaround the world. It has become deeply embedded in every function and business. Simply put, it’s now the way we work. A key way in whichwe use Six Sigma tools is “Six Sigma with Our Customers” projects - these joint projects produce a relationship with customers thattranscends that of the traditional role of a product supplier. We come to be appreciated as a valued business partner, as well.

Achieving results ethically is a cornerstone of the 3M culture. Close to two decades of operating with honesty and integrity hasearned the company trust from customers, respect and credibility, and dedication from our employees. Our reputation is an incalcu-lable asset and a source of pride for 3Mers in India. We recognize that good reputations are much more easily lost than won, and we’refully committed to protecting our reputation for straightforward, ethical behavior.

The impressive results that your Company has delivered would not have been possible without the yeoman contribution of allemployees, channel partners and outsource partners who work day and night to execute and deliver the vision of the company. I a msure all of you will join me in complimenting them for putting in extraordinary work to achieve wonderful results.

I am exceptionally proud of the 3M employees in India and what they have achieved. Not only am I proud of the businessresults but also the way that they have displayed their humanity by contributing from their own pockets to support the PrimeMinister’s Disaster Fund at the time of the recent terrible earthquake in Northern India. Your Company had a contributionmatching scheme and the employees really stepped up. This group of employees are the equal of any group of 3M employees globally.

As we move forward, we will start to increase our investments in India to create an infrastructure to enable continuedgrowth that is well in excess of the economic growth of the country.

Finally, I would like to thank your Board of Directors. Their leadership and advice to me and our team is invaluable.

As I look to the future, I sincerely believe that our best years are ahead of us.

Bert O’Donoghue o

o



Your Directors have pleasure in presenting their Report and the

Audited Accounts for the year ended December 31, 2005.

Financial Results

(Rs. in lakhs)

For the year For the year

ended ended

December 31, December 31,

2005 2004

1. Net Sales including

other Income 38,306.05 25,973.74

2. Exports included in

the above 645.90 36.87

3. Total Expenditure 31,560.01 21,320.50

4. Interest 14.68 21.11

5. Profit after Interest

but before Depreciation

and Taxation (1-3-4) 6,731.36 4,632.13

6. Depreciation 673.06 528.01

7. Provision for Taxation 2,216.53 1,550.55

8. Profit after Taxation 3,841.77 2,553.57

Sales and Earnings

During the year, all business segments performed well, which

resulted in local sales growth of 45.4 % over the previous year.

Profit after Taxation grew by 50.4 %.

Dividend

In view of the on-going investment and further expansion, it is decided

to retain the earnings. Hence, no dividend is recommended.

Personnel

The Board wishes to place on record its appreciation to all

employees in the Company, for their sustained efforts and immense

contributions to the high level of performance and growth that your

Company has achieved during the year.

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. Any Shareholder interested in obtaining a

copy of the said statement may request for a copy in writing, to the

Managing Director at the Registered Office of the Company.

Directors’ Responsibility

Pursuant to Section 217 (2AA) of the Companies Act, 1956, your

Directors confirm that :

i) In the preparation of annual accounts, the applicable accounting

standards have been followed along with proper explanation

relating to material departures;

ii) We 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, 2005 and of the profit of the Company for that

period;

iii) We 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) We have prepared the financial statements for the year ended

December 31, 2005 on a going concern basis.

PARTICULARS OF CONSERVATION OF ENERGY,

RESEARCH AND DEVELOPMENT, TECHNOLOGY

ABSORPTION AND FOREIGN EXCHANGE EARNINGS

AND OUTGO

Report required to be made pursuant to Clause (e) of Sub-section

(1) of Section 217 of the Companies Act, 1956 read with the

Companies (Disclosure of Particulars in the Report of Board of

Directors) Rules, 1988 and forming part of the Director’s Report is

given in Annexure B of this report.

Directors

Mr. Lee M. Kennedy resigned as Managing Director on August 31,

2005 and in his place, Mr. Bert O’Donoghue was appointed as

Managing Director. Dr. Paul Rosso resigned as Director on October

26, 2005 and in his place, Dr. Carlisle Boyce was appointed as a

Director.

The Board of Directors places on record their sincere appreciation

to Mr. Lee M. Kennedy and Dr. Paul Ross for their contribution.

Mr. B. S. Iyer and Dr. Carlisle Boyce are retiring by rotation at the

ensuing Annual General Meeting and being eligible, offer themselves

for re-election / appointment.

Auditors

M/s. Lovelock & Lewes, Chartered Accountants retire and are eligible

for re-appointment.

Acknowledgement

Your Directors wish to place on record their sincere appreciation

for the assistance and support extended by customers, bankers, and

vendors.

Your Directors also wish to place on record their sincere

appreciation for the valuable contribution, efforts and the spirit of

dedication shown by all employees.

On behalf of the Board of Directors

Bert O’Donoghue

Managing Director

Place : Bangalore B.V. Shankaranarayana Rao

Date : February 20, 2006 Director

REPORT OF THE DIRECTORS

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Additional information to be furnished u/s 217 (1)(e) of the Companies (Disclosure of Particulars in the Report of Board ofDirectors) Rules, 1988.

1. Conservation of Energy

Installation of 100 nos of T5 lamps for the new converting area resulted in reduction of power consumption.

Installation of variable frequency drives in the A/C and ventilation arrangement of the Trolley condition area VFD’s willvary the speed of the Motor depending upon the requirement and at least 20% saving is expected to the connectedload of 15 KW of the motors at AHU’s.

The above measures in conservation of energy resulted in annual savings of Rs 3.6 lakhs.

2. Technology Absorption and Research & Development

1. Specific areas in which Research & • Consumer Markets – WipesDevelopment carried out by the Company • Automotive After Markets – Formulations

• Corrosion Protection Products – Epoxy Powders,• Abrasives

2. Benefits derived as a result of the • New applications developed to improve customers processabove Research & Development • Cost effective solutions to bring down the total cost of

applications and products• Patent application filed

3. Future plan of action Support product application development and localiseproducts in areas of Corrosion Protection, AutomotiveAftermarkets, Abrasives, Polymers - Plastic and Rubberprocessing

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

a) Capital Nil

b) Recurring 15.60

c) Total 15.60

d) Total Research & Development expenditureas a percentage of total turnover 0.04 %

3. Foreign Exchange Earnings or Outgo

During the year, the Foreign Exchange earnings were Rs.676.68 lakhs and Foreign Exchange Outgo was Rs. 1055.89 lakhs.


Place : Bangalore Bert O’Donoghue B.V. Shankaranarayana RaoDate : February 20, 2006 Managing Director Director



c) Segment-wise or product-wise performance

INDUSTRIAL MARKETS

3M ’s Industrial business segment represents some of our original businesses, such as tape, coated and non-woven abrasives, and specialtyadhesives. As industrial brands are continuously transformed through technological innovation, this business segment also aptly represents3M innovations at work. Our Industrial market now offers the broadest line of products for markets in automotive,aerospace and automotiveafter markets. Product applications range from grinding, surface conditioning and super abrasives to packaging systems.

Rs. in lakhs

31.12.05 31.12.04

Financial Highlights for the year Segment Revenue 6,456.68 4,781.80

ended December 31, 2005 Profit before Interest & Tax 1,388.86 1,003.14

Capital Employed 1,361.93 1,133.52

Highlights • Strong growth in the construction components segment where specialty

tapes are used for various applications like curtain walling, glazing and panel

attachment applications in elevators.

• Growth in metal fabrication segment where our abrasives products are used

for MS and SS fabrication applications.

• Steady and sustained growth in the AOEM and auto parts segments where

our specialty tapes and abrasives are used for various applications in the

manufacture of automobiles, motorcycles and various auto components.

Investors are cautioned that this discussion contains statements thatinvolve risks and uncertainties. Words like anticipate, believe, estimate,intend, will & expect and other similar expressions are intended toidentify such forward looking statements. The Company assumes noresponsibility to publicly amend, modify or revise any forward lookingstatements, on the basis of any subsequent developments, informationor events. Besides, the Company cannot guarantee that theseassumptions and expectations are accurate or will be realized andactual results, performance or achievements could thus differ materiallyfrom those projected in any such forward looking statements.

MANAGEMENT DISCUSSION AND

ANALYSIS

The Company has a wide spectrum of products to cater to the

requirements of Industrial, Automotive, Healthcare, Consumer &

Office Markets, etc., to name a few.

a) Industry Structure and Developments

The Company sales excluding exports grew by 46.4 % over

previous year.

The Company continues its focus on Industrial Segments, its

technological advantage of 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. Few of our power

brands are Scotchkote, Scotchtint, Micropore, Thinsulate,

Post-it ®, Filtrete™, Scotch®.

b) Opportunities and Threats

2005 was another encouraging year for the Indian economy.

The continued stability at home contributed to the favourable

business environment.

We believe that our ability to compete will depend on a

number of factors beyond our control which include

• currency exchange fluctuations

• the price at which our competitors offer their

products and services and

• to the extent to which our competitors respond to

the customer’s needs

We strongly believe in our Brand Equity.

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AUTOMOTIVE & SPECIALTY MATERIALS MARKETS

Corrosion Protection Products offer high quality high durability coatings for the pipelines which are used for transporting crude oil /natural gas fromexploration area like oil fields to refineries.

Specialty Materials represents some of the very advanced technological products to automotive / oil & gas and industrial segmentswhich add tremendous value to our customers in auto components manufacturing industry.

Design & sell engineered products for the automotive OEM industry. Provide productivity enhancing solutions for the automotiveaftermarkets in car repair and in enhancing appearance of cars through a wide range of car care treatments and accessories

Rs. in lakhs

31.12.05 31.12.04


ended December 31, 2005 Profit before Interest & Tax 1,741.33 1,195.98


Highlights • Oil exploration projects, auto components have progressed during the second half of the

year resulted in significant growth. Several initiatives have been implemented to improve

productivity and growth for corrosion protection products and specialty materials in the

coming years depends largely on theautomotive industry performance and implementation

of oil exploration projects.

• Recorded good growth in the automotive OEM business for both designed

and engineered products.

HEALTH CARE MARKETS

Health Care businesses provide innovative products, services and technologies that help improve people’s health and well being in theHospitals and Dental clinics. 3M India holds leading position in a broad array of market segments – in medical, surgical and dentalproducts and also provides technologies for other health care manufacturers.

Rs. in Lakhs

31.12.05 31.12.04


ended December 31, 2005 Profit before Interest & Tax 335.08 274.98


Highlights • 3M has been working relentlessly with customers in imparting education on hospital /

dental practices and protocol development / compliance across the country.

• Over 40,000 programmes were conducted by marketing, technical and international

speaker programs in the hospital, dental and dairy industry. We worked with customers

and helped set-up local chapters of nurses clubs, infection control societies, etc., in

major cities.

• The launch of a new nanotechnology product Z350 was well received by dentists and

will lead to faster growth. Faster penetration in cleaning and disinfection products and

dressings helped growth in the medical business in 2005. The launch of orthodontic

products in 2005 will accelerate growth.

• Six sigma projects undertaken with some leading customers have helped improved

efficiency for the customers and have helped improved relationships and business for

3M with these customers.



TRAFFIC AND SAFETY MARKETS

Products that enhance worker, public and vehicle safety as well as Corporate image around the world make up this business segment.Major product lines include advanced reflective materials for traffic and personal safety; graphic films, hardware, software, inks andtoners for large-format identity and advertising graphics; respirators & hearing protection products for worker safety, library securitysystems & computer filter screens for eye protection.

Rs. in Lakhs

31.12.05 31.12.04


ended December 31, 2005 Profit before Interest & Tax 1,621.54 970.47


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

demand for the Company’s reflective sheeting products for traffic signage.

• The Company’s reflective sheeting has been approved for use in the prestigious,

Mumbai Metropolitan Regional Development Authority (MMRDA) road projects.

• The Company’s commercial graphics division supplied commercial fascia signage material

(vinyl and flexible substrate) to several large national Corporate identity re-imaging

Programs.

• During the year, the Company’s occupational health & environment safety

division bagged contracts for supply from some of the largest public and private sector

companies in the country and has strengthened its leadership position.

• The Company’s security system division supplied state of the art passport readers to

the 4 large international airports in the country thereby helping them in speedy

clearance at the immigration counters at the airports.

CONSUMER & OFFICE MARKETS, CONSTRUCTION MARKETS

Supplying an array of products that help keep homes cleaner, offices organized and buildings maintained, this business segment features some

of the world ’s best-known brands, from Scotch® to Scotch-Brite® and Post-it ®.

Rs. in Lakhs

31.12.05 31.12.04


ended December 31, 2005 Profit before Interest & Tax 566.35 451.13

Capital Employed 946.22 792.78

Highlights • Multi-packs (save Rs. 6/-) was launched and has received very good response.

Engaged the customers through enhanced interactions.

• Engaged the office target segment to show case the product range.

• Client – Architect meet were held in key metros to share best practices from around

the world, with the key target audience.

OTHERS

Rs. in Lakhs

31.12.05 31.12.04

Financial Highlights for the year Segment Revenue 671.40 69.86

ended December 31, 2005 Profit before Interest & Tax 101.95 (19.25)

Capital Employed - 13.71

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d) Outlook

India is one of the fastest growing global economies. The

fastest growth is projected for the developing nations like

India and China, where the robust economic growth

accompanies the increase in all areas of an industry, which is

expected in the years to come, The Company’s long term

competitive position, particularly given the capital-intensive

and commodity based nature of the industry, is closely

associated with the Company’s ability to invest in projects

that provide adequate financial returns and to manage

operating expenses effectively.

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 variety of factors.

e) Risks and concerns

Risk is an integral part of any business venture and we are no

exception to it. The risks faced by us are both internal and

external in nature. While the internal risk relates to litigations,

disputes, terms of financing, dependence on suppliers and

vendors and certain management related issues and the external

ones include risks in the nature of government policy, innovations,

significant changes in laws applicable to the Company.

The Company continuously monitors business and operations

risk through business process re-engineering and reviewing.

All key functions and divisions are independently responsible

to monitor risk associated within their respective areas of

operations such as production, treasury, insurance, legal and

other issues like health, safety and environment. The Company

is also exposed to financial risks in the form of foreign exchange

fluctuations and interest rates variations.

f) Internal control systems and their adequacy

The Company has a robust system of internal control to allow

optimal use & protection of assets, facilitate accurate and

timely compilation of financial statements and management

reports & ensure compliance with statutory laws, regulations

& Company policies. The Company also has an extensive

budgetary control mechanism whereby the Management

regularly reviews actual performance with reference to the

budgets and forecasts.

The Corporate Audit Group functionally reports to the Audit

Committee and administratively to the Managing Director.

The Audit Committee 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

As on 31st December 2005, 3M India had 532 full time

employees on its rolls, a net increase of 76 from the previous

year. While the new employee base has been a good mix of

professionals from all functions, the largest pool is from the

Sales and Marketing function. More than 55 years after

McKnight laid out the basic management principle for 3M, the

Company upholds the belief that it is only through empowering

and encouraging employee initiative that the Company can

achieve its accelerated growth targets.

3M continues to offer employees an environment of high

ethical standards, performance orientation, growth and

development. The Company’s well-defined performance

management system incorporates an objective process for

assessment of contribution, while also ensuring that employee

rewards are in alignment with the Company’s achievements.

To ensure that leadership development remains a key focus

area, the Company has been organizing leadership programs

for its new supervisors. “Leadership Attributes” is a salient

feature of the performance assessment system – equally

applicable to all employee levels of 3M.

2005 has been a year marked with initiatives to recognize,

reward and motivate employees. We anticipate that the pace

of these initiatives will gain further momentum in 2006.


Bert O’Donoghue

Managing Director

Place : Bangalore B.V. Shankaranarayana Rao

Date : February 20, 2006 Director



REPORT ON CORPORATE GOVERNANCE

Whether Promoter, No. of outside No. of Board No. of shares

Executive, or Directorships Committees of Other held

Director Non-Executive / held * companies in which a

Independent Member #

Mr. Yashovardhan Birla (a) Non-Executive 6 2 ( 1 as Chairman) -

(Promoter) (Indian Promoter Group)

Mr. Bert O’Donoghue (b) Executive Nil Nil -

(Managing Director) (Promoter Group)

Ms. Mary McCormick Non-Executive Nil Nil -

(Promoter Group)

Mr. Thomas P. Spencer Non-Executive Nil Nil -

(Promoter Group)

Dr. Carlisle S. Boyce Non-Executive Nil Nil -

(Promoter Group)

Mr. B.S. Iyer Non-Executive & Nil Nil -

(Chairman, Audit Committee) Independent

Mr. Amit Mukherjee Non-Executive & 1 Nil -

Independent

Mr. D.J. Balaji Rao Non-Executive & 7 8 (of which, Chairman -

(Chairman - Shareholders Independent in 3 Committees)

Grievance Committee)

Mr. Brad C. Sweet ** Non-Executive Nil Nil -

(Promoter Group)

Mr. B. V. Shankaranarayana Rao Executive Nil Nil 600

(Whole-Time Director) (Promoter Group)

The tenure of each Independent Director has not exceeded the maximum of nine years. The Independent Directors satisfy the criteria

prescribed under the revised Listing Agreements.

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

public Company.

# Excludes committees other than Audit Committee, Shareholders / Investors Grievance Committee and companies other than public limited companies.

(a) Nominee of Shearson Investment and Trading Company Limited

(b) Nominee of 3M Company, USA

** Alternate Director to Mr. Thomas P. Spencer

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 and Industry, Finance & Law. The details of Board composition, their other directorships / committee memberships

and shareholding in the Company, as of December 31, 2005 are appended below :

The Board of Directors is pleased to present a report on thecompliance of Corporate Governance requirements as per the ListingAgreements with the Stock Exchanges.

The revised Clause 49 of the Listing Agreements is effective from1st January 2006. However, with a view to comply with spirit of the law,the Company had already put in place a majority of the requirements andthe implementation of remaining requirements have been put in process.

The following paragraphs along with management discussion andanalysis of financial condition, results and operations of the Company,furnished in the Company’s Annual Report provide the complianceposition in regard to the revised Clause 49 and the initiatives takenby the Company towards meeting the same.

Company’s Philosophy on Corporate Governance

3M India Limited’s philosophy of Corporate Governance stems fromits belief that the Company’s business strategy and plans should beconsistent with the welfare of all its stakeholders, including thesociety at large. Good Corporate Governance practices enable aCompany to attract financial and human capital and leverage theseresources to maximize long-term shareholder value, whilepreserving the interest of all the stakeholders.

The Company’s philosophy on Corporate Governance is toendeavour to ensure :

- that systems and procedures which monitor compliancewith laws, rules and regulations are in place in each areaof its business

- that relevant information regarding the Company and itsoperations are disclosed, disseminated and easily availableto its stakeholders, and

- that the Board of Directors are kept fully informed of

• all material developments in the Company

• the risks in its business and its operations

Code of Conduct

The Company’s Board has laid down a code of conduct for all BoardMembers and Senior Management of the Company. The code ofconduct is available on the website of the Company,

www.3M.com/intl/in.

13



BOARD MEETINGS & AGM

During the year 2005, four Board Meetings were held, the dates being February 25, 2005, April 29, 2005, July 29, 2005 and October 26, 2005.

The last AGM was held on April 29, 2005.

The composition of the Board of Directors as on December 31, 2005 and details of attendance of each Director at the Board Meetings

and AGM are given below :

Director No. of Board Whether attended

Meetings attended last AGM

Mr. Yashovardhan Birla - No

Mr. Bert O’Donoghue @ 1 No

Mr. B. V. Shankaranarayana Rao 4 Yes

Ms. Mary McCormick 1 No

Mr. Thomas P. Spencer - No

Mr. B.S. Iyer 4 Yes

Mr. Amit Mukherjee 3 Yes

Mr. D.J. Balaji Rao 4 Yes

Dr. Carlisle S. Boyce # 1 No

Mr. Brad C. Sweet - No

(Alternate to Mr. Thomas P. Spencer)

@ Appointed as Managing Director, effective 1st September 2005

# Appointed as a Director on October 26, 2005

Mr. Lee M. Kennedy * 3 Yes

Dr. Paul Rosso ** - No

* Resigned on 31st August 2005

** Resigned on October 26, 2005

BOARD COMMITTEES

The Board has constituted the following Committees of Directors:

a) Audit Committee :

The Audit Committee of the Company is functioning inaccordance with the requirements of Section 292A of theCompanies Act and the Listing Agreements. There has beenno change in the composition of Audit Committee during the

year. As per the guidelines set out in the Listing Agreements,the scope delegated to the Audit Committee by the Board,inter-alia, include the mandatory functions viz., review thereport on Management Discussion and Analysis, significantRelated Party Transactions, Management Letters issued bythe Statutory Auditors, Internal Audit Reports and Internal

Control Systems, overseeing financial reporting processes,reviewing with the Management the financial statements,accounting policies and practices and discussion with InternalAuditors on any significant findings, financial and riskmanagement policies.

The functions of the Audit Committee include the following:

• Oversight of the Company’s financial reporting process

and the disclosure of its financial information to ensurethat the financial statement is correct, sufficient andcredible.

• Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removalof 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 financialstatements before submission to the Board for approval,

with particular reference to:

- Matters required to be included in the Director’sResponsibility Statement to be included in the Board’sreport in terms of clause (2AA) of Section 217 ofthe Companies Act, 1956.

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

- Major accounting entries involving estimates based

on the exercise of judgment by Management.

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

- Compliance with listing and other legal requirementsrelating to financial statements.

- Disclosure of any related party transactions.

- Qualifications in the draft audit report.

• Reviewing, with the Management, the quarterly financialstatements before submission to the Board for approval.

• Reviewing, with the Management, performance ofStatutory and Internal Auditors, adequacy of the internalcontrol systems.

• Reviewing the adequacy of internal audit function, if any,including the structure of the internal audit depart-ment, staffing and seniority of the official heading thedepartment, reporting structure coverage and frequencyof internal audit.

• Discussion with Internal Auditors any significant findingsand follow-up there on.

• Reviewing the findings of any internal investigations by theInternal Auditors into matters where there is suspected fraudor irregularity or a failure of internal control systems ofa material nature and reporting the matter to the Board.



• Discussion with Statutory Auditors before the auditcommences, about the nature and scope of audit as wellas post-audit discussion to ascertain any area of concern.

• To look into the reasons for substantial defaults in thepayment to the depositors, debenture holders,shareholders (in case of non-payment of declareddividends) and creditors.

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

The Audit Committee is empowered, pursuant to its terms ofreference, to:

• Investigate any activity within its terms of reference andto seek any information it requires from any employee.

• Obtain legal or other independent professional adviceand to secure the attendance of outsiders with relevantexperience and expertise, when considered necessary.

The Company has systems and procedures in place to ensure thatthe Audit Committee mandatorily reviews:

• Management discussion and analysis of financial conditionand results of operations.

• Statement of significant related party transactions (asdefined by the Audit Committee), submitted byManagement.

• Management letters / letters of internal controlweaknesses issued by the Statutory Auditors.

• Internal audit reports relating to internal controlweaknesses.

• The appointment, removal and terms of remuneration ofthe Internal Auditor.

The Audit Committee is also presented with the following informationon related party transactions (whenever applicable) :

• A statement in summary form of transactions with relatedparties in the ordinary course of business.

• Details of material individual transactions with relatedparties, which are not in the normal course of business.

• Details of material individual transactions with relatedparties or others, which are not on an arm’s length basisalong with management’s justification for the same.

During the year under review, four meetings of the Audit Committeewere held, February 25, 2005, April 29, 2005, July 29, 2005 andOctober 26, 2005.

The composition of the Audit Committee as at 31st December 2005(all Non-Executive) and the attendance of the members at the Audit

Committee Meetings held during the year are as follows:

DirectorNo. of Audit Committee

meetings attended

Mr. Thomas P. Spencer -

Ms. Mary B. McCormick 1

Mr. B.S. Iyer 4

Mr. D. J. Balaji Rao 4

Mr. Amit Mukherjee 3

Mr. B.S. Iyer is the Chairman of the Audit Committee. The

Company Secretary acts as the Secretary to the Committee.

All the members of the Audit Committee are financially literate

and Mr. B. S. Iyer, Chairman, is a person with financial

expertise. He is in the Senior Management of a large reputed

Listed Company and is also its Company Secretary.

At the invitation of the Committee, the Internal Auditor, the

Managing Director, the Head of Finance, Head of Legal

Department & Statutory Auditors attend the Audit Committee

meetings, to answer and clarify the queries that are raised at

the Committee meetings.

The Company has an Internal Audit department, which carries

out independent periodic reviews. The prime objective of

such audits is to evaluate the functioning and quality of internal

controls and provides assurance of its adequacy and

effectiveness. The scope of internal audit covers a wide variety

of operational and financial matters and includes a follow-up

review of corrective actions agreed for implementation. The

adequacy of the internal control system as well as the report

of the internal audit is reviewed by the Audit Committee of

the Board of Directors. In addition, an audit by Global Internal

Audit team of 3M Group, in accordance with 3M Group charter

for internal audit, is also conducted.

There were no transactions of exceptional nature that

required the specific attention of the Audit Committee.

b) Remuneration to Directors :

The Company has currently two Executive Directors in

Mr. Bert O ’Donoghue, Managing Director and Mr. B. V.

Shankaranarayana Rao – Whole Time Director. Mr. Bert

O’Donoghue took over as Managing Director w.e.f.

1st September 2005 from Mr.Lee M. Kennedy. The terms of

appointment of the Executive Directors are fixed by the Board

and approved by the Shareholders. The Non-Executive

Directors do not draw from the Company any remuneration

other than sitting fees. The Company has not constituted a

separate Remuneration Committee. None of the Non-Executive

Directors have any pecuniary relationship with the Company.

The terms of appointment and remuneration to Mr. Bert

O’Donoghue, Managing Director and Mr. B. V.

Shankaranarayana Rao, Whole-time Director are governed

by the letters issued to the respective individuals on the basis

and within the terms approved by the Board.

The remuneration approved by the Board to the new Managing

Director is within the ambit and limits of Schedule XIII. The

Company has approached the Central Government for

approving the Managing Director appointment and the

shareholders’ approval is being sought at the ensuing Annual

General Meeting.

Brief terms of remuneration to Mr. Bert O’ Donoghue

are as under :

Term :

September 1, 2005 till August 31, 2010

Salary including allowances, incentive and perquisites :

Salary / Allowances – salary and allowances not exceeding

Rs. 10 Million per annum.

15



Perquisites - The value of the perquisites shall not exceed

Rs. 5 Million per annum and nature of perquisites is as given below:

a. Fully furnished company leased house. All the lease

provisions will be as per the rules and regulations of the

leased accommodation Policy of the Company.

b. Reimbursement of telephone rentals and the actual

business telephone calls. All charges for long distance

personal calls will be borne by the individual.

c. Company car with chauffer primarily for official use. The

car will be fully maintained by the Company.

Benefits / Perquisites :

Additional perquisites, not included in the overall perquisites

ceiling of Rs. 5 Million per annum

a. Children’s Education Allowance subject to a maximum

of Rs.5,000/- per child per month for two Children,

studying in or outside India will be payable.

b. Passage money for children studying outside India / family

staying abroad once in a year by economy class or once in

two years by first class from the place of their study / stay

abroad, if they are not residing with the Managing Director.

c. Leave Travel Concession : Return passage for self and family

as per the rules of the Company, once in a year, if the leave

is to be spent outside India. He will be eligible for leave

travel facility to home town for self and family twice a year.

Brief terms of remuneration to Mr. B. V.

Shankaranarayana Rao are as under :

Term :

April 1, 2004 till March 31, 2007

Salary including allowances, incentive and perquisites :

Total value of salary & perquisites not exceeding Rs. 45 lakhsper annum or Rs.3.75 lakhs per month. Within the said limits,the exact payment of remuneration shall be decided by theManaging Director and communicated to Mr. B.V.Shankaranarayana Rao from time to time.

Benefits / Perquisites :

The perquisites would be mainly in the form of furnishedhouse or House Rent Allowance in lieu of the accommodation,with such other amenities and facilities as may be requiredfrom time to time for security and upkeep, telephone atresidence, electricity, security guard, medical facilities andother facilities available to the Senior Management personnelas per rules of the Company.

Others - Payment / remittance towards retiral benefits likeProvident Fund, Superannuation, Gratuity, etc. shall beaccording to the Company’s Policy for Senior Managementand applicable statutory provisions from time to time.However, the above statutory payments shall not be includedfor computation of Managerial Remuneration to the extentthey are not in excess of the limits prescribed under theIncome Tax Act, 1961.

The perquisites for this purpose shall be valued as per IncomeTax Act, 1961, wherever applicable, and in the absence of anyprovisions in the said Act, the perquisites shall be valued atactuals.

Other terms of employment shall be on the same lines asapplicable to the Senior Executives of the Company as perPolicy of the Company.

The contract of service of Mr. B. V. Shankaranarayana Rao isterminable with a notice period of 90 days on either side.

Details of remuneration paid to Executive Directors during the year 2005:In Rupees

Period Salaries & Cost value of benefits TotalName and Designation Allowances as per Indian Income

Tax Act, 1961

Mr. Lee M. Kennedy 1st January, 2005 -(Managing Director) 31st August, 2005 62,58,626 16,06,516 78,65,142

Mr. Bert O’Donoghue 1st September 2005 -

(Managing Director) 31st December, 2005 30,00,800 11,88,885 41,89,685

Mr. B.V. Shankaranarayana Rao 1st January, 2005 -

(Whole-Time Director) 31st December, 2005 33,94,056 9,22,914 43,16,970

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

Sitting Fees

Sitting fees paid to the Non-Executive Directors during the year 2005 are given below :

DirectorBoard Meeting Committee Meetings Total

(Rs.) (Rs.) (Rs.)

Mr. Yashovardhan Birla - - -

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

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



SPECIFIC DISCLOSURE

Related party transactions

Disclosures on materially significant related party transactions :

• The Company sources major portion of its raw materials and

traded goods for sale from the parent Company, 3M Company,

USA and its associated business enterprises. However, the

contracts entered for the above purpose are at arms length

basis and have no potential conflict with the interest of the

Company at large.

• The details of the related party transactions are furnished in

Notes to Accounts, in accordance with the Accounting Standard

18. They are also approved by the Audit Committee.

• There were no financial or commercial transaction of material

nature with the Directors, Senior Management, their relatives

that had potential conflict with the interest of the Company at

large.

Disclosure of Accounting Treatment

• There were no deviation from the Accounting Standards as

prescribed by the Institute of Chartered Accountants of India.

Risk Management

• The Company has identified various risks and suggested

procedure to mitigate the same. The Audit Committee and the

Board have reviewed the same. When new risks are identified,

the same would be then assessed, controls designed, put in

place and enforced within a fixed 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

2005.

Management Discussion and Analysis

• A detailed report on Management Discussion and Analysis of

financial condition, results and operations of the Company, as

approved by the Audit Committee is annexed to the Company’s

Annual Report.

Audit Qualifications

• There were no qualifications by the Auditors in their report

for the previous financial year ended December 31, 2004.

Regulatory compliance by the Company

• The Company has complied with all the requirements of

regulatory authorities. No penalties/strictures were imposed

on the Company by Stock Exchanges or SEBI or any Statutory

Authority on any matter related to capital market during the

last three years. The Board has taken on record a compliance

report submitted by the Company’s Legal Counsel in this regard.

The Company is in the process of implementing a more

exhaustive internal system in this regard.

Code for prevention of Insider Trading practices

• The Company has established a code of conduct for Insider Trading

as required under the Prohibition of Insider Trading Rules, 2003

(‘Rules’) and Mr. K Ramesh Chandra, Company Secretary is the

Compliance Officer. Information / declaration as required under

the said Rules are obtained from the Directors / Employees.

Whistle-Blower policy

• The Company has not implemented a Whistle-Blower policy.

CEO / CFO certification

• The revised clause 49 of the Listing Agreement is with effect

from 1st January 2006 and hence the certificate from CEO/CFO

is not provided to the Shareholders in the Annual Report for

the financial year ending December 31,2005.

OTHER DISCLOSURES

Mandatory requirements

The Company has complied with all mandatory requirements.

Non-Mandatory Requirements

The Company has a Non-Executive Chairman and his expenses are

reimbursed. However, no separate Chairman office is maintained

at the Company’s expense.

The Non-Executive Directors are given adequate knowledge and

exposure on the Company’s business environment through

periodical presentations by the Company Business Heads.

c) Shareholders’ / Investors’ Grievance Committee :

The composition of the Shareholders’ Grievance Committee

as at 31st December 2005 and the attendance of the members at

the Shareholders’ Grievance Committee Meeting held during

the year are as follows:

No. of Shareholders’

Director Grievance Committee

Meetings attended

Mr. D. J. Balaji Rao 4

Mr. Yashovardhan Birla -

Mr. Lee M. Kennedy * 3

Mr. Bert O’Donoghue ** 1

Mr. B. S. Iyer 4

Mr. Amit Mukherjee 3

* Resigned as on 31st August 2005

** Appointed as member of the Committee on October 26, 2005

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

duplicate certificates.

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 Company’s officers, as may be

necessary including powers to approve transfers,

transmissions, authenticate share certificates and to take other

actions in relation to Shareholder related matters.

17



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. However, the

number of these cases are not material.

The Statistics of Shareholders Complaints received / redressed,

during the year 2005, is furnished below :

No. of the Complaints relating to Non-

receipt of dividend warrants, Redemption /

Interest warrants, Annual Reports, Share 22

certificates, endorsement stickers & others,

received during the year

No. of Shareholders complaints resolved

during the year22

No. of pending share transfers as on

December 31, 2005Nil

General Body Meeting

Location and time where last three General Body Meetings were held :

Date Meeting Location Time

29th April 2003 AGM Hotel Leela Palace

23, Kodihalli, Airport Road

Bangalore – 560 008 10.00 a.m.

22nd April 2004 AGM Hotel Leela Palace


Bangalore – 560 008 10.00 a.m.

29th April 2005 AGM Hotel Leela Palace


Bangalore – 560 008 10.00 a.m.

Postal Ballot

During the year 2005, there was no business, which had to be

conducted through a postal ballot. At present, the Company does not

have any resolution to be decided by the Members by Postal Ballot.

Following are the details of the special resolutions passed by the

Shareholders at the last three General Meetings :

Date of passing Subject matter

22nd April 2004 Delisting from

Delhi Stock Exchange

22nd April 2004 Re-appointment of

Mr. Lee M. Kennedy as

Managing Director

Means of communication :

Quarterly financial results, including the half year results are

published in Business Line (All India Edition) and Udayawani

(Bangalore Edition). The annual audited accounts are likewise

published. The half-yearly report is not separately sent to each

household of the shareholders. In accordance with the listing

regulations, the Company’s audited and unaudited quarterly / half

yearly / annual results are also posted in the SEBI’s website under

EDIFAR (Electronic Data Information Filing And Retrieval System).

The Company’s financial results are also displayed in the Company’s

website, www.3M.com/intl.in

The Management Discussion and Analysis report on the Company’s

activities during the year is published as part of the Company’s

Annual Report. This report has been placed to the Company’s Audit

Committee.

General Shareholder information :

April 24, 2006

The Leela Palace,

Annual General Meeting 2006 No.23, Kodihalli,

Airport Road,

Bangalore - 560 008

Time 10.00 a.m.

Financial Calendar :

a) Date of Book Closure April 17, 2006 - April 24, 2006 (Both days inclusive)

b) Dividend payment date N. A.

c) Financial Results Third / Fourth week of April 2006 - Unaudited Results for the quarter ended March 2006.

Third / Fourth week of July 2006 - Unaudited Results for April / June 2006 and half year

results for Jan - June 2006.

Third / Fourth week of October 2006 - Unaudited Results for the quarter ended September 2006.

Third / Fourth week of February 2007 - Audited Results for the year ended December 31, 2006.

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 and Bombay Stock Exchange Limited, Mumbai

for the financial year, 2005 - 2006.



Registrar & Share Transfer Agents :

Share registration and other investor related activities are carried out by our Registrar and Transfer Agents, M/s. Karvy Computershare

Private 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 Company’s 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).

Stock Performance :

BSE Sensex Vs. 3M Share Price

(Monthly Closing Price)

Crisil Index : Not applicable

Sensex 3M India

1000

900

800

700

600

500

400

300

200

100

0

1000

8000

6000

4000

2000

0

Jan 05

Feb 05

Mar 05

Apr 05

May 0

5

Jun 05

Jul 0

5

Aug 05

Sep 05

Oct 0

5

Nov 05

Dec 05

Year / Month Bombay Stock Exchange (BSE) National Stock Exchange (NSE)

(in Rs.) (in Rs.)

High Low High Low

Jan 05 597.00 510.00 590.00 512.10

Feb 05 630.00 546.20 648.00 531.00

Mar 05 568.95 485.00 551.00 483.15

Apr 05 567.00 504.20 553.00 464.10

May 05 782.80 550.00 780.00 562.00

Jun 05 724.50 592.00 776.95 608.30

Jul 05 910.00 608.20 905.00 622.80

Aug 05 849.00 778.00 840.00 782.75

Sept 05 999.00 800.00 990.00 780.05

Oct 05 888.00 696.00 890.00 681.00

Nov 05 809.00 705.20 810.00 721.00

Dec 05 939.00 769.00 925.00 761.00

Stock Price Data :

19



DEMATERIALISATION OF SHARES AND LIQUIDITY

22.2 % of the total equity capital was held in dematerialised form with National Securities Depository Limited (NSDL) / Central Depository Services (India)

Limited (CDSL) as on December 31, 2005. Trading in Dematerialization form was effective from June 26, 2000.

Outstanding GDRs/Warrants, Convertible Bonds, conversion date and likely impact on equity: Not applicable

Distribution of Shareholding as on December 31, 2005

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

1 to 500 8,227 95.26 683,803 6.07

501 to 1000 196 2.27 155,054 1.38

1001 to 2000 86 1.00 129,686 1.15

2001 to 3000 56 0.65 141,576 1.26

3001 to 4000 19 0.22 65,390 0.58

4001 to 5000 6 0.07 27,352 0.24

5001 to 10000 24 0.28 173,654 1.54

10001 and above 22 0.25 9,888,555 87.78

Total 8636 100.00 11,265,070 100.00

Shareholding Pattern as at December 31, 2005

Category No of Shares Held Percentage of

Shareholding

A Promoter’s holding

1 Promoter’s

Indian Promoters 810,900 7.20

Foreign Promoters 8,562,000 76.00

2 Persons acting in concert - -

Sub Total: 9,372,900 83.20

B Non-Promoters holding

3 Institutional Investors

a Mutual Funds and UTI 35,341 0.31

b Banks, Financial Institutions,

Insurance Companies (Central / State Govt., Institutions,

non Government Institutions) 80 0.00

c FIIs - -

Sub Total 35,421 0.31

4 Others

a Private Corporate Bodies 445,455 3.95

b Indian Public 1,349,373 11.98

c NRIs/OCBs 60,849 0.54

d Any Other

- Trusts 1,072 0.01

Sub Total 1,856,749 16.48

Total 11,265,070 100.00

Plant Locations :

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

173/2, Madivala, Bandapura, Anekal Taluk, Bangalore – 562 106

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

Sarkhej Bavla Highway, Ahmedabad –382 213

Offices and address for communication :

Registered Office :

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

Corporate Office :

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


Place : Bangalore Bert O’Donoghue B.V. Shankaranarayana Rao

Date : February 20, 2006 Managing Director Director



To the Members of 3M India Limited

We have reviewed the implementation of Corporate Governance

produced by 3M India Limited during the year ended

31st December, 2005, with the relevant records and documents

maintained by the Company, furnished to us for our review and on

the Corporate Governance as approved by the Board of Directors.

The compliance of conditions of corporate governance is the

responsibility of the management. Our examination 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 an expression of opinion on

the financial statement of the Company.

We further state that such compliance is neither an assurance as to

the further viability of the Company nor the efficiency or effectiveness

with which the management has conducted the affairs of the Company.

On the basis of our review and according to the information and

explanations given to us, in our opinion, the conditions of Corporate

Governance as stipulated in Clause 49 of the listing agreement(s)

which the Stock Exchange(s) have been complied with in all material

respect by the Company.

Usha A Narayanan

Partner

Membership Number 23997

For and on behalf of

Place : Bangalore Lovelock & Lewes

Date : February 20, 2006 Chartered Accountants

AUDITORS’ CERTIFICATE ON COMPLIANCE WITH THE CONDITIONS OF CORPORATE

GOVERNANCE UNDER CLAUSE 49 OF THE LISTING AGREEMENT(S)

21



AUDITORS’ REPORT TO THE MEMBERS OF 3M INDIA LIMITED (FORMERLY BIRLA 3M LIMITED)

1. We have audited the attached Balance Sheet of 3M India

Limited (formerly Birla 3M Limited) as at December 31, 2005,

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 company’s

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 we plan 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 (Auditor’s Report) Order, 2003,

as amended by the Companies (Auditor’s Report) (Amendment)

Order, 2004, 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 for the 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 agree

ment 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, 2005 and taken on

record by the Board of Directors, none of the Directors

is disqualified as on December 31, 2005 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 financial

statements 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, 2005;

(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 Narayanan

Partner







Referred to in paragraph 3 of the Auditors’ Report of even date to

the members of 3M India Limited (formerly Birla 3M Limited) on the

financial statements for the period ended December, 31, 2005

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 including 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 therefore 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 therefore

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.

ANNEXURE TO AUDITORS’ REPORT

5. (a) In our opinion and according to the information and

explanations given to us, the particulars of contracts or

arrangements referred to in Section 301 of the Act have

been entered in the register required to be maintained

under that section.

(b) In our opinion and according to the information and

explanations given to us, the transactions made in

pursuance of such contracts or arrangements and

exceeding the value of Rupees Five Lakhs in respect of any

party during the year, have been made at prices which are

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 except for amount

claimed under show cause notice as detailed below:

Name of Nature of Amount Period to Forum

the Statute Dues Rs. which the where the

amount dispute is

relates pending

Customs Act, Customs 3,119,000 1993 Commissioner

1962 Duty Matter of Customs

The Employees Employees 1,940,000 1997 Deputy

State Insurance State Director

Act, 1948 Insurance

matter

10. The company has not accumulated losses as at December 31,

2005 and it has not incurred any cash losses in the financial

year ended on that date or in the immediately preceding

financial year.

23



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.12,000,000 as the

recovery of related dues are not certain.

12. On the basis of an overall examination of the balance sheet of the

company, in our opinion and according to the information and

explanations given to us, there are no funds raised on a short-

term basis which have been used for long-term investment.

13. 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.

14. The other clauses, xi, xii, xiii, xiv, xvi, xviii, xix and xx of

paragraph 4 of the Companies (Auditor’s Report) Order 2003,

as amended by the Companies (Auditor’s Report) (Amendment)

Order, 2004, 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







Schedule As at 31.12.2005 As at 31.12.2004

Number Rs. Rs.

SOURCES OF FUNDS :

1. Shareholders’ Funds :

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

Reserves & Surplus 2 1,621,414,810 1,237,237,940

2. Loan Funds :

Secured Loans 3 - -

Unsecured Loans 4 - -

3. Net Deferred Tax Liability - 2,863,865

[Schedule 15, Note 17(b)]

1,734,065,510 1,352,752,505

APPLICATION OF FUNDS :

1. Fixed Assets :

Gross Block 5 701,261,487 663,325,878

Less: Depreciation 410,816,523 353,177,193

Net Block 290,444,964 310,148,685

Capital work-in-progress 2,866,538 11,122,248

2. Investments 6 - 16,000

3. Net Deferred Tax Asset 12,486,997 -

[Schedule 15, Note 17(b)]

4. Current Assets, Loans and Advances :

Inventories 7 601,544,384 402,165,570

Sundry Debtors 8 499,880,606 296,798,019

Cash and Bank Balances 9 762,014,155 618,097,308

Loans and Advances 10 338,238,422 258,197,439

2,201,677,567 1,575,258,336

Less: Current Liabilities and Provisions : 11

Current Liabilities 710,478,649 499,414,782

Provisions 62,931,907 44,377,982

773,410,556 543,792,764

Net Current Assets 1,428,267,011 1,031,465,572

1,734,065,510 1,352,752,505

Notes to accounts 15

The Schedules referred to above form an integral part of the Balance Sheet.

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

report of even date

Usha A Narayanan Bert O’ Donoghue B. V. Shankaranarayana Rao K. Ramesh Chandra

Partner Managing Director Director Company Secretary

Membership No. : 23997


Lovelock & Lewes

Chartered Accountants

Place : Bangalore

Date : February 20, 2006

BALANCE SHEET AS AT DECEMBER 31, 2005

25



Schedule For the year ended For the year ended

Number 31.12.2005 31.12.2004

Rs. Rs.

INCOME :

Sales 4,029,457,944 2,712,258,968

Less: Excise Duty 230,639,389 139,762,609

3,798,818,555 2,572,496,359

Other income 12 31,786,183 24,878,025

3,830,604,738 2,597,374,384

EXPENDITURE :

Finished Goods purchased (traded) 1,203,926,577 933,189,771

Manufacturing, administrative and selling expenses 13 2,062,675,464 1,278,224,302

Depreciation 67,306,310 52,800,908

(Increase) / Decrease in inventories 14 (109,133,077) (77,252,585)

3,224,775,274 2,186,962,396

Profit before Taxation 605,829,464 410,411,988

Taxation for the year

- Current Tax [Schedule 15, Note 17(a)] 222,000,000 163,500,000

- Deferred Tax [Schedule 15, Note 17(b)] (15,350,862) (8,444,775)

- Fringe Benefit Tax 15,003,456 -

Profit after Taxation 384,176,870 255,356,763

Balance in Profit & Loss Account brought forward 1,139,022,940 883,666,177

Balance Transferred to Balance Sheet 1,523,199,810 1,139,022,940

Earnings Per Share - Basic and Diluted 34.10 22.67

(Schedule 15, Note 19)

Notes to accounts 15

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2005

The Schedules referred to above form an integral part of the Profit and Loss Account.

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

report of even date





Lovelock & Lewes


Place : Bangalore




As at As at

31.12.2005 31.12.2004

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 fully paid up

11,265,070 Equity Shares of Rs. 10 each

Of the above 8,562,000 equity shares (Previous year - 8,562,000 equity

shares) are held by 3M Company, USA 112,650,700 112,650,700

112,650,700 112,650,700

SCHEDULE 2:

RESERVES AND SURPLUS

a. Capital Reserves 2,000,000 2,000,000

(State Investment Subsidy received from the Government of Karnataka)

b. Share Premium Account 94,990,000 94,990,000

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

d. Surplus, being balance in Profit and Loss Account 1,523,199,810 1,139,022,940

1,621,414,810 1,237,237,940

SCHEDULE 3:

SECURED LOANS

Packing Credit/Cash Credit Account from banks - -

(Secured by first charge by way of hypothecation of all finished goods,

work-in-progress, raw materials, traded goods, stores,

book debts and all other movable assets)

- -

SCHEDULE 4:

UNSECURED LOANS - -

- -

SCHEDULES TO ACCOUNTS

27

3M India Lim

ited(fo

rme

rly Birla

3M

Lim

ited

)



SCHEDULE 5

FIXED ASSETS [Schedule 15, Note 1 (B) and (C)]

GROSS BLOCK - AT COST DEPRECIATION/AMORTISATION NET BLOCK

PARTICULARS As at Additions Deletions As at Upto For the year Sales/ Upto As at As at

31.12.2004 for the year for the year 31.12.2005 31.12.2004 adjustment 31.12.2005 31.12.2005 31.12.2004

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

Freehold Land 7,806,562 - - 7,806,562 - - - - 7,806,562 7,806,562

Leasehold Land 27,854,456 - - 27,854,456 - - - - 27,854,456 27,854,456

(Refer Note (a) below)

Goodwill 57,202,270 2,814,900 - 60,017,170 51,861,816 8,155,354 - 60,017,170 - 5,340,454

Factory Building 61,848,245 876,982 - 62,725,227 17,237,666 2,073,171 - 19,310,837 43,414,390 44,610,579

Leasehold Improvements 33,425,600 132,083 - 33,557,683 17,907,390 7,092,313 - 24,999,703 8,557,980 15,518,210

(Refer Note (b) below)

Plant and Machinery 274,561,049 25,322,506 - 299,883,555 126,770,931 23,020,961 - 149,791,892 150,091,663 147,790,118

Data Processing Equipments 87,543,251 10,457,660 - 98,000,911 78,052,207 10,040,772 - 88,092,979 9,907,932 9,491,044

and Software

Furniture, Fixtures and

Office Equipments 106,551,914 7,998,458 (5,701,965) 108,848,407 55,540,812 16,197,579 (5,701,965) 66,036,426 42,811,981 51,011,102

(Refer Note (b) below)

Vehicles 6,532,531 - (3,965,015) 2,567,516 5,806,371 726,160 (3,965,015) 2,567,516 - 726,160

663,325,878 47,602,589 (9,666,980) 701,261,487 353,177,193 67,306,310 (9,666,980) 410,816,523 290,444,964 310,148,685

Previous year 550,744,724 112,869,736 (288,582) 663,325,878 300,664,867 52,800,908 (288,582) 353,177,193 310,148,685 250,079,856

Note

a) Leasehold land represents amount paid to Maharashtra Industrial Development Corporation for land to be purchased on 95 years lease, for which compliance with certain conditions as

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

b) Current year depreciation includes additional depreciation of Rs. 6,942,289 on account of management reassessment of remaining estimated useful life of Leasehold Improvements and

Furniture & Fixtures.



As at As at

31.12.2005 31.12.2004

Rs. Rs.

SCHEDULE 6:

INVESTMENTS (NON-TRADE UNQUOTED)

At Cost

Long Term

In Government Securities:

Indira Vikas Patra - 500

National Savings Certificate - 15,500

(Lodged with Government departments)

- 16,000

SCHEDULE 7:

INVENTORIES

(Lower of cost and net realisable value)

a) Stock in Trade

- Raw Materials 237,292,076 152,838,718

(including in-transit Rs.49,195,668 previous year Rs.20,753,228)

- Packing Materials 11,138,983 5,463,182

- Work-in-Progress 20,972,615 13,982,465

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

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

(including in-transit Rs. 73,793,501 previous year Rs.31,129,843)

b) Stores & Spares 289,631 173,053

601,544,384 402,165,570

SCHEDULE 8:

SUNDRY DEBTORS

(Secured)

Over six months: 3,712,091 2,530,181

Others 24,098,298 9,877,021

(Unsecured)

Over six months:

- considered good 5,734,301 1,043,357

- considered doubtful 70,046,986 64,276,486

Others

- considered good 466,335,916 283,347,460

569,927,592 361,074,505

Less: Provision for doubtful debts 70,046,986 64,276,486

499,880,606 296,798,019


29



As at As at

31.12.2005 31.12.2004

Rs. Rs.

SCHEDULE 9:

CASH AND BANK BALANCES

a) Cash and Cheques on hand 19,402,424 10,097,488

b) With Scheduled Banks:

- Current Accounts 137,290,046 67,678,135

- Deposit Account * 605,000,000 540,000,000

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

* Includes Rs 10,200,000 under lien 742,611,731 607,999,820

(Previous Year - Rs. 4,680,000)

** Held against guarantees issued

762,014,155 618,097,308

SCHEDULE 10:

LOANS AND ADVANCES

(Unsecured, considered good unless otherwise stated)

Advances recoverable in cash or in kind or for value 131,977,176 103,174,649

to be received (*)

Advance payment of Income Tax 20,488,206 3,401,646

[Net of provision Rs. 776,586,723 (Previous year :

Rs. 643,586,723)]

Deposits with Government departments and others 138,057,420 131,781,095

Balances with excise and customs authorities 55,886,905 28,011,334

346,409,707 266,368,724

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

338,238,422 258,197,439

* Includes doubtful advances of Rs. 8,171,285

(Previous year. - Rs. 8,171,285)





As at As at

31.12.2005 31.12.2004

Rs. Rs.

SCHEDULE 11:

CURRENT LIABILITIES

AND PROVISIONS

a) Current Liabilities:

Sundry creditors for goods,

expenses and services

i) Total Outstanding dues of

small scale industrial

undertaking(s); and 2,931,260 2,293,362

{The above information has

been compiled to the extent

these could be identified as

small scale units on the basis

of the information available

with the Company

[Schedule 15 Note 12 (a)]}

ii) Total outstanding dues to

creditors other than small

scale industrial

undertaking(s) 614,084,981 617,016,241 412,456,624 414,749,986

Advance from customers/

distributors 51,788,588 41,535,524

Investor Education and

Protection fund - 864,456

Unclaimed debenture and

accrued interest thereof 2,509,324 2,509,324 3,239,186 4,103,642

Other Current Liabilities 39,164,496 39,025,630

710,478,649 499,414,782

b) Provisions:

Taxation (Fringe Benefit Tax) 15,003,456 -

Gratuity (Schedule 15, Note 13) 14,677,411 10,502,468

Leave Encashment 11,051,040 6,975,514

Sales Tax (Schedule 15, Note 18) 10,200,000 14,900,000

Other trade Payable

(Schedule 15, Note 18) 12,000,000 12,000,000

62,931,907 44,377,982

773,410,556 543,792,764

31




ended ended

31.12.2005 31.12.2004

Rs. Rs.

SCHEDULE 12:

OTHER INCOME

Interest (Gross, tax deducted at source Rs.6,725,775, Previous year Rs.4,061,379) 30,141,040 21,867,959

Commission - 116,027

Profit on Sale of Assets 1,645,143 15,000

Foreign exchange gain - net - 2,879,039

31,786,183 24,878,025

SCHEDULE 13:

MANUFACTURING, ADMINISTRATIVE AND SELLING EXPENSES

Raw materials consumed 872,328,381 435,319,088

Stores, spares consumed and small tools written off 33,874,268 16,530,752

Packing materials consumed 49,670,885 33,335,984

Excise Duty 18,433,773 11,109,712

Power, fuel and water 28,542,287 20,387,938

Salaries, wages and bonus 340,903,378 253,000,411

Contribution to Provident and other funds 43,178,652 27,674,962

Provision for retiring gratuities (Schedule 15, Note 13) 4,174,943 4,531,904

Staff welfare expenses 68,778,561 40,253,110

Rent 52,010,751 39,670,369

Rates and taxes 17,778,657 9,494,116

Repairs

- Building 6,064,284 5,472,555

- Plant and machinery 8,086,282 5,150,253

- Others 6,974,197 5,599,129

Telephone, telex and postage 20,201,175 16,173,722

Travel and conveyance 80,740,928 63,468,909

Insurance 11,414,867 8,878,519

Legal and professional charges 8,810,578 7,254,544

Lease rentals (Schedule 15, Note 16) 33,365,573 23,398,359

Advertisement and sales promotion 139,171,661 102,403,729

Corporate Management Fees 72,592,873 44,364,262

Auditors Remuneration (Schedule 15, Note 5) 2,902,632 2,687,633

Interest to others 1,468,469 2,110,810

Bank charges 5,335,745 3,922,435

Directors’ sitting fees 660,000 525,000

Bad debts written off 7,934,145 56,934

Provision for doubtful debts 5,770,500 14,382,287

Commission on sales 22,982,879 9,164,429

Foreign exchange loss - net 1,100,701 -

Freight outward (net) 22,044,414 11,008,346

Miscellaneous expenses 75,379,025 60,894,101

2,062,675,464 1,278,224,302





ended ended

31.12.2005 31.12.2004

Rs. Rs.

SCHEDULE 14:

(INCREASE)/DECREASE IN INVENTORIES

Opening Stock

Work-in-progress 13,982,465 9,212,106

Finished goods 57,424,633 35,282,223

Traded goods 172,283,519 121,943,703

243,690,617 166,438,032

Less : Closing Stock

Work-in-progress 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

(Increase)/Decrease in Inventories (109,133,077) (77,252,585)


33



SCHEDULE 15 :

NOTES TO ACCOUNTS

1 Statement On Significant Accounting Policies

A Basis of preparation of accounts

The accounts have been prepared to comply in all

material aspects with Generally Accepted Accounting

Principles in India, the Accounting Standards issued by

the Institute of Chartered Accountants of India and the

relevant provisions of the Companies Act, 1956.

B Fixed assets

Fixed assets are stated at original cost less accumulated

depreciation. Cost includes invoice price and wherever

applicable, freight, 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 6.67%

Leasehold improvements are amortised over the period

of lease. [Schedule 5, 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 Investments

Long-term investments are stated at cost. Decline in value

of long-term investments, other than temporary, is

provided for. Current investments are stated at lower of

cost or market value.

E 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 wherever applicable, excise duty.

Provision for obsolescence is made wherever considered

necessary based on the age of the stocks.

F Sundry Debtors and Loans & Advances

Sundry Debtors and Loans & Advances are stated after

making adequate provision for doubtful balances.

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 Life Insurance Corporation

of India based on a specified percentage of eligible

employees salary. The Company’s obligation to the scheme

is restricted to the contributions to the scheme.

The Company makes monthly contribution as per the

applicable statute for Provident Fund and charges off the

same to the profit and loss account.

Provision is made for value of unutilised leave due to

employees at the end of the year on the basis of actuarial

valuation.

H Revenue Recognition

Sales are recognised when goods are despatched

in accordance with the terms of sale and are recorded

net of sales returns, trade discount, rebates and sales tax

collected but includes excise duty, wherever applicable.

Interest and other income is accounted for on accrual

basis except items of non recurring nature which are

accounted when received.

I Expenditure

Expenses are accounted for, on accrual basis and

provision is made for all known losses and liabilities.

Excise duty and customs duty are accrued on the

goods lying in the bonded warehouse at the year end.

Revenue expenditure on Research and Development is



charged against the profit of the year in which it is incurred.

Capital expenditure on research and development is shown

as an addition to fixed assets.

J Foreign Currency Translations

Transactions arising in foreign currency during the year are

converted at rates closely approximating those ruling at the

transaction date or at the forward contract rates as the case may

be. The exchange differences arising out of the translation of the

foreign currency liability incurred for acquisition of fixed assets

are adjusted to the cost of fixed assets. Current assets and

liabilities in foreign currency are converted at the year end

exchange rates and the resultant loss or gain is dealt with in the

profit and loss account. In case of forward contracts, the difference

between the forward rate and exchange rate on the date of

transaction is recognised as income/expense over the life of the

contract.

K Operating Leases

A lease is classified as an Operating Lease, if it does not

transfer substantially all the risks and rewards incident to

ownership. Lease rentals are charged to Profit and Loss

Account on accrual basis.

NOTES TO ACCOUNTS

L Taxation

Provision is made for income tax annually based on the tax

liability computed after considering tax allowances and

exemptions.

Deferred tax is recognised on timing differences between the

accounting income and the taxable income for the year and

quantified using the tax rates and laws enacted or substantively

enacted as on the balance sheet date.

Deferred tax assets are recognised and carried forward to

the extent that there is a reasonable certainity that sufficient

future taxable income will be available against which such

deferred tax assets can be realised.

M Provisions

Provisions are recognised when the Company has a present

obligation as a result of past events, it is probable that an

outflow of resources will be required to settle the obligation,

and a reliable estimate of the amount can be made. Where the

Company expects a provision to be reimbursed, the

reimbursement is recognised as a separate asset but only

when reimbursement is virtually certain.

35



NOTES TO ACCOUNTS


ended ended

31.12.2005 31.12.2004

Rs. Rs.

2 Contingent Liabilities not provided for :

a) Guarantees:

- issued by Company’s Bankers 13,676,114 15,299,790

- issued by Company on behalf of others - 12,170,165

b) Letter of credit opened by banks for purchase of raw materials 4,349,832 2,020,579

c) Claims against the Company not acknowledged as debts:

- Customs Demands 3,119,000 3,119,000

- Excise duty matters - 24,098,782

- Pending Sales Tax matters 24,408,315 24,342,960

- Employees State Insurance claim 1,940,000 1,940,000

3 Capital expenditure commitments

(net of advances) 6,439,156 2,524,527

4 Quantitative Information in respect of goods manufactured and traded by the Company:

A. Particulars of Capacity and Production:

Licensed Installed Production

Class of Goods Unit Capacity Capacity *

Self Adhesive Labels Nos NA 40,000,000 32,591,382

(40,000,000) (28,015,522)

Epoxy Resin Kgs NA 2,300,000 1,344,313

(2,300,000) (79,104)

Paper & Paper Tapes Nos NA 15,000,000 12,421,107

(15,000,000) (11,085,849)

Paint Polishes Nos NA 1,000,000 974,940

(1,000,000) (36,532,666)

Abrasive Nos NA 50,000,000 47,032,204

(50,000,000) (36,532,666)

Note : Figures in brackets relate to the Previous year

* Installed capacity is as certified by the Management and relied upon by the Auditors without verification as this is a technical matter



B. Particulars of Opening and Closing Stock of Stocks in Trade *:

Class of Goods Unit Opening Stock Closing Stock

Quantity Value Quantity Value

Rs. Rs.

Manufactured

Self Adhesive Labels Nos 2,161,191 13,914,947 2,796,173 22,566,824

(1,214,421) (12,237,878) (2,161,191) (13,914,947)

Surgical & Dental Products Nos - - - -

- - - -

Epoxy Resin Kgs 42,815 6,149,535 41,224 5,969,042

- - (42,815) (6,149,535)

Paper & Paper Tapes Nos 727,993 6,271,481 1,663,565 20,468,269

(441,657) (6,290,597) (727,993) (6,271,481)

Paint Polishes Nos 90,536 3,746,701 123,643 3,730,535

(41,466) (1,871,037) (90,536) (3,746,701)

Abrasive Nos 3,792,276 12,785,824 5,678,377 22,555,796

(2,424,659) (8,765,257) (3,792,276) (12,785,824)

Others (individually less Nos - 14,556,145 - 4,527,228

than 10% of the total stock) - (6,117,454) - (14,556,145)

57,424,633 79,817,694

(35,282,223) (57,424,633)

Traded

Self Adhesive Labels Nos 13,738 32,395,831 8,266 48,068,852

(85,642) (26,338,096) (13,738) (32,395,831)

Surgical & Dental Products Nos 152,541 50,066,400 258,441 85,957,541

(132,508) (46,371,058) (152,541) (50,066,400)

Paint Polishes Nos 716,422 12,226,696 1,412,674 29,881,636

(1,632,173) (16,296,596) (716,422) (12,226,696)

Abrasive Nos 217,777 17,116,061 752,098 30,819,625

(606,950) (10,362,110) (217,777) (17,116,061)

Others (individually less Nos - 60,478,531 - 57,305,731

than 10% of the total stock) - (22,575,843) - (60,478,531)

172,283,519 252,033,385

(121,943,703) (172,283,519)

Note: Figures in brackets relate to the Previous year

* includes products which are non standard having various sizes and measurement

NOTES TO ACCOUNTS

37



NOTES TO ACCOUNTS

C. Particulars of Turnover* :

Class of Goods Unit Turnover

Quantity Value

Rs.

Self Adhesive Labels Nos 36,561,036 1,188,204,710

(27,446,030) (719,607,088)

Surgical & Dental Products Nos 1,246,746 511,242,076

(1,731,496) (409,916,144)

Epoxy Resin Kgs 1,345,904 207,533,284

(36,289) (4,997,076)

Paper & Paper Tapes Nos 11,485,535 256,479,764

(11,385,079) (220,813,794)

Paint Polishes Nos 12,183,498 291,913,305

(10,409,106) (220,610,849)

Abrasive Nos 50,373,632 641,923,128

(41,268,457) (500,860,878)

Others (individually less than 10% of the total Nos - 701,522,288

turnover) - (495,690,530)

3,798,818,555

(2,572,496,359)

D. Particulars of Purchase of Traded Goods* :

Class of Goods Unit Quantity Value

Rs.

Self Adhesive Labels Nos 4,599,164 213,527,807

(299,062) (163,419,334)

Surgcial & Dental Products Nos 1,352,646 282,428,414

(1,751,529) (241,710,587)

Paint Polishes Nos 11,937,917 146,531,212

(8,547,228) (124,077,539)

Abrasive Nos 5,761,850 148,336,234

(2,420,835) (92,223,999)

Others (individually less than 10% of total purchase traded goods) Nos - 413,102,910

- (311,758,312)

1,203,926,577

(933,189,771)

Note: Figures in brackets relate to the Previous year

* includes products which are non standard having various sizes and measurement




ended ended

31.12.2005 31.12.2004

Rs. Rs.

5 Auditors Remuneration (inclusive of service tax)

- Audit fees 1,559,330 1,559,330

- Certification and other services 1,294,850 1,088,570

- Reimbursement of expenses 48,452 39,733

6 Value of imports on C.I.F basis:

(excluding Goods in transit)

- Raw Materials 758,938,525 409,392,323

- Traded Goods 831,064,747 649,406,925

- Stores and Spares 677,062 736,936

- Capital Goods 11,943,446 80,004,774

7 Expenditure in Foreign Currency :

- Travelling Expenses 16,640,192 10,753,712

- Others (net of tax) 88,948,553 14,527,854

8 Raw Materials Consumed :

Class of Goods Unit Quantity Value Quantity Value

Rs Rs

Abrasive LY 5,845 8,209,906 3,277 3,351,792

Inks GL 20,390 25,758,949 13,925 13,583,656

Tapes LM 586,306 36,079,784 130,234 27,499,928

RL 807 5,490,189 671 5,883,303

Polishers GL 1,229 5,792,771 9,088 5,292,222

Coated Abrasive RL 3,134 9,337,783 2,429 54,589,247

Epoxy Kgs 840,246 100,679,712 51,214 4,722,951

Paper Sheets EA 4,726 7,877,713 2,893 5,363,590

Coaters GL 1,079 15,725,062 1,086 17,972,696

Kgs 10,311 8,202,244 5,292 4,337,714

Films LY 10,91,508 225,486,217 567,250 99,563,728

RL 12,876 50,429,884 6,941 22,275,126

Others (individually less than 10%

of the total raw materials consumed) 303,258,167 170,883,135

872,328,381 435,319,088

NOTES TO ACCOUNTS

39



NOTES TO ACCOUNTS


ended ended

31.12.2005 31.12.2004

Rs. Rs.

% Value % Value

9 Value of Imported and Indigenous

Raw Materials and Stores and Spares consumed :

(As certified by the Management)

Raw Materials

- Imported 92% 802,389,897 89% 385,712,879

- Indigenous 8% 69,938,484 11% 49,606,209

100% 872,328,381 100% 435,319,088

Stores & Spares

- Imported 3% 848,444 6% 1,004,531

- Indigenous 97% 33,025,824 94% 15,526,221

100% 33,874,268 100% 16,530,752

10 Earnings in Foreign Exchange :

- Export of goods calculated on FOB basis 64,589,514 3,466,216

- Freight and Insurance on exports 3,078,440 221,248

11 Research and Development Expenses : 1,560,630 1,339,859

12 a) The total outstanding dues to small scale industrial undertakings for more than 30 days as at December 31, 2005 is

Rs.1,680,531 (Previous year: Nil)

Adhesive Specialities

AF Industrial Stores

Allied System

Apeksha Tools

Armour Plast P Ltd

Asian Packaging

Bangalore Dry Ice and Gas Co

Cosmopack Industries

Image Labels P Ltd

Indus Spray

Mech Plast Industries

Pragati Printers

Superchem Industries

Note: The above is on the basis of information to the extent provided by the Suppliers to the Company, which has

been relied upon by the Auditors.

b) The Company has not made any provision for warranty considering that the Company can claim the warranty cost

from the original supplier.

c) The Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce, while granting permission for

import of capital goods on concessional import duty under the Export Promotion Capital Goods (EPCG) Scheme,

has stipulated an export obligation aggregating to Rs. 193,675,663 for the Company, to be fulfilled over a period of

8 years. During the year ended December 31, 2005, the Company has fulfilled total export obligation amounting to

Rs. 130,012,950 (Previous Year: Nil) and cumulatively total export sales of Rs. 130,012,950 (Previous year : Nil)

13 The total future liability for retiring gratuity payable in accordance with Payment of Gratuity Act, 1972 is estimated by

the Company as on December 31, 2005 at Rs. 31,040,000 (Previous year: Rs. 21,313,000). Having regard to the amount

available with the Gratuity Fund administered by the Life Insurance Corporation of India and the balance amount of

Rs. 14,677,411 (Previous year: Rs. 10,502,468) has been fully provided.




ended ended

31.12.2005 31.12.2004

Rs. Rs.

14 a) Managerial Remuneration *

Salary and Allowances 12,653,482 10,850,484

Contribution to provident and other funds 439,314 360,024

Estimated value of benefits 3,279,001 2,986,338

16,371,797 14,196,846

b) Computation of profit in accordance with Section 198(1) read

with Section 309(5) of the Companies Act, 1956 for calculation

of Managerial Remuneration:

Profit before taxation (as per books) 605,829,464 410,411,988

Add : 1) Managerial Remuneration 16,371,797 14,196,846

2) Depreciation charged in the accounts 67,306,310 52,800,908

3) Provision for doubtful debts 5,770,500 14,382,287

4) Directors sitting fees 660,000 525,000

90,108,607 81,905,041

695,938,071 492,317,029

Less : Depreciation as per Section 350 of the Companies Act, 1956 67,306,310 52,800,908

Profit as per Section 198 of the Companies Act, 1956 628,631,761 439,516,121

10% of the above (Previous year: 10%) 62,863,176 43,951,612

Remuneration paid during the year 16,371,797 14,196,846

* Mr. Bert O’ Donoghue was appointed as Managing Director

on September 1, 2005 and the Company has applied for approval from

Central Government with respect to residential status as per

Part I (e) of Schedule XIII of The Companies Act, 1956 and the

approval is awaited. The above said appointment is subject to approval

from Shareholders in the ensuing Annual General Meeting.

NOTES TO ACCOUNTS

41



NOTES TO ACCOUNTS

15. Related Party Transactions

(A) Summary of the monetary value of the transactions with the related parties are as follows:

Holding Fellow Key

Company Subsidiary Management

[B(i)] Companies Personnel Total

[B(ii)] [C]

Rs. Rs. Rs. Rs.

I. Expenses:

Purchase of Materials 805,352,858 453,987,224 - 1,259,340,082

(561,583,441) (316,365,738) - (877,949,179)

Sales promotion expenses 396,481 141,532 - 538,013

(1,194,035) (652,238) - (1,846,273)

Remuneration to Directors - - 16,371,797 16,371,797

- - (14,196,846) (14,196,846)

Other Services - 72,740,050 - 72,740,050

- (44,364,262) - (44,364,262)

II. Income

Sale of Goods 49,830,450 17,314,206 - 67,144,656

- (6,984,964) - (6,984,964)

III. Purchase of Capital Goods - - - -

(67,464,858) - - (67,464,858)

IV. Balances

Advances Received 76,675,093 - - 76,675,093

(76,675,093) - - (76,675,093)

Outstanding Receivables 47,484,212 13,113,980 - 60,598,192

- (3,309,701) - (3,309,701)

Outstanding Payables 129,000,071 109,500,593 - 238,500,664

(70,511,073) (87,734,447) - (158,245,520)

Note: Figures in brackets represents Previous year.



(B) Names of related parties and description of the relationship:

(i). Parties where control exists

Holding Company 3M Company, St Paul, USA

(ii). Fellow Subsidiary Companies: 3M Singapore Pte Ltd

3M Australia Pty Ltd

3M Do Brazil Ltd

3M Belgium N.V.S.A.

3M China

3M Colombia

3M UK Plc-Bedford

3M France

3M Sante

3M Hongkong Ltd

3M Deutschland GmbH

3M Italia Spa

3M Indonesia Kbyt

3M Korea Ltd

3M Malayasia Sdn Berhad

3M Filterate B V

3M Ecc Europa B V

3M New Zealand Ltd

3M Spain

3M Philippines Inc

3M Thailand Ltd

Sumitomo 3M Ltd

3M Taiwan Ltd

3M Sweden

3M Argentina S.A.C.I.F.I.

3M Canada

3M South Africa

3M Lanka Pvt Ltd

3M Espe Dental Ag

Pouyet SA, 3M Telecommunications

3M Mexico SA De CV

3M Sanvetec

3M Sanayi De

3M Unitek

3M Ait Ltd

3M Gulf

3M Electro & Communication India Private Limited

NOTES TO ACCOUNTS

43



(C) Key Management Personnel

Directors of the Company during the year Mr. Yashovardhan Birla

Mr. Bert O’ Donoghue

Mr. Thomas P. Spencer

Ms. Mary B. McCormick

Dr. Carlisle S. Boyce

Mr. B.S.Iyer

Mr. D. J. Balaji Rao

Mr. Amit Mukherjee

Mr. B.V. Shankaranarayana Rao

Mr. Lee M. Kennedy

Dr. Paul Rosso

Mr. Brad C. Sweet

Note:

i. None of the relatives of the Directors of the Company have any interest in any companies, firms, body corporate with

which transactions have been entered into during the year.

ii. The above information has been determined to the extent such parties have been identified on the basis of information

provided by the Company, which has been relied upon by the Auditors.

16 Assets taken on lease

Assets aggregating to Rs. 122,252,920 (Previous year: Rs.85,595,929) have been acquired on operating lease. The

Company has entered into operating lease arrangement for factory premises and amenities in respect of Corrosion

Protection Product Plant at Ahmedabad which have a non cancellable period of 5 years with a rent escalation of 15% per

annum and with a renewal option after the lease term. The agreements provide for premature termination by lessee,

after the non cancellable period through notice period of 6 months.

The obligation for future rentals in respect of such assets and factory premises under non cancellable operating leases

are as follows:


ended ended

31.12.2005 31.12.2004

Rs. Rs.

Minimum lease payments during the year charged to profit and loss account 33,365,573 23,398,359

Minimum lease payments not later than one year 28,692,459 21,188,823

Minimum lease payments later than one year but not later than five years 38,058,933 27,831,791

17 Taxation

a) The tax year for the Company being March 31, the provision for taxation for the year is the aggregate of the

provision made for the 3 months ending March 31, 2005 and the provision based on the figures for the remaining 9

months upto December 31, 2005. The ultimate tax liability will be determined on the basis of the figures for the

period April 1, 2005 to March 31, 2006.

NOTES TO ACCOUNTS



b) Net Deferred Tax Asset/(Liability) as on December 31, 2005 amounting to Rs.12,486,997 [Previous year : Rs. (2,863,865)]

has been arrived at as follows:


ended ended

31.12.2005 31.12.2004

Rs. Rs.

i Deferred Tax Assets arising from:

Expenses charged in financial statement but allowable as deduction in

future years under the Income Tax Act, 1961 towards provision for

doubtful debts, gratuity, disallowance under Section 43B, leave wages, etc. 36,923,354 33,017,081

ii Deferred Tax Liabilities arising from:

Difference between carrying amount of fixed assets in the financial

statements and for Income Tax purpose (24,436,357) (35,880,946)

Net Deferred Tax Asset/(liability) taken to Balance Sheet 12,486,997 (2,863,865)

Net Deferred Tax(Credit)/Debit for the year (15,350,862) (8,444,775)

The tax impact for the above purpose has been arrived by applying a tax rate of 33.66% (Previous year : 36.5925%) being the prevailing tax

rate for Indian Companies under Income Tax Act, 1961.

18 In accordance with Accounting Standard -29 on Provisions, Contingent Liabilities and Contingent Assets, issued by the

Institute of Chartered Accountants of India, certain classes of liabilities have been identified as provision and accordingly

regrouped separately as under:

Sl No Particulars As at Additions Reversals As at

December 31, 2004 December 31, 2005

1 Sales Tax 14,900,000 - 4,700,000 10,200,000

2 Other Trade Payables 12,000,000 - - 12,000,000

26,900,000 - 4,700,000 22,200,000

The Company sets up and maintains provisions for other trade payables when a reasonable estimate can be made. These

provisions are made based on estimates made by the Management that are reviewed periodically and involve quick settlements not

exceeding a period of two-three years in most cases.

19 Earnings Per Share (EPS)


ended ended

31.12.2005 31.12.2004

Profit after Taxation 384,176,870 255,356,763

Basic/Weighted average number of Equity Shares of Rs 10 each 11,265,070 11,265,070

Basic and Diluted Earnings Per Share 34.10 22.67

NOTES TO ACCOUNTS

45



For the year ended For the year ended

31.12.2005 31.12.2004

Rs Rs

20 Segment Report :

Segment Revenue (Net Sale / Income)

a Industrial Markets 645,668,408 478,180,349

b Automotive and Specialty Materials Markets 1,352,357,766 831,648,971

c Health Care Markets 550,106,610 443,745,779

d Traffic and Safety Markets 680,662,184 438,642,841

e Consumer and Office, Construction Markets 502,883,587 373,293,455

f Others * 67,140,000 6,984,964

Total Segment Revenue 3,798,818,555 2,572,496,359

Less: Inter segment revenue - -

Net Sales / Income from Operations 3,798,818,555 2,572,496,359

Segment Results (Profit before interest and tax)


b Automotive and Specialty Materials Markets 174,133,156 119,598,366




f Others 10,195,000 (1,924,669)

Total Segment Results 575,511,748 387,644,773

Less: Interest expense 1,468,469 2,110,810

Add: Other un-allocable income net off unallocable expenditure 31,786,185 24,878,025

Total Profit Before Taxation 605,829,464 410,411,988

Capital Employed (Segment Assets-Segment Liabilities)


b Automotive and Specialty Materials Markets 583,905,751 474,937,845




f Others - 1,370,856

Total Capital Employed in Segments 1,079,120,575 904,402,206

Add: Unallocable corporate assets less corporate liabilities 654,944,935 445,486,434

Total Capital Employed by the Company 1,734,065,510 1,349,888,640

* includes;

Domestic Sales/ Income 2,550,486 3,297,500

Export Sales 64,589,514 3,687,464

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 and also

amounts allocated on a reasonable basis. Other unallocable expenditure includes expenses incurred on common services provided to

the segments which are not directly identifiable to the individual segments as well as expenses incurred 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.

21 The Company has changed its name from Birla 3M Limited to 3M India Limited with effect from December 18, 2002 and

has obtained a fresh certificate of incorporation for the changed name from Registrar of Companies.

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

FOR AND ON BEHALF OF THE BOARD

Place : Bangalore Bert O’ Donoghue B. V. Shankaranarayana Rao K. Ramesh Chandra

Date : February 20, 2006 Managing Director Director Company Secretary

NOTES TO ACCOUNTS



CASH FLOW STATEMENT FOR THE PERIOD ENDED DECEMBER 31, 2005

For the year ended For the year ended

31.12.2005 31.12.2004

Rs. Rs.

CASH FLOW FROM OPERATING ACTIVITIES

Profit Before Taxation 605,829,464 410,411,988

Adjusted for

Depreciation 67,306,310 52,800,908

Provision for doubtful debts 5,770,500 14,382,287

Foreign Exchange Loss/(Gain) 238,858 (494,725)

(Profit) / Loss on sale of Fixed Assets - Net (1,645,143) (15,000)

Investments 16,000 -

Interest received (30,141,040) (21,867,959)

Interest paid 1,468,469 2,110,810

Operating Profit Before Working Capital Changes 648,843,419 457,328,308

Adjusted for

(Increase)/ Decrease in Inventories (199,378,814) (162,435,442)

(Increase)/ Decrease in Debtors (208,853,087) (20,183,411)

(Increase)/ Decrease in Loans and Advances (60,494,248) (27,413,425)

Increase/ (Decrease) in Current Liabilities and Provisions 214,375,477 141,813,442

Cash Generated From Operations 394,492,747 389,109,472

Interest Paid (1,468,469) (2,110,810)

Direct Taxes paid (239,086,560) (174,205,925)

Interest Received 27,680,865 18,799,377

NET CASH FLOW FROM OPERATING ACTIVITIES 181,618,583 231,592,115

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets (39,346,879) (113,057,033)

Sale of Fixed Assets 1,645,143 15,000

NET CASH USED IN INVESTING ACTIVITIES (37,701,736) (113,042,033)

CASH FLOW FROM FINANCING ACTIVITIES - -

NET CASH USED IN FINANCING ACTIVITIES

NET (DECREASE) /INCREASE IN CASH AND CASH EQUIVALENTS 143,916,847 118,550,082

CASH AND CASH EQUIVALENTS

Opening Balance

Cash and Cheques on hand 10,097,488 14,352,024

With Scheduled Bank

- in Current Accounts 67,678,135 44,600,451

- in Deposit Account 540,000,000 440,000,000

- in Margin Money Account 321,685 594,751

TOTAL 618,097,308 499,547,226

Closing Balance

Cash and Cheques on hand 19,402,424 10,097,488

With Scheduled Bank

- in Current Accounts (Net of effects of exchange rate differences) 137,290,046 67,678,135

- in Deposit Account 605,000,000 540,000,000

- in Margin Money Account 321,685 321,685

TOTAL 762,014,155 618,097,308

Notes: 1 Figures in brackets represents outflow.

2 The Cash Flow Statement has been prepared in accordance with the requirement of Accounting Standard 3

“Cash Flow Statement” issued by Institute of Chartered Accountants of India.

3 Previous year’s figures have been regrouped wherever necessary.

This is the Cash Flow Statement referred to in our For and on behalf of the Board

report of even date





Lovelock & Lewes


Place : Bangalore


47



Information pursuant to Part IV of Schedule VI to the Companies Act, 1956

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I. Registration Details

Registration No. 13543 State Code 08

Balance Sheet Date 31 12 2005

Date Month Year

II. Capital raised during the year (Amount in Rs. Thousands)

Public Issue Rights Issue

NIL NIL

Bonus Issue Private Placement

NIL NIL

III. Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands)

Total Liabilities 1734066 Total Assets * 1734066

Sources of Funds

Paid-up Capital 112651 Reserves & Surplus 1621415

Secured Loans 0 Unsecured Loans 0

Application of Funds

Net Fixed Assets ** 293312 Investments 0

Net Current Assets 1428267

Net Deffered Tax Assets 12487

* Net of current liabilities and provisions

** Includes capital work-in-progress

IV. Performance of Company (Amount in Rs. Thousands)

Turnover 3830605 Total Expenditure 3224775

Profit / (Loss) Before Tax 605829 Profit / (Loss) After Tax 384177

Earning per Share (in Rs.) 34.10 Dividend Rate (%) 0

V. Generic Names of Three Principal Products / Services of Company(as per monetary terms)

Item Code. No. (ITC Code) 68052090

Product Description COATED ABRASIVES


Product Description MASKING TAPES


Product Description PRESSURE SENSITIVE TAPES

Signature to Schedules 1 to 15

FOR AND ON BEHALF OF THE BOARD

Place : Bangalore Bert O’ Donoghue B. V. Shankaranarayana Rao K. Ramesh Chandra

Date : February 20, 2006 Managing Director Director Company Secretary

Documents

3M India AR 2005