Matrix Laboratories

1.  Contingent Liabilities
 
 a) Claims against the Company not acknowledged as debts:
 
 - Income Tax and Indirect Taxes claims disputed by the Company relating
 to issues of applicability and classification: Rs.303.94 Millions (31st
 March 2008: Rs 100,86 Millions)
 
 - Local Authority Taxes claims disputed by the Company relating to
 issues of applicability and determination: Rs.4.07 Millions (31st March
 2008: Rs.3.71 Millions)
 
 - Claims arising from contractual disputes: Rs.0.89 Millions (31st
 March 2008: Rs.0.41 Million)
 
 b) Bills discounted with banks: Rs.Nil (31st March 2008: Rs. 283.66
 Millions)
 
 c) The Company has given corporate guarantees to various banks for
 facilitating sanction of working capital loans to its subsidiaries
 viz., Matrix Pharma Group (Xiamen)Ltd, Matrix Laboratories Xiamen Ltd,
 Dafeng Mchem Pharmaceutical Chemical Co.  Ltd: Rs. 659.49 Millions
 (31st March 2008: Rs. 1,198.35 Millions). The amount outstanding
 against such guarantees as at 31st March, 2009 aggregate to Rs.586.96
 Millions (31st March 2008 : Rs. 1,078.47 Millions).
 
 d) The Company is currently a party to arbitration proceedings under
 the auspices of the London Court of International Arbitration relating
 to the termination of a Supply Agreement with Spanish Company - Uquifa.
 As it is not possible to determine with any degree of certainty any
 potential liability associated with these proceedings, no amounts have
 been recorded in the Companys financial statements.  However,
 Management believes that the ultimate outcome of this matter is not
 expected to have a material adverse impact on the companys financial
 statements.
 
 2 a) Estimated amount of contracts remaining to be executed on capital
 account and not provided for: Rs.723.83 Millions (31st March 2008:
 Rs.465.31 Millions) net of advances Rs.125.48 Millions (31st March
 2008: Rs. 317.11 Millions).
 
 b) Capital work in progress includes capital advances Rs.593.45
 Millions (31st March 2008: Rs. 312.26 Millions).
 
 3.  Secured Loans & Unsecured Loans
 
 a) Long term loan and working capital facilities from the Export Import
 Bank of India are secured by a first charge on the Companys movable
 fixed assets and immovable properties.
 
 b) Working Capital facilities availed from State Bank of India, Andhra
 Bank, The Bank of Nova Scotia, ABN Amro Bank and HDFC Bank are inter
 alia secured by way of pari passu first charge on the current assets
 and pari passu second charge on fixed assets both present and future.
 
 c) Amounts repayable within twelve months in respect of long term loan:
 Rs. 140.00 Millions (31st March 2008: Rs.70 Millions)
 
 d) Amounts repayable within twelve months in respect of unsecured
 loans: Rs.1,002.87 Millions (31stMarch 2008: Rs.3.64 Millions)
 
 4.  Derivatives
 
 Derivatives and unhedged foreign exchange exposures.
 
 4.1 The Company uses forward contracts to hedge its risks associated
 with foreign exchange fluctuations relating to certain commitments. The
 company does not use the forward contracts for speculative purpose.
 
 4.3 Exchange Difference in respect of forward exchange contracts to be
 recognized in the profit and loss account in subsequent accounting
 period amounts to Rs.9.83 Million (31st March 2008:Rs.3.15 Million).
 5.  Related Party Disclosures
 
 5.1 Related Parties and Nature of Relationship
 
 5.1.1 Mylan Inc. USA - Ultimate Holding Company
 
 5.1.2 MP Laboratories (Mauritius) Ltd - Holding Company
 
 5.1.4 Associates
 
 Explora SA - incorporated in Switzerland - Percentage of Interest
 27.64%. (31st March 2008 : 33.65%), Uteron Pharma SA Associate of
 Docpharma NV - incorporated in Belgium - Percentage of Interest 25.47%
 (31st March 2008 : 25.47%) and Belgidata B.V.B.A.BE Associate of
 Docpharma NV - incorporated in Belgium - percentage of interest 30%
 (31st March 2008 : 30%)
 
 6.  Provision for diminution in value of investment in subsidiary
 
 The provision for the year ended 31st March 2008 includes a provision
 of Rs.4,011.83 Millions for diminution in carrying cost of investment
 in its wholly owned subsidiary, Docpharma, which is held by Matrix NV.
 The latter is held by Matrix BV, the companys subsidiary.
 
 The charge on account of diminution had been determined on the basis of
 valuation carried out by independent professionals
 
 The above does not include contribution to the approved group gratuity
 fund for Chief Executive Officer & Managing Director as separate
 figures are not available.
 
 Computation of Net Profit in accordance with Section 309(5) of the
 Companies Act, 1956
 
 7.  Included in Other Income (Schedule) are the following:
 
 a) Interest on Long Term Investments Rs.2.85 Millions (2007-08: Rs.2.85
 Millions), Interest on Income tax refund : Rs. 7.69 Millions (2007-08 :
 Rs Nil)
 
 b) The Profit and Loss Account includes a net credit of Rs. 110.96
 Millions (2007-08 : net credit of Rs. 149.11 Millions) on account of
 Exchange Differences.
 
 8.  The Company had settled a Potential Patent infringement suit
 favorably and received Rs.978.72 Millions. Of this, Rs.134.57 Millions
 (2007-08: Rs.269.13 Millions) has been recognized as Income for the
 year (Rs.978.72 Millions to date) (Previous Years and till 31 st March
 2008: Rs.844.16 Millions) and the balance is Nil (2007-08 : Rs. 134.56
 Millions) as on 31st March 2009.
 
 9.  Employees Stock Option Scheme (ESOP)
 
 9.1 The company formulated a Employee Stock Option Plans for granting
 3,000,000 stock options in tranche I, 1,088,000 in tranche II, 666,000
 in tranche III and 491,500 in tranche IV of Rs. 2/- each to eligible
 employees / Directors of the Company (excluding promoters). An amount
 of Rs. 3.56 Millions (2007-08 - Rs. 8.26Millions) is charged under
 Personnel Cost and has been accounted in accordance with the Guidance
 Note Accounting for Employee Share-based Payments issued by the
 Institute of Chartered Accountants of India.
 
 9.2 The shareholders of the Company approved 7,000,000 stock options
 under Employees Stock Option Scheme, representing 7,000,000 equity
 shares of Rs. 2/- each to the employees and directors of the Company.
 
 The Compensation Committee of the Board of Directors of the Company at
 its meeting held on 5th February 2005, granted 3,000,000 stock options
 at an exercise price of Rs. 143.136 per option, on 28th July 2005,
 granted 1,088,000 stock options at an exercise price of Rs.144.63 per
 option, on 27th February 2006 granted 666,000 stock options at an
 exercise price of Rs. 171 per option and on 27th August 2006 granted
 491,500 stock options at an exercise price of Rs.210 per option.
 
 9.3 The shareholders of the Company approved 1,000,000 stock options
 under Employees Stock Option Scheme representing 1,000,000 equity
 shares of Rs.2/- each to the employees and directors of the subsidiary
 companies. The Compensation Committee of the Board of Directors of the
 Company at its meeting held on 11th May 2006 granted 155,000 stock
 options at an exercise price of Rs.199 per option.
 
 9.4 The above prices were determined in accordance with the pricing
 formula approved by the shareholders i.e. 20% discount on the average
 of weekly high and low of the closing price of the shares, quoted on
 the National Stock Exchange of India Limited during the 6 months prior
 to the date of granting of options. The option can be exercised over a
 period of five years from the date of respective vesting.
 
 9.5 Method used for accounting for share based payment plan:
 
 The company has used the intrinsic value method to account for the
 compensation cost of stock option to employees of the company.
 Intrinsic value is the amount by which the quoted market price of the
 underlying share exceeds the exercise price of the option.
 
 9.6 Fair Value Methodology
 
 The fair value of options used to compute pro forma net income and
 earnings per equity share have been estimated on the date of grant
 using Black-Scholes model.
 
 9.7 The key assumptions used in Black-Scholes model for calculating
 fair value are: risk-free interest rate ranging between 6.33% and
 7.77%, expected life: 3 to 6 years, expected volatility of shares: 40%
 to 76.56% and expected growth life in dividend: 2.97 %. The range
 variables detailed herein represent the highs and the lows of the
 assumptions during the pendency of the grant dates.
 
 10.  Segment Reporting
 
 10.1 The activities of the Company relate to only one business segment
 i.e. Pharmaceuticals
 
 10.2 Information relating to Secondary Segment
 
 11.  Disclosures as required under Accounting Standard AS-15
 
 11.1 Accounting standard AS-15 Employee Benefits notified by the
 Companies (Accounting Standards) Rules, 2006, employee benefits have
 been determined in accordance with the Standard.
 
 11.1 Description of Employee Benefits
 
 11.1.1 Gratuity
 
 This is a defined benefit plan as detailed in Note 6.1 of Schedule 3.01
 and the liability for which is determined on the basis of actuarial
 valuation and is funded with Gratuity fund managed by Life Insurance
 Corporation of India. During the year, the benefits payable to
 employees on separation were revised upwards. The consequential upward
 revision in the benefits payable to employees on separation and the
 consequential unrecognized cost relating to past years has been charged
 to profit and loss account.
 
 11.1.2 Accounting Policy for recognizing actuarial gains and losses
 
 Immediate recognition in the profit and loss account.
 
 11.1.3 Scheme Description
 
 The Scheme provides for a lump sum benefit, subject to a vesting period
 of 5 years in case of early separation, based on final salary and years
 of service.
 
 11.1.4 Actuarial valuation method: - Projected Unit Credit
 
 11.1.5 Leave Benefits
 
 Leave benefit to employees is considered a short term liability which
 is determined in accordance with the provisions of AS-15 - Employee
 Benefits.
 
 The Gratuity Scheme is invested in a Group-cum-Life Assurance cash
 accumulation policy offered by Life Insurance Corporation (LIC) of
 India. The invested return earned on the policy comprises bonus
 declared by LIC having regard to LICs investment earnings. The
 information on the allocation of the fund into major asset classes and
 expected return on each major class are not readily available. We
 understand that LICs overall portfolio of assets is well diversified
 and as such, the long-term return on the policy is expected to be
 higher than the rate of return on Central Government bonds.
 
 11.2.1 Actuarial Assumptions
 
 - Discount Rate: 7.85% (2007-08 : 8.75 %)
 
 - Expected Return on Plans Assets: 7.50 % (2007-08 : 7.50 %)
 
 The estimates of future salary increases, considered in actuarial
 valuations take account of inflation, seniority, promotion and other
 relevant factors such as supply and demand factors in the employment
 market.
 
 12.  Disclosure in respect of Operating Leases
 
 12.1 A general description of leasing arrangements.
 
 The company has entered into leasing arrangement for premises and
 vehicles.
 
 13.  Maximum amount in current account with ABN Amro , Vienna a non
 scheduled bank, Rs.0.06 Millions (Previous year Rs.1.68 Millions)
 
 14.  Figures have been rounded off to the nearest ten thousand.
 
 15.  Previous years figures have been regrouped and reclassified
 wherever necessary to conform to current years classification.