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Ranbaxy Laboratories
BSE: 500359|NSE: RANBAXY|ISIN: INE015A01028|SECTOR: Pharmaceuticals
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« Dec 12
Notes to Accounts Year End : Mar '14
1.  Company overview
 
 Ranbaxy Laboratories Limited (''the Company'') together with its
 subsidiaries and associates, operates as an integrated international
 pharmaceutical organisation with businesses encompassing the entire
 value chain in the marketing, production and distribution of
 pharmaceutical products.
 
 The Company''s shares are listed for trading on the National Stock
 Exchange Limited (NSE) and the Bombay Stock Exchange Limited (BSE)
 in India. Its Global Depository Shares (representing equity shares of
 the Company) are listed on the Luxembourg Stock Exchange. The Company
 has also issued redeemable non-convertible debentures which are listed
 for trading on the NSE in India.
 
 2. Employee share-based payment plans
 
 The Company''s Employee Stock Option Schemes (ESOSs) provide for the
 grant of stock options to eligible employees and Directors of the
 Company and its subsidiaries. The ESOSs are administered by the
 Compensation Committee (Committee) of the Board of Directors of the
 Company. Options are granted at the discretion of the committee to
 selected employees depending upon certain criterion. As at 31 March
 2014, there were four ESOSs, namely, ESOS I, ESOSII, ESOS 2005
 and ESOP 2011.
 
 The ESOSs limits the maximum grant of options to an employee at 25,000
 for ESOS I, 40,000 for ESOS II and 300,000 for ESOS 2005 in any given
 year. ESOS I and II provide that the grant price of options is to be
 determined at the average of the daily closing price of the Company''s
 equity shares on the NSE during a period of 26 weeks preceding the date
 of the grant. ESOS 2005 provides that the grant price of options will
 be the latest available closing price on the stock exchange on which
 the shares of the Company are listed, prior to the date of the meeting
 of the Committee in which the options are granted. If the shares are
 listed on more than one stock exchange, then the stock exchange where
 there is highest trading volume on the said date shall be considered.
 The options vests evenly over a period of fve years from the date of
 grant. Options lapse, if they are not exercised prior to the expiry
 date, which is ten years from the date of grant.
 
 During the year ended 31 December 2011, the Company had introduced a
 new ESOS scheme namely Ranbaxy Employees Stock Option Plan 2011 ESOP -
 2011 with effect from 1 July 2011. This scheme limits the maximum
 grant of options to an employee or a director at 30,000 in any given
 year. ESOP - 2011 provides that the grant price will be the face value
 of the equity share. The options vests evenly over a period of three
 years from the date of grant. Options lapse, if they are not exercised
 prior to the expiry date, which is three months from the date of the
 vesting. The Company has formed the ESOP Trust to administer ESOP -
 2011 scheme. The Company will issue shares to the Trust which will
 allocate the shares to the respective employees upon exercise of stock
 options from time to time under ESOP - 2011.
 
 3. Hedging and derivatives
 
 a) The Company uses various forms of derivative instruments such as
 foreign exchange forward contracts (including instruments which are in
 substance forward contracts), options, currency swaps, currency cum
 interest rate swaps and interest rate swaps to hedge its exposure to
 movements in foreign exchange and interest rates. These derivatives are
 not used for trading or speculation purposes.
 
 b) The Company classifes some of its derivative contracts that hedge
 foreign currency risk associated with highly probable forecasted
 transactions as cash fow hedges and measures them at fair value. As at
 31 March 2014, there are no such derivative contracts which are
 classifed as cash fow hedges. As at 31 December 2012, these highly
 probable forecasted transactions were expected to occur over a period
 from January 2013 to July 2013 years which also approximated/ coincided
 with maturity of hedging instruments. The effective portion of such
 cash fow hedges was recorded as part of reserves and surplus within
 hedging reserve and re-classifed in the Statement of Proft and Loss
 in the period corresponding to the occurrence of the highly probable
 forecasted transactions. The ineffectiveness arising from cash fow
 hedges which was recognised in Statement of Proft and Loss was not
 material.
 
 The following are the outstanding derivative contracts entered into by
 the Company:
 
 4. Related party disclosures
 
 A] Names of related parties
 
 Related parties (where control exists) with whom no transactions have
 taken place during the current period or previous year:
 
 i) Subsidiaries including step down subsidiaries
 
 Vidyut Investments Limited, India
 
 Ranbaxy Signature LLC, USA
 
 Be-Tabs Investments (Proprietary) Ltd, South Africa
 
 S.C. Terapia Distributie S.R.L., Romania (Merged with S.C. Terapia
 S.A., Romania w.e.f. 7 February 2012)
 
 Offce Pharmaceutique Industriel et Hospitalier SARL, France
 
 Ranbaxy Holdings (UK) Ltd., United Kingdom (''U.K.'')
 
 Ranbaxy Do Brazil Ltda., Brazil (Liquidated on 7 November 2012)
 
 Ranbaxy Pharma AB, Sweden (Liquidated on 2 January 2014)
 
 Ranbaxy GmbH, Germany (from 9 November 2012)
 
 Ranbaxy Laboratories Inc., USA
 
 Ranbaxy (Thailand) Co., Limited (from 20 February 2013)
 
 Related parties with whom transactions have taken place during the
 current period or previous year: 
 
 i) Holding company (also being the ultimate holding company)
 
 Daiichi Sankyo Company Limited, Japan
 
 ii) Fellow subsidiaries
 
 Daiichi Sankyo India Pharma Private Limited, India Daiichi Sankyo
 Development Limited, U.K.  Daiichi Sankyo Propharma Co., Ltd., Japan
 Daiichi Sankyo Espha Co. Ltd., Japan Daiichi Sankyo, Inc., USA Daiichi
 Sankyo Venezuela S.A., Venezuela Daiichi Sankyo Chemical Pharma Co.,
 Ltd., Japan Ranbaxy Mexico S.A.de C.V, Mexico Daiichi Sankyo Europe
 GmbH, Germany
 
 iii) Subsidiaries including step down subsidiaries / partnership frms
 
 Ranbaxy Drugs and Chemicals Company, India (Company with unlimited
 liability) #
 
 Solus Pharmaceuticals Limited, India #
 
 Ranbaxy SEZ Limited, India #
 
 Rexcel Pharmaceuticals Limited, India #
 
 Ranbaxy Life Sciences Research Limited, India #
 
 Gufc Pharma Limited, India
 
 Ranbaxy Drugs Limited, India
 
 Solrex Pharmaceuticals Company, India (a Partnership frm)
 
 Ranbaxy (Hong Kong) Limited, Hong Kong @
 
 Ranbaxy Inc., USA
 
 Ranbaxy USA, Inc., USA
 
 Ranbaxy Egypt (L.L.C.), Egypt
 
 Ranbaxy Farmaceutica Ltda., Brazil
 
 Ranbaxy PRP (Peru) SAC, Peru
 
 Ranbaxy Australia Proprietary Ltd., Australia
 
 Daiichi Sankyo (Thailand) Limited, Thailand [formerly known as Ranbaxy
 Unichem Co. Ltd., Thailand (subsidiary upto 30 September 2013)] $
 
 Ranbaxy Italia S.p.A, Italy
 
 Ranbaxy Malaysia Sdn. Bhd., Malaysia
 
 Ranbaxy Poland S.P. Zoo, Poland
 
 Ranbaxy Nigeria Limited, Nigeria
 
 Ranbaxy Europe Limited, U.K.
 
 Ranbaxy (UK) Limited, U.K.
 
 Basics GmbH, Germany
 
 ZAO Ranbaxy, Russia
 
 S.C. Terapia S.A., Romania
 
 Ranbaxy Pharmaceuticals, Inc., USA
 
 Ohm Laboratories, Inc., USA
 
 Ranbaxy Ireland Limited, Ireland
 
 Ranbaxy South Africa Proprietary Limited, South Africa
 
 Laboratorios Ranbaxy S.L., Spain
 
 Ranbaxy Pharmacie Generiques SAS, France
 
 Ranbaxy Pharmaceuticals Canada Inc., Canada
 
 Sonke Pharmaceuticals (Proprietary) Ltd, South Africa
 
 Ranbaxy Portugal - Com E Desenvolv DeProd Farmaceuticos Unipessoal Lda,
 Portugal
 
 Ranbaxy Belgium N.V., Belgium
 
 Be-Tabs Pharmaceuticals (Proprietary) Ltd, South Africa
 
 Rexcel Egypt (L.L.C.), Egypt
 
 Ranbaxy Morocco LLC, Morocco
 
 Ranbaxy Pharmaceuticals Ukraine LLC, Ukraine (from 13 June 2012)
 
 Ranbaxy (Netherlands) B.V., The Netherlands
 
 iv) Associate company
 
 Zenotech Laboratories Limited, India
 
 Daiichi Sankyo (Thailand) Limited, Thailand [formerly known as Ranbaxy
 Unichem Co. Ltd., Thailand, (an associate w.e.f. 1 October 2013)] $
 
 v) Key management personnel
 
 Mr. Arun Sawhney, CEO and Managing Director
 
 # Refer to note 14 for details on merger of these subsidiaries with RDL
 
 @ Refer to note 18 for details of liquidation of the entity during the
 current period
 
 $ Refer to note 14 for details on business integration with Daiichi
 Sankyo (Thailand) Ltd.
 
 5. The Board of Directors at their meeting held on 6 April 2014,
 approved the Scheme of Arrangement providing inter-alia reduction of
 capital and merger of the Company with M/s. Sun Pharmaceutical
 Industries Limited (SPIL) with effect from the appointed date of 1
 April 2014. As per the Scheme, the share exchange ratio has been
 proposed as 0.8 share of SPIL for each share of the Company. The scheme
 is subject to requisite approvals from Hon''ble High Courts of Gujarat
 and Punjab & Haryana and various other statutory authorities, as may be
 required.
 
 6.  As at 31 March 2014, the accumulated losses of the Company have
 exceeded 50% of the peak net worth of the Company in the immediately
 preceding four fnancial years. Hence, the Company has become a
 potentially sick company in terms of the provisions of Sick Industrial
 Companies (Special Provisions) Act, 1985 and requisite compliances
 under this Act would be made by the Company.
 
 7.  During the previous year, the Company had made a voluntary recall
 of Atorvastatin Calcium Tablets from the USA market.  The amount
 recognised in the Statement of Proft and Loss represents consequential
 cost (sales return, inventory write off and customer claim) recognised
 by the Company.
 
 8.  a) The Company has, during the ffteen months ended 31 March 2014,
 received an ''import alert'' from the Food and Drug Administration of the
 USA (''US FDA'') on its manufacturing facility located in Mohali
 consequent to their inspection in 2012, whereby US FDA regulated drugs
 could not be supplied there from. The US FDA also advised that the
 Mohali manufacturing facility will be subject to certain terms of the
 Consent Decree of permanent injunction entered into by the Company in
 January 2012 (''Consent Decree''). Consequently, stock write off and
 other costs of Rs. 695.14 has been recognised in these fnancial
 statements. It is expected that the concerns of US FDA would be
 resolved within a reasonable period leading resumption of supply to US
 market.
 
 b) (i) The US FDA conducted an inspection at the Company''s
 manufacturing facility located in Toansa in January 2014.
 
 Consequent to the fndings of the inspection, on 23 January 2014, the US
 FDA invoked the Consent Decree prohibiting the Company from
 manufacturing and distributing APIs from its Toansa manufacturing
 facility and fnished drug products containing APIs manufactured at this
 facility into the US regulated market. The Company has since progressed
 in investigating the fndings of the US FDA (as contained in Form 483)
 and has submitted its response to the US FDA.
 
 (ii) Subsequent to the imposition of the Consent Decree at the Toansa
 manufacturing facility as mentioned above, regulators in some
 jurisdictions including those of European Union (''EU'') countries have
 sought clarifcations/ took actions in respect of shipments from Toansa
 manufacturing facility. The Company is in dialogue with these
 regulatory agencies and is addressing their concerns. The Company
 expects to resume API bulk shipments to EU countries from Toansa
 manufacturing facility upon receipt of clearances from relevant
 regulatory authorities.
 
 (iii) The Department of Justice of the USA US DOJ''), United States
 Attorney''s Offce for the District of New Jersey has issued an
 administrative subpoena dated 13 March 2014 to the Company seeking
 information primarily related to the Company''s API Toansa manufacturing
 facility in India for which a Form 483 was issued by US FDA in January
 2014 (as explained in (i) above). The Company is fully cooperating with
 this information request and is in dialogue with the US DOJ for
 submission of the requisite information.
 
 (iv) During the quarter ended 31 March 2014, the Company has
 temporarily put on hold its operations from API manufacturing
 facilities at Toansa to examine the manufacturing and quality processes
 and controls, voluntarily as a precautionary measure. The same is
 expected to be resumed shortly.
 
 (v) The management is taking all necessary steps to resolve the above
 matters to the satisfaction of the concerned authorities. However,
 considering the above matters relating to the Toansa manufacturing
 facility, provisions (primarily relating to inventories, trade
 commitments, sales return etc.), amounting to Rs. 2,862.78 have been
 recognised in these fnancial statements. In calculating these
 provisions, the management has used the best information and estimates,
 presently available. Since the matter involves signifcant judgement and
 in view of the inherent uncertainty of the present situation, the
 actual amounts may differ eventually.
 
 c) During the quarter ended 31 March 2014, the Company has temporarily
 put on hold its operations from API manufacturing facility at Dewas to
 examine the manufacturing and quality processes and controls,
 consequent to receipt of certain internal information. Consequent to
 the fndings of the above exercise, the carrying amount of inventory has
 been written down by Rs. 424. The attribution of this amount to any
 particular period/ year is not possible. The Company expects to resume
 the operations shortly.
 
 9.  Contingent liabilities and commitments
 
 (to the extent not provided for)
 
                                                    As at         As at
                                                 31 March   31 December
                                                     2014          2012
 
 Contingent liabilities
 
 i) Guarantees
 
 (a) Letter of comfort on behalf of 
 subsidiaries, to the extent of limits           6,443.81      3,470.41
 
 (b) Corporate bank guarantee on behalf of 
 an associate, to the extent of limits                  -        120.00
 
 ii) Claims against the Company not 
 acknowledged as debts, under dispute:
 
 (a) DPCO *                                      3,052.88      2,290.41
 
 (b) European Commission **                        843.57             - 
 
 (c) Trade commitments                             582.61             -
 
 (d) Service tax matters $                         156.00             -
 
 (e) Octroi tax matters #                          171.00        171.00
 
 (f) Other matters ##                              228.93        195.12
 
 * The Company has received demands for payment to the credit of the
 Drug Prices Equalisation Account under Drugs (Price Control) Order,
 1995 (''DPCO'') which is being contested by the Company in respect of its
 various products. Further, the Company has deposited Rs. 325.59
 (previous year Rs. 325.59) under protest. The amount is excluding
 interest and penalty, if any. It also includes a demand of Rs. 565.48
 received by the Company in April 2014, under DPCO in respect of a
 product.
 
 ** Fine imposed on Ranbaxy Laboratories Limited, India and Ranbaxy (UK)
 Limited, U.K. for anti-competitive settlement agreement by European
 Commission.  $ The Company has received show cause notice demanding
 service tax on certain services performed outside India
 
 under reverse charge basis.
 
 # The Company has been contesting a case with the Municipal Corporation
 of Mohali (MCM) under which MCM is contesting that Octroi has to be
 paid by the Company at 1% as against 0.5% being paid by the Company.
 The amount above represents the difference payable.
 
 ## These represent cases pending at various forums on account of
 employee / worker related cases, State electricity board, Punjab Land
 Preservation Act, Sales tax, Excise duty related matters etc.
 
 iii) In respect of matters in ii) above, the amount represents the
 demands received under the respective demand/ show cause notices/ legal
 claims, wherever applicable.
 
 iv) Based on direction received in relation to the draft assessment
 order of Assessment Year (AY) 2008-09, Dispute Resolution Panel (DRP)
 under the provisions of section 144Cofthe Income Tax Act, 1961, had
 instructed the Assessing Offcer (AO) to make additions/ disallowances
 on various issues including Transfer Pricing and deductions claimed
 under section 80-IB/IC of the Act to taxable income of the Company. The
 Company received the fnal assessment order from the AO in November 2012
 whereby demand of Rs 443.39 has been raised against the Company, which
 has been paid by the Company under protest in full. The Company has
 challenged the order before the Hon''ble Income Tax Appellate Tribunal
 (ITAT) and pending disposal of the matter, the management considers
 the amount of tax liability as unascertainable.
 
 During January 2014, the Company has received assessment order for AY
 2009-10 from the AO making certain additions/ disallowances on various
 issues including Transfer Pricing and deductions claimed under section
 80-IB/IC of the Income Tax Act, 1961, which has the effect of reducing
 the business loss for the referred year. Since, these
 additions/disallowances have been made pursuant to directions received
 from DRP, the Company has challenged the order before the Hon''ble ITAT.
 Pending disposal of the matter, the management considers the impact as
 unascertainable.  During March 2014, the Company has received a draft
 assessment order for AY 2010-11 from the AO proposing certain
 additions/ disallowances including deductions claimed under section
 80-IB/IC of the Income Tax Act, 1961, to its taxable income for the
 referred year, which has the effect of reducing the carry forward
 accumulated tax losses. The Company has not accepted the same and has
 fled its objections before the DRP. Pending disposal of the matter, the
 management considers the impact as unascertainable.
 
 v) The Company, directly or indirectly through its subsidiaries,
 severally or jointly is also involved in certain patents and product
 liability disputes as at the period end. Due to the nature of these
 disputes and also in view of signifcant uncertainty of outcome, the
 Company believes that the amount of exposure cannot be currently
 determinable.
 
 Commitments
 
 i) Estimated amount of contracts remaining to be executed on capital
 account and not 470.54 757.97 provided for (net of advances) 
 
 ii) Non cancellable lease commitments (Refer to note 30) 272.65 448.04
 
 10. During the current period, the Company has transferred all
 signifcant risks and rewards of ownership of the Intellectual Property
 of its branded generic product ''Ketanov'' (including technology/
 know-how, brand, marketing, authorisations, dossiers etc.) to its
 subsidiary in Romania. The sales consideration of Rs. 4,327.69 has been
 determined by the management on the basis of a valuation report by an
 expert, using best estimates. Pursuant to the transaction, the Company
 has recorded a gain of Rs. 4,327.69 (previous year Nil), which has been
 disclosed as exceptional item in the Statement of Proft and Loss.
 
 11. Segment information
 
 In accordance with AS 17, Segment Reporting, segment information has
 been given in the consolidated fnancial statements of the Company, and
 therefore, no separate disclosure on segment information is given in
 these fnancial statements.
Source : Dion Global Solutions Limited
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