Wockhardt

1.  SHARE CAPITAL
 
 a) 70,123,304 (Previous Year - 70,123,304) fully paid-up equity shares
 of Rs. 5/- each were allotted pursuant to scheme of arrangement to
 demerge pharmaceuticals business of Carol Info Services Limited
 (CISL) (formerly Wockhardt Life Sciences Limited).
 
 b) 2,400,000 (Previous Year - 2,400,000) fully paid-up equity shares of
 Rs. 5/- each were allotted pursuant to amalgamation of Wockhardt
 Veterinary Limited (WVL) with the Company.
 
 c) 69,716,132 (Previous Year - 69,716,132) equity shares of Rs. 5/-
 fully paid up are held by Khorakiwala Holdings and Investments Private
 Limited, the holding company.
 
 d) 439,200 (Previous Year - 439,200) fully paid equity shares of Rs.
 5/- each were allotted pursuant to exercise of stock options.
 
 e) 36,431,502 (Previous Year - 36,431,502) equity shares of Rs. 5/-
 each are allotted as Bonus shares out of Capital Redemption Reserve.
 
 (A) Debentures are redeemable at par in four annual instalments of Rs.
 500 million each starting from August 7. 2012 Debentures are secured by
 first charge on pari-passu basis, by way of mortgage and hypothecation
 of movable and immovable assets at Biotech Park H-14/2, M.I.D.C. Waluj,
 Aurangabad.
 
 (B) Term Loans are secured as under :
 
 (i) Out of the loans from financial institutions of Rs. 1,808.75
 million above,
 
 (a) loan of Rs. 530 million is secured by first charge on pari-passu
 basis by way of mortgage and hypothecation of movable and immovable
 assets at L-1, M.I.D.C. Chikhalthana and D-4, M.I.D.C. Chikhalthana
 (R&D Centre), Aurangabad.
 
 (b) loan of Rs. 510 million is secured by subservient charge by way of
 hypothecation of movable assets situated at L-1, M.I.D.C. Chikhalthana,
 D-4, M.I.D.C. Chikhalthana (R&D Centre), Aurangabad and 87-A Bhimpore,
 Daman.  Further, the Company is in the process of creation of charge by
 way of mortgage on the immovable assets situated at the said locations.
 
 (c) loan of Rs. 768.75 million is secured by first charge by way of
 hypothecation of movable assets situated at Plot No. 138, G.I.D.C.
 Ankleshwar, S.E.Z. Shendra, Aurangabad and Village Kunjhal, Baddi,
 Solan. Further, the Company is in the process of creation of charge by
 way of mortgage on the immovable assets situated at the said locations.
 
 (ii) As at December 31, 2008 Foreign currency denominated loan
 (External Commercial Borrowings) was secured by first charge on
 pari-passu basis by way of mortgage and hypothecation of movable and
 immovable assets at L-1, M.I.D.C. Chikhalthana, D-4, M.I.D.C.
 Chikhalthana (R&D Centre), Biotech Park H-14/2, M.I.D.C. Waluj, B-15/2,
 M.I.D.C. Waluj (Plant & Machinery), Aurangabad, 138, G.I.D.C.
 Ankleshwar, Bhimpore and Kadiaya, Daman.  Subsequently, the charge on
 above assets has been released and the said loan was secured only by
 hypothecation on term deposit. The loan was repaid in March 2009.
 
 (iii) Rupee denominated loans from banks and others are tor purchase of
 vehicles and are secured by hypothecation of vehicles purchased under
 the agreement.
 
 (C) Working capital loans from banks are secured by hypothecation of
 inventories and debtors.
 
 (j) Loans and advances to subsidiaries:
 
 Loans and advances to subsidiaries in the nature of loans comprises of
 amounts recoverable from CP Pharmaceutical Limited amounting to Rs. Nil
 (Previous Year - Rs. Nil) [maximum amount outstanding during the year
 Rs. Nil (Previous Year - Rs. 452.89 million)], Wockhardt USA LLC
 amounting to Rs. Nil (Previous Year - Rs. 71.88 million) [maximum
 amount outstanding during the year Rs. 85.66 million (Previous Year -
 Rs. 125.76 million)], esparma GmbH amounting to Rs. 202.97 million
 (Previous Year - Rs. 175.03 million) [maximum amount outstanding during
 the year Rs. 204.21 million (Previous Year - Rs. 177.08 million],
 Wockhardt Infrastructure Development Limited Rs. 383.25 million
 (Previous Year - Rs. 38.99 million) [maximum amount outstanding during
 the year Rs. 383.25 million (Previous Year - Rs. 147.99 million)],
 Vinton Healthcare Limited Rs. 786.54 million (Previous Year - Rs.
 293.05 million) [maximum outstanding during the year Rs. 786.54 million
 (Previous Year - Rs. 639.17 million)], Wockhardt EU Operations (Swiss)
 AG Rs. 1,042.70 million (Previous Year - Rs. 80.11 million) [maximum
 outstanding during the year Rs. 1,068.13 million (Previous Year - Rs.
 80.16 million)], Atlantis USA Inc. Rs. Nil (Previous Year - Rs. 0 03
 million) [maximum outstanding during the year Rs. 0.03 million
 (Previous Year - Rs. 3.13 million)], Morton Grove Pharmaceuticals, Inc.
 Rs. 97.42 million (Previous Year - Rs. 78.82 million) [maximum
 outstanding during the year Rs. 100.14 million (Previous Year - Rs.
 79.34 million)], Wockhardt Holding Corporation Rs. 779.37 million
 (Previous Year - Rs. 630.56 million) [maximum outstanding during the
 year Rs. 801.12 million (Previous Year - Rs. 635.24 million)].
 
 2.  (a) During the year 2008 due to global meltdown, there has been
 significant volatility in currencies and interest rates. Major
 currencies like EURO, GBR CHF have significantly depreciated against US
 Dollar. Besides in line with the interest rate cuts carried out by the
 US Federal, EURO and UK zones, the LIBOR of all major currencies
 collapsed, resulting in increase in mark-to-market losses from October
 and November 2008 onwards.
 
 Pursuant to the announcement on Accounting for Derivatives issued by
 the Institute of Chartered Accountants of India in March 2008, the
 Company has accounted Mark-to-Market (MTM) losses aggregating Rs.
 4,256.32 million (Previous Year - Rs. Nil) for the year ended December
 31, 2008. The same has been treated as an exceptional item. The Company
 has entered into Hedging Instruments, which are long term in nature to
 reduce interest cost/Currency risk for the loans, which the Company has
 taken in past and is outstanding as of December 31, 2008. As per the
 Risk Management Policy, the Company is hedging the interest/ currency
 risk for the long term loans. The Company does not hold or issue
 derivative financial instruments for trading or speculative purposes.
 
 (b) The exceptional item also includes, realised derivative loss of Rs.
 182.01 million (Previous Year - Rs. Nil).
 
 3.  In the month of October 2004, the Company had issued 110,000 Zero
 Coupon foreign currency convertible bonds of USD 1,000 each. The Bonds
 are considered as monetary liability. The Bonds are redeemable on
 maturity date at 129.578 percent of its principal amount, only if there
 is no conversion of bonds on or before September 25,2009. The Company
 is evaluating various options for restructuring the debts of the
 Company as explained in Note 32. The FCCB including the premium payable
 will be part of the restructuring exercise. The Company is proposing to
 negotiate with the FCCB holders towards discount and/or extension of
 the due date of payment. During the year, Company has provided for FCCB
 premium from October 2004 till December 31, 2008.
 
 4.  The step down subsidiary of the Company, Wockhardt France
 (Holdings) S.A.S. had availed Leverage Buyout Finance (LBO) of EURO 110
 million, towards the acquisition of Negma group.
 
 As per the Facility Agreement for the said loan, certain covenants need
 to be complied for the year 2008. Wockhardt France Holdings S.A.S. has
 not complied with the covenants. The Company has received consent from
 61% of the lenders to relax the covenants for the year 2008.
 
 Hence, the Companys investment in subsidiary Wockhardt EU Operations
 (Swiss) AG and the subsidiarys investment in Wockhardt France
 (Holdings) S.A.S. will not be impaired.
 
 5.  SEGMENTAL REPORTING
 
 As the Companys annual report contains both Consolidated Financial
 Statement and this financial statement, Segmental information is
 presented only on the basis of consolidated Financial Statement. (Refer
 Note 23 of Consolidated Financial statement).
 
 6.  Product Development Expenses of Rs. 1,002.56 million (Previous
 Year - Rs. 743.85 million) incurred during the year are considered as
 capital expenditure to be capitalized as intangible assets.
 
 7.  The Company has taken office premises on operating lease. These
 leave and licence agreements are for a period not exceeding five years
 and are in most cases renewable by mutual consent, on mutually
 agreeable terms. There are no restrictions imposed by lease
 arrangements. There are no subleases.
 
 Defined contribution plan:
 
 Amount recognised as an expense and included in the Schedule 17 and 18
 - Contribution to provident and other funds of Profit and Loss
 Account Rs. 55.72 million (Previous Year - Rs. 48.10 million).
 
 8.  Provision for Sales Return on date Expiry - Opening Balance Rs. 75
 million (Previous Year - Rs. 45 million), Additions during the Year Rs.
 109.26 million (Previous Year - Rs. 102.45 million), Utilised during
 the year Rs. 92.02 million (Previous Year - Rs. 72.45 million), Closing
 balance Rs. 92.24 million (Previous Year - Rs. 75 million).
 
 Provision has been recognised for expected sales return on date expiry
 of products sold during last two years. It is expected that all of this
 would be incurred within two years of the balance sheet date.
 
 9.  The outstanding liabilities of the Company can be restructured
 under the aegis of Corporate Debt Restructuring (CDR). The Company has
 approached CDR Cell through ICICI Bank. The Empowered Group (EG) of CDR
 Cell has admitted the Company to the CDR Scheme. Since the term loans,
 FCCB loan of USD 108.50 million are falling due and the Company
 requires additional time to meet the requirements, the Company has
 approached CDR Cell.
 
 10.  CONTINGENT LIABILITIES NOT PROVIDED FOR:
 
 (a) Demands by Central Excise authorities in respect of Classification/
 Valuation/ Cenvat Credit related disputes; stay orders have been
 obtained by the Company in case of demands which have been confirmed
 Rs.84.97 million (Previous Year - Rs. 63.01 million).
 
 (b) Demand by Income tax authorities Rs. 661.07 million (Previous Year
 - Rs. 535.35 million) disputed by the Company.
 
 (c) Corporate Guarantee given on behalf of various subsidiaries in
 respect of bank loans amounts to Rs. 13,739.04 million (Previous Year -
 Rs. 11,599.73 million).
 
 (d) Subsequent to the year end certain derivative/hedging contracts
 have been unilaterally cancelled by the banks. The Company has treated
 the demand of Rs. 4,895.24 million as a contingent liability and has
 not acknowledged as debt, since the liability cannot be currently
 ascertained even on a best effort basis till the final outcome of the
 matter. As on balance sheet date Rs. 252.85 million is kept with the
 banks as deposits against these disputed liabilites. The Company is
 currently discussing with lawyers for various options.
 
 The Company is of the view that these are contingent liabilities as
 these arise from past events and existence of which will be confirmed
 only by the occurrence or non-occurrence of one or more uncertain
 future events not wholly within control of the Company and therefore,
 has not acknowledged these claims against Company as debts.
 
 11.  PREVIOUS YEAR COMPARATIVES
 
 Previous years figures have been regrouped where necessary to conform
 to this years classification.