EXHIBIT 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Proxima ASA
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and cash flows present fairly, in all material respects, the financial position of Proxima ASA and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles in Norway. 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 audits. We conducted our audits of these statements in accordance with generally accepted auditing standards ("GAAS") in Norway, which are substantially the same as GAAS in the United States. 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Generally accepted accounting principles vary in certain significant respects from generally accepted accounting principles in the United States. Application of generally accepted accounting principles in the United States would have affected net income for each of the three years in the period ended December 31, 1999 and shareholders' equity as at December 31, 1999 and 1998 to the extent summarized in Note 17 to the consolidated financial statements
PricewaterhouseCoopers DA
Oslo, Norway
February 15, 2000, except for Note 17
and Note 18, which is as of April 5, 2000
1
PROXIMA GROUP
BALANCE SHEETS
December 31, 1999 and 1998
Figures in NOK 1,000 | Note | 1999 | 1998* | ||||||
---|---|---|---|---|---|---|---|---|---|
Assets | |||||||||
Fixed Assets: | |||||||||
Intangible assets | |||||||||
Deferred tax assets | 6 | 88,733 | 15,189 | ||||||
Goodwill | 7 | 194,617 | 290,002 | ||||||
Total intangible assets | 283,350 | 305,191 | |||||||
Tangible fixed assets: | |||||||||
Property and equipment | 8 | 34,006 | 17,484 | ||||||
Total tangible fixed assets | 34,006 | 17,484 | |||||||
Long-term financial assets: | |||||||||
Long-term receivables | 493 | 222 | |||||||
Investment in shares | 9,718 | ||||||||
Total long-term financial assets | 493 | 9,940 | |||||||
Total Fixed Assets | 317,849 | 332,615 | |||||||
Current Assets: | |||||||||
Inventory | 9 | 211,590 | 204,845 | ||||||
Receivables | |||||||||
Trade accounts receivable | 505,537 | 382,294 | |||||||
Other receivables | 24,665 | 66,021 | |||||||
Total receivables | 530,202 | 448,315 | |||||||
Cash and cash equivalents | 10 | 330,090 | 321,638 | ||||||
Total Current Assets | 1,071,882 | 974,798 | |||||||
Total Assets | 1,389,731 | 1,307,413 | |||||||
- *
- The financial statements have been restated in accordance with the new Accounting Act of 1998.
The accompanying notes are an integral part of these consolidated financial statements.
2
PROXIMA GROUP
BALANCE SHEETS
December 31, 1999 and 1998
Figures in NOK 1,000 | Note | 1999 | 1998* | ||||||
---|---|---|---|---|---|---|---|---|---|
Equity and Liabilities | |||||||||
Shareholders' Equity: | |||||||||
Paid-in capital | |||||||||
Share capital | 83,122 | 82,654 | |||||||
Additional paid-in capital | 35,064 | ||||||||
Total paid-in capital | 118,186 | 82,654 | |||||||
Retained earnings: | |||||||||
Other equity | 783,745 | 647,308 | |||||||
Total retained earnings | 783,745 | 647,308 | |||||||
Total Equity | 11 | 901,931 | 729,962 | ||||||
Liabilities: | |||||||||
Provision for commitments | |||||||||
Pension liabilities | 13 | 251 | 231 | ||||||
Total provision for commitments | 251 | 231 | |||||||
Other long-term liabilities: | |||||||||
Debts to financial institutions | 5,327 | ||||||||
Total other long-term liabilities | 0 | 5,327 | |||||||
Short-term liabilities: | |||||||||
Debts to financial institutions | 5,635 | 171,225 | |||||||
Accounts payable | 310,174 | 263,846 | |||||||
Taxes payable | 6 | 46,149 | 40,143 | ||||||
Employee taxes and social security costs | 20,219 | 9,384 | |||||||
Other short-term liabilities | 105,372 | 87,295 | |||||||
Total short-term liabilities | 487,549 | 571,893 | |||||||
Total Liabilities | 487,800 | 577,451 | |||||||
Total Equity and Liabilities | 1,389,731 | 1,307,413 | |||||||
- *
- The financial statements have been restated in accordance with the new Accounting Act of 1998.
The accompanying notes are an integral part of these consolidated financial statements.
3
PROXIMA GROUP
INCOME STATEMENT
For the year ended December 31
Figures in NOK 1,000 | Note | 1999 | 1998* | 1997* | ||||
---|---|---|---|---|---|---|---|---|
Sales revenue | 4 | 2,323,335 | 1,575,582 | 604,321 | ||||
Cost of goods sold | 1,613,547 | 1,077,890 | 348,357 | |||||
Salaries | 5 | 192,005 | 143,091 | 63,650 | ||||
Amortization of goodwill | 7 | 21,523 | 14,350 | 0 | ||||
Depreciation | 8 | 12,918 | 11,935 | 4,251 | ||||
Other operating expense | 16 | 289,521 | 175,977 | 61,054 | ||||
Operating profit | 193,821 | 152,339 | 127,009 | |||||
Financial income | 3 | 48,128 | 27,074 | 18,340 | ||||
Financial expenses | 3 | 29,461 | 24,254 | 9,888 | ||||
Income before income taxes | 212,488 | 155,159 | 135,461 | |||||
Taxes | 6 | 77,250 | 54,522 | 37,418 | ||||
Net income for the year | 135,238 | 100,637 | 98,043 | |||||
Basic EPS (NOK) | 3.27 | 2.48 | 2.69 | |||||
Diluted EPS (NOK) | 3.16 | 2.43 | 2.67 |
- *
- The financial statements have been restated in accordance with Norway's new Accounting Act of 1998.
The accompanying notes are an integral part of these consolidated financial statements.
4
PROXIMA GROUP
STATEMENT OF CASH FLOWS
For the year ended December 31
Figures in NOK 1,000 | 1999 | 1998 | 1997 | ||||||
---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: | |||||||||
Net income before taxes | 212,488 | 155,159 | 135,461 | ||||||
Tax paid in the period | (58,680 | ) | (42,423 | ) | (25,119 | ) | |||
Loss/profit on sale of fixed assets | (12,273 | ) | |||||||
Depreciation and amortization | 34,441 | 26,285 | 4,251 | ||||||
Write-down of fixed assets | 1,294 | 0 | |||||||
Change in inventory | 1,210 | 9,327 | (31,552 | ) | |||||
Change in accounts receivable | (107,785 | ) | 54,000 | (98,789 | ) | ||||
Change in accounts payable | 35,600 | (16,378 | ) | 38,943 | |||||
Change in other assets and liabilities | 67,836 | (15,367 | ) | (4,360 | ) | ||||
Changes in pension liabilities | 20 | 128 | 405 | ||||||
Net cash provided by operating activities | 172,857 | 172,025 | 19,240 | ||||||
Cash flows from investing activities: | |||||||||
Proceeds from sale of fixed assets | 315 | ||||||||
Payments for purchase of property and equipment | (25,519 | ) | (19,001 | ) | (5,298 | ) | |||
Payments/proceeds on loan | (271 | ) | (180 | ) | 126 | ||||
Proceeds from sale of shares | 22,329 | ||||||||
Purchase of shares in subsidiary | (489,831 | ) | |||||||
Net cash used in investing activities | (3,146 | ) | (509,012 | ) | (5,172 | ) | |||
Cash flows from financing activities: | |||||||||
Proceeds from share issuances | 10,668 | 325,217 | 83,822 | ||||||
Payments received on long term liabilities | 5,327 | ||||||||
Repayment of short term liabilities | (181,125 | ) | |||||||
Payments received on short-term liabilities | 170,986 | ||||||||
Net cash provided by (used in) financing activities | (170,457 | ) | 501,530 | 83,822 | |||||
Net change in cash for the year | (746 | ) | 164,543 | 97,890 | |||||
Cash and cash equivalents at the beginning of the period | 321,638 | 157,095 | 59,205 | ||||||
Effect of foreign exchange on cash and cash equivalents | 9,198 | ||||||||
Cash and cash equivalents at the end of the period | 330,090 | 321,638 | 157,095 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
PROXIMA GROUP
NOTES TO FINANCIAL STATEMENTS
Three years ended December 31, 1999
Note 1—Accounting Principles and the Effect of Changes made to the Accounting Principles
The annual accounts have been drawn up in accordance with the Accounting Act of 1998 and have been prepared according to Norwegian accounting standards. Several accounting principles have been changed in accordance with the Accounting Act. These changes are described below.
Basis of Consolidation
The group accounts cover the parent company Proxima ASA and all companies in which it controls more than 50% of the voting rights, whether directly or indirectly. The group accounts show the overall financial performance and overall financial position when the parent company and the subsidiaries are presented as a financial entity. Therefore, shares in subsidiaries, internal claims and debts as well as intercompany transactions have been eliminated when preparing the group accounts. Unrealized gains in inventory that are derived from internal deliveries are eliminated in the group's inventory. The foreign subsidiary's balance sheet is translated at the exchange rates on the balance sheet date. The income statement has been translated at average rates for the year. All translation differences are included directly in equity.
As of December 31, 1999, the group comprised the following companies:
Proxima ASA | Parent company | |
Proxima Corporation, USA | 100% | |
ASK AS, Norway | 100% |
In April 1998, Proxima ASA set up a subsidiary in the USA under the name BD Acquisition Corporation. The company purchased all the shares in Proxima Corporation, a distribution company with the bulk of its operations in the U.S. These companies merged immediately after the acquisition. The merged company acquired the name Proxima Corporation. The accounts for 1998 contain income and costs in Proxima Corporation from April 14, 1998. With effect from January 21, 1999, ASK LCD Inc., the wholly-owned subsidiary, was merged with Proxima Corporation.
The accounts have been prepared using the purchase method for the acquired subsidiary. In conjunction with the acquisition, a detailed assessment of actual value of various asset and debt items was carried out. As a result of a planned coordination of the operations of Proxima Corporation and Proxima ASA, a provision for planned restructuring costs was also made. The cost price for shares that could not be allocated to specific asset or debt items has been classified as goodwill in the consolidated balance sheet. The goodwill amount is amortized on a straight-line basis over 15 years. Amortization over more than five years is justified by the fact that the company is a distribution company with a strong brand name.
In connection with the finalization of the purchase price allocation, certain reclassifications to the balance sheet were recorded as of December 31, 1999.
There is no activity in the Norwegian subsidiary ASK AS.
Classification
Assets determined for permanent use and receivables that fall due later than one year after the financial year-end are classified as fixed assets. All other assets are classified as current assets. The same basis for classification has been used for liabilities.
6
Valuation Principles
Use of Estimates
Preparation of the consolidated accounts in accordance with generally accepted accounting principles requires that the board and management of the company make estimates and establish conditions which have an influence on the value of assets and liabilities in the balance sheet and reported income and costs for the financial year. The final values realized may deviate from these estimates.
Recognition of Revenue
All sales are taken to income on the delivery date. Sales are gross sales less commissions, discounts and any other price reductions.
Accounts Receivable
Trade accounts receivable and other receivables are entered in the balance sheet at face value less a provision to cover bad debts. A provision for bad debts is made on the basis of an individual assessment of each claim.
Transactions and Reserves in Foreign Currencies
Income statement items are entered in the individual accounts at the exchange rate on the transaction date. Current assets, accounts receivable and accounts payable in foreign currencies are translated at the exchange rates on the balance sheet date. Realized/unrealized currency gain and realized/unrealized currency loss are classified as financial items in the income statement.
Inventory
Inventory is valued at the lower of cost and net realizable value on a first-in/first-out basis. For raw materials and work in progress net realizable value is calculated as the realizable value of finished goods less remaining manufacturing costs and sales costs. The cost price of manufactured goods comprises direct materials, direct wages and allocated indirect manufacturing costs.
Research and Development Costs
Research and development costs are expensed as incurred.
Property and Equipment
Tangible fixed assets are reported at historical cost less accumulated depreciation. Depreciation is charged on a straight-line basis over the estimated life of each asset. When fixed assets are sold or disposed of, gains/losses are included as operating income/cost.
7
Pension Costs
The parent company provides its employees with a collective (secured) pension plan, which gives fixed future pension benefits based on the number of years of service and the expected salary upon retirement. The parent company also provides an unsecured pension plan for some of its employees. These pension commitments are paid using the company's own funds and the liabilities are subject to provisions. For secured pensions, overall liabilities are valued against overall pension funds in the pension plan. When valuing pension funds and pension commitments, the estimated value at year-end is used. In the balance sheet, secured and unsecured pension liabilities are shown combined under long-term liabilities. Pension costs are recorded in the accounts in accordance with the accounting standards governing pension costs. The main principle is that the pension liabilities are charged against income when they occur, i.e. as they are earned through employment. When calculating them, a straight-line earning profile is used, and the expected final salary is used as the earnings basis. Net pension costs are recorded in the income statement under "Salaries". Employers' contributions are accrued for unsecured pensions. For secured pensions, employers' contributions are charged against income based on pension premiums paid.
Proxima Corporation provides a contributory pension plan. The premium for this is charged against income on an ongoing basis.
Stock-Based Compensation
The group records its stock-based compensation plans in the accounts according to guidelines published by the Oslo Stock Exchange. Accompanying notes provide pro forma information of the effects these plans would have on net income and profit per share if they were recorded at actual value.
Earnings per Share
Earnings per share are calculated on the basis of the time-weighted average of the number of outstanding shares in the company in the period. Diluted earnings per share are based on the time-weighted average of the number of outstanding shares in the company taking into consideration the diluting effect of potential shares in the company.
The following table shows the basis for calculations of earnings per share and diluted earnings per share:
Figures in NOK 1,000 | 1999 | 1998 | 1997 | |||
---|---|---|---|---|---|---|
Net income for the year | 135,238 | 100,637 | 98,043 | |||
Average number of shares in the company | 41,341,551 | 40,637,481 | 36,471,620 | |||
Average number of potential diluting shares: | ||||||
Stock options | 1,424,407 | 801,834 | 307,490 | |||
Average number of shares in the company taking into consideration the diluting effect of potential shares in the company | 42,765,958 | 41,439,315 | 36,779,110 |
8
Taxes
Taxes are expensed as incurred, i.e. the tax cost is linked to the income before taxes for accounting purposes. In principle, the tax cost consists of payable taxes and changes in deferred tax assets and liabilities. Deferred tax assets in the balance sheet are calculated on the basis of net temporary differences between accounting and tax values. In conjunction with the acquisition of Proxima Corporation, this company had substantial net tax-reducing temporary differences and losses to carry forward. The possible deferred tax assets linked to these temporary differences are included in goodwill in the acquisition balance sheet. The tax assets utilized in 1999 were reclassified from goodwill to deferred tax assets in the balance sheet.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, cash equivalents and investments which fall due within three months of the time of making the investments.
Warranty Expenses
Estimated future warranty obligations related to the group's products are provided by charges to operations in the period in which the related revenue is recognized.
Amendments to Accounting Principles
Proxima ASA introduced new accounting principles in accordance with the Accounting Act of 1998 to take effect on December 31, 1996.
Deferred Tax Assets
In accordance with previous acts, it was not permitted to enter net deferred tax assets in the balance sheet.
Long-Term Items in Foreign Currencies
In accordance with previous acts, long-term items in foreign currencies were entered at the lowest/ highest value's principle, as the case might be, for assets and liabilities. According to the new Accounting Act, all items in foreign currencies are entered at the exchange rate on the balance sheet date.
The amendments to the accounting principles were included in shareholders' equity in the accounts as of December 31, 1996. We refer to note 11 where the effect of shareholders' equity is given in detail.
Corresponding Figures
The corresponding figures in the balance sheet and the income statement are restated according to principles in the new Accounting act.
9
Note 2—Financial Market Risk
Financial instruments which are subject to credit and currency risk consist mainly of cash and cash equivalents and accounts receivable. Cash and cash equivalents are principally administered by two financial institutions. The main part of accounts receivable are not collateralized, but some are collateralized by use of Letter of Credit. The group assesses the creditworthiness of its customers on an ongoing basis and makes an accrual for possible bad debts. As at December 31,1999 and 1998, no customers accounted for more than 10% of total accounts receivable.
The group is exposed to changes in exchange rates through large quantities of the materials used in production being bought from abroad, principally Asia. Similarly, a large percentage of the company's sales income is received in foreign currencies. Exposure to changes in foreign currency is to some extent covered by hedging with forward contracts. As at December 31, 1999, two transactions were in effect, totaling USD 4 million at an exchange rate of NOK 7.97, both falling due Q 1 2000. Unrealized profit/loss on forward contracts in foreign currencies were valued on the basis of the market exchange rate at the end of the year. The group has a foreign currency loan in USD which is being paid off on an ongoing basis via income in the same currency.
Note 3—Single Transactions and Merged Items
In 1999, the group sold its shares in Laser Power Corporation. The sale made a gain of NOK 12.0 million which is recorded as income under financial income.
Figures in NOK 1,000 | 1999 | 1998 | 1997 | |||
---|---|---|---|---|---|---|
Financial Income | ||||||
Interest income | 11,748 | 6,156 | 2,881 | |||
Currency gain | 24,331 | 20,918 | 15,459 | |||
Gain from sales of shares | 12,049 | — | — | |||
Total financial income | 48,128 | 27,074 | 18,340 | |||
Financial Expenses | ||||||
Currency loss | 21,813 | 16,500 | 9,413 | |||
Other financial expenses | 7,648 | 7,754 | 475 | |||
Total financial expenses | 29,461 | 24,254 | 9,888 | |||
Note 4—Sales Revenue
Based on guidelines issued by Norsk Regnskapsstiftelse (the Norwegian Institute of Accounting), the group has defined its activities as falling within one segment. Sales are geographically distributed as follows:
Sales Geographically Distributed | 1999 | 1998 | 1997 | ||||
---|---|---|---|---|---|---|---|
America | 63 | % | 55 | % | 16 | % | |
Europe | 28 | % | 38 | % | 69 | % | |
Asia | 9 | % | 7 | % | 15 | % | |
Total | 100 | % | 100 | % | 100 | % | |
10
No single customer accounted for more than 10% of turnover in the financial years ending in 1999, 1998 and 1997.
Note 5—Salaries
Figures in NOK 1,000 | 1999 | 1998 | 1997 | |||
---|---|---|---|---|---|---|
Salaries | 165,532 | 128,995 | 56,330 | |||
Social security costs | 20,025 | 10,248 | 4,973 | |||
Pension costs | 4,650 | 2,280 | 1,232 | |||
Other benefits | 1,798 | 1,568 | 1,115 | |||
Total | 192,005 | 143,091 | 63,650 | |||
Average number of employees | 405 | 321 | 161 |
Auditing fees for 1999 charged against income amounted to NOK 1,145,400. Additional fees for other services totaled NOK 923,650.
Note 6—Taxes
Taxes for the group are distributed as follows:
Figures in NOK 1,000 | 1999 | 1998 | 1997 | |||
---|---|---|---|---|---|---|
Norway | 36,837 | 39,550 | 37,418 | |||
Other countries | 40,413 | 14,972 | — | |||
Total | 77,250 | 54,522 | 37,418 | |||
11
The difference between the nominal tax rate in Norway and the group's effective tax rate is as follows:
Income before taxes | 212,488 | 155,159 | 135,461 | |||||
Nominal tax rate in Norway (28%) | 59,497 | 43,445 | 37,929 | |||||
Permanent differences | 806 | 265 | 74 | |||||
Higher tax rates abroad | 10,921 | 5,186 | — | |||||
Tax effect of non-deductible goodwill amortization | 6,026 | 4,879 | — | |||||
Other | — | 747 | (585 | ) | ||||
Effective taxes | 77,250 | 54,522 | 37,418 | |||||
Specification of Basis for Deferred Tax Assets: | ||||||||
Net Timing Differences | ||||||||
Fixed assets | 2,494 | 9,835 | (745 | ) | ||||
Current assets | 198,181 | 195,444 | 32,048 | |||||
Liabilities | 13,061 | 10,232 | 8,846 | |||||
Tax losses to be carried forward | 65,076 | 83,800 | — | |||||
Total | 278,812 | 299,311 | 40,149 | |||||
Deferred tax assets | 101,553 | 111,887 | 11,242 | |||||
Non-recognized deferred tax assets | (12,820 | ) | (96,698 | ) | — | |||
Deferred tax assets recorded in the balance sheet | 88,733 | 15,189 | 11,242 | |||||
Deferred tax assets are recorded in the balance sheet to the extent it is probable such assets are realizable in the future.
In 1998 and 1997 respectively, NOK 11.5 million and NOK 2.6 million in tax assets were linked to tax-deductible share issue expenses included in shareholders' equity in Proxima ASA.
Note 7—Intangible Assets (Goodwill)
Figures in NOK 1,000 | 1999 | |||
---|---|---|---|---|
Acquisition cost as of 01.01.99 | 304,453 | |||
Acquisitions for the year | 0 | |||
Reclassification | (89,468 | ) | ||
Currency translation difference | 17,603 | |||
Acquisition cost as of 12.31.99 | 232,588 | |||
Amortization as of 12.31.99 incl. currency translation difference | 37,971 | |||
Value recorded in the balance sheet as of 12.31.99 | 194,617 | |||
Amortization for the year | 21,523 | |||
12
Goodwill
Goodwill has increased following the acquisition of Proxima Corporation. The goodwill amount is amortized on a straight-line basis over the estimated life of 15 years. Goodwill resulting from the acquisition contains possible tax assets for tax-reducing temporary differences in conjunction with the acquisition. In 1999, NOK 89.5 million was reclassified from goodwill to deferred tax assets.
Product Research and Development
During the fiscal year, the group completed the following research and development projects:
- •
- The COMPACT series projectors, consisting of C1, C2, C5 and C6.
- •
- The IMPRESSION series projectors were upgraded through launching A8+, A9+ and A10+.
- •
- The ASK M5 projector.
A total of NOK 62.8 million in research and development costs were expensed in 1999.
Note 8—Property and Equipment
Figures in NOK 1,000 | | |||
---|---|---|---|---|
Acquisition costs as of 01.01.99 | 129,880 | |||
Acquisitions for the year | 25,519 | |||
Sales for the year | (53,889 | ) | ||
Currency translation difference | 6,420 | |||
Value recorded in the balance sheet as of 12.31.99 | 107,930 | |||
Accumulated depreciation as of 12.31.99 incl. currency translation difference | 73,924 | |||
Value recorded in the balance sheet as of 12.31.99 | 34,006 | |||
Depreciation for the year | 12,918 | |||
Economic lifetime Depreciation plan | 3-5 years |
Operating lease expense amounted to 5,942 in 1999 and 3,384 in 1998.
Note 9—Inventory
Figures in NOK 1,000 | 1999 | 1998 | |||
---|---|---|---|---|---|
Raw materials | 88,267 | 46,464 | |||
Work in progress | 12,724 | 8,001 | |||
Finished goods | 110,599 | 150,380 | |||
Total inventory | 211,590 | 204,845 | |||
13
Note 10—Cash Equivalents, etc.
Figures in NOK 1,000 | 1999 | 1998 | |||
---|---|---|---|---|---|
Restricted bank deposits | 3,658 | 3,493 | |||
Note 11—Shareholders' Equity
Figures in NOK 1,000 | Share capital | Additional paid-in apital | Other equity | Total Shareholders' equity | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Shareholders' equity 12.31.96 | 11,925 | 41,163 | 60,102 | 113,190 | |||||||
Effect of new Accounting Act: | |||||||||||
Recording of deferred tax assets in the balance sheet | — | — | 4,349 | 4,349 | |||||||
Introduction of current market value for long-term receivables | — | — | 180 | 180 | |||||||
Revised shareholders' equity 12.31.96 | 11,925 | 41,163 | 64,631 | 117,719 | |||||||
Shareholders' equity 12.31.97 | 75,254 | 8,470 | 217,657 | 301,381 | |||||||
Change in shareholders' equity for the year | |||||||||||
Issue of shares | 7,400 | 24,662 | 304,638 | 336,700 | |||||||
Share issue expenses, net after taxes | — | (8,268 | ) | — | (8,268 | ) | |||||
Income for the year | — | — | 100,637 | 100,637 | |||||||
Currency translation differences | — | — | (488 | ) | (488 | ) | |||||
Shareholders' equity 12.31.98 | 82,654 | 24,864 | 622,444 | 729,962 | |||||||
Change in shareholders' equity for the year | |||||||||||
Issue of shares | 468 | 10,200 | — | 10,668 | |||||||
Income for the year | — | — | 135,238 | 135,238 | |||||||
Currency translation differences | — | — | 26,063 | 26,063 | |||||||
Shareholders' equity 12.31.99 | 83,122 | 35,064 | 783,745 | 901,931 | |||||||
Note 12—Stock Option Plan
The board has been granted authorization by a resolution of the general meeting to expand the share capital (with no pre-emption rights for shareholders) to employees, board members and advisors in the group via a stock option plan of in all 2,450,000 shares. 1,950,000 options apply for the period until ordinary general meeting in 2001 and 500,000 until November 2001.
At present, the group has three stock option plans:
- •
- A two-year program in Proxima ASA where, as of December 31, 1999, a total of 575,000 stock options were distributed after adjustments for cancellations. 50% could be exercised after January 1, 1999 and the remaining 50% after January 1, 2000. The stock options will expire on March 10, 2000. As of December 31, 1999, 192,500 stock options had been exercised.
14
- •
- A three-year program in Proxima ASA where, as of December 31, 1999, a total of 486,000 stock options were distributed after adjustments for cancellations. The options vest1/3 per year and can be exercised for the first time 12 months after the allotment. Options not exercised can be accumulated until the end of the option plan period. As of December 31, 1999 40,000 options were exercised.
- •
- A five-year program for Proxima Corporation. Adjusted for cancellations 763,134 stock options were originally issued in 1998 and, as of December 31, 1999, 855,585 stock options had been issued adjusted for cancellations. The options vest1/3 per year over the first three years and can be exercised for the first time 12 months after the allotment. Options not exercised can be accumulated until the end of the option plan period. As of December 31, 1999, approximately 2,000 options had been exercised.
The subscription price is the original market rate at the time of issue with an additional 1% increase per month (the addition does not apply to employees of Proxima Corporation). In November 1998, previously issued stock options were repriced. The original subscription price was NOK 41.67 per share for 700,000 shares and NOK 50.00 per share for 1,250,000 shares before the repricing at NOK 40.00 per share with an additional 1% increase per month which took place in November 1998 (the addition does not apply to employees of Proxima Corporation). The repricing was regarded as a one-time event and was undertaken because of the general fall in the stock market. As the repricing was in accordance with the current stock market price on that day, the repricing did not result in an expense for the company that had to be recorded in the accounts.
The following table summarizes the stock option activity of the aforementioned plans:
| 1999 | 1998 | 1997 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Figures in NOK 1,000, except per share data | Number of Stock options | Weighted average exercise price (NOK/Sh.) | Number of stock options | Weighted average Exercise price (NOK/Sh.) | Number of stock options | Weighted average Exercise price (NOK/Sh.) | ||||||
Number of shares as of 01.01 | 1,638,550 | 40.41 | 630,000 | 44.17 | 0 | — | ||||||
Issued | 318,451 | 51.63 | 1,063,550 | 40.00 | 630,000 | 41.67 | ||||||
Exercised | 234,149 | 45.56 | 0 | — | 0 | — | ||||||
Cancelled | 40,416 | 40.00 | 55,000 | 46.67 | 0 | — | ||||||
Number of shares as of 12.31 | 1,682,436 | 44.44 | 1,638,550 | 40.41 | 630,000 | 44.17 | ||||||
Vested at the end of the year | 416,896 | 42.47 | 0 | — | 0 | — |
Weighted average remaining life of stock options in the company on December 31, 1999 is 2.48 years.
The group has calculated pro forma information for income for the year as if the group had entered the stock-based compensation plans in the accounts at their actual value. In the following pro forma
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statement, the actual value of the stock options has been calculated and charged over the period until the stock options can be exercised.
Figures in NOK 1,000, except per share data | 1999 | 1998 | 1997 | ||||
---|---|---|---|---|---|---|---|
Reported income for the year | 135,238 | 100,637 | 98,043 | ||||
Earnings per share (NOK) | 3.27 | 2.48 | 2.69 | ||||
Pro forma income for the year | 128,894 | 68,331 | 92,125 | ||||
Pro forma earnings per share (NOK) | 3.12 | 1.68 | 2.53 | ||||
Weighted average actual value per stock option issued for the year (NOK) | 19.92 | 19.72 | 9.39 | ||||
Actual value of the stock options are calculated by use of the Black-Scholes model with the following assumptions: | |||||||
Estimated yearly volatility as an average, when issued | 45 | % | 80 | % | 42 | % | |
Risk-free interest when issued | 4.7 - 5.8 | % | 5.5 - 5.6 | % | 3.3 | % | |
Estimated lifetime in years, provided further approval from the board | 2.9 - 5.0 years | 1.3 - 5.0 years | 2.7 years | ||||
Estimated dividend | 0 | % | 0 | % | 0 | % |
Note 13—Pension Plan
Proxima ASA has a collective pension plan with an insurance company for its employees (secured scheme). The scheme is a defined benefit plan, i.e. the company bears the financial responsibility for ensuring that its employees receive the agreed benefits. The liability covers 135 employees, compared with 68 employees in 1998. The company also provides an unsecured pension plan for some of its employees. Proxima Corporation also provides a pension plan for its employees. This plan is a defined contribution plan. When the company has provided the contribution to the pension plan, it has no other obligations. The annual cost is thus equal to the contribution, and no entry is made in the balance sheet. Actuarial calculations for Proxima ASA are made each year on the basis of information from the company.
The following conditions form the basis of calculations:
| 1999 | 1998 | 1997 | ||||
---|---|---|---|---|---|---|---|
Discount rate | 6.0 | % | 6.0 | % | 5.0 | % | |
Estimated return pension funds | 7.0 | % | 7.0 | % | 8.0 | % | |
Estimated salary increase | 3.5 | % | 3.5 | % | 3.5 | % | |
Estimated increase of base amount | 3.5 | % | 3.5 | % | 3.5 | % | |
Pension adjustments | 3.0 | % | 3.0 | % | 3.0 | % | |
Average estimated voluntary retirement | 2.5 | % | 2.5 | % | 2.5 | % |
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Based upon these assumptions the pension liabilities, pension funds and pension costs are calculated as follows:
Figures in NOK 1,000 | 1999 | 1998 | |||
---|---|---|---|---|---|
Calculated pension liabilities | (7,990 | ) | (5,281 | ) | |
The market value of the pension funds | 5,705 | 3,853 | |||
= Estimated Net pension liabilities | (2,285 | ) | (1,428 | ) | |
Non-realized changes of estimates | 2,034 | 1,197 | |||
Net pension liabilities | (251 | ) | (231 | ) |
Specification of pension costs:
Figures in NOK 1,000 | 1999 | 1998 | 1997 | ||||
---|---|---|---|---|---|---|---|
Pensions earned during the year | 1,932 | 932 | 1,085 | ||||
Interest cost from pension liabilities | 338 | 243 | 178 | ||||
Expected return on pension funds | (310 | ) | (216 | ) | (163 | ) | |
Realized deviations and changes of estimates | 82 | 46 | 132 | ||||
Pension cost | 2,042 | 1,005 | 1,232 | ||||
Contribution to pension plan in Proxima Corporation | 2,608 | 1,275 | 0 | ||||
Total pension costs in the group | 4,650 | 2,280 | 1,232 | ||||
Estimate changes and deviations are amortized over the estimated remaining service period provided they exceed 10% of the largest of the pension liabilities and pension funds (corridor).
Note 14—Leasing Commitments
The group is responsible for leasing buildings under leasing agreements that will expire on June 30, 2002, March 31, 2004 and April 30, 2009, respectively.
As of December 31, 1999, future-leasing liabilities in accordance with agreements entered into will be as follows:
2000 | NOK 10.9 million | |
2001 | NOK 11.1 million | |
2002 | NOK 10.9 million | |
2003 | NOK 10.5 million | |
2004 | NOK 5.4 million | |
Following years, total | NOK 16.0 million | |
Total lease commitments | NOK 64.8 million | |
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Note 15—Legal Claims and Other Contingencies
From time to time Proxima becomes involved in ordinary, routine or regulatory legal proceedings incidental to the business. The management's judgment is that these contingent liabilities do not have significant influence on the group's financial position, results or cash flow.
Note 16—Other Operating Expenses
Figures in NOK 1,000 | 1999 | 1998 | 1997 | |||
---|---|---|---|---|---|---|
Marketing expenses | 79,767 | 56,793 | 15,230 | |||
Rental | 12,440 | 8,036 | 3,126 | |||
Loss on debtors | 7,911 | (4,370 | ) | 3,332 | ||
Other operating expenses | 189,403 | 115,518 | 39,366 | |||
Total other operating expenses | 289,521 | 175,977 | 61,054 | |||
Note 17—United States Generally Accepted Accounting Principles
The consolidated financial statements have been prepared under Norwegian generally accepted accounting (N GAAP), which differs in certain respects from United States generally accepted accounting principles (U.S. GAAP). The principal differences between the Group's accounting principles under N GAAP and U.S. GAAP are set out below:
Reconciliation of net income from N GAAP to U.S. GAAP
| | Year end December 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Amounts in NOK 1000 | Ref. | 1999 | 1998 | 1997 | ||||||
Net income in accordance with N GAAP | 135,238 | 100,637 | 98,043 | |||||||
Adjustments for U.S. GAAP: | ||||||||||
Marketable securities | (a | ) | (4,327 | ) | (25,949 | ) | ||||
Stock Compensation | (b | ) | (6,815 | ) | 314 | (22,749 | ) | |||
Business Combinations | (c | ) | 3,171 | (20,544 | ) | |||||
Property and equipment | (d | ) | 2,307 | 786 | 593 | |||||
Tax effect of U.S. GAAP adjustments | (e | ) | 57 | (220 | ) | (166 | ) | |||
Net income in accordance with U.S. GAAP | 129,631 | 55,024 | 75,721 | |||||||
Approximate earnings (basic and dilutive) per share in accordance with U.S. GAAP | ||||||||||
Basic | 3.13 | 1.36 | 2.08 | |||||||
Dilutive (treasury stock method) | 3.12 | 1.36 | 2.08 | |||||||
Shares used for Basic EPS | 41,341,551 | 40,637,481 | 36,471,620 | |||||||
Shares used for Diluted EPS | 41,611,110 | 40,701,911 | 36,482,661 |
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Reconciliation of shareholders equity from N GAAP to U.S. GAAP
| | Year end December 31 | |||||
---|---|---|---|---|---|---|---|
Amounts in NOK 1000 | Ref. | 1999 | 1998 | ||||
Shareholders equity in accordance with N GAAP | 901,931 | 729,962 | |||||
Adjustments for U.S. GAAP: | |||||||
Marketable Securities | (a | ) | 4,254 | ||||
Stock Compensation | (b | ) | (5,852 | ) | (2,404 | ) | |
Business Combinations | (c | ) | (49,686 | ) | (50,880 | ) | |
Property and Equipment | (d | ) | 8,064 | 5,757 | |||
Tax effects of U.S. GAAP adjustments | (e | ) | (2,258 | ) | (1,612 | ) | |
Shareholders' equity in accordance with U.S. GAAP | 852,199 | 685,077 | |||||
The following table reflects the components of comprehensive income under U.S. GAAP
Amounts in NOK 1000 | 1999 | 1998 | ||||
---|---|---|---|---|---|---|
Net income | 129,631 | 55,024 | ||||
Translation adjustments | 17,849 | (621 | ) | |||
Comprehensive income | 147,480 | 54,403 | ||||
(a) Marketable Securities
Under Norwegian GAAP, the Company's long-term investments in marketable securities are recorded at cost. The cost basis of the individual security shall be written down to fair value as a new cost basis and the amount of the writedown shall be included in earnings only if the decline in fair value of these securities is judged to be permanent
Under U.S. GAAP, such securities that are available for sale are carried at fair value with unrealized gains or losses, net of tax, recorded as a separate component of shareholders' equity. If the decline in fair value of these securities is judged to be other than temporary, the cost basis of the individual security shall be written down to fair value as a new cost basis and the amount of the writedown shall be included in earnings.
(b) Stock Compensation
In accordance with Norwegian GAAP, the Company did not recognize compensation expense for stock options granted to employees with no intrinsic value. On the grant date, it was agreed that the exercise price of the options would equal the quoted market price of the Company's stock and would increase by 1% per month until the date such options are exercised.
In accordance with U.S. GAAP, the measurement date for determining compensation cost for stock options is the first date at which both the number of shares the employee is entitled to receive and the exercise price of the options are known. When the Company granted stock options, the number of shares
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was known at the grant date, however, the exercise price to be paid was not because it was not known when the employee would exercise the options. Accordingly, variable grant accounting would apply under U.S. GAAP and the intrinsic value of the options at the end of each reporting period, based on a presumed exercise price and the quoted market price of the Company's stock, would be calculated and recorded as compensation expense over the vesting period.
In accordance with Norwegian GAAP, the Company did not recognize compensation expense for shares issued to employees at a price below the quoted market price of the Company's stock.
In accordance with U.S. GAAP, the intrinsic value of such shares would be calculated and recorded as compensation expense over the vesting period.
(c) Business Combinations
In accordance with Norwegian GAAP, purchase price adjustments, which are broadly defined, and the related allocation to the fair value of the net assets acquired are recorded in connection with purchase business combinations.
In accordance with U.S. GAAP, certain purchase price adjustments, such as provisions for restructuring, are narrowly defined and are not recorded unless specific criteria are met. The basis for goodwill and related amortization would be adjusted accordingly under U.S. GAAP.
The following illustrates the net effect of the business combination differences on the financial statement line items:
| December 31, | |||||
---|---|---|---|---|---|---|
| 1999 | 1998 | ||||
Shareholders equity | ||||||
Deferred tax asset | (7078 | ) | ||||
Goodwill | (60,311 | ) | (69,209 | ) | ||
Inventories | 11,125 | 7,777 | ||||
Accrued expenses | 6,578 | 10,552 | ||||
Effect on shareholders equity | (49,686 | ) | (50,880 | ) | ||
| Year ended December 31, | |||||
---|---|---|---|---|---|---|
| 1999 | 1998 | ||||
Cost of goods sold | 2,929 | (13,454 | ) | |||
Personnel expenses | (929 | ) | (5,285 | ) | ||
Goodwill amortization | 4,967 | 3,405 | ||||
Other operating expenses | (3,796 | ) | (5,210 | ) | ||
Effect on net income | 3,171 | (20,544 | ) | |||
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(d) Property and Equipment
In accordance with Norwegian GAAP, the Company records certain tangible fixed assets at historical cost less accumulated depreciation. Such assets have estimated useful lives between 3 and 5 years. Similar costs with estimated useful lives less than 3 years do not qualify as tangible fixed assets and are expensed as incurred.
In accordance with U.S. GAAP, all tangible fixed assets are recorded at historical cost less accumulated depreciation.
(e) Tax effects of U.S. GAAP adjustments
The tax adjustment includes the income tax effects of U.S. GAAP adjustments, where appropriate.
Note 18—Subsequent Events
Proxima ASA and In Focus Systems Inc. (In Focus) announced March 6, 2000 that they had entered into a definitive agreement to merge the activity of the two entities. Technically, In Focus will make a public exchange offer to all shareholders of Proxima. The combined company will be called "InFocus Corporation" and will continue to market multimedia solutions under all three of its popular brand names: In Focus, PROXIMA and ASK. The proposed transaction calls for Proxima shareholders to exchange each of their shares for 0.3615 shares of In Focus. Following the business combination, Proxima shareholders will comprise approximately 38% of the new company and In Focus shareholders approximately 62%.
In Focus will apply for a secondary listing on the Oslo Stock Exchange. The Board of Directors of both In Focus and Proxima has unanimously approved the business combination. The transaction is expected to be consummated in the second quarter of 2000, subject to the holders of more than 90% of Proxima's outstanding shares accepting the offer; approval of In Focus shareholders; a number of regulatory approvals and other customary closing conditions.
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