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EXHIBIT NO. 99.1: ALGROUP'S FINANCIAL RESULTS FOR THE THREE FINANCIAL PERIODS
ENDED DECEMBER 31, 1999
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
Alusuisse Group Ltd:
We have audited the accompanying consolidated balance sheets of Alusuisse Group
Ltd, (the "Group", formerly "Alusuisse Lonza Group AG"), and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the 1998 and 1997 financial statements of Alusuisse-Lonza America
Inc., a wholly-owned subsidiary, which statements translated from United States
dollars into Swiss Francs reflect total assets constituting 20 percent in 1998,
and total revenues constituting 19 percent and 20 percent in 1998 and 1997,
respectively, of the related consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Alusuisse-Lonza America Inc.,
is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
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. 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 audits and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Alusuisse Group Ltd and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with International Accounting Standards.
International Accounting Standards vary in certain significant respects from
accounting principles generally accepted in the United States and Canada.
Application of accounting principles generally accepted in the United States and
Canada would have affected results of operations for each of the years in the
three-year period ended December 31, 1999 and shareholder's equity to the extent
summarized in Note 35 to the consolidated financial statements.
KPMG Fides Peat
Zurich, Switzerland
June 30, 2000
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Report of Independent Accountants
---------------------------------
To the Shareholder and Board of Directors of
Alusuisse-Lonza America Inc.
We have audited the accompanying consolidated balance sheets of Alusuisse-Lonza
America Inc. and its subsidiaries (the "Company"), a wholly-owned subsidiary of
Alusuisse Lonza Group Ltd ("algroup"), at December 31, 1998 and 1997, and the
related consolidated statements of operations, of stockholders' equity and of
cash flows for the years then ended (not presented separately herein). 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 did not audit the 1998 and 1997 financial statements of ALA
(Nevada) Inc., a wholly-owned subsidiary of the Company, which statements
reflect total assets (principally intercompany notes and loans receivables) of
$434,249,000 and $31,506,000 at December 31, 1998 and 1997, respectively, and
total net income (principally intercompany interest and dividend income) of
$27,828,000 and $19,945,000 for the year ended December 31, 1998 and for the
period from April 10, 1997 (inception) to December 31, 1997. The aforementioned
intercompany notes and loans receivable and intercompany interest and dividend
income of this company substantially eliminate in the Company's consolidation.
Those statements were audited by KPMG Fides Peat, whose report thereon has been
furnished to us, and the opinion expressed herein, insofar as it relates to the
amounts included for ALA (Nevada) Inc., is based solely on the report of the
other auditor.
We conducted our audits in accordance with auditing standards generally accepted
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. 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 audits and the report of the other auditor
provide a reasonable basis for our opinion.
In our report dated January 20, 1998, we expressed an opinion that the 1997 and
1996 financial statements did not fairly present financial position, results of
operations, and cash flows in conformity with accounting principles generally
accepted in the United States because of a departure from such principles; the
Company excluded from deferred tax assets, net of valuation allowance, certain
income tax benefits related to a portion of an available unused tax loss
carryforward. As described in Note 19 to the financial statements, the Company
has changed its method of accounting for these items and restated its 1997
financial statements to conform with accounting principles generally accepted in
the United States. Accordingly, our present opinion on the 1997 financial
statements, as presented herein, is different from that expressed in the
previous report.
In our opinion, based upon our audits and the report of the other auditor, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Alusuisse-Lonza America Inc., and
its subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
Accounting principles generally accepted in the United States vary in certain
significant respects from International Accounting Standards. The application of
the latter would have affected the determination of consolidated stockholder's
equity and consolidated financial position at December 31, 1998 and 1997 and the
determination of consolidated net income (loss) for the years then ended to the
extent summarized in Note 21 to the consolidated financial statements.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
September 22, 1999
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Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
ALA (Nevada) Inc.
We have audited the balance sheet of ALA (Nevada) Inc. as of December 31, 1998
and 1997, and the related statements of income and cash flows for the year ended
December 31, 1998 and for the period from April 10, 1997 (inception) to December
31, 1997 (not presented separately herein). 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 in accordance with auditing standards generally accepted
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. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ALA (Nevada) Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the year ended December 31, 1998 and for the period from April 10, 1997
(inception) to December 31, 1997, in conformity with International Accounting
Standards, which in the case of the Company, conform with in all material
respects with accounting principles generally accepted in the United States.
KPMG Fides Peat
Zurich, Switzerland
August 20, 1999
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CONSOLIDATED INCOME STATEMENTS
YEAR ENDED 31 DECEMBER
NOTE* 1997 1998 1999
----- ---- ---- ----
(In millions of CHF)
NET SALES 7,238 7,497 7,615
Changes in inventory of work-in-progress and finished goods 48 14 (34)
INCOME FROM PRODUCTION 7,286 7,511 7,581
Material costs (3,604) (3,790) (3,758)
Energy costs (252) (282) (274)
Personnel expenses (1,660) (1,712) (1,721)
Other operating income and expenses, net 19 (840) (751) (784)
Depreciation and amortization 4 (347) (371) (292)
OPERATING INCOME 583 605 752
Amortization of goodwill 4 (14) (15) (16)
EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES AND
MINORITY INTEREST 569 590 736
Interest income and exchange gains 20 78 111 123
Interest expenses and exchange losses 21 (248) (270) (280)
Other income, net 22 5 5 8
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND 404 436 587
MINORITY INTEREST
Income taxes 23 (82) (107) (140)
Income attributable to minorities (3) (7) (7)
INCOME FROM CONTINUING OPERATIONS 319 322 440
Income from discontinuing operations 28 144 208 238
NET INCOME 463 530 678
1997 1998 1999
---- ---- ----
CHF CHF CHF
Basic earnings per share from continuing operations 51.8 51.4 69.6
Diluted earnings per share from continuing operations 51.4 51.3 68.7
Basic earnings per share Group 75.3 84.7 107.3
Diluted earnings per share Group 73.2 82.8 104.5
* See the accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER
NOTE* 1997 1998 1999
----- ---- ---- ----
(In million of CHF)
Income from continuing operations 319 322 440
Depreciation on property, plant and equipment 4 340 365 282
Amortization of intangibles 4 7 6 10
Amortization of goodwill 4 14 15 16
Increase in long-term provisions, net 27 3 43
Income from application of the equity method (5) (4) (7)
Increase in net working capital (95) (93) (20)
NET CASH PROVIDED BY CONTINUING OPERATIONS 607 614 764
Net cash provided by discontinuing operations 28 227 367 318
---- ---- ------
TOTAL CASH PROVIDED BY OPERATING ACTIVITIES 834 981 1,082
==== ==== ======
Purchase of property, plant and equipment 4 (531) (507) (468)
Purchase of intangibles 4 (6) (16) (16)
Goodwill from purchase of operations 4 0 (4) (11)
(Purchase) sale of investments in affiliates, net 3 7 (3)
Purchase of consolidated companies (less cash acquired) 3, 25 (18) (61) 0
Sale of consolidated companies (less cash disposed) 3, 25 2 211 2
Sale of property, plant and equipment 2 24 16
(Purchase) sale of other assets 7 5 (5)
Increase (decrease) in other long-term liabilities 11 0 (12)
Payments associated with Lonza demerger 0 0 (346)
Decrease (increase) in loans and advances 40 60 (49)
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING (490) (281) (892)
Net cash used in investing activities - discontinuing 28 (381) (342) (1,236)
---- ---- ------
TOTAL CASH USED IN INVESTING ACTIVITIES (871) (623) (2,128)
==== ==== ======
Increase (decrease) of capital 103 (113) (1)
Increase of capital from demerger 0 0 76
Increase (decrease) in debts 79 (197) 457
Dividends paid (115) 0 (157)
Contributions (to) from minority interest (1) 8 (1)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES - CONTINUING 66 (302) 374
Net cash provided by (used in) financing activities - discontinuing (1) (2) 918
---- ---- ------
TOTAL CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 65 (304) 1,292
==== ==== ======
TRANSLATION ADJUSTMENTS (17) (22) 5
Net increase (decrease) in cash 11 32 251
Cash and cash equivalents at 1 January 10 317 328 360
CASH AND CASH EQUIVALENTS AT 31 DECEMBER 10 328 360 611
Interest paid 237 152 167
Taxes paid 73 36 84
* See the accompanying notes to the consolidated financial statements
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED 31 DECEMBER
OTHER TOTAL
SHARE INCOME COMPREHENSIVE SHAREHOLDERS'
CAPITAL PREMIUM RESERVES INCOME EQUITY
------- ------- -------- ------------- -------------
(In million of CHF)
AT 31 12 96 765 589 1,475 (434) 2,395
---- --- ------ ---- ------
Increase of capital 15 88 103
Dividend (115) (115)
Translation differences (81) (81)
Net income 463 463
AT 31 12 97 780 677 1,823 (515) 2,765
---- --- ------ ---- ------
Increase of capital 5 38 43
Share capital repayment (156) (156)
Net income 530 530
Translation differences (81) (81)
AT 31 12 98 629 715 2,353 (596) 3,101
---- --- ------ ---- ------
Adoption of IAS 19 revised (82) (82)
Increase of capital 13 127 140
Dividend (157) (157)
Translation differences 40 40
Net income 678 678
Demerger Lonza Group (2,362) (2,362)
AT 31 12 99 642 842 512 (638) 1,358
---- --- ------ ---- ------
* See the accompanying notes to the consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL INFORMATION
The consolidated financial statements are reported in Swiss francs (CHF) and are
based on the annual accounts of the individual subsidiaries at 31 December,
which have been drawn up according to uniform Group principles. The consolidated
accounts are prepared in conformity with International Accounting Standards
("IAS"), published by the International Accounting Standards Committee ("IASC").
At the algroup extraordinary shareholders' meeting on 18 October 1999 the
shareholders approved the demerger of the chemical business (composed of two
divisions of the Group, fine chemicals and specialties and intermediates and
additives) and the energy business. The above mentioned activities are treated
as discontinuing operations. The net assets of the chemical business were
deducted from the Group's equity on 1 November 1999. On 1 November 1999, the
shares of Lonza Group were listed on the SWX Swiss Exchange and accordingly the
discontinuing operations were included in the Group's consolidated financial
statements for the ten-month period ended 31 October 1999. In order to reflect
the debt-free status effective as of 1 July 1999, as stated in the Separation
and Demerger Agreement and related to the above mentioned activities, all the
debt and accordingly the interest positions are shown under continuing
operations.
RESTATEMENT
For comparative purposes, certain prior year amounts have been reclassified to
conform with the current year presentation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements represent the accounts for the year ended
31 December of Alusuisse Group Ltd. ("algroup" or "the Group") and its
subsidiaries.
Subsidiaries acquired during the year are included in the consolidated accounts
from the date of acquisition, while any subsidiaries sold are excluded from the
accounts from the date of sale. Acquisitions are accounted for by the use of the
purchase method of accounting. The full consolidation method is used, whereby
the assets, liabilities, income and expenses are incorporated in full. The
proportion of the net assets and net income attributable to minority
shareholders' is shown separately in the consolidated balance sheet and income
statement.
Payables, receivables, income and expenses between the Group's subsidiaries
included in the consolidation are eliminated. Intercompany profits included in
year-end inventories of goods produced within the Group are eliminated.
Transactions between the Group's subsidiaries are concluded under market
conditions.
Jointly controlled entities are consolidated using the proportionate method of
consolidation. The method of proportionate consolidation takes into account
individual assets, liabilities, income and expenses line-by-line pro rata to the
participation in the equity.
Investments in affiliates are reflected in the balance sheet using the equity
method of accounting. Under this method, the investment is initially recorded at
cost, and is increased or decreased by the proportionate share of the
affiliate's profits or losses after the date of acquisition, adjusted for any
amortization of goodwill arising on acquisition and depreciation of
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fair market value increments/decrements recognized at that time. Dividends paid
during the year reduce the carrying value of the investments.
Investments of less than 20 percent are not consolidated and are stated at cost,
less any write-offs that are necessary.
Discontinued operations are not included in the consolidated financial
statements on a line-by-line basis but segregated and shown as a net line item
(net assets, net income) in the Group's consolidated financial statements.
The principal companies included in the consolidation are shown in note 34 to
algroup's consolidated financial statements.
DEFINITIONS
A SUBSIDIARY is a Group company which Alusuisse Group Ltd. controls by holding
(either directly or indirectly) more than 50 percent of the voting shares of the
company.
An AFFILIATE is a Group company in which Alusuisse Group Ltd. holds (either
directly or indirectly) 20 to 50 percent of the voting shares of the company.
LONG-TERM LIABILITIES AND PROVISIONS include all amounts becoming due and
payable after more than one year.
CURRENT LIABILITIES AND DEFERRED ITEMS include all amounts becoming due and
payable within one year. This item also includes the portion of long-term debts
becoming due within one year. Receivables and payables bearing interest are
stated as loans and advances and debts respectively.
CONSOLIDATION OF FOREIGN SUBSIDIARIES
All assets and liabilities of a foreign subsidiary which is consolidated are
translated using the exchange rates in effect at the balance sheet date (the
current rate method). Income and expenses are translated at the average exchange
rate for the year. Differences resulting from the application of these different
methods of translation of the balance sheet and income statement, together with
exchange gains or losses on the opening net asset values of the subsidiaries,
are added to or deducted from consolidated reserves in the balance sheet.
REVENUE RECOGNITION
Revenue from product sales is recognized when the product is shipped. Revenue on
long-term construction contracts is accounted for under the percentage of
completion method, whereby income is recognized based on the estimated stage of
completion of individual contracts.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are recorded using exchange rates in effect
at the time of the transaction. Gains or losses arising on settlement of these
transactions are included in the current year's income. Foreign currency
denominated monetary assets and liabilities at 31 December are translated using
the exchange rate in effect at the balance sheet date. Any gains or losses
resulting from this translation are included in the current year's income.
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DERIVATIVE FINANCIAL INSTRUMENTS
To manage interest rate and currency exposures, the Group uses interest rate
swaps and options as well as currency forwards and option contracts. The Group
recognizes interest differentials on interest rate swaps and options as
adjustments to interest expense in the period they occur. Realized and
unrealized gains and losses arising from currency forwards are recognized as
adjustments to the gains and losses resulting from the underlying transactions.
Derivative instruments designated as a hedge of the Group's net asset exposures
related to foreign subsidiaries are reflected in the currency translation
adjustment section of shareholders' equity offsetting the translation gains or
losses relating to those net asset exposures.
FIXED ASSETS
Fixed assets (property, plant and equipment) are stated at cost less
depreciation.
The assets are depreciated over their estimated useful lives, which vary from 10
to 50 years (1998 and 1997: 25 to 50 years) for buildings and structures, and 5
to 25 years (1998 and 1997: 3 to 12 years) for production facilities, machinery,
plant, equipment and vehicles. Fixed assets are depreciated using the
straight-line method over their estimated useful lives.
During 1999, the Group adopted estimated useful lives for its operating assets
which more accurately reflect industry practice. The effect of this change
reduced depreciation expense for the year ended 31 December 1999 by CHF 118
million. The effect of this change on net income of continuing operations for
the year ended 31 December 1999 was an increase of CHF 67 million.
Long-term leasing arrangements, which effectively constitute assets purchased
with long-term financing, are carried as fixed assets at their purchase price
and are written off over their estimated useful lives. The corresponding
liabilities are included in the long-term and short-term debts.
INTANGIBLE ASSETS
Intangibles include software, licenses, patents, trademarks and similar rights
granted by third parties. These assets are amortized using the straight-line
method over their estimated useful lives.
GOODWILL
At the time of their initial consolidation, the assets and liabilities of
consolidated subsidiaries are recorded at their estimated fair value. Goodwill
represents the difference between the purchase price and the fair value of the
net identifiable assets acquired. Goodwill is capitalized and amortized on a
straight-line basis over its estimated useful life not exceeding 20 years.
Goodwill relating to acquisitions prior to 31 December 1994 was deducted from
the consolidated reserves.
INVENTORIES
Inventories are reported at the lower of cost (purchase price or Group
production cost) or market value (net realizable values). The cost of
inventories is calculated using the weighted average method. Prorated production
overheads are included in the valuation of inventories. Goods with long storage
periods and obsolete goods are written down.
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Work-in-progress relating to long-term construction contracts is accounted for
using the percentage of completion method.
RECEIVABLES
Trade receivables as well as other receivables are disclosed at nominal values
less expected economic adjustments at fair value.
CASH AND CASH EQUIVALENTS
Cash includes cash on hand, in postal and bank accounts, as well as short-term
deposits.
DEFERRED TAXES
Tax expense is calculated using the balance sheet liability method. Additional
deferred taxes are provided wherever temporary differences exist between the tax
base of an asset or liability and its carrying amount in the consolidated
results for the year.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in the respective jurisdictions
in which the Group operates that are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. In assessing the realizability of deferred tax assets, management
considers whether it is probable that some portion or all of the deferred tax
assets will not be realized. For transactions and other events recognized
directly in equity, any related tax effects are recognized directly in equity.
RETIREMENT BENEFITS
Most of the Group's subsidiaries operate their own pension plans, primarily
legally independent from the Group. Generally, they are funded by employees and
employer's contributions.
A policy has been established whereby actuarial valuations are performed on a
three-year basis and roll-forwards are conducted during the intervening period.
The cumulative effect from initial application of IAS 19 as of 1 January 1995 is
included as a transitional amount and is recognized as an asset or liability
respectively, over a period not exceeding the expected remaining working lives
of the participating employees. In following years, the actuarial gains and
losses are recognized over the same period as above if the accumulated gain and
loss exceed the corridor of 10% of the greater of plan assets and projected
benefits obligation.
Effective 1 January 1999, the Group adopted the provisions of IAS 19 revised.
This revised standard permits companies to elect to amortize, or immediately
recognize, any difference between the accumulated pension cost at transition and
the funded status if that difference is an additional pension liability. The
Group has elected to immediately recognize its additional pension liability
consistent with IAS 8, as a change in accounting policy.
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RESEARCH AND DEVELOPMENT
Expenditures on research and development are not capitalized, but charged
immediately to expense. Expenses for research and development include associated
wages and salaries, material costs, as well as overhead costs.
USE OF ESTIMATES
The preparation of financial statements and related disclosures in conformity
with International Accounting Standards requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used in accounting for
allowances for uncollectible receivables, inventory obsolescence, depreciation,
employee benefits, taxes, restructuring reserves and contingencies. Estimates
and assumptions are reviewed periodically and the effects of revisions are
reflected in the financial statements in the period they are determined to be
necessary.
NOTE 1 - EXCHANGE RATES
The following exchange rates were used to translate the significant currencies
used by the Group:
EXCHANGE RATES BALANCE SHEET INCOME STATEMENT AVERAGE
YEAR-END RATES CHF YEARLY RATES CHF
----------------------------- ----------------------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
USA dollar 1 1.4535 1.3775 1.5955 1.4501 1.4497 1.5023
Canada dollar 1 1.0142 0.8896 1.0986 1.0474 0.9798 1.0117
Australia dollar 1 0.9513 0.8448 1.0423 1.0794 0.9135 0.9705
Great Britain pound sterling 1 2.4100 2.2860 2.5835 2.3747 2.4008 2.4303
Germany mark 100 81.3080 82.1190 82.0290 83.7200 82.3850 81.8240
France franc 100 24.2990 24.4870 24.4580 24.8700 24.5740 24.3970
Italy lira 100 0.0827 0.0829 0.0829 0.0853 0.0835 0.0827
Netherlands guilder 100 72.1560 72.8860 72.8020 74.4000 73.0860 72.6210
Spain peseta 100 0.9594 0.9657 0.9642 0.9912 0.9704 0.9618
NOTE 2 - RISK MANAGEMENT
RISK MANAGEMENT ACTIVITIES The Group is exposed to market risk from changes in
interest rates and currency exchange rates. To manage the volatility relating to
these exposures, the Group enters into various derivative transactions pursuant
to the Group's policies in areas such as counterparty exposure and hedging
practices. Counterparties to these agreements are major international financial
institutions. Positions are monitored using techniques such as market value and
sensitivity analyses.
The following tables present information for interest rate and foreign exchange
contracts. The notional amount of derivatives summarized below represents the
gross amount of the contracts
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and includes already closed transactions which have not yet matured. Therefore
the figures are not a direct measure of the Group's exposure. The market value
approximates the cost to settle the outstanding contracts. These market value
amounts should be viewed not in isolation but in relation to the market values
of the underlying hedged transactions and the overall reduction in the Group
exposure to adverse fluctuation of interest and foreign exchange rates.
1997 1998 1999
------ ------ ------
INTEREST RATE CONTRACTS (In millions of CHF)
Notional amount 1,478 1,471 1,030
Net negative market value (65) (57) (44)
Net negative book value (31) (21) (36)
DIFFERENCE MARKET VALUE / BOOK VALUE (34) (36) (8)
CREDIT RISK 0 7 0
INTEREST RATE MANAGEMENT. The Group's policy is to manage interest cost using a
mix of fixed and variable rate debt. In order to manage this mix in a cost
efficient manner, the Group enters into interest rate swaps, to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to a corresponding notional principal amount.
1997 1998 1999
------ ------ ------
FOREIGN EXCHANGE CONTRACTS (In millions of CHF)
Notional amount 2,128 2,620 5,258
Net negative market value (51) (61) (117)
Net negative book value (51) (61) (117)
DIFFERENCE MARKET VALUE / BOOK VALUE 0 0 0
CREDIT RISK 9 22 55
FOREIGN EXCHANGE MANAGEMENT. In managing its exposure to fluctuations in foreign
currency exchange rates, the Group has entered into a variety of currency swaps,
foreign exchange contracts and options. These agreements generally include the
exchange of one currency for a second currency at a future date.
COMMODITY RISK MANAGEMENT. In order to manage the volatility of LME pricing for
aluminium, algroup enters into various derivative transactions pursuant to the
Group's policies in areas such as counterparty exposure and hedging practices.
The objective of such strategies is to protect the economic performance of the
Group's upstream assets by stabilizing the associated revenue stream over a
number of years. This objective is normally implemented on a multi-year basis by
securing guaranteed selling prices for these commodities within pre-established
price bands. These strategies are reviewed by management on a continuous basis,
and rely mainly on the use of LME future and options. The key element of these
strategies is to secure the profitability of the upstream assets by obtaining a
guaranteed minimum price, in exchange for which the Group foregoes the right to
participate in price increases in excess of the pre-established bands.
Historically, the Group has found these strategies quite successful in
safeguarding the financial performance of its upstream assets, especially in
times when depressed LME pricing would normally lead to significant earnings
volatility and poor financial results. As a consequence of the proposed merger
of algroup with Alcan and Pechiney, these strategies have neither been completed
nor continued in 1999 and the already implemented portions will mature in
accordance with their terms. Until 2002, maximum selling prices will not
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exceed USD 1 610 per metric ton, although lower prices may be achieved depending
on LME market conditions at the relevant time.
NOTE 3 - CHANGES IN THE SCOPE OF CONSOLIDATION
In 1997, the following companies were acquired or newly consolidated:
Alusuisse Tomos Doo, Koper, Slovenia (at 1 July 1997), (66,6% ownership
interest) Lawson Mardon Wheaton (UK) Ltd., formerly ACIU Rockware, Kingston,
Norwich, GB (at 29 July 1997).
In 1998, the following company was acquired :
Pacquet Oneida, Inc, Clifton, NJ, US (at 1 August 1998).
See additional details in Note 25.
NOTE 4 - MOVEMENTS IN FIXED ASSETS
CURRENCY FIXED INSURANCE
TRANSLATION ASSETS NET VALUE
AT 31 12 98 DIFFERENCES ADDITIONS DISPOSALS TRANSFERS AT 31 12 99 AT 31 12 99 AT 31 12 99
----------- ----------- --------- --------- --------- ----------- ----------- -----------
(In millions of CHF)
AT COST
Land 139 4 1 (4) (15) 125 120 0
Buildings and structures 1,480 90 27 (13) 46 1,630 550 2,256
Production facilities,
machinery,plant, equipment
and vehicles 5,290 420 255 (116) 192 6,041 2,005 8,182
Construction in progress and
advances for property, plant
and equipment 247 16 185 (4) (225) 219 219 660
PROPERTY, PLANT AND EQUIPMENT 7,156 530 468 (137) (2) 8,015 2,894 11,098
Intangible assets 73 2 16 (4) 2 89 27
Goodwill 264 39 11 0 0 314 255
Other non-current assets and
deferred items 87 10 71 (50) 0 118 118
Investments in affiliates 117 (1) 27 (9) 0 134 34
Long-term loans and advances 17 0 0 (6) 0 11 7
----- --- --- ---- ---- ----- -----
TOTAL FIXED ASSETS 7,714 580 593 (206) 0 8,681 3,335
===== === === ==== ==== ===== =====
21
14
NOTE 4 - MOVEMENTS IN FIXED ASSETS - (CONTINUED)
CURRENCY ACCUMULATED
TRANSLATION DEPRECIATION
ACCUMULATED DEPRECIATION AT 31 12 98 DIFFERENCES ADDITIONS DISPOSALS TRANSFERS AT 31 12 99
----------- ------------ --------- --------- --------- ------------
(In millions of CHF)
Land (impairment) (17) (1) 0 0 13 (5)
Buildings and structures (991) (62) (25) 11 (13) (1,080)
Production facilities,
machinery, plant, equipment
and vehicles (3,668) (221) (257) 110 0 (4,036)
------ ---- ---- --- --- ------
PROPERTY, PLANT AND EQUIPMENT (4,676) (284) (282) 121 0 (5,121)
Intangible assets (55) (1) (10) 4 0 (62)
Goodwill (36) (7) (16) 0 0 (59)
Investments in affiliates (98) 2 (4) 0 0 (100)
Long-term loans and advances (6) 1 0 1 0 (4)
------ ---- ---- --- --- ------
TOTAL DEPRECIATION (4,871) (289) (312) 126 0 (5,346)
====== ==== ==== === === ======
TOTAL FIXED ASSETS NET 2,843 291 281 (80) 0 3,335
====== ==== ==== === === ======
Commitments for capital expenditure in property, plant and equipment amount to
CHF 77 million at 31 December 1999 (1998: CHF 101 million, 1997:
CHF 89 million).
During 1999, the Group adopted estimated useful lives for its operating assets
which more accurately reflect industry practice. The effect of this change
reduced depreciation expense for the year ended 31 December 1999 by
CHF 118 million.
22
15
NOTE 4 - MOVEMENTS IN FIXED ASSETS - (CONTINUED)
CHANGE
CURRENCY IN THE FIXED
AT TRANSLATION SCOPE OF AT ASSETS NET
AT COST 31 12 97 DIFFERENCES CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS 31 12 98 AT 31 12 98
- -------- -------- ----------- ------------- --------- --------- --------- -------- -----------
(In millions of CHF)
Land 139 (3) 3 2 (2) 0 139 122
Buildings and structures 1,488 (35) 10 13 (4) 8 1,480 489
Production facilities,
machinery, plant, equipment
and vehicles 5,106 (167) 66 211 (128) 202 5,290 1,622
Construction in progress and
advances for property, plant
and equipment 193 (7) 0 281 (10) (210) 247 247
----- ---- -- --- ---- ---- ----- -----
PROPERTY, PLANT AND EQUIPMENT 6,926 (212) 79 507 (144) 0 7,156 2,480
Intangible assets 60 (2) 0 16 (1) 0 73 18
Goodwill 270 (12) 2 4 0 0 264 228
Other noncurrent assets and
deferred items 122 (3) 0 0 (32) 0 87 87
Investments in affiliates 119 1 0 4 (7) 0 117 19
Long-term loans and advances 78 (3) 0 0 (58) 0 17 11
----- ---- -- --- ---- ---- ----- -----
TOTAL FIXED ASSETS 7,575 (231) 81 531 (242) 0 7,714 2,843
===== ==== == === ==== ==== ===== =====
CHANGE ACCUMULATED
CURRENCY IN THE DEPRECIATION
AT TRANSLATION SCOPE OF AT
ACCUMULATED DEPRECIATION 31 12 97 DIFFERENCES CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS 31 12 98
- ------------------------- --------- ----------- ------------- --------- --------- --------- ------------
(In millions of CHF)
Land (impairment) (17) 0 0 0 0 0 (17)
Buildings and structures (983) 24 0 (35) 3 0 (991)
Production facilities,
machinery, plant, equipment
and vehicles (3,518) 95 (32) (330) 117 0 (3,668)
------ --- --- ---- ---- -- ------
PROPERTY, PLANT AND EQUIPMENT (4,518) 119 (32) (365) 120 0 (4,676)
Intangible assets (52) 2 0 (6) 1 0 (55)
Goodwill (23) 2 0 (15) 0 0 (36)
Investments in affiliates (98) 0 0 0 0 0 (98)
Long-term loans and advances (27) 1 0 0 20 0 (6)
------ --- --- ---- ---- -- ------
TOTAL DEPRECIATION (4,718) 124 (32) (386) 141 0 (4,871)
====== ==== === ==== ==== -- ======
TOTAL FIXED ASSETS NET 2,857 (107) 49 145 (101) 0 2,843
====== ==== === ==== ==== == ======
23
16
NOTE 4 - MOVEMENTS IN FIXED ASSETS - (CONTINUED)
CURRENCY CHANGE IN THE
TRANSLATION SCOPE OF FIXED ASSETS
AT COST AT 31 12 96 DIFFERENCES CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS AT 31 12 97 AT 31 12 97
- ------- ----------- ----------- ------------- --------- --------- --------- ----------- ------------
(In millions of CHF)
Land 132 (2) 9 1 (1) 0 139 122
Buildings and structures 1,367 (14) 27 27 (3) 84 1,488 505
Production facilities,
machinery, plant, equipment
and vehicles 4,579 (112) 193 237 (63) 272 5,106 1,588
Construction in progress and
advances for property, plant
and equipment 285 (3) 1 266 0 (356) 193 193
----- ---- --- --- ---- --- ----- -----
PROPERTY, PLANT AND EQUIPMENT 6,363 (131) 230 531 (67) 0 6,926 2,408
Intangible assets 55 (1) 0 6 0 0 60 8
Goodwill 251 19 0 0 0 0 270 247
Other noncurrent assets and
deferred items 158 (2) 5 0 (39) 0 122 122
Investments in affiliates 155 (3) (25) 0 (8) 0 119 21
Long-term loans and advances 130 (1) 0 0 (51) 0 78 51
----- ---- --- --- ---- --- ----- -----
TOTAL FIXED ASSETS 7,112 (119) 210 537 (165) 0 7,575 2,857
====== ==== === === ==== === ===== =====
CURRENCY CHANGE IN THE ACCUMULATED
TRANSLATION SCOPE OF DEPRECIATION
ACCUMULATED DEPRECIATION AT 31 12 96 DIFFERENCES CONSOLIDATION ADDITIONS DISPOSALS TRANSFERS AT 31 12 97
- ------------------------ ----------- ----------- ------------- --------- --------- --------- ------------
(In millions of CHF)
Land (impairment) (17) 0 0 0 0 0 (17)
Buildings and structures (948) 12 (15) (34) 2 0 (983)
Production facilities,
machinery, plant, equipment
and vehicles (3,210) 70 (135) (306) 63 0 (3,518)
------ --- ---- ---- ---- - ------
PROPERTY, PLANT AND EQUIPMENT (4,175) 82 (150) (340) 65 0 (4,518)
Intangible assets (47) 2 0 (7) 0 0 (52)
Goodwill (8) (1) 0 (14) 0 0 (23)
Investments in affiliates (85) 2 (15) 0 0 0 (98)
Long-term loans and advances (26) 0 0 (1) 0 0 (27)
------ --- ---- ---- ---- - ------
TOTAL DEPRECIATION (4,341) 85 (165) (362) 65 0 (4,718)
------ --- ---- ---- ---- - ------
TOTAL FIXED ASSETS NET 2,771 (34) 45 175 (100) 0 2,857
====== === ==== ==== ==== = ======
24
17
NOTE 5 - LEASES
The Group had approximately CHF 3 million of equipment acquired under capital
leases at 31 December 1999 (1998: 2 million).
Commitments for capital leases and non-cancelable operating leases at year-end
are due as follows:
1998 1998 1999 1999
------- --------- ------- ---------
YEAR CAPITAL OPERATING CAPITAL OPERATING
LEASES LEASES LEASES LEASES
-------- --------- ------- ---------
(In millions of CHF) (In millions of CHF)
1999 1 14 0 0
2000 1 11 1 12
2001 0 9 1 10
2002 0 8 1 7
Thereafter 0 55 1 59
- -- - ---
TOTAL FUTURE MINIMUM LEASE PAYMENTS 2 97 4 88
= == = ===
Less amount representing interest 0 0 1 0
Present value of net minimum lease payments 2 0 3 0
NOTE 6 - INVESTMENTS IN AFFILIATES
KEY FIGURES 1997 1998 1999
------ ------ ------
(In millions of CHF)
Total assets 35 39 45
Total liabilities 26 22 32
Turnover 54 77 76
Net income 2 6 4
These key figures pertaining to investments held, using the equity method of
accounting, primarily reflect the Group's interest in the following companies:
Alufluor Aktiebolag, Helsingborg, Sweden; Metallica SA, Lausanne, Switzerland.
NOTE 7 - INVENTORIES
1997 1998 1999
------- ------- -------
(In millions % (In millions % (In millions %
of CHF) of CHF) of CHF)
Raw materials 221 20 216 19 256 21
Work in process and finished goods 650 60 657 59 694 57
Others 221 20 247 22 276 22
----- --- ----- --- ----- ---
TOTAL 1,092 100 1,120 100 1,226 100
===== === ===== === ===== ===
25
18
NOTE 8 - TRADE RECEIVABLES
1997 1998 1999
---- ---- ------
(In millions of CHF)
Receivables from customers 949 917 1,056
Accounts receivable from affiliates 25 45 69
Value adjustments (34) (36) (38)
--- --- -----
TOTAL 940 926 1,087
=== === =====
Credit risk is diversified due to the large number of entities comprising the
Group's customer base and the Group's dispersion across many different
industries and regions.
NOTE 9 - OTHER RECEIVABLES, PREPAID EXPENSES AND ACCRUED INCOME
1997 1998 1999
---- ---- ----
(In millions of CHF)
Other receivables 198 115 178
Prepaid taxes and social security payments 74 60 56
Prepaid expenses and accrued income 60 67 84
Accrued interest income 36 83 21
--- --- ---
TOTAL 368 325 339
=== === ===
NOTE 10 - CASH AND CASH EQUIVALENTS
1997 1998 1999
---- ---- ----
(In millions of CHF)
Cash 312 309 125
Short-term deposits 16 51 486
--- --- ---
TOTAL 328 360 611
=== === ===
NOTE 11 - PLEDGES AND ASSETS UNDER RESERVATION OF OWNERSHIP
The assets pledged for security related to the Group's liabilities are
approximately CHF 58 million at 31 December 1999 (1998: CHF 55 million, 1997:
CHF 83 million).
NOTE 12 - CHANGES IN SHAREHOLDERS' EQUITY
SHARE CAPITAL TRANSACTIONS
In 1999 the ordinary Shareholders' Meeting for the 1998 reporting year was held
on 20 May 1999 and an extraordinary Shareholders' Meeting was held on 18 October
1999 for the period 1 January - 31 August 1999.
In the reporting period 1 January - 31 August 1999, conversion rights were
exercised on 9 155 registered shares with a par value of approximately CHF 1
million, of these a total of 4 625 registered shares as part of the employee
participation program, and 4 530 registered shares through conversion of the
2 1/4% 1995-2002 convertible bond issue.
26
19
At the Shareholders' Meeting of 18 October 1999, an increase in the capital
subject to a condition of 72,524 registered shares was approved.
In the reporting period 1 September - 31 December 1999, conversion rights were
exercised on 129,064 registered shares with a par value of approximately CHF 13
million.
All issued shares are in circulation and therefore are entitled to voting rights
and dividend payments in accordance with algroup's Articles of Association.
At 31 December 1999, the capital subject to a condition comprised 485,880 (1998:
551,575; 1997: 598,555) registered shares totaling approximately CHF 49 million
(1998: approximately CHF 55 million; 1997: approximately CHF 75 million).
Of these, the following are reserved:
A TOTAL OF 1,520 shares (1998: 91,475 shares; 1997: 126,070 shares) for
securing conversion rights on the 2 1/4% convertible bond issue maturing in
2002, with conversion possible during 1995-2002;
A TOTAL OF 365,594 registered shares (1998: 234,570 shares; 1997: 238,865
shares) for conversion rights on the 2% 1996-2001 convertible bond issue
from Alusuisse-Lonza Finance Ltd.;
A TOTAL OF 33,429 (1998: 38,054; 1997: 42,485) for the employee
participation program; and
A TOTAL OF 85,337 shares (1998: 187,476 shares; 1997: 191,135 shares) for
the purchase of new shares from future negotiable and warrant issues.
Further information is shown under "consolidated statement of shareholder's
equity".
NOTE 13 - LONG-TERM PROVISIONS
1997 1998 1999
---- ---- ----
(In millions of CHF)
Deferred taxes 201 212 232
Retirement benefits 226 227 262
Others 206 169 147
--- --- ---
TOTAL 633 608 641
=== === ===
The provisions for retirement benefits comprise primarily the pension liability
of the Group's defined benefit pension plans as disclosed in Note 27. Included
in the above amounts are provisions for healthcare relating to the Group's US
subsidiaries.
27
20
NOTE 14 - NET DEBT
The net debt is comprised of:
1997 1998 1999
----- ------ ------
(In millions of CHF)
LONG-TERM DEBT
Bonds 828 867 766
Due to banks and others:
Banks 612 261 290
Leasing 23 18 0
Others 5 3 6
Other financial institutions 56 51 26
----- ----- -----
TOTAL 1,524 1,200 1,088
===== ===== =====
Debt due after more than five years in 1999: CHF 0 million
(1998: CHF 70 million, 1997: CHF 219 million).
1997 1998 1999
---- ---- ------
SHORT-TERM DEBT (In millions of CHF)
Due to banks and other financial institutions 876 966 1,049
Others 16 14 21
Due to Lonza Group 0 0 635
Long-term debt due within one year 68 3 0
----- ----- -----
TOTAL 960 983 1,705
----- ----- -----
TOTAL DEBT 2,484 2,183 2,793
===== ===== =====
1997 1998 1999
------ ----- -----
LOANS AND ADVANCES (In millions of CHF)
Long-term loans and advances (51) (11) (7)
Short-term advances and other financial assets (33) (17) (10)
Due from Lonza Group 0 0 (64)
Cash and cash equivalents (328) (360) (611)
----- ----- -----
TOTAL (412) (388) (692)
===== ===== =====
NET DEBT 2,072 1,795 2,101
===== ===== =====
Loans and advances to unconsolidated affiliates amounted to CHF 1 million (1998:
CHF 13 million, 1997: CHF 12 million), whereas the debt owed to them amounted to
CHF 18 million (1998: CHF 24 million, 1997: CHF 18 million).
28
21
NOTE 14 - NET DEBT (CONTINUED)
1997 1998 1999
----------------- ---------------------------- ----------------------------
% %
AVERAGE AVERAGE
(IN MILLIONS (IN MILLIONS INTEREST (IN MILLIONS INTEREST
BREAKDOWN OF DEBTS BY CURRENCIES OF CHF) % OF CHF) % RATES OF CHF) % RATES
------------ --- ------------ --- --------- ------------ --- -----------
Swiss franc 699 28 411 19 5.12 1,086 39 3.22
Pound sterling 465 19 435 20 7.29 333 12 6.27
US dollar 918 37 909 42 4.67 994 35 5.59
Australian dollar 54 2 120 5 5.12 148 5 5.79
Canadian dollar 0 0 88 4 5.52 102 4 5.89
Euro 0 0 173 8 3.96 111 4 3.42
Others 348 14 47 2 6.30 19 1 4.75
----- --- ----- --- ----- ---
TOTAL 2,484 100 2,183 100 2,793 100
===== === ===== === ===== ===
NOTE 15 - OTHER LIABILITIES AND DEFERRED ITEMS
1997 1998 1999
---- ---- ----
(In millions of CHF)
Short-term provisions 315 266 208
Capital tax payables 30 17 20
Current tax payables 33 63 73
Other liabilities 229 245 354
Accrued liabilities and deferred items 185 66 137
Accrued interest payables 40 108 297
--- --- -----
TOTAL 832 765 1,089
=== === =====
NOTE 16 - TRADE PAYABLES
1997 1998 1999
---- ---- ----
(In millions of CHF)
Payable to third parties 710 647 694
Payable to affiliates 42 55 57
--- --- -----
TOTAL 752 702 751
=== === =====
29
22
NOTE 17 - BONDS
1997 1998 1999
ORIGINAL NOT LONG-TERM LONG-TERM LONG-TERM
BOND AMOUNT REDEEMABLE INTEREST IN MILLION IN MILLION IN MILLION
IN MILLION MATURITY BEFORE RATE % OF CHF OF CHF OF CHF
------------- -------- ---------- -------- ---------- ---------- ------------
Alusuisse Lonza D CHF 150 9/1/01 1999 6.75 150 150 0
Group Ltd.
D CHF 150 9/3/03 2001 6.75 150 150 150
C CHF 240 9/5/02 - 2.25 126 91 2
Lotschen 1) D CHF 50 9/3/03 2001 5.00 50 50 0
Alusuisse Lonza C USD 252 9/6/01 2000 2.00 342 320 308
Finance Ltd. 2)
E CHF 10 9/7/02 2001 5.25 10 10 10
E DEM 16 9/8/08 2001 3.72 0 13 13
E DEM 25 9/8/08 2001 3.77 0 21 21
ALA (Nevada) Inc. E USD 45 9/8/01 2001 0.50 0 62 56
E CHF 200 9/9/06 2000 1.25 0 0 206
--- --- ---
TOTAL 828 867 766
=== === ===
Debenture issue
Convertible issue
Euro Medium Term Note Program
1) The Lotschen bond listed in the table above was transferred to Lonza Group
in 1999 in connection with the demerger of the chemicals and energy
activities.
2) Net of unamortized discount of USD 14.3 million (1998: USD 12.4 million,
1997: USD 17.1 million), effective interest rate 4.25%.
Note: Certain bonds can be redeemed prior to their original maturity date.
30
23
NOTE 18 - CONTINGENT LIABILITIES
Contingent liabilities concern bills discounted, purchase commitments and
guarantees given to third parties in the ordinary course of business. The
Group's contingent liabilities at 31 December 1999 were approximately CHF 201
million (1998: CHF 189 million, 1997: CHF 214 million). Various lawsuits and
claims are pending against the Group and its subsidiaries for losses allegedly
incurred under contracts, personal injury, property and environmental damage,
and franchise and property tax assessments.
In the opinion of management, disposition of these lawsuits and claims will not
involve sums that would have a material, adverse effect upon the consolidated
financial position, operations, or cash flows of the Group.
NOTE 19 - OTHER OPERATING INCOME AND EXPENSES
1997 1998 1999
---- ---- ----
(In millions of CHF)
Other operating income 69 135 439
Other operating expenses (909) (886) (1,223)
---- ---- ------
TOTAL (840) (751) (784)
==== ==== ======
Apart from the repair and maintenance costs of CHF 343 million (1998: CHF 345
million; 1997: CHF 336 million), the major items reported under other operating
expenses are selling, general and administrative expenses.
NOTE 20 - INTEREST INCOME AND EXCHANGE GAINS
1997 1998 1999
---- ---- ----
(In millions of CHF)
Interest income 58 64 81
Other financial income 20 47 42
-- --- ---
TOTAL 78 111 123
== === ===
NOTE 21 - INTEREST EXPENSES AND EXCHANGE LOSSES
1997 1998 1999
---- ---- ----
(In millions of CHF)
Interest expenses (224) (219) (230)
Other financial expenses (24) (51) (50)
---- ---- ----
TOTAL (248) (270) (280)
==== ==== ====
NOTE 22 - INCOME FROM INVESTMENTS
1997 1998 1999
---- ---- ----
(In millions of CHF)
Dividend earned 0 1 1
Income from application of the equity method 5 4 7
- - -
TOTAL 5 5 8
= = =
31
24
NOTE 23 - INCOME TAXES
1997 1998 1999
---- ---- ----
(In millions of CHF)
MAJOR COMPONENTS OF TAX EXPENSE
Current taxes (50) (61) (94)
Deferred tax expense relating to the origination and (33) (46) (51)
reversal of temporary differences
Deferred tax expense (income) resulting from tax 1 0 5
--- ---- ----
rate changes
TOTAL (82) (107) (140)
=== ==== ====
RECONCILIATION OF TAX EXPENSE
Tax at the domestic rates applicable to the profits earned 122 141 223
in the country concerned
Tax effect of expenses that are not deductible for tax 3 11 12
purposes
Tax capital gain on demerger 0 0 10
Tax credits and other incentives earned 0 (8) (16)
Tax benefits from previously unrecognized tax losses (48) (36) (29)
Tax benefits from change in valuation allowance 0 0 (23)
Deferred tax benefit from tax rate changes (1) 0 (5)
All other 6 (1) (32)
--- --- ---
TOTAL 82 107 140
=== === ===
DEFERRED TAX EXPENSES CHARGED DIRECTLY TO EQUITY 0 4 (22)
--- --- ---
Capital taxes of CHF 27 million (1998: CHF 30 million; 1997: CHF 40 million) are
contained in other operating expenses.
COMPONENTS OF DEFERRED INCOME TAX BALANCES 1997 1998 1999
ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ ----------- ------ -----------
(In millions of CHF)
Short-term operating provisions 23 27 17 6 27 28
ong-term operating provisions 44 16 10 50 26 3
Property, plant and equipment 0 141 0 140 0 196
Pension benefits 0 17 0 16 0 5
Tax loss carry forwards 114 0 79 0 98 0
--- --- --- --- --- ---
SUBTOTAL 181 201 106 212 151 232
=== === === === === ===
Valuation allowance (78) 0 (33) 0 (54) 0
DEFERRED INCOME TAXES 103 201 73 212 97 232
These amounts are included in the following
captions in the balance sheet:
Other noncurrent assets and deferred items 103 73 97
Long-term provisions (201) (212) (232)
NET DEFERRED TAX LIABILITY (98) (139) (135)
32
25
NOTE 24 - REVIEW OF FIXED ASSETS, ESTIMATED USEFUL LIVES
During 1999, the Group adopted estimated useful lives for its operating assets
which more accurately reflect industry practice. In order to allow for a
meaningful comparison with the prior year, the data below reflect the impact of
the change of useful lives for Group assets on selected financial information.
1999 1999
BEFORE THE AS
CHANGE REPORTED VARIANCE
---------- -------- --------
(In millions of CHF)
BALANCE SHEET
Accumulated depreciation (5,242) (5,121) 121
Other noncurrent assets and deferred items 117 118 1
Inventories, net 1,237 1,226 (11)
Total assets 6,561 6,672 111
Total shareholders' equity 1,288 1,358 70
Minority interests 39 40 1
Long-term provisions 601 641 40
Total liabilities and shareholders' equity 6,561 6,672 111
INCOME STATEMENT
Changes in inventories (23) (34) (11)
Depreciation and amortization (410) (292) 118
Operating income 645 752 107
Income taxes (101) (140) (39)
Income attributable to minorities (6) (7) (1)
Net income 373 440 67
CASH FLOW STATEMENT
Income from continuing operations 373 440 67
Depreciation of property, plant and equipment 400 282 (118)
Increase in long-term provisions 4 43 39
Increase in net working capital (32) (20) 12
Net cash provided by operating activities 764 764 0
SEGMENT DATA - BY BUSINESS SEGMENT :
OPERATING INCOME
Primary materials and fabricated products 359 409 50
Food flexible and tobacco packaging 205 239 34
Pharmaceutical and cosmetics packaging 97 119 22
Total Group 645 752 107
NET CAPITAL INVESTED
Primary materials and fabricated products 2,080 2,131 51
Food flexible and tobacco packaging 935 971 36
Pharmaceutical and cosmetics packaging 802 825 23
Total Group 3,824 3,934 110
PERCENTAGE RETURN ON SALES
Primary materials and fabricated products 11.7 13.3 1.6
Food flexible and tobacco packaging 9.5 11.0 1.5
Pharmaceutical and cosmetics packaging 7.5 9.2 1.7
Total Group 8.5 9.9 1.4
33
26
1999 1999
BEFORE THE AS
CHANGE REPORTED VARIANCE
---------- -------- --------
(In millions of CHF)
RETURN ON NET CAPITAL INVESTED
Primary materials and fabricated products 18.8 21.1 2.3
Food flexible and tobacco packaging 23.1 26.5 3.4
Pharmaceutical and cosmetics packaging 12.9 15.6 2.7
Total Group 17.9 20.6 2.7
NOTE 25 - PURCHASE AND/OR SALE OF CONSOLIDATED COMPANIES
PURCHASE PURCHASE SALE SALE
1997 1998 1998 1999
-------- -------- ---- ----
(In millions of CHF)
Cash 13 (1) 4 0
Current assets 15 (20) 142 1
Goodwill 0 (4) 0 0
Property, plant and equipment and other fixed assets 15 (46) 128 2
Total liabilities (12) 9 (59) (1)
PURCHASE OR SALES PRICES 31 (62) 215 2
Minus cash (13) 1 (4) 0
CASH OUTLAY (NET) 18 (61) - -
CASH INFLOW - - 211 2
NOTE 26 - RESEARCH AND DEVELOPMENT
Research and development expenses reflect primarily the cost incurred in basic
scientific research and development. In 1999, these expenses amounted to CHF 65
million (1998: CHF 65 million; 1997: CHF 76 million).
NOTE 27 - PENSION BENEFITS
The Group sponsors pension plans according to the regulations of the countries
in which it operates. All significant plans provide defined benefits on
retirement. The benefits are based primarily on years of service and the
employees' compensation for certain periods during the last years of employment.
As of 1 January 1995, the Group has adopted the IAS 19 Retirement Benefit Costs.
During 1999, actuarial valuations were performed for all significant defined
benefit plans using the projected unit credit valuation method.
A policy has been established whereby actuarial valuations are performed on a
three-year basis and roll-forwards are conducted as of 31 December each year
during the intervening period.
The weighted average assumptions used in the actuarial valuations are according
to the underlying national economic conditions of the respective countries:
1997 1998 1999
---- ---- ----
Discount rate 6.0% 5.8% 5.1%
Expected long-term rates of return on plan assets 6.8% 6.7% 5.8%
Rate of increase in compensation 3.8% 3.6% 3.0%
Except for the Group's German subsidiaries, pension costs are generally funded
currently within national regulatory limitations. The projected benefit
obligation for the German
34
27
subsidiaries is included in the following table. The
funded status for substantially all defined benefit plans, shown separately for
plans whose assets exceeded and are less than the projected benefit obligation,
is as follows:
PLANS WITH ASSETS PLANS WITH PBO
IN EXCESS OF PBO IN EXCESS OF ASSETS
------------------------------- ---------------------------
1997 1998 1999 1997 1998 1999
------ ------ ------ ---- ----- ----
(In millions of CHF)
Projected benefit obligation (PBO) (2,389) (1,332) (2,823) (574) (1,849) (504)
Plan assets at fair value 2,577 1,453 3,111 324 1,517 276
PLAN ASSETS IN EXCESS OF (LESS THAN)
PROJECTED BENEFIT OBLIGATION 188 121 288 (250) (332) (228)
Long-term provisions 0 0 0 208 202 170
FUNDED STATUS 188 121 288 (42) (130) (58)
The pension asset and liability calculated above are disclosed in the financial
statements for 1999. The net change of the prepaid pension cost in 1999 amounted
to CHF 28 million (1998: CHF 8 million) and is reflected under prepaid expenses
and accrued income. The prepaid pension cost at the end of 1999 is CHF 15
million (1998: CHF 109 million, 1997: CHF 101 million).
Effective 1 January 1999, the Group adopted the provisions of IAS 19 revised.
This revised standard permits companies to elect to amortize, or immediately
recognize, any difference between the accumulated pension cost at transition and
the funded status if that difference is an additional pension liability. The
Group has elected to immediately recognize its additional pension liability
consistent with IAS 8, as a change in accounting policy. The amount of
additional liability recognized was CHF 132 million upon adoption of IAS 19
revised.
Net periodic pension costs for the Group's significant defined benefit plans
consist of the following:
1997 1998 1999
---- ---- ----
(In millions of CHF)
Service costs 44 55 61
Interest costs 161 179 166
Actual return on assets (168) (196) (197)
Net amortization and deferral (8) (7) 0
---- ---- ----
TOTAL 29 31 30
==== ==== ====
NOTE 28 - DISCONTINUING OPERATIONS
The discontinuing operations are composed of the following activities:
a) At the extraordinary Shareholders' Meeting of algroup of 18 October 1999,
the shareholders approved the demerger of the chemical business (composed
of two divisions of the Group, Fine Chemicals and Specialties and
Intermediates and Additives) and the energy businesses free of any net
financial debt as of 1 July 1999.
The above-mentioned activities are treated as discontinuing operations. The net
assets of the chemical business were deducted from the Group's equity on
1 November 1999. In order to reflect the debt-free status of the chemical
business effective 1 July 1999, as stated in the Separation and Demerger
Agreement, all debt - and accordingly the interest positions - are classified
under continuing operations.
35
28
b) In 1997, the Group had identified several operations, mainly in its Food
Flexible and Tobacco Packaging division, as not being strategic businesses
to the Group. In July 1997, these activities were proposed for divestiture
and accordingly classified as discontinuing operations. This divestment
program was completed in the second half of 1998.
The Group's financial statements reflect the net income of discontinuing
operations as a separate item and the related assets and liabilities have been
classified in the consolidated balance sheet as net assets of discontinuing
operations.
The components of net operating assets, net income and cash flow provided by
(used in) discontinuing operations are as follows:
SUMMARIZED BALANCE SHEET 1997 1998 1999
---- ---- ----
(In millions of CHF)
Fixed assets 1,913 1,994 0
Current assets 1,005 902 0
Current liabilities (638) (677) 0
Other assets and liabilities (400) (410) 0
----- ----- -----
NET ASSETS DISCONTINUING OPERATIONS 1,880 1,809 0
===== ===== =====
1 01 - 31 10
1997 1998 1999
---- ---- ----
SUMMARIZED INCOME STATEMENT (In millions of CHF)
NET SALES 2,537 2,263 1,806
Operating expenses and others (2,143) (1,796) (1,375)
Depreciation and amortization (181) (184) (128)
----- ----- -----
EARNINGS BEFORE INTEREST, TAXES AND MINORITY INTEREST 213 283 303
===== ===== =====
Financial income (1) 1 3
Income taxes (68) (78) (70)
(Income) / loss attributable to minorities 0 2 2
----- ----- -----
NET INCOME FROM DISCONTINUING OPERATIONS 144 208 238
===== ===== =====
1 01 - 31 10
1997 1998 1999
---- ---- ----
SUMMARIZED CASH FLOW STATEMENT (In millions of CHF)
NET CASH PROVIDED BY OPERATING ACTIVITIES 227 367 318
Net cash used in investing activities (381) (342) (1,236)
Net cash provided by (used in) financing activities (1) (2) 918
NOTE 29 - BOARD OF DIRECTORS AND MAJOR SHAREHOLDERS
There are no receivables or liabilities due from or to Directors or
shareholders (1998: none). In 1999, payments to the Board of Directors of
Alusuisse Lonza Group Ltd. totaled CHF 1.2 million (1998: CHF 1.2 million,
1997: CHF 1.3 million).
NOTE 30 - YEAR 2000
To date, the Group has not experienced any year 2000 problems with any of our
internal systems or our products, and we do not expect to experience such
problems in the future. All costs associated with Year 2000 system adjustments
have been charged to expenses as incurred.
36
29
NOTE 31 - COMBINATION AGREEMENT WITH ALCAN AND PECHINEY
On 11 August 1999, algroup announced that it agreed to the principal terms of a
three-way combination agreement with Alcan Aluminium Limited (Alcan) and
Pechiney SA (Pechiney). The combination was to be accomplished through two
independent exchange offers in which shares in Alcan were to be issued. In
connection therewith, algroup demerged its chemical and energy businesses
effective 1 November 1999 (see Note 28).
Under the Demerger Agreement between algroup and Lonza Group AG, Lonza Group AG
was permitted to retain USD 234 million in "excess" cash in connection with the
demerger. However, this amount was to be reduced to USD 67 million in the event
that Pechiney did not participate in the APA combination, and paid as part of
the formula by which Lonza Group AG was demerged from algroup with no net debt.
In the absence of an amendment to the terms of both the Demerger Agreement and
the Combination Agreement, and following the termination of the Combination
Agreement with respect to Pechiney, the USD 167 million excess cash was due from
Lonza Group AG to algroup as of 30 June 2000.
NOTE 32 - SEGMENT DATA
NET SALES TO CUSTOMERS (1) OPERATING INCOME
----------------------------- -----------------------------
1997 1998 1999 1997 1998 1999
------ ------ ------ ------ ------ ------
BY DIVISION (In millions of CHF) (In millions of CHF)
Primary materials and fabricated products 2,735 3,079 3,076 300 340 409
Food flexible and tobacco packaging 2,092 2,119 2,164 169 176 239
Pharmaceutical and cosmetics packaging 1,249 1,268 1,299 116 90 119
Packaging
Holding and others 4 6 12 (2) (1) (15)
----- ----- ----- --- --- ---
SUBTOTAL 6,080 6,472 6,551 583 605 752
Trading 1,158 1,025 1,064 NA NA NA
----- ----- ----- --- --- ---
TOTAL 7,238 7,497 7,615 583 605 752
===== ===== ===== === === ===
(1) Intersegment sales for 1997-1999, which were based primarily on prevailing
market prices, have been eliminated.
NET CAPITAL INVESTED (2)
-----------------------------------------
BY DIVISION 1997 1998 1999
------ ------ ------
(In millions of CHF)
Primary materials and fabricated products 1,599 1,739 2,131
Food flexible and tobacco packaging 786 835 971
Pharmaceutical and cosmetics packaging 643 692 825
Holding and others 45 85 7
----- ----- -----
SUBTOTAL 3,073 3,351 3,934
Trading NA NA NA
----- ----- -----
TOTAL 3,073 3,351 3,934
===== ===== =====
(2) Net capital invested comprises all assets and liabilities committed to the
segment operations at historical year end rates.
37
30
PERCENTAGE RETURN ON NET
BY DIVISION RETURN ON SALES CAPITAL INVESTED (3)
--------------------------- --------------------------
% 1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
Primary materials and fabricated products 11.0 11.0 13.3 18.0 19.6 21.1
Food flexible and tobacco packaging 8.1 8.3 11.0 21.1 20.8 26.5
Pharmaceutical and cosmetics packaging 9.3 7.1 9.2 18.5 13.2 15.6
Holding and others na na NA NA NA NA
SUBTOTAL 9.6 9.4 11.5 18.5 18.1 20.6
TRADING NA NA NA NA NA NA
TOTAL 8.1 8.1 9.9 18.5 18.1 20.6
NET SALES TO CUSTOMERS OPERATING INCOME
----------------------------- ---------------------------
1997 1998 1999 1997 1998 1999
------ ----- ----- ---- ---- ----
BY REGION (In millions of CHF) (In millions of CHF)
Europe 5,769 5,993 5,793 372 411 494
Other regions 1,469 1,504 1,822 211 194 258
----- ----- ----- --- --- ---
TOTAL 7,238 7,497 7,615 583 605 752
===== ===== ===== === === ===
NET CAPITAL INVESTED (2)
----------------------------
1997 1998 1999
---- ---- ----
BY REGION (In millions of CHF)
Europe 2,172 2,366 2,659
Other regions 901 985 1,275
----- ----- -----
TOTAL 3,073 3,351 3,934
===== ===== =====
(2) Net capital invested comprises all assets and liabilities committed to the
segment operations at historical year end rates.
BY REGION PERCENTAGE RETURN ON NET
RETURN ON SALES CAPITAL INVESTED (3)
--------------------------- --------------------------
% 1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
Europe 6.4 6.9 8.5 17.1 17.4 19.5
Other regions 14.4 12.9 14.2 23.4 19.9 23.0
TOTAL 8.1 8.1 9.9 19.0 18.1 20.6
(3) Calculated at historical yearly average rates and including algroup
companies acquired during the financial year.
SALES
1997 1998 1999
------------------- ------------------- -------------------
(IN MILLIONS (IN MILLIONS (IN MILLIONS
OF CHF) % OF CHF) % OF CHF) %
------------ --- ------------ --- ------------ ---
BY PRODUCTION AREA
Switzerland 3,410 34 3,513 35 3,419 33
EU 4,625 46 4,628 46 4,504 44
Rest of Europe 271 3 306 2 293 3
------ --- ------ --- ------ ---
EUROPE 8,306 83 8,447 83 8,216 80
North America 1,267 13 1,310 13 1,615 16
Other areas 387 4 374 4 405 4
------ --- ------ ---- ------ ---
SUBTOTAL 9,960 100 10,131 100 10,236 100
(Intercompany sales) (2,722) (2,634) (2,621)
------ ------ ------
TOTAL 7,238 7,497 7,615
====== ====== ======
38
31
1997 1998 1999
------------------- ------------------- -------------------
(IN MILLIONS (IN MILLIONS (IN MILLIONS
OF CHF) % OF CHF) % OF CHF) %
------------ --- ------------ --- ------------ ---
BY MARKETING AREA
Switzerland 374 5 434 6 357 5
EU 4,121 57 4,257 57 4,316 56
Rest of Europe 443 6 536 7 360 5
----- --- ----- --- ----- ---
EUROPE 4,938 68 5,227 70 5,033 66
North America 1,570 22 1,650 22 1,864 24
Other areas 730 10 620 8 718 10
----- --- ----- --- ----- ---
TOTAL 7,238 100 7,497 100 7,615 100
===== === ===== === ===== ===
1997 1998 1999
------------------- ------------------- -------------------
(IN MILLIONS (IN MILLIONS (IN MILLIONS
OF CHF) % OF CHF) % OF CHF) %
------------ --- ------------ --- ------------ ---
BY DIVISION (1)
Primary materials and fabricated products 3,368 46 3,642 48 3,573 47
Food flexible and tobacco packaging 2,137 30 2,147 29 2,190 29
Pharmaceutical and cosmetics packaging 1,268 18 1,269 17 1,299 17
Holding and others 9 0 10 0 12 0
----- --- ----- --- ----- ---
SUBTOTAL 6,782 94 7,068 94 7,074 93
Trading 1,158 16 1,025 14 1,064 14
----- --- ----- --- ----- ---
SUBTOTAL 7,940 110 8,093 108 8,138 107
(Intercompany sales) (702) (10) (596) (8) (523) (7)
----- --- ----- --- ----- ---
TOTAL 7,238 100 7,497 100 7,615 100
===== === ===== === ===== ===
(1) Intersegment sales for 1997-1999, which were based primarily on prevailing
market prices, have been eliminated
39
32
DEPRECIATION AND AMORTIZATION
1997 1998 1999
------------------- ------------------- -------------------
(IN MILLIONS (IN MILLIONS (IN MILLIONS
OF CHF) % OF CHF) % OF CHF) %
------------ --- ------------ --- ------------ ---
BY DIVISION
Primary materials and fabricated products 158 46 172 46 134 46
Food flexible and tobacco packaging 105 30 107 29 84 29
Pharmaceutical and cosmetics packaging 83 24 91 25 73 25
Holding and others 1 0 1 0 1 0
--- --- --- --- --- ---
TOTAL 347 100 371 100 292 100
=== === === === === ===
RESEARCH AND DEVELOPMENT
1997 1998 1999
------------------- ------------------- -------------------
(IN MILLIONS (IN MILLIONS (IN MILLIONS
OF CHF) % OF CHF) % OF CHF) %
------------ --- ------------ --- ------------ ---
BY DIVISION
Primary materials and fabricated products 46 61 38 58 41 63
Food flexible and tobacco packaging 24 32 22 34 20 31
Pharmaceutical and cosmetics packaging 6 7 5 8 4 6
Holding and others 0 0 0 0 0 0
-- --- -- --- -- ---
TOTAL 76 100 65 100 65 100
== === == === == ===
INVESTMENTS IN PROPERTY, PLANT AND EQUIPMENT
1997 1998 1999
------------------- ------------------- -------------------
(IN MILLIONS (IN MILLIONS (IN MILLIONS
OF CHF) % OF CHF) % OF CHF) %
------------ --- ------------ --- ------------ ---
BY REGION
Switzerland 62 12 54 11 50 11
EU 271 51 247 49 247 53
Rest of Europe 19 3 21 4 13 2
--- --- --- --- --- ---
EUROPE 352 66 322 64 310 66
North America 122 23 130 26 113 24
Other areas 57 11 55 10 45 10
--- --- --- --- --- ---
TOTAL 531 100 507 100 468 100
=== === === === === ===
1997 1998 1999
------------------- ------------------- -------------------
(IN MILLIONS (IN MILLIONS (IN MILLIONS
OF CHF) % OF CHF) % OF CHF) %
------------ --- ------------ --- ------------ ---
BY DIVISION
Primary materials and fabricated products 300 57 222 44 233 50
Food flexible and tobacco packaging 110 21 157 31 125 27
Pharmaceutical and cosmetics packaging 119 22 128 25 109 23
Holding and others 2 0 0 0 1 0
--- --- --- --- --- ---
TOTAL 531 100 507 100 468 100
=== === === === === ===
40
33
PERSONNEL
1997 1998 1999
------------------- ------------------- -------------------
(IN MILLIONS (IN MILLIONS (IN MILLIONS
OF CHF) % OF CHF) % OF CHF) %
------------ --- ------------ --- ------------ ---
BY REGION
Switzerland 3,117 13 3,146 13 3,157 14
EU 12,427 53 12,199 51 11,801 51
Rest of Europe 983 4 1,002 5 970 4
------ --- ------ --- ------ ---
EUROPE 16,527 70 16,347 69 15,928 69
North America 6,173 26 6,552 28 6,276 27
Other areas 872 4 921 3 911 4
------ --- ------ --- ------ ---
TOTAL 23,572 100 23,820 100 23,115 100
====== === ====== === ====== ===
1997 1998 1999
------------------- ------------------- -------------------
(IN MILLIONS (IN MILLIONS (IN MILLIONS
OF CHF) % OF CHF) % OF CHF) %
------------ --- ------------ --- ------------ ---
BY DIVISION
Primary materials and fabricated products 9,323 39 9,528 40 9,465 41
Food flexible and tobacco packaging 6,619 28 6,611 28 6,433 28
Pharmaceutical and cosmetics packaging 7,514 32 7,568 32 7,122 31
Holding and others 116 1 113 0 95 0
------ --- ------ --- ------ ---
TOTAL 23,572 100 23,820 100 23,115 100
====== === ====== === ====== ===
NOTE 33 -- INFORMATION PER SECURITY
REGISTERED SHARES 1997 1998* 1999
--------- ---------- ----------
Number issued 4,215,058 6,286,126 6,424,345
Number ranking for a dividend 4,215,058 6,286,126 6,424,345
Nominal value CHF 125 100 100
RATIOS PER SECURITY
Basic weighted average number of shares 6,153,102 6,260,541 6,319,959
Diluted weighted average number of shares 6,602,429 6,609,229 6,654,944
Basic earnings per share continuing operations CHF 51.8 51.4 69.6
Diluted earnings per share continuing operations CHF 51.4 51.3 68.7
Basic earnings per share CHF 75.3 84.7 107.3
Diluted earnings per share CHF 73.2 82.8 104.5
Total dividend (million CHF) -- 157 --
Share capital repayment (CHF 25 per share) 156 -- --
* Consistent with the decision of the Shareholders' Meeting of 24 March 1998,
Alusuisse Lonza Group Ltd. has only one class of shares (registered
shares), exclusively traded since 15 April 1998. The nominal value
per share was reduced from CHF 125 to CHF 100 effective 24 June 1998.
At 31 December 1997, the Group had 2,024,088 bearer shares outstanding
which were converted to one class of shares as described above.
41
34
NOTE 34 - SIGNIFICANT SUBSIDIARIES AND AFFILIATES
31 DECEMBER 1999
% %
Net sales Share capital Holding Holding
EUROPEAN COUNTRIES Registered office (1) Activities Currency (1) in million in 000 direct indirect
- ------------------ --------------------- ---------- ------------ ---------- ------------- ------- --------
Alusuisse Schweizerische
Aluminium AG Sierre, CH *-o CHF 513 60,000 100
Alusuisse Trading AG Zurich, CH o CHF 2,223 5,000 100
Lawson Mardon Neher AG Kreuzlingen, CH *-o CHF 164 15,000 100
Alusuisse Decin sro Decin, CZ -o CZK 2,809 1,097,800 62
Alusuisse Singen GmbH Singen/Hohentwiel, DE -o DEM 1,007 170,000 100
Lawson Mardon Singen GmbH Singen/Hohentwiel, DE -o DEM 507 50,000 100
Alusuisse Martinswerk GmbH Bergheim/Erft, DE -o DEM 202 55,000 100
Alusuisse France SA St-Florentin, FR -o FRF 550 100,000 100
Boxal France SA Beaurepaire, FR -o FRF 308 60,000 100
Lawson Mardon Morin SA Sarrebourg, FR -o FRF 428 11,280 100
Lawson Mardon
Packaging UK Ltd. Bristol, GB - GBP 90 1,335 100
Lawson Mardon Star Ltd. Bristol, GB - GBP 142 17,000 100
Isal - Icelandic Aluminium
Company Ltd. Hafnarfjordur, IS - USD 239 4,395 100
Aluchemie - Aluminium & Chemie
Rotterdam BV Rotterdam, NL - NLG 279 33,000 72
Boxal Netherlands BV Veenendaal, NL -o NLG 105 13,000 100
Lawson Mardon Picopac BV Zutphen, NL -o NLG 109 100 100
OTHER COUNTRIES
Austraswiss - Swiss Aluminium
Australia Ltd. North Sydney, NSW, AU o+ AUD 375 146,000 100
Lawson Mardon USA Inc Millville, NJ, US -o USD 272 1 100
Wheaton USA Inc Millville, NJ, US -o USD 423 1 100
HOLDING AND FINANCING
COMPANIES
Alusuisse-Lonza Capital Ltd. St Helier, Jersey, GB + CHF 250 100
Alusuisse-Lonza Finance Ltd. St Helier, Jersey, GB + USD 50 100
Alusuisse-Lonza Europe BV Breda, NL + NLG 550 73 27
A-L Holding USA LLC Wilmington, DE, US + USD 0.1 100
ALA Nevada Inc Sparks, NV, US + USD 3 100
_____________
* Research/Applications
- - Production
o Sales
+ Services/Financing
(1) Abbreviations of countries and currencies in accordance with ISO standards.
42
35
NOTE 35 - RECONCILIATION
SIGNIFICANT DIFFERENCES BETWEEN INTERNATIONAL ACCOUNTING STANDARDS AND GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA
The Group's consolidated financial statements have been prepared in accordance
with International Accounting Standards (IAS) of the International Accounting
Standards Committee (IASC), which differ, in certain significant respects from
generally accepted accounting principles in the United States (U.S. GAAP) and
Canada (Canadian GAAP). The significant differences that affect the consolidated
net income and shareholders' equity are set out below.
Reconciliation of net income to U.S. GAAP
YEARS ENDED
DECEMBER 31,
-----------------------
Note 1997 1998 1999
---- ----- ----- -----
In millions of CHF
Net income as reported in the consolidated
income statements in accordance with IAS 463 530 678
Adjustments required to conform with U.S. GAAP:
Goodwill amortization (a) (31) (28) (24)
Capitalized interest (b) 19 13 9
Inventories (c) (4) 7 2
Debt issue costs (d) (1) (1) (1)
Fixed assets (e) 14 3 (82)
Pensions (f) 13 25 (7)
Stock ownership plan (g) (6) (8) -
Derivatives (h) (26) 1 (244)
Accruals (i) 11 (66) 10
Restructuring provisions (j) 10 (1) (25)
Other (5) 1 (8)
Tax effect of U.S. GAAP adjustments (k) (19) (21) 105
----- ----- -----
Net income in accordance with U.S. GAAP 438 455 413
===== ===== =====
Continuing operations 305 303 152
Discontinued operations 133 152 261
Basic earnings per share in accordance
with U.S. GAAP: CHF CHF CHF
Continuing operations 49.57 48.38 24.05
Discontinued operations 21.62 24.27 41.30
----- ----- -----
Net income (m) 71.19 72.65 65.35
===== ===== =====
Diluted earnings per share in accordance
with U.S. GAAP: CHF CHF CHF
Continuing operations 49.23 48.41 22.84
Discontinued operations 20.14 22.99 39.22
----- ----- -----
Net income (m) 69.37 71.40 62.06
===== ===== =====
43
36
Reconciliation of net income to Canadian GAAP
YEARS ENDED
DECEMBER 31,
-----------------------
Note 1997 1998 1999
---- ----- ----- -----
In millions of CHF
Net income as reported in the consolidated
income statements in accordance with IAS 463 530 678
Adjustments required to conform with Canadian GAAP:
Goodwill amortization (a) (31) (28) (24)
Capitalized interest (b) 19 13 9
Inventories (c) (2) 8 (10)
Debt issue costs (d) (1) (1) (1)
Fixed assets (e) 14 3 7
Pensions (f) 13 25 (7)
Derivatives (h) (26) 1 5
Accruals (i) 11 (66) 10
Restructuring provisions (j) 10 (1) (18)
Other (5) 1 (8)
Tax effect of U.S. GAAP adjustments (k) (19) (21) 18
----- ----- ======
Net income in accordance with Canadian GAAP 446 464 659
===== ===== ======
Continuing operations 312 311 380
Discontinued operations 134 153 279
Basic earnings per share in accordance
with Canadian GAAP: CHF CHF CHF
Continuing operations 50.71 49.66 60.10
Discontinued operations 21.78 24.43 44.18
----- ----- ======
Net income (m) 72.49 74.09 104.28
===== ===== ======
Filly diluted earnings per share in accordance
with Canadian GAAP: CHF CHF CHF
Continuing operations 50.29 49.62 57.07
Discontinued operations 20.30 23.14 41.95
----- ----- ------
Net income (m) 70.59 72.76 99.02
===== ===== ======
44
37
Reconciliation of shareholders' equity to U.S. GAAP
December 31,
----------------------
Note 1997 1998 1999
---- ----- ----- -----
In millions of CHF
Shareholders' equity as reported in the
consolidated balance sheets in accordance
with IAS 2,765 3,101 1,358
Adjustments required to conform with U.S. GAAP:
Goodwill:
Cost (a) 561 548 582
Amortization (a) (306) (334) (368)
Capitalized interest (b) 68 80 24
Inventories (c) (6) 2 1
Debt issue costs (d) 4 3 2
Fixed assets (e) 23 26 (71)
Pensions (f) 82 98 85
Derivatives (h) (26) (24) (264)
Accruals (i) 94 28 9
Restructuring provisions (j) 10 8 --
Other 2 6 (14)
Tax effect of U.S. GAAP adjustments (k) 9 (5) 67
----- ----- -----
Shareholders' equity in accordance with U.S. GAAP 3,280 3,537 1,411
===== ===== =====
Reconciliation of shareholders' equity to Canadian GAAP
December 31,
----------------------
Note 1997 1998 1999
---- ----- ----- -----
In millions of CHF
Shareholders' equity as reported in the
consolidated balance sheets in accordance
with IAS 2,765 3,101 1,358
Adjustments required to conform with Canadian GAAP:
Goodwill:
Cost (a) 561 548 582
Amortization (a) (306) (334) (368)
Capitalized interest (b) 68 80 24
Inventories (c) (4) 5 (1)
Debt issue costs (d) 4 3 2
Fixed assets (e) 23 26 (12)
Pensions (f) 82 118 85
Derivatives (h) (26) (24) (15)
Accruals (i) 94 28 9
Restructuring provisions (j) 10 8 6
Other 2 6 (14)
Tax effect of U.S. GAAP adjustments (k) 9 (5) (14)
----- ----- -----
Shareholders' equity in accordance with
Canadian GAAP 3,282 3,560 1,642
===== ===== =====
45
38
(a) Goodwill and business combinations
In accordance with IAS 22 (revised 1993), the difference between the purchase
price and the aggregate fair value of tangible and identifiable intangible
assets and liabilities acquired in a business combination is capitalized as
goodwill and amortized over its useful life, not to exceed 20 years. Prior to
January 1, 1995, in accordance with IAS, goodwill was charged by the Group
directly to shareholders' equity. For U.S. and Canadian GAAP purposes, goodwill
acquired prior to January 1, 1995 is recorded as an asset and is being amortized
over its estimated useful life of 15 years.
IAS 22 requires a review of the recoverability of unamortized goodwill at each
balance sheet date and a write-off to the extent it no longer represents future
economic benefits. Under U.S. GAAP, if a long-lived asset being tested for
recoverability was acquired in a business combination, the goodwill that arose
in that transaction shall be included as part of the asset grouping in
determining recoverability. In instances where goodwill is identified with
assets that are subject to impairment loss under SFAS No. 121, the carrying
amount of the identified goodwill must be eliminated before making any reduction
of the carrying amounts of impaired long-lived assets and identifiable
intangibles. Under U.S. GAAP, the Group has chosen to measure impairments of
"enterprise" goodwill based on an analysis of estimated future discounted
operating cash flows of the underlying businesses. Under Canadian GAAP, goodwill
must be written down to the extent that there has been a permanent impairment in
the value of the unamortized portion of goodwill. For Canadian GAAP purposes,
the Group has chosen to measure any impairments of goodwill based on an analysis
of estimated future discounted operating cash flows of the underlying
businesses.
(b) Capitalized interest
Under IAS, the capitalization of interest on major capital projects, which
extend useful lives or increase capacity, is not required. In accordance with
U.S. GAAP, interest costs incurred during the construction period (i.e. the
period of time necessary to bring a constructed fixed asset to the condition and
location necessary for its intended use) must be capitalized as part of the cost
of the fixed asset. Under Canadian GAAP, the capitalization of interest on major
capital projects is permitted but not required. The Group has chosen to
capitalize interest for Canadian GAAP purposes.
(c) Inventories
Costs of certain raw materials and consumables are recorded at replacement cost
according to current market prices. Under U.S. and Canadian GAAP, inventories
are valued at the lower of cost and market value, with market value defined as
the lower of current replacement cost or net realizable value less a normal
profit margin.
For IAS reporting purposes, the Group values inventory at certain US
subsidiaries using the average cost method. Under U.S. GAAP, these inventories
are valued using the LIFO method, consistent with the stand-alone reporting of
such subsidiaries. Under Canadian GAAP, the Group has chosen to value the
inventories at these U.S. subsidiaries using the average cost method.
46
39
(d) Debt issuance costs
Under IAS, the Group expensed debt issuance costs as incurred. Under U.S. and
Canadian GAAP, these costs are required to be capitalized and amortized over the
life of the related debt issue.
(e) Fixed assets
Prior to January 1, 2000, in accordance with IAS, cost and expenses for future
maintenance and repairs of long-lived assets may be provided on a basis of
reasonable estimates. Under U.S. and Canadian GAAP, such costs may only be
recognized if a liability has been incurred. Additionally, costs and expenses
are capitalized to the extent (i) it is probable that future economic benefits
will be realized and/or (ii) the estimated useful life of a long-lived asset is
extended.
Under IAS, the Group changed its estimate of the useful lives of certain fixed
assets effective January 1, 1999 (see note 24 for impact on continuing
operations). Under U.S. GAAP, this change may only be reflected effective July
1, 1999 with no restatement of previously reported interim information.
Accordingly for US GAAP purposes, this change in estimated useful lives
increases depreciation expense by approximately CHF 89 million, increases the
valuation of inventories by approximately CHF 12 million, and decreases deferred
income tax liabilities by approximately CHF 17 million. This change in estimate
decreased U.S. GAAP net income from continuing operations and basic earnings per
share of continuing operations for the year ended December 31, 1999 by
approximately CHF 42 million and CHF 6.65, respectively.
(f) Pension and postretirement benefits
Under IAS, pension costs and similar obligations are accounted for in accordance
with IAS No. 19 Retirement Benefit Costs. Under U.S. GAAP, pension costs and
similar obligations are accounted for in accordance with SFAS No. 87 Employers'
Accounting for Pensions which was adopted by the Group effective January 1, 1989
for all operations except those in the United States where SFAS No. 87 was
adopted effective January 1, 1987. For Canadian GAAP purposes, the Group has
chosen to early adopt on a retroactive restatement basis the provisions of
Section 3461, "Employee Future Benefits", of the Handbook of the Canadian
Institute of Chartered Accountants (C.I.C.A). As permitted by Section 3461, the
Group has applied the provisions of the Section in a manner that produces the
same recognized and unrecognized amounts for all of its benefit plans as
determined under U.S. GAAP.
Upon adoption of IAS 19, the Group ceased deferring actuarial and net asset
gains and losses. Deferred losses were charged to expense at that date. Under
U.S. and Canadian GAAP, actuarial and net asset gains and losses are deferred
and amortized in future periods, when gains and losses exceed prescribed limits.
In accordance with IAS 19, gains and losses are recognized without regard to
prescribed limits. In addition, IAS 19 stipulates the use of long-term
assumptions, while U.S. and Canadian GAAP require assumptions to reflect current
market and economic conditions.
Under U.S. GAAP, a minimum pension liability is recognized as a separate
component of equity when the unfunded accumulated benefit obligation exceeds the
accrual. Under IAS and Canadian GAAP, recognition of a minimum pension liability
is not required.
47
40
(g) Stock ownership plan
Effective in 1995, the Board of Directors approved the Executive Stock Ownership
Plan. Under the Plan, officers and key employees of the Group receive rights to
purchase shares of the Group at prices lower than market prices prevailing at
the time the rights are granted. The Board of Directors has absolute discretion
to determine whether any purchase rights will be granted in any one year, to
specify the performance goals to be achieved in the year and to select the
officers and key employees who will be granted such rights. In October 1999, the
Group terminated its stock ownership plan in connection with the proposed
three-way combination agreement with Alcan Aluminium Limited and Pechiney SA.
Under IAS, compensation expense was not recognized for rights granted under the
Plan. Under U.S. GAAP, the Group has chosen to utilize the provisions of APB
Opinion 25 for measuring compensation expense associated with the Plan. APB 25
requires that compensation expense be recognized, for the difference between the
market value and share purchase price. For Canadian GAAP purposes, it is not
necessary to recognize the compensation element for such plans.
(h) Derivatives
The Group enters into various derivative financial instruments consistent with
its strategy to reduce the Group's economic risk. Under IAS, these strategies
have been treated as hedges for accounting purposes. Under U.S. and Canadian
GAAP, certain of these strategies do not qualify for hedge accounting and
accordingly, the related derivative instruments are marked to market with the
associated unrealized gains or losses reflected in income immediately. In
addition, certain strategies quality for hedge accounting under Canadian GAAP
but not under U.S. GAAP.
In order to manage the volatility of LME pricing for aluminum, the Group enters
into various derivative transactions pursuant to the Group's policies in areas
such as counterparty exposure and hedging practices. The objective of such
strategies is to preserve the economic performance of the Group's primary metal
operations by stabilizing the associated revenue stream over a number of years.
This objective is normally set on a multi-year basis and is achieved by securing
guaranteed selling prices well in excess of production costs for these
commodities or guaranteed purchase prices within pre-established price bands.
These strategies are reviewed by management on a continuous basis. The key
element of these strategies is to secure the profitability of the primary metal
operations by obtaining a guaranteed minimum selling price or maximum purchase
price, in exchange for which the Group foregoes the right to participate in
price increases in excess of or price decreases lower than the pre-established
bands. The Group utilizes a combination of LME futures and options to implement
these strategies.
Under IAS, these strategies have been treated as hedges, and the gain or loss on
these instruments has been deferred to match the timing of the Group's
production and sale of the underlying commodities. Under U.S. and Canadian GAAP,
some of these strategies do not qualify for hedge accounting and have been
marked to market, thus giving rise to unrealized gains and losses that are
reflected in income immediately. There is no certainty that any of these mark to
market adjustments will result in realized gains and losses.
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(i) Accruals
Under U.S. and Canadian GAAP, costs and expenses are accrued and charged to
income only if it is probable that an asset has been impaired or a liability has
been incurred at the date of the financial statements and the amount of the loss
can be reasonably estimated. If a loss is probable and the reasonable estimate
of the loss is a range and no amount within the range appears to be a better
estimate than any other amount, the minimum amount in the range should be
accrued. If an amount or a range of amounts cannot be reasonably estimated, no
accrual shall be made. Furthermore, general or unspecified risks or possible
losses do not meet the conditions for an accrual under U.S. and Canadian GAAP.
Under IAS, accruals can be made on the basis of reasonable estimates of expected
costs and expenses. Additionally, under IAS, if a loss is probable and the
reasonable estimate of the loss is a range and no amount within the range
appears to be a better estimate than any other amount, the mid-point in the
range should be accrued.
(j) Restructuring provisions
The Group has recorded restructuring and similar provisions for IAS purposes in
the period management committed itself to a plan, when it was probable that a
liability had been incurred and the amount was estimable. These criteria differ
from those specified by U.S. and Canadian GAAP, which are more prescriptive than
IAS in terms of the timing of recognizing restructuring provisions and exit
costs, as well as the types of costs that may be accrued.
(k) Tax effect of U.S. GAAP and Canadian GAAP adjustments
U.S. GAAP requires recognition of deferred tax assets and liabilities for
temporary differences using enacted tax rates in effect at year-end in
accordance with SFAS No. 109 Accounting for Income Taxes. Prior to the adoption
of IAS 12 (revised), as of January 1, 1996, the Group applied the provisions of
IAS 12 (original). The effect of the January 1, 1998 adoption of IAS 12
(revised) eliminated the netting of deferred tax assets and liabilities.
For Canadian GAAP purposes, the Group has chosen to early adopt on a retroactive
restatement basis the provisions of C.I.C.A. Handbook Section 3465, Income
Taxes, which, in the Group's circumstances, results in no significant
differences from U.S. GAAP on accounting for income taxes.
U.S. and Canadian GAAP require deferred taxes to be recognized for all
differences between the bases of assets and liabilities for tax and financial
reporting purposes.
Additionally, under U.S. and Canadian GAAP, net operating loss carry forwards
("NOLs") and other credits that are available to reduce futures taxes are
recognized as deferred tax assets. Such amounts are reduced by a valuation
allowance to the extent that it is more likely than not that the tax benefit
related to the utilization of such NOLs or credits will not be realized. Under
IAS, deferred tax assets are only recognized when it is probable that they will
be realized. In addition, under U.S. and Canadian GAAP, NOLs and other credits
existing at the date of a purchased business combination that are first
recognized subsequent to the acquisition date (by reduction of the valuation
allowance) are reported in the following manner:
o First, the positive goodwill related to the acquisition is reduced
to zero;
o Second, other non-current intangible assets related to the acquisition
are reduced to zero; and
o Third, any remaining benefit is reported as
a reduction of income tax expense.
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The deferred tax adjustment included in the reconciliation of IAS to U.S. and
Canadian GAAP includes the income tax effects of the U.S. and Canadian GAAP
adjustments where appropriate.
(m) Earnings per share
Under IAS and U.S. GAAP, the presentation of basic and diluted earnings per
share (EPS) is required. Basic EPS is calculated by dividing earnings available
to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted EPS takes into account the dilutive
effect of options and convertible securities using the treasury stock method.
Under Canadian GAAP, basic EPS is calculated in the same manner as IAS and U.S.
GAAP. Fully diluted EPS is computed taking into account the dilutive effect of
options and convertible securities using the "if converted" method for
convertible securities and imputing earnings on the assumed exercise of options,
warrants or other rights.
ADDITIONAL U.S. AND CANADIAN GAAP INFORMATION
Total cost method
As allowed under IAS, the Group has presented its statement of operations under
the "total cost" method. Under U.S. and Canadian GAAP, the statement of
operations would be presented in a cost of sales format. Such difference in
presentation has no effect on net income.
As allowed under IAS, changes in the labor and overhead portions of finished
goods are added to sales if inventory increases and subtracted if inventory
decreases in order to show pure period costs without distortions for changes in
inventory. Under U.S. and Canadian GAAP, this presentation is not permitted, and
such items would be reflected in cost of sales. Such difference in presentation
has no effect on net income.
Income statement
Certain items in the consolidated income statements would be classified
differently under U.S. and Canadian GAAP. These items include the reversal of
certain provisions and allowances for doubtful accounts that would generally be
recorded as reductions to the original expense line item under U.S. and Canadian
GAAP rather than in other income, and the interest component of net periodic
pension cost would be recorded within pension expense under U.S. and Canadian
GAAP rather than interest expense.
As allowed under IAS, amortization of goodwill is not included as a component of
operating income. Under U.S. GAAP amortization of goodwill is included in
operating income. If the Company had applied U.S. GAAP for presentation and
measurement purposes, operating income would have been decreased by CHF 40
million, CHF 43 million, and CHF 45 million, in 1999, 1998 and 1997,
respectively related to amortization of goodwill.
Comprehensive Income
Beginning in 1998, U.S. GAAP requires the disclosure of comprehensive income
which, for the Group, is net income increased or decreased for translation
differences as presented in the
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Group's statement of shareholders' equity. The following presents the Group's
comprehensive income based upon IAS for each of the years ended December 31,
1999, 1998 and 1997:
YEARS ENDED
DECEMBER 31,
---------------------
1997 1998 1999
---- ---- ----
(In millions of CHF)
Net income in accordance with IAS 463 530 678
Other comprehensive income:
Currency translation adjustment (81) (81) 40
--- --- ---
Comprehensive income 382 449 718
=== === ===
Spin-off of Chemicals business
Under Canadian GAAP, liabilities that will be assumed by a purchaser or
discharged from the proceeds of sale may not be offset against assets held for
disposal. Accordingly, the liabilities of discontinued operations that have been
offset against the assets of discontinued operations and classified as a part of
net assets of discontinued operations in the consolidated balance sheet under
IAS would be shown on a broad basis, rather than net. Such difference in
presentation has no impact on consolidated shareholders' equity.
Discontinued operations
As described in Note 28 (b), certain Lawson Mardon businesses that were acquired
during 1994 have been classified as discontinued operations under IAS. Under
U.S. and Canadian GAAP, the requirements to be classified as discontinued
operations are more prescriptive. Accordingly, the results of operations for
these disposals would be classified as part of income from continuing
operations. Had such businesses been classified as continuing operations at
December 31, 1997, the Group's total assets and liabilities, as prepared in
accordance with IAS, would have increased by approximately CHF 225 million and
the net assets of discontinued operations would be decreased by the same amount.
Net sales for the years ended December 31, 1998 and 1997 would have increased by
approximately CHF 110 million and CHF 440 million, respectively.
Deferred taxes
Under IAS, the Group's deferred tax assets and liabilities are classified as
long-term. Under U.S. and Canadian GAAP, the Group's deferred tax assets and
liabilities would be segregated between current and long-term.
Use of estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, as
well as disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.
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Proportional consolidation
Under IAS, the Group's 70% interest in a mining joint venture is reported using
the proportionate consolidation method. This method takes into account
individual assets, liabilities, income and expenses line-by-line pro rata to the
participation in the equity.
Under U.S. and Canadian GAAP, this joint venture would be fully consolidated,
with a corresponding balance reflected for the minority interest, as the Group
has effective operating control of the joint venture.
Under the full consolidation method, the Group's consolidated financial
statements would include 100 percent of the assets and liabilities of the joint
venture and reflect the related minority ownership interest. The effect of fully
consolidating the joint venture would be to increase total assets by
approximately CHF 198 million CHF 185 million and CHF 149 million at
December 31, 1999, 1998 and 1997, respectively. Operating expenses would be
increased by approximately CHF 95 million, CHF 97 million, and CHF 96 million
for the years ended December 31, 1999, 1998 and 1997, respectively, principally
representing the minority interest's share of the joint venture's operating
expenses. These adjustments would have no impact on the Group's net income for
the respective periods.
OTHER U.S. GAAP STATEMENTS ISSUED BUT NOT ADOPTED:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities". This Statement establishes
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This Statement, as amended
by SFAS No. 137, is effective for all fiscal years beginning after June 15,
2000. Management has not determined the effect of the adoption of SFAS No. 133.
The Securities and Exchange Commission issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101), on December 3, 1999.
SAB 101 provides additional guidance on the application of existing generally
accepted accounting principles to revenue recognition in financial statements.
As amended, SAB 101 is required to be adopted no later than the fourth quarter
of fiscal years beginning after December 15, 1999. The Group does not expect the
adoption of SAB 101 to have a material effect on the Group's consolidated
financial position or results from operations.
The Financial Accounting Standard Board issued Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation" (FIN 44),
in March 2000. This interpretation clarifies the application of "Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees",
with respect to certain issues in accounting for employee stock compensation
and is generally effective as of July 1, 2000. The Group does not expect the
adoption of FIN 44 to have a material effect on the Group's consolidated
financial position or results from operations.
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