EXHIBIT 99.2
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF VALTRA INC.
We have audited the combined balance sheets of Valtra Group as of December 31,
2001, June 30, 2002 and December 31, 2002 and the related combined statements
of operations and combined statements of cash flows for the years ended
December 31, 2000 and 2001 and the periods from January 1, 2002 to June 30,
2002 (Predecessor) and from July 1, 2002 to December 31, 2002 (Successor).
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Finland and in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements. An audit
also 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Valtra
Group as of December 31, 2001, June 30, 2002 and December 31, 2002, and the
combined results of their operations and their cash flows for the years ended
December 31, 2000 and 2001 and the periods from January 1, 2002 to June 30,
2002 and from July 1, 2002 to December 31, 2002 in conformity with accounting
principles generally accepted in Finland.
Accounting principles generally accepted in Finland vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 18 to the combined financial statements.
Helsinki, Finland
29 December, 2003
KPMG WIDERI OY AB
/s/ Solveig Tornroos-Huhtamaki
Authorized Public Accountant
1
VALTRA GROUP
COMBINED STATEMENTS OF OPERATIONS
(AMOUNTS IN MILLIONS OF EURO)
SUCCESSOR PREDECESSOR
------------------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM
TO DECEMBER 31 | JANUARY 1 TO YEAR ENDED DECEMBER 31,
NOTES 2002 | JUNE 30, 2002 2001 2000
------------------------------|---------------------------------------------
Net sales 2 379,4 | 382,3 685,5 671,1
Cost of goods sold (308,9) | (315,4) (563,3) (553,0)
|
Gross profit 70,5 | 66,9 122,2 118,1
|
Selling and marketing expenses (31,2) | (30,7) (63,3) (55,3)
Research and development expenses (5,4) | (6,8) (13,3) (11,8)
Administration expenses (9,6) | (9,6) (19,0) (18,1)
Other operating income 5 1,2 | 2,1 1,6 7,3
Other operating expenses 5 (1,3) | (1,5) (2,3) (6,9)
------ | ------ ------ ------
Total (46,3) | (46,5) (96,3) (84,8)
------ | ------ ------ ------
|
Operating profit 24,2 | 20,4 25,9 33,3
|
Equity in income (loss) of |
associated companies 0,1 | (0,1) (0,3) --
|
Financial items |
Other interest income 0,4 | 0,3 0,9 0,9
Interest expenses (2,6) | (2,3) (7,2) (7,8)
Other financial items 6 (0,2) | (1,0) (1,0) (0,1)
------ | ------ ------ ------
Total (2,4) | (3,0) (7,3) (7,0)
------ | ------ ------ ------
|
Profit after financial items 21,9 | 17,3 18,3 26,3
|
Extraordinary items |
Group contributions paid (24,7) | -- (13,6) (26,7)
|
Profit before appropriations and taxes (2,8) | 17,3 4,7 (0,4)
|
Change in deferred taxes 7 (1,4) | 0,2 4,8 2,1
Direct taxes 7 (2,2) | (4,2) (4,8) (2,0)
------ | ------ ------ ------
|
NET INCOME/(LOSS) FOR THE PERIOD (6,4) | 13,3 4,7 (0,3)
====== | ====== ====== ======
See accompanying notes to the combined financial statements.
2
VALTRA GROUP
COMBINED BALANCE SHEETS
(AMOUNTS IN MILLIONS OF EURO)
SUCCESSOR PREDECESSOR
------------------------------------------
AT | AT AT
DECEMBER 31, | JUNE 30, DECEMBER 31,
NOTES 2002 | 2002 2001
----------------------------------|---------------------------
ASSETS |
FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS |
Intangible assets |
Other capitalised expenditure 8 1,2 | 1,6 2,2
|
Tangible assets |
Land 8 1,4 | 2,2 2,7
Buildings and constructions 8 20,1 | 20,1 23,2
Machinery and equipment 8 30,3 | 28,3 32,7
Other tangible assets 8 0,1 | 0,1 0,2
Advance payments and construction in progress 8 5,0 | 6,1 4,6
----- | ----- -----
Total 56,9 | 56,8 63,4
----- | ----- -----
Investments |
Investments in equity method investees 8,9 1,6 | 1,5 1,5
Other shares and participations 8,9 0,1 | 0,3 0,2
Long-term loan receivables 10 1,6 | 1,0 0,9
----- | ----- -----
Total 3,3 | 2,8 2,6
----- | ----- -----
|
Total fixed assets and long-term investments 61,4 | 61,2 68,2
----- | ----- -----
Current assets |
Inventories |
Materials and supplies 32,6 | 30,5 29,2
Work in progress 5,6 | 11,1 4,4
Finished goods 60,7 | 57,8 50,0
----- | ----- -----
Total 98,9 | 99,4 83,6
----- | ----- -----
|
Receivables |
Accounts receivable 76,3 | 89,4 98,2
Loan receivables 10 74,3 | -- --
Other receivables 10 4,0 | -- --
Deferred tax assets 7 6,5 | 7,9 7,7
Prepaid expenses and accrued income 10 18,1 | 21,9 17,6
----- | ----- -----
Total 179,2 | 119,2 123,5
----- | ----- -----
|
Cash and bank balances 30,3 | 18,2 24,8
----- | ----- -----
|
Total current assets 308,4 | 236,8 231,9
|
TOTAL ASSETS 369,8 | 298,0 300,1
===== | ===== =====
See accompanying notes to the combined financial statements.
3
SUCCESSOR PREDECESSOR
----------------------------------------
AT | AT AT
DECEMBER 31, | JUNE 30, DECEMBER 31,
NOTES 2002 | 2002 2001
----------------------|--------------------------
SHAREHOLDERS' EQUITY AND LIABILITIES |
Shareholders' equity |
Share capital 11 43,6 | 43,6 43,6
Share premium account 11 54,7 | 54,7 54,7
Retained earnings (deficit) 11 (44,7) | (48,3) (34,8)
Net income for the period (6,4) | 13,3 4,7
----- | ----- -----
Total shareholders' equity 47,2 | 63,3 68,2
----- | ----- -----
Liabilities |
Long-term |
Loans from financial institutions 12 -- | -- 0,1
Other interest-bearing liabilities 12 75,1 | 45,4 37,9
Other non interest-bearing liabilities 12 1,4 | 0,8 0,8
Deferred tax liability 7 0,1 | 0,1 0,1
----- | ----- -----
Total 13 76,6 | 46,3 38,9
----- | ----- -----
|
Current |
Other interest-bearing liabilities 13 91,3 | 57,9 63,9
Advances received 14 3,9 | 0,3 4,6
Accounts payable 14 59,0 | 70,3 54,3
Accrued expenses and deferred income 14, 15 91,8 | 59,9 70,2
----- | ----- -----
Total 246,0 | 188,4 193,0
----- | ----- -----
|
Total liabilities 322,6 | 234,7 231,9
----- | ----- -----
|
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 369,8 | 298,0 300,1
===== | ===== =====
See accompanying notes to the combined financial statements.
4
VALTRA GROUP
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN MILLIONS OF EURO)
SUCCESSOR PREDECESSOR
--------------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM
TO DECEMBER 31 | JANUARY 1 TO YEAR ENDED DECEMBER 31,
2002 | JUNE 30, 2002 2001 2000
--------------------|------------------------------------------
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net profit before taxation, and extraordinary item 21,9 | 17,3 18,3 26,3
Adjustments for: |
Depreciation 5,1 | 5,8 11,1 11,2
Financial items 2,2 | 3,1 7,7 7,0
Investment income -- | -- 0,1 0,1
----- | ---- ----- -----
|
Cash generated from operations before change in |
net working capital 29,2 | 26,2 37,2 44,6
----- | ---- ----- -----
|
CHANGE IN NET WORKING CAPITAL: |
(Increase) / decrease in trade and other receivables 17,4 | (9,7) (0,3) (4,9)
(Increase) / decrease in inventories (0,4) | (18,1) (7,0) 9,2
(Decrease) / increase in trade payables (9,1) | 17,0 18,9 11,7
----- | ---- ----- -----
Cash generated from operations 37,1 | 15,4 48,8 60,6
----- | ---- ----- -----
|
Interest paid (3,7) | (3,8) (8,1) (8,4)
Interest received 0,1 | -- 0,9 1,0
Income taxes paid (1,9) | (0,7) (8,1) (0,7)
----- | ---- ----- -----
NET CASH FROM OPERATING ACTIVITIES 31,6 | 10,9 33,5 52,5
----- | ---- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES: |
Purchase of property, plant and equipment (9,1) | (5,2) (15,0) (13,9)
Proceeds from sale of property, plant and equipment 0,7 | -- 0,3 0,4
----- | ---- ----- -----
NET CASH USED IN INVESTING ACTIVITIES (8,4) | (5,2) (14,7) (13,5)
----- | ---- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES: |
Proceeds from long-term borrowings -- | 7,3 21,2 0,1
Payment of long-term borrowings (44,5) | -- (15,2) (15,1)
Proceeds from short-term loans 33,4 | -- 10,9 1,9
Payment of short-term loans -- | (6,0) -- --
Paid group contributions -- | (13,6) (26,7) (25,9)
----- | ---- ----- -----
NET CASH USED IN FINANCING ACTIVITIES (11,1) | (12,3) (9,8) (39,0)
----- | ---- ----- -----
|
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 12,1 | (6,6) 9,0 0,0
===== | ==== ===== =====
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 18,2 24,8 15,8 15,8
CASH AND CASH EQUIVALENTS AT END OF PERIOD 30,3 18,2 24,8 15,8
See accompanying notes to the combined financial statements.
5
VALTRA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Valtra Group ("Valtra" and "Group") is owned by KONE Corporation, a
publicly listed company in Finland ("KONE") and develops, manufactures and
sells tractors and diesel engines for off-road vehicles. Valtra provides its
customers the opportunity to order a tractor, which is produced according to
the end customer's specification at the factory, with a large number of
options, accessories and different colors. The tractors are sold in most of the
markets using dealer networks. However, in certain markets, Valtra has its own
direct sales force, which has the authority to accept trade-in tractors and
sell them. Spare parts sales are also part of Valtra's business. Service of
tractors is handled by the dealers and, in the case of direct sales, mainly by
third party service contractors. In most of the markets, sales financing is
offered to the end customers. In some markets, sales financing is also offered
to dealers. Independent third party finance companies provide these financing
services to customers.
KONE has signed an agreement to sell the Valtra Group to AGCO
Corporation. The transaction is expected to close in the first quarter of 2004.
BASIS OF PREPARATION
The combined financial statements of Valtra have been prepared in
conformity with accounting principles generally accepted in Finland ("Finnish
GAAP"). Finnish GAAP differs in certain significant respects from accounting
principles generally accepted in the United States of America ("US GAAP").
Information relating to the nature and effect of such differences is presented
in Note 18.
The preparation of the combined financial statements in conformity with Finnish
GAAP requires the Group's management to make a number of estimates and
assumptions relating to the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the period. Significant items subject to such estimates and assumptions include
the carrying amount of property, plant and equipment, valuation allowances for
receivables, inventories, deferred income tax assets, valuation of derivative
instruments and assets and obligations related to employee benefits. Actual
results could differ from those estimates.
PRINCIPLES OF COMBINATION
The legal structure for Valtra Group differs in certain respects from
the combined group shown in these financial statements. Finnish GAAP does not
have specific rules for combination. The combination is prepared to generally
present the historical financial statements of the combined businesses to be
acquired, and does not necessarily reflect the legal organization of Valtra
Group. The combined financial statements include the financial statements of
Valtra Oy, a company registered in Finland, and its greater than 50 % owned
subsidiaries as well as Valtra USA, Inc. and Partek Holding, Inc., collectively
the "Group". Valtra USA, Inc. and Partek Holding, Inc. are companies managed
and operated by Valtra and they are under common control of KONE. During 2002,
KONE acquired Partek Corporation, a publicly listed company in Finland
("Partek"), the owner of Valtra, in a business combination accounted for as
purchase. Accordingly, the financial statements before and after the
acquisition may not be comparable in all material respects. A vertical black
line has been inserted to distinguish between the Predecessor (before KONE
acquisition) and Successor Companies (after KONE acquisition).
6
The Group's combined financial statements are prepared by combining
the assets, liabilities and results of operations of companies listed in note 9
as these companies are managed and operated on a combined basis.
All inter company transactions have been eliminated in combination.
The difference between the acquisition cost of the shares of a subsidiary and
the equity at the time of acquisition is allocated to fixed assets to the
extent that their current value exceeds the book value. In this calculation,
appropriations, net of tax, are included in equity. The excess value allocated
to fixed assets is depreciated according to the depreciation plan of the
underlying fixed asset item. The remaining difference is carried as goodwill,
which is amortized over its expected useful life, 5-20 years.
Entities in which the Group owns less that 50 % (note 9) but have
significant influence are accounted for by the equity method in the combined
financial statements.
TRANSACTIONS DENOMINATED IN FOREIGN CURRENCIES
Foreign currency transactions are recorded at the exchange rates
prevailing at the time of transaction. At the end of the accounting period
receivables and liabilities are translated at the rates prevailing on the
balance sheet date. Exchange rate differences related to sales and purchases
are treated as adjustments to the underlying items. Exchange rate gains and
losses associated with financing are entered as net amount under financial
income and expenses.
The reporting currency of the Group is Euro, which is also the
functional currency of the parent company. The income statements of foreign
subsidiaries are translated at the average exchange rates for the accounting
period, and the balance sheets are translated at the closing rate on the
balance sheet date. All translation differences arising from the combination of
foreign subsidiaries and associated companies are credited or charged directly
to retained earnings in the combined financial statements.
DERIVATIVE FINANCIAL INSTRUMENTS
The business operations of the Group give rise to certain exposures
related to currency exchange rates. These risks are managed to minimize their
impact on the Group's profitability and financial position.
The Group considers its derivative financial instruments to be a hedge
when certain criteria are met.
For a non-Euro currency derivative instrument to qualify as a hedge,
the instrument must be related to a non-Euro currency asset, liability, or
commitment, or a portfolio of assets, liabilities and commitments, the
characteristics of which have been identified; involve the same currency as the
hedged item; and reduce the exposure to the risk of non-Euro currency exchange
movements on the Group's operations.
Gains and losses on forward exchange contracts and currency swaps that
are designated and effective as hedges are deferred and recognized in income or
as adjustments of carrying amounts when the hedged transaction occurs. The
interest component determined at the inception of the contract is accrued as
interest income and expense over the contract term.
The Group does not use derivative financial instruments for
speculative purposes.
7
REVENUE RECOGNITION
Sales are recorded upon delivery of products or performance of
services. Net sales consist of gross sales revenues reduced by certain items
including indirect sales taxes and sales discounts. The Group estimates and
records provisions for cash discounts, quantity rebates, sales returns and
allowances and original warranties in the period the sale is reported based on
its historical experience. The Group has guaranteed certain financing
arrangements between end customer and financial institutions. The revenues have
been recognized and a provision for expected future guarantee losses has been
set up based on historical experience.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and balances with
banks and highly liquid short-term investments. For purposes of the combined
statement of cash flows, the Group considers all highly liquid investments to
be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded at historical cost, less a provision
for doubtful accounts. Management considers current information and events
regarding the debtors' ability to repay their obligations, and makes a
provision against amounts due when it is probable that the full amount will not
be collected.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value
using the first-in, first out method. The cost of inventories includes a
proportionate share of overhead arising from the purchase and production of the
goods. Cost includes direct manufacturing, labor and materials, variable
overhead and full absorption of manufacturing overhead.
IMPAIRMENT OF FIXED ASSETS
Impairment of property, plant and equipment and other tangible assets
is recognized if the estimated future cash flows generated by the fixed asset
is expected to be permanently lower than the historical cost, net of
depreciation. The amount of impairment is calculated as the difference between
the estimated future revenue generated and the historical cost, net of
depreciation and recorded as an expense. Fixed assets may be revalued upwards
to recover amounts previously recorded as impairment.
INTANGIBLE ASSETS
Other intangibles assets include capitalized expenditures related
primarily to software licensees and leasehold improvements and are amortized
over 3 to 10 years.
8
FIXED ASSETS AND DEPRECIATION
Property, plant and equipment are stated at the historical cost less
accumulated depreciation. Depreciation on plant and equipment is calculated
using the straight-line method over the estimated useful lives of the assets
according to plan as follows:
Buildings........................................ 15-40 years
Machinery and equipment.......................... 3-10 years
Other tangible assets............................ 5-30 years
Gains and losses on the disposal of fixed assets are included in
operating income and expenses or in extraordinary items, depending on the
nature of the transaction.
LONG-TERM INVESTMENTS
Long-term investments include investments, which are recorded at their
historical cost less impairment of permanent decreases in value.
LEASING
Operating and financial lease payments are treated as rentals. Annual
leasing charges on the basis of existing leasing agreements are shown in the
notes.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed in the financial period
during which they have been incurred.
WARRANTY COSTS
The estimated warranty costs on goods delivered to customers are
charged to earnings and included in accrued expenses in the balance sheet.
PENSION ARRANGEMENTS
Statutory and supplementary pension obligations in Finland are covered
through a compulsory pension insurance policy. Payments to pension insurance
institutions are recorded in amounts determined by the insurance institutions
according to certain prescribed actuarial assumptions and other rulings
pursuant to the Finnish Employees' Act. Group companies outside of Finland have
pension obligations arranged and pension liabilities recorded in accordance
with the local regulations and practice. Costs of pensions are recorded as they
are earned. Changes in uncovered pension liabilities are entered in the income
statement. The pension liability is included in the balance sheet.
9
INCOME TAXES
Income taxes in the income statement include taxes of the Group
companies for the financial period, calculated in accordance with local
regulations, as well as adjustments to prior year taxes and deferred taxes.
Deferred tax assets and liabilities are determined for temporary differences
arising between the tax basis of assets and liabilities and their carrying
values for financial reporting purposes. Currently enacted tax rate is used in
determination of deferred tax income. The balance sheet includes all deferred
tax liabilities and the probable realizable amount of deferred tax assets. No
deferred tax liability is recognized for undistributed earnings of
subsidiaries.
EXTRAORDINARY ITEMS
Extraordinary items include group contributions. For tax purposes in
Finland, profits and losses of companies within a group are combined through
group contributions. Group contributions are treated as an expense for the
contribution provider and as income for the beneficiary.
APPROPRIATIONS
Appropriations comprise voluntary provisions and the temporary
differences related to the depreciation of the tax basis as compared to the
book basis of fixed assets. Accumulated appropriations are divided into tax
liability and shareholders' equity. The change in appropriations, net of the
tax liability, is included in the earnings for the year.
10
VALTRA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA)
SUCCESSOR PREDECESSOR
-------------------------------------------------------------------
2. GEOGRAPHICAL AREA DATA PERIOD FROM JULY 1 | PERIOD FROM
TO DECEMBER 31 | JANUARY 1 TO YEAR ENDED DECEMBER 31,
Net sales by geographical area 2002 | JUNE 30, 2002 2001 2000
---------------------|----------------------------------------------
Finland 89,7 | 105,4 180,0 178,7
Other EU 134,7 | 142,1 252,3 231,4
Other Europe 27,8 | 22,6 36,0 32,6
North America 15,8 | 12,8 22,9 32,0
South America 81,2 | 91,0 174,2 164,3
Other countries 30,2 | 8,4 20,1 32,1
----- | ----- ----- -----
Total 379,4 | 382,3 685,5 671,1
===== | ===== ===== =====
SUCCESSOR PREDECESSOR
-------------------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM
TO DECEMBER 31 | JANUARY 1 TO YEAR ENDED DECEMBER 31,
Personnel expenses by geographical area 2002 | JUNE 30, 2002 2001 2000
---------------------|----------------------------------------------
Finland 31,0 | 30,6 57,0 55,1
Other EU 4,3 | 3,9 9,0 8,7
Other Europe 1,6 | 1,4 2,8 0,8
South America 4,6 | 6,4 12,6 14,4
Other countries 1,1 | 1,1 0,8 0,2
---- | ---- ---- ----
Total 42,6 | 43,4 82,2 79,2
==== | ==== ==== ====
SUCCESSOR PREDECESSOR
---------------------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM
TO DECEMBER 31 | JANUARY 1 TO YEAR ENDED DECEMBER 31,
Personnel on average by geographical area 2002 | JUNE 30, 2002 2001 2000
---------------------|------------------------------------------------
Finland 1 528 | 1 499 1 467 1 432
Other EU 153 | 153 168 177
Other Europe 41 | 42 42 12
South America 739 | 737 739 727
Other countries 29 | 27 14 10
----- | ----- ----- -----
Total 2 490 | 2 458 2 430 2 358
===== | ===== ===== =====
11
SUCCESSOR PREDECESSOR
-----------------------------------------------------------------
3. PERSONNEL EXPENSES PERIOD FROM JULY 1 | PERIOD FROM
TO DECEMBER 31 | JANUARY 1 TO YEAR ENDED DECEMBER 31,
Wages and salaries 2002 | JUNE 30, 2002 2001 2000
--------------------|---------------------------------------------
Salaries and payments to |
Board Members and Managing Directors 0,9 | 1,1 1,7 1,6
To others 32,5 | 32,8 60,7 58,3
Bonus to Board Members and Managing Directors 0,3 | -- 0,1 0,1
---- | ---- ---- ----
Wages and salaries, total 33,7 | 33,9 62,5 60,0
---- | ---- ---- ----
Other personnel expenses |
Pension expenses 4,9 | 4,1 7,7 7,3
Other personnel expenses 4,0 | 5,4 12,0 11,9
---- | ---- ---- ----
Total 8,9 | 9,5 19,7 19,2
---- | ---- ---- ----
|
Personnel expenses, total 42,6 | 43,4 82,2 79,2
==== | ==== ==== ====
SUCCESSOR PREDECESSOR
--------------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM
TO DECEMBER 31 | JANUARY 1 TO YEAR ENDED DECEMBER 31,
Personnel 2002 | JUNE 30, 2002 2001 2000
-------------------|-------------------------------------------
On average 2 490 | 2 458 2 430 2 358
At year end 2 508 | 2 547 2 395 2 358
DISMISSAL
The severance term for the CEO is six months. If the company dismisses
the CEO, in addition to the six month salary he will also receive an additional
six months compensation.
12
4. DEPRECIATION AND AMORTIZATION SUCCESSOR PREDECESSOR
--------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED
TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31,
Depreciation and amortization by function 2002 | JUNE 30, 2002 2001 2000
--------------------|------------------------------------
Production 3,6 | 3,9 6,9 7,6
Selling and marketing 0,7 | 0,8 1,7 1,2
Research and development 0,2 | 0,2 0,4 0,4
Administration 0,6 | 0,9 2,1 2,0
--- | --- ---- ----
Total 5,1 | 5,8 11,1 11,2
=== | === ==== ====
SUCCESSOR PREDECESSOR
---------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED
TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31,
Depreciation and amortization by category 2002 | JUNE 30, 2002 2001 2000
-------------------|--------------------------------------
Intangible rights 0,2 | 0,3 0,5 0,6
Other capitalised expenditure 0,3 | 0,2 0,4 0,1
Buildings and constructions 0,9 | 1,0 1,6 2,1
Machinery and equipment 3,7 | 4,2 8,4 8,2
Other tangible assets 0,0 | 0,1 0,2 0,2
--- | --- ---- ----
Total 5,1 | 5,8 11,1 11,2
=== | === ==== ====
5. OTHER OPERATING INCOME AND EXPENSES SUCCESSOR PREDECESSOR
--------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED
TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31,
Other operating income 2002 | JUNE 30, 2002 2001 2000
-------------------|-------------------------------------
Rental income 0,1 | 0,1 0,2 0,2
Profit on sale of fixed assets -- | 0,1 0,1 0,2
Other income 1,1 | 1,9 1,3 6,9
--- | --- --- ---
Total 1,2 | 2,1 1,6 7,3
=== | === === ===
SUCCESSOR PREDECESSOR
---------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED
TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31,
Other operating expenses 2002 | JUNE 30, 2002 2001 2000
--------------------|------------------------------------
Loss on sale of fixed assets -- | -- 0,2 0,3
Wages for term of notice in connection with |
restructuring 0,1 | 0,1 -- 0,1
Service fee expenses 0,4 | 0,5 0,7 1,0
Other expenses 0,8 | 0,9 1,4 5,5
--- | --- --- ---
Total 1,3 | 1,5 2,3 6,9
=== | === === ===
13
6. OTHER FINANCIAL ITEMS SUCCESSOR PREDECESSOR
----------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED
TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31,
2002 | JUNE 30, 2002 2001 2000
---------------------|-------------------------------------
Exchange rate differences 0,2 | (0,8) (2,1) (0,8)
Other financial income 0,4 | 0,6 1,5 1,2
Other financial expenses (0,8) | (0,8) (0,4) (0,5)
---- | ---- ---- ----
Total (0,2) | (1,0) (1,0) (0,1)
==== | ==== ==== ====
7. INCOME TAXES SUCCESSOR PREDECESSOR
------------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED
TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31,
Income taxes 2002 | JUNE 30, 2002 2001 2000
--------------------|----------------------------------------
Direct taxes for the year 2,1 | 4,2 4,9 1,9
Direct taxes from previous years 0,1 | -- (0,1) 0,1
Change in deferred tax asset / liability 1,4 | (0,2) (4,8) (2,1)
--- | ---- ---- ----
Total 3,6 | 4,0 -- (0,1)
=== | ==== ==== ====
SUCCESSOR PREDECESSOR
--------------------------------------------------------
AT | AT AT
Deferred tax asset DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
--------------------|------------------------------------
From consolidation entries 4,9 | 5,8 5,9
From valuation and matching differences 1,9 | 2,4 2,1
Offset against liabilities (0,3) | (0,3) (0,3)
---- | ---- ----
Total 6,5 | 7,9 7,7
==== | ==== ====
SUCCESSOR PREDECESSOR
----------------------------------------------------------
AT | AT AT
Deferred tax liability DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
-------------------|---------------------------------------
From appropriations 0,4 | 0,3 0,3
From consolidation entries -- | 0,1 0,1
Offset against receivables (0,3) | (0,3) (0,3)
---- | ---- ----
Total 0,1 | 0,1 0,1
==== | ==== ====
14
8. FIXED ASSETS
PREDECESSOR
Advanced
Other Buildings Other payments and
capitalised and Machinery and tangible construction
expenditure Land construction equipment assets in progress
------------------------------------------------------------------------------
Historical cost as at January 1, 2001 5,1 2,7 34,4 111,0 1,0 2,4
Translation differences (0,2) (0,1) (0,6) (5,1) -- 0,1
Capital expenditures 0,5 -- 0,3 5,7 -- 7,7
Disposals and other decreases -- -- -- (1,3) -- --
Transfers between line items -- 0,1 1,5 4,0 -- (5,6)
Other changes -- -- (1,4) (0,1) -- --
----- ----- ----- ----- ----- -----
Historical cost as at December 31, 2001 5,4 2,7 34,2 114,2 1,0 4,6
Accumulated depreciation and amortization as
at January 1, 2001 (2,4) -- (10,3) (77,4) (0,6) --
Translation differences 0,1 -- 0,5 3,4 -- --
Depreciation and amortization during the year (0,9) -- (1,6) (8,4) (0,2) --
Other changes -- -- 0,4 0,9 -- --
----- ----- ----- ----- ----- -----
Accumulated depreciation and amortization as
at December 31, 2001 (3,2) -- (11,0) (81,5) (0,8) --
CARRYING VALUE AS AT DECEMBER 31, 2001 2,2 2,7 23,2 32,7 0,2 4,6
===== ===== ===== ===== ===== =====
Historical cost as at January 1, 2002 5,4 2,7 34,2 114,2 1,0 4,6
Translation differences (0,7) (0,5) (3,7) (13,3) -- (0,1)
Capital expenditures 0,1 -- 0,1 1,5 -- 3,4
Disposals and other decreases -- -- -- (0,1) -- --
Transfers between line items -- -- 0,3 1,4 -- (1,8)
----- ----- ----- ----- ----- -----
Historical cost as at June 30, 2002 4,8 2,2 30,9 103,7 1,0 6,1
Accumulated depreciation and amortization as
at January 1, 2002 (3,2) -- (11,0) (81,5) (0,8) --
Translation differences 0,5 -- 1,1 9,9 -- --
Depreciation and amortization during the year (0,5) -- (0,9) (3,8) (0,1) --
Accumulated depreciation and amortization as at
December 31, 2002 (3,2) -- (10,8) (75,4) (0,9) --
CARRYING VALUE AS AT JUNE 30, 2002 1,6 2,2 20,1 28,3 0,1 6,1
===== ===== ===== ===== ===== =====
15
SUCCESSOR
Historical cost as at July 1, 2002 4,8 2,2 30,9 103,7 1,0 6,1
Translation differences (0,4) (0,3) (2,4) (8,1) -- --
Capital expenditures 0,2 -- -- 5,3 -- 4,0
Disposals and other decreases -- (0,5) -- (0,2) -- --
Transfers between line items -- -- 2,6 2,5 -- (5,1)
---- ---- ----- ----- ---- ----
Historical cost as at December 31, 2002 4,6 1,4 31,1 103,2 1,0 5,0
Accumulated depreciation and amortization
as at June 1, 2002 (3,2) -- (10,8) (75,4) (0,9) --
Translation differences 0,3 -- 0,8 6,5 -- --
Depreciation and amortization during the year (0,5) -- (1,0) (4,1) -- --
Other changes -- -- -- 0,1 -- --
---- ---- ----- ----- ---- ----
Accumulated depreciation and amortization as
at December 31, 2002 (3,4) -- (11,0) (72,9) (0,9) --
CARRYING VALUE AS AT DECEMBER 31, 2002 1,2 1,4 20,1 30,3 0,1 5,0
==== ==== ===== ===== ==== ====
Investments in
equity method Investment in
SHARES AND PARTICIPATIONS investees other shares
PREDECESSOR
Historical cost as at January 1, 2001 0,1 0,2
Capital expenditures 1,4 --
--- -----
Historical cost as at December 31, 2001 1,5 0,2
CARRYING VALUE AS AT DECEMBER 31, 2001 1,5 0,2
=== =====
Historical cost as at January 1, 2002 1,5 0,2
Capital expenditures -- 0,1
--- -----
Historical cost as at June 30, 2002 1,5 0,3
CARRYING VALUE AS AT JUNE 30, 2002 1,5 0,3
=== =====
SUCCESSOR
Historical cost as at July 1, 2002 1,5 0,3
Increase 0,1 --
Disposals -- (0,2)
--- -----
Historical cost as at December 31, 2002 1,6 0,1
CARRYING VALUE AS AT DECEMBER 31, 2002 1,6 0,1
=== =====
16
9. SHARES AND PARTICIPATIONS, COMPANIES AND OPERATIONS COMBINED IN
COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2002
Group
Subsidiaries holding %
Sales and production companies:
Sisu Diesel Oy, Finland 100,0
Valtra Norge AS, Norge 100,0
Valtra Danmark A/S, Danmark 100,0
Valtra Vertriebs GmbH, Germany 100,0
Valtra Tractors (UK) Limited, Great Britain 100,0
Valtra Tracteurs France S.A.S., France 100,0
Valtra Tractores S.A., Spain 100,0
Valtractor-Comercia de Tractores, Portugal 100,0
Valtra GesmbH, Austria 100,0
Valtra Argentina Tractores SA, Argentina 99,9
Valtratractores Mexico S.A. de CV, Mexico 99,9
Valtra Canada Inc., Canada 100,0
Valtra Tractors (A&NZ), Pty. Ltd, Australia 100,0
Tracfin Holding Oy , Finland 100,0
Valtra do Brasil Ltda, Brasil 100,0
Tecnoagro Maquinas Agricolas Ltda, Brasil 99,9
Dormant companies:
Valtra Eastern Ventures Oy Ab , Finland 100,0
VTP-Tractores SA, Portugal 100,0
Sisu Tractors Tanzania Ltd, Tansania 100,0
Avelux S/A , Uruguay 100,0
Associated companies:
Valtra Traktor Ab, Sweden 40,0
Valtra Traktoren Ag, Switzerland 35,0
Operations combined into Valtra Group:
Valtra USA, Inc, USA
Partek Holding Inc, USA
Other companies (28), shareholding less than 20 % and Valtra does not have
significant influence or control.
17
10. LONG-TERM AND SHORT-TERM RECEIVABLES
SUCCESSOR PREDECESSOR
-------------------------------------------------------
Long term receivables: AT | AT AT
DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
-------------------|------------------------------------
Loan receivable 1,6 | 1,0 0,9
=== | === ===
SUCCESSOR PREDECESSOR
---------------------------------------------------
Short term receivables: AT | AT AT
DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
------------------|---------------------------------
Associated companies |
Accounts receivable 4,9 | 4,9 2,6
===== | ===== =====
|
Other companies |
Accounts receivable 71,4 | 84,5 95,5
Loan receivable 74,3 | -- --
Other receivables 4,0 | -- --
Deferred tax asset 6,5 | 7,9 7,7
Prepaid expenses and |
accrued income 18,1 | 21,9 17,7
----- | ----- -----
174,3 | 114,3 120,9
|
Short term receivables, total 179,2 | 119,2 123,5
===== | ===== =====
Short-term loan receivables include (Euro) 74,2 million receivable from
Valtra's parent company.
Interest rate is variable based on 3 months Libor +0,6%
Other receivables include (Euro) 4 million group contribution receivables from
other KONE companies.
18
11. SHAREHOLDERS' EQUITY
PREDECESSOR Share Share premium Retained
Total capital account earnings (deficit)
----------------------------------------------------------------
Balance at January 1, 2000 70,1 43,6 54,7 (28,2)
Currency translation adjustments (0,7) -- -- (0,7)
Net result for the period (0,3) -- -- (0,3)
---- ---- ---- -----
Balance at December 31, 2000 69,1 43,6 54,7 (29,2)
==== ==== ==== =====
Balance at January 1, 2001 69,1 43,6 54,7 (29,2)
Currency translation adjustments (5,6) -- -- (5,6)
Net result for the period 4,7 -- -- 4,7
---- ---- ---- -----
Balance at December 31, 2001 68,2 43,6 54,7 (30,1)
==== ==== ==== =====
Balance at January 1, 2002 68,2 43,6 54,7 (30,1)
Currency translation adjustments (18,2) -- -- (18,2)
Net result for the period 13,3 -- -- 13,3
---- ---- ---- -----
Balance at June 30, 2002 63,3 43,6 54,7 (35,0)
==== ==== ==== =====
SUCCESSOR
Balance at July 1 , 2002 63,3 43,6 54,7 (35,0)
Currency translation adjustments (9,7) -- -- (9,7)
Net result for the period (6,4) -- -- (6,4)
---- ---- ---- -----
Balance at December 31, 2002 47,2 43,6 54,7 (51,1)
==== ==== ==== =====
19
12. LONG-TERM LIABILITIES SUCCESSOR PREDECESSOR
----------------------------------------------------
AT | AT AT
DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
-------------------|---------------------------------
Subordinated loan 74,2 | -- --
Loans from financial institutions -- | -- 0,1
Other interest-bearing liabilities 0,9 | 45,4 37,9
Other non interest-bearing liabilities 1,5 | 0,9 0,9
---- | ---- ----
Total 76,6 | 46,3 38,9
==== | ==== ====
Subordinated loans amounted (Euro) 74,2 million as of December 31, 2002.
Loans have no maturity date and are not endorsed by any guarantee or other
security.
Loans are subordinate to the Group's other obligations and repayment can be made
only if distributable and non-distributable equity are in compliance with
Finnish Companies Act.
Interest payments on the subordinated loan can be only made from distributable
equity as required by Finnish Companies Act before the payment of dividend. The
interest on the subordinated loan is variable based on 6 months Euribor plus 1%.
Interest payables on subordinated loans are added to loan principal at the end
of June and December each year.
SUCCESSOR PREDECESSOR
----------------------------------------------------
Repayments of long-term liabilities after 5 years AT | AT AT
DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
------------------|----------------------------------
Other interest-bearing liabilities 0,9 | 8,0 8,0
=== | === ===
20
13. SHORT-TERM INTEREST-BEARING LIABILITIES SUCCESSOR PREDECESSOR
-------------------------------------------------------
AT | AT AT
DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
------------------|------------------------------------
Other short-term liabilities 91,3 | 57,9 63,9
==== | ==== ====
Other short-term interest bearing liabilities include a non-current loan (Euro)
87 million from the parent company of Valtra and (Euro) 4 million from the
service office.
14. SHORT-TERM NON INTEREST-BEARING LIABILITIES SUCCESSOR PREDECESSOR
--------------------------------------------------------
AT | AT AT
Other companies DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
------------------|-------------------------------------
Accounts payable 59,0 | 70,3 54,3
Advances received 3,9 | 0,3 4,6
Other accrued expenses and deferred income 91,8 | 59,9 70,2
----- | ----- -----
Short-term non interest-bearing liabilities, total 154,7 | 130,5 129,1
===== | ===== =====
15. ACCRUED EXPENSES AND DEFERRED INCOME SUCCESSOR PREDECESSOR
----------------------------------------------------
AT | AT AT
Related to DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
------------------|---------------------------------
Group contribution payable 28,6 | -- 13,6
Purchases 0,2 | 1,9 0,9
Sales related items 6,9 | 10,7 4,7
Personnel costs 11,1 | 12,5 11,0
Warranties 11,3 | 9,0 10,4
Financial items 0,2 | 1,2 1,7
Taxes 7,0 | 1,2 7,2
Other 26,5 | 23,4 20,7
---- | ---- ----
Total 91,8 | 59,9 70,2
==== | ==== ====
21
16. PLEDGED ASSETS AND CONTINGENT LIABILITIES SUCCESSOR PREDECESSOR
-------------------------------------------------------
Contingent liabilities AT | AT AT
Guarantees DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
-------------------|-----------------------------------
Subsidiaries 0,4 | 0,4 0,4
Others for customer finance 10,3 | 13,8 24,3
Other contingent liabilities |
for customer finance 7,6 | 5,8 5,0
contingent liabilities by Finnish VAT regulations 1,1 | 0,7 0,7
---- | ---- ----
Total contingent liabilities 19,4 | 20,7 30,4
==== | ==== ====
LEASING CONTRACTS
SUCCESSOR PREDECESSOR
--------------------------------------------------------
AT | AT AT
Rental payments for leasing contract are as follows: DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
-------------------|-------------------------------------
Next year 1,2 | 1,6 2,4
Later on 1,6 | 0,8 0,8
--- | --- ---
Total 2,8 | 2,4 3,2
=== | === ===
17. DERIVATIVE INSTRUMENTS SUCCESSOR PREDECESSOR
------------------------------------------------------
AT | AT AT
DECEMBER 31, 2002 | JUNE 30, 2002 DECEMBER 31, 2001
-------------------|-----------------------------------
NOMINAL VALUES |
Foreign exchange forward contracts 66,7 | 66,3 60,1
|
MARKET VALUES |
Foreign exchange forward contracts 0,3 | 0,3 (0,7)
22
18. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES IN FINLAND AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN THE UNITED STATES
The combined financial statements of the Group have been prepared in
conformity with Finnish GAAP, which differs in certain significant respects
from US GAAP. The Group's combined financial statements are prepared by
combining the assets, liabilities and results of operations of the companies
listed in Note 9 to the combined financial statements as these companies are
managed and operated on a combined basis. Combined financial statements do not
reflect the legal organization of the Group. The nature and effect of the
application of US GAAP to the net income, balance sheet and shareholders'
equity are set out in the tables below:
SUCCESSOR PREDECESSOR
PERIOD FROM JULY 1 | PERIOD FROM
TO DECEMBER 31 | JANUARY 1 TO
2002 | JUNE 30, 2002
(for Finnish GAAP) | (for Finnish GAAP)
PERIOD FROM AUGUST 1, | PERIOD FROM JANUARY 1 YEAR ENDED
TO DECEMBER 31, 2002 | TO JULY 31, 2002 DECEMBER 31,
NOTES (for US GAAP) | (for US GAAP) 2001
------------------------|------------------------------------------
Net income (loss) in accordance with |
Finnish GAAP (6,4) | 13,3 4,7
US GAAP adjustments: |
Revenue recognition a) (0,1) | (0,1) (0,2)
Derivatives and hedging activities b) (0,4) | 1,4 (1,6)
Employee benefit plans c) (0,8) | (1,1) (1,8)
Deferred taxes d) 43,6 | (0,5) (2,9)
Provisions e) 4,5 | 1,1 1,8
Push down basis of accounting f) (9,4) | (1,7) (3,0)
Group contribution g) 24,7 | -- 13,6
Acquisition date h) (3,1) | 3,1 --
Tax effect of US GAAP adjustments 1,2 | (1,9) 0,4
---- | ---- ----
Net income in accordance with |
US GAAP 53,8 | 13,6 11,0
==== | ==== ====
23
PREDECESSOR FINNISH GAAP US GAAP US GAAP
NOTES BALANCE SHEET ADJUSTMENTS BALANCE SHEET
-----------------------------------------------------------
Balance sheet as of December 31, 2001
Intangible assets 2,2 2,2
Land f) 2,7 0,5 3,2
Building and constructions f) 23,2 12,1 35,3
Machinery and equipment f) i) 32,7 7,2 39,9
Other tangible assets 0,2 0,2
Advance payments and construction in
progress 4,6 4,6
Other non-current assets 2,6 2,6
Inventories 83,6 83,6
Other current assets a) j) 115,8 3,9 119,7
Cash and bank balances 24,8 24,8
Non-current liabilities c) (38,8) (11,4) (50,2)
Current liabilities b) e) i) j) (193,0) 1,1 (191,9)
Deferred tax assets and liabilities, net d) 7,6 10,0 17,6
------ ----- ------
Shareholders' equity 68,2 23,4 91,6
====== ===== ======
24
FINNISH GAAP IMPACT OF JULY US GAAP
PREDECESSOR BALANCE SHEET 2002 US GAAP BALANCE SHEET
NOTES JUNE, 2002 H) ADJUSTMENTS JULY 31, 2002
-----------------------------------------------------------------------
Balance sheet as of June 30, 2002/
July 31, 2002
Intangible assets 1,6 (0,1) 1,5
Land f) 2,2 (0,1) 1,1 3,2
Building and constructions f) 20,1 (1,0) 13,6 32,7
Machinery and equipment f) i) 28,3 (1,9) 5,1 31,5
Other tangible assets 0,1 0,1
Advance payments and construction
in progress 6,1 1,0 7,1
Other non-current assets 2,8 2,8
Inventories 99,4 (10,4) 89,0
Other current assets a) b) j) 111,3 (11,0) 4,5 104,8
Cash and bank balances 18,2 0,5 18,7
Non-current liabilities c) (46,2) (12,5) (58,7)
Current liabilities e) i) j) (188,4) 19,4 1,1 (167,9)
Deferred tax assets and liabilities, net d) 7,8 (0,2) 1,7 9,3
------ ----- ----- ------
Shareholders' equity 63,3 (3,8) 14,6 74,1
====== ===== ===== ======
25
SUCCESSOR FINNISH GAAP US GAAP US GAAP
NOTES BALANCE SHEET ADJUSTMENTS BALANCE SHEET
-----------------------------------------------------------------
Balance sheet as of December 31, 2002
Goodwill f) 39,7 39,7
Intangible assets 1,2 1,2
Customer relationships f) 20,6 20,6
Technologies f) 36,8 36,8
Dealership networks f) 41,0 41,0
Tradenames and trademarks f) 32,7 32,7
Land f) 1,4 2,1 3,5
Building and constructions f) 20,1 36,2 56,3
Machinery and equipment f) i) 30,3 38,2 68,5
Other tangible assets f) 0,1 0,1
Advance payments and construction
in progress 5,0 5,0
Other non-current assets 3,3 3,3
Inventories 98,9 98,9
Other current assets a) b) j) k) 172,7 (73,8) 98,9
Cash and bank balances 30,3 30,3
Non-current liabilities c) k) (76,5) 60,9 (15,6)
Current liabilities e) i) j) (246,0) 7,6 (238,4)
Deferred tax assets and liabilities, net d) 6,4 (16,1) (9,7)
------ ----- ------
Shareholders' equity 47,2 225,9 273,1
====== ===== ======
A) REVENUE RECOGNITION
Under Finnish GAAP revenue is recognized when the product has been
delivered or the service rendered. Valtra has recognized revenues upon delivery
of products or performance of services, net of sales taxes and discounts. For
the year ended December 31, 2001, the period from January 1, 2002 to June 30,
2002 and for the period from July 1, 2002 to December 31, 2002, Valtra billed
(Euro) 110 million, (Euro) 60 million, and (Euro) 68 million, respectively, of
VAT which was remitted to the applicable government authorities.
Under US GAAP revenue is recognized when persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the
seller's price to buyer is fixed or determinable, and collectibility is
reasonably assured. Under US GAAP, sales of equipment and replacement parts are
recorded by the Group when title and risks of ownership have been transferred
to independent dealer, distributor or other customer.
26
In addition, any costs or losses expected in connection with estimated returns
are accrued in the financial statements as required in Statement of Financial
Accounting Standards ("SFAS") No. 48 Revenue Recognition When Right of Return
Exists. Provisions for returns are made at the time of sales based on
historical returns experience. The net change in this reserve between periods
impacted net income by ((Euro) 0,2 million), ((Euro) 0,1) million and ((Euro)
0,1) million, respectively, for the year ended December 31, 2001, the period
from January 1, 2002 to July 31, 2002, and the period from August 1, 2002 to
December 31, 2002, respectively.
B) DERIVATIVES AND HEDGING ACTIVITIES
Under Finnish GAAP, for a foreign currency derivative instrument (i.e.
foreign currency exchange contracts and foreign currency option contracts) to
qualify as a hedge, the instrument must: (a) be related to a foreign currency
asset, liability or firm commitment, or a portfolio of assets, liabilities and
firm commitments, the characteristics of which have been identified; (b)
involve the same currency as the hedged item; and (c) reduce the risk of
foreign currency exchange movements on a company's operations. Gains and losses
on forward foreign exchange contracts and currency swaps and foreign currency
option contracts that are designated as hedges of firm commitments are deferred
and recognized in income as the hedged transaction occurs. Gains and losses on
foreign currency options that are designated as effective hedges of firm
commitments are deferred and recognized in income as the hedged transaction
occurs.
Where derivatives are held for speculative purposes, common practice
is to record only unrealized losses in the income statement and leave the
unrealized gains unrecognized. No derivative instruments are held for
speculative or trading purposes by the Group.
The accounting principles with respect to accounting for foreign
currency derivatives as described above under Finnish GAAP are consistent with
US GAAP prior to January 1, 2001.
Effective on January 1, 2001, for US GAAP purposes, the Group adopted
the principles of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, which requires that an
entity recognize all derivatives as either assets or liabilities on the balance
sheet measured at fair value. The accounting for changes in the fair value of a
derivative depends on the use of the derivative. Derivatives that are not
designated as part of a hedging relationship must be adjusted to fair value
through income. Certain conditions must be met in order to designate a
derivative as a hedge including assessment and documentation of the following:
- - Objective of the derivative;
- - Nature of the risk being hedged;
- - Derivative hedging instrument;
- - Hedged item;
- - For the hedge of a firm commitment, a reasonable method for
recognizing in earnings the hedged firm commitment; and
- - How the entity will assess hedge effectiveness and measure hedge
ineffectiveness.
27
If the derivative is a designated hedge, depending on the nature of
the hedge, the effective portion of the hedge's change in fair value is either
(1) offset against the change in fair value of the hedged asset, liability or
firm commitment through income or (2) held in equity until the hedged item is
recognized in income. The ineffective portion of a hedge's change in fair value
is immediately recognized in income.
The documentation for the Group's derivative instruments does not meet
all of the requirements of SFAS 133. Therefore, the Group has recorded all
changes in the fair value of all derivative instruments directly to earnings.
During the year ended December 31, 2001, the period from January 1, 2002 to
July 31, 2002 and the period from August 1, 2002 to December 31, 2002, the
Group recorded the change in the fair value of these agreements, ((Euro) 1,6)
million, (Euro) 1,4 million and ((Euro) 0,4) million, respectively, through
earnings as these hedging relationships did not qualify for hedge accounting in
accordance with SFAS No. 133.
C) EMPLOYEE BENEFIT PLANS
Pensions and other postretirement benefits
In Finland statutory and supplementary pension obligations (The
Finnish statutory employment scheme, "TEL") are covered through a compulsory
pension insurance policy. The TEL consists of pension obligations and future
disability pensions. The TEL is a national pension system in which all Finnish
private sector employers participate. The TEL pension is partly funded, but at
present it is fundamentally funded as pay-as-you-go. The pay-as-you-go costs of
an employer do not depend on the pensions paid to the former employees of
Valtra Finland. Instead, the yearly premium depends on the wages of current
workforce and is a certain percentage of these wages. Payments to pension
insurance institutions are recorded at amounts determined by insurance
institutions according to prescribed actuarial assumptions and other rulings
pursuant to the Finnish Employment Pension Act. The disability pension part of
the "TEL" is funded at the time when the event resulting in a disability
pension takes place. Under the TEL, an employer does not have a direct
responsibility for the unfunded part of the TEL pension. The unfunded part of
the TEL pension is comparable to the U.S. concept of a multiemployer plan and
is treated as such by the Group.
Group companies outside of Finland have pension obligations arranged
and pension liabilities recorded in accordance with local regulations and
practice. Changes in uncovered pension obligations are recorded as an expense
and the related pension liability is included as a provision.
Under US GAAP, pension expense is recorded on an accrual basis and
reflected in the income statement over the working lives of the employees
provided with such benefits. Under US GAAP defined benefit pension plan
accounting, plan assets are valued on a market related basis and liabilities
are valued under a specified actuarial methodology, including market related
valuation assumptions. Changes in the funding status not reflected in the
balance sheet that fall outside a 10% corridor are recognized systematically
and gradually over subsequent periods. The valuation must be as of the balance
sheet date or at a date not more than three months prior to the balance sheet
date.
The companies within the Group have various pension schemes in
accordance with local conditions and practices of the countries in which they
operate. The Group operates defined-benefit
28
schemes with retirement, disability, death and termination income benefits in
Finland, Norway and France. The total active membership of these defined
benefit schemes was approximately 1,500 as at December 31, 2001, July 31, and
December 31, 2002, respectively.
Under US GAAP, SFAS No. 87, Employers' Accounting for Pensions,
certain elements of the Finnish TEL, primarily related to the disability plan
as well as pension plans in other countries, result in accounting for the plans
as defined benefit plans. An actuarial valuation of the defined benefit plans
has been carried out by an independent, professionally qualified actuary using
the Projected Unit method. The principal actuarial assumptions adopted for the
valuation for Finnish TEL and foreign pension plans at the valuation date were
as follows:
Finnish
December 31,
July 31, 2002 2002 2001
Discount rate........................................ 5,8% 5,8% 5,8%
Rate of compensation increase........................ 4,0% 4,0% 4,0%
Expected return on plan assets....................... NA NA NA
Foreign
December 31,
July 31, 2002 2002 2001
Discount rate........................................ 6,0% 5,7% 5,7%
Rate of compensation increase........................ 3,0% 3,0% 3,0%
Expected return on plan assets....................... NA NA NA
It was not feasible to apply SFAS No. 87 on the effective date
specified in the standard for the pension schemes. SFAS No. 87 calculations
were made for the first time for these schemes as of December 31, 2000. The
amount of the liabilities that were recorded directly to equity in the opening
balance sheet January 1, 2001 under US GAAP for these schemes was (Euro) 8,2
million and the amortization period used for the transitional liability was 15
years beginning January 1, 1987, the effective date of SFAS No. 87.
29
D) DEFERRED INCOME TAXES
Under Finnish GAAP the company has adopted the income statement
approach under which deferred taxes are based on timing differences, which
arise when revenues and expenses are recorded in different accounting periods
for accounting and taxation purposes.
For US GAAP purposes, deferred tax assets have been increased with
respect to tax loss carryforwards arising primarily from Valtra do Brasil.
Deferred tax liabilities on purchase accounting adjustments described
in note f) as of August 1, 2002, amounted to (Euro) 66 million. As of December
31, 2002, it amounted to (Euro) 62 million.
Under US GAAP, deferred taxes are provided on all temporary
differences between the financial statement basis and tax basis of investments
in subsidiaries and equity method investments, unless an exception applies.
Under Finnish GAAP, no deferred taxes have been provided on such differences.
Total adjustments of ((Euro) 2,9) million, ((Euro) 0,5) million, and
(Euro) 43,5 have been made to net income for the year ended December 31, 2001,
for the period from January 1, 2002 to July 31, 2002, and for the period August
1, 2002 to December 31, 2002, respectively. Adjustments of (Euro) 10 million,
(Euro) 1,7 million and ((Euro) 16,1) million have been to the balance sheet as
of December 31, 2001, June 30, 2002 and December 31, 2002, respectively.
E) RESTRUCTURING COSTS AND OTHER PROVISIONS
For disposals initiated prior to December 31, 2002, the recognition of
restructuring costs under US GAAP was as specified under EITF 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (Including Certain Costs Incurred in a Restructuring), which
required that a liability be recognized at the date of an entity's commitment
to an exit plan. This is usually the date on which management, having
appropriate level of authority, committed to the restructuring plan, identified
all significant actions, including the method of disposition and the expected
date of completion, and, in the case of employee terminations, specified the
severance arrangements and communicated them to employees. For disposals
initiated after December 31, 2002, companies are required to apply the
provisions of SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, which requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred. In
certain respects under Finnish GAAP, the Group has recognized certain
provisions that would not qualify under US GAAP. Accordingly, under US GAAP,
non-qualifying provisions related primarily to future costs without any present
or constructive obligation as a result of past events have been reversed. The
Group accounted for all restructuring initiatives prior to December 31, 2002
under EITF 94-3, and all restructuring initiatives subsequent to December 31,
2002 will be accounted for under SFAS No. 146.
30
F) PUSH DOWN BASIS OF ACCOUNTING
Under Finnish GAAP, the cost of a company acquired in a purchase
business combination includes direct costs of acquisition. The excess of the
cost of the acquired company over the amounts assigned to identifiable assets,
based upon the value of the assets less the liabilities assumed, is recorded as
goodwill. However, the concept of allocating the purchase consideration based
on the estimated fair values of acquired tangible and intangible assets and
liabilities assumed is less specific in Finnish GAAP than in US GAAP.
Generally, tangible assets are recorded at fair value, while other assets
acquired and liabilities assumed are recorded at net book rather than fair
value, as required under US GAAP. In addition, under Finnish GAAP, goodwill
from acquisitions is not required to be "pushed down" to the underlying
businesses as required under SEC Staff Accounting Bulletin No. 73, Push Down
Basis of Accounting Required in Certain Limited Circumstances.
Under US GAAP, business combinations prior to June 30, 2001 were
accounted for in accordance with Accounting Principles Bulletin ("APB") No. 16,
Business Combinations. In June 2001, the Financial Accounting Standards Board
("FASB") issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141 requires that acquired intangible
assets are required to be recognized and reported separately from goodwill.
SFAS No. 142 requires that goodwill no longer be amortized, but instead tested
for impairment at least annually. In addition, SFAS No. 142 requires recognized
intangible assets with a definite useful life to be amortized over their
respective estimated useful lives and reviewed for impairment in accordance
with SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived
Assets. Any recognized intangible assets determined to have indefinite useful
lives will not be amortized, but instead tested for impairment in accordance
with SFAS No. 142 until its life is determined to no longer be indefinite. SFAS
No. 142 was applied starting with fiscal years beginning after December 15,
2001.
Under Finnish GAAP, goodwill arising from acquisitions is generally
capitalized and amortized over the estimated useful life, not to exceed 20
years. Under US GAAP, prior to January 1, 2002, goodwill and all identifiable
intangible assets arising from acquisitions were capitalized and amortized over
their estimated useful lives. A useful life of 20 years was also utilized by
the Group for goodwill amortization purposes under US GAAP prior to January 1,
2002, when amortization ceased.
ACQUISITION OF VALTRA BUSINESS BY PARTEK
In April 1997, Partek Corporation acquired Sisu Corporation, the
parent company of Valtra. The acquisition was paid through a combination of
cash and the issuance of new shares.
The purchase consideration was allocated to the Valtra Group as
determined by the fair value of the Group as a percentage of the fair value for
the entire Sisu Corporation. For US GAAP purposes, Partek's acquisition of Sisu
was accounted for under APB No. 16 as a purchase. Under Finnish GAAP, all assets
acquired and liabilities were recognized at cost. In accordance with US GAAP,
the purchase price was allocated to the fair value of assets acquired and
liabilities assumed. The acquisition of Sisu resulted in negative goodwill for
the Valtra Group of
31
approximately (Euro) 1 million which was allocated proportionately to reduce
the values initially assigned to long-lived assets.
PARTEK ACQUISITION BY KONE
In 2002, KONE acquired Partek, which included the Group, with a public
tender offer. Under Finnish GAAP KONE consolidated Partek as of July 1, 2002.
For purposes of Finnish GAAP, the acquisition date for accounting purposes can
be pushed back to the most recent interim period. Under US GAAP, the
acquisition date is considered to be August 23, 2003 as this is the date that
KONE gained effective control as determined under US GAAP. However, an
acquisition date of August 1, 2002 has been used for US GAAP accounting
purposes because this followed the end of the most recent accounting period
that fell between the initiation and consummation of the transaction.
A purchase price was allocated to the Group based upon the appraised
enterprise value of the Group in relation to the enterprise fair value of
Partek. Under US GAAP, the combined financial statements of the Group as of the
acquisition date reflect the new basis for accounting established for the
Group's acquired assets and liabilities assumed based upon the fair values at
August 1, 2002. Identified intangibles acquired in the acquisition, along with
their estimated useful lives, include the following (in (Euro) million):
Customer relationships 21,4 11 years
Acquired Technology 36,6 8 years
Dealer Network 42,7 10 years
Sisu Tradenames and Trademarks 1,8 10 years
Valtra Tradenames and Trademarks 30,9 indefinite
Diesel Technology 2,2 4,5 years
-----
135,6
In addition, the Company recorded goodwill of approximately (Euro) 42
million that is not amortized under US GAAP but tested for impairment at least
annually.
G) GROUP CONTRIBUTION
Finland does not apply any tax consolidation. In Finland, profits and
losses of companies within a group are combined through group contributions.
Group contributions require recording into the accounts. Under Finnish GAAP,
group contributions are treated as an expense for the contribution provider and
as income for the beneficiary. The parent company in the combined Valtra Group,
Valtra Inc. paid a group contribution in the period from August 1 to December
31, 2002 and the year ended
32
December 31, 2001 to a company within the Partek Group, which was recorded as
an extraordinary item under Finnish GAAP
Under US GAAP, these contributions are presented as dividends and a
reduction of shareholders' equity.
H) ACQUISITION DATE
As discussed above, there are different acquisition dates for
accounting purposes under Finnish GAAP and US GAAP. As a result of the
difference in acquisition dates for the acquisition of Partek by KONE, an
adjustment of (Euro) 3,1 million has been made to the income statement for the
period from January 1, 2002 to June 30, 2002 to properly state the results of
the predecessor company under US GAAP for the period from January 1, 2002 to
July 31, 2002. This amount has been reduced from the successor company income
statement under Finnish GAAP for the period from July 1, 2002 to December 31,
2002 to properly state the results of the successor company under US GAAP for
the period from August 1, 2002 to December 31, 2002.
I) LEASING
Under Finnish GAAP classification of leases into finance or operating
leases is optional. The Group has historically treated all lease agreements as
operating leases.
Under US GAAP, SFAS No. 13, Accounting For Leases, classifies leases
as either operating or capital leases. Under US GAAP, a lease meeting detailed
criteria must be treated as a capital lease. The lessee records a capital lease
as an asset and an obligation at an amount equal to the lesser of the present
value of the minimum lease payments at the beginning of the lease term or the
fair value of the leased property. Under US GAAP those leasing agreements which
qualify as a capital lease have been adjusted in the US GAAP reconciliation.
J) SALE OF RECEIVABLES
Under Finnish GAAP, receivables sold to independent finance companies have been
derecognized; however under US GAAP, sales of certain receivables in the United
States, Canada and Germany do not meet the criteria of SFAS No.140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, for derecognition. Therefore, (Euro) 3,2 million, (Euro) 1,8
million, and (Euro) 0,7 million was reflected as a financial asset and
obligation at December 31, 2001, July 31, 2002 and December 31, 2002,
respectively, in the balance sheet but did not materially affect net income.
K) RECLASSIFICATION OF SUBORDINATED LOAN
Subordinated loan from Valtra's parent company (Euro) 74,2 million,
presented under Finnish GAAP as a non-current liability, and corresponding loan
receivable (Euro) 74,2 million, presented under Finnish GAAP as current
receivable, has been removed from the US GAAP balance sheet as no cash
transaction had occurred before December 31, 2002.
33
L) CASH FLOW STATEMENTS
Combined statements of cash flows are prepared in accordance with
Finnish GAAP using International Accounting Standards (IAS) No. 7, Cash Flow
Statements, as amended, which is not materially different from US GAAP.
Cash and cash equivalents consist of cash on hand and balances with banks and
other liquid short-term investments with original maturity of less than three
months.
M) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
According to SFAS No. 130, Reporting Comprehensive Income,
comprehensive income generally encompasses all changes in shareholders' equity,
except those arising from transactions with owners. Under Finnish GAAP, the
Group's comprehensive income differs from the net income only by the amount of
the foreign currency translation differences credited or charged to
shareholders' equity for the period.
Comprehensive income under Finnish GAAP is as follows (in (Euro)
million):
SUCCESSOR PREDECESSOR
-----------------------------------------------------------------
PERIOD FROM JULY 1 | PERIOD FROM
TO DECEMBER 31, | JANUARY 1 TO YEAR ENDED DECEMBER 31,
2002 | JUNE 30, 2002 2001 2000
-----------------------------------------------------------------
Net income under Finnish GAAP (6,4) | 13,3 4,7 (0,3)
Other comprehensive income |
Foreign currency translation |
adjustment (9,7) | (18,2) (5,6) (0,7)
------ | ------ ----- -----
Comprehensive income (16,1) | (4,9) (0,9) (1,0)
====== | ====== ===== =====
34
VALTRA GROUP
COMBINED INTERIM STATEMENTS OF OPERATIONS
(AMOUNTS IN MILLIONS OF EURO)
SUCCESSOR PREDECESSOR
--------------------------------------------------------
PERIOD FROM PERIOD FROM |
JANUARY 1 TO JULY 1 TO | PERIOD FROM
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 | JANUARY 1 TO
(unaudited) (unaudited) | JUNE 30, 2002
-----------------------------------------|--------------
Net sales 626,6 172,1 | 382,3
Cost of goods sold (506,7) (139,8) | (315,4)
|
Gross profit 119,9 32,3 | 66,9
|
Selling and marketing expenses (45,4) (13,4) | (30,7)
Research and development expenses (11,4) (3,0) | (6,8)
Administration expenses (14,7) (3,9) | (9,6)
Other operating income 2,8 0,6 | 2,1
Other operating expenses (1,4) (1,5) | (1,5)
------ ------ | ------
Total (70,1) (21,2) | (46,5)
------ ------ | ------
Operating profit 49,8 11,1 | 20,4
Equity in income (loss) of associated companies (0,2) -- | (0,1)
Financial Items |
Other interest income 2,0 0,2 | 0,3
Interest expenses (4,6) (1,4) | (2,3)
Other financial items (0,3) -- | (1,0)
------ ------ | ------
Total (2,9) (1,2) | (3,0)
------ ------ | ------
Profit/loss after financial items 46,7 9,9 | 17,3
Extraordinary items |
Group contributions paid (0,2) -- | --
------ ------ | ------
Profit before appropriations and taxes 46,5 9,9 | 17,3
Change in deferred taxes 1,9 0,7 | 0,2
Direct taxes (7,8) (3,4) | (4,2)
------ ------ | ------
Net income for the period 40,6 7,2 | 13,3
====== ====== | ======
See accompanying notes to the combined interim financial statements.
35
VALTRA GROUP
COMBINED INTERIM BALANCE SHEETS
(AMOUNTS IN MILLIONS OF EURO)
SUCCESSOR
AT AT
SEPTEMBER 30, 2003 DECEMBER 31, 2002
(unaudited)
--------------------------------------
ASSETS
Fixed assets and other long-term investments
Intangible assets
Other capitalised expenditure 0,9 1,2
Tangible assets
Land 1,4 1,4
Buildings and constructions 19,0 20,1
Machinery and equipment 28,8 30,3
Other tangible assets 1,2 0,1
Advance payments and construction in progress 17,2 5,0
----- -----
Total 67,6 56,9
----- -----
Investments
Shares in associated companies 1,5 1,6
Other shares and participations 0,1 0,1
Long-term loan receivables 1,6 1,6
----- -----
Total 3,2 3,3
----- -----
Total fixed assets and long-term investments 71,7 61,4
----- -----
Current assets
Inventories
Materials and supplies 44,8 32,6
Work in progress 7,1 5,6
Finished goods 88,9 60,7
----- -----
Total 140,8 98,9
----- -----
Receivables
Accounts receivable 109,4 76,3
Loan receivables -- 74,3
Other receivables -- 4,0
Deferred tax assets 8,4 6,5
36
Prepaid expenses and accrued income 23,1 18,1
----- -----
Total 140,9 179,2
----- -----
Cash and bank balances 123,2 30,3
Total current assets 404,9 308,4
----- -----
TOTAL ASSETS 476,6 369,8
===== =====
See accompanying notes to the combined interim financial statements.
37
VALTRA GROUP
COMBINED INTERIM BALANCE SHEETS
(AMOUNTS IN MILLIONS OF EURO)
SUCCESSOR
AT AT
SEPTEMBER 30, 2003 DECEMBER 31,
(unaudited) 2002
---------------------------------
SHAREHOLDERS' EQUITY AND
LIABILITIES
Shareholders' equity
Share capital 43,6 43,6
Share premium account 27,0 54,7
Retained earnings (deficit) (22,1) (44,7)
Net income for the period 40,6 (6,4)
----- -----
Total shareholders' equity 89,1 47,2
----- -----
Liabilities
Long-term
Other interest-bearing liabilities 76,5 75,1
Other non interest-bearing liabilities 1,5 1,4
Deferred tax liability 0,1 0,1
----- -----
Total 78,1 76,6
----- -----
Current
Other interest-bearing liabilities 102,2 91,3
Advances received 0,7 3,9
Accounts payable 84,7 59,0
Other non interest-bearing liabilities 44,0 --
Accrued expenses and deferred income 77,8 91,8
----- -----
Total 309,4 246,0
----- -----
Total liabilities 387,5 322,6
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 476,6 369,8
===== =====
See accompanying notes to the combined interim financial statements.
38
VALTRA GROUP
NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS
(AMOUNTS IN MILLIONS OF EURO)
SUCCESSOR PREDECESSOR
-----------------------------------------------------
PERIOD FROM PERIOD FROM |
JANUARY 1 TO JULY 1 TO | PERIOD FROM
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 | JANUARY 1 TO
(unaudited) (unaudited) | JUNE 30, 2002
---------------------------------------|--------------
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net profit before taxation, and |
extraordinary item 46,7 9,9 | 17,3
Adjustments for: |
Depreciation 8,5 2,8 | 5,8
Financial items 3,1 1,2 | 3,1
----- ---- | ----
Cash generated from operations before change in |
net working capital 58,3 13,9 | 26,2
----- ---- | ----
|
CHANGE IN NET WORKING CAPITAL: |
(Increase) / decrease in trade and |
other receivables (24,9) (3,2) | (9,7)
(Increase) / decrease in inventories (35,3) (3,2) | (18,1)
(Decrease) / increase in trade payables 55,2 (4,1) | 17,0
----- ---- | ----
Cash generated from operations 53,3 3,4 | 15,4
----- ---- | ----
|
Interest paid (4,6) (1,5) | (3,8)
Interest received 2,6 0,4 | --
Income taxes paid (7,2) (2,7) | (0,7)
----- ---- | ----
NET CASH FROM OPERATING ACTIVITIES 44,1 (0,4) | 10,9
----- ---- | ----
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
Purchase of property, plant and equipment (12,9) (5,0) | (5,2)
Proceeds from sale of property, |
plant and equipment -- 0,5 | --
----- ---- | ----
NET CASH USED IN INVESTING ACTIVITIES (12,9) (4,5) | (5,2)
----- ---- | ----
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
Proceeds from long-term borrowings 75,6 -- | 7,3
Proceeds from short-term loans 11,0 (0,1) | --
Payment of short-term loans -- -- | (6,0)
Paid group contributions (24,9) -- | (13,6)
----- ---- | ----
NET CASH USED IN FINANCING ACTIVITIES 61,7 (0,1) | (12,3)
----- ---- | ----
|
NET INCREASE / (DECREASE) IN CASH AND |
CASH EQUIVALENTS 92,9 (5,0) | (6,6)
===== ==== | ====
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 30,3 18,2 | 24,8
CASH AND CASH EQUIVALENTS AT END OF PERIOD 123,2 13,2 | 18,2
See accompanying notes to the combined interim financial statements.
39
VALTRA GROUP
NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS
(AMOUNTS IN MILLIONS OF EURO)
1. BASIS OF FINANCIAL PRESENTATION
DESCRIPTION OF BUSINESS
Valtra Group ("Valtra" and "Group") is owned by KONE Corporation, a
publicly listed company in Finland ("KONE") and develops, manufactures and
sells tractors and diesel engines for off-road vehicles. Valtra provides its
customers the opportunity to order a tractor, which is produced according to
the end customer's specification at the factory, with a large number of
options, accessories and different colors. The tractors are sold in most of the
markets using dealer networks. However, in certain markets, Valtra has its own
direct sales force, which has the authority to accept trade-in tractors and
sell them. Spare parts sales are also part of Valtra's business. Service of
tractors is handled by the dealers and, in the case of direct sales, mainly by
third party service contractors. In most of the markets, sales financing is
offered to the end customers. In some markets, sales financing is also offered
to dealers. Independent third party finance companies provide these financing
services to customers.
KONE has signed an agreement to sell the Valtra Group to AGCO
Corporation. The transaction is expected to close in the first quarter of 2004.
BASIS OF PREPARATION
The accompanying combined financial statements have been prepared in
accordance with accounting principles generally accepted in Finland ("Finnish
GAAP"). The accounting policies have been applied on a basis consistent with
those applied in the preparation of the Group's audited combined financial
statements. However, the financial statements do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the information
considered necessary for a fair presentation of financial information has been
included. Accordingly, the financial statements should be read in conjunction
with the Group's audited combined financial statements. Note 5 includes a
reconciliation of net income and net assets from Finnish GAAP to accounting
principles generally accepted in the United States ("US GAAP")
The preparation of financial statements in conformity with Finnish
GAAP requires the management of the Group to make a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
PRINCIPLES OF COMBINATION
The legal structure for Valtra Group differs in certain respects from
the combined group shown in these interim financial statements. Finnish GAAP
does not have specific rules for combination. The combination is prepared to
generally present the historical financial statements of the combined
businesses to be acquired, and does not necessarily reflect the legal
organization of Valtra Group. The combined financial statements include the
financial statements of Valtra Oy, a company registered in Finland, and its
wholly and over 50% owned subsidiaries as well as four companies which are
under common control of KONE corporation and managed and operated by Valtra.
Those companies are Valtra USA, Inc, Partek Holding, Inc, Tracfin Holding Oy
and Valtra do Brasil Ltda. Valtra do Brasil
40
Ltda and Tracfin Holding Oy have during year 2003 been sold from Valtra Oy to
another KONE company.
For the entities sold from Valtra Oy during 2003 to the KONE Company,
but included in the combined financial statements, the sales have been
eliminated and the sales proceeds amounting to (Euro) 43,5 million received has
been shown as long term non-interest bearing liabilities. Accordingly, the
combined financial statements do not reflect the legal organization of the
Group.
2. LOAN RECEIVABLE
The decrease of the loan receivables is due to the fact that Valtra's
parent company has repaid its loan to Valtra amounting to (Euro) 74,2 million.
3. SHAREHOLDERS' EQUITY
Shareholders' equity as of September 30, 2003 has changed from
December 31, 2002 as follows:
<Table>
<Caption>
Share Share premium Retained
Total capital account earnings
------- -------- ------------- --------
Balance at January 1, 2003 47,2 43,6 54,7 (51,1)
Currency translation adjustments 1,3 1,3
Transfer from share premium
account to retained earnings (27,7) 27,7
Net result for the period 40,6 40,6
---- ---- ---- ----
Balance at September 30, 2003 89,1 43,6 27,0 18,5
==== ==== ==== ====
</Table>
In accordance with Finnish Companies Act, companies can cover its
accumulated deficit with share premium. Valtra Oy transferred (Euro) 27,7
million from share premium account to retained earnings.
4. PURCHASE COMMITMENT
The Company has entered into an agreement to purchase district heat
from a Supplier's heating plant on land leased from the Company and located at
the Company's premises. Another company has jointly agreed to purchase 37,5 %
of the supply. The monthly payments depend on a variety of factors including;
consumer price on firewood for heat production, cost index for road
transportation of goods and consumer price of fuel oil. The agreement is
effective for 15 years starting from the first supply date of June 2003.
The Company and a third party that is also party to the district heat purchase
agreement are jointly obliged to purchase the heating plant from the Supplier
if the heat supply agreement is terminated or at the conclusion of the 15 year
agreement. The Company's liability relating to the purchase obligation is
dependent on the usage ratio between users of the heating plant, which is
currently 62,5% for the Company. The purchase price is dependent upon time of
purchase and depreciation but has a minimum purchase price of (Euro) 183.750.
Current value of the heating plant is estimated at (Euro) 735.000 as at
September
41
30, 2003 and represents the estimated value that would be paid if termination
were to occur as of September 30, 2003.
5. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES IN FINLAND AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN THE UNITED STATES
The combined consolidated financial statements of the Valtra Group ("the
Group") have been prepared in conformity with Finnish GAAP, which differs in
certain significant respects from US GAAP. The nature and effect of the
application of US GAAP to the net income and shareholders' equity are set out
in the tables below. The tables below should be read in conjunction with Note
18 to the Combined Financial Statements for the year ended December 31, 2002
included elsewhere in this document.
42
SUCCESSOR PREDECESSOR
PERIOD FROM |
JULY 1 TO |
SEPTEMBER 30, | PERIOD FROM
2002 | JANUARY 1 TO
(For Finnish GAAP) | JUNE 30, 2002
PERIOD FROM PERIOD FROM AUGUST 1 | (for Finnish GAAP)
JANUARY 1 TO TO SEPTEMBER 30, 2002 | PERIOD FROM JANUARY 1
SEPTEMBER 30, 2003 (for US GAAP) | TO JULY 31, 2002
NOTES (unaudited) (unaudited) | (for US GAAP)
--------------------------------------------------------|-----------------
Net income in accordance with |
Finnish GAAP 40,6 7,2 | 13,3
US GAAP adjustments: |
Revenue recognition (0,3) -- | (0,1)
Derivatives and hedging activities (0,8) (1,0) | 1,4
Employee benefit plans (1,3) (0,3) | (1,1)
Deferred taxes a) (10,8) 1,0 | (0,5)
Provisions (1,8) 3,0 | 1,1
Push down basis of accounting (11,8) (3,7) | (1,7)
Group contribution 0,2 -- | --
Acquisition date -- (3,1) | 3,1
Tax effect of US GAAP adjustments 1,6 1,9 | (1,9)
----- ---- | ----
Net income in accordance with |
US GAAP 15,6 5,0 | 13,6
===== ==== | ====
43
SUCCESSOR FINNISH GAAP US GAAP US GAAP
NOTES BALANCE SHEET ADJUSTMENTS BALANCE SHEET
-----------------------------------------------------------
Balance sheet as of December 31, 2002
Goodwill 39,7 39,7
Intangible assets 1,2 1,2
Customer relationships 20,6 20,6
Technologies 36,8 36,8
Dealership networks 41,0 41,0
Tradenames and trademarks 32,7 32,7
Land 1,4 2,1 3,5
Building and constructions 20,1 36,2 56,3
Machinery and equipment 30,3 38,2 68,5
Other tangible assets 0,1 0,1
Advance payments and construction
in progress 5,0 5,0
Other non-current assets 3,3 3,3
Inventories 98,9 98,9
Other current assets 172,7 (73,8) 98,9
Cash and bank balances 30,3 30,3
Non-current liabilities (76,5) 60,9 (15,6)
Current liabilities (246,0) 7,6 (238,4)
Deferred tax assets and liabilities, net a) 6,4 (16,1) (9,7)
------ ----- ------
Shareholders' equity 47,2 225,9 273,1
====== ===== ======
44
FINNISH GAAP US GAAP US GAAP
NOTES BALANCE SHEET ADJUSTMENTS BALANCE SHEET
--------------------------------------------------------------
Balance sheet as of September 30, 2003
Goodwill 41,1 41,1
Intangible assets 0,9 0,9
Customer relationships 19,2 19,2
Technologies 33,0 33,0
Dealership networks 37,8 37,8
Tradenames and trademarks 32,5 32,5
Land 1,4 2,1 3,5
Building and constructions 19,0 36,7 55,7
Machinery and equipment 28,8 36,2 65,0
Other tangible assets 1,2 1,2
Advance payments and construction in
progress 17,2 17,2
Other non-current assets 3,2 3,2
Inventories 140,8 140,8
Other current assets 132,5 (0,7) 131,8
Cash and bank balances 123,2 123,2
Non-current liabilities b) (78,0) 59,6 (18,4)
Current liabilities b) (309,4) (22,9) (332,3)
Deferred tax assets and liabilities, net a) 8,3 (26,5) (18,2)
------ ----- ------
Shareholders' equity 89,1 248,1 337,2
====== ===== ======
A) DEFERRED INCOME TAXES
Under Finnish GAAP the company has adopted the income statement
approach under which deferred taxes are based on timing differences, which
arise when revenues and expenses are recorded in different accounting periods
for accounting and taxation purposes.
For US GAAP purposes, a deferred tax asset is recognized for the tax
loss carryforwards recorded by a member of the Group even though such tax loss
carryforwards are not available to the purchaser of the Group as the purchase
was of certain net assets as opposed to common stock of the Group. The
adjustment results in an increase to net income of (Euro) 26,7 million for the
period January 1 to September 30, 2003 and a corresponding increase to
shareholders' equity at September 30, 2003. This adjustment reduces what would
otherwise have been an increase of (Euro) (53,2) million to the US GAAP deferred
tax liability at September 30, 2003.
45
B) RECLASSIFICATIONS
Subordinated loan from Valtra's parent company (Euro) 74,2 million,
presented under Finnish GAAP as a non-current liability, has been reclassified
in US GAAP balance sheet from non-current to current liabilities.
The combined interim financial statements include the financial
statements of Valtra Oy and its wholly and over 50% owned subsidiaries as well
as four companies which are under common control of KONE and managed and
operated by Valtra. Those companies are Valtra USA, Inc, Partek Holding, Inc,
Tracfin Holding Oy and Valtra do Brasil Ltda. During 2003, Valtra do Brasil
Ltda and Tracfin Holding Oy were sold from Valtra Oy to another KONE company.
For the entities sold from Valtra Oy to KONE, but included in the combined
financial statements, the sales have been eliminated and the proceeds of (Euro)
43,5 received have been presented as current other non-interest bearing
liabilities in Finnish GAAP balance sheet. Under US GAAP, this amount has been
reclassified to retained earnings.