1
EXHIBIT 99.3
INDUSTRIAL PACKAGING DIVISION OF ROYAL PACKAGING INDUSTRIES VAN LEER N.V,
HUHTAMAKI HOLDING LTDA., VAN LEER FRANCE HOLDING S.A.S., VAN LEER CONTAINERS
INC., AND AMERICAN FLANGE AND MANUFACTURING COMPANY INC.
COMBINED FINANCIAL STATEMENTS FOR THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1999 (WITH UNAUDITED COMBINED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 2000)
Report of Independent Auditors 2
Combined Balance Sheets 3
Combined Statements of Operations 4
Combined Statements of Cash Flows 5
Notes to the Combined Financial Statements 6
2
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Royal Packaging Industries Van
Leer N.V., Huhtamaki Holding Ltda., Van Leer France Holding S.A.S., Van Leer
Containers Inc., and American Flange and Manufacturing Company Inc.:
We have audited the accompanying combined balance sheets of the Industrial
Packaging Division of Royal Packaging Industries Van Leer N.V., Huhtamaki
Holding Ltda., Van Leer France Holding S.A.S., Van Leer Containers Inc., and
American Flange and Manufacturing Company Inc. ("the Company") as of December
31, 1999, 1998 and 1997 and the related combined statements of operations and
cash flows for each of the years in the three year period ended December 31,
1999. 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 Netherlands and 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Industrial Packaging Division of Royal Packaging Industries Van Leer N.V.,
Huhtamaki Holding Ltda., Van Leer France Holding S.A.S., Van Leer Containers
Inc., and American Flange and Manufacturing Company Inc. as of December 31,
1999, 1998 and 1997, 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 generally accepted accounting principles in The Netherlands.
Generally accepted accounting principles in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations and shareholders' equity as of
and for the years ended December 31, 1999 and 1998 to the extent summarized in
Note 18 to the combined financial statements.
Amsterdam, May 10, 2001
/S/ ERNST & YOUNG ACCOUNTANTS
3
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS OF EURO)
AS OF DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
NOTES 2000 1999 1998 1997
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS EMPLOYED:
Tangible fixed assets
At cost (3) 737,461 721,259 630,697 600,689
Accumulated depreciation (385,059) (361,575) (317,015) (315,303)
---------- ---------- ---------- ----------
352,402 359,684 313,682 285,386
Financial fixed assets
Loans and securities (4) 48,072 657,855 462,414 418,328
---------- ----------- ----------- -------
Total fixed assets 400,474 1,017,539 776,096 703,714
Current assets
Stocks (5) 130,314 110,060 95,441 107,129
Debtors (6) 248,675 234,013 192,428 204,947
Cash and banks 35,202 24,530 10,902 23,615
---------- ---------- ---------- ----------
Total current assets 414,191 368,603 298,771 335,691
Current liabilities (7) (182,620) (196,953) (152,476) (163,897)
---------- ---------- ---------- ----------
Net working capital 231,571 171,650 146,295 171,794
---------- ----------- ----------- -------
Net capital employed 632,045 1,189,189 922,391 875,508
========== =========== =========== =========
FINANCED BY:
Medium and long-term loans (8) 209,655 477,640 277,103 228,514
Banks 36,696 47,058 49,907 36,355
---------- ---------- ---------- ----------
246,351 524,698 327,010 264,869
Provisions for liabilities and
Charges
Unfunded pension liabilities and
similar obligations (9) 33,630 41,006 42,889 47,888
Deferred tax liabilities (10) 36,669 29,660 37,848 39,430
Other provisions (11) 36,997 38,251 41,738 51,437
---------- ---------- ---------- ----------
107,296 108,917 122,475 138,755
Group equity
Shareholders' equity 271,461 545,425 464,900 465,806
Outside shareholders' interest 6,937 10,149 8,006 6,078
---------- ---------- ---------- ----------
Total group equity (12) 278,398 555,574 472,906 471,884
---------- ----------- ----------- -------
Financing capital 632,045 1,189,189 922,391 875,508
========== =========== =========== =========
SEE ACCOMPANYING NOTES.
4
COMBINED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS OF EURO)
FOR THE YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------
NOTES 2000 1999 1998 1997
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
Net sales (14) 1,028,078 921,854 919,550 972,691
Movements in stocks 1,476 (3,239) (526) (772)
-------------------------------------------------------
Proceeds of production 1,029,554 918,615 919,024 971,919
Direct materials (535,813) (440,254) (460,976) (487,690)
-------------------------------------------------------
Value added 493,741 478,361 458,048 484,229
Operating costs (15) (459,009) (425,673) (401,515) (432,333)
-------------------------------------------------------
Operating profit before interest and taxation 34,732 52,688 56,533 51,896
Interest income/(expense) (16) 7,401 (1,647) 1,216 (2,888)
Foreign exchange result (1,542) 1 (3,872) (1,555)
-------------------------------------------------------
Operating profit before taxation 40,591 51,042 53,877 47,453
Tax on operating profit 230 (12,301) (9,665) (10,468)
-------------------------------------------------------
Net operating profit 40,821 38,741 44,212 36,985
Net extraordinary expense (17) - (1,644) (2,380) (1,426)
-------------------------------------------------------
Profit after taxation 40,821 37,097 41,832 35,559
Third party interest (724) (1,540) (457) (505)
-------------------------------------------------------
Net income 40,097 35,557 41,375 35,054
=======================================================
SEE ACCOMPANYING NOTES.
5
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS OF EURO)
FOR THE YEARS ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------
2000 1999 1998 1997
(UNAUDITED)
- ----------------------------------------------------------------------------------------------
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
Net income for the year 40,097 35,557 41,375 35,054
Depreciation 39,515 33,956 32,244 32,855
-------- -------- -------- --------
OPERATING CASH FLOW 79,612 69,513 73,619 67,909
Movement in working capital (49,249) (11,727) 12,786 (1,754)
Stock appreciation rights exercised -- (30,399) (15,905) (6,812)
Movement in provisions (1,621) (13,558) (16,280) (16,872)
-------- -------- -------- --------
CASH FLOW PROVIDED BY OPERATING ACTIVITIES 28,742 13,829 54,220 42,471
Net investments in tangible fixed assets (42,874) (64,300) (75,819) (58,025)
Other 6,294 (6,064) 12,787 3,142
-------- -------- -------- --------
CASH FLOW USED IN INVESTING ACTIVITIES (36,580) (70,364) (63,032) (54,883)
Loans and securities 86,783 (195,441) (44,086) (14,203)
Medium and long-term loans (267,985) 200,537 48,589 16,591
Banks (10,362) (2,849) 13,552 13,050
Net transfers (to) from Parent Company 210,074 67,916 (21,956) (12,168)
-------- -------- -------- --------
CASH FLOW USED/PROVIDED BY FINANCING ACTIVITIES 18,510 70,163 (3,901) 3,270
-------- -------- -------- --------
CASH FLOW 10,672 13,628 (12,713) (9,142)
======== ======== ======== ========
SEE ACCOMPANYING NOTES.
6
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS OF EURO)
(1) BASIS OF PRESENTATION OF THE COMBINED FINANCIAL STATEMENTS
The accompanying combined financial statements present the combined financial
position, results of operations, and cash flows of the Industrial Packaging
Division of Royal Packing Industries Van Leer N.V., Huhtamaki Holding Ltda., Van
Leer France Holding S.A.S., Van Leer Containers Inc., and American Flange and
Manufacturing Company Inc. (the "Company"). Each of these legal entities was a
wholly owned subsidiary of Huhtamaki Van Leer Oyj (the "Parent Company") and
historically operated two principal divisions: the Industrial Packaging Division
and the Consumer Packaging Division.
On March 2, 2001, pursuant to the terms of a share purchase agreement between
Greif Bros. Corporation (the "Purchaser") and Huhtamaki Van Leer Oyj, a Finnish
corporation (the "Seller"), the Purchaser acquired all of the issued share
capital of Royal Packaging Industries Van Leer N.V., a worldwide manufacturer of
packaging products headquartered in the Netherlands. Pursuant to the terms of
the agreement, the Purchaser also acquired all of the issued and outstanding
share capital of Huhtamaki Holding Ltda., Van Leer France Holding S.A.S., Van
Leer Containers Inc. and American Flange and Manufacturing Company Inc.
Immediately prior to the acquisition by Greif Bros. Corporation, the Consumer
Packaging Division of these entities was transferred to a subsidiary of the
Parent Company. The Consumer Packaging Division was not acquired by Greif Bros.
Corporation and, accordingly, these combined financial statements do not include
financial information of the Consumer Packaging Division.
The accompanying combined financial statements include the assets, liabilities,
net sales, movements in stocks, direct materials and other operating expenses
that relate directly to the Industrial Packaging Division. Certain costs have
been allocated to the Company on a direct basis, based upon a specific
identification of the expenses. Allocations of expenses to the Company on an
indirect basis have been made primarily on a proportional cost allocation method
based on net capital. Management believes the above allocations to be reasonable
under the circumstances, however, there can be no assurances that such
allocations will be indicative of future results of operations of the combined
businesses nor reflective of historical results had the combined businesses been
a separate, stand-alone entity during the periods covered.
The combined financial statements have been prepared in accordance with
generally accepted accounting principles in the Netherlands ("Dutch GAAP"). Note
18 includes a summary of differences between Dutch GAAP and generally accepted
accounting principles in the United States that have an effect on net income and
shareholders' equity. The accompanying combined financial statements do not
represent Dutch statutory financial statements as the combined businesses were
not conducted as a separate single legal entity. The preparation of the combined
financial statements requires management to make estimates and assumption that
affect the amounts reported in the combined financial statements and
accompanying notes. Actual results could differ from those estimates.
The accompanying financial statements are reported in Euro for all periods
presented. Prior year amounts were restated from Dutch guilders into Euro by
dividing the amounts in Dutch guilders by the exchange rate of 2.20371, fixed on
January 1, 1999. The comparative financial statements presented for periods
prior to January 1, 1999 and reported in Euro depict the same trends as would
have been presented if the Company had continued to present financial statements
in Dutch guilders. However, the financial statements for the periods prior to
January 1, 1999 will not be comparible to the financial statements of other
companies that reported in Euro and that restated their prior period financial
statements from a currency other then Dutch guilder.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMBINATION
The combined financial statements include all companies in which the Company
directly or indirectly holds more than fifty percent of the shares and/or on
whose management and financial policy the Company exercises a decisive
influence. The results of subsidiaries acquired are included from the date of
acquisition and for subsidiaries sold, up to the date of disposal. All
intercompany balances and transactions between the entities have been
eliminated.
UNAUDITED FINANCIAL INFORMATION
Information included in the combined financial statements as of and for the year
ended December 31, 2000 is unaudited.
7
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS OF EURO)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RELATED PARTY TRANSACTIONS
Amounts due from or payable to the Parent Company result primarily from
intercompany charges. Loans to and loans from the Parent Company relate
primarily to intercompany financing transactions.
TRANSLATION OF FOREIGN CURRENCIES
The balance sheets of foreign entities are translated into Euros at the year-end
exchange rates. The statements of operations are translated at the average
exchange rates for the year. The resulting net translation adjustments are
recorded directly to shareholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred.
TANGIBLE FIXED ASSETS
Land, buildings, machinery, installations and other tangible fixed assets are
carried at cost net of depreciation.
Assets depreciation terms are as follows:
Land -
Buildings 40 years
Machinery and installations 8-14 years
Other operational assets 3-12 years
Assets acquired under financing arrangements classified as capital leases are
capitalized and depreciated in accordance with the above principles. The
corresponding capital lease obligations are classified with long term loans due
after more than one year. Other operational assets include primarily computer
hardware and software and furniture and fixtures.
GOODWILL
Goodwill, representing the amount paid in excess of net asset value for
companies acquired, is charged to shareholders' equity.
IMPAIRMENT OF LONG-LIVED ASSETS
Impairment of tangible fixed assets and other long-lived assets is recognized
when events or changes in circumstances indicate that the carrying amount of the
asset, or related groups of assets, may not be recoverable. Measurement of the
amount of impairment may be based on appraisal, market value of similar assets
or estimated discounted future cash flows resulting from the use and ultimate
disposition of the asset.
LOANS AND SECURITIES
Loan and securities are valued at historical cost and represent the net
realizable value.
8
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF EURO)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCKS
Inventories are valued at the lower of cost of market principally by the
first-in, first-out method. Work in progress and finished goods include the cost
of direct materials, labour, and overhead.
PENSIONS AND POST-RETIREMENT BENEFITS
Pension schemes are established in various countries in conformity with local
regulations. Current service costs of pension plans are charged to operations in
the year in which they arise. The unfunded liability of pensions is determined
by using the accrued benefit valuation method. Under this method the accrued
liability represents the present value of benefits payable at retirement date,
taking into account the applicable variables such as employee salaries, employee
service years, and plan returns. Such variables do not take into account
assumptions regarding future events.
Certain subsidiaries maintain post retirement health care and life insurance
benefits. Benefits accrue over the periods employees render service, and are
actuarially calculated based on current assumptions. These plans are not funded,
however, the recorded provision is sufficient to cover the present value of the
accumulated post-retirement benefit obligation. The cost for the year represents
the increase in the obligation for post-retirement benefits granted to
employees, and is adjusted for differences in this obligation due to changes in
assumptions.
TAXATION ON THE RESULT
The provision for income tax included in the accompanying combined financial
statements has been determined as if the Company was a stand alone entity during
the periods covered. The provision for income taxes consists of current tax
expense and deferred tax expense. In certain tax jurisdictions, the Company
maintains deferred tax assets which consist principally of net operating loss
carryforwards. Management has assessed whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The Company
has established, to the extent that deferred tax assets are not offset by
deferred tax liabilities within a tax jurisdiction, a full valuation allowance
for deferred tax assets.
OTHER ASSETS AND LIABILITIES
All other assets and liabilities are stated at the amounts at which they were
acquired or incurred. Assets are stated net of related provisions.
INCOME AND EXPENSE
The Company recognizes sales when there is evidence of a sales agreement, the
delivery of goods has occurred, and collectibility is reasonably assured. Other
income, costs and expenses are allocated to the year to which they relate.
Losses are accounted for in the year in which they are identified. Research and
development expenditures are written off as incurred.
9
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF EURO)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK APPRECIATION RIGHTS
Until October 1999, the Company sponsored a Stock Appreciation Rights ("SAR")
Plan, which provided eligible employees with the right to receive cash equal to
the appreciation of the Company's ordinary shares subsequent to the date of
grant. The stock appreciation rights vest over a two to three year period and
expire five years from the date of grant. Compensation in the form of cash
payments to employees related to the SAR Plan are charged directly to equity.
Subsequent to October 1999, no stock appreciation rights were granted and none
were outstanding.
(3) TANGIBLE FIXED ASSETS MACHINERY OTHER ASSETS
2000 UNAUDITED AND OPERATIONAL UNDER
LAND BUILDINGS INSTALLATIONS ASSETS CONSTRUCTION NOT IN USE TOTAL
- -------------------------------------------------------------------------------------------------------------------------
Book value at 01-01-2000 19,138 74,270 188,592 18,527 56,830 2,327 359,684
Additions -- 3,961 37,614 4,449 (5,646) 2,496 42,874
Depreciation -- (2,967) (29,269) (6,413) -- (866) (39,515)
Other movements (829) (2,319) (2,879) 419 (3,874) (1,159) (10,641)
- -------------------------------------------------------------------------------------------------------------------------
Book value at 31-12-2000 18,309 72,945 194,058 16,982 47,310 2.798 352,402
At cost at 31-12-2000 18,309 113,286 479,087 71,863 47,310 7,606 737,461
Accumulated depreciation -- (40,341) (285,029) (54,881) -- (4,808) (385,059)
- -------------------------------------------------------------------------------------------------------------------------
Book value at 31-12-2000 18,309 72,945 194,058 16,982 47,310 2,798 352,402
===========================================================================================
1999
Book value at 01-01-1999 16,766 64,692 146,251 17,801 67,478 694 313,682
Additions 122 10,237 63,282 7,312 (19,335) 2,682 64,300
Depreciation -- (2,967) (24,614) (5,784) -- (591) (33,956)
Other movements 2,250 2,308 3,673 (802) 8,687 (458) 15,658
- -------------------------------------------------------------------------------------------------------------------------
Book value at 31-12-1999 19,138 74,270 188,592 18,527 56,830 2,327 359,684
At cost at 31-12-1999 19,138 115,125 452,494 70,937 56,830 6,735 721,259
Accumulated depreciation -- (40,855) (263,902) (52,410) -- (4,408) (361,575)
- -------------------------------------------------------------------------------------------------------------------------
Book value at 31-12-1999 19,138 74,270 188,592 18,527 56,830 2,327 359,684
===========================================================================================
1998
Book value at 01-01-1998 13,467 68,020 141,986 18,404 42,877 632 285,386
Additions 3,455 2,209 34,107 6,960 29,082 6 75,819
Depreciation -- (2,812) (22,826) (6,593) -- (13) (32,244)
Other movements (156) (2,725) (7,016) (970) (4,481) 69 (15,279)
- -------------------------------------------------------------------------------------------------------------------------
Book value at 31-12-1998 16,766 64,692 146,251 17,801 67,478 694 313,682
At cost at 31-12-1998 16,766 100,615 374,321 66,530 67,478 4,987 630,697
Accumulated depreciation -- (35,923) (228,070) (48,729) -- (4,293) (317,015)
- -------------------------------------------------------------------------------------------------------------------------
Book value at 31-12-1998 16,766 64,692 146,251 17,801 67,478 694 313,682
===========================================================================================
10
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF EURO)
(3) TANGIBLE FIXED ASSETS (CONTINUED)
MACHINERY OTHER ASSETS
AND OPERATIONAL UNDER
LAND BUILDINGS INSTALLATIONS ASSETS CONSTRUCTION NOT IN USE TOTAL
- -------------------------------------------------------------------------------------------------------------------------
1997
Book value at 01-01-1997 10,218 69,540 137,694 17,650 27,025 1,664 263,791
Additions 3,729 3,902 26,099 8,012 16,230 53 58,025
Depreciation -- (3,411) (22,093) (7,090) -- (261) (32,855)
Other movements (480) (2,011) 286 (168) (378) (824) (3,575)
- -------------------------------------------------------------------------------------------------------------------------
Book value at 31-12-1997 13,467 68,020 141,986 18,404 42,877 632 285,386
At cost at 31-12-1997 13,467 102,792 365,481 70,628 42,877 5,444 600,689
Accumulated depreciation -- (34,772) (223,495) (52,224) -- (4,812) (315,303)
- -------------------------------------------------------------------------------------------------------------------------
Book value at 31-12-1997 13,467 68,020 141,986 18,404 42,877 632 285,386
==========================================================================================
Other movements primarily include exchange rate effects. Assets under
construction include payments on account. Assets not in use represent land and
buildings held for sale or machinery temporarily idled. Such assets are recorded
at their net realizable value.
(4) LOANS AND SECURITIES
2000 1999 1998 1997
-----------------------------------------------------
(UNAUDITED)
Loans to third parties and securities 33,920 2,198 2,095 3,285
Loans to Parent Company 9,513 652,237 457,707 413,862
Other 4,639 3,420 2,612 1,181
-----------------------------------------------------
48,072 657,855 462,414 418,328
=====================================================
In 2000, loans to the Parent Company were reduced by a dividend declared to the
Parent Company in the amount of Euro 523,000. In February 2001, the transaction
was settled in a non-cash transaction.
(5) STOCKS
2000 1999 1998 1997
-----------------------------------------------------
(UNAUDITED)
Direct materials 87,688 74,459 61,285 72,538
Work in progress 11,141 7,826 7,788 6,461
Finished goods 31,485 27,775 26,368 28,130
------------------------------------------------------
130,314 110,060 95,441 107,129
======================================================
Provision is made for obsolete and slow-moving items.
11
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF EURO)
(6) DEBTORS
2000 1999 1998 1997
----------------------------------------------------------
(UNAUDITED)
Trade debtors third party 174,448 165,233 135,862 139,292
Miscellaneous debtors third party 16,310 17,519 22,215 25,549
Other debts from Parent Company 6,716 15,621 5,009 7,798
Prepayments and accrued income 44,277 29,211 23,916 26,754
Deferred tax assets 6,924 6,429 5,426 5,554
----------------------------------------------------------
248,675 234,013 192,428 204,947
==========================================================
(7) CURRENT LIABILITIES
2000 1999 1998 1997
----------------------------------------------------------
(UNAUDITED)
Trade creditors third party 82,386 75,364 56,675 65,988
Taxes payable 6,892 19,209 12,065 13,161
Accruals and deferred income 69,509 80,032 57,960 63,603
Other current liabilities third party 20,391 17,644 22,344 18,683
Other current liabilities
to Parent Company 3,442 4,704 3,432 2,462
----------------------------------------------------------
182,620 196,953 152,476 163,897
==========================================================
(8) MEDIUM AND LONG-TERM LOANS
2000 1999 1998 1997
------------------------------------------------------------------------------------------
REPAYABLE REPAYABLE REPAYABLE REPAYABLE
IN ONE IN ONE IN ONE IN ONE
TOTAL YEAR TOTAL YEAR TOTAL YEAR TOTAL YEAR
- ---------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
Loans from Parent Company 180,492 - 359,287 - 160,321 - 105,564 -
Bank loans 23,964 972 112,517 3,213 110,032 3,523 116,640 574
Other loans 3,551 157 4,157 532 5,140 451 4,669 442
Finance lease liabilities 1,648 154 1,679 1,679 1,610 207 1,641 342
------------------------------------------------------------------------------------------
209,655 1,283 477,640 5,424 277,103 4,181 228,514 1,358
=========================================================================================
The average years to maturity and interest rate on medium and long-term debt is
as follow:
2000 1999 1998 1997
-------------------------------------------
(UNAUDITED)
Average years to maturity 2.1 2.1 4.0 4.3
Average interest rate on bank loans 7.1% 7.0% 7.4% 7.5%
12
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF EURO)
(9) UNFUNDED PENSION LIABILITIES AND SIMILAR OBLIGATIONS
Unfunded pension liabilities and similar assets consist of the following:
UNFUNDED
PENSION POSTRETIREMENT
LIABILITIES BENEFITS TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 2000 (unaudited) 21,440 12,190 33,630
=================== ==================== ====================
Balance at Dec. 31, 1999 29,425 11,581 41,006
=================== ==================== ====================
Balance at Dec. 31, 1998 29,539 13,350 42,889
=================== ==================== ====================
Balance at Dec. 31, 1997 33,503 14,385 47,888
=================== ==================== ====================
The unfunded pension and postretirement obligations are primarily long-term
liabilities.
(10) DEFERRED TAX LIABILITIES
2000 UNAUDITED
Balance at Dec. 31, 1999 29,660
Uses (3,290)
Additional provision 10,299
--------------------
Balance at Dec. 31, 2000 36,669
====================
1999
- -------------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1998 37,848
Uses (10,315)
Additional provision 2,127
--------------------
Balance at Dec. 31, 1999 29,660
====================
1998
- -------------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1997 39,430
Uses (2,700)
Additional provision 1,118
--------------------
Balance at Dec. 31, 1998 37,848
====================
1997
- -------------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1996 43,735
Uses (4,721)
Additional provision 416
--------------------
Balance at Dec. 31, 1997 39,430
====================
The deferred tax on timing differences is primarily a long-term liability and is
calculated at year-end tax rates.
13
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF EURO)
(11) OTHER PROVISIONS
Other provisions consist of the following:
2000 1999 1998 1997
--------------------------------------------------
(UNAUDITED)
Litigation 2,007 2,154 2,056 2,262
Reorganizations 17,343 16,219 21,942 33,005
Release pay 2,099 2,819 3,497 1,782
Environmental 6,799 6,702 5,351 5,615
Sundry 8,749 10,357 8,892 8,773
--------------------------------------------------
36,997 38,251 41,738 51,437
==================================================
(12) TOTAL GROUP EQUITY
2000 1999 1998 1997
----------------------------------------------------
(UNAUDITED)
Beginning balance at January 1 555,574 472,906 471,884 445,420
Net income 40,097 35,557 41,375 35,054
Goodwill (3,157) (1,205) (3,256) (2,280)
Stock appreciation rights exercised -- (30,399) (15,905) (6,812)
Dividend declared to the Parent Company (523,000) -- -- --
Net transfers (to) from Parent Company 210,074 67,916 (21,956) (12,168)
Other (1,190) 10,799 764 12,670
-------------------------------------------------
Ending balance at December 31 278,398 555,574 472,906 471,884
=================================================
Other relates primarily to the effect of foreign currency translation
adjustments.
(13) CONTINGENT LIABILITIES AND OTHER COMMITMENTS
2000 1999 1998 1997
--------------------------------------------------
(UNAUDITED)
Contingent liabilities (guarantees) 6,927 7,760 28,415 27,387
Rentals under lease contracts 16,864 11,968 10,064 8,368
Prospective capital expenditure 16,979 9,630 15,091 40,416
The Company is involved in several legal proceedings. It is not expected that
the outcome from these legal proceedings will have a material effect on the
Company. The Company has provided for all probable liabilities, as considered
necessary by management.
(14) NET SALES
Net sales by geographical area are as follows:
2000 1999 1998 1997
--------------------------------------------------
(UNAUDITED)
Europe 462,083 434,891 442,638 453,270
North America and Mexico 261,447 225,368 190,870 179,957
Africa 67,997 55,063 54,100 69,397
Australia and South East Asia 106,767 97,766 92,549 126,067
Central and South America 129,784 108,766 139,393 144,000
--------------------------------------------------
1,028,078 921,854 919,550 972,691
==================================================
14
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF EURO)
(15) OPERATING COSTS
Operating costs consist of the following:
2000 1999 1998 1997
-------------------------------------------------
(UNAUDITED)
Salaries and wages 158,084 148,737 142,362 143,375
Social charges 49,318 41,243 43,315 45,575
Pension costs 7,513 8,426 10,256 10,040
-------------------------------------------------
Total salaries, wages, social charges
and pension costs 214,915 198,406 195,933 198,990
Depreciation of tangible fixed assets 39,515 33,956 32,244 32,855
Transport costs 69,727 61,373 54,650 53,159
Other operating costs 134,852 131,938 118,688 147,329
-------------------------------------------------
459,009 425,673 401,515 432,333
=================================================
Other operating costs include utilities, insurance, rental, leases, travel
expenses and miscellaneous overhead expenses. Social charges include the cost of
post-retirement benefits.
(16) INTEREST INCOME/(EXPENSE)
Income/(expense) consists of the following:
2000 1999 1998 1997
---------------------------------------------------------
(UNAUDITED)
Interest expense (15,769) (18,338) (20,306) (23,671)
Interest income 23,170 16,691 21,522 20,783
---------------------------------------------------------
7,401 (1,647) 1,216 (2,888)
=========================================================
(17) NET EXTRAORDINARY EXPENSE
2000 1999 1998 1997
---------------------------------------------------------
(UNAUDITED)
Extraordinary income -- -- 5,945 2,919
Extraordinary expense -- (2,905) (8,325) (11,344)
---------------------------------------------------------
-- (2,905) (2,380) (8,425)
Tax income/(expense) -- 1,261 -- 6,999
---------------------------------------------------------
-- (1,644) (2,380) (1,426)
=========================================================
Extraordinary income primarily represents the reversal of tax liabilities as a
result of a change in tax law and final settlements with tax authorities.
Extraordinary expenses relate primarily to costs associated with the year 2000.
15
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF EURO)
(18) NET INCOME AND SHAREHOLDERS' EQUITY UNDER ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES OF AMERICA
The combined financial statements have been prepared in accordance with
generally accepted accounting principles in The Netherlands ("Dutch GAAP"),
which differ in certain significant respects from generally accepted accounting
principles in the United States of America ("U.S. GAAP").
The table below reconciles the net income and shareholders' equity of the
Company under Dutch GAAP to the net income and shareholders' equity under U.S.
GAAP:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2000 1999 1998
---------------- --------------- ----------------
(UNAUDITED)
Net income under Dutch GAAP (EURO)40,097 (EURO)35,557 (EURO)41,375
Stock-appreciation rights - (13,798) (1,284)
Pensions and post retirement benefit plans 2,965 (2,226) (1,151)
Restructuring provisions 320 (1,791) (7,598)
Year 2000 costs (1,055) (862) (1,588)
Start-up costs 4,469 (2,451) (2,618)
Goodwill amortization (652) (507) (309)
Income tax effect of U.S. GAAP adjustments (1,292) 786 1,060
---------------- --------------- ----------------
Net income under U.S. GAAP (EURO)44,852 (EURO)14,708 (EURO)27,887
================ =============== ================
DECEMBER 31,
--------------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
(UNAUDITED)
Shareholders' equity under Dutch GAAP (EURO)271,461 (EURO)545,425 (EURO)464,900
Stock-based compensation - - (4,814)
Pensions and post retirement benefit plans 30,766 28,585 27,092
Restructuring provisions 8,820 8,500 10,291
Year 2000 costs - 1,055 1,917
Start-up costs 5,969 1,500 3,951
Goodwill 9,817 7,313 6,614
Income tax effect of U.S. GAAP adjustments (14,651) (13,998) (10,655)
--------------- ---------------- ----------------
Shareholders' equity under U.S. GAAP (EURO)312,182 (EURO)578,380 (EURO)499,296
=============== ================ ================
The following accounting principles were followed by the Company pursuant to
U.S. GAAP:
STOCK-APPRECIATION RIGHTS
Until October 1999, the Company sponsored a Stock Appreciation Rights ("SAR")
Plan, which provided eligible employees with the right to receive cash equal to
the appreciation of the Company's ordinary shares subsequent to the date of
grant. Stock appreciation rights issued under the SAR Plan vest over a two to
three year period and expire five years from the date of grant. Under Dutch
GAAP, compensation in the form of cash payments to employees related to the SAR
Plan are charged directly to equity. Under U.S. GAAP, compensation expense or
benefit on SARs is recorded each reporting period based on changes in the market
price of the Company's ordinary shares.
PENSIONS AND POST RETIREMENT BENEFIT PLANS
Under Dutch GAAP, defined benefit pension and post retirement health care
benefit expenses are based on premiums paid to certain pension and other post
retirement benefit plan funds. The premiums are calculated using actuarial
assumptions which among other variables do not take into account future salary
increases or employee turnover due to resignations, dismissals or disability.
Premiums are not reduced by credits relating to overfunding of the funds, which
under Dutch GAAP is computed by valuing assets at fair market value less a
prudence provision unless refunds are actually received from the fund.
16
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF EURO)
(18) NET INCOME AND SHAREHOLDERS' EQUITY UNDER ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES OF AMERICA (CONTINUED)
Under U.S. GAAP, pension costs are calculated in accordance with Financial
Accounting Standards Board ("FASB") No. 87, "Employers' Accounting for Pensions"
and postretirement benefit obligations are calculated in accordance with FASB
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions." FASBs Nos. 87 and 106 are generally more prescriptive than Dutch
GAAP. Under FASB No. 87, service costs are based on actuarial assumptions which
among other variables include estimated future salary increases and estimated
employee turnover related to resignations, dismissals and disability. Moreover,
net periodic pension costs are reduced by credits representing amortization of
overfunding of the fund which is calculated by valuing plan assets at fair
market value. Under FASB No. 106, the service costs is based on the expected
amount and timing of future benefits, taking into consideration the expected
future cost of providing the benefits.
RESTRUCTURING PROVISIONS
Under Dutch GAAP, the Company provided reserves for anticipated costs associated
with termination benefits and other costs associated with exit activities at the
point when a general plan was approved by management and the costs were
reasonably estimable.
Under U.S. GAAP, certain criteria, as outlined by Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity" and Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 100, "Restructuring and
Impairment Charges," must be met prior to providing for these costs. For those
accruals where the Company did not meet the criteria of EITF No. 94-3 and SAB
100, the Company expensed the restructuring costs, if any, in the year in which
they were incurred.
YEAR 2000 COSTS
Under Dutch GAAP, the Company accrued for anticipated costs related to Year 2000
preparation. Under U.S. GAAP, year 2000 costs were accounted for in accordance
with EITF No. 96-14 "Accounting for the Costs Associated with Modifying Computer
Software for the Year 2000" and were expensed as incurred.
START-UP COSTS
Under Dutch GAAP, the Company accrued for anticipated costs related to start-up
activities of some of its operations. Under U.S. GAAP, these costs were
accounted for in accordance with Statement of Position ("SOP") No. 98-5,
"Reporting on the Costs of Start-up Activities" and, accordingly, were expensed
as incurred.
GOODWILL
Under Dutch GAAP, the Company charged all goodwill directly to equity. Under
U.S. GAAP, goodwill is amortized on a straight method over 15 years, the
estimated useful life. The carrying amount of goodwill is reviewed on a
quarterly basis for recoverability based on the undiscounted cash flows of the
businesses acquired over the remaining amortization period. Should the review
indicate that goodwill is not recoverable, the Company's carrying value of the
goodwill would be reduced by the estimated shortfall of the discounted cash
flows.
INCOME TAX EFFECT OF U.S. GAAP ADJUSTMENTS
For all U.S. GAAP adjustments noted above, the tax effect was computed using the
statutory tax rates of the respective subsidiaries of the Company creating the
U.S. GAAP adjustment. To the extent the U.S. GAAP adjustment created a temporary
deductible difference and there was insufficient positive evidence to support
valuing the related deferred tax asset, an effective tax rate of 0% was used.