<PAGE> 1
EXHIBIT 99.1
BERLINER KRAFT- UND LICHT (BEWAG)-AKTIENGESELLSCHAFT
(currently BEWAG AG)
FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1998
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Berliner Kraft- und Licht (Bewag)-Aktiengesellschaft
Berlin, Germany
We have audited the accompanying balance sheet of Berliner Kraft- und Licht
(Bewag)-Aktiengesellschaft as of June 30, 1998, and the related statements of
profit and loss and cash flows for the year ended June 30, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
in Germany and 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 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bewag Aktiengesellschaft as of
June 30, 1998, and the results of its operations and cash flows for the year
ended June 30,1998, in conformity with accounting principles generally accepted
in Germany.
Generally accepted accounting principles in Germany vary in certain significant
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have affected the result of operations for the year
ended June 30, 1998 and shareholders' equity as of June 30, 1998 to the
extent summarized in Appendix II to the financial statements.
KPMG Deutsche Treuhand-Gesellschaft AG (hand written)
Wirtschaftsprufungsgesellschaft
Berlin, Germany
September 8, 1998
<PAGE> 3
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS NOTES 30 JUNI 1998 30 JUNI 1997
NO. DM THOUSAND DM THOUSAND
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED ASSETS (1)
----------------------------------------------------------------------------------------------------------------
Intangible assets (2) 330,978 330,410
Tangible assets (3) 6,997,728 6,951,993(1)
Financial assets (4) 854,553 513,865
================================================================================================================
8,183,259 7,796,268
================================================================================================================
CURRENT ASSETS
----------------------------------------------------------------------------------------------------------------
Inventories (5) 168,851 190,040
Accounts receivable and other assets
Receivables for goods and services (6) 546,744 480,187
Receivables from affiliated companies (7) 3,265 1,047
Receivables from companies
in which participations are held (8) 4,607 16,160
Other assets (9) 127,679 135,497
Securities (10) 203,529 262,154
Checks, cash on hand, on deposit with
Deutsche Bundesbank and Postbank, cash
in other bank accounts (11) 226,830 367,461
================================================================================================================
1,281,505 1,452,546
================================================================================================================
PREPAID EXPENSES (12) 134,192 146,439
================================================================================================================
SPECIAL LOSS ACCOUNT (13) 384,795 392,431(1)
================================================================================================================
9,983,751 9,787,684
================================================================================================================
<CAPTION>
SHAREHOLDERS' EQUITY AND LIABILITIES NOTES 30 JUNI 1998 30 JUNI 1997
NO. DM THOUSAND DM THOUSAND
(UNAUDITED)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
----------------------------------------------------------------------------------------------------------------
Subscribed capital (14) 560,000 560,000
Capital reserve (15) 56,800 56,800
Revenue reserves (16)
Statutory reserve 848,257 848,257(1)
Special reserve according to Section 17 Sub-section 4 DMBiLG 384,795 392,431(1)
Other revenue reserves 1,532,535 1,469,899
----------------------------------------------------------------------------------------------------------------
2,765,587 2,710,587(1)
Net profit for the year (17) 224,000 112,000
================================================================================================================
3,606,387 3,439,387
================================================================================================================
SPECIAL ITEMS WITH PARTIAL RESERVE CHARACTER (18) 1,844,528 1,780,264
================================================================================================================
SPECIAL ITEM FOR INVESTMENT BONUSES (19) 410,711 451,354
================================================================================================================
CONSTRUCTION COST SUBSIDIES (20) 683,564 645,126
================================================================================================================
PROVISIONS
----------------------------------------------------------------------------------------------------------------
Provisions for pensions and similar obligations 407,804 391,415
Provisions for taxes 103,452 49,766
Other provisions (21) 1,421,576 1,394,837(1)
================================================================================================================
1,932,832 1,836,018
----------------------------------------------------------------------------------------------------------------
LIABILITIES (22)
----------------------------------------------------------------------------------------------------------------
Liabilities to banks (23) 858,713 1,047,640
Advance payments received (24) 127,816 108,827
Liabilities for goods and services 305,481 269,097
Liabilities to affiliated companies 786 845
Liabilities to companies in which participations are held (25) 12,016 14,290
Other liabilities (26) 200,673 194,797
================================================================================================================
1,505,485 1,635,496
================================================================================================================
DEFERRED INCOME 244 39
================================================================================================================
9,983,751 9,787,684
================================================================================================================
(1) After adjustment according to Section 36 of the DM-Balance Sheet Act
(DMBiLG)
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE> 4
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
1996/97
Notes 1997/98 DM thousand
No. DM thousand (unaudited)
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES REVENUE (27) 3,959,727 4,092,864
-----------------------------------------------------------------------------------
Stock movements and other internally
produced and capitalised assets (28) 49,477 65,548
Other operating income (29) 299,006 419,199
Cost of materials (30) -1,227,481 -1,427,178(1)
Personnel expenses (31) -1,159,845 -1,142,730(2)
Depreciation (32) -617,995 -625,880
Other operating expenses (33) -779,942 -1,016,906(1)(2)
Income from financial assets (34) -16,181 31
Net interest income (35) -51,557 -58,835
===================================================================================
RESULT OF ORDINARY ACTIVITIES 455,209 306,113
-----------------------------------------------------------------------------------
Taxes (36) -176,209 -121,613
===================================================================================
NET INCOME FOR THE YEAR 279,000 184,500
-----------------------------------------------------------------------------------
Allocations to other revenue reserves -55,000 -72,500
===================================================================================
NET PROFIT FOR THE YEAR 224,000 112,000
===================================================================================
</TABLE>
(1) After the reclassification of DM 104,592 thousand from other operating
expenses to cost of materials
(2) After the reclassification of DM 2,500 thousand from other operating
expenses to personnel expenses
The accompanying notes are an integral part of these statements.
<PAGE> 5
CASH-FLOW STATEMENT
<TABLE>
<CAPTION>
1996/97
1997/98 DM MILLION
DM MILLION (unaudited)
------------------------------------------------------------------------------------
<S> <C> <C>
Net income for the year 279 185
Depreciation of fixed assets 634 619
Changes in long-term provisions -64 -45
Allocation to special item 162 429
Release of special item -136 -136
Other expenses and income without effect on payments -23 -55
====================================================================================
DVFA/SG CASH-FLOW 852 997
Result from disposals of fixed assets 3 -9
Increase/Decrease in inventories, receivables for
goods and services and other assets -7 607
Increase/Decrease in liabilities for goods and
services and other liabilities 262 105
====================================================================================
INFLOW OF FUNDS FROM OPERATING ACTIVITIES 1,110 1,700
------------------------------------------------------------------------------------
Proceeds from disposals of fixed assets 18 32
Disbursements for capital investments in fixed assets -1,030 -921
(including increase of participation in GASAG) (-354) (-)
====================================================================================
OUTFLOW OF FUNDS FOR INVESTMENT ACTIVITIES -1,012 -889
------------------------------------------------------------------------------------
Payments to shareholders (dividend) -112 -90
Receipts from taking up loans -- 54
Payments for redemption of loans -185 -278
====================================================================================
OUTFLOW OF FUNDS FOR FINANCING ACTIVITIES -297 -314
====================================================================================
CHANGES IN FINANCING RESOURCES WITH EFFECT ON PAYMENT -199 497
------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------
30 JUNE 1997
MOVEMENTS OF FINANCIAL FUNDS 30 JUNE 1998 DM MILLION CHANGE
DM MILLION (unaudited) DM MILLION
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liquid funds 227 368 -141
Securities in current assets 204 262 -58
====================================================================================
FINANCIAL FUNDS 431 630 -199
====================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
NOTES TO THE FINANCIAL STATEMENTS
PRELIMINARY REMARKS
On 1 July 1993, Bewag was merged with the energy supply company
Energieversorgung Berlin AG (EBAG), which was located in the former East Berlin.
As a result of the merger under stock corporation law, legislation which,
according to the unification treaty applied only to companies in the former GDR,
now applies to Bewag as a whole. This is particularly relevant with regard to
the provisions of the DM-Balance Sheet Act (DMBilG) covering the special loss
account, the special reserves under Section 17 Sub-section 4 of the Act and
capital reorganisation under Section 27 of the Act. In certain circumstances
Section 36 DMBilG also stipulates changes in EBAG's DM opening balance sheet,
which then retroactively entail corrections in certain balance sheet item
valuations for each previous year.
As of 30 June 1998 CHANGES IN THE OPENING BALANCE SHEET were either necessary or
possible for the following items:
- Tangible assets increased by DM 0.2 million, because the total value shown for
land had increased pursuant to official notices of allocation or adjustment.
- Provisions for compensation obligations were reduced by DM 4.9 million as
certain restitution claims had become more precise or due to court decisions
that had become legally effective.
- As a consequence of new investigations regarding the expenditure necessary to
rehabilitate contaminated properties, provisions for contamination were
reduced by DM 74.9 million. The special loss account and the special reserve
were also reduced by the same amount.
As a result of these changes, the statutory reserve was increased by DM 80.0
million.
Bewag must also take into account the stipulations of the LAND REGISTRY
ADJUSTMENT ACT (GBBerG). This act applies only to the territory which joined the
Federal Republic under the unification treaty, and especially covers easements
of utility supply companies in non-public land and compensation payments due to
the owners of such properties. Provisions were established for this purpose as
of 30 June 1995, the date of the initial application of the Act. At the time,
this provision did not affect operating results in the profit and loss account;
it had merely served to record such liabilities and related assets on the
balance sheet.
Since the obligations will become due in two equal installments, on 1 January
2001 and 2011, the easements were assessed at present value. The difference
between the value of the easements and the obligation was recorded as prepaid
expense.
<PAGE> 7
In the year under review, detailed studies of the location and quality of the
properties showed that the provision should be increased by DM 49.6 million.
Under the accounting methodology used, this adjustment, rather than being
reported as an expense, merely increases the recorded assets and liabilities.
The only consequence is a DM 3.8 million increase in depreciation expense and an
adjustment of prepaid expenses.
Because of the insignificance of Bewag's shareholdings as a whole in
relationship to its financial and income position, the company took advantage of
the option in Section 296 Sub-section 2 of the Commercial Code (HGB) and chose
not to prepare a CONSOLIDATED ANNUAL STATEMENT.
<PAGE> 8
ACCOUNTING AND VALUATION METHODS
In the balance sheet and the profit and loss account, certain items have been
combined for the sake of greater clarity; they are then shown in greater detail
in the notes. Furthermore, in an effort to provide more insight into the
company's financial position, a number of items have been added to the balance
sheet. The profit and loss account has been drawn up according to the
cost-summary method. DM figures shown in the annual statement represent
thousands.
Specifically, accounting and valuation are based on the following principles:
ASSETS
Purchased INTANGIBLE ASSETS are valued at their acquisition costs less regular
straight-line depreciation.
TANGIBLE ASSETS are assessed at acquisition or production costs. The following
change was made in the year under review: With regard to the costs of self
constructed assets, Bewag does not use a lump-sum overhead cost factor, but
rather capitalizes only directly allocable costs. Interest paid on outside
capital has been excluded from this item since 1 January 1991. When new tangible
assets are added, investment subsidies are deducted from the costs of
acquisition or production. Regular depreciation for tangible assets is carried
out on a straight-line basis for buildings, and otherwise always at the highest
degression rate permissible under taxation law; straight-line depreciation is
favoured as soon as this leads to higher annual amounts. Plant for which special
depreciation can be claimed under Section 4 of the Development Area Act (FordG)
is also depreciated by the straight-line method, as stipulated by law.
Depreciation is based on the Federal Minister of Finance's depreciation table
for the energy and water supply sector.
In the in-service year of purchase or production, new plant is depreciated at
75.0 per cent of the normal annual rate.
According to one of the options of Section 6 Sub-section 2 of the Income Tax Act
(EStG), minor assets are depreciated fully in the year of purchase or
production.
<PAGE> 9
FINANCIAL ASSETS are valued at acquisition cost. Interest free loans are
discounted to their present value.
If the book value of an asset calculated according to the above principles is
greater than its quoted or market value at balance-sheet date, the excess over
the market value is written off.
INVENTORIES are valued at average acquisition costs, taking into account the
lower-of-cost-or-market rule. Deductions are made for inventories subject to
long storage and thus potentially less suitable for use. The amounts deducted
depend on the rate of turnover for the goods concerned.
With regard to RECEIVABLES AND OTHER ASSETS, an appropriate amount is deducted
for identifiable single risks. Other risks are taken into account in a general
allowance for bad debts and doubtful accounts. Advance payments on receivables
for goods and services are offset against electricity supplied but not yet
invoiced. Receivables for electricity supplied but not yet invoiced are assessed
on the basis of electricity consumption and revenue projections; a
differentiated group assessment procedure is applied. Interest-free receivables
are discounted according to their terms.
SECURITIES are valued at acquisition cost or at their market price if it is
lower.
No use is made of the option right to capitalize debt discount expenses: such
expenses are immediately recorded in the profit and loss account.
Provisions for which a SPECIAL LOSS ACCOUNT had been created in the opening
balance sheet of EBAG as of 1 July 1990 and which have been used up are not
reported as an expenditure in the relevant items of the profit and loss account;
instead, the special loss account is depreciated by the amount of the used
provisions.
<PAGE> 10
SHAREHOLDERS' EQUITY AND LIABILITIES
As they become freely disposable, funds of the SPECIAL RESERVE UNDER SECTION 17
SUB-SECTION 4 OF THE DM-BALANCE SHEET ACT (DMBilG) are transferred to other
revenue reserves in accordance with the current version of the Act, which has
been in force since 25 July 1994.
The amount by which the regular depreciation of tangible assets differs from the
increased deduction for depreciation under Section 14 of the Berlin Promotion
Act (BerlinFG) and the special depreciation under Section 4 of the Development
Area Act (FordG) are disclosed as SPECIAL ITEMS WITH PARTIAL RESERVE CHARACTER,
together with the reserve under Section 6b of the Income Tax Act (EStG). The
difference between regular depreciation and increased deduction is always
released in accordance with established depreciation procedures, but the release
of the special depreciation begins at the end of the preferential period.
Tax-free investment bonuses are shown under liabilities as SPECIAL ITEM FOR
INVESTMENT GRANTS. The release of this item into income is carried out on a
straight-line basis in accordance with the period of use of the subsidised
assets.
CONSTRUCTION COST SUBSIDIES are released into income at an annual rate of 5.0
per cent unless a shorter term has been agreed upon.
The PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS are formed according to
actuarial principles. Fractional values are determined on the basis of an
interest rate of 6.0 per cent.
OTHER PROVISIONS reflect all risks and uncertain obligations which are
identifiable according to the principles of the most probable estimate. For the
first time in the year under review, no deduction was made with regard to
provisions for early retirement. In addition, a provision for future
expenditures for repairs under Section 249 Sub-section 2 of the Commercial Code
(HGB) was created on 30 June 1995.
LIABILITIES are reported at their repayment value.
<PAGE> 11
FOREIGN CURRENCY CONVERSION
Receivables and liabilities in foreign currency are converted at the exchange
rate applicable on the date of origin of the claim or liability, unless a fall
or rise in the exchange rate makes a devaluation of the claim or an upvaluation
of the liability necessary.
CASH-FLOW STATEMENT
In accordance with the bulletin of the main specialist committee of the
Institute of Auditors (IDW) and with international accounting standards (IAS 7),
the cash-flow statement shows payments broken down into cash flow from
operations, from investment and from financing activities. Within the flow of
funds resulting from operations, cash flow is shown according to DVFA/SG. The
balance represents the total change in resources in the course of the business
year.
<PAGE> 12
NOTES TO THE BALANCE SHEET
(1) FIXED ASSETS
Changes in individual items of fixed assets in the 1997/98 business year,
including depreciation, are shown in the "Movements in fixed assets"
section.
(2) INTANGIBLE ASSETS
The two main intangible assets are DM 159.8 million for easements under
Section 9 of the Land Registry Adjustment Act (GBBerG) and the right of
usage for the connection to the Western European grid network, valued at
DM 145.8 million.
(3) TANGIBLE ASSETS
Additions and transfers to tangible assets involving completed and fully
charged installations amount to DM 809.2 million. The most significant
additions were investments made for power transmission and distribution
equipment as well as for district heating installations - including DM
326.8 million for cable and overhead line networks and DM 77.0 million
for the Friedrichshain substation.
The value of advance payments made and installations under construction
fell by DM 165.9 million to DM 709.0 million. This amount covers the
380-kV underground link between Mitte and Friedrichshain substations as
well as various electricity and heat distribution installations.
(4) FINANCIAL ASSETS
The decrease in our shares in affiliated companies is largely due to the
write off of EAB Fernwarme GmbH, Berlin to its assessed value. Lendings
to affiliated companies were exclusively to IPH Institut "Pruffeld fur
elektrische Hochleistungstechnik" GmbH, Berlin.
The increase in our participations results mainly from the fact that we
extended our 11.95 per cent participation in GASAG Berlin Gaswerke AG,
Berlin by a further 13.04 per cent to 24.99 per cent. Lendings to
companies in which we hold participations were to the IT company
BerlinDat Gesellschaft fur Informationsverarbeitung und Systemtechnik
mbH, Berlin, as well as to EUS Energie und Umwelt Service GmbH, Berlin.
<PAGE> 13
(5) INVENTORIES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
30 June 1998 30 June 1997 Change
DM thousand DM thousand DM thousand
(unaudited)
------------ ------------ -----------
<S> <C> <C> <C>
Raw materials and supplies 155,681 172,111 -16,430
Work in progress for public
lighting 13,170 17,929 -4,759
------- ------- -------
Total 168,851 190,040 -21,189
======= ======= =======
-------------------------------------------------------------------------------------------------
</TABLE>
The reduction in raw materials and supplies is mainly due to reduced
amounts of fuel oil and operating materials. Deductions were made for
inventories that have been in storage for a long time with little
turnover as the value of such material had decreased.
(6) RECEIVABLES FOR GOODS AND SERVICES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
30 June 1998 30 June 1997 Change
DM thousand DM thousand DM thousand
(unaudited)
------------ ------------ -----------
<S> <C> <C> <C>
Electricity supplied 412,814 396,406 16,408
Heating supplied 116,748 77,594 39,154
Other goods and services
supplied 17,182 6,187 10,995
------- ------- ------
Total 546,744 480,187 66,557
======= ======= ======
-------------------------------------------------------------------------------------------------
</TABLE>
The increase in receivables is due largely to this year's new billing
procedure for heat supplied and, in the electricity sector, to the
one-time effects of the pricing and contract reform for
special-contract customers introduced on 1 October 1997.
Receivables for electricity and heating supplied include DM 769.0
million in payments on account received for electricity and heating
consumed but not yet billed (previous year: DM 764.8 million).
Of the receivables shown here, DM 16,198 thousand (previous year: DM
15,398 thousand) have terms of more than one year.
(7) RECEIVABLES FROM AFFILIATED COMPANIES
The receivables shown are mainly due from the district heating company
EAB Fernwarme GmbH and from IPH Institut "Pruffeld fur elektrische
Hochleistungstechnik" GmbH, Berlin.
(8) RECEIVABLES FROM COMPANIES IN WHICH PARTICIPATIONS ARE HELD
The receivables shown are largely due from the gas supply company GASAG
Berliner Gaswerke AG, Berlin, as well as from the IT company BerlinDat
Gesellschaft fur Informationsverarbeitung und Systemtechnik mbH,
Berlin.
<PAGE> 14
(9) OTHER ASSETS
The other assets shown mainly contain DM 50.0 million in receivables
from orders and services not yet invoiced, DM 29.5 million in advance
payments made and DM 26.4 million in receivables from ancillary
business and insurance payments.
Of the other assets, DM 4,191 thousand (previous year: DM 3,977
thousand) have terms of more than one year.
(10) SECURITIES
This item covers mortgage bonds, one federal treasury note and one
state government treasury note.
(11) CHEQUES, CASH ON HAND AND ON DEPOSIT WITH DEUTSCHE BUNDESBANK,
POSTBANK, CASH IN OTHER BANK ACCOUNTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
30 June 1998 30 June 1997 Change
DM thousand DM thousand DM thousand
(unaudited)
------------ ------------ -----------
<S> <C> <C> <C>
Cheques and cash on hand 528 524 4
Deposits with Deutsche Bundesbank
and Postbank 21,103 60,509 -39,406
Cash in other bank accounts 205,199 306,428 -101,229
------- ------- ---------
Total 226,830 367,461 -140,631
======= ======= =========
--------------------------------------------------------------------------------------------------
</TABLE>
(12) PREPAID EXPENSES
Prepaid expenses contain the difference between the nominal value and
the present value of the compensation payments under Section 9 of the
Land Registry Adjustment Act (GBBerG) - DM 130,8 million - as well as
prepayments for pensions and other prepayments.
(13) SPECIAL LOSS ACCOUNT UNDER SECTION 17 SUB-SECTION 4 OF THE DM-BALANCE
SHEET ACT (DMBILG)
DM 7.6 million in provisions related to the special loss account were
used during the course of the year under review, and the special loss
account was reduced by this amount to a value of DM 384.8 million.
<PAGE> 15
(14) SUBSCRIBED CAPITAL
The subscribed capital at the balance-sheet date amounts to DM 560.0
million. Bayernwerk Aktiengesellschaft, Munich, and Southern Energy
Holding Beteiligungsgesellschaft mbH, Berlin, each hold 26.0 per cent.
23.0 per cent are held by PreussenElektra Aktiengesellschaft, Hanover,
and 25.0 per cent are in scattered ownership.
The capital stock is distributed in:
Group A shares (bearer shares with single voting right)
75,333,400 shares with a face value of DM 5 each; 75,333,400 votes
Group B shares (registered shares with double voting right)
36,666,600 shares with a face value of DM 5 each; 73,333,200 votes
(15) CAPITAL RESERVE
The capital reserve contains allocations from share premiums and the
reserves arising from the Bewag opening balance sheet of 1 April 1949.
(16) REVENUE RESERVES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
30 June 1998 30 June 1997 Change
DM thousand DM thousand DM thousand
(unaudited)
------------ ------------ -----------
<S> <C> <C> <C>
Statutory reserve 848,257 848,257(1) 0
Special reserve under Section 17
Sub-section 4 DMBilG 384,795 392,431(1) -7,636
Other revenue reserves 1,532,535 1,469,899 62,636
--------- --------- ------
Total 2,765,587 2,710,587(1) 55,000
========= ========= ======
(1) After adjustment according to Section 36 of the DM-Balance Sheet Act (DMBilG)
-------------------------------------------------------------------------------------------------
</TABLE>
The statutory reserve contains DM 824.1 million from the earlier
realignment of the capital position of EBAG effected under Section 27
Sub-section 2 of the DM-Balance Sheet Act (DMBilG).
DM 55.0 million of this year's net income were allocated to the other
revenue reserves. In addition, a freely disposable amount of DM 7.6
million was transferred from the special reserve under Section 17
Sub-section 4 of the DM-Balance Sheet Act (DMBilG) to the other revenue
reserves.
<PAGE> 16
(17) NET PROFIT FOR THE YEAR
After the allocation of DM 55.0 million of this year's net income of DM
279.0 million to the other revenue reserves, the net profit for the
year is DM 224.0 million.
(18) SPECIAL ITEM WITH PARTIAL RESERVE CHARACTER
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
30 June 1998 30 June 1997 Change
DM thousand DM thousand DM thousand
(unaudited)
------------ ------------ -----------
<S> <C> <C> <C>
Increased deduction for depreciation under
Section 14 of the Berlin Promotion Act
(BerlinFG) 511,861 571,826 -59,965
Special depreciations under Section 4 of the
Development Area Act (FordG) 1,324,150 1,191,768 132,382
Reserve under Section 6b of the Income Tax
Act (EStG) 8,517 16,670 -8,153
--------- --------- -------
Total 1,844,528 1,780,264 64,264
========= ========= =======
-----------------------------------------------------------------------------------------------------------------
</TABLE>
In the year under review, the DM 16.7 million of last year's reserve
under Section 6b of the Income Tax Act was transferred to purchased
land.
(19) SPECIAL ITEM FOR INVESTMENT GRANTS
While DM 14.4 million was allocated to the special item for investment
grants, the overall reduction in this item results from the release
into income of an amount of DM 55.0 million.
(20) CONSTRUCTION COST SUBSIDIES
DM 62.5 million of construction cost subsidies relate to construction
in progress. Of the remainder, DM 389.1 million apply to electricity
supply, DM 231.3 million to heating supply and DM 0.7 million to public
lighting.
<PAGE> 17
(21) OTHER PROVISIONS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
30 June 1998 30 June 1997 Change
DM thousand DM thousand DM thousand
(unaudited)
------------ ------------ -----------
<S> <C> <C> <C>
Contamination removal 407,765 437,588(1) -29,823
Personnel 442,002 441,744 258
Easements under Section 9 of the Land Registry
Adjustment Act (GBBerG) 384,575 334,996 49,579
Uncertain liabilities for supplies and services 59,254 57,046 2,208
Compensation obligations for property 33,743 34,443(1) -700
Demolition and dismantling 7,999 13,033 -5,034
Interest on old loans of the former EBAG -- 16,284 -16,284
Sundry 86,238 59,703 26,535
--------- --------- --------
Total 1,421,576 1,394,837(1) 26,739
========= ========= ========
(1) After adjustment according to Section 36 of the DM-Balance Sheet Act (DMBilG)
------------------------------------------------------------------------------------------------------------------
</TABLE>
The provisions for contamination removal take into account the costs
anticipated in the eastern districts of Berlin for the replacement of
soil on contaminated properties, the removal and disposal of
oil-insulated cables, and soil rehabilitation measures required as a
result of leakages of oil-insulated cables on properties owned by third
parties. In addition, a deduction of DM 110.3 million has been made
with regard to the value of contaminated properties in the area
formerly supplied by EBAG.
The provisions for personnel expenses mainly contain provisions for
early retirement arrangements, profit-sharing measures, anniversary
payments, annual bonus payments, residual holiday entitlement, and for
our new arrangements for part-time work of older employees.
The provisions for uncertain liabilities arising from supplies and
services also contain provisions for contingent losses for future
expenditures.
The sundry provisions mainly contain DM 38.4 million for expected
expenditure to repair the facade of the former main administration
building, which is classified as a historical monument, as well as DM
23.7 million for outside services which have not yet been invoiced.
<PAGE> 18
(22) LIABILITIES
The composition and terms of our liabilities can be seen in the
following table:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
TERMS
---------------------------------------------------------------
up to 1 year 1 - 5 years over 5 years Total
Type of liability DM thousand DM thousand DM thousand DM thousand
----------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Liabilities to banks 454,817 170,316 233,580 858,713
previous year (unaudited) 197,929 350,165 499,546 1,047,640
Advanced payments received 127,816 -- -- 127,816
previous year (unaudited) 108,827 -- -- 108,827
Liabilities for goods and services 305,481 -- -- 305,481
previous year (unaudited) 269,097 -- -- 269,097
Liabilities to affiliated companies 786 -- -- 786
previous year (unaudited) 845 -- -- 845
Liabilities to companies in which
participations are held 12,016 -- -- 12,016
previous year (unaudited) 14,290 -- -- 14,290
Other liabilities 96,801 61,472 42,400 200,673
previous year (unaudited) 91,230 46,767 56,800 194,797
including - tax liabilities (23,445) (--) (--) (23,445)
previous year (unaudited) (34,041) (--) (--) (34,041)
social security (25,341) (--) (--) (25,341)
previous year (unaudited) (24,393) (--) (--) (24,393)
------- ------- ------- ---------
Total liabilities 997,717 231,788 275,980 1,505,485
previous year (unaudited) 682,218 396,932 556,346 1,635,496
======= ======= ======= =========
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(23) LIABILITIES TO BANKS
The reduction of DM 188.9 million largely represents repayments of DM
185.2 million, DM 13.2 million of which were made in advance of due
date. Liabilities to banks also involve DM 126.7 million in loans under
Section 16 of the Berlin Promotion Act (BerlinFG) and DM 454.6 million
in loans under Section 17 of the same Act.
<PAGE> 19
(24) ADVANCE PAYMENTS RECEIVED
The increase in advance payments is largely attributable to electricity
operations.
(25) LIABILITIES TO COMPANIES IN WHICH PARTICIPATIONS ARE HELD
These liabilities are almost entirely to the energy and environmental
service company EUS Energie und Umwelt Service GmbH, to the gas supply
company GASAG Gaswerke AG, Berlin, and to the IT company BerlinDat
Gesellschaft fur Informationsverarbeitung und Systemtechnik mbH,
Berlin.
(26) OTHER LIABILITIES
Other liabilities of DM 200.7 million include a loan from an insurance
company of DM 100.0 million.
<PAGE> 20
NOTES TO THE PROFIT AND LOSS ACCOUNT
(27) SALES REVENUES
<TABLE>
<CAPTION>
1996/97
1997/98 DM thousand Change
Breakdown by area of activity DM thousand (unaudited) DM thousand
----------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Electricity supplies 3,081,755 3,167,907 -86,152
Heating supplies 822,837 883,113 -60,276
Public lighting 55,135 41,844 13,291
--------- --------- ---------
Total 3,959,727 4,092,864 -133,137
========= ========= =========
</TABLE>
There was a decrease of 2.7 per cent in sales revenues from the
supplies of electricity. The discrepancy between this figure and the
0.4 per cent decrease in the quantity of electricity sold is mainly due
to the price reductions for high and medium-voltage customers which
went into force on 1 January 1997 as well as at the time of the pricing
and contract reform of 1 October 1997.
The reduction in sales revenues from heating supplies is mainly due to
the strong decrease in the amount of heat supplied as a result of the
weather conditions - in spite of a slight increase in the thermal
output capacity sold.
The rise in revenue in the area of public lighting is the result of an
increased release of funds by the state of Berlin for the operation and
maintenance of street and traffic lighting.
(28) CHANGES IN INVENTORIES AND OTHER INTERNALLY PRODUCED AND CAPITALIZED
ASSETS
<TABLE>
<CAPTION>
1996/97
1997/98 DM thousand Change
DM thousand (unaudited) DM thousand
----------- ----------- -----------
<S> <C> <C> <C>
Changes in amount of work in
progress for public lighting (4,759} (10,265) 5,506
Other internally produced and
capitalized assets 54,236 75,813 -21,577
------- ------- -------
Total 49,477 65,548 -16,071
======= ======= =======
</TABLE>
<PAGE> 21
(29) OTHER OPERATING INCOME
<TABLE>
<CAPTION>
1996/97
1997/98 DM thousand Change
DM thousand (unaudited) DM thousand
----------- ----------- -----------
<S> <C> <C> <C>
Income from the release of
special items
with partial reserve character 80,778 81,280 -502
for investment bonuses 55,032 54,588 444
Sundry operating income 163,196 283,331 -120,135
-------- -------- --------
Total 299,006 419,199 -120,193
======== ======== ========
</TABLE>
The income from the release of special items with partial reserve
character is attributable to the release of DM 60.0 million due to
additional tax depreciations made in earlier years under Section 14 of
the Berlin Promotion Act (BerlinFG) and of DM 20.8 million due to
special depreciations made in previous years under Section 4 of the
Development Area Act (FordG).
The sundry operating income includes DM 33.1 million in refunds for
changes made to our distribution installations at the request of third
parties, DM 28.0 million from repairs and other services, DM 27.7
million in income from the release of provisions, DM 13.9 million from
claim adjustments, DM 10.4 million from rentals and leases, DM 9.2
million in credit notes from fuel deliveries for previous years as well
as DM 8.5 million in revenue from the sale of properties.
(30) COST OF MATERIALS
<TABLE>
<CAPTION>
1996/97
1997/98 DM
thousand Change
DM thousand (unaudited) DM thousand
----------- ----------- -----------
<S> <C> <C> <C>
Expenditure for raw materials
and supplies and for
purchased goods 949,864 1,031,977 -82,113
including - fuel (524,184) (560,431) (-36,247)
- power (315,443) (358,419) (-42,976)
Expenditure for purchased
services 277,617 395,201 -117,584
--------- --------- ---------
Total 1,227,481 1,427,178 -199,697
========= ========= =========
</TABLE>
The reduction in expenditure for fuel is due mainly to a decrease in
demand. In addition, structural shifts in our use of fuel from
relatively expensive fuel oil to less costly lignite have contributed
to lower expenditure levels.
We achieved considerable savings in our expenditure for power by buying
more of our purchased electricity in the spot market, where prices are
more favourable.
The decrease in expenditure for purchased services is mainly due to
savings in maintenance.
<PAGE> 22
1996/97 expenditure for purchased services is now reported as being DM
104.6 million higher; this is because all maintenance expenditure is
now shown under this item, and no longer under other sundry operating
expenses. Correspondingly, the latter item has been reduced by DM 104.6
million. This reclassification gives a better idea of the company's
expenses.
(31) PERSONNEL EXPENSES
<TABLE>
<CAPTION>
1996/97
1997/98 DM thousand Change
DM thousand (unaudited) DM thousand
----------- ----------- -----------
<S> <C> <C> <C>
Wages and salaries 896,403 879,130 17,273
Social security contributions
and expenditure for
pensions and benefits 263,442 263,600 -158
including
payments for pensions (93,900) (95,680) (-1,780)
--------- --------- ---------
Total 1,159,845 1,142,730 17,115
========= ========= =========
</TABLE>
The increase in personnel expenditure - in spite of lower average
numbers of staff - is mainly the result of the new provisions to cover
arrangements on part-time work for older employees and of the increased
need for provisions for early retirement arrangements. In addition,
wage adjustments resulting from collective bargaining, which were
retroactive to the previous year, increased expenditure by DM 17.3
million.
The 1996/97 figure is now reported as being DM 2.5 million higher,
because expenditures resulting from provisioning for residual holiday
is now shown under wages and salaries and no longer under sundry
operating expenses. Correspondingly, the previous year's figure for the
latter item has been reduced by DM 2.5 million. There has also been an
increase of DM 1.4 million in the previous year's payments for
pensions, because this item now includes amounts paid to the Mutual
Benefit Association for Pension Security. These reclassifications also
give a better idea of our expenses.
(32) DEPRECIATION
Depreciation of tangible and intangible assets can be seen in the
"Movements in fixed assets" overview. It includes extraordinary
depreciation of DM 10.2 million on advance payments for intangible
assets as well as DM 12.6 million for tangible assets. In addition, the
special loss account was depreciated by DM 7.6 million.
<PAGE> 23
(33) OTHER OPERATING EXPENSES
<TABLE>
<CAPTION> 1996/97
1997/98 DM thousand Change
DM thousand (unaudited) DM thousand
----------- ----------- -----------
<S> <C> <C> <C>
Allocation to special items with
partial reserve character 161,711 428,723 -267,012
Franchise fee 204,366 193,710 10,656
Sundry operating expenses 413,865 394,473 19,392
------- --------- ---------
Total 779,942 1,016,906 -236,964
======= ========= =========
</TABLE>
Allocations to special items with partial reserve character consist of
special depreciations of DM 153.2 million under Section 4 of the
Development Area Act (FordG) and a reserve of DM 8.5 million under
Section 6b of the Income Tax Act (EStG).
The higher franchise fee is based on the increase stipulated in the
franchise contract with the state of Berlin, which came into effect on
1 January 1997 and now affected the entire business year.
Sundry operating expenses especially include DM 77.1 million in outside
services for the administration and marketing departments, DM 43.7
million for data centre services rendered by BerlinDat Gesellschaft fur
Informationsverarbeitung und Systemtechnik mbH, Berlin, DM 36.9 million
in rent and lease payments, DM 27.6 million in allowances on
receivables and other assets, DM 23.2 million for the purchase of
materials for the administration and marketing departments as well as
DM 19.7 million in insurance premiums. The main components of the item
which are unrelated to this accounting period are DM 17.6 million on
retroactive rate adjustments for heating, DM 12.0 million in costs for
dismantling and losses of DM 11.7 million from the retirement of
assets.
(34) INCOME FROM FINANCIAL ASSETS
<TABLE>
<CAPTION> 1996/97
1997/98 DM thousand Change
DM thousand (unaudited) DM thousand
----------- ------------ -----------
<S> <C> <C> <C>
Income from companies in which
which participations are held 5,720 3,014 2,706
including from affiliated
companies (2,993) (2,671) (-322)
Income from other securities and
and from lending of financial
assets 1,693 891 802
including from affiliated
companies (716) (141) (-575)
Depreciation on financial assets
and securities -23,541 -1,556 -21,985
Expenses for losses transferred -53 -2,318 2,265
------- ------- -------
Total -16,181 31 -16,212
======= ======= =======
</TABLE>
Income from companies in which participations are held consists largely
of the 1997 dividends and corporation tax credits received for the
district heating company Fernheizwerk Neukolln AG, Berlin, and for the
IT company BerlinDat Gesellschaft fur Informationsverarbeitung und
Systemtechnik mbH, Berlin.
<PAGE> 24
Depreciation on financial assets and securities covers mainly write off
to their assessed values of EAB Fernwarme GmbH, Berlin (DM 19.5
million), ARGE Modellprojekt Berliner Energiesparpartnerschaft
Bewag/Landis & Gyr, Berlin (DM 1.7 million), EAB Energie-Anlagen Berlin
GmbH, Berlin (DM 1.3 million), EUS Energie und Umwelt Service GmbH,
Berlin (DM 0.6 million), EFR Europaische Funk-Rundsteuerung GmbH,
Berlin (DM 0.2 million) and Berliner Energieagentur GmbH, Berlin (DM
0.2 million).
The expenses for losses transferred result entirely from the losses
incurred in the 1997 business year by "DEPOGAS-Gesellschaft zur
Gewinnung und Verwertung von Deponiegasen mbH" , a Berlin company for
the exploitation of gas from waste tips.
(35) NET INTEREST INCOME
<TABLE>
<CAPTION> 1996/97
1997/98 DM thousand Change
DM thousand (unaudited) DM thousand
----------- ----------- -----------
<S> <C> <C> <C>
Other interest and similar
income 27,180 37,412 -10,232
Interest and similar expense -78,737 -96,247 17,510
------- ------- -------
Total -51,557 -58,835 7,278
======= ======= =======
</TABLE>
The reduction in other interest and similar income is mainly due to the
lower total average of financial investments.
The decline in interest and similar expense is largely the result of
reduced average holdings in long-term loans.
(36) TAXES
<TABLE>
<CAPTION> 1996/97
1997/98 DM thousand Change
DM thousand (unaudited) DM thousand
----------- ----------- -----------
<S> <C> <C> <C>
Taxes on revenue and income 169,496 98,710 70,786
Other taxes 6,713 22,903 -16,190
------- ------- -------
Total 176,209 121,613 54,596
======= ======= =======
</TABLE>
The increase in taxes on revenue and income is attributable to a rise
in taxable income.
The reduction in other taxes is due almost exclusively to the abolition
of the trading capital tax as of 1 January 1998 and the abolition of
the net worth tax as of 1 January 1997. This item now includes only
real property tax and motor vehicles tax.
<PAGE> 25
SUPPLEMENTARY INFORMATION
EFFECTS OF VALUATION CHANGES AND TAX REGULATIONS ON THE
REPORTED NET INCOME
Accounting changes (Section 284 Sub-section 2 no. 3 of the Commercial
Code) with regard to provisions for early retirement arrangements have
resulted in approximately DM 20 million in increased expenditure.
However, because of the reduction by the same amount in otherwise
permissible special depreciation under Section 4 of the Development
Area Act (FordG), this measure has no effect on the net income for the
year.
On the basis of the balance of allocations and releases of special
items with partial reserve character, and the associated effect this
has on the tax expenditure and on other expenditure dependent on
profits and dividends, the net income declared for the year is
approximately DM 39 million lower than the amount which would otherwise
have been declarable.
The future revenue tax burden arising from the release of special items
with partial reserve character will depend on the tax rates applicable
at the time.
OTHER FINANCIAL OBLIGATIONS
Future capital expenditure already approved by the Supervisory Board
and maintenance work needing to be done in the coming years represent
purchase commitments of approximately DM 650 million (previous year: DM
472 million). This amount includes mainly capital expenditure for
repairs and for the extension of our electricity and heat generating
and distribution installations.
The cash value of payment obligations arising from long-term rental and
leasing agreements is approximately DM 358 million (previous year: DM
366 million).
There are approximately DM 149 million (previous year: DM 209 million)
in other discounted purchase comittments, including approximately DM
112 million (previous year: DM 147 million) relating to affiliated
companies.
Fuel and power supplies are secured by long-term contracts in line with
the customs of the trade.
<PAGE> 26
SHARE OWNERSHIP UNDER SECTION 285 NO. 11 OF THE COMMERCIAL CODE (HGB)
<TABLE>
<CAPTION>
Share in Equity on
capital 31 Dec. 1997 1997 result
Name and location of the company % DM thousand DM thousand
-------------------------------- -------- ------------ -----------
<S> <C> <C> <C> <C>
DEPOGAS-Gesellschaft zur Gewinnung
und Verwertung von Deponiegasen
mbH, Berlin(1) 100.00 0 0
EAB Fernwarme GmbH, Berlin 100.00 16,677 -6,307
Bewag Immobilienmanagement GmbH,
Berlin 100.00 1,203 177
IPH Institut "Pruffeld fur elektrische
Hochleistungstechnik" GmbH, Berlin 100.00 16,759 -2,931
Bewag Energiemanagement GmbH, Berlin 100.00 493 -7
FHW Fernheizwerk Neukolln
Aktiengesellschaft, Berlin 75.22 24,941 3,178
EAVV Energie Assekuranz Versicherungs
Vermittlungs GmbH, Berlin 60.00 420 320
ARGE Energiesparpartnerschaft
Bewag/Landis & Gyr GbR, Berlin 50.00 1,859 -3
BerlinDat Gesellschaft fur
Informationsverarbeitung und
Systemtechnik mbH, Berlin(2) 50.00 4,527 2,527
EAB Energie-Anlagen Berlin GmbH,
Berlin(3) 50.00 0 -3,234
Berliner Energieagentur GmbH, Berlin 33.33 3,372 -568
EFR Europaische Funk-Rundsteuerung
GmbH, Berlin 30.00 0 -1,104
EBH Energie-Beteiligungsholding GmbH,
Dortmund 25.00 550,260 2,254
EUS Energie und Umwelt Service GmbH,
Berlin 25.00 68 -1,028
GASAG Berliner Gaswerke AG, Berlin 24.99 939,265 -98,161
(1) There is a profit and loss transfer contract with the company.
(2) The business year ended on 30 September 1997.
(3) The shares were sold on 28 July 1998.
</TABLE>
----------
LIABILITY
Of the liabilities for sureties, which total DM 22.1 million (previous
year: DM 22.8 million), DM 19.6 million represent sureties for loans of
the district heating company EAB Fernwarme GmbH, Berlin, and DM 2.5
million for loans of the waste tip gas exploitation company
DEPOGAS-Gesellschaft zur Gewinnung und Verwertung von Deponiegasen mbH,
Berlin.
There are also guarantees of DM 17.2 million (previous year: DM 20,9
million). DM 15.9 million of this amount represent guarantees for
affiliated companies (previous year: also DM 15.9 million).
<PAGE> 27
NOTIFICATIONS OF PARTICIPATION
In accordance with the stipulations of Section 20 Sub-section 5 in
connection with Sub-section 1 of the German Stock Corporation Act
(AktG), the state of Berlin notified Bewag in a letter dated 29
September 1997 that it no longer holds a participation of more than 25
per cent in Bewag's capital stock.
In accordance with Section 20 Sub-section 1 of the German Stock
Corporation Act, Bewag was also notified by the Southern Company,
Atlanta, on behalf of Southern Energy Holding Beteiligungsgesellschaft
mbH, Berlin, in a letter of 6 October 1997, and by Bayernwerk AG,
Munich, in a letter of 13 January 1998, that they own more than 25 per
cent of Bewag stock.
AVERAGE PERSONNEL LEVEL IN THE BUSINESS YEAR
Employees (excluding apprentices)
<TABLE>
<CAPTION>
1997/98 1996/97 Change
------- ------- ------
(unaudited)
<S> <C> <C> <C>
Craftsmen 3,563 3,927 -364
Technical staff 3,224 3,312 -88
Commercial staff 2,241 2,348 -107
----- ----- ----
Total 9,028 9,587 -559
===== ===== ====
</TABLE>
DETAILS OF THE COMPANY'S CORPORATE GOVERNANCE
Members of Bewag's Supervisory Board and Board of Management are listed
in Appendix I to these notes.
For the 1997/98 business year, the total remuneration of the Board of
Management was DM 5,248,310 (previous year: DM 3,432,591) and the
remuneration for the Supervisory Board was DM 957,250 (previous year:
DM 473,000).
A total of DM 2,519,819 (previous year: DM 2,296,560) was paid to
former members of the Board of Management and their surviving family; a
total of DM 23,608 thousand (previous year: DM 20,297 thousand) is
allocated as provision for pension obligations to this group of
persons.
DISTRIBUTION OF THE NET PROFIT FOR THE YEAR
We propose that the net profit for the year of DM 224,000,000 be used
to pay a dividend on the current capital stock of DM 560 million as
well as on the coming capital increase of a further DM 560 million from
corporate funds.
Berlin, 8 September 1998
BERLINER KRAFT- UND LICHT (BEWAG)-AKTIENGESELLSCHAFT
The Board of Management
<PAGE> 28
BEWAG AG
BUSINESS YEAR 1997/1998
MOVEMENTS IN FIXED ASSETS
<TABLE>
<CAPTION>
ACQUISITION OR PRODUCTION COSTS in DM thousand
------------------------------------------------------------------------------------------------------------------------------------
STATUS STATUS
1 JULI 1997 ADDITIONS TRANSFERS DISPOSALS 30 JUNI 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTANGIBLE ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Industrial property rights and similar rights
and assets 427,535 25,937 1,517 3,774 451,215
Advance payments 22,277 6,258 -1,481 10,059 16,995
====================================================================================================================================
449,812 32,195 36 13,833 468,210
====================================================================================================================================
TANGIBLE ASSETS
====================================================================================================================================
Real estate, rights equivalent to real estate
and buildings, including buildings on third
party land property 2,987,334(5) 11,347 62,082 12,596 3,048,167
Power plant installations 5,851,717 21,254 36,702 48,856 5,860,817
Electricity transmission and distribution
installations 5,000,839 150,818(1) 372,194 23,904(1) 5,499,947
District heating distribution installations 2,159,598 31,227 94,061 15,161 2,269,725
Other installations, operating and business
equipment 423,266 13,586(2) 15,903 25,215(2) 427,540
Advance payments and installations under
construction 874,926 451,259 -580,978 36,234 708,973
====================================================================================================================================
17,297,680 679,491 -36 161,966 17,815,169
====================================================================================================================================
FINANCIAL ASSETS
====================================================================================================================================
Shares in affiliated companies 88,126 500 -- -- 88,626
Loans to affiliated companies 6,400 8,000 -- -- 14,400
Participations 414,574 355,750 -- 1,954 768,370
Loans to companies
in which participations are held 18,993 500 -- -- 19,493
Other loans 2,950 717 -- 596 3,071
====================================================================================================================================
531,043 365,467 -- 2,550 893,960
====================================================================================================================================
FIXED ASSETS 18,278,535 1,077,153 -- 178,349 19,177,339
====================================================================================================================================
(1) Including minor assets: DM 10,682 thousands
(2) Including minor assets: DM 3,189 thousands
(5) After adjustment according to Section 36 of the DM-Balance Sheet Act
(DMBilG)
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 29
BEWAG AG
BUSINESS YEAR 1997/1998
MOVEMENT IN FIXED ASSETS
<TABLE>
<CAPTION>
NET BOOK VALUES
ACCUMULATED DEPRECIATION in DM thousand in DM thousand
------------------------------------------------------------------------------------------------------------------------------------
STATUS
STATUS STATUS STATUS JUNI 1997
1 JULI 1997 ADDITIONS TRANSFERS DISPOSALS 30 JUNI 1998 30 JUNI 1998 30 (unaudited)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTANGIBLE ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Industrial property rights and similar rights
and assets 119,402 21,120 -- 3,290 137,232 313,983 308,133
Advance payments -- 10,189 -- 10,189 -- 16,995 22,277
====================================================================================================================================
119,402 31,309 -- 13,479 137,232 330,978 330,410
====================================================================================================================================
TANGIBLE ASSETS
====================================================================================================================================
Real estate, rights equivalent to real estate
and buildings, including buildings on third
party land property 903,848 87,664 355 5,181 986,686 2,061,481 2,083,486(5)
Power plant installations 4,616,845 195,731 634 43,666 4,769,544 1,091,273 1,234,872
Electricity transmission and distribution
installations 3,194,257 169,849(1) -722 22,804(1) 3,340,580 2,159,367 1,806,582
District heating distribution installations 1,303,872 87,165 87 11,664 1,379,460 890,265 855,726
Other installations, operating and business
equipment 326,865 38,641(2) -354 23,981(2) 341,171 86,369 96,401
Advance payments and installations under
construction -- -- -- -- -- 708,973 874,926
====================================================================================================================================
10,345,687 579,050 -- 107,296 10,817,441 6,997,728 6,951,993
====================================================================================================================================
FINANCIAL ASSETS
====================================================================================================================================
Shares in affiliated companies 11,000 19,506 -- -- 30,506 58,120 77,126
Loans to affiliated companies -- -- -- -- -- 14,400 6,400
Participations 6,082 4,019 -- 1,278 8,823 759,547 408,492
Loans to companies
in which participations are held -- -- -- -- -- 14,493 18,993
Other loans 96(3) -- -- 18(4) 78 2,993 2,854
====================================================================================================================================
17,178 23,525 -- 1,296 39,407 854,553 513,865
====================================================================================================================================
FIXED ASSETS 10,482,267 633,884 -- 122,071 10,994,080 8,183,259 7,796,268
====================================================================================================================================
(1) Including minor assets: DM 10,682 thousands
(2) Including minor assets: DM 3,189 thousands
(3) Discount of interest
(4) Accumulation of interest because of retirements disposal
(5) After adjustment according to Section 36 of the DM-Balance Sheet Act
(DMBilG)
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 30
APPENDIX I
SUPERVISORY BOARD
BARNEY S. RUSH
(from 26 September 1997)
Chairman from 15 December 1997
President of Southern Energy Development
Europe Ltd., London
ERNST-OTTO KOCK
Deputy chairman from 15 December 1997
Deputy Chairman of the Public Services and
Transport Trade Union, Berlin regional
administration, Berlin
SVEN BERGELIN
(From 15 December 1997)
Department head for industry of the
DAG-Union, Berlin-Brandenburg Land
Administration, Berlin
HANS-JURGEN CRAMER
(from 15 December 1997)
Head of a main department of Bewag, Berlin
RAINER FRANK ELSASSER
(from 15 December 1997)
Member of the Board of Management of
Bayernwerk Aktiengesellschaft, Munich
KLAUS FORSTER
Member of the Board of Management of
Bayernwerk Aktiengesellschaft, Munich
DR. MANFRED GENTZ
(from 15 December 1997)
Member of the Board of Management of
Daimler Benz Aktiengesellschaft, Stuttgart
DR. HANS-DIETER HARIG
(Chairman until 15 December 1997)
Chairman of the Board of Management of
PreussenElektra Aktiengesellschaft, Hanover
BERND HELMS
(from 15 December 1997)
Head craftsmen of Bewag, Berlin
RITA KUHNER-PRZEWOSNIK
(from 15 December 1997)
Section head of Bewag, Berlin
CARL-FRIEDRICH MEISSNER
(from 15 December 1997)
Former Member of the Board of Management
of the Deutsche Telekom Aktiengesellschaft,
Calw
DR. GEORG OBERMEIER
(From 26 September 1997)
Member of the Board of Management of
VIAG Aktiengesellschaft, Munich
REINHOLD OFFERMANN
(from 15 December 1997)
Member of the Board of Management of
PreussenElektra Aktiengesellschaft, Springe
RICHARD J. PERSHING
(From 26 September 1997)
Senior Vice President of
Southern Energy Inc., Rosewell
KARL-HEINZ DIETER REGEL
(from 15 December 1997)
Project engineer of Bewag, Berlin
MARTIN SATTLER
(from 15 December 1997)
Meter fitter with special responsibilities of
Bewag, Berlin
UWE SCHARF
(from 15 December 1997)
Deputy Chairman of the Public Services
and Transport Trade Union, Berlin regional
administration, Berlin
MARIO SCHONIAN
(from 15 December 1997)
1st car mechanic of Bewag, Berlin
HERBERT STROBEL
1st senior clerk of Bewag, Berlin
DR. GIUSEPPE VITA
Chairman of the Board of Management
of Schering Aktiengesellschaft, Berlin
<PAGE> 31
RESIGNED FROM THE SUPERVISORY BOARD
STEPHAN BOEHNKE
(until 15 December 1997)
Technician with special responsibilities of
Bewag, Berlin
DR. ALFRED DWORAK
(until 15 December 1997)
Chief executive of VEBA Aktiengesellschaft,
Berlin
DR. ANNETTE FUGMANN-HEESING
(until 2 September 1997)
Senator for Finance, Berlin
REGINA GEISS
(until 15 December 1997)
Section head of Bewag, Berlin
JAMES R. HARRIS
(from 26 September 1997 until
15 December 1997)
Vice President of
Southern Energy Inc., Marietta
HARALD JOOS
(until 28 August 1997)
Chairman of the management of Schindler
Aufzugefabrik GmbH, Berlin
JORG KLOSE
(until 15 December 1997)
Contract clerk of Bewag, Berlin
DR. KURT LANGE
(until 15 December 1997)
Chairman of the Public Services and Transport
Trade Union, Berlin regional administration,
Berlin
DR. OTTO MAJEWSKI
(until 15 December 1997)
Chairman of the Board of Management of
Bayernwerk Aktiengesellschaft, Munich
ELMAR PIEROTH
(until 2 September 1997)
Senator for Economic Affairs and Public Utility
Companies, Berlin
KLAUS POMMERANIG
(until 15 December 1997)
Former departmental head of the energy sector
in the Public Services and Transport Trade
Union, Berlin regional administration, Berlin
OLAF ROCH
(until 15 December 1997)
Shop supervisor of Bewag, Berlin
DR. JOACHIM SCHMELZER
(until 15 December 1997)
Head of a main department/Staff member with
special responsibilities of Bewag, Berlin
DR. LORENZ SCHOMERUS
(until 1 September 1997)
State secretary in the Federal Ministry of
Economics, Bonn
MANFRED SCHWARZE
(until 15 December 1997)
Chairman of the Works Council of Bewag, Berlin
WOLFGANG STEINRIEDE
(until 23 September 1997)
Former spokesman of the Board of
Management of Bankgesellschaft Berlin
Aktiengesellschaft, Berlin
JAMES A WARD
(from 26 September 1997 until
15 December 1997)
Vice President of Southern Energy Inc.,
Fayetteville
BOARD OF MANAGEMENT
PROF. DR. DIETMAR WINJE
Chairman
Energy business and corporate development,
Berlin
DR. BERND BALZEREIT
Finance and legal affairs, Berlin
DR. KLAUS BECHTOLD
Generation and heating, Berlin
J. BRUCE JONES
(from 1 February 1998)
Electricity grid and sales, Berlin
DR. KURT LANGE
(from 1 February 1998)
Human resources and employee services, Berlin
RESIGNED FROM THE BOARD OF MANAGEMENT
MICHAEL PAGELS
(until 31 October 1997)
Personnel and organisation, Teltow
<PAGE> 32
BEWAG NOTES:
APPENDIX II
SIGNIFICANT DIFFERENCES BETWEEN GERMAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The Bewag financial statements comply with accounting principles generally
accepted in Germany ("German GAAP"), which differs in certain significant
respects from accounting principles generally accepted in the United States
("U.S. GAAP"). The significant differences that affect the net income and
shareholders' equity of Bewag as of and for the year ended June 30, 1998 are
described below:
(a) Investment in subsidiaries
In accordance with German GAAP, investments in controlled subsidiaries are not
required to be consolidated if certain materiality tests are met, and can be
recorded under the cost method (and, if applicable, the lower of cost or market
method). As Bewag meets these materiality tests for all controlled subsidiaries,
it accounts for these entities under the cost method. Under the cost method of
accounting, dividends declared are the basis for recognizing earnings from an
investment.
A controlled subsidiary is generally defined under U.S. GAAP as all
majority-owned subsidiaries unless control is temporary or does not rest with
the majority owner. Under U.S. GAAP, controlled subsidiaries are consolidated,
with a minority interest shown as an adjustment to net income or loss and as a
separate item on the balance sheet.
Certain of Bewag's controlled subsidiaries were acquired in a purchase requiring
purchase accounting treatment under U.S. GAAP. The purchase method requires that
assets acquired and liabilities assumed be accounted for at fair value. The
excess of purchase price over the fair value of net assets acquired is recorded
as goodwill. Under U.S. GAAP, goodwill must be capitalized and amortized through
the income statement over its estimated useful life, which may not exceed 40
years.
In accordance with German GAAP, Bewag has written down its investment in EAB
Fernwarme to its estimated value. The consolidation of EAB Fernwarme as required
under US GAAP resulted in the reversal of the amounts previously written down,
including the current year amount of DM 19.5 million. The attached
reconciliation also reflects the other entries necessary to completely
consolidate Bewag's controlled subsidiaries.
(b) Minority interest
Under German GAAP, minority interest is included as a separate component of
shareholders' equity and included in net income. Bewag has not recorded minority
interest as subsidiaries have not been consolidated as allowed under German
GAAP. Under U.S. GAAP, minority interest is eliminated from income and is shown
as a liability to the minority owners on the balance sheet.
I
<PAGE> 33
(c) Investment in affiliated companies
In accordance with German GAAP, investments in affiliated companies (affiliated
companies generally are entities which are 20-50% owned by Bewag) are not
required to be accounted for under the equity method, if certain materiality
tests are met, and can be recorded under the cost method (and, if applicable,
the lower of cost or market method). As Bewag meets these materiality tests for
all affiliated companies, it accounts for these entities under the cost method.
Under the cost method of accounting, dividends declared are the basis for
recognizing earnings from an investment.
Under U.S. GAAP, investments in affiliated companies are recorded using the
equity method of accounting if an investment enables the investor to influence
the operating or financial decisions of the investee, with the balance of each
investment being increased or decreased, as appropriate, to account for the
investor's proportionate share of the investee earnings. Upon disposal, the
above differences would also result in differing gains and losses on
disposition.
Certain of Bewag's affiliated companies were acquired in a purchase requiring
purchase accounting treatment under U.S. GAAP. The purchase method requires that
assets acquired and liabilities assumed be accounted for at fair value. The
excess of purchase price over the fair value of net assets acquired is recorded
as goodwill. Under U.S. GAAP, goodwill must be capitalized and amortized through
the income statement over its estimated useful life, which may not exceed 40
years.
In accordance with German GAAP, Bewag has written down its investment in several
affiliated companies to the estimated value of these investments. The
application of the equity method of accounting as required under U.S. GAAP
resulted in the reversal of the amounts previously written off, prior to booking
the appropriate entries to record Bewag's equity in the earnings of the
affiliated companies.
(d) Depreciation
Under German GAAP, certain fixed and intangible assets are depreciated based on
accelerated depreciation methods permitted by German law. German GAAP allows
disclosure of the effect of accelerated depreciation in a special balance sheet
position known as "Sonderposten", or deduction from the cost basis of the
assets. The "Sonderposten" recorded under German GAAP includes depreciation in
accordance with section 4 FordG and section 14 BerlinFG. Further, depreciable
lives differ from those allowed under U.S. GAAP and 75% of the annual
depreciation amount is allowed in the year an asset is placed in-service. German
GAAP allows, under certain circumstances for the cost basis of assets to be
adjusted (e.g. assets sales gains being transferred to newly acquired fixed
assets). Such adjustments are not allowed under U.S. GAAP. Under U.S. GAAP,
fixed and intangible assets are recorded at cost and depreciated over their
useful life. For purposes of the reconciliation to U.S. GAAP, fixed and
intangible assets have been depreciated on a straight-line basis. Depreciation
in the in-service year is taken from the date the asset is placed in-service.
(e) Amortization of Investment Grants and construction cost subsidies
The amortization of certain deferred revenue, comprised of customer and
government payments in support of investments, which is being amortized over the
depreciable lives of the related assets for German GAAP purposes, has been
adjusted to reflect the useful lives used for U.S. GAAP purposes.
II
<PAGE> 34
(f) Interest capitalization
German GAAP permits, but does not require, the capitalization of interest as
part of the historical cost of the acquisition of assets that are constructed or
otherwise produced for an enterprise's own use. Bewag has elected to expense
these interest costs as incurred. U.S. GAAP requires the capitalization of such
interest costs. The additional cost is depreciated over the expected useful life
of the related asset.
(g) Debt discount
German GAAP permits, but does not require, discount associated with the issuance
of debt to be expensed as incurred. U.S. GAAP require that such discount be
capitalized and amortized to income over the life of the related debt.
(h) Pensions and other employee benefits
Under German GAAP, the Company provided for pension costs in accordance with
article 6a of the German Income Tax Act. Pension accounting under U.S. GAAP is
prescribed by Financial Accounting Standards No. 87, "Employers' Accounting for
Pensions" ("SFAS 87"). SFAS 87 requires actuarial computation of the pension
costs for defined benefit plans using the Projected Unit Credit Method and
includes current service cost, interest cost, return on plan assets and
amortization of actuarial gains/losses and prior service cost. Prior service
cost is amortized over the future service period of active employees.
Unrecognized gains and losses exceeding 10% of the greater of the projected
obligation or the market-related value of the plan assets are amortized over the
average service period of active employees. Differences between U.S. GAAP and
German GAAP relate primarily to future service costs, which are required to
measured under SFAS 87 and interest costs, which are fixed under German GAAP.
SFAS 87 requires that companies located outside the United States adopt the
provisions of SFAS 87 for fiscal years beginning after December 15, 1988. Due to
the significant period of time which elapsed between the date when SFAS 87 would
have been required to be adopted and the time when Bewag first determined to
prepare U.S. GAAP financial information, adoption of the provisions of SFAS 87
as of July 1, 1989 was not feasible. Accordingly, SFAS 87 has been adopted from
July 1, 1997. As of the date of adoption, a transition obligation was calculated
under requirements of SFAS 87 and is being amortized over a 15 year period
beginning on the assumed implementation date of July 1, 1989.
(i) Provisions and accruals
German GAAP permits the recognition of accruals and provisions for uncertain
liabilities and loss contingencies. The amount of such accruals or provision
represents the anticipated expenses of the company. Specific examples include
the establishment of a provision in the amount of DM 38.4 million to repair the
facade of the old corporate headquarters as well as a DM 34 million provision
for future lease payments for the current corporate headquarters. Under U.S.
GAAP, an accrual for a loss contingency is recorded by a charge to income if it
is probable that an asset has been impaired or a liability has been incurred and
at the same time the minimum amount of the loss can be reasonably estimated.
Less precisely determinable reserves for future losses, costs, or risks do not
meet the condition for accrual under U.S. GAAP and have been eliminated.
III
<PAGE> 35
(j) Special item "reserve under section 6b EStG"
Under German GAAP, gains on disposal of land can be transferred to new
acquisition of land by offsetting against acquisition costs within a period of
four years after the disposal became effective. Gains not yet transferred are
recorded as a special item (Reserve under section 6b EStG) in accordance with
German GAAP.
Under U.S. GAAP this treatment is not allowed. The special item for gains on
disposal of land therefore is eliminated. Gains of prior years increased equity
and the current gains added to the special item are taken to income under U.S.
GAAP.
(k) Special provision in accordance with D-Markbilanzgesetz ("Special loss
account")
As allowed under German GAAP, Bewag has recorded a special provision in
accordance with D-Markbilanzgesetz ("special loss account") as an asset on the
balance sheet and a corresponding account shown as a component of equity. This
special provision relates to the opening balance sheet prepared under the
regulations of the D-Markbilanzgesetz (DMBilG) of the former East German
electric utility Energieversorgung Berlin AG ("EBAG") as of July 1, 1990, the
date when all East German companies converted their accounting systems. The
special provision relates to liabilities (primarily environmental related
liabilities and restitution claims) assumed by Bewag after merging with EBAG.
Adjustments made to these offsetting accounts do not impact earnings under
German GAAP. Under U.S. GAAP, the special provisions have been eliminated. The
associated liabilities are included on the balance sheet as appropriate for U.S.
GAAP with adjustments to the liabilities being treated as changes of estimates
and included in the U.S. GAAP operating results in the period the change in
estimate occurs.
(l) Deferred taxes
Under German GAAP, deferred tax assets and liabilities are not generally
recognized for all differences between the book carrying values and the tax
bases of assets and liabilities.
Under U.S. GAAP, deferred tax assets and liabilities for temporary differences
using enacted tax rates in effect at year-end are recognized in accordance with
Statement of Financial Accounting Standards No., 109, "Accounting for Income
Taxes" ("SFAS No. 109"). Under SFAS No.109, net operating loss carryforwards
that are available to reduce future taxes are recognized as deferred tax assets.
Such amounts are reduced by a valuation allowance to the extent that it is "more
likely than not" that the deferred tax assets will not be realized.
The deferred tax liability on U.S. GAAP adjustments covers the future tax burden
related to the additional depreciation recorded for in the special item with
partial reserve character that is disclosed in the notes under German GAAP.
IV
<PAGE> 36
(m) Other
Several other differences from German GAAP to U.S. GAAP are considered
insignificant for the reconciliation of financial statements as of June 30,
1998.
Under German GAAP, securities and other investments are valued at the lower of
acquisition costs or market value at the balance sheet date. Adjustments to
record investments below cost are included in the income statement. Under U.S.
GAAP marketable equity and debt securities are classified into three categories:
held-to-maturity securities, available-for-sale securities or trading
securities. For U.S. GAAP purposes, Bewag's securities are considered to be held
to maturity and therefore carried at the adjusted cost at the balance sheet
date.
Other but insignificant differences in accounting principles include unrealized
gains from foreign currency translations and other costs and income amounts in
the German financial statements that are capitalized or deferred for U.S. GAAP
purposes, respectively.
(n) Newly issued accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", (SFAS No. 133), which is effective for fiscal years
beginning after June 15, 2000 (July 1, 2000 in the case of Bewag). This
statement requires that all derivative financial instruments be reflected on the
balance sheet at fair value, with changes in fair value recognized periodically
in earnings or as a component of other comprehensive income, depending on the
nature of the underlying item, changes in the fair value of the derivative will
be recognized currently in the statements of profit and loss. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Avtivities--Deferral of the Effective Date of FASB Statement No. 133", that
amends SFAS No. 133 to be effective for all fiscal quarters or all fiscal years
beginning after June 15, 2000. Additionally, on June 15, 2000, the FASB issued
SFAS No. 138, "Accounting for Cerain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133", that addresses a limited
number of issues causing implementation difficulties for a large number of
entities preparing to apply Statement 133.
In December 1999, the Securuties and Exchange Commission released Staff
Accounting Bulletin No. 101, Revenue Recognition In Financial Statements. This
bulletin summarizes the views of the staff on applying generally accepted
accounting principles to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured. The
staff believes that the change must be reported, by all registrants, no later
than the fourth fiscal quarter of the fiscal year beginning after December 15,
1999.
V
<PAGE> 37
RECONCILIATION TO U.S. GAAP
The following is a summary of the significant adjustments to net income for the
year ended June 30, 1998 and to shareholders' equity at June 30, 1998 which
would be required if U.S. GAAP had been applied instead of German GAAP.
<TABLE>
<CAPTION>
YEAR ENDED
NOTE JUNE 30, 1998
---- -------------
TDM
<S> <C> <C>
Net income as reported in the statement
of operations under German GAAP 279,000
Adjustments required to conform to U.S. GAAP:
Investment in subsidiaries (a) -17,117
Minority interest (b) -895
Investment in affiliated companies (c) 1,283
Depreciation (d) 41,439
Amortization of investment grants and construction
cost subsidies (e) -22,472
Interest capitalization (f) 2,918
Debt discount (g) -2,034
Pension and other employee benefits (h) -45,896
Provisions and accruals (i) 2,005
Special item "Reserve under section 6b EStG" (j) 8,517
Special provision in accordance with DMBilG (k) 87,703
Deferred taxes (l) -16,555
Deferred tax effect of U.S. GAAP adjustments (l) 23,957
-------
NET INCOME IN ACCORDANCE WITH U.S. GAAP 341,853
=======
</TABLE>
VI
<PAGE> 38
<TABLE>
<CAPTION>
AS OF
NOTE JUNE 30, 1998
---- -------------
TDM
<S> <C> <C>
Shareholders' equity as reported in the balance
sheet under German GAAP 3,606,387
Adjustments required to conform to U.S. GAAP:
Investment in subsidiaries (a) -42,067
Minority interest (b) -12,022
Investment in affiliated companies (c) 80,977
Depreciation (d) 5,429,538
Amortization of investment grants and construction
cost subsidies (e) -291,520
Interest capitalized (f) 28,560
Debt discount (g) 6,983
Pension and other employee benefits (h) -220,162
Provisions and accruals (i) 103,440
Special item "Reserve under section 6b EStG" (j) 25,187
Special provision in accordance with DMBilG (k) -384,564
Deferred taxes (l) 90,410
Deferred tax effect of U.S. GAAP adjustments (l) -2,646,565
----------
SHAREHOLDERS' EQUITY IN ACCORDANCE WITH U.S. GAAP 5,774,582
==========
</TABLE>
VII
<PAGE> 39
BEWAG AG
FINANCIAL STATEMENTS
(Unaudited)
JUNE 30 1998 AND 1999
<PAGE> 40
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
BALANCE SHEET
<TABLE>
<CAPTION>
NOTES 30 JUNE 1999 30 JUNE 1998
ASSETS NO. DM THOUSAND DM THOUSAND
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED ASSETS (1)
-------------------------------------------------------------------------------------------------------------------
Intangible assets (2) 396,160 330,978
Tangible assets (3) 6,733,824 7,021,011(1)
===================================================================================================================
Financial assets (4) 848,312 854,553
===================================================================================================================
7,978,296 8,206,542
-------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
-------------------------------------------------------------------------------------------------------------------
Inventories (5) 167,872 168,851
Accounts receivable and other assets
Receivables for goods and services (6) 522,116 546,744
Receivables from affiliated companies (7) 2,053 3,265
Receivables from companies in which
participations are held (8) 5,577 4,607
Other assets (9) 91,036 127,679
-------------------------------------------------------------------------------------------------------------------
Securities (10) 184,295 203,529
Cheques, cash on hand, on deposit with Deutsche
Bundesbank and Postbank, cash in other bank accounts (11) 277,980 226,830
===================================================================================================================
1,250,929 1,281,505
===================================================================================================================
PREPAID EXPENSES (12) 185,215 134,192
===================================================================================================================
SPECIAL LOSS ACCOUNT (13) 358,821 365,238(1)
===================================================================================================================
9,773,261 9,987,477
===================================================================================================================
<CAPTION>
NOTES 30 JUNE 1999 30 JUNE 1998
ASSETS NO. DM THOUSAND DM THOUSAND
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
-------------------------------------------------------------------------------------------------------------------
Subscribed capital (14) 1,120,000 560,000
Capital reserve (15) 56,800 56,800
Revenue reserves (16)
Statutory reserve 899,691 899,691(1)
Special reserve according to Section 17 Sub-Section 4
DMBilG 358,821 365,238(1)
Other revenue reserves 1,029,551 1,532,535
2,288,063 2,797,464(1)
===================================================================================================================
Net profit for the year (17) 246,400 224,000
===================================================================================================================
3,711,263 3,638,264
===================================================================================================================
SPECIAL ITEMS WITH PARTIAL RESERVE CHARACTER (18) 1,884,341 1,844,528
===================================================================================================================
SPECIAL ITEM FOR INVESTMENT BONUSES (19) 386,546 410,711
===================================================================================================================
CONSTRUCTION COST SUBSIDIES (20) 697,711 683,564
===================================================================================================================
PROVISIONS
-------------------------------------------------------------------------------------------------------------------
Provisions for pensions and similar obligations (21) 464,209 407,804
-------------------------------------------------------------------------------------------------------------------
Provisions for taxes 189,882 103,452
-------------------------------------------------------------------------------------------------------------------
Other provisions (22) 1,534,302 1,393,425(1)
-------------------------------------------------------------------------------------------------------------------
2,188,393 1,904,681
-------------------------------------------------------------------------------------------------------------------
LIABILITIES (23)
-------------------------------------------------------------------------------------------------------------------
Liabilities to banks (24) 381,160 858,713
Advance payments received (25) 78,177 127,816
Liabilities for goods and services 226,746 305,481
Liabilities to affiliated companies 953 786
Liabilities to companies in which participations are held (26) 5,709 12,016
Other liabilities (27) 200,666 200,673
===================================================================================================================
893,411 1,505,485
===================================================================================================================
DEFERRED INCOME (28) 11,596 244
===================================================================================================================
9,773,261 9,987,477
===================================================================================================================
(1) After adjustment according to Section 36 of the DM-Balance Sheet Act
(DMBiLG)
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 41
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
NOTES 1998/99 1997/98
No. DM thousand DM thousand
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES REVENUES (29) 3,901,578 3,959,727
------------------------------------------------------------------------------------------------------------------------------
Stock movements and other
internally produced and capitalised assets (30) 46,078 49,477
Other operating income (31) 361,896 299,006
Cost of materials (32) -1,078,035 -1,227,614 (1)
Personnel expenses (33) -1,196,754 -1,159,845
Depreciation (34) -671,446 -617,995
Other operating expenses (35) -835,793 -786,522 (1)(2)
Income from financial assets (36) -13,242 -16,181
Net interest income (37) -29,204 -51,557
==============================================================================================================================
Results of ordinary activities 485,078 448,496
------------------------------------------------------------------------------------------------------------------------------
Taxes on income and revenue (38) -188,078 -169,496
==============================================================================================================================
Net income for the year 297,000 279,000
------------------------------------------------------------------------------------------------------------------------------
Allocations to other revenue reserves -50,600 -55,000
==============================================================================================================================
Net profit for the year 246,400 224,000
==============================================================================================================================
(1) After the reclassification of DM 133 thousand from other operating expenses
to cost of materials
(2) After the reclassification of other (taxes) (DM 6,713 thousand) to other
operating expenses
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 42
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
CASH-FLOW STATEMENT
<TABLE>
<CAPTION>
1998/99 1997/98
DM million DM million
<S> <C> <C>
---------------------------------------------------------------------------------
Net income for the year 297 279
Depreciation of fixed assets 689 634
Changes in long-term provisions 51 -64
Allocation to special item 150 162
Release of special item -161 -136
Other expenses and income without effect on payments -10 -23
=================================================================================
CASH-FLOW (DVFA/SG) 1,016 852
Result from disposals of fixed assets -22 3
Increase/decrease in inventories, receivables for
goods and services and other assets 51 -7
Increase/decrease in liabilities
for goods and services and other liabilities 69 262
=================================================================================
INFLOW OF FUNDS FROM OPERATING ACTIVITIES 1,114 1,110
---------------------------------------------------------------------------------
Proceeds from disposals of fixed assets 56 18
Disbursements from capital investments in fixed assets -446 -1,030
including increase of participation in GASAG (-) (354)
=================================================================================
OUTFLOW OF FUNDS FOR INVESTMENT ACTIVITIES -390 -1,012
---------------------------------------------------------------------------------
Payments to shareholders (dividend) -224 -112
Receipts from taking up loans - -
Payments for redemption of loans -469 -185
=================================================================================
OUTFLOW OF FUNDS FOR FINANCING ACTIVITIES -693 -297
=================================================================================
CHANGES IN FINANCING RESOURCES WITH EFFECT ON PAYMENT 31 -199
---------------------------------------------------------------------------------
<CAPTION>
---------------------------------------------------------------------------------
MOVEMENTS OF FINANCIAL FUNDS 30 JUNE 1999 30 JUNE 1998 CHANGE
DM MILLION DM MILLION DM MILLION
(Unaudited)
<S> <C> <C> <C>
---------------------------------------------------------------------------------
Liquid funds 278 227 51
Securities in current assets 184 204 -20
=================================================================================
FINANCIAL FUNDS 462 431 31
=================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 43
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
PRELIMINARY REMARKS
On 1 July 1993, Bewag was merged with the former East Berlin energy
supply company Energieversorgung Berlin AG (EBAG), which was located in the
former East Berlin.
As a result of the merger under stock corporation law, legislation which,
according to the unification treaty applied only to companies in the former GDR,
now applies to Bewag as a whole. This is particularly relevant with regard to
the provisions of the DM-Balance Sheet Act (DMBiLG) covering the special-loss
account, the special reserve under Section 17 Sub-section 4 of the Act and
capital reorganisation under Section 27 of the Act. In certain circumstances,
Section 36 DMBiLG also stipulates changes in EBAG's DM opening balance sheet,
which then entail retroactive corrections in certain balance sheet item
valuations for each previous year.
As of 30 June 1999 such CHANGES IN THE OPENING BALANCE SHEET were either
necessary or possible for the following items:
- Tangible assets increased DM 23.3 million, because the total value shown
for the land has increased. This was primarily because the result of new
investigations allowed us to reduce capitalised deductions for future
expenditure to rehabilitate contaminated properties.
- Provisions for residual contamination were, for the same reason, also cut
back by DM 19.5 million. At the same time, the special-loss account and the
special reserve had to be reduced by the same amount.
- Provisions for compensation obligations were reduced by DM 8.6 million, as
certain restitution claims became more precise and court decisions had
become legally effective.
As a result of these changes, the statutory reserve had to be increased by DM
51.4 million.
Bewag must also take into account the stipulations of the LAND REGISTRY
ADJUSTMENT ACT (GBBerG). This act applies only to the territory which joined the
Federal Republic under the unification treaty, and covers easements of utility
supply companies in non-public land as well as compensation payments due to the
owners of such properties. Provisions were established for this purpose as of 30
June 1995, date of the initial application of the Act. This provisioning did not
affect operating results in the profit and loss account; it had merely served to
record such liabilities and related assets on the balance sheet.
Since the obligations will become due in two equal installments on 1 January
2001 and 2011, the easements were assessed at present value. The difference
between the value of the easements and the obligation was recorded as prepaid
expense.
<PAGE> 44
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
In the year under review, detailed studies of the location and quality of
the properties showed that the provision should be increased by DM 130.1
million. Under the accounting methodology used, this adjustment, rather than
being reported as an expense, merely increases the recorded assets and
liabilities. The only consequence is a DM 11.1 million increase in
total expense for depreciation and an adjustment of prepaid expenses.
Because of the insignificance of Bewag's shareholdings as a whole in
relationship to its financial and income position, the company took advantage
of the option in Section 296 Sub-section 2 of the Commercial Code (HGB) and
chose not to prepare a CONSOLIDATED ANNUAL STATEMENT.
ACCOUNTING AND VALUATION METHODS
In the balance sheet and the profit and loss account certain items have been
combined for the sake of greater clarity; they are shown in greater detail in
the notes. Furthermore, in an effort to provide more insight into the company's
financial position, a number of items have been added to the balance sheet. The
profit and loss account has been drawn up according to the cost-summary method.
DM figures shown in the annual statement represent thousands.
Specifically, accounting and valuation are based on the following principles:
ASSETS
Purchased INTANGIBLE ASSETS are valued at their acquisition costs less regular
straight-line depreciation.
TANGIBLE ASSETS are assessed at acquisition or production costs. With regard to
the cost of self constructed assets, Bewag capitalizes only directly allocable
costs. Interest paid on outside capital has been excluded from this item since 1
January 1991. When new tangible assets are added, investment subsidies are
deducted from the costs of acquisition or production. Regular depreciation for
tangible assets is carried out on a straight-line basis for buildings, and
otherwise always at the highest degression rate permissible under taxation law;
straight-line depreciation is favoured as soon as this leads to higher annual
amounts. Plant for which special depreciation can be claimed under Section 4 of
the Development Area Act (FordG) is also depreciated by the straight-line
method, as stipulated by law. Depreciation is based on the Federal Minister of
Finance's depreciation table for the energy and water supply sector.
<PAGE> 45
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
In the year of purchase or production, new plant is depreciated at 75.0 per cent
of the normal annual rate.
According to one of the options of Section 6 Sub-section 2 of the Income Tax Act
(EStG), minor assets are depreciated fully in the year of purchase or
production.
FINANCIAL ASSETS are valued at acquisition costs. Interest-free loans included
in the lendings are discounted to their present value.
If the book value of an asset calculated according to the above principles is
greater than its quoted or market value at balance sheet date, the excess over
the market value is written off.
INVENTORIES are valued at average acquisition costs, taking into account the
lower-of-cost-or-market rule. Deductions are made for inventories subject to
long-term storage and thus potentially less suitable for use from an economic
point of view. The amounts deducted depend on the rate of turnover for the goods
concerned. The procedure was slightly altered in the 1998/99 business year, as
amounts deducted have now been limited to a fixed minimum. This has resulted in
additions to inventory assets.
With regard to ACCOUNTS RECEIVABLES AND OTHER ASSETS, an appropriate amount is
deducted for identifiable single risks. Other risks are taken into account in a
general allowance for bad debts and doubtful accounts. Advance payments on
receivables for goods and services are offset against electricity supplied but
not yet invoiced. Receivables for electricity supplied but not yet invoiced are
assessed on the basis of electricity consumption and revenue projections; a
differentiated group assessment procedure is applied. Interest-free receivables
are discounted according to their terms.
SECURITIES are valued at acquisition cost or at their market price if it is
lower.
No use is made of the option right to capitalise debt discount expenses: such
expenses are immediately recorded in the profit and loss account.
Provisions for which is a SPECIAL-LOSS ACCOUNT has been created in the DM
opening balance sheet of EBAG as at 1 July 1990 and which have been used up are
not reported as expenditure in the relevant items of the profit and loss
account; instead, the special-loss account is depreciated by the amount of the
used provisions.
<PAGE> 46
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
SHAREHOLDERS' EQUITY AND LIABILITIES
As they become freely disposable, funds of the SPECIAL RESERVE UNDER SECTION 17
SUB-SECTION 4 OF THE DM-BALANCE SHEET ACT (DMBiLG) are transferred to other
revenue reserves. This transfer serves to comply with the current version of
the Act, which has been in force since 25 July 1994.
The amounts by which the regular depreciation of tangible assets differs from
the increased depreciation under Section 14 of the Berlin Subsidy Act
(BerlinFG) and the special depreciation under Section 4 of the Development Area
Act (FordG) are disclosed as SPECIAL ITEMS WITH PARTIAL RESERVE CHARACTER,
together with the reserve under Section 6b of the Income Tax Act (EStG). While
the difference between regular and increased depreciation is always released in
accordance with established depreciation procedures, the release of the special
depreciation begins at the end of the preferential period.
Tax-free investment bonuses are shown under liabilities as SPECIAL ITEM FOR
INVESTMENT BONUSES. The release of this item into income is carried out on a
straight-line basis in accordance with the period of use of the subsidised
assets.
Unless a shorter term has been agreed upon, CONSTRUCTION COST SUBSIDIES are
released into income at an annual rate of 5.0 per cent.
The PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS are formed according to
actuarial principles. Fractional values are determined on the basis of an
interest rate of 6.0 per cent. One third of the amount to be allocated to these
provisions as a result of the application of the new guidelines (1998 Heubeck
guidelines), which show increased life expectancy, was set aside in the year
under review.
OTHER PROVISIONS reflect all risks and uncertain obligations identifiable
according to the principles of most probable estimate. No deduction is made with
regard to provisions for early retirement. In addition, a provision for repairs
under Section 249 Sub-section 2 of the Commercial Code (HGB) was created on 30
June 1995.
LIABILITIES are reported at their repayment value.
<PAGE> 47
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
FOREIGN CURRENCY CONVERSION
Receivables and liabilities in foreign currency are converted at the exchange
rate applicable on the date of origin of the claim or liability, unless a fall
or rise in the exchange rate makes a devaluation of the claim or an upvaluation
of the liability necessary.
CASH-FLOW STATEMENT
In accordance with the 1/1995 statement of the main specialist committee of the
Institute of Auditors (IDW) and in compliance with international accounting
standards (IAS 7), the flow-of-funds analysis shows payments broken down into
cash flow from operations, from investment and from financing activities. Within
the flow of funds resulting from operations, cash flow is shown according to
DVFA/SG. The balance represents the total change in resources in the course of
the business year.
<PAGE> 48
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
NOTES ON THE BALANCE SHEET
(1) FIXED ASSETS
Changes in individual items of fixed assets in the 1998/99 business year,
including depreciation, are shown in the "Movements in fixed assets"
section.
(2) INTANGIBLE ASSETS
The two main intangible assets are DM 213.2 million for easements under
Section 9 of the Land Registry Adjustment Act (GBBerG) and the right of
usage for the connection to the Western European grid network, which is
valued at DM 142.7 million.
(3) TANGIBLE ASSETS
Additions and transfers to tangible assets involving completed and fully
charged installations amount to DM 588.8 million. The most significant
additions were investments made for power transmission and distribution
equipment as well as for power plants. As a result of reduced investment
activity, the value of advance payments made and installations under
construction fell by DM 216.4 million to DM 492.6 million.
(4) FINANCIAL ASSETS
The decrease in our shares in affiliated companies is due to the
depreciation of Bewag Immobilienmanagement GmbH, Berlin to its assessed
value. The loan to EAB Fernwarme GmbH, Berlin, which was effected as an
equity-replacing loan, has been fully written off.
Our participations have remained virtually at the previous year's level.
Lendings to companies in which we hold participations were to BerlinDat
Gesellschaft fur Informationsverarbeitung und Systemtechnik mbH, Berlin,
to EFR Europaische Funk-Rundsteuerung GmbH, Berlin, as well as to EUS
Energie und Umwelt Service GmbH, Berlin.
<PAGE> 49
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
<TABLE>
<CAPTION>
(5) INVENTORIES
---------------------------------------------------------------------------
30 JUNE 1999 30 JUNE 1998 CHANGE
DM THOUSAND DM THOUSAND DM THOUSAND
<S> <C> <C> <C>
---------------------------------------------------------------------------
Raw materials and supplies 154,920 155,681 -761
---------------------------------------------------------------------------
Work in progress for
public lighting 12,952 13,170 -218
---------------------------------------------------------------------------
TOTAL 167,872 168,851 -979
---------------------------------------------------------------------------
</TABLE>
The reduction in raw materials and supplies is mainly due to reduced
amounts of fuel oil and operating materials as well as to lower prices for
coal. On the other hand, changes in assessment procedures led to value
deductions on stocks of DM 13.0 million.
<TABLE>
<CAPTION>
(6) RECEIVABLES FOR GOODS AND SERVICES
---------------------------------------------------------------------------
30 JUNE 1999 30 JUNE 1998 CHANGE
DM THOUSAND DM THOUSAND DM THOUSAND
<S> <C> <C> <C>
---------------------------------------------------------------------------
Electricity supplied 412,476 412,814 -338
---------------------------------------------------------------------------
Heat supplied 107,642 116,748 -9,106
---------------------------------------------------------------------------
Other goods and
services supplied 1,998 17,182 -15,184
---------------------------------------------------------------------------
TOTAL 522,116 546,744 -24,628
---------------------------------------------------------------------------
</TABLE>
The decrease in receivables is due largely to changes in the terms of the
contract with the state of Berlin regarding construction and maintenance of
public street and traffic lighting. The effects of last year's new
invoicing procedure for heat supplied also led to a drop in the receivables
amount.
Receivables for electricity and heat supplied include DM 980.4 million in
payments on account received for electricity and heat consumed but not yet
invoiced (previous year: DM 769.0 million).
Of the receivables shown here, DM 20,265 thousand (previous year: DM 16,198
thousand) have residual terms of more than one year.
(7) RECEIVABLES FROM AFFILIATED COMPANIES
Receivables shown here are mainly due from EAB Fernwarme GmbH and from
IPH Institut "Pruffeld fur elektrische Hochleistungstechnik" GmbH, Berlin.
<PAGE> 50
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
(8) RECEIVABLES FROM COMPANIES IN WHICH PARTICIPATIONS ARE HELD
Receivables shown here are largely due from BerlinDat Gesellschaft fur
Informationsverarbeitung und Systemtechnik mbH, Berlin and from the gas
supply company GASAG Berliner Gaswerke AG, Berlin.
(9) OTHER ASSETS
The other assets shown mainly contain DM 36.2 million in receivables
for orders and services not yet invoiced, DM 23.8 million in
receivables from subsidiary transactions and claims for compensation,
DM 8.8 million in advance payments and DM 6.8 million in reimbursements
of mineral oil tax.
Of the other assets, DM 10,819 thousand (previous year: DM 4,191
thousand) have residual terms of more than one year.
(10) SECURITIES
This item covers mortgage bonds and units.
(11) CHEQUES, CASH ON HAND, ON DEPOSIT WITH DEUTSCHE BUNDESBANK AND POSTBANK,
CASH IN OTHER BANK ACCOUNTS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
30 JUNE 1999 30 JUNE 1998 CHANGE
DM THOUSAND DM THOUSAND DM THOUSAND
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cheques and cash on hand 454 528 -74
----------------------------------------------------------------------------------------------
Deposits with Deutsche Bundesbank
and Postbank 323 21,103 -20,780
----------------------------------------------------------------------------------------------
Cash in other bank accounts 277,203 205,199 72,004
----------------------------------------------------------------------------------------------
TOTAL 277,980 226,830 51,150
----------------------------------------------------------------------------------------------
</TABLE>
(12) PREPAID EXPENSES
Prepaid expenses contain the difference between the nominal value and
the present value of the compensation payments under Section 9 of the
Land Registry Adjustment Act (GBBerG) - DM 170.6 million - as well as
prepayments for taxes, pensions and other prepayments.
(13) SPECIAL-LOSS ACCOUNT UNDER SECTION 17 SUB-SECTION 4 TO THE DM-BALANCE
SHEET ACT (DMBiLG)
DM 6.4 million in provisions related to the special loss account were
used in the course of the year under review, and the special loss
account was reduced by this amount to a value of DM 358.8 million.
<PAGE> 51
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
(14) SUBSCRIBED CAPITAL
The shareholders' meeting held on 14 December 1998 passed the
following resolutions with regard to subscribed capital:
- doubling the subscribed capital to DM 1,120.0 million from corporate
funds,
- changing over from par-value shares to no-par shares,
- stating the subscribed capital in euro rather than in DM.
As a result, the subscribed capital at balance sheet date amounts to
euro 572,646,906.94. (DM 1,120,000,000). Bayernwerk AG, Munich, and
Southern Energy Holding Beteiligungsgesellschaft mbH, Berlin, each
hold 26.0 per cent. 23.0 per cent are held by PreussenElektra AG,
Hanover, and 25.0 per cent are in scattered ownership. The subscribed
capital is distributed in:
GROUP A SHARES (bearer shares with single voting right) 150,666,800
no-par shares with 150,666,800 votes,
GROUP B SHARES (registered shares with double voting right) 73,333,200
no-par shares with 146,666,400 votes.
(15) CAPITAL RESERVE
The capital reserve contains allocations from share premiums and the
reserves arising from the Bewag opening balance sheet of 1 April 1949.
(16) REVENUE RESERVES
<TABLE>
<CAPTION>
30 JUNE 1999 30 JUNE 1998 CHANGE
DM THOUSAND DM THOUSAND DM THOUSAND
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory reserve 899,691 899,691(1) 0
-------------------------------------------------------------------------------------
Special reserve under
Section 17 Sub-section 4 DMBIIG 358,821 365,238(1) -6,417
-------------------------------------------------------------------------------------
Other revenue reserves 1,029,551 1,532,535 -502,984
-------------------------------------------------------------------------------------
Total 2,288,063 2,797,464(1) -509,401
(1) After adjustment according to Section 26 DMBiIG
-------------------------------------------------------------------------------------
</TABLE>
The statutory reserve contains DM 875.5 million from an earlier
realignment of the capital position of EBAG effected under Section 27
Sub-section 2 of the DM-Balance Sheet Act (DMBiLG).
Within the scope of the capital increase, an amount of DM 560.0
million in other revenue reserves was transferred into subscribed
capital. Furthermore, DM 50.6 million of this year's net income were
allocated to the other revenue reserves. In addition, a freely
disposable amount of DM 6.4 million was transferred from the special
reserve under Section 17 Sub-section 4 of the DM-Balance Sheet Act
(DMBiLG) to the other revenue reserves.
<PAGE> 52
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
(17) NET PROFIT FOR THE YEAR
After the allocation of DM 50.6 million of this year's net income of DM
297.0 million to the other revenue reserves, the net profit for the
year is DM 246.4 million.
(18) SPECIAL ITEM WITH PARTIAL RESERVE CHARACTER
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
30 June 1999 30 June 1998 Change
DM Thousand DM Thousand DM Thousand
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increased depreciation under Section 14
of the Berlin Promotion Act (BerlinFG) 439,956 511,861 -71,905
Special depreciation under Section 4
of the Development Area Act (FordG) 1,421,727 1,324,150 97,577
Reserve under Section 6b of
the Income Tax Act (EstG) 22,658 8,517 14,141
--------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,884,341 1,844,528 39,813
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the year under review, the DM 8.5 million of last year's reserve
under Section 6b of the Income Tax act as well as an additional amount
of DM 10.8 million were for the most part transferred to finished
buildings.
(19) SPECIAL ITEM FOR INVESTMENT BONUSES
While DM 26.4 million was allocated to the special item for investment
bonuses, the overall reduction in this item results from the release
into income of an amount of DM 50.6 million.
(20) CONSTRUCTION COST SUBSIDIES
DM 46.2 million of construction cost subsidies relate to construction
in progress. Of the remainder, DM 421.8 million apply to electricity
supply, DM 229.4 million to heat supply and DM 0.3 million to public
lighting.
(21) PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS
The DM 56.4 million increase in these provisions is, among other
causes, due to first-time application of the new 1998 Heubeck
guidelines and to the indexation of pensions for former staff members.
<PAGE> 53
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
(22) OTHER PROVISIONS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
30 JUNE 1999 30 JUNE 1998 CHANGE
DM THOUSAND DM THOUSAND DM THOUSAND
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Easements under Section 9 of the
Land Registry Adjustment Act (GBBerG) 514,691 384,575 130,116
Personnel 487,296 442,002 45,294
Contamination removal 383,010 388,206(1) -5,196
Uncertain liabilities for
supplies and services 47,569 59,254 -11,685
Compensation obligations for property 25,151 25,151(1) 0
Demolition and dismantling 5,724 7,999 -2,275
Sundry 70,861 86,238 -15,377
--------------------------------------------------------------------------------------------------
TOTAL 1,534,302 1,393,425(1) 140,877
(1) After adjustment according to Section 36 DMBiLG
--------------------------------------------------------------------------------------------------
</TABLE>
The provisions for personnel expenses mainly contain provisions for early
retirement arrangements, profit-sharing measures, anniversary payments, annual
bonus payments, residual holiday entitlement, and, for the first time, for the
working time accounts which were introduced along with our new flexible working
hours.
The provisions for contamination removal take into account the costs anticipated
in the eastern districts of Berlin for the replacement of soil on contaminated
properties, the removal and disposal of oil-insulated cables, and soil
rehabilitation measures required as a result of leakages of oil-insulated cables
on properties owned by third parties. In addition, a deduction of DM 87.1
million has been made with regard to the value of contaminated properties in the
area formerly supplied by EBAG.
The provisions for uncertain liabilities arising from supplies and services also
contain provisions for contingent losses for future contingent expenditures.
The sundry provisions mainly contain DM 32.3 million for the expected cost of
repairs to one of the former main administration buildings, which is classified
as a historical monument, as well as obligations arising from discounts and
credits.
<PAGE> 54
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
(23) LIABILITIES
The composition and residual terms of our liabilities can be seen in
the following table:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
RESIDUAL TERMS
---------------------------------------------------------------------------------------------
TYPE OF LIABILITY UP TO 1 YEAR 1-5 YEARS OVER 5 YEARS TOTAL
DM THOUSAND DM THOUSAND DM THOUSAND DM THOUSAND
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liabilities to banks 116,502 111,997 152,661 381,160
previous year 454,817 170,316 233,580 858,713
---------------------------------------------------------------------------------------------
Advanced payments
received 78,177 -- -- 78,177
previous year 127,816 -- -- 127,816
---------------------------------------------------------------------------------------------
Liabilities for
goods and services 226,746 -- -- 226,746
previous year 305,481 -- -- 305,481
---------------------------------------------------------------------------------------------
Liabilities to
affiliated companies 953 -- -- 953
previous year 786 -- -- 786
---------------------------------------------------------------------------------------------
Liabilities to companies in
which participations are held 5,709 -- -- 5,709
previous year 12,016 -- -- 12,016
---------------------------------------------------------------------------------------------
Other liabilities 111,313 61,353 28,000 200,666
previous year 96,801 61,472 42,400 200,673
of which-tax liabilities (46,353) (-) (-) (46,353)
previous year (23,445) (-) (-) (23,445)
-social security
liabilities (21,810) (-) (-) (21,810)
previous year (25,341) (-) (-) (25,341)
---------------------------------------------------------------------------------------------
TOTAL LIABILITIES 539,400 173,350 180,661 893,411
previous year 997,717 231,788 275,980 1,505,485
---------------------------------------------------------------------------------------------
</TABLE>
(24) LIABILITIES TO BANKS
The reduction of DM 477.6 million largely represents repayments of DM
468.7 million, DM 333.3 million of which were made in advance of due
date. Liabilities to banks also involve DM 31.8 million in loans under
Section 16 of the Berlin Promotion Act (BerlinFG) and DM 236.1 million
in loans under Section 17 of the same Act. In addition we took out a
short-term money-market loan of DM 13.1 million.
<PAGE> 55
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
(25) ADVANCE PAYMENTS RECEIVED
The decrease in advance payments is largely attributable to electricity
operations and to ancillary operations.
(26) LIABILITIES TO COMPANIES IN WHICH PARTICIPATIONS ARE HELD
These liabilities are almost entirely to the gas supply company GASAG
Berliner Gaswerke AG, Berlin and to the energy and environmental
service company EUS Energie and Umwelt Service GmbH, Berlin.
(27) OTHER LIABILITIES
The DM 200.7 million of this item include in addition to liabilities
arising from taxes and social security commitments an investment loan
of DM 100.0 million from an insurance company.
(28) DEFERRED INCOME
This amount represents almost exclusively an amount paid at the
beginning of a refrigeration supply contract; it is being amortised
according to schedule.
<PAGE> 56
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
NOTES ON THE PROFIT AND LOSS ACCOUNT
(29) SALES REVENUE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
BREAKDOWN BY 1998/99 1997/98 Change
AREA OF ACTIVITY DM thousand DM thousand DM thousand
<S> <C> <C> <C>
------------------------------------------------------------------------------
Electricity supply 2,972,231 3,081,755 -109,524
------------------------------------------------------------------------------
Electricity tax 46,948 - 46,948
------------------------------------------------------------------------------
3,019,179 3,081,755 -62,576
------------------------------------------------------------------------------
Heat supply 850,638 822,837 27,801
------------------------------------------------------------------------------
Public lighting 31,761 55,135 -23,374
------------------------------------------------------------------------------
TOTAL 3,901,578 3,959,727 -58,149
------------------------------------------------------------------------------
</TABLE>
There was a decrease of 3.6 per cent in sales revenue from the supply of
electricity (excluding electricity tax). The discrepancy between this
figure and the 0.3 per cent increase in the quantity of electricity sold is
mainly due to price reductions for key-account and special-contract
customers, to contract changes among high and medium-voltage customers in
connection with the general pricing and contract reform of 1 October 1997,
and to the decline in our commercial customer rates as of 1 April 1999.
The electricity tax was introduced on 1 April 1999 as part of the first
stage of the ecological tax reform. Electricity suppliers are obligated to
collect this tax from their customers and transfer it to the taxation
authorities. This item therefore shows sales revenue which is offset by an
equal amount of expenditure.
The rise in sales revenue from the supply of heat is mainly due to the
strong increase in the amount of heat supplied as a result of the weather
conditions and of a slight increase in the thermal output capacity sold.
The drop in revenue in the area of public lighting is the result of price
reductions granted to the state of Berlin for the operation and maintenance
of street and traffic lighting.
(30) INVENTORY CHANGES AND OTHER INTERNALLY PRODUCED AND CAPITALISED ASSETS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1998/99 1997/98 Change
DM thousand DM thousand DM thousand
<S> <C> <C> <C>
------------------------------------------------------------------------------
Changes in amount of work
in progress for public
lighting -219 -4,759 4,540
------------------------------------------------------------------------------
Other internally produced
and capitalised assets 46,297 54,236 -7,939
------------------------------------------------------------------------------
TOTAL 46,078 49,477 -3,399
------------------------------------------------------------------------------
</TABLE>
<PAGE> 57
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
(31) OTHER OPERATING INCOME
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
1998/99 1997/98 CHANGE
DM THOUSAND DM THOUSAND DM THOUSAND
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from the release of special items
with partial reserve character 110,057 80,778 29,279
for investment bonuses 50,593 55,032 -4,439
----------------------------------------------------------------------------------------
Sundry operating income 201,246 163,196 38,050
----------------------------------------------------------------------------------------
TOTAL 361,896 299,006 62,890
----------------------------------------------------------------------------------------
</TABLE>
The income from the release of special items with partial reserve character
is attributable to the release of DM 71.9 million due to additional tax
depreciation made in earlier years under Section 14 of the Berlin Promotion
Act (BerlinFG) of DM 18.9 million due to special depreciation made in
previous years under Section 4 of the Development Area Act (FordG), and of
DM 19.3 million from the transfer of the reserve under Section 6b of the
Income Tax Act (EStG).
The sundry operating income includes DM 33.4 million in income from the
sale of properties and buildings, DM 27.9 million in refunds for changes
made to our distribution installations at the request of third parties, DM
26.3 million from repairs and other services, DM 24.4 million from claim
adjustments, DM 10.5 million from rentals and leases as well as DM 10.3
million in income from the release of provisions.
(32) COST OF MATERIALS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
1998/99 1997/98 CHANGE
DM THOUSAND DM THOUSAND DM THOUSAND
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expenditure for raw materials and
suppliers and for purchased goods 864,368 938,987 -74,619
of which - fuel (483,469) (524,184) (-40,715)
- power (289,956) (304,566) (-14,610)
----------------------------------------------------------------------------------------
Expenditure for purchased services 213,667 288,627 -74,960
----------------------------------------------------------------------------------------
TOTAL 1,078,035 1,227,614 -149,579
----------------------------------------------------------------------------------------
</TABLE>
The reduction in expenditure for fuel is due mainly to a structural shift
in our use of fuel from relatively expensive fuel oil to less costly hard
coal. In addition, lower prices for natural gas and coal have also helped
us cut expenditure.
We were able to reduce expenditure for purchases of electricity by
increasing our own production.
The decrease in expenditure for purchased services is mainly due to
savings in maintenance. In the business year 1998/99, all amounts paid for
the use of third-party electricity lines are, for the first time, reported
under expenditure for purchased services. In order to adjust previous-year
figures accordingly, DM 10.9 million and DM 0.1 million have been shifted
from the figure for purchased power and from sundry operating expenses
respectively. This reclassification is intended to give a better idea of
the company's expenses.
<PAGE> 58
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
(33) PERSONNEL EXPENSES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
1998/99 1997/98 CHANGE
DM THOUSAND DM THOUSAND DM THOUSAND
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
Wages and salaries 902,414 896,403 6,011
------------------------------------------------------------------------------------------
Social security contributions and
expenditure for pensions and benefits 294,340 263,442 30,898
of which payments for pensions (131,592) (93,900) (37,692)
------------------------------------------------------------------------------------------
TOTAL 1,196,754 1,159,845 36,909
------------------------------------------------------------------------------------------
</TABLE>
The increase in wages and salaries-with lower average numbers of staff-is
mainly the result of the new provisions created to cover employee working
time accounts and working time credit balances resulting from the new
working time accounts and working time credit balances resulting from the
new working time model, and of the increased need for provisioning for
early retirement arrangements and part-time arrangements for older
employees.
Expenditure for pensions increased mainly due to the application of the
amended 1998 Heubeck guidelines, and because of the indexation of pension
payments for retired staff members.
(34) DEPRECIATION
Depreciation of tangible and intangible assets can be seen in the
"Movements in fixed assets" overview. It includes extraordinary
depreciation of DM 8.7 million for deposits on tangible assets and DM 2.8
million for intangible assets, as well as DM 53.4 million in extraordinary
depreciation on tangible assets. This item also includes DM 6.4 million in
depreciation on the special-loss account and DM 19.3 million in
depreciation from the transfer of the reserve under Section 6b of the
Income Tax Act (EStG).
(35) OTHER OPERATING EXPENSES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
1998/99 1997/98 CHANGE
DM THOUSAND DM THOUSAND DM THOUSAND
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allocation to special items with
partial reserve character 149,869 161,711 -11,842
------------------------------------------------------------------------------------------
Franchise fee 210,311 204,366 5,945
------------------------------------------------------------------------------------------
Electricity tax 47,290 - 47,290
------------------------------------------------------------------------------------------
Other taxes 9,597 6,713 2,884
------------------------------------------------------------------------------------------
Sundry operating expenses 418,726 413,732 4,994
------------------------------------------------------------------------------------------
TOTAL 835,793 786,522 49,271
------------------------------------------------------------------------------------------
</TABLE>
Allocations to special items with partial reserve character consist of DM
116.5 million in special depreciation under Section 4 of the Development
Area Act (FordG) and a reserve of DM 33.4 million under Section 6b of the
Income Tax Act (EStG).
<PAGE> 59
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
The higher franchise fee is based on the increase stipulated in the
franchise contract with the state of Berlin, which came into effect on
1 January 1999.
Sundry operating expenses especially include DM 92.9 million in outside
services for the administration and marketing departments, DM 41.4 million
for data center services rendered by BerlinDat Gesellschaft fur
Informationsverarbeitung und Systemtechnik mbH, Berlin, DM 35.4 million in
rent and lease payments, DM 21.2 million in insurance premiums, DM 19.3
million in depreciation on receivables and other assets as well as DM 17.0
million for the purchase of materials for the administration and marketing
departments. The main components of the item which are unrelated to this
accounting period are DM 11.8 million in losses from the retirement of
assets and DM 10.3 million in retroactive rate adjustments for heat.
The electricity tax reported here contains -- in addition to the amounts
collected from customers -- DM 0.3 million in tax arising from our own
consumption.
To give a better idea of the company's expenses, all other taxes are now
being reported in this item. The previous-year figure has been adjusted
accordingly.
(36) INCOME FROM FINANCIAL ASSETS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
1998/99 1997/98 CHANGE
DM THOUSAND DM THOUSAND DM THOUSAND
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from companies in which
participations are held of which 9.604 5.720 3.884
from affiliated companies (3.489) (2.993) (496)
-----------------------------------------------------------------------------------------
Income from other securities and from
lending of financial assets of which 2.405 1.693 712
from affiliated companies (1.535) (716) (819)
-----------------------------------------------------------------------------------------
Depreciation on financial assets
and securities -24.572 -23.541 -1.031
-----------------------------------------------------------------------------------------
Expenses for losses transferred -679 -53 -626
-----------------------------------------------------------------------------------------
TOTAL -13.242 -16.181 2.939
-----------------------------------------------------------------------------------------
</TABLE>
Income from companies in which participations are held consists largely of
the 1998 dividends and corporation tax credits received for BerlinDat
Gesellschaft fur Informationsverarbeitung und Systemtechnik mbH, Berlin,
and for Fernheizwerk Neukolln AG, Berlin.
<PAGE> 60
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
Depreciation on financial assets and securities covers mainly write off
of loans to EAB Fernwarme GmbH, Berlin (DM 22.0 million) and to EUS Energie
und Umwelt Service GmbH, Berlin (DM 0.5 million). The item also includes
write off to their assessed value of Bewag Immobilienmanagement GmbH,
Berlin (DM 1.2 million) and Berliner Energieagentur GmbH, Berlin (DM 0.1
million).
The expenses for losses transferred result entirely from the losses
incurred in the 1998 business year by DEPOGAS-Gesellschaft zur Gewinnung
und Verwertung von Deponiegasen mbH, Berlin.
(37) NET INTEREST INCOME
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
1998/99 1997/98 Change
DM thousand DM thousand DM thousand
---------------------------------------------------------------------------
<S> <C> <C> <C>
Other interest and similar income 18,912 27,180 -8,268
of which from affiliated companies (449) (-) (449)
---------------------------------------------------------------------------
Interest and similar expenditure -48,116 -78,737 30,621
---------------------------------------------------------------------------
TOTAL -29,204 -51,557 22,353
---------------------------------------------------------------------------
</TABLE>
The reduction in other interest and similar income is mainly due to the
lower total average of financial investments.
The decline in interest and similar expenditure is largely the result of
reduced average holdings in long-term loans.
(38) TAXES ON INCOME AND REVENUE
The increase in taxes on income and revenue is attributable to a rise in
taxable income and on the increase in the trade tax coefficient.
All other taxes are now being reported under other operating expenses.
<PAGE> 61
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
UNBUNDLING
The new Energy Industry Act (EnWG) implementing the European Electricity
Guideline in Germany came into force on 29 April 1998. One of the
stipulations of section 9 of the act is the so-called "unbundling" of
accounting processes in integrated electricity supply companies. This means
that for accounting purposes the activities of the company must be
separated into generation, transmission and distribution, and
non-electricity activities.
From a bookkeeping point of view, Bewag has based its unbundling process on
a profit-center concept with the following structure:
- Our operative business has been regrouped into centers for marketing and
electricity trading, customer service, networks, generation, and heating.
There are also super-ordinate central divisions, which are responsible
for tasks in the service area and in the area of corporate management and
control. Internally rendered services are assessed on the basis of
market-related prices.
- The centers for generation, marketing and electricity trading and
customer service constitute generation and other electricity activities.
- The electricity networks activity consists of the transmission and
distribution activities of the networks center, which is essentially
responsible for transport functions. The distinction between transmission
and distribution is made at 110 Kilovolt. On the basis of the so-called
"forwarder model," the networks center fulfills only a forwarding service
and is not the buyer of the power produced by the generation center.
- Non-electricity activities are the central areas and the heating center.
Management functions such as controlling, finance planning and accounting
are based on the concept of a national holding company.
<PAGE> 62
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
<TABLE>
<CAPTION>
BALANCE SHEET AS AT 30 JUNE 1999 (Unaudited) Generation and
other electricity- Electricity Non-electricity
related activities networks activities Total
ASSETS DM thousand DM thousand DM thousand DM thousand
================================================================================================================================
<S> <C> <C> <C> <C>
FIXED ASSETS
--------------------------------------------------------------------------------------------------------------------------------
Intangible assets 5,928 248,501 141,731 396,160
Tangible assets 2,356,465 2,865,626 1,511,733 6,733,824
Financial assets -- -- 848,312 848,312
================================================================================================================================
2,362,393 3,114,127(1) 2,501,776 7,978,296
================================================================================================================================
CURRENT ASSETS
--------------------------------------------------------------------------------------------------------------------------------
Inventories 137,644 23,514 6,714 167,872
Accounts receivable and other assets
Receivables for goods and services 412,476 1,997 107,643 522,116
Receivables from affiliated companies and
from companies in which participations are held 2,101 6 5,523 7,630
Other assets 25,937 27,759 37,340 91,036
Securities -- -- 184,295 184,295
Cheques, cash on hand, on deposit with Deutsche
Bundesbank and Postbank, cash in other bank accounts -- -- 277,980 277,980
================================================================================================================================
578,158 53,276 619,495 1,250,929
================================================================================================================================
================================================================================================================================
PREPAID EXPENSES 5,112 84,982 95,121 185,215
================================================================================================================================
SPECIAL-LOSS ACCOUNT 24,769 133,335 200,717 358,821
================================================================================================================================
2,970,432 3,385,720 3,417,109 9,773,261
================================================================================================================================
SHAREHOLDERS' EQUITY AND LIABILITIES
================================================================================================================================
EQUITY
--------------------------------------------------------------------------------------------------------------------------------
Subscribed capital and reserves 1,053,092 1,200,322 1,211,449 3,464,863
Balance of capital netting 150,250 196,897 -347,147 --
Net profit for the year 129,365 63,717 53,318 246,400
================================================================================================================================
1,332,707 1,460,936 917,620 3,711,263
================================================================================================================================
SPECIAL ITEMS WITH PARTIAL RESERVE CHARACTER 633,327 769,472(2) 481,542 1,884,341
================================================================================================================================
SPECIAL ITEM FOR INVESTMENT BONUSES 237,304 54,677 94,565 386,546
================================================================================================================================
CONSTRUCTION COST SUBSIDIES -- 465,486 232,225 697,711
================================================================================================================================
PROVISIONS
--------------------------------------------------------------------------------------------------------------------------------
Provisions for pensions and similar obligations 190,956 99,694 173,559 464,209
Provisions for taxes -- -- 189,882 189,882
Other provisions 295,722 489,117 749,463 1,534,302
================================================================================================================================
486,678 588,811 1,112,904 2,188,393
================================================================================================================================
LIABILITIES
--------------------------------------------------------------------------------------------------------------------------------
Liabilities to banks -- -- 381,160 381,160
Advance payments received 49,070 27,125 1,982 78,177
Liabilities for goods and services 192,388 12,645 21,713 226,746
Liabilities to affiliated companies and
to companies in which participations are held 5,317 375 970 6,662
Other liabilities 33,550 6,187 160,929 200,666
================================================================================================================================
280,325 46,332 566,754 893,411
================================================================================================================================
DEFERRED INCOME 91 6 11,499 11,596
================================================================================================================================
2,970,432 3,385,720 3,417,109 9,773,261
================================================================================================================================
(1) Including a transfer of DM 853,534 thousand
(2) Including a transfer of DM 220,078 thousand
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 63
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
PROFIT AND LOSS ACCOUNT FOR 1998/99
<TABLE>
<CAPTION>
Generation and
other electricity- Electricity Non-electricity
related activities networks activities Total
DM thousand DM thousand DM thousand DM thousand
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES REVENUE 2,980,300 (1) 70,640 (2) 850,638 3,901,578
--------------------------------------------------------------------------------------------------------------------------------
Inventory changes and other
internally produced and
capitalised assets 2,903 29,902 13,273 46,078
Other operating income 143,113 88,970 129,813 361,896
Income resulting from netting
with other activities 585,967 1,160,979 (3) 549,185 2,296,131
Cost of materials -914,724 -85,132 -78,179 -1,078,035
Personnel expenses -490,116 -260,191 -446,447 -1,196,754
Depreciation -314,687 -197,640 (4) -159,119 -671,446
Other operating expenses -156,686 -371,396 -307,711 -835,793
Expenditure resulting from
netting with other activities -1,577,506 -313,333 -405,292 -2,296,131
Income from financial assets -- -- -13,242 -13,242
Net interest income 914 -11 -30,107 -29,204
================================================================================================================================
RESULT OF ORDINARY ACTIVITIES 259,478 122,788 102,812 485,078
--------------------------------------------------------------------------------------------------------------------------------
Taxes on income and revenue -100,607 -47,608 -39,863 -188,078
================================================================================================================================
NET INCOME FOR THE YEAR 158,871 75,180 62,949 297,000
--------------------------------------------------------------------------------------------------------------------------------
Allocations to other revenue
reserves -29,506 -11,463 -9,631 -50,600
================================================================================================================================
NET PROFIT FOR THE YEAR 129,365 63,717 53,318 246,400
================================================================================================================================
(1) Reclassification to sales revenue for electricity operations
DM 2,980,300 thousand in sales revenue for generation and other
electricity-related activities
-DM 46,948 thousand in electricity tax
+DM 38,879 thousand for construction cost subsidies (included under sales
revenue, electricity networks)
--------------------------------------------------------------------------------
DM 2,972,231 thousand sales revenue for electricity operations
(2) Of which: for public lighting DM 31,761 thousand
(3) Of which: third-party access fees
from internal offsetting DM 1,015,504 thousand
(4) Of which: transfer DM 20,811 thousand
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 64
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
EXPLANATIONS
Balance sheet and profit and loss account items are normally directly
linked to individual activities. However, in cases where there is only an
indirect connection or where a further splitting of accounts would be
overly complicated, assignment to a particular item has been based on
classification according to appropriate sectors. The results of the
notional holding, which for the most part involve expenditure, have been
fully spread over the various operative divisions.
The starting balance sheet equity has been distributed among the
activities in a ratio proportional to the balance sheet total. This
ensures that all areas have the same capital ratio.
We have not shown the development of fixed assets for individual
activities. Asset movements with regard to technical installations
correspond largely to the asset movements of the overall company.
Because of this year's first-time compliance with unbundling requirements,
we have dispensed with previous-year figures.
MAJOR TRANSACTIONS
Under Section 9 Sub-section 4 of the Energy Industry Act (EnWG), major
transactions with affiliated or associated companies as well as with
companies belonging to the same shareholders must be reported. In the
course of the 1998/99 business year, Bewag conducted major transactions in
the sense covered by the act on the basis of the following contracts with
its business partners:
- contract dated 23 May 1986 and 25 November 1988 with GASAG Berliner
Gaswerke AG, Berlin and Ruhrgas Aktiengesellschaft, Essen, covering the
purchase of natural gas for the Lichterfelde combined heat and power
plant;
- contract dated 1 October 1991 with PreussenElektra AG, Hanover and VEAG
Vereinigte Energiewerke AG, Berlin, covering the operation, maintenance
and use of the Helmstedt-Wolmirstedt-Berlin 380-kilovolt double line. The
contract covers a period of 50 years from the date of completion of the
double line (7 December 1994);
- contract dated 1 October 1991 with PreussenElektra AG, Hanover, covering
the exchange of electricity begun on 7 December 1994. This contract has
an initial term of 20 years;
<PAGE> 65
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
- contract dated 30 March 1995 with VEAG Vereinigte Energiewerke AG,
Berlin, covering cooperation in the field of electricity operations and
including provisions regarding cooperation in the operation of their
high-voltage networks. This contract, which became effective on 1 April
1995, has an initial expiry date of 31 March 2015;
- contract dated 23 June 1995 with GASAG Berliner Gaswerke AG, Berlin,
Verbundnetz Gas AG, Leipzig, Ruhrgas AG, Essen, and Brigitta Erdgas und
Erdol GmbH, Hanover, covering the delivery of natural gas for the
Lichtenberg, Mitte and Klingenberg combined heat and power plants and,
under certain conditions, for the Buch plant. Deliveries under this
contract began on 1 October 1995 and are initially due to continue until
30 September 2009;
- contract dated 14 July/4 September 1998 with GASAG Berliner Gaswerke AG,
Berlin, and Ruhrgas AG, Essen, covering deliveries of gas for the
Lichterfelde combined heat and power plant from 1 January 1999 to 31
December 2000;
- contract dated 1 February/5 March 1999 with GASAG Berliner Gaswerke AG,
Berlin, covering deliveries of gas for small-sized power plants between 1
January 1999 and 1 January 2004.
PreussenElektra AG, Hanover, -- because of the interest it has in Bewag
together with Bayernwerk AG, Munich, and Southern Energy Holding
Beteiligungsgesellschaft mbH, Berlin -- is an affiliated company.
GASAG Berliner Gaswerke AG, Berlin, is one of Bewag's associated companies:
at balance sheet date, Bewag held 24.99 per cent of the capital stock of
this company.
And finally, both PreussenElektra AG, Hanover, and Bayernwerk AG, Munich,
own more than 20 per cent of the capital stock of VEAG Vereinigte
Energiewerke AG, Berlin. This means that the same shareholders hold
significant amounts of stock in both this company and Bewag.
In an analogue application of Section 286 Sub-section 3 of the Commercial
Code (HGB), we have not shown details of other existing business
relationships.
<PAGE> 66
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
SUPPLEMENTARY INFORMATION
EFFECTS OF VALUATION CHANGES AND TAX REGULATIONS ON THE REPORTED NET INCOME
Changes in the assessment of inventories and the first-time application of
the new 1998 Heubeck guidelines in the calculation of provisions for
pension have resulted in a revenue balance of DM 0.4 million. However,
these measures have no effect on the net income for the year, as they are
compensated by an equal amount in special depreciation.
On the basis of the balance of allocations and releases of special items
with partial reserve character, and the associated effect this has on tax
expenditure and on other expenditure dependent on profits and dividends,
the net income declared for the year is approximately DM 28 million lower
than the amount which would otherwise have been declarable.
The future revenue tax burden arising from the release of special items
with partial reserve character will depend on the tax rates applicable at
the time.
OTHER FINANCIAL OBLIGATIONS
Future capital expenditure already approved by the Supervisory Board and
maintenance work needing to be done in the coming years represent purchase
commitments of approximately DM 515 million (previous year: DM 650
million). This amount consists mainly of capital expenditure for repairs
and for the extension of our electricity and heat generating and
distribution installations.
The cash value of payment obligations arising from long-term rental and
leasing agreements is approximately DM 351 million (previous year: DM 358
million).
There are approximately DM 303 million (previous year: DM 149 million) in
other discounted financial obligations, including approximately DM 76
million (previous year: DM 112) relating to affiliated companies. This
also includes the amount for the 6.58 per cent increase in our
participation in GASAG Berliner Gaswerke AG, Berlin, which took place on
2 July 1999.
Fuel and power supplies are secured by long-term contracts.
<PAGE> 67
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
SHARE OWNERSHIP UNDER SECTION 285 NO. 11 OF THE
COMMERCIAL CODE (HGB)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
NAME AND LOCATION SHARE IN EQUITY ON 1998
OF THE COMPANY CAPITAL 31 DEC 1998 RESULT
% DM THOUSAND DM THOUSAND
--------------------------------------------------------------------------------
<S> <C> <C> <C>
DEPOGAS-Gesellschaft zur Gewinnung
und Verwertung von Deponiegasen mbH,
Berlin (1) 100.00 0 0
--------------------------------------------------------------------------------
EAB Fernwarme GmbH, Berlin (2) 100.00 0 -39,490
--------------------------------------------------------------------------------
Bewag Immobilienmanagement GmbH,
Berlin 100.00 348 -855
--------------------------------------------------------------------------------
IPH Institut "Pruffeld fur elektrische
Hochleistungstechnik" GmbH, Berlin 100.00 15,105 -1,654
--------------------------------------------------------------------------------
Bewag Energiemanagement GmbH,
Berlin 100.00 672 179
--------------------------------------------------------------------------------
FHW Fernheizwerk Neukolin
Aktiengesellschaft, Berlin 75.22 26,106 3,695
--------------------------------------------------------------------------------
EAVV Energie Assekuranz Versicherungs
Vermittlungs GmbH, Berlin 60.00 423 323
--------------------------------------------------------------------------------
ARGE Energiesparpartnerschaft
Bewag/Landis & Gyr GbR, Berlin 50.00 895 -1,212
--------------------------------------------------------------------------------
BerlinDat Gesellschaft fur
Informationsverarbeitung und
Systemtechnik mbH, Berlin (3) 50.00 8,115 6,115
--------------------------------------------------------------------------------
BEG, Berliner Energieagentur GmbH, Berlin 33.33 3,024 -348
--------------------------------------------------------------------------------
EFR Europaische Funk-Rundsteuerung
GmbH, Berlin 30.00 0 -946
--------------------------------------------------------------------------------
EBH Energie-Beteiligungsholding
GmbH, Dortmund 25.00 549,682 -578
--------------------------------------------------------------------------------
EUS Energie und Umwelt Service
GmbH, Berlin 25.00 712 644
--------------------------------------------------------------------------------
GASAG Berliner Gaswerke AG, Berlin 24.99 849,840 -89,425
(1) There is a profit and loss transfer contract with the company.
(2) The company was granted an equity-replacing loan in December 1998.
(3) The business year ended on 30 September 1998.
--------------------------------------------------------------------------------
</TABLE>
<PAGE> 68
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
LIABILITY
Of the liabilities for sureties, which total DM 24.8 million (previous
year: DM 22.1 million), DM 19.6 million represent sureties for loans of EAB
Fernwarme GmbH, Berlin, DM 2.1 million for loans of IPH Institut "Pruffeld
fur elektrische Hochleistungstechnik" GmbH, Berlin, DM 1.7 million for
loans of DEPOGAS-Gesellschaft zur Gewinnung und Verwertung von Deponiegasen
mbH, Berlin, and DM 1.4 million for loans of Berliner Energiemanagement
GmbH, Berlin.
There are also guarantees worth DM 30.2 million for affiliated companies
(previous year: DM 17.2 million, of which DM 15.9 million for affiliated
companies). In view of current court decisions, all guarantees which are
subject to reporting have been reassessed vis-a-vis the previous business
year.
NOTIFICATION OF PARTICIPATION
In accordance with Section 20 Sub-section 1 of the German Stock Corporation
Act, Bewag was notified by the Southern Company, Atlanta, on behalf of
Southern Energy Holding Beteiligungsgesellschaft mbH, Berlin, in a letter
of 6 October 1997, and by Bayernwerk AG, Munich in a letter of 13 January
1998, that each of these two companies owns more than 25 per cent of Bewag
stock.
AVERAGE PERSONNEL LEVEL IN THE BUSINESS YEAR
EMPLOYEES (excluding apprentices)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1998/99 1997/98 CHANGE
<S> <C> <C> <C>
Craftsmen 3,306 3,563 -257
---------------------------------------------------------------------
Technical staff 3,196 3,224 -28
---------------------------------------------------------------------
Commercial staff 2,185 2,241 -56
---------------------------------------------------------------------
TOTAL 8,687 9,028 -341
---------------------------------------------------------------------
</TABLE>
DETAILS OF THE COMPANY'S CORPORATE GOVERNANCE
Members of Bewag's Supervisory Board and Board of Management are listed on
Appendix I to these notes.
For the 1998/99 business year, the total remuneration of the Board of
Management was DM 4,268,748 (previous year: DM 5,248,310) and the
remuneration for members of the Supervisory Board totalled DM 514,000
(previous year: DM 957,250).
A total of DM 2,638,693 (previous year: DM 2,519,819) was paid to former
members of the Board of Management and their surviving families; a total of
DM 31,310 thousand (previous year: DM 23,608 thousand) was allocated as
provision for pension obligations to this group of persons.
<PAGE> 69
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
DISTRIBUTION OF THE BALANCE SHEET PROFIT
We propose that the balance sheet profit of DM 246,400,000 be used to pay a
dividend on the capital stock of euro 572,646,906.94, or DM 1,120,000,000.
Berlin, 1 September 1999
BEWAG AKTIENGESELLSCHAFT
The Board of Management
<PAGE> 70
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
MOVEMENTS IN FIXED ASSETS
<TABLE>
<CAPTION>
ACQUISITION OR PRODUCTION COSTS
IN DM THOUSAND
--------------------------------------------------------------------------------------------------------------------
STATUS STATUS
1 July 1998 Additions Transfers Disposals 30 June 1999
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS
--------------------------------------------------------------------------------------------------------------------
Industrial property rights and
similar rights and assets 451,215 71,012 13,557 3,923 531,861
--------------------------------------------------------------------------------------------------------------------
Advance payments 16,995 15,028 -6,887 4,401 20,735
--------------------------------------------------------------------------------------------------------------------
468,210 86,040 6,670 8,324 552,596
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
TANGIBLE ASSETS
--------------------------------------------------------------------------------------------------------------------
Real estate, rights equivalent
to real estate and buildings,
including buildings on third
party land property 3,071,450(5) 16,178 43,927 27,042 3,104,513
--------------------------------------------------------------------------------------------------------------------
Power plant installations 5,860,817 28,306 74,252 13,973 5,949,402
--------------------------------------------------------------------------------------------------------------------
Electricity transmission and
distribution installations 5,499,947 85,266(1) 243,621 44,369(1) 5,784,465
--------------------------------------------------------------------------------------------------------------------
District heating distribution
installations 2,269,725 14,049 41,856 4,268 2,321,362
--------------------------------------------------------------------------------------------------------------------
Other installations, operating
and business equipment 427,540 17,028(2) 24,321 61,057(2) 407,832
--------------------------------------------------------------------------------------------------------------------
Advance payments and installations
under construction 708,973 258,886 -434,647 40,651 492,561
--------------------------------------------------------------------------------------------------------------------
17,838,452 419,713 -6,670 191,360 18,060,135
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS
--------------------------------------------------------------------------------------------------------------------
Shares in affiliated companies 88,626 - - - 88,626
--------------------------------------------------------------------------------------------------------------------
Loans to affiliated companies 14,400 24,600 - 1,000 38,000
--------------------------------------------------------------------------------------------------------------------
Participations 768,370 1 - 1,500 766,871
--------------------------------------------------------------------------------------------------------------------
Loans to companies
in which participations are held 19,493 590 - 7,000 13,083
--------------------------------------------------------------------------------------------------------------------
Other loans 3,071 188 - 45 3,214
--------------------------------------------------------------------------------------------------------------------
893,960 25,379 - 9,545 909,794
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
FIXED ASSETS 19,200,622 531,132 - 209,229 19,522,525
--------------------------------------------------------------------------------------------------------------------
(1) Including minor assets DM 13,753 thousand
(2) Including minor assets DM 4,557 thousand
(5) After adjustment according to Section 36 of the DM-Balance Sheet Act (DMBiLG)
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 71
BEWAG AG
BUSINESS YEAR 1998/1999
(Unaudited)
NOTES
MOVEMENTS IN FIXED ASSETS
<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION
in DM thousand NET BOOK VALUES
in DM thousands
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Status Reinstated Status Status Status
1 July 1998 Additions Transfers Disposals depreciations 30 June 1999 30 June 1999 30 June 1998
------------------------------------------------------------------------------------------------------------------------
137,232 22,305 711 3,812 -- 156,436 375,425 313,983
------------------------------------------------------------------------------------------------------------------------
-- 2,807 -- 2,807 -- -- 20,735 16,995
------------------------------------------------------------------------------------------------------------------------
137,232 25,112 711 6,619 -- 156,436 396,160 330,978
------------------------------------------------------------------------------------------------------------------------
986,686 133,480 500 7,768 -- 1,112,898 1,991,615 2,084,764(5)
------------------------------------------------------------------------------------------------------------------------
4,769,544 196,135 2,135 10,182 -- 4,957,632 991,770 1,091,273
------------------------------------------------------------------------------------------------------------------------
3,340,580 178,764(1) 6,254 42,406(1) -- 3,483,192 2,301,273 2,159,367
------------------------------------------------------------------------------------------------------------------------
1,379,460 83,236 501 2,960 -- 1,460,237 861,125 890,265
------------------------------------------------------------------------------------------------------------------------
341,171 39,549(2) -10,101 58,267(2) -- 312,352 95,480 86,369
------------------------------------------------------------------------------------------------------------------------
-- 8,754 -- 8,754 -- -- 492,561 708,973
------------------------------------------------------------------------------------------------------------------------
10,817,441 639,918 -711 130,337 -- 11,326,311 6,733,824 7,021,011
------------------------------------------------------------------------------------------------------------------------
30,506 1,153 -- -- -- 31,659 56,967 58,120
------------------------------------------------------------------------------------------------------------------------
-- 22,000 -- -- -- 22,000 16,000 14,400
------------------------------------------------------------------------------------------------------------------------
8,823 89 -- 1,501 150 7,261 759,610 759,547
------------------------------------------------------------------------------------------------------------------------
-- 500 -- -- -- 500 12,583 19,493
------------------------------------------------------------------------------------------------------------------------
78(3) -- -- 16(4) -- 62 3,152 2,993
------------------------------------------------------------------------------------------------------------------------
39,407 23,742 -- 1,517 150 61,482 848,312 854,553
------------------------------------------------------------------------------------------------------------------------
10,994,080 688,772 -- 138,473 150 11,544,229 7,978,296 8,206,542
------------------------------------------------------------------------------------------------------------------------
(1) Including minor assets DM 13,753 thousand
(2) Including minor assets DM 4,557 thousand
(3) Discount of interest
(4) Accumulation of interest because of retirement disposal
(5) After adjustment according to Section 36 of the DM-Balance Sheet Act (DMBiLG)
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 72
Corporate governance
Business year 1998/1999
(unaudited)
Appendix I
<TABLE>
<S> <C> <C>
as of 30 June 1999 SUPERVISORY BOARD RITA KUHNER-PRZEWOSNIK
Head of employee communications
BARNEY S. RUSH Bewag,
Chairman Berlin
President of Southern Energy Development
Europe Ltd.,
London DR. OTTO MAJEWSKI
Chairman of the Board of Management of
ERNST-OTTO KOCK Bayernwerk Aktiengesellschaft,
Deputy chairman Munich
Deputy chairman of the Public Services
and Transport Trade Union, CARL-FRIEDRICH MEIBNER
Berlin regional administration, Former Member of the Board of Management of
Berlin of Deutsche Telekom Aktiengesellschaft,
Calw
SVEN BERGELIN
Head of the industrial development of the REINHOLD OFFERMANN
Berlin-Brandenburg administration of the Member of the Board of Management of
German Employees' Trade Union, PreussenElektra Aktiengesellschaft,
Berlin Hanover
RICHARD J. PERSHING
HANS-JURGEN CRAMER Executive Vice President of
Head of corporation development, Southern Energy, Inc.,
Bewag, Roswell, Georgia, USA
Berlin
KARL-HEINZ DIETER REGEL
Project engineer,
PROF. RAINER FRANK ELSASSER Bewag,
Member of the Board of Management of Berlin
Bayernwerk Aktiengesellschaft,
Munich MARTIN SATTLER
Meter fitter with special responsibilities,
KLAUS FORSTER Bewag,
Member of the Board of Management of Berlin
Bayernwerk Aktiengesellschaft,
Munich
UWE SCHARF
DR. MANFRED GENTZ Deputy chairman of the Public Services
Member of the Board of Management of and Transport Trade Union,
DaimlerChrysler Aktiengesellschaft, Berlin
Esslingen and Berlin
MARIO SCHONIAN
DR. HANS-DIETER HARIG 1st car mechanic, Bewag,
Chairman of the Board of Management of Berlin
PreussenElektra Aktiengeselischaft,
Hanover HERBERT STROBEL
Member of the operating committee,
Bewag,
BERND HELMS Berlin
Foreman, Bewag,
Berlin
DR. GIUSEPPE VITA
Chairman of the Board of Management of
Schering Aktiengesellschaft,
Berlin
</TABLE>
<PAGE> 73
Corporate goverance
Business year 1998/1999
(Unaudited)
BOARD OF MANAGEMENT
PROF. DR. DIETMAR WINJE
Chairman
Marketing and Corporate Development,
Berlin
DR. BERND BALZEREIT
Finance and Legal Affairs,
Berlin
DR. KLAUS BECHTOLD
Generation and Heating,
Berlin
J. BRUCE JONES
Networks and Customer Service,
Berlin
DR. KURT LANGE
Human Resources and Services
Berlin
<PAGE> 74
Appendix II
SIGNIFICANT DIFFERENCES BETWEEN GERMAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (Unaudited)
Differences in German and United States generally accepted accounting
principles for net income and stockholders' equity for the business year ended
June 30, 1999 would be similar in nature to those described in Appendix II of
the financial statements for the business year ended June 30, 1998.
