<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
DECEMBER 22, 1999
SOLUTIA INC.
------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
--------
(STATE OF INCORPORATION)
001-13255 43-1781797
--------- ----------
(COMMISSION (IRS EMPLOYER
FILE NUMBER) IDENTIFICATION NO.)
575 MARYVILLE CENTRE DRIVE, P.O. BOX 66760, ST. LOUIS, MISSOURI 63166-6760
- --------------------------------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(314) 674-1000
--------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
<PAGE>
<PAGE>
Solutia Inc. (Solutia) hereby files Amendment No. 1 to its Form
8-K filed on January 4, 2000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
(i) Financial statements of Viking Resins Group Holdings B.V.
and subsidiaries, as of and for the nine months ended
September 30, 1999, together with the related Independent
Auditors' Report, attached as Exhibit 99.1 and incorporated
by reference.
(b) Pro Forma Financial Information
(i) Unaudited Pro Forma Combined Condensed Statement of
Financial Position as of September 30, 1999,
including notes thereto.
(ii) Unaudited Pro Forma Combined Condensed Statements
of Income for the year ended December 31, 1998, and
the nine months ended September 30, 1999, including
notes thereto.
(c) Exhibits
See the Exhibit Index attached hereto and incorporated
herein by reference.
<PAGE>
<PAGE>
Unaudited Pro Forma Combined Condensed Financial Statements
The following unaudited pro forma combined condensed financial
statements give effect to the acquisition of Viking Resins Group Holdings
B.V. and subsidiaries (Viking Resins) using the purchase method of accounting,
after giving effect to the pro forma adjustments described in the notes to the
unaudited pro forma combined condensed financial statements. The unaudited
pro forma combined condensed financial statements were prepared from, and should
be read in conjunction with:
(a) The historical financial statements of Solutia Inc. for
the periods ended September 30, 1999, and December 31,
1998; and,
(b) The historical financial statements of Viking Resins
for the nine months ended September 30, 1999, attached to this
Form 8-K/A as Exhibit 99.1 and incorporated by reference.
It is necessary to present the unaudited pro forma combined condensed
financial information with cautions as to its interpretations and
usefulness. The purchase price allocations are based on preliminary
assumptions and are subject to revision. Accordingly, it is probable
that purchase accounting adjustments will differ from the pro forma
adjustments. The unaudited pro forma combined condensed financial
information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position
that would have occurred if the acquisition of Viking Resins by Solutia
had been consummated as of the dates indicated, nor is it necessarily
indicative of future operating results or financial position of Solutia.
Further, the unaudited pro forma combined condensed financial
information does not reflect any benefits or synergies that are expected
to result from the acquisition.
The Unaudited Pro Forma Combined Condensed Statement of Financial
Position gives effect to the acquisition as if it had occurred on
September 30, 1999, combining the statement of consolidated financial
position for Solutia as of September 30, 1999, and the consolidated
balance sheet for Viking Resins as of September 30, 1999. The Unaudited
Pro Forma Combined Condensed Statements of Income give effect to the
acquisition as if it had occurred at the beginning of the earliest
period presented, combining the results of Solutia for the year ended
December 31, 1998, and the nine months ended September 30, 1999, with the
results of Viking Resins for the year ended December 31, 1998, and the
nine months ended September 30, 1999, respectively.
In the fourth quarter of 1999, Solutia issued approximately $669 million
of commercial paper to finance the acquisition of Viking Resins. For
purposes of the unaudited pro forma combined condensed financial
statements, this commercial paper is assumed to be outstanding during
the periods presented.
<PAGE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS)
<CAPTION>
HISTORICAL
--------------------------
VIKING PRO FORMA PRO FORMA
SOLUTIA RESINS ADJUSTMENTS COMBINED
------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7 $ 55 $ -- $ 62
Trade receivables 442 90 -- 532
Miscellaneous receivables and prepaid expenses 131 8 -- 139
Deferred income tax benefit 103 -- -- 103
Inventories 337 59 1 <F3> 397
------ ---- ----- ------
TOTAL CURRENT ASSETS 1,020 212 1 1,233
NET PROPERTY, PLANT AND EQUIPMENT 1,094 189 26 <F3> 1,309
INVESTMENTS IN AFFILIATES 396 8 -- 404
LONG-TERM DEFERRED INCOME TAX BENEFIT 251 13 -- 264
GOODWILL 83 167 233 483
<F2>
<F3>
<F4>
<F5>
OTHER ASSETS 189 30 (10)<F2> 209
<F3>
------ ---- ----- ------
TOTAL ASSETS $3,033 $619 $ 250 $3,902
====== ==== ===== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 296 $ 45 $ -- $ 341
Accrued liabilities 527 43 3 <F5> 573
Short-term debt 76 11 669 <F2> 756
------ ---- ----- ------
TOTAL CURRENT LIABILITIES 899 99 672 1,670
LONG-TERM DEBT 597 444 (440)<F2> 601
POSTRETIREMENT LIABILITIES 970 21 -- 991
OTHER LIABILITIES 497 71 2 <F2> 570
<F4>
<F5>
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock 1 4 (4)<F1> 1
Additional contributed capital (137) 10 (10)<F1> (137)
Treasury stock (200) -- -- (200)
Unearned ESOP shares (21) -- -- (21)
Accumulated other comprehensive income -- (2) 2 <F1> --
Reinvested earnings 427 (28) 28 <F1> 427
------ ---- ----- ------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 70 (16) 16 70
------ ---- ----- ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $3,033 $619 $ 250 $3,902
====== ==== ===== ======
See accompanying notes to unaudited pro forma combined condensed statement of financial position.
</TABLE>
<PAGE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF FINANCIAL
POSITION AS OF SEPTEMBER 30, 1999
The pro forma adjustments to the Unaudited Pro Forma Combined Condensed
Statement of Financial Position were made to reflect the following:
[FN]
<F1> To record the write-off of Viking Resins' historical equity.
<F2> To record Solutia's issuance of $669 million of commercial paper
to fund the acquisition of Viking Resins, the refinancing of
debt assumed, as required by the purchase and sale agreements,
and the write-off of capitalized debt finance costs and accrued
interest payable related to the debt refinanced.
<F3> To record the excess of the purchase price of Viking Resins
over the fair market value of Viking Resins net assets, and to
adjust Viking Resins net assets acquired to estimated fair
market values.
<F4> To record liabilities assumed in the acquisition.
<F5> To record deferred taxes related to Notes (3) and (4) above,
based on an effective tax rate of 32%.
<PAGE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS)
<CAPTION>
HISTORICAL
--------------------------
VIKING PRO FORMA PRO FORMA
SOLUTIA RESINS ADJUSTMENTS COMBINED
------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $2,094 $382 $(11)<F4> $2,465
Cost of goods sold 1,613 278 2 <F1> 1,893
------ ---- ---- ------
GROSS PROFIT 481 104 (13) 572
Marketing expenses 108 25 (11)<F4> 122
Administrative expenses 91 25 -- 116
Technological expenses 58 12 -- 70
Amortization expense 2 7 8 <F1> 17
------ ---- ---- ------
OPERATING INCOME 222 35 (10) 247
Equity income from affiliates 26 -- -- 26
Interest expense (30) (31) 3 <F2> (58)
Other income (expense) - net 10 1 -- 11
------ ---- ---- ------
INCOME BEFORE INCOME TAXES 228 5 (7) 226
Income taxes 73 10 (2)<F3> 81
------ ---- ---- ------
NET INCOME (LOSS) $ 155 $ (5) $ (5) $ 145
====== ==== ==== ======
BASIC EARNINGS PER SHARE $1.40 $1.31
===== =====
DILUTED EARNINGS PER SHARE $1.34 $1.25
===== =====
Weighted-average equivalent shares (in millions):
Basic 111.1 111.1
Effect of dilutive securities:
Common share equivalents - common stock
issuable upon exercise of outstanding stock
options 4.5 4.5
----- -----
Diluted 115.6 115.6
===== =====
</TABLE>
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN MILLIONS)
<CAPTION>
HISTORICAL
----------------------------
VIKING PRO FORMA PRO FORMA
SOLUTIA RESINS ADJUSTMENTS COMBINED
-------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $2,835 $533 $(15)<F4> $3,353
Cost of goods sold 2,085 384 2 <F1> 2,471
------ ---- ---- ------
GROSS PROFIT 750 149 (17) 882
Marketing expenses 145 61 (15)<F4> 191
Administrative expenses 136 30 -- 166
Technological expenses 83 20 -- 103
Amortization expense -- 2 18 <F1> 20
------ ---- ---- ------
OPERATING INCOME 386 36 (20) 402
Equity income from affiliates 25 -- -- 25
Interest expense (43) (8) (30)<F2> (81)
Other income (expense) - net 7 2 -- 9
------ ---- ---- ------
INCOME BEFORE INCOME TAXES 375 30 (50) 355
Income taxes 126 12 (17)<F3> 121
------ ---- ---- ------
NET INCOME $ 249 $ 18 $(33) $ 234
====== ==== ==== ======
BASIC EARNINGS PER SHARE $2.16 $2.03
===== =====
DILUTED EARNINGS PER SHARE $2.03 $1.91
===== =====
Weighted-average equivalent shares (in millions):
Basic 115.5 115.5
Effect of dilutive securities:
Common share equivalents - common stock
issuable upon exercise of outstanding stock
options 7.3 7.3
----- -----
Diluted 122.8 122.8
===== =====
See accompanying notes to unaudited pro forma combined condensed statements of income.
</TABLE>
<PAGE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
The pro forma adjustments to the Unaudited Pro Forma Combined Condensed
Statements of Income were made to reflect the following:
[FN]
<F1> To record additional depreciation and amortization expense
resulting from the fair market value adjustments to property,
plant and equipment and goodwill recorded in connection with
the acquisition.
<F2> To record interest expense related to the issuance of $669
million of commercial paper to fund the acquisition.
<F3> To record the income tax effects of the tax-deductible pro
forma adjustments in Notes 1 and 2, based on an effective tax
rate of 32.0% for the nine months ended September 30, 1999,
and 33.6% for the year ended December 31, 1998.
<F4> To reclassify to conform to Solutia's presentation.
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SOLUTIA INC.
---------------------------------------------
(Registrant)
/s/ James M. Sullivan
---------------------------------------------
Vice President and Controller
(Principal Accounting Officer)
DATE: March 6, 2000
<PAGE>
<PAGE>
EXHIBIT INDEX
These exhibits are numbered in accordance with the Exhibit
Table of Item 601 of Regulation S-K.
Exhibit
Number Description
- ------- -----------
2 1. Agreement, dated November 10, 1999, for the sale and
purchase of class A shares, preference shares and loan
stock and the cancellation of warrants in Viking Resins
Group Holdings B.V. between (a) Solutia Inc., as
purchaser, (b) the holders of the A shares, preference
shares and loan stock as sellers, and (c) the
warrantholders, plus identification of contents of
omitted schedules and agreement to furnish supplementally
a copy of any omitted schedule to the Securities and
Exchange Commission upon request (incorporated herein by
reference to Exhibit 2.1 of Solutia's Form 8-K filed
January 4, 2000).
2. Agreement, dated December 22, 1999, for the sale and
purchase of class B shares in Viking Resins Group
Holdings B.V. between Helmut Strametz, as seller and
Solutia Inc., as purchaser, plus (a) identification of
contents of omitted schedules and agreement to furnish
supplementally a copy of any omitted schedule to the
Securities and Exchange Commission upon request and (b) a
schedule identifying substantially identical documents
between Solutia Inc. and the other minority shareholders
(incorporated herein by reference to Exhibit 2.2 of
Solutia's Form 8-K filed January 4, 2000).
3. Agreement, dated December 21, 1999, for the sale and
purchase of class B shares in Viking Resins Group
Holdings B.V. between Heinrich Otto Geidt, as seller and
Solutia Inc., as purchaser, plus identification of
contents of omitted schedules and agreement to furnish
supplementally a copy of any omitted schedule to the
Securities and Exchange Commission upon request
(incorporated herein by reference to Exhibit 2.3 of
Solutia's Form 8-K filed January 4, 2000).
23 1. Consent of Deloitte & Touche Accountants.
99 1. Financial statements of Viking Resins Group Holdings B.V. and
subsidiaries as of and for the nine months ended September 30,
1999.
2. Press release dated December 22, 1999, issued by Solutia
Inc., announcing the completion of Solutia's acquisition
of the Vianova Resins business (incorporated herein by
reference to Exhibit 99.1 of Solutia's Form 8-K filed
January 4, 2000).
3. Press release dated November 11, 1999, issued by Solutia
Inc., announcing Solutia's agreement to acquire the
Vianova Resins business (incorporated by reference to
Exhibit 99.1 of Solutia's Form 8-K filed November 12,
1999).
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Solutia's
Registration Statements on Form S-8 (Nos. 333-34561, 333-34587,
333-34589, 333-34591, 333-34593, 333-34683, 333-35689, 333-47911,
333-51081, 333-74463, and 333-74465) of our opinion dated March 1, 2000
(relating to the financial statements of Viking Resins Group Holdings B.V.
and subsidiaries), appearing in Exhibit 99.1 to this Form 8-K/A of Solutia Inc.
Deloitte & Touche Accountants
Amsterdam, The Netherlands
March 1, 2000
<PAGE>
VIKING RESINS GROUP HOLDINGS B.V.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1999
<PAGE>
<PAGE>
VIKING RESINS GROUP HOLDINGS B.V.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1999
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 2
CONSOLIDATED STATEMENT OF OPERATIONS 3
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIT) 3
CONSOLIDATED BALANCE SHEET 4
CONSOLIDATED CASH FLOW STATEMENT 5
GENERAL INFORMATION AND ACCOUNTING POLICIES 6-11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12-27
1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDER AND BOARD OF DIRECTORS OF
VIKING RESINS GROUP HOLDINGS B.V. AND SUBSIDIARIES:
We have audited the consolidated balance sheet of Viking Resins Group
Holdings B.V. and subsidiaries (the company) as of September 30, 1999
and the related consolidated statements of operations, changes in
shareholders' equity (deficit) and cash flow for the nine months ended
September 30, 1999. These financial statements are the responsibility
of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements. An
audit 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, such consolidated financial statements present fairly,
in all material respects, the financial position of Viking Resins Group
Holdings B.V. and subsidiaries as of September 30, 1999 and the results
of their operations and their cash flows for the nine months ended
September 30, 1999, in conformity with International Accounting
Standards.
Deloitte & Touche Accountants
Amsterdam, The Netherlands
March 1, 2000
2
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1 TO
SEPTEMBER 30, 1999
----------------------
(all amounts in Deutsche Mark thousands) NOTES
<S> <C> <C>
Sales 698,143
Cost of sales (508,208)
----------------------
Gross profit 189,935
Marketing and selling expenses (45,851)
Research and development expenses (23,268)
Other general and administrative expenses (42,620)
Other operating income 11,382
Other operating expenses 3 (26,424)
----------------------
Operating profit 1 63,154
----------------------
Interest income 1,813
Interest expense (36,229)
Interest expense on preference shares 22 (19,664)
----------------------
Other financial income/expense, net (54,080)
----------------------
Income before income tax 9,074
Income tax 4 (17,320)
----------------------
Net loss (8,246)
======================
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) - see notes 23, 28
<CAPTION>
(all amounts in Deutsche Mark SHARE CAPITAL CURRENCY ACCUMULATED TOTAL
thousands) CAPITAL RESERVES REVALUATION DEFICIT EQUITY
(DEFICIT)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 AS
RESTATED 8,260 18,947 (3,338) (44,172) (20,303)
Shares issued 36 74 - - 110
Currency translation differences - - 141 - 141
Net loss - - - (8,246) (8,246)
------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999 8,296 19,021 (3,197) (52,418) (28,298)
========================================================================
The accompanying notes form an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
SEPTEMBER 30, 1999
--------------------------
(all amounts in Deutsche Mark thousands) NOTES
<S> <C> <C> <C>
ASSETS
NON-CURRENT ASSETS
Intangible assets 5 327,438
Property, plant and equipment 6 350,487
Other investments 7 14,989
Deferred debt financing costs 14 39,135
Deferred tax assets 4,15 23,336
-----------
755,385
CURRENT ASSETS
Inventories 8 110,646
Trade receivables 9 167,104
Accounts receivable from related parties 108
Prepaid expense and other assets 10 14,721
Cash and cash equivalents 11 101,158
-----------
393,737
-------------
TOTAL ASSETS 1,149,122
=============
EQUITY (DEFICIT) AND LIABILITIES
Shareholders' equity (deficit) 23 (28,298)
Minority interest 24 1,914
-----------
(26,384)
-------------
NON-CURRENT LIABILITIES
Provisions
Deferred tax liabilities 15 55,850
Pensions 16 39,703
Other provisions 18 74,377
Preference shares 22 263,876
Borrowings 14 559,068
-----------
992,874
CURRENT LIABILITIES
Trade payables 12 82,731
Other liabilities 13 37,637
Current tax liabilities 4 14,948
Borrowings, current portion 14 19,926
Other payables 17 27,390
-----------
182,632
-------------
TOTAL LIABILITIES 1,175,506
-------------
TOTAL EQUITY (DEFICIT) AND LIABILITIES 1,149,122
=============
The accompanying notes form an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED CASH FLOW STATEMENT
<CAPTION>
(all amounts in Deutsche Mark thousands)
FOR THE PERIOD
FROM JANUARY 1 TO
SEPTEMBER 30, 1999
----------------------
<S> <C>
CONSOLIDATED NET LOSS (8,246)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortisation 43,145
Allowance for doubtful debt 558
Reversal of inventory reserves 1,488
Loss on disposals of fixed assets, net (27)
Changes in balance sheet items (incl. currency differences):
Accounts receivable (19,302)
Inventories 17,071
Prepaid expenses and other assets 14,917
Accounts payable 1,465
Accrued expenses and other liabilities (10,093)
----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 40,976
----------------------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (13,269)
Proceeds from sale of fixed assets 4,366
Acquisition of investments and other intangible assets (392)
----------------------
NET CASH USED IN INVESTING ACTIVITIES (9,295)
----------------------
CASH FLOW FROM FINANCING ACTIVITIES
Increase of share capital 36
Increase of capital reserves 74
Amortisation of deferred debt financing costs 2,680
Change in short term debt (3,720)
Change in long term debt (6,115)
----------------------
NET CASH USED IN FINANCING ACTIVITIES (7,045)
----------------------
Effect of exchange rates 232
----------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 24,868
Cash and cash equivalents beginning of the period 76,290
----------------------
CASH AND CASH EQUIVALENTS END OF THE PERIOD 101,158
======================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 28,856
Income taxes paid 17,974
The accompanying notes form an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
<PAGE>
GENERAL INFORMATION
The parent company of the Vianova Resins Group is Viking Resins Group
Holdings B.V. (the company), which is a limited liability company and
is incorporated and domiciled in the Netherlands. The company acts as
a holding company for the Group's entities. The official registration
of the legal entity was made effective September 27, 1998. The
address of its registered office is as follows:
Viking Resins Group Holdings B.V.
Diemerhof 36
NL - 1112XN Diemen
With a share purchase and assignment agreement between Hoechst and
Viking Resins Group Holdings B.V. dated October 7, 1998, Viking
Resins Group Holdings B.V. acquired the Vianova Resins Group of
companies hereinafter collectively referred to as "Vianova" or the
"Group" with effect retroactive to October 1, 1998. (see note 29)
Vianova develops, produces and sells chemical products, mostly
resins. Vianova has three production sites in Germany and one each in
Austria, France, Spain, Thailand, Denmark, Italy and Brazil.
ACCOUNTING POLICIES
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN DEUTSCHE MARK THOUSANDS UNLESS
OTHERWISE STATED)
(TDM DEFINED AS THOUSANDS OF DEUTSCHE MARKS)
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below:
BASIS OF PREPARATION
The consolidated financial statements are prepared in accordance with
and comply with International Accounting Standards. The consolidated
financial statements are prepared under the historical cost
convention.
The preparation of financial statements in conformity with IAS
requires management to a certain degree to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
In view of the country of the Group's main operations, the amounts
shown in these financial statements are presented in Deutsche Mark.
CONSOLIDATION
Subsidiary undertakings, which are those companies in which the
Group, directly or indirectly, has an interest of more than one half
of the voting rights or otherwise has power to exercise control over
the operations, have been consolidated. All other subsidiaries are
consolidated from the date on which effective control is transferred
to the Group and are no longer consolidated from the date of
disposal. All intercompany transactions, balances and unrealised
surpluses and deficits on transactions between Group companies have
been eliminated. Separate disclosure is made of minority interests.
A listing of the Group's principal subsidiaries is set out in Note
27. The financial effect of the acquisition and disposal of
subsidiaries will be shown separately as it occurs.
6
<PAGE>
<PAGE>
FOREIGN CURRENCIES
Income statements of foreign entities are translated into the Group's
reporting currency at average exchange rates for the nine-month
period ending September 30, 1999 and the balance sheets are
translated at the month-end exchange rates ruling on September 30,
1999. Exchange differences arising from the translation of the net
investment in foreign subsidiaries and associated undertakings are
taken to "Currency Translation Differences" in the statement of
shareholders' equity (deficit) and are shown net of their income tax
effect.
The functional currencies of the company's foreign subsidiaries are
their respective local currencies.
Foreign currency transaction gains and losses are recorded in net
earnings. At year end such balances are translated at year-end
exchange rates unless hedged by forward foreign exchange contracts,
in which case the rates specified in such forward contracts are used.
Exchange gains and losses and hedging costs arising on contracts
entered into as hedges of specific revenue or expense transactions
and of anticipated future transactions are deferred until the date of
such transactions at which time they are included in the
determination of such revenue and expenses.
All other exchange gains and losses relating to hedge transactions
are recognised in the income statement in the same period as the
exchange differences on the items covered by the hedge transactions.
Costs on such contracts are amortised over the life of the hedge
contract. Gains and losses on contracts which are no longer
designated as hedges are included in the income statement.
FINANCIAL INSTRUMENTS
Financial instruments carried on the balance sheet include cash and
cash equivalents, receivables, trade payables and borrowings. The
carrying values of cash equivalents and other current assets and
liabilities approximate fair values due to the short-term maturity of
these instruments.
The company and the Group are also parties to financial instruments
that reduce exposure to fluctuations in foreign currency exchange and
interest rates. These instruments, which mainly comprise foreign
currency forward contracts and interest rate derivatives agreements,
are not recognised in the financial statements on inception. The
purpose of these instruments is to hedge risk exposures. None of the
derivative instruments are used for trading or speculative purposes.
Foreign currency forward contracts protect the Group from movements
in exchange rates by establishing the rate at which a foreign
currency asset or liability will be settled. Any increase or decrease
in the amount required to settle the asset or liability is off-set by
a corresponding movement in the value of the forward exchange
contract. The gains and losses are therefore off-set for financial
reporting purposes and are not recognised in the financial
statements. The fee incurred in establishing each agreement is
amortised over the contract period.
Interest rate derivatives agreements are designed to protect the
Group from movements in interest rates. The company entered into an
interest rate derivative in order to control funding costs by fixing
effective interest rates paid on existing variable rate debt. Any
differential to be paid or received on an interest rate derivative
agreement is recognised as a component of interest revenue or expense
over the period of the agreement. Gains and losses on early
termination of interest rate swaps or on repayment of the borrowing
are taken to the income statement.
Disclosures about financial instruments to which the Group is a party
are provided in note 19.
7
<PAGE>
<PAGE>
GOODWILL
Goodwill represents the excess of the cost of an acquisition over the
fair value of the Group's share of the net assets of the acquired
company at the date of acquisition. Goodwill on acquisitions is
reported in the balance sheet as an intangible asset and is amortised
using the straight-line method over its estimated useful life of 20
years. In determining the period of amortisation the Group considered
the expected period of benefits to be received from the acquired
companies which is based on factors such as the type of business,
customer relationships and the distribution network.
The carrying amount of goodwill is reviewed annually and written down
for permanent impairment where it is considered necessary.
RESEARCH AND DEVELOPMENT
Research and development acquired from Hoechst was capitalised at its
fair value at the time of the transaction. Management believes that
the recorded value of TDM 14,545 represents the fair market value.
Subsequent to the acquisition research and development costs are
charged to expense as incurred.
OTHER INTANGIBLE ASSETS
Expenditure on acquired patents, trademarks software and other
licences is capitalised and amortised using the straight-line method
over their useful lives, generally over 2-7 years. The carrying
amount of each intangible asset is reviewed annually and adjusted for
permanent impairment where it is considered necessary.
MARKETABLE SECURITIES
Marketable securities classified as long term are carried at
acquisition cost. Marketable securities classified as current assets
are carried at lower cost or market value. On disposal of an
investment, the difference between the net disposal proceeds and the
carrying amount is charged or credited to the income statement.
PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment is recorded at historical cost less
subsequent depreciation. Following the acquisition of the Vianova
Group of companies effective October 1, 1998, the fair market value
of the acquired land, buildings, machinery and equipment was
determined based primarily on valuations by external appraisers.
Depreciation is calculated on the straight-line method to write off
the cost of each asset, or the revalued amounts, to their residual
values over their estimated useful life as follows:
Manufacturing plants and buildings 15-50 years
Machinery and equipment 3-20 years
Office equipment and motor vehicles 3-15 years
Land is not depreciated as it is deemed to have an indefinite life.
Where the carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its recoverable
amount.
Gains and losses on disposal of property, plant and equipment are
determined by reference to their carrying amount and are taken into
account in determining operating profit.
8
<PAGE>
<PAGE>
Interest costs on borrowings to finance the construction of property,
plant and equipment are expensed.
ACCOUNTING FOR LEASES - WHERE A GROUP COMPANY IS THE LESSEE
Leases of assets under which all the risks and benefits of ownership
are effectively retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the
income statement on a straight-line basis over the period of the
lease.
When an operating lease is terminated before the lease period has
expired, any payment required to be made to the lessor by way of
penalty is recognised as an expense in the period in which the
decision to terminate takes place.
INVENTORIES
Inventories are stated at the lower of cost or net realisable value.
Cost is determined by weighted average cost. The cost of finished
goods and work in progress comprises raw materials, direct labour,
other direct costs and related production overheads. Net realisable
value is the estimate of the selling price in the ordinary course of
business, less the costs of completion, selling expenses and mark-up
on profit.
Net realisable value for raw materials is determined based on
replacement costs. In determining net realisable value deterioration
and obsolescence have been considered.
TRADE RECEIVABLES
Trade receivables are carried at anticipated realisable value. An
estimate is made for doubtful receivables based on a review of all
outstanding amounts at the year end. Bad debts are written off during
the year in which they are identified. Bankers acceptances are
discounted.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash in hand and highly liquid
instruments with maturity of three months or less. In the balance
sheet, bank overdrafts are included in borrowings in current
liabilities.
TRADE PAYABLES, OTHER LIABILITIES AND PROVISIONS
Trade accounts payable and other liabilities are stated at their
expected settlement amounts.
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate of the
amount of the obligation can be made.
A provision is made for the estimated liability for annual leave as a
result of services rendered by employees up to the balance sheet
date.
Accruals, including those for loss contingencies and environmental
liabilities are based on best estimates. The Group accrues for
environmental expenses resulting from existing conditions that relate
to past operations when the costs are probable and reasonably
estimable.
RESTRUCTURING PROVISIONS
Costs specifically attributable to a restructuring mainly comprise
employee termination payments, and are recognised in the period in
which they meet the criteria to be accrued. Employee termination
costs are recognised only after either an agreement is in place with
the appropriate employee representatives specifying the terms of
redundancy and the numbers of employees affected, for those under a
collective agreement, or individual agreements are in place for those
employees on individual
9
<PAGE>
<PAGE>
contracts. Any fixed assets that are no longer required for their
original use are transferred to current assets and carried at the
lower of the carrying amount or estimated realisable value.
PENSION OBLIGATIONS
Provisions for defined benefit plans are determined using the
"projected unit credit method". Under this method, the cost of
providing pensions is charged to the income statement so as to spread
the regular cost over the service lives of employees. Actuarial
calculations are performed on a yearly basis. The pension obligation
is measured as the present value of the estimated future cash
outflows using interest rates of government securities which have
terms to maturity approximating the terms of the related liability.
All actuarial gains and losses are spread forward over the average
remaining service lives of employees.
Defined contribution plans are administered by independent external
trusts or insurance companies. The Group's contributions to these
pension plans are charged to the income statement in the year to
which they relate.
The amount of pension liabilities as at September 30, 1999 has been
accrued on the basis of actuarial computations performed as at
December 31, 1999.
DEFERRED INCOME TAXES
Deferred income tax is provided, using the liability method, for all
temporary differences arising between the tax bases of assets and
liabilities and their carrying values for financial reporting
purposes. Currently enacted tax rates are used to determine deferred
income tax.
Under this method the Group is required to make a provision for
deferred income taxes on the revaluation of certain non-current
assets and, in relation to an acquisition, on the difference between
the fair values of the net assets acquired and their tax base.
Provision for taxes, mainly withholding taxes, which could arise on
the remittance of retained earnings, principally relating to
subsidiaries, is only made where there is a current intention to
remit such earnings.
The principal temporary differences arise from depreciation on
property, plant and equipment, revaluations of certain non-current
assets and provisions for pensions. Deferred tax assets relating to
the carry forward of unused tax losses are recognised to the extent
that it is probable that future taxable profit will be available
against which the unused tax losses can be utilised.
REVENUE RECOGNITION
Revenues are recognised upon shipment of products to the customer or
performance of services. Such revenues are recorded on the basis of
sales prices net of applicable discounts and customer bonuses. The
company has the choice of replacing goods or refunding the purchase
price in case of justified complaints. Adequate accruals have been
set up for future warranty costs.
Other revenues earned by the Group are recognised on the following
bases:
Royalty income - when earned if collectability is reasonably assured.
Interest income - as it accrues unless collectability is in doubt.
Dividend income - when the shareholder's right to receive payment is
established.
IMPAIRMENT OF ASSETS
Whenever there is an indication that an asset has been impaired, the
asset is written down to the recoverable amount and an impairment
loss is recognised in the income statement.
10
<PAGE>
<PAGE>
RISK CONCENTRATION
Credit Risk
Financial instruments which potentially subject the company to
concentrations of credit risk are primarily accounts receivable and
cash equivalents. The Group performs ongoing credit evaluations of
its customers' financial condition. In addition, insurances for
political and transfer risks are established for various countries.
Generally, collateral is not required from customers. Allowances are
provided for both specific and general risks inherent in receivables.
Approximately TDM 45,185 or 27% of the company's trade accounts
receivable were geographically concentrated in Germany, TDM 35,995 or
22% in Italy, TDM 19,746 or 12% in Spain and TDM 13,029 or 8% in
Austria at September 30, 1999. The company's management does not
expect these potential risk factors to have a material adverse impact
on its results of operations or financial position.
Market Risk
Herberts GmbH, which was a wholly-owned Hoechst subsidiary has been
acquired by DuPont. Through this transaction Herberts/DuPont is
the single biggest customer of the company and accounted, with its
subsidiaries, for approximately 16% of net sales in the nine-month
period ended September 30, 1999.
The company is engaged in the Asian region (Thailand) and in South
America (Brazil). The financial and economic crisis in these regions
increases the market risks faced by the company.
11
<PAGE>
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 OPERATING PROFIT
The following items have been charged in arriving at operating
profit:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1 TO
SEPTEMBER 30, 1999
----------------------
<S> <C>
Depreciation on property, plant and equipment (Note 6) 28,533
Net loss on disposal of fixed assets 27
Amortisation of intangible assets (Note 5)
- goodwill (included in "Other operating expenses") 12,188
- other intangible assets (included in "Other general and administrative
expenses") 2,424
Operating lease rentals 2,886
Staff costs (Note 2) 124,487
Restructuring costs (Note 17) 1,682
Currency transaction gains and losses
- gains (included in other operating income) 1,852
- losses (included in other operating expense) 235
<CAPTION>
2 STAFF COSTS
PERIOD FROM
JANUARY 1 TO
SEPTEMBER 30, 1999
----------------------
<S> <C>
Wages and salaries 95,381
Termination benefits 2,518
Social security costs 21,738
Pension costs - defined contribution and defined benefit plans 4,850
----------------------
124,487
======================
<CAPTION>
Average number of persons employed by the Group during the year: PERIOD FROM
JANUARY 1 TO
SEPTEMBER 30, 1999
----------------------
<S> <C>
Germany 583
Austria 474
Italy 197
Other 399
----------------------
1,653
======================
12
<PAGE>
<PAGE>
<CAPTION>
3 OTHER OPERATING EXPENSES
PERIOD FROM
JANUARY 1 TO
SEPTEMBER 30, 1999
----------------------
<S> <C>
Amortisation of goodwill 12,188
Other operating expense 14,236
----------------------
26,424
======================
<CAPTION>
4 INCOME TAX
PERIOD FROM
JANUARY 1 TO
SEPTEMBER 30, 1999
----------------------
<S> <C>
Current tax (12,433)
Deferred tax (Note 15) (4,887)
----------------------
(17,320)
======================
</TABLE>
Income is initially taxed at 40% under the German corporate
income tax system. Upon distribution of earnings the income tax
is reduced to 30% through a credit. There is a surcharge of
5.5% on the corporate income tax. For financial reporting
purposes income tax has been calculated using a rate of 45% for
the nine-month period ended September 30, 1999, comprising of
the distributed earnings rate (assuming full distribution of
earnings), trade income taxes and surcharge on income taxes.
The actual income tax charge attributable to income before
income taxes for the nine-month period ended September 30, 1999
differed from the amount computed by applying a tax rate of 45%
to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1 TO
SEPTEMBER 30, 1999
----------------------
<S> <C>
Income before tax 9,074
======================
Tax calculated at a tax rate of 45% 4,083
Effect of different tax rates in other countries 508
Tax effect of income not subject to tax (1,605)
Tax effect of expenses not deductible for tax purposes
(principally goodwill amortisation and interest
expense on preference shares) 14,334
----------------------
Tax charge 17,320
======================
</TABLE>
The company's Thailand subsidiary has been granted a
promotion certificate for the production of certain
products. The promotional privilege includes exemption from
corporate income tax for the promoted activities for a
period of 8 years from the start of earnings derived from
the promoted business and another 50% exemption for another
period of 5 years thereafter. Earnings from the promoted
business commenced 1999. The Thailand subsidiary has net
operating loss carry forwards of TDM 25,284 as of September 30,
1999 which have not been recognised.
13
<PAGE>
<PAGE>
5 INTANGIBLE ASSETS
<TABLE>
<CAPTION>
OTHER
INTANGIBLE
GOODWILL ASSETS TOTAL
-------------------------------------------------
<S> <C> <C> <C>
AT COST
January 1, 1999 328,948 20,042 348,990
Exchange differences 43 228 271
Additions - 243 243
Disposals (2,475) (3) (2,478)
Reclassification - 319 319
-------------------------------------------------
Closing amount 326,516 20,829 347,345
-------------------------------------------------
ACCUMULATED AMORTISATION
January 1, 1999 4,077 988 5,065
Exchange differences - 231 231
Additions 12,188 2,424 14,612
Disposals - (1) (1)
-------------------------------------------------
Closing amount 16,265 3,642 19,907
-------------------------------------------------
Net book amount 310,251 17,187 327,438
=================================================
</TABLE>
Other intangible assets comprise acquired software, patents and
trademarks.
6 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
FACTORY PREPAY-
LAND & PLANT & & OFFICE MENTS
BUILDINGS MACHINERY EQUIPMENT & CIP TOTAL
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 1, 1999 204,051 153,301 29,818 5,586 392,756
Exchange differences (365) (32) 474 77 154
Additions 964 3,056 2,211 7,038 13,269
Disposals (2,017) (1,124) (1,631) - (4,772)
Reclassification 1,106 2,248 (796) (2,877) (319)
-------------------------------------------------------------------------------------
Closing amount 203,739 157,449 30,076 9,824 401,088
-------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION
January 1, 1999 3,768 14,338 6,128 220 24,454
Exchange differences 5 221 305 (7) 524
Additions 5,815 17,239 5,190 289 28,533
Disposals (742) (865) (1,303) - (2,910)
Reclassifications 677 - (677) - -
-------------------------------------------------------------------------------------
Closing amount 9,523 30,933 9,643 502 50,601
-------------------------------------------------------------------------------------
Net book amount 194,216 126,516 20,433 9,322 350,487
=====================================================================================
</TABLE>
The effects of foreign currency translation are primarily
related to the business in Thailand and in Brasil.
14
<PAGE>
<PAGE>
7 OTHER INVESTMENTS
SEPTEMBER 30,
1999
-----------------
Participating interest 8,411
Marketable securities 5,887
Other 691
-----------------
14,989
=================
Participating interests represent Vianova's 7% interest in
InfraServ GmbH & Co. Wiesbaden KG, the entity who provides
services for the Wiesbaden production site. The company made
payments to InfraServ of TDM 12,225 for the period ended
September 30, 1999. The company accounts for this investment
on the cost basis which is assumed to approximate market
value.
The company invested in marketable securities in Austria in
order to fund long term personnel related accruals (pension
scheme). As of September 30, 1999 the fair market value of
such securities amounted to TDM 5,836.
8 INVENTORIES
SEPTEMBER 30,
1999
-----------------
Raw materials 37,902
Work in process 14,032
Finished goods 63,177
Merchandise 3,247
-----------------
118,358
Reserves (7,712)
-----------------
Inventories, net 110,646
=================
9 TRADE RECEIVABLES
SEPTEMBER 30,
1999
-----------------
Gross amount 181,199
Allowances (14,095)
-----------------
167,104
=================
10 PREPAID EXPENSES AND OTHER ASSETS
SEPTEMBER 30,
1999
-----------------
Receivables from tax authorities 2,599
Prepayments 5,786
Receivables from employees 1,434
Other receivables 4,902
-----------------
14,721
=================
15
<PAGE>
<PAGE>
11 CASH AND CASH EQUIVALENTS
SEPTEMBER 30,
1999
-----------------
Cash at bank and in hand 46,395
Short-term bank deposits 54,763
-----------------
101,158
=================
The weighted average effective interest rate on short-term
bank deposits was 3.3%.
12 TRADE PAYABLES
Trade payables result mainly from receipt of goods and
services for the production process. Suppliers are paid
within the payment terms agreed. Cash discounts for
accelerated payments are utilised where possible.
13 OTHER LIABILITIES
SEPTEMBER 30,
1999
-----------------
Payroll and social security 19,938
Other taxes 6,081
Accrued expenses 5,902
Other payables 5,716
-----------------
37,637
=================
14 BORROWINGS
SEPTEMBER 30,
1999
-----------------
CURRENT
Bank overdraft 14,926
Short-term portion of long-term debt 5,000
-----------------
19,926
NON-CURRENT
Bank borrowings 559,068
-----------------
578,994
=================
16
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TDM Interest rate
------------------------------
<S> <C> <C>
The non-current borrowings are comprised of:
Term A loan with defined repayment schedule 270,000 Libor + 2.0%
Term B loan with defined repayment schedule 81,889 Libor + 2.5%
Term C loan with defined repayment schedule 83,111 Libor + 3.0%
-----------
435,000
-----------
Mezzanine loan (subordinated to term loans) 53,000 Libor + 4.0% +
(maturing in December 2008) 4.7% Roll up
Mezzanine loan (subordinated to term loans) 32,000 Libor + 4.25% +
(maturing in December 2008) 4.7% Roll up
-----------
85,000
-----------
Shareholder's loan stock instrument (unsecured) 32,000 10% Roll-up
with defined repayment schedule starting after repay-
ment of mezzanine loans, earliest June 30, 2006
Other (including roll-up) 7,068 1.5% - 3.0%
-----------
559,068
===========
</TABLE>
The interest rates are cash interest rates, in general payable every
three months, if the borrower does not select another payment period.
The roll-up interest rate has to be capitalised annually and is
payable when the principal amount in respect of which it has accrued
is repaid. 3-months-Libor as at September 30, 1999 was 3.4%.
After taking account of interest rate derivatives signed in 1999, the
interest rate exposure of the borrowings of the Group will be as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-----------------
<S> <C>
Total borrowings:
- at fixed rates 457,068
- at floating rates 121,926
-----------------
578,994
=================
Weighted average effective interest rates:
- bank overdrafts 7.2%
- bank borrowings 6.9%
</TABLE>
The carrying amounts and fair values of certain non-current borrowings
are as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNTS FAIR VALUES
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
---------------------- ----------------------
<S> <C> <C>
Non-current bank borrowings 559,068 548,976
====================== ======================
</TABLE>
The fair values are based on discounted cash flows using a discount
rate based upon the borrowing rate which the directors expect would be
available to the Group at the balance sheet date. The carrying amounts
of short-term borrowings, approximate their fair value.
17
<PAGE>
<PAGE>
Maturity of non current borrowings:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-----------------
<S> <C>
Between 1 and 2 years 44,345
Between 2 and 5 years 132,949
Over 5 years 381,774
-----------------
559,068
=================
</TABLE>
BORROWING FACILITIES
The Group has the following undrawn committed borrowing facilities:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-----------------
<S> <C>
Floating rate
- expiring within one year -
- expiring beyond one year 70,000
-----------------
Fixed rate -
70,000
=================
</TABLE>
The term loans and mezzanine loans, which are subordinated to the term
loans, are secured by substantially all of the assets of the Group.
Depending on country specific regulations substantially all assets and
shares in consolidated companies have been pledged as security for the
credit facility where possible.
As part of the consideration for obtaining the mezzanine loans the
company issued 6,160 warrants to buy ordinary A shares for 90 Dutch
Guilders less an 86 Dutch Guilders administration fee. The company
valued these warrants upon issuance at TDM 18,673 and recorded such
amount in capital reserve and deferred debt financing costs
respectively. (see note 28)
Deferred debt financing costs are amortised over the life of the loans
to which they relate.
15 DEFERRED INCOME TAXES
Deferred income taxes are calculated on all temporary differences under
the liability method.
The movement on the deferred income tax account is as follows:
<TABLE>
<S> <C> <C>
AT JANUARY 1, 1999
Deferred tax assets 27,899
Deferred tax liabilities (55,526)
-----------
(27,627)
Deferred tax expense (Note 4) (4,887)
-----------
Deferred tax asset 23,336
Deferred tax liability (55,850)
-----------
AT SEPTEMBER 30, 1999 (32,514)
===========
</TABLE>
18
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-----------------
<S> <C>
DEFERRED TAX LIABILITIES
Property, plant and equipment (except land) 39,013
Inventory 1,770
Prepaid expenses, debt financing costs and other assets 8,138
Reversal of local untaxed reserves 4,718
Accrued expenses 2,211
-----------------
Total deferred tax liabilities 55,850
-----------------
DEFERRED TAX ASSETS
Property, plant and equipment 136
Inventory 1,820
Employee pensions and other benefits 6,589
Prepaid expenses and other assets 3,017
Accrued expenses 418
Deferred tax asset on net operating losses 8,279
Other 3,077
-----------------
Total deferred tax assets 23,336
-----------------
Net deferred tax liability 32,514
=================
</TABLE>
16 PENSIONS
Provisions for pension and similar obligations have been recorded for
the entities in Germany, Austria and Italy. In several other countries,
pension arrangements are administered by independent external trusts or
insurance companies. Amounts recognised in the balance sheet are:
SEPTEMBER 30,
1999
-----------------
Germany 19,096
Austria 14,901
Italy 5,706
-----------------
39,703
=================
19
<PAGE>
<PAGE>
In Germany the company has a defined benefit pension plan which covers
substantially all of its domestic employees. Plan benefits are generally
based on employees' years of service and compensation. Consistent with
normal business practice in Germany, the pension obligation is unfunded.
The components of net pension expense for the German pension plan for
the nine-month period ending September 30, 1999 are as follows:
<TABLE>
<S> <C>
Service costs 1,100
Interest cost on projected benefit obligation 593
-----------------
Net periodic pension cost 1,693
=================
<CAPTION>
SEPTEMBER 30,
1999
-----------------
<S> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation 17,534
-----------------
Defined benefit obligation 17,406
Unrecognised loss (515)
-----------------
Accrued pension liability 16,891
=================
Defined benefit obligation January 1, 1999 15,807
Pension expense 1,693
Benefits paid 73
Contribution received (167)
-----------------
Defined benefit obligation September 30, 1999 17,406
=================
</TABLE>
For 1999 the defined benefit obligation was determined using an assumed
discount rate of 6.5%, an assumed long-term rate of compensation
increase of 3.0% and a projected pension increase of 2.0%.
In addition, TDM 2,205 were accrued for other post-employment benefits
related to employees in Germany.
The German company also sponsors a defined contribution plan for its
employees and contributed TDM 144 to a legally separated pension fund
("Pensionskasse").
Accruals in Austria for pension, disability, death and involuntary
termination benefits as required by Austrian law have been determined
based on actuarial calculations using an assumed discount rate of 6.5%
and an assumed rate of compensation increase of 3.5%.
In Italy the company provides termination benefits to its employees in
accordance with legal requirements. The benefit is based on a percentage
of salary, plus an adjustment for inflation, and vest immediately.
Prior to December 31, 1998 the employees of the U.S. subsidiary
participated in a pension plan sponsored by Hoechst Celanese
Corporation. Beginning January 1, 1999 the employees may participate in
a defined contribution plan. The company made contributions of
approximately TDM 158 for the nine months ended September 30, 1999.
The employees in Spain are entitled to participate in a defined benefit
plan (employees who joined the company prior to October 31, 1987) and a
defined contribution plan (employees who joined the company after
November 1, 1987). The plans are administered by an external pension
fund and costs of TDM 406 are expensed as incurred.
20
<PAGE>
<PAGE>
17 OTHER PAYABLES
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-----------------
<S> <C>
Personnel related cost 5,687
Outstanding supplier invoices 5,760
Environmental liabilities 5,675
Warranty and claims 3,048
Rebates 3,292
Restructuring costs 1,682
Other 2,246
-----------------
27,390
=================
</TABLE>
PERSONNEL RELATED COST
Personnel related costs mainly refer to payroll liabilities such
as bonuses, vacation etc.
ENVIRONMENTAL LIABILITIES
Environmental liabilities relate mainly to the operations in
Germany and amount to DM 5.0 million in connection with clean up
costs for a waste deposit site.
WARRANTY AND CLAIMS
The amount refers to a claim made in respect of an alleged patent
infringement.
RESTRUCTURING
The accrued restructuring costs of TDM 1,682 are expected to be
paid out in the years 2000 and after.
OTHER
Other payables comprise provisions in respect of various legal
claims. The management believes that disclosure of further details
of these claims could seriously prejudice the Group's negotiating
position and accordingly further information on the nature of the
obligation has not been provided.
18 OTHER PROVISIONS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-----------------
<S> <C>
Interest expense preference shares (see note 22) 20,821
Environmental liabilities 11,725
Anniversary payments 5,418
Other 36,413
-----------------
74,377
=================
</TABLE>
The environmental provision relating to Germany amounts to DM 8.2
million and relates to probable obligations for clean-up if the
sites would be dismantled. The environmental provision relating
to Austria amounts to DM 3.5 million and was set up for the
restoration of underground water storage tanks. Payments in
connection with the water purification system are expected to be
made over a period of more than 10 years.
21
<PAGE>
<PAGE>
19 FINANCIAL INSTRUMENTS
i) OBJECTIVES AND SIGNIFICANT TERMS AND CONDITIONS
In order to manage the risks arising from fluctuations in
currency exchange rates and interest rates, the company and the
Group make or will make use of the following derivative financial
instruments:
FORWARD FOREIGN EXCHANGE CONTRACTS
Forward foreign exchange contracts are entered into to manage
exposure to fluctuations in foreign currency exchange rates on
specific transactions. At September 30, 1999 the open forward
contracts were not material to the Group's position.
INTEREST RATE DERIVATIVES
The Group has entered into an interest rate derivative contract
(Hedge) with a nominal amount of TDM 450,000 effective January
15, 1999 which matures at December 31, 2003, that entitles it to
receive interest at floating rates on notional principal amounts
and obliges it to pay interest at fixed rates on the same amounts.
The interest rate derivative allows the Group to raise long-term
borrowings at floating rates and swap them into fixed rates that
are lower than those available if it borrowed at fixed rates
directly. Under the interest rate derivative, the Group agrees
with the counter party to exchange, at specified intervals
(mainly semi-annually), the difference between fixed-rate and
floating-rate interest amounts calculated by reference to the
agreed notional principal amounts.
ii) CREDIT RISK
The company and the Group have no significant concentrations of
credit risk. Derivative instruments are entered into with, and
cash is placed with financial institutions.
20 CONTINGENCIES AND CONTINGENT LIABILITIES
At September 30, 1999 the Group had contingent liabilities in
respect of bank and other guarantees and other matters arising in
the ordinary course of business from which it is anticipated that
no material liabilities will arise for which appropriate accruals
have not been made.
21 COMMITMENTS
CAPITAL COMMITMENTS
Capital expenditures contracted for at the balance sheet date but
not recognised in the financial statements are as follows:
SEPTEMBER 30,
1999
-----------------
Property, plant and equipment 3,258
=================
22
<PAGE>
<PAGE>
OPERATING LEASE COMMITMENTS - WHERE A GROUP COMPANY IS THE LESSEE
The future minimum lease payments under non cancellable operating
leases are as follows:
SEPTEMBER 30,
1999
-----------------
Not later than 1 year 1,987
Later than 1 year and not later than 5 years 2,169
Later than 5 years 89
-----------------
4,245
=================
22 PREFERENCE SHARES (SEE NOTE 28)
SEPTEMBER 30,
1999
-----------------
Preference shares (authorised and issued
229,146 shares) 2
Premium on preference shares 263,874
-----------------
263,876
=================
On December 15, 1998 the company issued to the A-class
shareholders 38,191 class I preference shares, 38,191 class II
preference shares, 38,191 class III preference shares, 38,191
class IV preference shares, 38,191 class V preference shares and
38,191 class VI preference shares. The total nominal value of the
preference shares is TDM 2 (NLG '000 2.3) and a premium over
nominal value was paid in totalling TDM 263,874 (NLG '000 297,318).
The right of preference shareholders to receive dividends is set
at 10% per annum of the total amount paid in for the preference
shares, including the premium, totalling TDM 263,876 (NLG '000 297,320).
The accumulated unpaid dividend attributable to preference shareholders
as at September 30, 1999 amounted TDM 20,821 (NLG '000 23,460).
Under the terms of the Subscription and Shareholders' agreement
the preference shares are to be redeemed at various dates
beginning January 1, 2006 through July 1, 2008 and require
redemption upon other defined changes in the ownership of the
company. The redemption value is equal to nominal value of the
shares and their associated share premium reserve plus all
dividends in arrears and accrued interest thereon. If the
redemption is not permitted by law or the "Finance Documents" (the
documents which set forth the terms of the Term Loans) the company
is required to redeem such shares as soon as it is permitted to do
so. The company is accreting such shares to their redemption
value.
23
<PAGE>
<PAGE>
23 SHAREHOLDERS' EQUITY (DEFICIT) (See Note 28)
SEPTEMBER 30,
1999
-----------------
Share capital
Ordinary A shares par value 90 Dutch Guilders
(authorised 103,605; issued 97,445 shares) 7,784
Ordinary B shares par value 90 Dutch Guilders
(authorised 8,400; issued 6,888 shares) 512
-----------------
8,296
-----------------
Capital reserves
Premium on A shares 40
Premium on B shares 308
Warrants 18,673
-----------------
19,021
-----------------
Currency revaluation (3,197)
Accumulated deficit (52,418)
-----------------
(28,298)
=================
Ordinary A and B shares
924 B-shares reserved for management were issued and paid in during
the nine-month period ended September 30, 1999 in the amount of
TDM 36. A share premium was paid in on the newly issued B-shares of
TDM 74 (NLG '000 83). The A and B shareholders have the right to share
in dividend and other equity distributions according to the nominal
value of their shares, but only after the accumulated rights of the
preference shareholders have been satisfied.
The company has reserved 1,512 B shares for issuance to Management by
the board. In addition the company has reserved 6,160 A shares for
issuance in connection with the outstanding warrants.
24 MINORITY INTEREST
SEPTEMBER 30,
1999
-----------------
1,914
=================
The minority interest relates to the investment in Vianova Resins
Ltd., Bangkok, Thailand, where the Group had only 81% share at the
date of acquisition by Viking Resins Group Holdings B.V. The
remaining 19% were held by Bangkok Bank and affiliates. In order to
give the Thai operation a solid basis Group management decided to
increase the capital of the Thailand entity. The minority shareholder
did not take part in the capital increase which led to a reduction in
its stake to 4.15%. As a result of the contractual agreement
underlying the capital increase, it is not expected that Bangkok Bank
and affiliates will participate in the earnings of the Thailand
subsidiary for the foreseeable future.
24
<PAGE>
<PAGE>
25 RELATED PARTY TRANSACTIONS
The Group was formed by the purchase of the Vianova Resins business
and Group of companies from Hoechst AG with an effective date of
October 1, 1998. As at December 31, 1998 and for the period then
ended, ROPA Beteiligungsgesellschaft mbH ("ROPA") held a majority
stake in Viking Resins Group Holdings B.V. and was therefore the
immediate parent company. The ultimate parent company as at December
31, 1998 and for the period then ended was Deutsche Bank AG. On
January 6, 1999, ROPA entered into binding agreements to transfer
parts of its stake to funds managed by Morgan Grenfell Private Equity
Limited, a subsidiary of Deutsche Bank AG, and various other
investors. As from that date the shareholding of ROPA was reduced to
39.95%. (see note 29)
The following transactions were carried out with related parties:
i) LOAN AND FINANCING AGREEMENTS
SEPTEMBER 30,
1999
-----------------
Unsecured Shareholders' Loan stock instrument 32,000
-----------------
32,000
=================
With respect to the terms and conditions of the loans please refer to
note 14. No interest was paid for the loan stock instrument.
ii) OUTSTANDING BALANCES ARISING FROM BANK BORROWINGS - INTEREST
All amounts are paid on a timely basis. No outstanding balances are
material for the Group's position
iii) DIRECTORS' REMUNERATION
Tom Leader
Mark Weston
Helmut Strametz
Jurgen Reichhold
Total director's remuneration amounted to TDM 915.
25
<PAGE>
<PAGE>
26 BUSINESS HELD FOR SALE
On June 1, 1998 the company signed a secrecy agreement and on October
21, 1998 a letter of intent to sell the Printing Ink Resins business
to an interested party. It was intended to sell the business
(customer list including know how), fixed assets and inventories. The
workers council was informed about management's intention to sell the
business. Within the agreed timeframe the parties did not achieve a
definitive agreement. Management is now approaching other interested
parties.
The assets held for sale are comprising as followed:
SEPTEMBER 30,
1999
-----------------
Assets 14,461
Liabilities (953)
In the period up to September 30, 1999 the business has generated net
sales of TDM 29,994 and an operating loss of TDM (5,477). The net cash
flow amounted to TDM 1,233 and capital expenditures were TDM 190.
27 PRINCIPAL SUBSIDIARY UNDERTAKINGS
The entities included in the consolidated financial statements of the
Group as well as the percentage deemed owned either directly or
indirectly are:
Vianova Resins GmbH & Co. KG, Mainz Kastel, Germany 100.00%
Vianova Resins AG, Graz, Austria 100.00%
Vianova Resins S.A., Longvic, France 100.00%
Vianova Resins S.A., La Llagosta, Spain 100.00%
Vianova Resins A/S, Soborg, Denmark 100.00%
Vianova Resins Inc., Charlotte, U.S.A 100.00%
Vianova Resins Canada Inc., Montreal, Canada 100.00%
Vianova Resins S.p.A., Romano d'Ezzelino, Italy 100.00%
Viking Finance III B.V. (Netherlands) 100.00%
Erste Viking Resins Germany 1 GmbH (Germany) 100.00%
Zweite Viking Resins Germany 2 GmbH (Germany) 100.00%
Viking Resins Germany Holding GmbH & Co KG (Germany) 100.00%
Vianova Resins do Brazil Ltda., Sao Paulo, Brazil 100.00%
Vianova Resins Ltd., Hounslow, UK 100.00%
Vianova Resins Ltd., Bangkok, Thailand 95.85%
Vianova Resins N. V., Belgium 100.00%
Vianova Resins Germany Management GmbH (Germany) 100.00%
Vianova Resins EPE, Greece 99.00%
Vianova Resins Quimicas, Limitada, Portugal 100.00%
Diogenes 15. Vermogensverwaltungs GmbH 100.00%
Vianova Resins Ltd. Sti.; Sefakoy-Istanbul, Turkey 100.00%
Vianova Resins Ltd. Seoul, Korea 100.00%
In 1999 the Viking Resins Spain SA, Viking Resins Beteiligungsverwaltungs
AG, Austria and Viking Resins Italy S.p.A. were merged with the relating
Vianova company in the respective country. The Viking companies were
subsequently renamed Vianova Resins S.A., Spain, Vianova Resins AG,
Austria and Vianova Resins S.p.A. Italy. Furthermore, Policondensati
Vianova S.r.l., Italy was merged to the now called Vianova Resins S.p.A.,
Italy.
26
<PAGE>
<PAGE>
28 RESTATEMENT
The company has restated its 1998 consolidated financial statements
prepared in accordance with IAS to recognise the following items:
<TABLE>
<CAPTION>
Share Capital Capital Reserves Accumulated
Deficit
----------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1998 - AS PREVIOUSLY
REPORTED 8,262 264,148 (5,416)
Repayment term of preferences shares
(see note 22) (2) (263,874) (1,157)
Warrants issued in connection with
Loans (see note 14) - 18,673 (258)
Liabilities recognised - - (37,341)
----------------------------------------------------------------
DECEMBER 31, 1998 - AS RESTATED 8,260 18,947 (44,172)
================================================================
29 POST BALANCE SHEET EVENTS
Effective December 22, 1999 the shares of Viking Resins Group
Holdings B.V. were sold to Solutia Inc., St. Louis, Missouri/USA.
</TABLE>
27
