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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-14726
BENCKISER N.V.
(Exact name of Registrant as specified in its charter)
THE NETHERLANDS
(Jurisdiction of incorporation or organization)
World Trade Center, Amsterdam Airport, Tower C, Schiphol Boulevard 229,
1118 BH Schiphol Airport, The Netherlands
(Address of principal executive offices)
Securities registered or to be registered pursuant to
Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class B Common Shares, New York Stock Exchange
nominal value
NLG 1.00 each
Securities registered or to be registered pursuant to
Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None
The number of outstanding shares in the capital of Benckiser N.V.
as of December 31, 1998:
Class A Common Shares, nominal value NLG 1.00 39,064,630
Class A Common Shares, nominal value NLG 4.00 13,655,000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark which financial statement item the registrant has
elected to follow: Item 17 [ ] Item 18 [X]
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TABLE OF CONTENTS
Page
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Certain Definitions and Dollar Presentation................................. 3
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
United States Private Securities Litigation Reform Act of 1996........... 4
PART I
Item 1 Description of Business.......................................... 4
Item 2 Description of Property.......................................... 14
Item 3 Legal Proceedings................................................ 15
Item 4 Control of Registrant............................................ 15
Item 5 Nature of Trading Market......................................... 16
Item 6 Exchange Controls and Other Limitations Affecting Security
Holders.......................................................... 17
Item 7 Taxation......................................................... 18
Item 8 Selected Financial Data.......................................... 20
Item 9 Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 20
Item 9A Quantitative and Qualitative Disclosures about Market Risk....... 26
Item 10 Directors and Officers of Registrant............................. 26
Item 11 Compensation of Directors and Officers........................... 31
Item 12 Options to Purchase Securities from Registrant or Subsidiaries... 31
Item 13 Interest of Management in Certain Transactions................... 32
PART II
Item 14 Description of Securities to be Registered....................... 32
PART III
Item 15 Defaults upon Senior Securities.................................. 32
Item 16 Changes in Securities and Changes in Security for Registered
Securities....................................................... 32
PART IV
Item 17 Consolidated Financial Statements................................ 32
Item 18 Consolidated Financial Statements................................ 32
Item 19 Consolidated Financial Statements and Exhibits................... 32
Exhibit Index............................................................... 35
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CERTAIN DEFINITIONS AND DOLLAR PRESENTATION
Benckiser N.V. (the "Company") conducts its operations directly and
through its subsidiaries. The term "BNV" as used herein refers, unless the
context otherwise requires, to the Company and its consolidated subsidiaries
and predecessors. "JAB" means Joh. A Benckiser GmbH and its subsidiaries
(other than the Company).
The principal executive office of the Company is located at World Trade
Center, Amsterdam Airport, Tower C, Schiphol Boulevard 229, 1118 BH Schiphol
Airport, The Netherlands, and its telephone number is (31 20) 405 7555.
The Company publishes its consolidated financial statements in Dutch
guilders, the currency of the Netherlands. In this annual report on Form 20-F,
references to "Dutch guilders" and "NLG" are to the currency of the
Netherlands, and references to "U.S. dollars," "$" or "(cent)" are to the
currency of the United States, and references to "Euro" and "EUR" are to the
currency of the European Monetary Union ("EMU"). Unless otherwise indicated,
solely for the convenience of the reader, this annual report on Form 20-F
contains translations of certain Dutch guilder amounts into U.S. dollar and
Euro amounts. The translations of Dutch guilder amounts into U.S. dollar
amounts have been at $1.00 = NLG 1.8888, the noon buying rate in The City of
New York for cable transfers in Dutch guilders as certified for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") on
December 31, 1998. See "Item 8: Selected Financial Data--Exchange Rate
Information" for information regarding the Noon Buying Rate from January 1,
1994 through April 29, 1999. On April 29, 1999, the Noon Buying Rate was $1.00
= NLG 2.08. These translations should not be construed as representations that
the Dutch guilder amounts actually represent such U.S. dollar amounts or could
have been or could be converted into U.S. dollars at the rates indicated or at
any other rates. The transactions of Dutch Guilder amounts into Euro amounts
have been at EUR 1.00 = NLG 2.20371, the permanently fixed rate against the
Euro on December 31, 1998.
Various amounts and percentages set out in this annual report on Form
20-F have been rounded and accordingly may not total.
Certain information in this annual report on Form 20-F has been presented
separately for certain geographic areas. As used herein, (i) "Western Europe"
refers to Austria, Belgium, Denmark, Finland, France, Germany, Greece, Israel,
Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the
United Kingdom, (ii) "North America" refers to Canada and the United States
and (iii) the "Rest of the World" refers to the other countries and areas in
which the Company currently conducts business: Australia, Belorussia, the
People's Republic of China ("China"), Croatia, the Czech Republic, Dubai,
Estonia, Hungary, Japan, Latvia, Lithuania (together with Estonia and Latvia,
the "Baltics"), New Zealand, Poland, Romania, Russia, the Slovak Republic,
Slovenia, Turkey, Ukraine and Yugoslavia. In addition, as used herein,
"measured worldwide market" refers to all countries with respect to which
Nielsen information (as defined below) is available.
Unless otherwise indicated, certain information contained herein with
respect to North America, Western Europe and certain other markets in the rest
of the world of the mass-market channel of distribution in the household
detergents and cleaning products industry, including market share and brand
rank, has been derived from information compiled by A.C. Nielsen Company and
its affiliates ("Nielsen"). Nielsen measures retail sales volumes and value
shares of household detergents and cleaning products sold in the mass-market
as defined by the following channels of distribution: hypermarkets,
supermarkets, independent and chain stores, mass-volume merchandisers, food
stores and food/drug combinations. Nielsen bases its data on statistical
compilations of reported sales. All such market data is subject to some degree
of variance.
Finish, Electrasol, Jet Dry, Vanish, Cillit and Dosia are trademarks of
the Company. The Company has an exclusive right to use the Calgonit and Calgon
trademarks in the household cleaning products business in most markets. All
other product names, trade names and trademarks referred to in this annual
report on Form 20-F are
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the property of the Company or one of its affiliates or subsidiaries or are
the subject of an exclusive license by the Company.
In this annual report on Form 20-F, the term "Class B Common Shares"
refers to the Class B Common Shares of the Company, nominal value NLG 1 per
share, and the term "Class A Common Shares" refers to the Class A Common
Shares of the Company, nominal value NLG 4 per share. The term "Common Shares"
refers to the Class B Common Shares together with the Class A Common Shares.
Specific portions of the Company's Annual Report 1998 to Shareholders are
incorporated by reference in this report on Form 20-F to the extent noted
herein.
The Company is subject to the informational requirements of the U.S.
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files, reports and other information with the U.S.
Securities and Exchange Commission (the "Commission"). Reports and other
information filed by the Company are available for inspection and copying at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, DC 20549, and at the Regional Offices of the
Commission located at Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2551 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material are also available by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20459, at prescribed rates. In addition, such material may also
be inspected and copied at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005, on which the Company's Class B
Common Shares are listed.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report contains forward looking statements within the meaning of
the U.S. Private Securities Litigation Reform Act of 1995. These forward
looking statements are not guarantees of Benckiser's future operational or
financial performance and are subject to risks and uncertainties. The forward
looking statements refer to, among other things, predictions of future net
revenues, estimate of exposure to currency fluctuations, estimates of cost
savings as a result of ongoing restructuring, predictions of capital
expenditures and sufficiency of cash flows and credit facilities to meet
working capital, capital expenditure and debt requirements for fiscal year
1998 and the Company's view of the impact of the Year 2000 and the
introduction of the Euro on its operations. Actual operational and financial
results may differ from the Company's expectations contained in the forward
looking statements as a result of various factors, many of which are beyond
the control of the Company. These factors include competition from competitors
with substantially greater resources than the Company, changes in the
political or economic conditions of the countries in which the Company
operates, changes in Dutch or other applicable tax legislation or similar laws
or regulations and fluctuations of currencies against the Dutch guilder. For a
discussion of these and other factors which may have a material impact upon
Benckiser's financial conditions, results of operation and liquidity, see Item
1 "Description of Business -- Certain Factors Which May Affect The Business"
and Item 9 "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
ITEM 1. DESCRIPTION OF BUSINESS
REORGANIZATION OF THE COMPANY
The Company evolved from Joh. A. Benckiser GmbH and its subsidiaries
(JAB) origins as a producer of specialty chemicals. The Household Products
division of JAB introduced its first product--Calgon, a water softener--in
1956. In the following years, new household cleaning products under brand
names such as Calgonit and Quanto were introduced in countries throughout
Europe. In the 1980s, JAB sought to establish itself as an industry leader in
household detergents and cleaning agents and to divest itself of other
industrial interests. Over 10
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years beginning in 1982, the Household Products division grew rapidly, as JAB
acquired 18 companies in 11 countries throughout key worldwide markets,
including the 1985 acquisition of St. Marc in France and the 1987 acquisition
of Ecolab's worldwide consumer business. In 1988, JAB bought Mira Lanza Spa
and Panigal Spa in Italy; in 1989, JAB bought S.A. Camp in Spain. Beginning in
1990, JAB also made several acquisitions in the cosmetics business. Over the
same period, JAB divested itself of substantially all of its non-household
cleaning product and non-cosmetics businesses. Upon consolidation of its core
businesses in household cleaning product and cosmetics industries, JAB began
focusing on the organic growth of its core product categories and regional
expansion into emerging markets through the application of its accumulated
experience and the use of its established operational platform. Within this
decade the Household Products division entered the emerging markets of Eastern
Europe and China through acquisitions (as in Poland), a majority-held joint
venture (in China) and newly built operations (as in the Czech and Slovak
Republics, Russia and Hungary, among others).
In 1996, the Board of Directors of JAB approved a plan to divide its
business into a separate household cleaning products subsidiary, the Company,
and a separate cosmetics subsidiary, Coty Inc. ("Coty"), in an effort to
improve the profitability of each of those businesses by making them more
streamlined and focused. As part of the reorganization, JAB and JAB
Investments B.V., an affiliated company of JAB, transferred all of their
operating companies that engage in the household cleaning products business to
the Company. In exchange for this transfer of operating companies, the Company
conveyed 13,655,000 Class A Common Shares and 38,345,000 Class B Common Shares
to JAB Investments B.V.
The change in organization (the "Reorganization") effected a transfer of
the worldwide household cleaning products operations of JAB and its
subsidiaries to the Company. In connection with the Reorganization, the
Company's corporate headquarters were moved to Amsterdam, the Netherlands from
Ludwigshafen, Germany in July 1997.
On November 24, 1997 the Company completed an initial public offering of
Class B Common Shares. The Class B Common Shares were listed on the New York
Stock Exchange (the "NYSE") under the symbol "BNV" and the Official Market of
AEX-Effectenbeurs N.V. (the "Amsterdam Stock Exchange") under the symbol "BNV"
at that time. As of December 31, 1998 JAB has ownership, directly or
indirectly, of 100% of the Company's Class A Common Shares and 43.8 % of the
Company's Class B Common Shares. See Item 1 "Description of Business--Certain
Factors Which May Affect The Business--Control by JAB".
The Company's Consolidated Financial Statements reflect the effects of
the Reorganization. The Consolidated Financial Statements and the selected
financial data for each year up to through June 30, 1997, have been presented
as if the Company had existed for all periods presented with the same net debt
structure as was actually created as at June 30, 1997 and reflect the costs of
conducting the business of the Company on a stand-alone basis. The
Consolidated Financial Statements have been presented as if in each year
presented up to through June 30, 1997 the Company distributed to JAB amounts
necessary to keep net indebtedness constant throughout the periods, which may
result in changes in equity that could be higher than the distribution of the
respective year's net income (as shown in the Consolidated Financial
Statements) adjusted for, among other things, foreign currency translations.
The Consolidated Financial Statements for each year presented up to June 30,
1997 also reflect: (i) JAB's sale or contribution of subsidiaries and
trademarks as well as the pushdown of corporate headquarter expenses, (ii)
debt resulting from the Reorganization, (iii) interest expenses on that debt
as well as any interest income earned on financial investments applicable for
such years, both at the Company's average actual interest rates, and (iv)
taxation as if the Company existed as a separate corporate Dutch taxpayer. See
Note 1 of the Notes to the Consolidated Financial Statements included in Item
18.
BUSINESS
The Company is one of the world's leading manufacturers and marketers of
household detergents and cleaning agents. The Company operates on an
international basis, selling a wide variety of branded products in over 45
countries. Approximately three quarters of the Company's 1998 net revenues in
the Company's four principal
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product categories were generated by products that were either market leaders
or ranked second in their markets. The Company's four principal product
categories fall into one of two different classes--premium (which consists of
dishwashing products, laundry additives and home cleaning products) and value
(which consists primarily of laundry detergents products). The Company had net
revenues of approximately NLG 3.9 billion ($ 2.0 billion) in 1998, of which
approximately 69 % was generated from premium product categories
(approximately 33 % from dishwashing products, approximately 27 % from laundry
additives and approximately 9 % from home cleaning products) and approximately
24 % was generated from laundry detergents products. In 1998, approximately 67
% of the Company's net revenues and 103 % of the Company's operating income,
was generated in Western Europe, 15 % and 0 %, respectively, in North America,
and 18 % and 1 %, respectively, in the rest of the world. The largest
countries by net revenues in Western Europe are, in order of magnitude, Italy,
Spain, Germany, France and the United Kingdom, which, on a combined basis,
represented approximately 85 % of the Company's net revenues in Western Europe
in 1998.
The Company operates 19 manufacturing facilities in 15 countries on four
continents: Europe, North America, Australia and Asia. The Company sells its
products in over 45 countries worldwide almost exclusively through its own
sales force, which constituted 1,138 of the Company's 5,487 employees as of
December 31, 1998. The Company distributes its products primarily to
mass-market retailers. The Company's principal mass-market retailers include
hypermarkets, supermarkets, independent drug stores, chain drug stores and
combination supermarket/drugstores, such as Promodes, Carrefour, Metro, Rewe
and Tesco in Western Europe and Wal-Mart and Kroger in North America.
The Company's net revenues increased from NLG 3.0 billion in 1996 to NLG
3.9 billion in 1998, while its net earnings increased from NLG 164.9 million
to NLG 239.7 million. The Company's improved performance can be attributed to
its focus on (i) establishing leading positions in growing, premium niche
product categories, (ii) expanding market share in these growing categories
through technological innovations, and (iii) entering new geographies.
The household cleaning products industry includes laundry detergents
products, laundry additives, dishwashing products and home cleaners. Household
cleaning products can be characterized as premium or value products.
Premium products are those which are among the price leaders in their
product category and typically feature relatively high margins. Premium
products typically require significant technological support, through
continuous product innovations, and marketing support in order to increase and
maintain market share. Premium products are frequently offered by the Company
in niche categories, which are generally smaller and more specialized than
mass market categories.
Value products consist of products that provide good quality at a lower
price. Specifically, the Company defines value products in the laundry
detergents category as those products priced at a 15% or more discount to the
price leader in a given market. Value products also require significant
marketing support, but are not innovation products. Rather, the success of
value products depends on providing good quality (utilizing current
technology) at a low price.
Strategy
The Company is focused on the continued development, profitability and
growth of its household cleaning products business worldwide. The Company
intends to accomplish these goals by (i) narrowly focusing on household
cleaning products; (ii) building on our leading positions in our core
categories and consistently working on strengthening these positions; (iii)
striving for profitable growth by focusing on our high growth premium niche
categories, developing innovative products and expanding into new markets;
(iv) continuously looking to optimize our supply chain to enhance our margins;
(v) maintaining and strengthening our critical advantage - our people, our
unique values, and our incentive systems; and (vi) participating pro-actively
in long-term industry consolidation.
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Products
For a description of the Company's products, see pages 12 to 17 of the
1998 Annual Report to Shareholders incorporated herein by reference.
Raw Materials
The principal raw materials used in the manufacture of the Company's
products are phosphates, perborates, surfactants, sodium carbonates, zeolites,
sulphates, enzymes, fragrances and silicates. The Company also purchases
packaging materials such as bottles, folding boxes, outer cases and plastic
foil from various suppliers. The Company employs a two level purchasing
structure. At the corporate level, the purchasing department seeks economies
of scale and regular sourcing by negotiating group contracts for strategic raw
materials. The Company also maintains a local purchasing function in order to
take advantage of opportunities to purchase low price raw materials as they
arise. The Company believes that an adequate supply of raw materials and
packaging materials is generally available and does not believe that the loss
of any one supplier would have a material adverse effect on the business or
results of operations of the Company.
In general, the Company's philosophy is to purchase its raw materials
from a variety of outside suppliers. The Company does purchase certain raw
materials from single suppliers, including certain raw materials that are made
to the Company's specifications. In case of a disruption in the supply of any
of these raw materials, the Company believes that it could switch to another
supplier or use a substitute raw material. The Company does not anticipate
that a disruption in the supply of these raw materials would have an adverse
impact on the business or results of operations of the Company.
The raw materials with the most significant impact on the Company's costs
are phosphates, perborates, fragrances, surfactants, enzymes and zeolites.
Fluctuations in the prices of these raw materials can occur as a result of
fluctuations in the competitive market, a concentration of supply,
fluctuations in the availability of basic materials and currency fluctuations.
Packaging materials also have a significant impact on the Company's costs. The
Company believes that in the long term it can generally reflect increases in
the prices of its raw materials and packaging materials in its price to
consumers without suffering a material adverse effect on its business or
results of operations. Rapid changes in raw material or packaging material
prices, however, have in the past and may in the future adversely affect the
results of operations of the Company in the short term.
Manufacturing
The Company's manufacturing facilities include 19 plants in 15 countries
on four continents: Europe, North America, Australia and Asia. Principal plant
facilities are located in Spain, Italy, Germany, Poland, the United States and
China. These plants are primarily engaged in the production of ADW products,
water softeners, laundry detergents, fabric softeners and fatty acids. Fabric
treatment products are produced in Italy, Spain, Poland and Turkey. Production
facilities focusing on household cleaning products are located in France,
Australia, Poland and Turkey. The Company contracts with outside manufacturers
for the production of a limited number of its products, such as Electrasol
powders and gels in the United States.
The Company has a mix of centralized and local production facilities. The
Company's capital intensive products are produced at its larger factories
where the technology for such production is available. These factories are
located in Germany, Spain, Italy, Poland, the United States and China, all of
which are central to relevant markets for ease of distribution. The Company's
less capital intensive products, such as liquids, are produced in local
factories located in the Company's main markets for such products. The Company
believes that its mix of local and centralized manufacturing facilities allows
the Company to focus on local requirements while being cost efficient in both
its manufacturing and distribution.
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The Company believes its manufacturing facilities are adequate to meet
current demand. For most products, the Company has several manufacturing
locations and, in case of any production problems at one factory, production
could be switched to another factory. With the exception of tablets and
laundry detergent powders, the Company also believes that it could make
arrangements with contract manufacturers for the production of most of its
products in order to ensure a ready supply of such products in case of a
problem with production capacity at its current facilities.
Distribution and Sales
The Company distributes its products in over 45 countries. The Company's
goal is to achieve a maximum weighted distribution for each of its product
categories by focusing its sales efforts on mass-market retailers worldwide,
almost exclusively through its own sales force. The Company's principal
mass-market retailers include hypermarkets, supermarkets, independent drug
stores, chain drug stores and combination supermarket/drugstores, such as
Promodes, Carrefour, Metro, Rewe and Tesco in Western Europe and Wal-Mart and
Kroger in North America. In 1998, no one retailer accounted for more than 5%
of the Company's net revenues. The Company's sales philosophy is to manage all
key retail accounts directly through its own sales force, thereby fostering a
close partnership. In countries such as the United States, Spain and Germany,
the Company also hires merchandisers to stock outlets.
The Company also distributes some of its products under the private
labels of certain customers. Private label sales are managed and sold from a
separate marketing and sales organization, Propack Europe.
At December 31, 1998, the Company employed 1,138 people in its sales
force worldwide. The Company maintains a sales force in each location where
its products are sold with the exception of Israel, Canada, Scandinavia,
Turkey and certain countries in the Middle East and Africa.
Distribution of the Company's products is largely decentralized. The
Company maintains one central warehouse in each country in which the Company
has an affiliate for the sale of its products, from which the Company ships
products throughout that country. In a few large countries the Company also
uses regional warehouses. Outside carriers are used to transport products. The
Company employs state of the art systems to help track and reduce distribution
costs.
In the future, the Company expects a further concentration and possible
international expansion of the retail trade. The Company continues to develop
international systems and guidelines to be used throughout the Company's
organization.
Company Organization
The Company's management structure is decentralized with profit
responsibility residing with individual country units. The Company employs a
matrix system of management pursuant to which it divides management of the
Company's operations by both geographic region and by product category. In
each country in which it operates, the Company's operations are organized as
separate entities, each of which is responsible for the marketing, sales,
distribution and, if applicable, production aspects of the business in that
country. The Company's operations are also managed based on product category.
Each product category is overseen by a category director who is responsible
for coordination of the Company's marketing, research and development, sales
and distribution of the products in the particular product category, across
all of the countries in which such products are sold. The category directors
work closely with each other and with the country managers in an effort to
ensure the quality, consistency and efficiency of the Company's manufacturing,
marketing, research and development and distribution process worldwide. The
Company's manufacturing operations are overseen by a team of operations
managers, led by the Executive Vice President, Operations, who coordinates
overall production operations and manages the Company's manufacturing
capacity.
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Marketing
The Company applies a significant portion of its revenues to the
advertising of its products. In 1996, 1997 and 1998 the Company spent
approximately NLG 236.8 million, NLG 352.2 million and NLG 393.3 million
respectively, on advertising. As a percentage of net revenues, amounts spent
on advertising represented 8 % in 1996, 10 % in 1997 and 10 % in 1998. As a
percentage of net revenues, excluding revenues attributable to private label
brands and fatty acids which are not advertised, amounts spent on advertising
represented 9 % in 1996, 11 % in 1997 and 12 % in 1998. The Company believes
that such expenditures are necessary to maintain and increase market share in
an industry highly dependent on product image and quality. Furthermore, the
Company believes that advertising creates the consumer brand awareness and
loyalty that is required to support existing brand franchises and to introduce
new products.
The Company's main advertising medium is television, the broad reach of
which makes it the medium most capable of effectively delivering the Company's
messages to consumers. The Company creates international marketing concepts
for most of its products. The Company has selected a group of local
advertising partners through whom the Company customizes its international
advertising concepts for local markets.
The Company also uses coupons, samples and other promotional items as
additional marketing support whenever it has been shown, in the Company's
experience, to create value. Regular product and product packaging
improvements also form part of the Company's marketing strategy. To support
its marketing activities, the Company works with third parties to obtain
regular marketing studies on brand performance and consumer perception. The
Company also cooperates with producers of "white goods" and tableware
manufacturers through product recommendations, provision of samples and
development of joint research and marketing plans, all of which improve the
Company's ability to develop and position its products.
Along with marketing directly to consumers, the Company engages in
marketing programs, such as discount programs, focused on the retail trade,
which the Company believes results in favourable shelf positioning and space
for its products as well as store promotion of its products. The Company works
closely with the retail trade and is often invited by the retail trade to make
proposals for the in-store management of an entire product category. In these
circumstances, the Company suggests the various products and price ranges that
should be carried by a given retailer, the placement of products and the store
promotions that should be instituted in order for the retailer to optimize its
revenues and earnings structure.
The Company's marketing expenditures are not impacted significantly by
seasonality.
Research and Development
The Company's research and development ("R&D") operations focus on
product application; basic research is contracted to research laboratories or
suppliers. The Company's R&D philosophy is "globally local." Pursuant to this
philosophy, the Company develops new international products and marketing
concepts which it can then introduce into its markets worldwide, with
appropriate local adaptations. The "globally local" philosophy allows the
Company to spread the R&D and advertising costs associated with the creation
and marketing of an international product over the broader collection of local
products.
The Company has two main R&D centers, one in Italy and one in Germany,
which focus on the development of international products, processes and
technology. These international products are then customized according to
local consumer needs. The R&D division of the Company is currently being
reorganized. The Company expects the reorganization to result in increased
effectiveness in product development and an increased number of personnel
involved in such development.
In addition to the two main R&D centers, the Company has six satellite
centers, one in the United States, one in China and four in Europe.
Approximately 150 employees conduct in-house research and development. The
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Company's R&D expenditures totaled approximately NLG 21.6 million, NLG 25.1
million and NLG 27.7 million for 1996, 1997 and 1998 respectively, and are
expected to total approximately NLG 34.5 million for 1999. The Company's R&D
expenditures were approximately 0.7% of overall net revenues for each of the
last three years. Approximately 65% of the R&D budget is spent on human
resources and 35% on equipment and other expenses.
The Company uses modern consumer research tools in its development of new
products. The Company relies on industry and other sources, various attitude
and usage studies prepared by independent marketing firms (including Nielsen)
on behalf of the Company, and direct sales information from its largest
customers to identify consumer needs and anticipate shifts in consumer
preferences, allowing the company to develop line extensions and new products
to meet changing demands.
A dedicated group of ten managers within the R&D division work closely
with the "white goods" and tableware industries to facilitate the development
of new products. The white goods industry consists of manufacturers of
appliances, such as automatic dishwashing machines and washing machines.
The Company has developed strong ties with leading white goods and
tableware manufacturers on a worldwide basis and cooperates with such
manufacturers in product recommendation and sampling, the exchange of
technology and marketing information, development of joint consumer research
projects, training programs and strategic planning.
Competition
The Company competes primarily on the basis of brand equity, brand
advertising, product performance, and product quality at competitive retail
price points. The household cleaning products industry is characterized by
intense competition throughout the world.
Trademarks, Patents and Licensing Arrangements
All of the Company's brand name products are protected by national or
international registered trademarks in the markets in which they are sold. The
Company or its operating subsidiaries own most of the trademarks that they
use. Where the Company or its operating subsidiaries do not have outright
ownership of their trademarks, they have rights to such trademarks through
licensing agreements that are exclusive in nature, with certain limited
exceptions. The Company's major trademarks, owned or licensed, include the
brand names Calgonit, Finish, Electrasol, Jet Dry, Calgon, Vanish, Cillit and
Dosia. See Item 4 "Control of Registrant--Relationship with JAB and JAB
Investments B.V." for a discussion of license agreements with respect to
certain key trademarks used by the Company.
The Company maintains patents for the protection of significant product
formulation and processing methods. The primary patents relate to ADW tablets
(for the Calgonit, Finish and Electrasol brands), water softener tablets (for
the Calgon brand), formulations for hard surface cleaners (for the Cillit
brand) and dishwashing detergents. The Company's trademarks, patents and
licenses are critical to the Company's business and the Company aggressively
monitors and pursues any apparent infringements.
Consumer Safety and Environment
The Company's operations and products are subject to numerous laws and
regulations designed to protect consumer safety, health and the environment in
the countries in which the Company operates. The scope and stringency of such
laws vary according to the jurisdiction concerned.
The environmental laws and regulations to which the Company is subject
include, among other things, those relating to air emissions, wastewater
discharges, the use, handling, transportation and disposal of hazardous
materials, the investigation and remediation of soil and groundwater
contamination and employee health and safety.
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Violators of environmental laws may be subject to civil or criminal penalties,
impositions of surcharges, injunctions and third party lawsuits to enforce
compliance and may be required to install pollution control equipment or other
facility improvements or curtail operations. The Company's operations in the
United States are subject to certain environmental remediation laws, such as
the U.S. federal "Superfund" law, which can impose joint and several liability
for site clean-up, regardless of fault, upon certain statutory categories of
parties, including companies that sent wastes offsite for disposal and current
owners and operators of property.
The Company's anticipated environmental compliance and related capital
expenditures for 1999 and 2000 are approximately NLG 12 million and NLG 13
million, respectively. In many jurisdictions, environmental requirements may
become more stringent in the future or may be enforced more strictly, which
could affect the Company's ability to obtain or maintain necessary
authorizations and approvals or result in increased environmental compliance
costs. While management does not believe that environmental compliance or
remedial requirements are likely to have a material adverse effect on the
Company, there can be no assurance that future environmental compliance or
remedial obligations will not arise in connection with the Company's
operations and that such obligations could not have a material adverse effect
on the Company's business, financial condition or results of operations.
Employees
As of December 31, 1998 the Company employed 5,487 employees worldwide,
of whom 2,809 were employed in Western Europe, 423 in North America and 2,255
in the rest of the world. Of the total number of employees, 747 are
administrative employees, 1,138 are in sales, 2,935 are in manufacturing, 233
are in distribution, 282 are in marketing and 152 are in research and
development. Of its 5,487 employees, 238 employees are hired on a temporary
basis.
In accordance with Western European practices, most of the Company's
Western European factory workers belong to chemical industry unions while the
Company is a part of local chemical industry employer organizations.
Generally, in Western European companies affiliated with an employer's
organization and consequently party to collective bargaining agreements, wages
and general working conditions are initially negotiated in collective
bargaining at the national level between the central employees' association
and the central labor union associations within each branch of industry;
thereafter, depending on local rules and regulation, each employer and its
labor union associations may negotiate within the limits set out in the
national agreements. At its manufacturing facility in the United States, the
Company's factory workers are represented by the Oil, Chemical and Atomic
Workers International Union. The Company has entered into a collective
bargaining agreement with its factory workers in the United States which
agreement expires in 2001. The Company believes its relationship with its
employees is satisfactory. The Company has not encountered a strike or
material work stoppage in any country in which it has a significant number of
employees.
CERTAIN FACTORS WHICH MAY AFFECT THE BUSINESS
Competition
The household cleaning products industry is characterized by intense
competition throughout the world. The Company competes with numerous,
well-established local, regional, national and international companies, some
of which are very large and aggressively establish and defend their products,
market shares and brands. The principal competitors of the Company include
large, international consumer products companies such as Procter & Gamble,
Unilever, Colgate Palmolive, Reckitt & Colman and Clorox, as well as small
local competitors. A number of such existing and potential competitors have
substantially greater resources than the Company. To reduce the impact of
competitive pressures, the Company seeks to operate in sections of the market,
such as premium niche cleaning products, which are not the primary focus of
certain other major international household cleaning manufacturers;
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<PAGE>
however, such companies have challenged and may continue to challenge the
Company in the future. Such future competition may have a significant impact
on the Company's future sales volumes and margins.
Most of the Company's products compete with other nationally advertised
brands and with private label brands and generic non-branded products of
retail chains and wholesale cooperatives. Competition is particularly intense
in laundry detergents in Western Europe, which is the most important region
for the Company in this product category. In addition, in certain markets
competition for the Company's products from private label brands has
increased, and this trend is expected to continue. Generally, the nature of
competition is such that price increases are difficult to sustain in what is
typically a volume-driven business.
The Company's ability to compete effectively, particularly in markets
where the Company sells premium products, depends to a significant degree on
its ability to introduce new products (whether improved or newly developed).
Such introductions usually require substantial expenditures for advertising
and sales promotion. Failure to introduce new products and gain acceptance
thereof may significantly impact the Company's results of operations.
The Company has encountered in the past, and is likely to encounter in
the future, competitive challenges to its leadership position in certain
markets. Defense of such positions has normally required significant marketing
expenditure and promotional activity. Defense of future challenges and any
loss of market leadership position could have a material adverse effect on the
Company's business and results of operations.
Operations in Emerging and Other Foreign Markets
The Company operates on an international basis, with operations currently
in approximately 25 countries and sales in over 45 countries. Risks inherent
in foreign operations include changes in social, political and economic
conditions. Furthermore, the Company is pursuing a strategy of expansion into
potentially high growth emerging markets, primarily in Eastern Europe and
Asia. Such efforts generally entail significant start-up costs associated with
establishing brand equity, sales and finance organizations and manufacturing
operations. Operations in emerging markets expose the Company to certain
additional risks, including product price volatility, tax liabilities,
government regulations, partner and distributor relationships, political
instability, local economic conditions (including high and generally
unpredictable levels of inflation) and local labor conditions.
Governments in certain emerging markets have exercised and continue to
exercise substantial influence over many aspects of their economies. Such
governments have, in certain circumstances, imposed various policies designed
to manage their economies which have affected the Company's operations. In
certain circumstances, government-imposed quotas and import tariffs have
significantly limited the ability of the Company to export certain of its
products into those countries and have led to establishment of manufacturing
operations in certain of those countries. Future Government actions could have
a significant effect on economic conditions and the demand for the Company's
products in emerging markets. Variations in economic conditions could
influence the demand and prices received for the Company's products and,
accordingly, the results from its operations in those markets.
Exposure to Currency Fluctuations
Currency fluctuations have in the past had, and may in the future have, a
significant effect on the Company's consolidated financial statements. The
Company's consolidated financial statements, which are presented in Dutch
guilders, are impacted primarily by translation risk, the risk that the
consolidated financial statements of the Company for a particular period or as
of a certain date are affected by changes in the prevailing exchange rates of
the various currencies in which its assets and liabilities are denominated
against the Dutch guilder. Generally, a weakening of the Dutch guilder against
other currencies has tended to affect reported operating results positively,
and a strengthening of the Dutch guilder against other currencies has tended
to affect reported operating results negatively. Even though fluctuations of
currencies against the Dutch guilder can be substantial and therefore
significantly impact comparisons with prior periods, translation impact is a
reporting consideration at the
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consolidated level and does not affect the underlying results of operations of
the Company's operating subsidiaries. The Company does hedge against certain
intercompany financial exposure from time to time. See Item 9 "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Currency Fluctuations" for a discussion of the Company's hedging
policies and practices.
Euro
On January 1, 1999, The Netherlands together with certain other member
countries of the European Union adopted the Euro ("EUR") as their new common
currency. The Dutch guilder will also remain as legal tender for a transition
period of three years until January 1, 2002. During this period the Euro will
not be usable for cash payments, but can be used for non-cash electronic money
transfers between the Company and its business partners. During 1998, the
Company commenced a process to identify areas in its information systems that
need to be modified in order to handle the Euro adequately. As of December 31,
1998, the Company had upgraded its systems to be capable of handling business
transactions denominated in Euros. Furthermore, the Company is investigating
the potential impact on product pricing, human resources (i.e. payroll,
pensions), contracts and other legal matters. Although the Company does not
expect that the introduction of the Euro will have a material adverse effect
on the Company's results of operations, cash flow or financial condition it
will continue to monitor closely developments with respect to the introduction
of the Euro.
The internal reporting currency for the Company, will remain the Dutch
guilder equivalent of the Euro for 1999. For external reporting purposes, the
Company will translate the Dutch guilder amounts into Euros using the fixed
exchange rate of EUR 1.00 to NLG 2.20371 starting from 1999. For its annual
report 1998 the Company has provided convenience translations into Euros.
Lack of Operating History as a Stand-Alone Company
Although the Company has been a major participant in the household
cleaning products industry since 1982, the Company has not operated as a
stand-alone or public company prior to the initial public offering of the
Company on November 24, 1997 (the "Offering"). Since 1990, JAB, has also
participated in the cosmetics industry through its wholly-owned subsidiary,
Coty. The Company's historical financial data, therefore, reflect periods
during which the Company did not operate as an independent company and certain
allocations were made between the two primary operations of JAB in preparing
such financial data.
Control by JAB
As of December 31, 1998, JAB owns, directly or indirectly, 100% of the
outstanding ClassA Common Shares of the Company (which ClassA Common Shares
are entitled to four votes per share on any matter submitted to a vote of the
Company's General Meeting of Shareholders) and 43.8 % of the Company's
outstanding Class B Common Shares (Class B Common Shares are entitled to one
vote per share), which together will represent approximately 76.6 % of the
combined voting power of all classes of the Company's voting stock. Although
JAB intends to utilize its voting power to elect a majority of independent
members of the Supervisory Board of the Company and no member of the
Management Board can be a member of the Supervisory Board under Dutch law, the
Articles of Association of the Company do not restrict JAB's rights as a
shareholder of the Company to nominate and elect a full Supervisory Board of
its choosing or to vote for or against any nominees. As a result, JAB will
have the power to determine all matters submitted to a vote of the Company's
General Meeting of Shareholders without the consent of the Company's other
shareholders, will have the power to prevent a change of control of the
Company and could take other actions that might be favourable to JAB at the
expense of minority shareholders. Control by JAB may discourage certain types
of transactions involving an actual or potential change of control of the
Company, including transactions in which the holders of Class B Common Shares
might receive a premium for their shares over prevailing market prices. JAB
has advised the Company that its current intention is to continue to hold all
of the ClassA Common Shares owned by it. Except as disclosed herein, the
Company does not intend to enter into transactions with JAB or affiliates
thereof. If the Company enters into additional transactions
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<PAGE>
with JAB or affiliates thereof in the future, they are expected to be on an
arm's length basis and subject to evaluation and approval by members of the
Supervisory Board who are unrelated to the Selling Shareholder or JAB,
pursuant to the Company's internal governance rules. See Item 4 "Control of
Registrant."
Environmental Considerations
The Company's operations are subject to stringent environmental laws and
regulations in most of the jurisdictions in which it operates, governing,
among other things, emissions into the air, discharges into waters, the use,
handling, transportation and disposal of hazardous substances, the
investigation and remediation of soil and groundwater contamination and
employee health and safety. A risk of environmental liability is inherent in
the current and past commercial activities of the Company. As a result, the
Company will incur environmental expenditures and capital costs, on an ongoing
basis, associated with environmental regulatory compliance and clean-up
requirements in its manufacturing operations.
The future costs of complying with environmental laws and containing or
remediating contamination cannot be predicted with certainty and there can be
no assurance that material liabilities or costs related to environmental
matters will not be incurred in the future or that such environmental
liabilities or costs would not have a material adverse effect on the Company's
business, financial condition or results of operations. See "--Business--
Consumer Safety and Environment."
Dependence on Subsidiaries
As a holding company, the Company is dependent upon dividends, repayment
of amounts receivable and interest and license income from its subsidiaries
for cash to meet its operating expenses and to pay dividends to its
shareholders.
ITEM 2. DESCRIPTION OF PROPERTY
The Company moved its headquarters from Ludwigshafen, Germany to
Amsterdam in the Netherlands in July 1997. The relocation of the Company's
headquarters was undertaken in connection with the establishment of the
Company as a separate entity from JAB. The Company's Amsterdam headquarters
occupies approximately 28,000 square feet of a building.
The following table sets forth the Company's principal owned and leased
manufacturing, distribution and research facilities as of the date of this
Annual Report on form 20-F. The leases expire at various times through
December 1, 2010, subject to certain renewal options.
<TABLE>
Square Owned/
Location Use Footage Leased
- -------- --- ------- ------
<S> <C> <C> <C>
Epernon, France Manufacturing 90,700 owned
Ladenburg, Germany Manufacturing 161,550 owned
Warehouse 120,000 leased
Mira, Italy Manufacturing and Research and Development 870,000 owned
Warehouse 433,460 leased
Calderara, Italy Manufacturing 66,700 owned
Granollers, Spain Manufacturing 436,000 owned
Lluisa de Val, Spain Warehouse 108,840 owned
Nowy Dwor, Poland Manufacturing 269,510 owned
Lasky, Poland Warehouse 89,000 leased
Jingshasi, China Manufacturing 490,270 owned(1)
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Rockwood, United States Manufacturing 105,005 owned
Warehouse 111,400 owned
Klin, Russia Manufacturing 41,000 owned
Warehouse 40,000 owned
</TABLE>
- -------------------
(1) This facility is owned by the Company's 60%-owned joint venture.
The Company also occupies numerous offices, assembly and distribution
facilities and warehouses in Europe, North America, Australia, Poland, and
China. The Company considers its properties to be generally in good condition
and believes that its facilities are adequate for its operations and provide
sufficient capacity to meet its anticipated requirements.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 17 "Legal Proceedings" to the Consolidated
Financial Statements included in Item 18.
ITEM 4. CONTROL OF REGISTRANT
Reference is made to page 81 of the 1998 Annual Report to Shareholders
incorporated herein by reference.
Although none of these arrangements were the result of arm's-length
negotiations, the Company believes that such arrangements were made on terms
no less favorable to the Company than would have been received from
unaffiliated third parties.
Registration Rights Agreement
The Company, JAB Investments B.V. and JAB entered into a registration
rights agreement (the "Registration Rights Agreement") effective as of
November 24, 1997 which provides that, from time to time, at the request of
JAB or JAB Investments B.V., the Company will use its best efforts to effect
registration under the applicable federal and state securities laws of the
Common Shares held by JAB or JAB Investments B.V. for sale in accordance with
certain specified methods described in the Registration Rights Agreement, and
will take such other action necessary to permit the sale thereof in the United
States and in the Netherlands, subject to certain limitations specified in the
Registration Rights Agreement. The requesting party shall bear the expense of
registration. JAB and JAB Investments B.V. will also have the right, which
they may exercise from time to time, to include the Common Shares (and any
other securities issued in respect of or in exchange for such shares) held by
them in certain other registrations of Common Shares initiated by the Company.
The requesting party shall bear the expense of such registrations or proposed
registrations.
Related Party Transactions
With respect to the factoring of certain third party receivables with an
affiliate of JAB reference is made to Note 3 "Accounts Receivable" to the
Consolidated Financial Statements included in Item 18. With respect to certain
agreements with JAB and or affiliates of JAB including transitional services
agreement, tax sharing agreement and license agreement reference is made to
Note 12 "Related Party Transactions" to the Consolidated Financial Statements
included in Item 18.
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Leases
The Company leases office space, equipment and office services in
Ludwigshafen, Germany from JAB. Obligations under this lease are less than NLG
1.0 million per year.
ITEM 5. NATURE OF TRADING MARKET
General
Prior to November 24, 1997, there was no public market for the Class B
Common Shares. As of November 24, 1997, the Company's Class B Common Shares
were listed on the New York Stock Exchange under the symbol "BNV" and on the
Amsterdam Stock Exchange under the symbol "BNV".
Share Certificates and Transfer
Class B Common Shares are issuable in bearer or registered form, as the
holder may elect, except that New York Shares may only be issued in registered
form. Class B Common Shares registered in the Netherlands are in book-entry
form ("Amsterdam Register"). Bearer Shares are represented by certificates
printed in the Dutch language with a dividend sheet attached
("CF-certificates"). CF-certificates must remain deposited with an authorized
custodian and may only be transferred through the book-entry transfer system
maintained by NECIGEF. New York Shares are registered with the New York
Transfer Agent and Registrar, and are represented by certificates printed in
the English language in such denominations as the Management Board of the
Company shall determine. Application has been made for the listing of the New
York Shares on the New York Stock Exchange. Only New York Shares may be traded
on the New York Stock Exchange. Application has been made to list all of the
Class B Common Shares outstanding following the Offering on the Amsterdam
Stock Exchange. Only Bearer Shares are traded on the Amsterdam Stock Exchange.
Class B Common Shares booked in the Amsterdam Register may be converted
into Bearer Shares or into New York Shares. Upon surrender of Bearer Shares at
the principal office of the Dutch Transfer and Paying Agent, accompanied by a
request that such Bearer Shares be exchanged for New York Shares, the Dutch
Transfer and Paying Agent will instruct the New York Transfer Agent and
Registrar to issue New York Shares and to deliver the corresponding
certificates. Similarly, on presentation to the New York Transfer Agent and
Registrar of New York Shares for cancellation and accompanied by the
appropriate request, the New York Transfer Agent and Registrar will instruct
the Dutch Transfer and Paying Agent in the Netherlands to issue and deliver
Bearer Shares for the same number of Class B Common Shares.
Bearer Shares and New York Shares may upon cancellation also be exchanged
into Class B Common Shares of the Amsterdam Register. Certificates for New
York Shares may be exchanged at the office of the New York Transfer Agent and
Registrar for certificates of other authorized denominations.
A fee of up to $5.00 per 100 shares or portion thereof will be charged to
shareholders by the New York Transfer Agent and Registrar for the exchange of
New York Shares for Bearer Shares or for Class B Common Shares at the
Amsterdam Register.
Bearer Shares have been accepted for clearance through Cedel and
Euroclear under reference number NL0000339331.
Amsterdam Stock Exchange
Trading on the floor of the Amsterdam Stock Exchange commences each
business day at 9:30 a.m. and continues until 4:30 p.m. (Amsterdam time).
Opening prices in major securities listed on the Amsterdam Stock Exchange are
fixed by the relevant hoekman, an admitted institution of Amsterdam Exchanges
nv with the function
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of hoekman on the Amsterdam Stock Exchange and designated by the Amsterdam
Exchanges nv to act as a specialist for the relevant securities. All trades
are reported immediately by the hoekman to the Amsterdam Stock Exchange, are
shown on the Amsterdam Stock Exchange's screen and are disseminated worldwide
by trading data vendors. Trading by telephone outside the Amsterdam Stock
Exchange may take place between two Amsterdam Stock Exchange admitted
institutions, between an Amsterdam Stock Exchange admitted institution and an
investor, or between an Amsterdam Stock Exchange admitted institution and a
foreign intermediary. Most equity trades are, however, carried out through the
Amsterdam Stock Exchange.
Amsterdam Exchanges N.V. publishes a daily official price list containing
a summary of the total volume of all trading and prices per share during the
trading day. Amsterdam Exchanges nv also publishes weekly and monthly
summaries of the total volume of all retail trades, wholesale trades and
megatrades.
As of January 1, 1999 the Amsterdam Stock Exchange will only publish
daily official price list in Euro. Comparative prices prior to December 31,
1998 will be published and converted at the fixed exchange rate determined by
the European Central Bank on December 31, 1998of EUR 1.00 = NLG 2.20371.
The table below sets forth the high and low closing sales prices of Class
B Common Shares on the Amsterdam Exchange and the New York Stock Exchange.
<TABLE>
The Netherlands United States
---------------------------------------------- -------------------
High Low High Low
---------------------------------------------- -------- ---------
In NLG In EUR In NLG In EUR
per share per share per share per share In $ per share
--------- --------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year 1997
November 24, 1997-December 31, 1997... 86.50 66.00 42.75 33.52
Fiscal Year 1998
First Quarter 1998.................... 119.90 80.00 55.63 38.00
Second Quarter 1998................... 125.81 108.09 61.88 53.06
Third Quarter 1998.................... 137.20 89.49 67.25 47.31
Fourth Quarter 1998................... 124.00 89.69 64.88 48.75
Fiscal Year 1999
First Quarter 1999.................... 61.80 49.85 71.00 53.50
Second Quarter through April 29, 1999. 54.00 46.45 57.06 50.31
</TABLE>
At December 31, 1998 approximately 1,692,852 million Common Shares were
held by approximately 11 shareholders with registered addresses in the United
States. These figures do not include the number of Common Shares held by
shareholders with registered addresses outside the United States in which
United States residents have an interest or the number of any such United
States residents.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SHAREHOLDERS
There are no legislative or other legal provisions currently in force in
the Netherlands or arising under the Company's Articles of Association
restricting the rights of non-residents of the Netherlands to hold or vote
Common Shares or restricting dividends to holders of Common Shares not
resident in the Netherlands. Insofar as the law of the Netherlands is
concerned, cash dividends paid in any currency may be transferred from the
Netherlands and converted into any other convertible currency.
Dividends payable by the Company are subject to Dutch withholding tax at
the current rate of 25%. The withholding tax on dividends paid to holders of
Common Shares who are not residents of the Netherlands may be
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<PAGE>
reduced by virtue of an applicable income tax convention in effect between the
Netherlands and the country of residence of the recipient of the dividends.
Under the income tax treaty in effect between the Netherlands and the United
States (the "US/NL Income Tax Treaty"), dividends paid by the Company to a
U.S. resident (other than a tax exempt organization or a pension trust) are
generally eligible for a reduction of the 25% Dutch withholding tax to 15%.
Subject to certain conditions and limitations, such withholding tax will
generally be eligible for credit against a U.S. resident's federal income tax
liability. Under the US/NL Income Tax Treaty, dividends received by tax exempt
organizations and exempt pension trusts generally are exempt from Dutch
withholding taxes or such taxes are fully refundable. See Item 7 "Taxation--
Taxation."
ITEM 7. TAXATION
General
The following discussion of the tax consequences of the investment in the
Class B Common Shares is based on the law and practice applicable in the
Netherlands and the United States as currently in effect and is subject to
changes therein, including changes that could have retroactive effect. The
discussion does not purport to describe all tax consequences that may be
relevant to an investor of the Class B Common Shares.
Taxation
This discussion is limited to the tax consequences for an owner of Class
B Common Shares who owns together with his or her partner and close relatives
less than 5% of the issued Class B Common Shares of the Company and does not
own together with his or her partner and close relatives call options that
give a right to acquire 5% or more of the issued Class B Common Shares of the
Company and therefore does not possess a substantial interest in the Company
(a "Shareholder"). As used herein, a "U.S. Holder" is a holder of Class B
Common Shares that is, for United States federal income tax purposes, (i) a
citizen or resident of the United States, (ii) a United States domestic
corporation or (iii) otherwise subject to United States federal income
taxation on a net income basis in respect of Class B Common Shares. The
discussion is for general information only and does not cover all potential
tax aspects connected with an investment in the Shares. Each investor is
therefore advised to consult its own tax lawyer with respect to these aspects.
Withholding Tax
Dividends distributed by the Company are subject to Dutch withholding tax
at 25%. Dividends include but are not limited to dividends in cash or in kind,
constructive dividends, repayment of paid-in capital not recognized for Dutch
tax purposes and liquidation proceeds in excess of recognized average paid-in
capital. Stock dividends are also subject to withholding tax on the par value
of the Shares issued. If such stock dividends are sourced out of the Company's
paid in share premium recognized for Dutch tax purposes, the stock dividends
are exempt from withholding tax.
The Dutch withholding tax may be fully or partly reduced or refunded if a
shareholder is resident in a country other than the Netherlands and a
convention for the avoidance of double taxation is in effect between the
Netherlands and such country, depending on the terms of such convention.
Under the US/NL Income Tax Treaty, Dutch withholding tax on dividends
paid by the Company to a resident of the United States (other than a tax
exempt organization or tax exempt pension trust) generally is reduced from 25%
to 15%.
This reduction is not applicable if the Shares held by such resident are
attributable to an enterprise or part of an enterprise that is, in whole or in
part, carried on by a permanent establishment or a permanent representative in
the Netherlands. Dividends received by tax exempt pension trusts and tax
exempt organizations as defined in the US/NL Income Tax Treaty are completely
exempt from Dutch dividend withholding tax. If the proper forms are
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<PAGE>
filed before the payment, the reduced dividend withholding rate can be applied
at source upon payment of the dividends, except for tax exempt organizations.
Dividend withholding tax reductions upon dividend payments to a non-individual
shareholder can only be applied when the limitations on benefit provisions of
article 26 of the convention do not prohibit such a reduction.
To the extent paid out of current or accumulated earnings and profits of
the Company as determined in accordance with United States federal income tax
principles, the gross amount of distributions made with respect to Class B
Common Shares (including amounts withheld in respect of Dutch withholding tax)
will generally be includible in the income of a U.S. Holder as ordinary
dividend income on the date such distribution is received by the U.S. Holder.
Subject to certain limitations and restrictions, Dutch withholding taxes will
be treated as foreign taxes eligible for credit against a U.S. Holder's U.S.
federal income tax liability. Dutch withholding tax will likely not be
creditable against the U.S. Holder's United States tax liability, however, to
the extent that the Company is allowed to reduce the amount of dividend
withholding tax paid over to the Netherlands Tax Administration by crediting
withholding tax imposed on certain dividends paid to the Company. Currently
the Company may, with respect to certain dividends received from qualifying
non- Netherlands subsidiaries, credit taxes withheld from those dividends
against the Dutch withholding tax imposed on a dividend paid by the Company,
up to a maximum of the lesser of (i) 3% of the portion of the gross amount of
the dividend paid by the Company that is subject to withholding and (ii) 3% of
the gross amount of the dividends received from qualifying non-Netherlands
subsidiaries. The credit reduces the amount of dividend withholding tax that
the Company is required to pay to the Netherlands Tax Administration but does
not reduce the amount of tax the Company is required to withhold from
dividends. The Company will endeavor to provide the U.S. Holders information
concerning the extent to which it has applied the reduction described above
with respect to dividends paid to U.S. Holders. Dividends generally will
constitute foreign source "passive" or "financial services" income for U.S.
foreign tax credit purposes.
Taxation on Income and Capital Gains
A holder of Class B Common Shares will not be subject to Netherlands
taxation on income from the shares and capital gains realized on the disposal
of the shares (except for the dividend withholding tax described above)
provided that:
1. the holder is neither resident or deemed resident of the
Netherlands; and
2. such holder does not have to attribute the shares to an enterprise
or an interest in an enterprise that is in whole or in part carried on by
a permanent establishment or permanent representative in the Netherlands.
For the purposes of Dutch taxes on income and capital gains an individual
who is not a resident of the Netherlands at the time of payment and who is not
of Dutch nationality generally will not be deemed to be a resident of the
Netherlands, provided such a person will not be a resident of the Netherlands
within a period of twelve months following a period of residency in the
Netherlands, unless the person can prove that he has been resident of another
country. Should a person be considered resident of both the Netherlands and
another country, an applicable convention for the avoidance of double taxation
may give tie-breaker rules for the determination of the country of residence.
Net Wealth Tax
A holder of Class B Common Shares will not be subject to Netherlands net
wealth tax with respect to the Shares provided that he or she:
1. is not an individual; or
2. meets conditions 1 and 2 mentioned under "--Taxation on Income and
Capital Gains" above.
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<PAGE>
Gift, Inheritance and Estate Tax
An acquisition of Class B Common Shares by way of a gift or at the
occasion of the decease of a holder is not subject to Netherlands gift,
inheritance or estate tax provided that such holder is neither resident or
deemed resident in the Netherlands unless:
1. such holder at the time of the gift has or at the time of his death
had an enterprise or an interest in an enterprise that is or was, in
whole or in part, carried on through a permanent establishment or
permanent representative in the Netherlands and to which enterprise or
part of an enterprise, as the case may be, the shares are or were
attributable; and
2. in the case of a gift of shares by an individual who at the date of
the gift as neither resident nor deemed to be resident in the
Netherlands, such individual dies within 180 days after the date of the
gift while resident or deemed to be resident in the Netherlands.
For the purposes of Netherlands gift, estate and inheritance tax, an
individual of Dutch nationality is deemed to be resident in the Netherlands if
he has resided therein at any time during the ten years preceding the date of
the gift or death. A person not of Dutch nationality will only be deemed to be
resident in the Netherlands if he has been resident therein at any time in the
12 months preceding the time of the gift.
ITEM 8. SELECTED FINANCIAL DATA
Reference is made to page 77 of the 1998 Annual Report to Shareholders
incorporated herein by reference.
Exchange Rate Information
The following table sets forth, for the periods indicated, certain
information concerning the exchange rate between Dutch guilders and U.S.
dollars based on the Noon Buying Rate. Such rates are provided solely for the
convenience of the reader and are not necessarily the exchange rates used by
the Company in the preparation of its Financial Statements included elsewhere
in this Registration Statement. No representation is made that the Dutch
guilders could have been, or could be, converted into U.S. dollars at these
rates or at any other rates.
Dutch Guilders per U.S. Dollar
---------------------------------------
Period-
end Average
Calendar Year Rate Rate(1) High Low
- ------------- ------- ------- ------ -----
1994........................... 1.74 1.81 1.98 1.67
1995........................... 1.60 1.60 1.75 1.52
1996........................... 1.73 1.69 1.76 1.61
1997........................... 2.03 1.96 2.12 1.73
1998........................... 1.88 1.98 2.09 1.81
1999 (through April 29, 1999).. 2.08 2.02 2.08 1.87
- -------------------
(1) The average of the Noon Buying Rates on the last business day of each
full month during the relevant period.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and other financial information contained elsewhere in
this Annual Report on Form 20-F.
20
<PAGE>
Results of Operations
The Company's net revenues and operating income by product category for
the periods indicated are set forth in the following table:
<TABLE>
Year Ended December 31, Percentage Change
------------------------------------------------------------------- --------------------
1997 vs. 1998 vs.
1996 1997 1998 1996 1997
------------------- ------------------ ------------------- --------- --------
(% of Total (% of Total (% of Total
Net Net Net
(NLG) Revenues) (NGL) Revenues) (NGL) Revenues) % %
------- ----------- ------- ----------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in millions, except percentage figures)
Net revenues by product category:
Dishwashing............... 939.9 31% 1,179.6 33% 1,282.7 33% 26% 9%
Laundry additives......... 773.0 25 904.0 25 1,025.0 27 17 13
Home cleaning............. 278.9 9 335.8 9 343.5 9 20 2
Laundry detergents........ 765.7 25 875.0 24 923.2 24 14 6
Other..................... 281.4 9 288.0 8 283.1 7 2 (2)
Total net revenues........ 3,090.0 100% 3,582.4 100% 3,857.4 100% 16% 8%
</TABLE>
The Company's net revenues and operating income by region for the periods
indicated are set forth in the following table:
<TABLE>
Year Ended December 31
--------------------------------------------------------------------
1996 1997 1998
------------------- ------------------- -------------------
Net Percent Net Percent Net Percent
Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
NLG % NLG % NLG %
Net revenues by region:
Western Europe................ 2,223.4 73% 2,434.9 68% 2,603.4 68%
North America................. 392.7 13 531.6 15 556.9 14
Rest of World................. 422.9 14 615.9 17 697.1 18
Total net revenues............ 3,039.0 100% 3,582.4 100% 3,857.4 100%
Operating income by region:
Western Europe(1)............. 309.0 90% 358.3 93% 448.1 102%
North America(1).............. 20.5 6 7.3 2 (0.7) --
Rest of World(1).............. 13.7 4 15.2 4 2.7 1
Corporate and Eliminations(2). 0.8 -- 3.2 1 (13.9) (3)
Subtotal...................... 344.0 100% 384.0 100% 436.2 100%
Restructuring expenses(3)..... -- (62.3) --
Compensation expenses(4)...... -- (15.1) --
Total operating income........ 344.0 100% 306.6 100% 436.2 100%
</TABLE>
- -------------------
(1) Net of license fees and royalty expenses incurred by operating
subsidiaries to the Company.
(2) Includes license fees and royalty income received by the Company
from its operating subsidiaries, less corporate overhead costs. The amount of
license fees and royalty income reflect local currency sales in different
countries and the exchange rate effects of translating such amounts and
dividend payments between operating subsidiaries of the Company.
(3) Restructuring expenses includes NLG 48.6 million for Western Europe, NLG
5.7 million for North America, NLG 4.0 million for the Rest of the World and
NLG 4.0 million for Corporate and Eliminations.
21
<PAGE>
(4) Compensation expenses reflect the issuance of stock awards from
stock-based plans. See Item 12 "Options to purchase securities from
Registrants or subsidiaries".
The following table sets forth certain amounts as a percentage of net
revenues:
As Percent of Net Revenues
<TABLE>
Year Ended December 31, Percentage Change
------------------------------ ---------------------
1997 vs. 1998 vs.
1996 1997 1998 1996 1997
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues........................... 100.0% 100.0% 100.0% 18% 8%
Cost of sales.......................... 59.3 57.3 56.1 14 6
Selling, general and
administrative expenses.............. 28.0 31.3 43.8 32 11
Restructuring Expenses................. 0.0 1.7 0.0 100% 100%
Amortization of intangibles............ 1.4 1.1 1.0 (1) (2)
Operating income....................... 11.3 8.6 11.3 (11) 42
Interest expense, net(1)............... 2.3 1.6 1.1 (20) (23)
Provisions for income taxes............ 3.6 2.9 4.1 (5) 52
Net earnings(2)........................ 5.4 4.3 6.2 (6) 55
</TABLE>
- -------------------
(1) Includes interest expense to third parties and affiliates, net of
interest income.
(2) Net earnings after minority interest.
1998 compared with 1997
Reference is made to pages 24 to 32 of the 1998 Annual Report to
Shareholders incorporated herein by reference.
1997 Compared with 1996
Net Revenues
The Company. Net revenues increased by 18%, from NLG 3,039.0 million in
1996 to NLG 3,582.4 million in 1997, reflecting increases in net revenues
across all categories and regions. The increases in net revenues, stated in
Dutch guilders, in all of the Company's product categories and geographic
regions were due primarily to increases in volume of goods sold, rather than
price increases, as the Company experienced market growth in core categories,
increased market shares in certain key product categories and expanded in new
emerging markets. Adjusted for changes in foreign exchange rates (by applying
average 1996 currency exchange rates to 1997 local currency net revenues), the
Company's net revenues increased by 13%.
Dishwashing Products. The Company's net revenues in dishwashing products
increased by 26%, from NLG 939.9 million in 1996 to NLG 1,179.6 million in
1997. The 26% increase was largely attributable to net revenue increases in
Automatic Dishwashing (ADW) products (28%) as a result of the Company's
increase in measured worldwide market share, from 34% in 1996 to 38% in 1997,
and the expansion of the worldwide market for ADW products. The Company's
market share gains were the result of (i) the successful launch and the
increased marketing support of the Double Action Tablets on the Company's
leading ADW brand in North America, Electrasol, leading to a more solid number
two market position in North America, and (ii) market share growth in France,
the United Kingdom, Germany, Italy and Spain attributable to the continued
success of the Company's innovation, the ADW Double Action Tablets. Adjusted
for changes in foreign exchange rates, the Company's net revenues in
dishwashing products increased by 18%.
22
<PAGE>
Laundry Additives. The Company's net revenues in laundry additives
increased by 17%, from NLG 773.0 million in 1996 to NLG 904.0 million in 1997.
The 17% increase was largely attributable to the growth of fabric treatment
products, particularly in the United Kingdom, Turkey and Poland, where strong
marketing efforts were used to establish the Company's latest introduction, an
in-wash liquid booster, as well as increased penetration of Calgon water
softeners in emerging markets and in some of the underdeveloped markets in
Western Europe, such as Spain. Adjusted for changes in foreign exchange rates,
the Company's net revenues in laundry additives increased by 13%.
Home Cleaning. The Company's net revenues in home cleaning products
increased by 20%, from NLG 278.9 million in 1996 to NLG 335.8 million in 1997.
The 20% increase was largely attributable to continued growth in the
lime-and-rust specialty cleaners business in the emerging markets of Turkey,
Poland, Russia, the Baltic countries and CIS and in North America. Adjusted
for changes in foreign exchange rates, the Company's net revenues in home
cleaning products increased by 15%.
Laundry Detergents. The Company's net revenues in laundry detergent
products increased by 14%, from NLG 765.7 million in 1996 to NLG 875.0 million
in 1997. The 14% growth was largely attributable to the entry into new
emerging markets at the end of 1996 such as China, Russia, the Baltic
countries, CIS and Slovenia as well as the successful relaunch of the national
umbrella brand Sole in Italy. Adjusted for changes in foreign exchange rates,
the Company's net revenues in laundry detergent products increased by 13%.
Other. The Company's net revenues in other products increased by 2%, from
NLG 281.4 million in 1996 to NLG 288.0 million in 1997, primarily reflecting
favorable exchange rates. Adjusted for changes in foreign exchange rates, the
Company's net revenues from other products decreased by 2%.
Western Europe. The Company's net revenues in Western Europe increased by
10%, from NLG 2,223.4 million in 1996 to NLG 2,434.9 million in 1997. The 10%
increase was mainly due to net revenue growth in Italy (9%), Spain (15%), the
United Kingdom (52%), Germany (5%) and France (9%). In Italy, the increase in
net revenues was due primarily to growth in its premium niche categories such
as ADW products and Calgon water softeners, and an increase in net revenues in
laundry detergents reflecting a further market share growth in the value
arena. The growth in Spain was mainly related to an increase in sales of ADW
products and Calgon water softeners as a result of an increased focus in this
still underdeveloped brand in this country. In the United Kingdom, the
increase in net revenues was mainly due to an increase in ADW product market
shares, increased sales in Vanish fabric treatments and favorable exchange
rate effects. In Germany, the increase in net revenues was due primarily to
the strengthening of our recently established market leadership position in
ADW products after the launch of ADW Double Action Powder, and an increase in
the private label business. The growth in France was related to market share
gains in ADW products, and an increase in the private label business. Adjusted
for changes in foreign exchange rates the Company's net revenues in Western
Europe increased by 6%.
North America. The Company's net revenues in North America increased by
35%, from NLG 392.7 million in 1996 to NLG 531.6 million in 1997. The 35%
increase was largely attributable to increased market share in North America
for the Company's leading ADW product brand, Electrasol, reflecting the
successful launch and marketing support of the Electrasol Double Action
Tablets in the second half of 1997, increased sales in the laundry additives
and home cleaning categories, as well as favorable exchange rate effects.
Adjusted for changes in foreign exchange rates, the Company's net revenues in
North America increased by 17%.
Rest of the World. The Company's net revenues in the Rest of the World
increased by 46%, from NLG 422.9 million in 1996 to NLG 615.9 million in 1997.
The 46% increase was largely attributable to the entry into new markets such
as China, Russia the Baltic countries, CIS, Croatia and Slovenia; and the
growth of premium niche categories in semi-established markets such as Turkey,
Poland and Hungary. Adjusted for changes in foreign exchange rates, the
Company's net revenues in the rest of the world increased 47%.
23
<PAGE>
Cost of Sales
The Company's cost of sales increased 14%, from NLG 1,803.0 million in
1996 to NLG 2,052.1 million in 1997. Cost of sales increased as a result of
higher unit volumes. As a percentage of net revenues, such cost of sales
decreased from 59.3% in 1996 to 57.3% in 1997. Cost of sales as a percentage
of net revenues decreased primarily due to a more favorable product mix,
featuring a greater proportion of relatively high margin premium products and
significant cost savings both in mature and in emerging markets through the
implementation of cost cutting programs.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses increased 32%,
from NLG 850.9 million in 1996 to NLG 1,120.7 million in 1997. As a percentage
of net revenues, such selling, general and administrative expenses increased
from 28.0% in 1996 to 31.3% in 1997. The increase as a percentage of net
revenues was largely attributable to a 43% increase in marketing costs, driven
by increased support of the Company's premium niche categories in Western
Europe and North America and by the Company's entry into new geographic
markets. Selling, general and administrative expenses also grew as the Company
established sales and administration organizations in Eastern Europe and
China. In addition, compensation expenses of NLG 15.1 million in connection
with restricted stock awards under the stock-based compensation plans have
been recorded.
Restructuring
The Company has undertaken an extensive program of identifying and
implementing cost reduction and profit enhancement initiatives designed to
increase the efficiency and profitability of its operations worldwide. These
initiatives include (i) a restructuring program that includes the closure of
three factories in Western Europe and one in Puerto Rico, (ii) increasing
common components across product lines to simplify manufacturing and logistics
operations and reduce working capital, and (iii) a restructuring of local
sales forces and administration activities. These changes will result in the
elimination of approximately 640 positions, primarily as a result of the
closure of the factories. The related restructuring charges, of NLG 62.3
million have been recorded in the second half of 1997, including the write-off
of certain assets. The Company anticipates that these cost reduction and
profit enhancement initiatives will be fully implemented during 1998. Although
the majority of the cash payments will be made in 1998, some of the cash
payments will be extended to future periods due to lay-off and severance
schemes. The growth of the Company will create new job positions in 1998,
although due to the restructuring the total number if employees will decrease
in 1998.
Amortization of Intangibles
The Company had net intangible assets of NLG 680.6 million as of December
31, 1997. These intangible assets relate to trademarks, licenses, goodwill and
other intangible assets, which are being amortized over their estimated useful
lives. The majority of these amounts relate to major acquisitions made from
1987 to 1989. Non-cash expenses related to amortization of intangible assets
declined from NLG 41.1 million in 1996 to NLG 40.7 million in 1997.
Operating Income
Operating income decreased by 11%, from NLG 344.0 million in 1996 to NLG
306.6 million in 1997. The decrease in operating income was primarily due to
the recording of restructuring charges of NLG 62.3 million for a cost
reduction and profit enhancement program which includes the closure of three
plants in Europe and one factory in Puerto Rico; and compensation expenses of
NLG 15.1 million in connection with restricted stock awards under the
stock-based compensation plans. Excluding these two items operating income
increased by 12% to NLG 384.0 million in 1997. In Western Europe operating
income, exclusive of restructuring and stock-based compensation expenses,
increased from NLG 309.0 million in 1996 to NLG 358.3 million in 1997, or by
16%.
24
<PAGE>
Operating income, exclusive of restructuring and stock-based compensation
expenses, decreased in North America from NLG 20.5 million in 1996 to NLG 7.3
million in 1997, or by 64% and increased, exclusive of restructuring and
stock-based compensation expenses, in the Rest of the World from NLG 13.7
million in 1996 to NLG 15.2 million in 1997, or by 11%. The increase in
operating income, exclusive of restructuring and stock-based compensation
expenses, in Western Europe was largely attributable to improved operating
income in Italy, Spain and the United Kingdom, reflecting growth in net
revenues and an improved gross margin. The decrease in operating income,
exclusive of restructuring and stock-based compensation expenses, in North
America was due to a significant increase in marketing support following the
launch of the Electrasol ADW Double Action Tablet. The increase in operating
income, exclusive of restructuring and stock-based compensation expenses, in
the Rest of the World was largely attributable to improved profitability in
semi-developed countries such as Turkey, Poland, the Czech Republic, Slovakia
and Hungary, partially offset by the Company's significant up-front
investments in new emerging markets such as China, Russia and Romania.
Interest Expense, Net
Interest expense, net, decreased by 20%, from NLG 70.6 million in 1996 to
NLG 56.1 million in 1997. The decrease was mainly due to a net repayment of
debt and net borrowings due to affiliates and to a decrease in the effective
interest rate in 1997.
Provisions for Income Taxes
Provisions for income taxes decreased by 5%, from NLG 110.4 million in
1996 to NLG 105.4 million in 1997, due to a decrease in profits before taxes
of 8%, partially offset by a 1.7% increase of the Company's effective tax
rate.
Net Earnings
The Company's net earnings (after minority interests) decreased by 6%,
from NLG 164.9 million in 1996 to NLG 154.8 million in 1997. Excluding the
restructuring expenses and the stock-based compensation expenses adjusted for
the tax effect of these items, the Company's net earnings increased by 21% to
NLG 199.7 million in 1997.
Earnings per share
The Company's basic and diluted earnings per share decreased by 6% and 8%
from NLG 3.15 and NLG 3.15 in 1996 to NLG 2.95 and NLG 2.91 in 1997,
respectively. Excluding the restructuring expenses and the stock-based
compensation expenses, adjusted for the tax effect of these items, the
Company's basic and diluted earnings per share increased by 21% and 19% to NLG
3.81 and NLG 3.75 in 1997, respectively. The 1996 and 1997 basic and diluted
earnings per share amounts have been computed based on a "pro forma" basis in
compliance with Statement of Financial Accounting Standard No 128, which
requires the Company to present "basic" and "diluted" earnings per share
effective for the Company's year ending December 31, 1997.
Liquidity and Capital Resources
Reference is made to pages 33 to 35 of the 1998 Annual Report to
Shareholders incorporated herein by reference.
Year 2000 and EURO
Reference is made to pages 35 to 36 of the 1998 Annual Report to
Shareholders. Reference is made to Item 1 "Description of Business--Certain
Factors Which May Affect The Business" for a discussion on the Euro.
25
<PAGE>
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Note 8 "Debt Obligations", Note 14 "Fair Value of
Financial Instruments" to the Consolidated Financial Statements included in
Item 18 and pages 33 to 35 of the 1998 Annual Report to Shareholders
incorporated herein by reference.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
Supervisory Board
Under Dutch law and the Articles of Association of the Company, the
management of the Company is entrusted to the Management Board under the
supervision of the Supervisory Board. The Supervisory Board advises the
Management Board and is responsible for supervising the policies pursued by
the Management Board and the general course of affairs of the Company and its
business. In fulfilling their duties, the members of the Supervisory Board
must serve the interests of the Company and its business.
The Supervisory Board consists of such number of members as may be
determined by the General Meeting of Shareholders, with a minimum of three
members. The members of the Supervisory Board are appointed by the General
Meeting of Shareholders for one-year terms upon the non-binding nomination by
the Supervisory Board for each vacancy. Non-binding nominations of candidates
to fill vacancies may also be made by a holder or holders of 10% or more of
the issued share capital. At present, the Supervisory Board consists of 7
members.
The Supervisory Board appoints a chairman from among its members.
Resolutions of the Supervisory Board shall be validly adopted if adopted by a
simple majority of votes in a meeting at which the majority of supervisory
directors are present or represented. The Supervisory Board must meet upon
request by two or more of its members or by the Management Board. The
Supervisory Board will form at least three committees, a Compensation
Committee, a Corporate Governance Committee and an Audit and Finance
Committee; each of these committees is expected to be chaired by an
independent member of the Supervisory Board. The majority of the members of
these committees is expected to be independent.
A member of the Supervisory Board must retire on the day of the annual
General Meeting of Shareholders in the fiscal year in which such member
reaches the age of 70. A member of the Supervisory Board may be suspended or
dismissed by the General Meeting of Shareholders in case of improper
performance of the member's duties, with due observance of applicable
principles of reasonableness and fairness, and after having given the member
an opportunity to account for his actions, all as determined under applicable
Dutch legal principles. The members of the Supervisory Board may receive such
compensation as may be determined by the General Meeting of Shareholders in
their reasonable discretion, which compensation is expected to include shares
and options on shares in the Company.
Management Board
The management of the Company is entrusted to the Management Board under
the supervision of the Supervisory Board. The Articles of Association provide
that the Supervisory Board may from time to time adopt written rules governing
the internal organization of the Management Board (bestuursreglement),
including directions to the Management Board concerning the general financial,
economic, social and personnel policies of the Company. In addition, the
Articles of Association provide that each of the Supervisory Board and the
General Meeting of Shareholders may specify by resolution certain actions by
the Management Board that require its prior approval.
The Management Board consists of such number of members as may be
determined by the Supervisory Board. Members of the Management Board are
appointed by the General Meeting of Shareholders for an indefinite term upon
the non-binding nomination by the Supervisory Board for each vacancy.
26
<PAGE>
Resolutions of the Management Board shall be validly adopted if adopted
by a simple majority of votes, at least one of which must be cast by the
Chairman of the Management Board, who may be appointed by the Supervisory
Board from among Management Board members. The Management Board may also
validly adopt its resolutions in writing, provided that the proposals for such
resolutions have been communicated in writing to all Management Board members
and no member has objected to this method of adoption of a resolution.
The General Meeting of Shareholders has the power to suspend or dismiss
members of the Management Board. The Supervisory Board may suspend but not
dismiss members of the Management Board, but a General Meeting of shareholders
must be held within three months after such suspension has taken effect in
which a resolution must be adopted to either terminate or extend the
suspension for a maximum period of another three months. If a member of the
Management Board is temporarily prevented from acting, the remaining members
of the Management Board shall temporarily be responsible for the management of
the Company. If all members of the Management Board are prevented from acting,
one or more persons appointed by the Supervisory Board will be temporarily
responsible for the management of the Company. The Supervisory Board
determines the compensation and other terms and conditions of employment of
the members of the Management Board.
Corporate Officers
As a legal matter, the corporate officers of the Company support the
Management Board in its management of the Company. In practice, the corporate
officers and the Management Board share management responsibilities.
The current members of the Supervisory and Management Board and the
corporate officers of the Company, their current positions and their ages as
of December 31, 1998, are:
<TABLE>
Name Position Age
- ---- -------- ---
<S> <C> <C>
Martin Gruber.................Chairman and Member of the Supervisory Board until May 13, 1999 67
Dr. Karl Heinz Weiss..........Member of the Supervisory Board until May 13, 1999 69
Dr. Gerhard Ziener............Member of the Supervisory Board until May 13, 1999 69
Ir. Hans van der Wielen.......Member of the Supervisory Board 54
Dr. Jay Lorsch................Member of the Supervisory Board 65
Mr. Adrian Bellamy............Member of the Supervisory Board 56
Ms. Irene Miller..............Member of the Supervisory Board 46
M. Dieter Meuderscheid........Member of the Supervisory Board
Dr. Peter Harf................Chairman and Member of the Management Board until May 13, 1999 52
Chairman and Member of the Supervisory Board as of May 13, 1999
Bart Becht....................Member of the Management Board and Chief Executive Officer 42
Chairman and Member of the Management Board and Chief Executive
Officer as of May 13, 1999
Dr. Manfred Klein.............Member of the Management Board and Chief Financial Officer 52
Marcello Bottoli..............Executive Vice President of Category Development 36
Freddy Caspers................Executive Vice President and Regional Manager Eastern Europe 37
Alain Le Goff.................Executive Vice President of Operations 46
Douglas L. Meyer..............Executive Vice President and Regional Manager of North America 49
Erhard Schowel................Executive Vice President of Central Europe 49
Kenneth R. Stokes.............Executive Vice President of Western Europe 42
Tom Corran....................Senior Vice President--Investor Relations & Corporate Communications 44
Anthony Gallagher.............Senior Vice President--Information Services 42
Roelof Hoving.................Senior Vice President--Corporate Taxes 36
Maarten Minderhoud............Senior Vice President; General Legal Counsel and Secretary 42
Frank Ruther..................Senior Vice President--Human Resources 46
Michael Calikusu..............Vice President--Corporate Development 31
</TABLE>
27
<PAGE>
<TABLE>
Name Position Age
- ---- -------- ---
<S> <C> <C>
Michael Hoche.................Vice President--Accounting and Reporting 38
Jurgen Ringler................Vice President--Treasury 55
Hans van Selm.................Vice President--Internal Audit 39
</TABLE>
The background of each member of the Supervisory and Management Board and
each of the executive officers of the Company is as follows:
Martin Gruber has served as Chairman and a member of the Supervisory
Board of the Company since July 1997. Mr.Gruber has been the Chief Executive
Officer of Benckiser Holding GmbH since 1983 and served as Chairman of the
Supervisory Board of JAB from 1992 to 1997. Mr.Gruber has been a member of the
Board of Directors of Coty since 1997. Mr.Gruber joined JAB in 1963 as Chief
Purchasing Manager and has served in various other management positions in JAB
in marketing, sales and operations since that time. Mr.Gruber was the Chief
Executive Officer of JAB from 1978 to 1988 and was a member of the Management
Board of JAB from 1967 to 1988.
Dr. Karl Heinz Weiss has served as a member of the Supervisory Board of
the Company since July 1997. Dr.Weiss has also been a member of the Advisory
Board of Benckiser Holding GmbH since 1992. Dr.Weiss is an attorney at law and
practices as a corporate lawyer. Dr.Weiss is currently serving as Chairman of
the Supervisory Board of Paul Hartmann AG and is a member of the Supervisory
Board of Wacker Chemie GmbH.
Dr. Gerhard Ziener has served as a member of the Supervisory Board of the
Company since July 1997. Dr.Ziener has also been the Chairman of the Advisory
Board of Benckiser Holding GmbH from 1983. Dr.Ziener was General Manager of
Roehm & Haas GmbH, Germany ("Roehm & Haas") from 1964 to 1971 at which time he
became Chief Executive Officer of Roehm & Haas through 1987. Dr.Ziener was
also the Chairman of the Supervisory Board of Roehm & Haas from 1987 until
1996. Dr. Ziener is a member of the Supervisory Board of Merck KGaA and holds
advisory positions in a number of privately-owned companies.
Ir. Hans van der Wielen is currently serving as President and Chief
Executive Officer of Koninklijke Numico N.V. (formerly : N.V. Verenigde
Bedrijven, Nutricia). Mr. van der Wielen has been a member of the Management
Board of Koninklijke Numico N.V. since January 1, 1989. Mr. van der Wielen is
also member of the Board of Stichting tot Beheer van de Preferente Aandelen in
Wolters Kluwer N.V. and member of the Supervisory Board of Maxeres N.V. and
the Supervisory Board of Gouda Vuurvast Holding N.V.
Dr. Jay Lorsch is Louis Kirstein Professor of Human Relations, and
Chairman, Doctoral programs, and Director of Research of the Harvard Business
School. Dr. Lorsch is also director of Brunswick Corporation.
Mr. Adrian Bellamy is currently Chairman of the Supervisory Board of
Gucci Group N.V. Mr. Bellamy is also member of the Board of Directors of The
Body Shop International PLC, the Gap, Inc., Paragon Trade Brands, Inc., Shaman
Pharmaceuticals, Inc. and Williams-Sonoma, Inc.
Ms. Irene Miller is currently a member of the Board of Directors of Barnes
& Noble, Inc. and Oakley, Inc.
Mr. Dieter Meuderscheid is currently a member of the Advisory Board of
Joh. A. Benckiser GmbH and formerly served as Director of Unilever.
Dr. Peter Harf has served as Chairman and a member of the Management
Board of the Company since August 1997. Dr. Harf has also been Chief Executive
Officer of JAB since January 1988 and a Managing Director of the Selling
Shareholder since August 1997. Dr. Harf joined JAB in 1981 as Senior Vice
President of International Operations. He served as Senior Vice President of
International Operations from January 1981 to May 1982 and then served as
Executive Vice President, Consumer Products Division, from May 1982 to January
1987. From January 1987, Dr.Harf served as Vice Chairman of the Management
Board of JAB until taking his position as Chairman and Chief Executive Officer
of JAB in January 1988. In addition, Dr.Harf has been Chairman of the
28
<PAGE>
Board and Chief Executive Officer of Coty since March 1993. Dr.Harf is also a
member of the Board of Directors of the Brunswick Corporation.
Bart Becht has been a member of the Management Board of the Company since
August 1997 and Chief Executive Officer since September 1997. Mr. Becht served
as Chief Operating Officer of the Company from January 1997 to August 1997.
Mr. Becht started his career with JAB in 1988 as Vice President Marketing at
Benckiser USA. In July 1989, Mr. Becht was named General Manager of Benckiser
Inc., Willowdale (Canada). From early 1992, Mr. Becht served as General
Manager of Benckiser St. Marc S.A., Nanterre (France). From the end of 1993 to
1995, he was in charge of JAB's operations in Italy, where he led Mira Lanza
S.p.A. Gruppo Benckiser, Milan, as General Manager. From 1995 until January
1997 Mr. Becht was President of the Household Detergents and Cleaning Agents
Division of JAB. Before joining JAB, Mr. Becht served in various roles at
Procter & Gamble, both in the United States and Germany.
Dr. Manfred Klein has been a member of the Management Board and Chief
Financial Officer of the Company since December 1996. Dr. Klein has also been
Managing Director and Chief Financial Officer of JAB since January 1988. Dr.
Klein has served in various other management and director roles within JAB,
including as Chairman of the Supervisory Board of the Lancaster Group AG until
the end of 1996 and as member of the Board of Directors of Coty until the end
of 1996. Before joining JAB, Dr. Klein was employed as Finance Director and
Treasurer of Metallgesellschaft AG from 1985 to 1987. Dr. Klein is a member of
the Advisory Board of Deutsche Bank AG and of the Gerling Group.
Marcello Bottoli has served as Executive Vice President of Category
Development for the Company since January 1997. Mr. Bottoli joined JAB in 1991
and served as Marketing and R&D Director of Benckiser Spain from 1991 to 1993
and as General Manager of Benckiser France from 1993 to 1996. Prior to joining
Benckiser, Mr. Bottoli was employed by the Boston Consulting Group in Paris
(France) and Milano (Italy) from 1989 to 1991 and was with Procter & Gamble in
France and the United States from 1985 to 1989.
Freddy Caspers has served as Executive Vice President for the Eastern
European region for the Company since September 1997. From 1992 through 1997
Mr. Caspers was employed by Pepsi in various senior management positions in
their Eastern European operations. Before joining Pepsi, Mr. Caspers worked
for Johnson & Johnson Consumer Products from 1987 to 1992 where he was
responsible for several brand management and key account functions.
Alain Le Goff has served as the Executive Vice President of Operations
for the Company since January 1997. Mr. Le Goff joined JAB in 1986 and has
served since then as Industrial Director of Benckiser St. Marc, France, as
General Manager for the Lancaster factory, Monaco, as General Manager for
Benckiser Produktions GmbH, Germany, and as Logistic Co-ordinator for the JAB
group. Mr. Le Goff was the Senior Vice President of Operations for the
Household Products Division of JAB from 1994 to 1996.
Douglas L. Meyer has served as Executive Vice President and Regional
Manager of North America for the Company since January 1997. Mr. Meyer joined
JAB in November 1994 as President of Benckiser Consumer Products, Inc. in the
United States. Since 1995, Mr. Meyer has served as Regional Manager of North
America for the Household Detergents and Cleaning Agents Division of JAB.
Prior to joining the Company, Mr. Meyer was President of Sterling Health Inc.,
the U.S. Over-the-Counter Drug Division of the Eastman Kodak Company, from
1991 to 1994. Mr. Meyer was with the Colgate-Palmolive Co. from 1973 to 1991.
At Colgate, he served in numerous domestic and international assignments,
including Vice President and General Manager of Colgate's U.S. Oral Care
Division from 1986 to 1991.
Erhard Schowel has served as Executive Vice President for the Central
Europe Region of the Company since January 1997. After joining JAB in January
1979, Mr. Schowel served the Company in different sales and marketing
functions in Germany and was named Commercial Director of Germany in January
1987. From December 1988, Mr. Schowel served as General Manager of Germany and
in addition from 1993 to June 1995 he
26
<PAGE>
was also responsible for the Company's international private label business,
Propack Europe. From June 1995 to the end of 1996, Mr. Schowel led Mira Lanza
S.p.A. Gruppo Benckiser, Milan--Italy, as General Manager.
Kenneth R. Stokes has been Executive Vice President of Western Europe
(excluding Central Europe) for the Company since January 1997. Mr. Stokes
joined JAB in 1989 and served as Vice President of Marketing for Benckiser
Consumer Products Inc. from December 1989 to December 1991. He then served as
President of Quintessence Inc. in the early part of 1992. Mr. Stokes was named
Managing Director for Benckiser UK from July 1992 to July 1993 and then served
as General Manager of Camp/Benckiser SA from July 1993 to March 1997. Prior to
joining the Company, Mr. Stokes was with McKinsey & Company, Inc. from
December 1985 to December 1989, and with Wilson Sporting Goods and the Clorox
Company prior thereto.
Tom Corran is currently serving as Senior Vice President--Investor
Relations & Corporate Communications, having joined the Company in 1998. From
1990 to 1997 Mr. Corran served as Head of Corporate Development at Guinness
PLC and from 1997 to 1998 he served in the position of Head of Corporate
Governance at Gartmore Investment Management.
Anthony Gallagher has served as Senior Vice President--Information
Services of the Company since September 1997. From 1995 to 1997, Mr. Gallagher
was Chief Executive Officer of InfoSol, a systems integration and consulting
company providing information and technology services in the Middle East. From
1986 to 1993, Mr. Gallagher was employed as a regional director of information
and technology services by Intergraph and by the Canadian telecommunications
company, Mitel.
Roelof Hoving has served as Senior Vice President--Corporate Taxes of the
Company since December 1997. From 1992 - 1997, Mr. Hoving served as Senior
Fiscal Advisor with British Petroleum. Previously, from 1989 to 1991 Mr.
Hoving was a Tax attorney for a regional Dutch Tax Law firm.
Maarten Minderhoud has served as Senior Vice President--General Legal
Counsel and Secretary of the Company since August1997. From 1994 to 1997, Mr.
Minderhoud served as a partner of Price Waterhouse. From 1986 to 1994, Mr.
Minderhoud served as General Counsel of Fuji Photo Film B.V. and then as
Corporate Secretary of Royal Pakhoed N.V.
Frank Ruther has served as Senior Vice President--Human Resources of the
Company since March 1997. From 1996 to 1997, Mr.Ruther served as Personnel
Director of the detergents division of JAB. From 1986 to 1996, Mr. Ruther was
Director of Compensation and Benefits (Europe) for Mars.
Michael Calikusu has served as Vice President--Corporate Development of
the Company since 1998. From 1997 to 1998 Mr. Calikusu served as Principal
Consultant of Price Waterhouse, based in Los Angeles. Before this position he
served as Business Development Director of Pepsi-Cola International. Mr.
Calikusu is a member of the American and Texas State Bar Association as well
as the American and Commonwealth of Virginia Institute of Certified Public
Accountants.
Michael Hoche has served as Vice President--Accounting and Reporting of
the Company since July 1997. From 1990 to 1997, Mr. Hoche was employed in
several finance roles within JAB, including serving as Director of Corporate
Accounting and Reporting for JAB from 1995 to 1997.
Jurgen Ringler has served as Vice President--Treasury of the Company
since July 1997. From 1979 to 1997, Mr. Ringler was Treasurer for JAB.
Hans van Selm is currently serving as Vice President--Internal Audit of
the Company. From October 1997 to December 1998, Mr. van Selm served as
Director of Internal Audit of the Company. From 1979 to 1997 Deloitte & Touche
employed Mr. van Selm in several roles including serving as Manager External
Audit Services in the
30
<PAGE>
United States from 1992 to 1994 and (Senior) Manager external Audit Services
from 1994 to 1997 in the Netherlands.
The business address of each of the members of the Supervisory Board, the
Management Board and the corporate officers is at the Company's offices at
World Trade Center, Amsterdam Airport, Tower C, Schiphol Boulevard 229, 1118
BH Schiphol Airport, The Netherlands.
Employment Agreements
Reference is made to Note 10 "Employee Benefits" to the Consolidated
Financial Statements included in Item 18.
On July 1, 1997, the Company entered into employment agreements with
members of the Management Board and its Executive Vice Presidents. The
agreements provide, among other things, that each of the Management Board
members will provide services to the Company on a full-time basis, with the
exception of Dr. Peter Harf. The agreements terminate by operation of law on
the date on which the relevant director reaches pensionable age or may be
terminated earlier, by either party, upon notice in writing and in accordance
with the statutory minimum notice period under Dutch law. The agreements may
also be terminated in the event of certain "urgent reasons" under applicable
Dutch law. The agreements also contain termination, death and disability
benefits, which provide lump sum payments in the amount of two times the base
salary of the employee plus two times the average bonus received by the
employee for the two most recent years. The termination benefits are payable
to the employee upon termination of the employee for reasons not attributed to
performance or an "urgent reason" under applicable Dutch law. Upon a "change
of control" of the Company, if the Company or the employee terminates the
agreement within twelve months of the change of control, the employee will
receive three times the base salary plus three times the average bonus
received by the employee for the three most recent years. The agreements
contain non-competition and confidentiality provisions. According to the terms
of the non-competition clause, during the employment term and for the 18-month
period thereafter, the relevant employee, in general terms, is not allowed to
conduct any business competing with that of the Company.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
Compensation
The aggregate amount of compensation paid by the Company in fiscal year
1998 to the corporate officers of the Company and members of the Supervisory
Board and Management Board as a group was approximately NLG 17.9 million.
For the year ended December 31, 1998, the aggregate amount set aside or
accrued by the Company to provide pension and retirement benefits for its
corporate officers and members of the Supervisory and Management Boards was
approximately NLG 1.3 million. The Company has not made loans to, or
guarantees on behalf of, members of the Supervisory or Management Boards. With
respect to the Employee Incentive Program and Annual Performance plan
reference is made to Note 10 "Employee Benefits" to the Consolidated Financial
Statements included in Item 18.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Reference is made to note 10 "Employee Benefits" to the Consolidated
Financial Statements included in Item 18.
31
<PAGE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Not applicable
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
Not applicable
PART IV
ITEM 17. CONSOLIDATED FINANCIAL STATEMENTS
Not applicable
ITEM 18. CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to "Item 19 Consolidated Financial Statements and
Exhibits".
ITEM 19. CONSOLIDATED FINANCIAL STATEMENTS AND EXHIBITS
(a) List of Consolidated Financial Statements
The following consolidated financial statements, together with the report
thereon of Deloitte & Touche Registeraccountants dated February 23, 1999,
appearing on pages 38 through 66 of the 1998 Annual Report to Shareholders are
incorporated in this Annual Report on Form 20-F as Exhibit (a)(ii):
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996.
Consolidated Balance Sheets at December 31, 1998 and 1997.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statement of Cash Flows for the years ended December 31,
1998, 1997 and 1996 Notes to the Consolidated Financial Statements.
(b) List of Exhibits
32
<PAGE>
The following is the list of exhibits attached to this Annual Report on
Form 20-F.
Exhibit Description
-------- -----------
(a)(i) Consent of Independent Auditors
(a)(ii) The 1998 Annual Report to Shareholders of the Company, which
is furnished to the Securities and Exchange Commission for
information only and is not filed except for such specific
portions that are expressly incorporated by reference in this
Annual Report on Form 20-F.
(b)(2)(i) Articles of Association of the Company(1)
(b)(2)(ii) Specimen certificate of Class B Common Shares of the
Company(1)
(b)(2)(iii) Trademark License Agreement between Joh. A. Benckiser GmbH
and Benckiser N.V.(1)
(b)(2)(iv) Registration Rights Agreement among Benckiser N.V., JAB
Investments B.V. and Joh. A. Benckiser GmbH(1)
(b)(2)(v) Tax Sharing Agreement dated as of October 1, 1997 among Joh.
A. Benckiser GmbH, Benckiser N.V. and Coty, Inc.(1)
(b)(2)(vi) Subsidiaries of the Company(2)
- -------------------
(1) Incorporated by reference to the Registration Statement on Form F-1 (File
No. 333-7806), previously filed with the Securities and Exchange
Commission.
(2) Incorporated by reference to Note 6 "List of Subsidiaries" of the 1998
Annual Report to Shareholders (see (a)(ii) above).
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Company certifies that it meets all of the requirements for
Filing on Form 20-F and has duly caused this Annual Report on Form 20-F to be
signed on its behalf by the undersigned, thereunto duly authorized.
Signature Title Date
- --------- ----- ----
/s/Peter Harf
- ---------------------- Chairman of the Management Board May 13, 1999
Peter Harf
/s/ Bart Becht
- ---------------------- Chief Executive Officer May 13, 1999
Bart Becht
/s/Manfred Klein
- ---------------------- Chief Financial Officer May 13, 1999
Manfred Klein
34
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
a(i) Consent of Independent Auditors
(a)(ii) The 1998 Annual Report to Shareholders of the Company, which
is furnished to the Securities and Exchange Commission for
information only and is not filed except for such specific
portions that are expressly incorporated by reference in
this Annual Report on Form 20-F.
(b)(2)(i) Articles of Association of the Company(1)
(b)(2)(ii) Specimen certificate of Class B Common Shares of the
Company(1)
(b)(2)(iii) Trademark License Agreement between Joh. A. Benckiser Gmb
and Benckiser N.V.(1)
(b)(2)(iv) Registration Rights Agreement among Benckiser N.V., JAB
Investments B.V. and Joh. A. Benckiser GmbH(1)
(b)(2)(v) Tax Sharing Agreement dated as of October 1, 1997 among
Joh. A. Benckiser GmbH, Benckiser N.V. and Coty, Inc.(1)
(b)(2)(vi) Subsidiaries of the Company(2)
- -------------------
(1) Incorporated by reference to the Registration Statement on Form F-1 (File
No. 333-7806), previously filed with the Securities and Exchange
Commission.
(2) Incorporated by reference Note 6 "List of Subsidiaries" of the 1998 Annual
Report to Shareholders (see (a)(ii) above).
35
[LETTER HEAD OF DELOITTE & TOUCHE]
+31 (20) 5824000
To the Supervisory Board and Management
Board of Benckiser N.V.:
Date Reference
May 13, 1999 A. Sandler
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
(No. 33-08108) of Benckiser N.V. ("Benckiser") on Form S-8 of our report dated
February 23, 1999, appearing in the Annual Report on Form 20-F of Benckiser
for the year ended December 31, 1998.
/s/ Deloitte & Touche
Registeraccountants
See attachment.
Note: the Annual Report to Shareholders for 1998 is furnished to the
Securities and Exchange Commission for information only and is not filed
except for such specific portions that are expressly incorporated by reference
in this report on Form 20-F.
<PAGE>
[cover page to page 11 intentionally omitted.]
Dishwashing
[graphics omitted]
Every minute of every day, more than 5,000 dishwashing machines are started
using Benckiser products
Dishwashing is our Company's most important category, accounting for 33% of net
revenues and growing by 9% to NLG 1,283 million in 1998. Within this, the key
focus is on the Automatic Dishwashing (ADW) market that accounts for 91% of net
revenues in the category. In ADW, the Company is the clear worldwide market
leader, with double the share of its nearest competitor. The ADW range of
products includes detergents, rinse agents, decalcifier salts, machine
deodorizers and machine cleaners.
Over the three years since 1995, the Company's net revenues in this category
have grown by a compound rate of 19% a year, in part driven by the successful
introduction of the Double Action Tablet technology that has led to significant
gains in market share.
Activity in 1998 focused on strengthening our leading position in this
category, through continuing our track record of consumer relevant innovation.
In Western Europe, we launched and rolled out the upgraded Double Action Plus
Tablet with an improved product formulation. This is now available in all the
key markets. More recently, we introduced Calgonit two phase Gel, the first gel
to deliver the benefits of
12
<PAGE>
[graphics omitted]
double action performance, into Germany, Austria and Switzerland with
encouraging reaction from both the retail trade and consumers. The product has
already created a significant new sector of the market. Across all these
markets we also completed the roll out of our new, reformulated automatic
dishwashing machine cleaner and the Citro-Fresh machine deodorizer. All these
innovations are available as part of the Calgonit or Finish brand range
depending on the market concerned.
In North America we continued with the launch of Electrasol Double Action
Tablets. In its first full year in the United States market, this innovation
already achieved a market share of over 6% and met with great customer
satisfaction as evidenced by its high repurchase rate. Our objective therefore
is to further stimulate trial of this superior product. As a result, we
maintained our high level of marketing investment in North America throughout
the year.
Based on this activity, a combination of product innovation and marketing
intensity, our share of the worldwide ADW market further increased to a new
record in 1998.
We believe the potential for growth of the category remains very attractive due
to the growing penetration of automatic dishwashing machines. Even in the most
developed economies, such as the United States, only just over half of all
households have a dishwasher, while in most European markets penetration is
much lower. This compares with penetration levels of over 90% for laundry
machines in all developed economies. As a result, the worldwide market for
automatic dishwashing products continues to show healthy growth.
Our share of the worldwide Automatic Dishwashing market further increased to a
new record in 1998. The Company is the worldwide leader with double the share
of its nearest competitor
[graphics omitted]
13
<PAGE>
Laundry Additives
Laundry Additives accounted for 27% of Group net revenues and grew by 13% to
NLG 1,025 million in 1998. This category covers products that are used either
before or during the main laundry wash cycle to improve performance, remove
stains and enhance the quality of the wash. The Company's presence in this
category is in three main areas: Water Softeners, Fabric Treatment products and
Fabric Softeners. Over the three years since 1995, this category has grown at
an average rate of 16% a year.
Water Softeners
Calgon is clear market leader worldwide with a measured share of over 80%
Water Softeners are main wash additives whose function is to protect the
heating element of European style washing machines from the buildup of mineral
deposits, prevent corrosion and thereby prolong the life of the machine. Water
Softeners also enhance cleaning performance and fabric appearance. The
Company's brand, Calgon, is clear market leader worldwide with a measured share
of over 80%.
The key to growth for this subcategory is explaining the benefits of the brand
to consumers in developed markets and extending the brand into new emerging
markets where ownership of European style washing machines is growing. As the
only substantial brand in the category worldwide, Calgon is responsible for
generating growth in the category overall.
In 1998, Water Softeners made very strong progress on both key objectives. New
advertising campaigns communicated effectively with consumers in Western
Europe, generating strong additional demand for the brand. Growth was strongest
in the underdeveloped markets of the UK and Spain. In addition, the continued
roll out of the brand into newer markets of Eastern Europe, such as Poland,
Hungary, the Czech Republic and Turkey, led to rapid growth in Rest of World.
We believe that potential for the Calgon business remains strong, as key
markets are still underdeveloped and European style machines increasingly gain
acceptance.
[graphics omitted]
14
<PAGE>
[graphics omitted]
Fabric Treatments
These products are used pre or in wash to remove stains that detergents leave
behind. They are available in a number of formats, including liquids, powders,
sprays, bars and tablets. Benckiser's leading brand in this area is Vanish,
although the Company also has a number of local brands. In total we sell these
products in 21 countries, including the UK, Spain, Italy, Portugal and all key
markets of Eastern Europe, holding the number one or two position in 18 of
these markets in the main in-wash sector. In recent years, this has been one of
the fastest growing parts of Benckiser's business. During 1998, Benckiser
purchased Napisan, the market leader in fabric treatment in Australia and New
Zealand that also has a significant presence in Italy.
The key to growth in this market is effective consumer communication and
innovation. In 1998, Benckiser grew further as a result of its introduction of
the liquid in wash booster in a number of key markets. Importantly, we were the
first company to introduce tablets into this category with the launch of Blanka
double action stain-removing tablets in Portugal. Also, building on the
established consumer franchise of Vanish as a stain remover for fabrics, we
launched a range of carpet and upholstery cleaners in Turkey and parts of
Eastern Europe with considerable success. We also launched pre-wash stain
treaters in Turkey and the Czech Republic.
Fabric Treatments remove stains that detergents leave behind
Fabric Softeners
Fabric Softeners are products used in the main wash cycle to soften and freshen
fabrics. Benckiser has strong positions in several markets in Western and
Eastern Europe with its leading Quanto and Flor brands. The Company has a
strategy of maintaining these strong positions. As softness and freshness are
key drivers in this market, Benckiser relaunched its premium fabric softeners,
Quanto and Flor, across Europe with new improved fragrances based on the
concept of "natural essences" during 1998.
[graphics omitted]
15
<PAGE>
Home Cleaning
[graphics omitted]
Marc is a new generation of all purpose cleaner that cleans and disinfects
without chlorine
Home Cleaning products include liquid, powder and cream products used to clean
surfaces within the home. Home Cleaning products represented 9% of Company net
revenues and grew by 2% to NLG 344 million in 1998. The Company's key strategic
focus in this category is on building its position in targeted specialty
cleaners. These are products such as Lime-and-Rust cleaners, where Benckiser
has the leading brand in the US, Lime-A-Way. In Europe the product is marketed
under the Cillit brand name. The Company has a number one or two market
position in 19 of the 21 markets where the brands are marketed. Over the three
years since 1995, average growth of this category has been 13% a year.
Home Cleaning markets are highly fragmented and growth comes from product
innovation and market segmentation. An example is our recently launched
VitroClen brand, a product specifically designed for Home Cleaning the new
vitro-ceramic stovetops. This product is now available in most of our European
markets. Recently, we created a new product category in Hungary and Turkey with
the launch of Marc and Marc H, a new generation of all-purpose cleaners that
clean and disinfect without chlorine.
Benckiser has a local but established position in all-purpose cleaners, such as
St. Marc in France, and in bathroom cleaners such as Scrub Free in the US. The
St. Marc brand range in France was recently relaunched with new fragrances and
disinfecting range extensions. In the US we launched a new shower-cleaner under
the Scrub Free brand franchise.
16
<PAGE>
Laundry Cleaning
Laundry Cleaning represented 24% of the Company's net revenues and grew 6% to
NLG 923 million in 1998. Over the last three years, this category has shown
average growth of 8% a year. In Laundry Cleaning, Benckiser focuses on the
value sector. It sells its branded detergents in Southern European and emerging
markets in Eastern Europe and China where it has strong positions in the value
sector of the market. It is also the largest producer of private label laundry
detergent powder in Europe in this category. Private label business in 1998 was
strong.
The key strategic value of this category is to provide an entry platform for
the Company in new territories. The business that can be achieved quickly
through value laundry detergents creates enough scale to largely offset
start-up costs. Typically, this is achieved using the Company's Dosia brand
range, as is the case in much of Eastern Europe and more recently in China,
although other brands such as Colon, Lanza and Ava also fulfil this function in
specific markets. Achieving critical mass quickly in distribution and logistics
supports the roll out of the premium niche products as economic growth
stimulates demand for them.
In 1998, growth was driven by expansion of our brands in existing and newer
markets. In China, Dosia has grown very rapidly following its introduction
during the year. In Southern Europe, the Company has a strong presence with
brands such as Ava and Sole in Italy, and Colon and Elena in Spain. In 1998,
growth was led by market share gains for Colon in Spain behind the launch of
laundry detergent tablets. While Benckiser is normally not an innovation
leader, but a rapid follower, in this instance it was the first multinational
company to introduce these tablets in late 1997, leveraging its tablet making
expertise gained in dishwashing and water softeners. More recently, during
1998, this product was introduced in Israel and the Czech Republic.
Benckiser was the first company to launch laundry detergent tablets, with the
Colon brand
[graphics omitted]
17
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[page 18 to page 23 is intentionally omitted.]
Results of Operations
The following discussion and analysis of the financial position and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements, the Notes to the Consolidated Financial Statements, and
other financial information contained elsewhere in this Annual Report. All
numbers presented are in million except for per share data.
General
The Company was incorporated in the Netherlands in December 1996. Joh. A.
Benckiser GmbH ("JAB"), a German corporation, sold or contributed certain
subsidiaries it owned to the Company during the period up to June 1997 ("the
Reorganization"). Prior to the Reorganization, the household cleaning products
business of JAB was operated as a division of JAB, consisting principally of a
number of wholly owned subsidiaries of JAB. The household products division
introduced its first product - Calgon, a Water Softener - in 1956. In the
following years, new household cleaning products under brand names such as
Calgonit and Quanto were introduced in countries throughout Europe. Over 10
years beginning in 1982, the household products division grew rapidly, as JAB
acquired 18 companies in 11 countries throughout key worldwide markets,
including the 1985 acquisition of St. Marc S.A. in France and the 1987
acquisition of Ecolab's worldwide consumer business. In 1988, JAB bought Mira
Lanza Spa and Panigal Spa in Italy; in 1989, JAB bought S.A. Camp in Spain. In
1990, JAB also began making acquisitions in the cosmetics industry. As a
result of the Reorganization, JAB divided its business into a separate
household cleaning products subsidiary - the Company - and a separate cosmetics
subsidiary, Coty Inc.
Currency Fluctuations
The Company owns subsidiaries and sells its products in many different
countries and therefore conducts business in various currencies. The Company's
Consolidated Financial Statements, which are presented in Dutch guilders, are
impacted by foreign exchange fluctuations primarily through translation risk,
rather than transaction risk. Translation risk is the risk that the financial
statements of the Company for a particular period or as of a certain date are
affected by changes in the prevailing exchange rates of the various currencies
in which its assets and liabilities are denominated against the Dutch guilder.
Generally, a weakening of the Dutch guilder against other currencies has tended
to affect reported operating results positively and a strengthening of the
Dutch guilder against other currencies has tended to affect reported operating
results negatively.
Transaction risk is the risk that the currency structure of the Company's costs
and liabilities deviates to some extent from the currency structure of sales
proceeds and assets. Transaction risk has not in the past had a material impact
on the Company's results of operations. The Company's results are generally not
significantly impacted by transaction risk because the Company maintains local
manufacturing operations in many of the countries where it sells its products.
In certain cases, the Company's raw materials and packaging costs are invoiced
in one currency, while related revenues are collected in another, which has
had, and may in the future have, positive and negative effects.
From time to time, the Company purchases or sells currencies forward to hedge
currency risk, primarily
24
<PAGE>
related to cash flows receivable by the Company from its subsidiaries in
intercompany financing transactions, such as loans, interest and royalty
payments, license fees and dividends. The Company has not experienced
significant gains or losses as a result of such hedging activities. Beyond the
Company's effective hedge through currency matching of many costs and related
revenues, the Company generally does not attempt to hedge against transaction
risk. With respect to translation risk, even though the fluctuations of
currencies against the Dutch guilder can be substantial and therefore
significantly impact comparisons with prior periods, the translation impact is
a reporting consideration at the consolidated level and does not affect the
underlying results of operations of the Company's operating subsidiaries.
Net Revenues
The Company
Net revenues increased 8%, from NLG 3,582.4 in 1997 to NLG 3,857.4 in 1998,
reflecting increases in net revenues across all core categories and regions.
The increases in net revenues, stated in Dutch guilders, in all of the
Company's product categories and geographic regions, were due primarily to
increases in volume of goods sold, rather than price increases, as the Company
experienced market growth in core categories, increased market shares in
certain key product categories and experienced further growth in new markets
entered in late 1996 and 1997.
Adjusted for changes in foreign exchange rates (by applying average 1997
constant exchange rates to 1998 local currency net revenues), the Company's net
revenues also increased by 8%.
In 1997, the Company's net revenues rose 18%, to NLG 3,582.4 from NLG 3,039.0
reported in 1996.
Dishwashing Products
The Company's net revenues in Dishwashing products increased 9%, from NLG
1,179.6 in 1997 to NLG 1,282.7 in 1998. The 9% increase was largely
attributable to net revenue increases in Automatic Dishwashing (ADW) products
(91%) as a result of: (i) the roll out of the Company's new Double Action Plus
Tablets under the brand names Calgonit and Finish and the launch of a new
machine cleaner and deodorizing product in Western Europe; (ii) the
substantial volume and market share gains behind the launch of the Electrasol
Double Action Tablets in North America in the second half of 1997; and (iii)
the further roll out of the Company's ADW products in new markets. As a result,
the Company's measured worldwide market share increased from 38.2% in 1997 to
38.8% in 1998.
Adjusted for changes in foreign exchange rates, the Company's net revenues in
Dishwashing products increased by 9%.
The Company's net revenues generated by Dishwashing products in 1997 increased
by 26%, from NLG 939.9 in 1996 to NLG 1,179.6.
Laundry Additives
The Company's net revenues in Laundry Additives increased by 13%, from NLG
904.0 in 1997 to NLG
25
<PAGE>
Net Revenues by Category
[graphics omitted]
1,025.0 in 1998. The 13% increase was attributable to the growth of Fabric
Treatment products, mainly reflecting the successful integration of the Napisan
business, which was acquired in July 1998, in Australia, New Zealand and
Italy. Also, the roll out of Blanka Double Action Tablets in Portugal, and some
line extensions in new markets like Turkey and Poland, contributed to the
growth. In addition, the Calgon Water Softeners business grew substantially,
boosted by a very successful advertising campaign, in the UK, France, Italy,
Spain and Greece.
Adjusted for changes in foreign exchange rates, the Company's net revenues in
Laundry Additives increased by 14%.
The Company's net revenues in Laundry Additives increased by 17% in 1997 from
NLG 773.0 in 1996 to NLG 904.0.
Home Cleaning
The Company's net revenues in Home Cleaning products increased by 2%, from NLG
335.8 in 1997 to NLG 343.5 in 1998. The 2% increase was largely attributable to
continued growth in semi-established markets like Poland and Hungary, partly
offset by a decline in net revenues in Russia and the CIS.
Adjusted for changes in foreign exchange rates, the Company's net revenues in
Home Cleaning products increased by 3%.
In 1997, the Company's net revenues derived from Home Cleaning products
advanced 20%, to NLG 335.8 from NLG 278.9 in 1996.
Laundry Cleaning
The Company's net revenues in Laundry Cleaning products increased by 6%, from
NLG 875.0 in 1997 to
26
<PAGE>
NLG 923.2 in 1998. The 6% growth was largely attributable to the favorable
development in China, a new market entered at the end of 1996, as well as
market share gains in Spain behind the introduction of Colon Double Action
Tablets.
Adjusted for changes in foreign exchange rates, the Company's net revenues in
Laundry Cleaning products increased by 7%.
The Company's net revenues derived from Laundry Cleaning products in 1997
increased 14%, from NLG 765.7 in 1996 to NLG 875.0.
Other
The Company's net revenues in other products decreased by 2%, from NLG 288.0 in
1997 to NLG 283.0 in 1998.
Adjusted for changes in foreign exchange rates, the Company's net revenues from
other products decreased by 1%.
The Company's net revenues in other products increased by 2% in 1997, from NLG
281.4 in 1996 to NLG 288.0.
Western Europe
The Company's net revenues in Western Europe
increased by 7%, from NLG 2,434.9 in 1997 to NLG
2,603.4 in 1998. The 7% increase was achieved
across all major categories and all main markets
of the Company. Particularly strong growth came
from premium niche categories such as Calgonit and
Finish Automatic Dishwashing products in the UK,
Spain, Italy, France and the Netherlands, reflecting
the success of the roll out of the Company's new
Category Net Revenues - Four Year Development
[graphics omitted]
27
<PAGE>
Double Action Plus upgrade and the launch of a new machine deodorizing product
for dishwashers. Calgon Water Softeners, boosted by a very successful
advertising campaign in the UK, France, Italy, Spain and Greece, grew
significantly. Fabric Treatment products also contributed to the growth
following the introduction of Blanka Double Action Tablets in Portugal, and due
to the first time contribution in Italy of Napisan, which was acquired in July
1998. Laundry Cleaning developed well in Spain, where Colon Double Action
Tablets were launched.
The largest countries by net revenues in Western Europe are, in order of
magnitude, Italy, Spain, Germany, France and the UK, which, on a combined
basis, represent approximately 85% of the Company's net revenues in Western
Europe in 1998 and 1997.
Adjusted for changes in foreign exchange rates the Company's net revenues in
Western Europe increased by 7%.
In 1997, the Company's net revenues in Western Europe rose 10%, from NLG
2,223.4 in 1996 to NLG 2,434.9.
North America
The Company's net revenues in North America increased by 5%, from NLG 531.6 in
1997 to NLG 556.9 in 1998. The 5% increase was largely attributable to
increased volume and market share gains in North America for the Company's
leading ADW product brand, Electrasol, reflecting the successful launch of the
Electrasol Double Action Tablets. This positive effect was partly offset by
heavy price competition in other parts of the market with a negative impact on
both net revenues and margins.
Adjusted for changes in foreign exchange rates, the Company's net revenues in
North America increased by 4%.
The Company's net revenues in North America increased by 35% in 1997, from NLG
392.7 recorded in 1996 to NLG 531.6.
Rest of World
The Company's net revenues in Rest of World increased by 13%, from NLG 615.9 in
1997 to NLG 697.1 in 1998. The 13% increase was largely attributable to the
roll out of the Company's existing portfolio of premium-niche products in
semi-established markets such as Turkey, Poland, the Czech
Gross Margin Improvement: Four Year Development
[graphics omitted]
28
<PAGE>
Republic, Slovakia and Hungary. In addition it reflects the successful
integration of the Napisan business in Australia and New Zealand, which started
in July 1998. In China, net revenues grew strongly due to further geographic
roll out and the launch of the Dosia value brand alongside the existing Power
28 Laundry Cleaning brand. In Russia and the CIS, net revenues have declined
following the summer economic crisis and the subsequent change to hard-currency
cash sales terms.
Adjusted for changes in foreign exchange rates the Company's net revenues in
Rest of World increased by 18%.
In 1997, the Company's net revenues derived from Rest of World increased 46%,
from NLG 422.9 in 1996 to NLG 615.9.
Cost of Sales
The Company's cost of sales increased by 6%, from NLG 2,052.1 in 1997 to NLG
2,166.2 in 1998. Cost of sales increased as a result of higher unit volumes. As
a percentage of net revenues, such cost of sales decreased from 57.3% in 1997
to 56.2% in 1998. Cost of sales as a percentage of net revenues decreased
primarily due to a more favorable product mix, featuring a greater proportion
of relatively high margin premium products, continued significant cost savings
both in developed and emerging markets through cost-cutting programs, and first
benefits from the manufacturing restructuring program implemented in 1997.
The Company's cost of sales were NLG 1,803.0 in 1996 and rose by 14% to 2,052.1
in 1997. As a percentage of net revenues, the cost of sales decreased from
59.3% in 1996 to 57.3% in 1997.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses increased by 8%,
from NLG 1,120.7 in 1997 to NLG 1,215.0 in 1998. As a percentage of net
revenues, such selling, general and administrative expenses increased from
31.3% in 1997 to 31.5% in 1998. The increase as a percentage of net revenues
was largely attributable to a 14% increase in marketing costs, driven by
increased support of the Company's leading brands in Western Europe and North
America and by the regional expansion strategy into new markets.
Selling, general and administrative expenses increased
by 32% in 1997 to NLG 1,120.7 from NLG 850.9 in 1996.
Restructuring
Beginning in 1997, the Company initiated an extensive program of identifying
and implementing cost reduction and profit enhancement initiatives designed to
increase the efficiency and profitability of its operations worldwide. These
initiatives include: (i) a restructuring program that includes the closure of
four facilities in Western Europe (Austria, Belgium, Italy and Portugal) and
one in Puerto Rico; (ii) increasing common components across product lines to
simplify manufacturing and logistics operations and reduce working capital; and
(iii) a restructuring of local sales forces and administration activities.
These changes resulted in a reduction of approximately 310 positions in 1998,
primarily as a result of the closure of the factories. A further
29
<PAGE>
reduction of approximately 330 positions will be completed during 1999.
The expenses related to the restructuring program were estimated to be NLG 62.3
and were recorded in the second half of 1997, including the write-off of
certain assets. The Company anticipates that these cost reduction and profit
enhancement initiatives will be completed during 1999. Although the majority of
the cash payments were made in 1997 and 1998, some of the cash payments will be
extended into 1999 due to lay-off and severance schemes.
Amortization of Intangibles
The Company had net intangible assets of NLG 750.6 as of December 31, 1998.
These intangible assets relate to trademarks, goodwill and other intangible
assets, which are being amortized over their estimated useful lives. The
majority of these amounts relate to major acquisitions made between 1987 and
1989 and to the Napisan acquisition in 1998. Non-cash expenses related to
amortization of intangible assets fell from NLG 40.7 in 1997 to NLG 40.0 in
1998.
Non-cash expenses related to amortization of intangibles fell from NLG 41.1 in
1996 to NLG 40.7 in 1997.
Operating Income
Operating income increased by 42%, from NLG 306.6 in 1997 to NLG 436.2 in 1998.
The increase in operating income was driven by a gross margin improvement of
1.1 percentage points, which was partly offset by an increase in marketing
spending. Comparisons were also favored by the absence of restructuring and
stock-based compensation expenses incurred in 1997.
Without those charges operating income grew by 14%. In Western Europe,
operating income, exclusive of restructuring and stock-based compensation
expenses in 1997, increased from NLG 358.3 in 1997 to NLG 448.1 in 1998, or by
25%. Operating income, exclusive of restructuring and stock-based compensation
expenses in 1997, decreased in North America from NLG 7.3 in 1997 to NLG (0.7)
in 1998, or by 110%, and decreased, exclusive of restructuring and stock-based
compensation expenses in 1997, in Rest of World from NLG 15.2 in 1997 to NLG
2.7 in 1998, or by 82%.
The increase in operating income, exclusive of restructuring and stock-based
compensation expenses, in Western Europe was largely attributable to improved
operating income in Italy, Spain, France and the UK, reflecting growth in net
revenues and an improved gross margin. The decrease in operating income,
exclusive of restructuring and stock-based compensation expenses, in North
America was due to significant spending in marketing following the launch of
the Electrasol ADW Double Action Tablet and margin pressure in other parts of
the market due to intensified competition. The decrease in operating income,
exclusive of restructuring and stock-based compensation expenses, in Rest of
World was attributable to the losses incurred in Russia and the CIS due to a
substantial decline in business following the economic crisis in those
countries. As a result, the Company has downscaled its operations in those
countries to better match the reduced consumer demand. These losses in Russia
and the CIS were offset by improved profitability in semi-established countries
such as Turkey, Poland, the Czech Republic, Slovakia and Hungary, and in the
new market of China.
30
<PAGE>
In 1997, operating income decreased by 11% to NLG 306.6, from NLG 344.0 in
1996.
Interest Expense, Net
Interest expense, net, decreased by 23%, from NLG 56.1 in 1997 to NLG 43.4 in
1998. The decrease was mainly due to a net repayment of debt and net borrowings
due to affiliates, and to a decrease in the effective interest rate in 1998.
Interest expense, net, decreased by 20%, from NLG 70.6 in 1996 to NLG 56.1 in
1997.
Provision for Income Taxes
Provision for income taxes increased 52%, from NLG 105.4 in 1997 to NLG 159.8
in 1998, due to an increase in earnings before income taxes of 57%, partially
offset by a decrease in the Company's effective tax rate from 42.1% to 40.7%.
In 1997, provision for income taxes decreased by 5%, from NLG 110.4 in 1996 to
NLG 105.4, due to a 8% decrease in earnings before income taxes, which was
partly offset by a 1.7 percentage points increase in the effective tax rate.
Net Earnings
The Company's net earnings (after minority interests) increased by 55%, from
NLG 154.8 in 1997 to NLG 239.7 in 1998. Excluding the restructuring expenses
and the stock-based compensation expenses recorded in 1997, adjusted for the
tax effect of these items, the Company's net earnings increased by 20% from NLG
199.7 in 1997.
The Company's net earnings (after minority interests) decreased 6% in 1997,
from NLG 164.9 in 1996 to NLG 154.8.
Earnings Per Share
The Company's basic and diluted earnings per share increased by 55% and 52%
from NLG 2.95 and NLG 2.91 in 1997 to NLG 4.57 and NLG 4.42 in 1998,
respectively. Excluding the restructuring expenses and stock-based compensation
expenses recorded in 1997, adjusted for the tax effect of these items, the
Company's basic and diluted earnings per share increased by 20% and 18% from
NLG 3.81 and NLG 3.75 in 1997, respectively.
Net Revenues and Operating Income Breakdown
The following table is intended to indicate the net revenue and operating
income growth of the Company both at actual exchange rates and at constant
exchange rates, using, as constant exchange rate, the 1997 average Dutch
guilder exchange rates, removing the effect of currency translation. With
respect to countries with high inflation, actual exchange rates have been
applied for both growth rate calculations. The Company believes that the
following presentation more clearly illustrates the results of the Company as
influenced by operational items such as unit sales growth, as opposed to the
influence of currency fluctuations. The table below is presented solely for the
purpose of allowing a presentation of underlying trends, free of translation
effects, by presenting growth rates for sales by product category and
geographical region, as well as for operating income by geographical region.
31
<PAGE>
Net Revenues and Operating Income Breakdown
<TABLE>
1998 % of 1997 % change
NLG total NLG exchange rates
(In millions) actual rates actual rates actual constant
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues by product category
Dishwashing 1,282.7 33 1,179.6 8.7 9.1
Laundry Additives 1,025.0 27 904.0 13.4 14.0
Home Cleaning 343.5 9 335.8 2.3 2.9
Laundry Cleaning 923.2 24 875.0 5.5 6.5
Other 283.0 7 288.0 (1.7) (1.2)
Total 3,857.4 100 3,582.4 7.7 8.3
Net revenues by region
Western Europe 2,603.4 67 2,434.9 6.9 6.9
North America 556.9 15 531.6 4.8 3.6
Rest of World 697.1 18 615.9 13.2 17.8
Total 3,857.4 100 3,582.4 7.7 8.3
Operating income by region
Western Europe 448.1 358.3 25.1 25.1
North America (0.7) 7.3 (109.6) (108.2)
Rest of World 2.7 15.2 (82.2) (65.8)
Corporate/Eliminations (13.9) 3.2 --- ---
Subtotal 436.2 384.0 13.6 14.3
Restructuring expenses 1) 0.0 (62.3) --- ---
Stock-based compensation expenses 0.0 (15.1) --- ---
Total 436.2 306.6 42.3 43.2
</TABLE>
1) Restructuring expenses include NLG 48.6 for Western Europe, NLG 5.7 for
North America, NLG 4.0 for Rest of World and NLG 4.0 for corporate and
eliminations.
32
<PAGE>
Liquidity and Capital Resources
Cash Flows from Operating Activities
Cash provided by operations totaled NLG 371.6 in 1998, NLG 351.1 in 1997 and
NLG 398.0 in 1996, with NLG 353.8, NLG 277.9 and NLG 290.0, respectively,
generated by cash flow from earnings before minority interests and depreciation
and amortization, while the remainder in each case resulted mainly from changes
in working capital and provisions. The increase in cash generated by operations
in 1998, as compared with 1997, was primarily due to the increase in net
earnings and accounts payable partly offset by an increase in accounts
receivable due to the termination of a factoring agreement with an affiliate.
The decrease in cash generated by operations in 1997 as compared with 1996
reflects the Company's greater working capital needs due to the entry into new
markets and net revenue growth. For all periods presented, cash provided by
operations was used to fund capital expenditures, business acquisitions,
financing activities and net distributions to the shareholders.
Cash and cash equivalents at year-end 1998, 1997 and 1996 were NLG 96.0, NLG
80.6 and NLG 36.0, respectively.
The Company factors certain of its third-party accounts receivable, a major
portion of which was done through an agreement with an affiliate, which was
discontinued as of June 30, 1998. The Company has paid factoring fees to the
affiliate that were based on the monthly outstanding balance and publicly
available market interest rates. Third-party factoring agreements are primarily
on a limited recourse basis, with recourse to the Company for a defined
percentage of the accounts that become uncollectable. The effect of factoring
accounts receivable accelerates the Company's ability to generate cash from its
operations and, in some cases, reduces outstanding short term borrowings.
Cash Flow from Investing Activities
Net cash used in investing activities totaled NLG 190.3 in 1998, NLG 144.6 in
1997 and NLG 95.1 in 1996. The Company spent NLG 231.2, NLG 139.9 and NLG 117.3
on tangible and intangible assets in 1998, 1997 and 1996, respectively. The
increase over the years is primarily due to investments in new plant facilities
(including China and Hungary), the improvement of existing facilities,
particularly Tablet production equipment, and investments in new information
systems. Included in the 1998 number is the acquisition of the Napisan Fabric
Treatment business from Procter & Gamble. In 1997, the Company invested NLG
12.1 in other non-current assets relating to minority investments and a
prepayment as security for a long term operational lease.
Cash Flows from Financing Activities
Net cash used in financing activities totaled NLG 151.6 in 1998, NLG 173.2 in
1997 and NLG 309.1 in 1996.
As a result of the presentation of the Consolidated Financial Statements as if
the Company had existed as a stand-alone operation for all periods presented,
with the same net debt structure as was actually
33
<PAGE>
created as of June 30, 1997, the total of net financing activities includes net
distributions to JAB and working capital funding by JAB and its affiliates to
keep the net indebtedness constant through June 30, 1997. In the second half
year of 1997, the Company replaced its affiliated borrowings due to JAB,
replaced a German Mark 130.0 subordinated loan and replaced certain other long
and short term borrowings with new loan agreements.
The net distributions to JAB totaled NLG 141.0 in 1997 and NLG 304.3 in 1996.
In 1998, the Company paid an interim dividend to its shareholders of NLG 36.9.
Net Indebtedness
The Company maintains bank overdrafts and unsecured short term lines of credit
of NLG 665.6, of which NLG 52.3 and NLG 90.4 were drawn down as of December 31,
1998 and 1997, respectively.
The Company had an outstanding subordinated long term borrowing of Austrian
Schilling 350.0 as of December 31, 1997, which was repaid on September 30,
1998. On December 23, 1997, the Company entered into a subordinated loan
agreement of NLG 100.0 with JAB Investments B.V., an affiliated company of JAB,
which was repaid on October 1, 1998. On December 20, 1997, the Company repaid a
subordinated long term borrowing of German Mark 130.0 matching a receivable
from JAB of the same amount due on the same date.
On October 31, 1997, a subsidiary of the Company entered into a seven-year
credit facility of German Mark 450.0 (the "Credit Facility") with a syndicate
of banks led by Westdeutsche Landesbank Girozentrale. The Credit Facility
replaced affiliated borrowings from JAB and certain other loans. Drawings under
the Credit Facility bear interest at a rate based on the Reuters Monitor Money
Services Page "ICAR" plus a margin of 0.50% per annum. On the date of borrowing
the rate is fixed for the remaining term. During the term of the Credit
Facility, the Company is required to maintain certain covenants, including
certain financial ratios. As of December 31, 1998, and as of December 31, 1997,
the Company had utilized the Credit Facility in full.
The Company had outstanding committed, unsecured term loans and long term lines
of credit in various currencies, totaling NLG 1,023.7 as of December 31, 1998,
NLG 525.0 as of December 31, 1997, and NLG 148.8 as of December 31, 1996. Total
outstanding capital lease commitments were NLG 35.1 as of December 31, 1998,
NLG 47.2 as of December 31, 1997, and NLG 55.5 as of December 31, 1996. The
total amounts available under committed, unsecured long term lines of credit
were NLG 389.8 as of December 31, 1998, and NLG 56.6 as of December 31, 1997.
Management believes that the Company's cash generated from operations and
available credit facilities will be sufficient to cover the Company's working
capital, debt service and capital expenditures for at least the next twelve
months.
The Company is dependent on payments, dividends and distributions from its
operating subsidiaries in various jurisdictions for funds to pay dividends to
its shareholders. The ability of the Company and its
34
<PAGE>
principal operating subsidiaries to pay dividends is subject to certain
statutory limitations in their respective jurisdictions, which primarily relate
to the required allocation of a nominal percentage of earnings to the
establishment and maintenance of statutory reserves. As a result, the Company's
ability to pay dividends may be limited.
Year 2000
The Company is undertaking a comprehensive program with the goal of making its
business systems and computerized information Year 2000 compliant. A worldwide
taskforce has been established, including corporate and local sales and
manufacturing management, to coordinate this program. Progress of this program
is monitored and reported to management and to the Finance & Audit Committee of
the Supervisory Board of Directors on a regular basis. The main focus is the
introduction of new standardized systems across the group that are Year 2000
compliant, in particular the widespread adoption of the J. D. Edwards business
applications software for finance, distribution and manufacturing. The Company
is also reviewing its non-IT systems, which include the hardware, software and
associated embedded computer technologies that are used to operate Company
facilities, equipment and other activities that are not related to IT systems.
The total costs of the Company's Year 2000 compliance program are estimated to
be approximately NLG 45.0, of which NLG 20.0 and NLG 12.0 has already been
incurred through 1998 and 1997 respectively. Costs related to the Year 2000
problem are expensed as incurred or capitalized (i.e. software) and amortized
over their useful life.
The Year 2000 program has been designed to include five phases: planning,
assessment, conversion, implementation and review. The implementation phase
was substantially completed by the end of the first quarter of 1999, with
ongoing testing and external reviewing of systems to be carried out during the
course of the second and third quarter of 1999. A team of external and internal
auditors will carry out the review phase.
In addition, the Company's program includes assessing Year 2000 compliance at
its significant suppliers, third-party service providers and customers. This
program will continue throughout 1999, but is expected to be substantially
complete before the end of the year.
The Company believes it is taking reasonable steps to prevent major
interruptions in the business related to the Year 2000 issues, including
considering certain contingency plans. The effect, if any, if the Company, its
suppliers or the public sector are not fully Year 2000 compliant is not
reasonably estimable. The major risk associated with the Year 2000 would be the
inability to deliver the Company's products to its customers. In the worst case
this would have a negative effect on net revenues, profitability and market
share. The Company believes, however, that the successful completion of its
Year 2000 program will significantly reduce the risk of a major business
interruption due to Year 2000 failures.
The estimated costs of the Company's program and
the dates by which the Company believes it will have
completed each of the phases of the program, are
based on management's best estimates, which rely
35
<PAGE>
on numerous assumptions regarding future events, including the continued
availability of certain resources, third-party remediation plans and other
factors. These estimates, however, may prove not to be accurate and actual
results could differ materially from those anticipated. Factors that could
result in material differences include, without limitation, the availability to
identify, assess, remediate and test all relevant computer codes and embedded
technology, and similar uncertainties. In addition, Year 2000 related issues
may lead to possible third-party claims, the impact of which cannot be
estimated at this stage. No assurance can be given that the aggregate cost of
defending and resolving such claims, if any, would not have a material adverse
effect on the Company.
36
<PAGE>
[page 37 is intentionally omitted.]
Consolidated Statements of Operations
<TABLE>
For the year ended December 31 1998 1998 1998 1997 1996
(In millions, except per share data) US$ EUR NLG NLG NLG
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues 2,042.3 1,750.4 3,857.4 3,582.4 3,039.0
Cost of sales 1,146.9 983.0 2,166.2 2,052.1 1,803.0
Gross profit 895.4 767.4 1,691.2 1,530.3 1,236.0
Selling, general and administrative expenses 643.3 551.3 1,215.0 1,120.7 850.9
Restructuring expenses -- -- -- 62.3 --
Amortization of intangibles 21.2 18.1 40.0 40.7 41.1
Operating income 230.9 198.0 436.2 306.6 344.0
Interest expense - third parties
(net of interest income of NLG 9.5,
NLG 5.0 and NLG 6.4, respectively) 21.3 18.3 40.2 47.1 58.8
Interest expense - affiliates
(net of interest income of NLG 0.3,
NLG 10.6 and NLG 8.5, respectively) 1.7 1.5 3.2 9.0 11.8
Earnings before income taxes and
minority interests 207.9 178.2 392.8 250.5 273.4
Provision for income taxes 84.6 72.5 159.8 105.4 110.4
Net earnings before minority interests 123.3 105.7 233.0 145.1 163.0
Minority interests (3.6) (3.1) (6.7) (9.7) (1.9)
Net earnings 126.9 108.8 239.7 154.8 164.9
Basic earnings per common share 2.42 2.07 4.57 2.95 3.15
Diluted earnings per common share 2.34 2.01 4.42 2.91 3.15
</TABLE>
See notes to Consolidated Financial Statements.
38
<PAGE>
Consolidated Balance Sheets
<TABLE>
December 31 1998 1998 1998 1997
(In millions, except share and per share data) US$ EUR NLG NLG
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 50.8 43.6 96.0 80.6
Accounts receivable, net of allowances
of NLG 34.4 and NLG 34.6 respectively 254.1 217.8 479.9 381.8
Inventories 139.5 119.5 263.3 257.9
Prepaid expenses and other current assets 62.3 53.4 117.6 100.3
Due from affiliates 6.8 5.8 12.9 16.9
Deferred income taxes 15.0 12.8 28.4 35.7
Total current assets 528.5 452.9 998.1 873.2
NON-CURRENT ASSETS:
Property, plant and equipment, net 262.8 225.2 496.3 502.8
Trademarks, net 172.6 147.9 326.0 272.1
Goodwill, net 224.8 192.7 424.6 408.5
Other non-current assets 6.4 5.6 12.2 13.7
Total non-current assets 666.6 571.4 1,259.1 1,197.1
Total assets 1,195.1 1,024.3 2,257.2 2,070.3
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current portion of
long-term debt 120.9 103.6 228.4 95.8
Accounts payable 283.3 242.8 535.0 473.9
Income tax and other taxes payable 83.8 71.8 158.3 102.6
Accrued expenses and other current
liabilities 234.4 200.9 442.7 402.6
Due to affiliates 10.2 8.7 19.2 28.7
Total current liabilities 732.6 627.8 1,383.6 1,103.6
LONG-TERM LIABILITIES:
Long-term debt 242.3 207.6 457.7 566.9
Pensions and other long-term liabilities 49.7 42.8 93.9 91.1
Deferred income taxes 27.3 23.4 51.5 49.6
Subordinated loan 56.1
Subordinated loan due to affiliate 100.0
Minority interests 2.8 2.4 5.3 12.5
Total long-term liabilities 322.1 276.2 608.4 876.2
Total liabilities 1,054.7 904.0 1,992.0 1,979.8
SHAREHOLDERS' EQUITY:
Class A Common Shares, par value
NLG 4.00 per share, 32,625,000 shares
authorized; 13,655,000 shares
issued and outstanding 28.9 24.8 54.6 54.6
Class B Common Shares, par value NLG
1.00 per share, 94,500,000 shares
authorized; 39,064,630 and 38,761,670
shares issued and outstanding, respectively 20.7 17.7 39.1 38.8
Additional paid-in capital 44.5 38.1 84.0 73.2
Retained earnings 136.8 117.2 258.3 55.5
Other cumulative comprehensive income (loss) (90.5) (77.5) (170.8) (131.6)
Total shareholders' equity 140.4 120.3 265.2 90.5
Total liabilities and shareholders'
equity 1,195.1 1,024.3 2,257.2 2,070.3
</TABLE>
See notes to Consolidated Financial Statements.
39
<PAGE>
Consolidated Statements of Shareholders' Equity
<TABLE>
Class A Class B Additional Other Cumulative
Common Common Paid-in Retained Comprehensive Comprehensive
(Dutch guilders, in millions) Shares Shares Capital Earnings Income (loss) Total Income (loss)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 54.6 38.5 242.5 -- (204.1) 131.5 --
Net distributions to parent -- -- (139.4) (164.9) -- (304.3) --
Translation adjustment -- -- -- -- 52.7 52.7 52.7
Net earnings for the year -- -- -- 164.9 -- 164.9 164.9
Total comprehensive income -- -- -- -- -- -- 217.6
BALANCE, DECEMBER 31, 1996 54.6 38.5 103.1 -- (151.4) 44.8 --
Issuance of Class B Common Shares -- 0.3 10.4 -- -- 10.7 --
Net distributions to parent -- -- (41.7) (99.3) -- (141.0) --
Capital contribution
regarding stock-based plans -- -- 1.4 -- -- 1.4 --
Translation adjustment -- -- -- -- 19.8 19.8 19.8
Net earnings for the year -- -- -- 154.8 -- 154.8 154.8
Total comprehensive income -- -- -- -- -- -- 174.6
BALANCE, DECEMBER 31, 1997 54.6 38.8 73.2 55.5 (131.6) 90.5 --
Issuance of Class B Common Shares
from exercise of stock options -- 0.3 10.8 -- -- 11.1 --
Dividend distribution -- -- -- (36.9) -- (36.9) --
Translation adjustment -- -- -- -- (39.2) (39.2) (39.2)
Net earnings for the year -- -- -- 239.7 -- 239.7 239.7
Total comprehensive income -- -- -- -- -- -- 200.5
BALANCE, DECEMBER 31, 1998 54.6 39.1 84.0 258.3 (170.8) 265.2
</TABLE>
During 1997, the Company acquired NLG 13.7 in Class B Common Shares of the
Company from an affiliate and subsequently distributed such shares under the
Company's stock-based plans.
See notes to Consolidated Financial Statements.
40
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
For the year ended December 31 1998 1998 1998 1997 1996
(In millions) US$ EUR NLG NLG NLG
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings 126.9 108.8 239.7 154.8 164.9
Adjustments to reconcile net earnings to net cash
provided by operations:
Depreciation and amortization 63.9 54.8 120.8 132.8 127.0
Deferred income taxes 3.2 2.8 6.1 (29.2) (8.1)
(Gain) loss on sale of fixed assets (8.3) (7.2) (15.7) 1.0 (0.4)
Minority interests (3.6) (3.0) (6.7) (9.7) (1.9)
Compensation expenses from stock-based plans -- -- -- 15.1 --
Restructuring expenses -- -- -- 62.3 --
Changes in operating assets and liabilities that
provided (used) cash:
Accounts receivable (63.1) (54.1) (119.2) (61.6) 25.0
Inventories (8.9) (7.6) (16.8) (25.3) (43.6)
Prepaid expenses and other current assets (10.5) (9.0) (19.9) (3.1) (9.3)
Accounts payable 41.8 35.8 78.9 57.0 72.5
Income tax and other taxes payable 33.2 28.5 62.8 (11.1) 29.8
Accrued expenses and other liabilities 25.1 21.5 47.4 48.6 35.6
Pensions and other long-term liabilities 2.5 2.1 4.7 7.8 6.5
Due from/to affiliates (net) (5.6) (4.8) (10.5) 11.7 --
Net cash provided by operating activities 196.6 168.6 371.6 351.1 398.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (60.0) (51.4) (113.3) (138.9) (103.0)
Proceeds from sale of fixed assets 21.7 18.6 40.9 7.4 22.2
Purchase of intangible assets (62.4) (53.5) (117.9) (1.0) (14.3)
Purchase of other non-current assets -- -- -- (12.1) --
Net cash used in investing activities (100.7) (86.3) (190.3) (144.6) (95.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Class B Common Shares 5.9 5.0 11.1 10.7 --
Purchase of Class B Common Shares from
affiliate -- -- -- (13.7) --
Net proceeds (repayments) - short-term debt 27.4 23.6 51.8 (166.6) (125.6)
Net proceeds (repayments) - due from/to
affiliates -- -- -- (189.8) 133.2
Proceeds from subordinated loan due to
affiliate -- -- -- 100.0 --
Repayments of subordinated loan due to
affiliate (52.9) (45.3) (100.0) -- --
Proceeds from long-term debt -- -- -- 509.7 47.1
Repayments of long-term debt (11.3) (9.7) (21.5) (136.2) (59.5)
Repayments of subordinated loans (29.7) (25.5) (56.1) (146.3) --
Distributions to parent -- -- -- (141.0) (304.3)
Dividend distribution (19.6) (16.8) (36.9) -- --
Net cash used in financing activities (80.2) (68.7) (151.6) (173.2) (309.1)
EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS (7.5) (6.5) (14.3) 11.3 21.9
Net increase in cash and cash equivalents 8.2 7.1 15.4 44.6 15.7
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 42.6 36.5 80.6 36.0 20.3
CASH AND CASH EQUIVALENTS, END OF YEAR 50.8 43.6 96.0 80.6 36.0
SUPPLEMENTAL DISCLOSURES OF
CASH FLOWS INFORMATION:
Cash paid for:
Interest to third parties 26.0 22.3 49.0 48.8 62.9
Income taxes, net of refunds received 52.6 45.1 99.4 144.3 48.6
Non-cash transactions:
Capital lease commitments incurred 1.2 1.0 2.3 0.1 5.6
Capital lease commitments disposed of -- -- -- (7.1) --
Fixed assets acquired from minority interest -- -- -- -- 19.6
</TABLE>
See notes to Consolidated Financial Statements.
41
<PAGE>
Notes to Consolidated Financial Statements
(Dutch guilders, in millions, except share and per share data)
1. BASIS OF PRESENTATION
Benckiser N.V. and its subsidiaries (collectively, the "Company") engage in the
business of manufacturing and marketing household and consumer products in
approximately 25 countries. The Company's revenues are generated primarily
through sales to mass-market retailers in over 45 countries throughout the
world.
The Company follows accounting principles that conform with those generally
accepted in the United States of America. The accompanying consolidated
financial statements are stated in millions of Dutch guilders ("NLG") except
that, solely for the convenience of the reader, certain Dutch guilder amounts
presented as of and for the year ended December 31, 1998, have been translated
into US dollars and Euro using the exchange rate in effect on December 31,
1998, of US$1.00 = NLG 1.8888 and EUR 1.00 = NLG 2.20371, respectively. Such US
dollars translations should not be construed as representations that the Dutch
guilder amounts could be converted into US dollars at that or any other rate.
The Euro translations represent the permanently fixed rate of the Dutch guilder
against the Euro on December 31, 1998.
The Company was incorporated in the Netherlands in December 1996. Joh. A.
Benckiser GmbH ("JAB"), a German corporation, sold or contributed certain
subsidiaries it owned to the Company during the period up to June 1997 to form
the group presented herein, which represents the consolidated entity on a going
forward basis from July 1, 1997, and includes the assets and liabilities of the
subsidiaries, including certain intangible assets previously owned by JAB. JAB
retained the ownership of certain other intangible assets, primarily certain
trademarks. JAB receives license fees from the Company for the irrevocable use
of these trademarks and the Company has a right of first refusal with respect
to the purchase of any or all of the trademarks and licenses.
The consolidated financial statements include the results of operations, the
financial position, changes in shareholders' equity and cash flows of the
businesses that have been transferred to Benckiser N.V. as if the Company were
a separate entity for all periods presented. Since the Company's businesses
have been under the common control of JAB, the consolidated financial
statements have been prepared using the historical costs of assets and
liabilities and the historical results of operations related to the Company's
businesses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries. All significant
intercompany transactions and accounts are eliminated in consolidation.
Use of estimates - The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and related
disclosures. Actual results could differ from those estimates and assumptions
made.
Foreign currency translation - The financial information for subsidiaries
outside the Netherlands is measured using the local currencies as the
functional currency. Assets and liabilities are translated using the exchange
rates in effect as of the balance sheet date. Income and expenses are
translated at the average exchange rates during the
42
<PAGE>
year. Gains and losses resulting from translation of financial statements of
foreign subsidiaries operating in non-highly inflationary economies are
recorded as a component of shareholders' equity. Gains and losses from foreign
currency transactions are included in net earnings. Foreign subsidiaries
operating in highly inflationary economies translate non-monetary assets and
liabilities at historical rates and include translation adjustments in the
statements of operations.
Foreign currency management - The Company enters into foreign exchange
contracts from time to time with creditworthy institutions as a hedge against
purchases and sales of inventories. The Company does not enter into forward
exchange contracts for speculative purposes. Forward exchange contracts must be
designated at inception as hedges, and are measured for effectiveness both at
inception and on an on-going basis. For qualifying foreign currency hedges,
gains and losses are deferred and recognized as adjustments of carrying amounts
when the underlying hedged transaction is recorded.
Cash and cash equivalents - Cash and cash equivalents consist primarily of
highly liquid investments with maturities of three months or less at the date
of acquisition.
Inventories - Inventories are valued at the lower of cost or market. Cost of
inventories is determined on the first-in, first-out basis.
Property, plant and equipment, net - Property, plant and equipment, net, is
stated at cost less accumulated depreciation. The cost of renewals and
betterments are capitalized and depreciated; expenditures for maintenance and
repairs are expensed as incurred. Depreciation is calculated using the
straight-line or declining-balance methods over the useful lives of the related
assets. In the case of leasehold improvements, the estimated useful lives of
the related assets do not exceed the remaining economic terms of the
corresponding leases. The following table presents the assigned economic lives
of the Company's property, plant and equipment:
Description Useful Life
- -------------------------------------------------------------------------------
Buildings 20-40 years
Machinery and equipment 5-15 years
Office furniture and equipment 2-10 years
Property and equipment Lesser of
under capital leases and lease term or
leasehold improvements economic life
Intangible assets - Goodwill represents the excess of the purchase price over
the fair value of the identifiable tangible and intangible net assets of
businesses acquired from third parties. Trademarks consist primarily of the
carrying value of trademarks arising from transactions with third parties after
October 31, 1970. Goodwill is amortized on a straight-line basis over periods
not exceeding 40 years. The average remaining life of goodwill as of December
31, 1998, was approximately 30 years. Trademarks are amortized on a
straight-line basis over periods
43
<PAGE>
not exceeding 25 years. The average remaining life of trademarks as of December
31, 1998, was approximately 14 years.
Recoverability of long-lived assets - In evaluating useful lives and carrying
values of long-lived assets, the Company reviews certain indicators of
potential impairment, such as undiscounted projected cash flows and
profitability projections that incorporate the impact on existing Company
businesses. In the event that an impairment seems likely, the fair value of the
related asset is determined, and the Company would record a charge to earnings
based on comparing the asset's carrying value to the estimated fair value.
Historically, the Company has generated sufficient returns from acquired
businesses to recover the cost of goodwill and other intangible assets.
Revenue recognition - Net revenues are recognized at the time products are
shipped to customers. Net revenue comprises gross revenue less trade discounts
and customer allowances.
Selected operating expenses - Research and development costs are charged to
earnings as incurred and were NLG 27.7 in 1998, NLG 25.1 in 1997 and NLG 21.6
in 1996. Advertising costs are charged to earnings as incurred and were NLG
393.3, NLG 352.2 and NLG 236.8 in 1998, 1997 and 1996, respectively.
Interest rate arrangements - When interest rate swaps effectively hedge
interest rate exposures, the difference to be paid or received is accrued and
recognized in interest expense and may change as market interest rates change.
If an arrangement is terminated or effectively terminated prior to maturity,
then a realized gain or loss is recorded as a basis adjustment to the hedged
instrument if the hedged instrument remains outstanding, or immediately
recognized in the consolidated statement of operations if the underlying hedged
instrument does not remain outstanding.
Deferred income taxes - Deferred income taxes are provided for the temporary
differences between the book carrying amounts and the tax basis of assets and
liabilities as of the relevant balance sheet date. Deferred taxes are recorded
at enacted statutory rates in the jurisdictions in which the Company operates.
Classification of deferred tax assets and liabilities corresponds with the
classification of the underlying assets and liabilities giving rise to the
temporary differences or the period of expected reversal, as applicable. A
valuation allowance is established, when necessary, to reduce deferred tax
assets to the amount that is more likely than not to be realized.
Stock-based compensation - The Company has chosen to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. Accordingly, compensation costs for
stock-based compensation plans are measured as the excess, if any, of the fair
market value of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock. Compensation expenses for restricted
stock plans are recorded on the attainment of certain increases in the fair
market value of the Company's shares.
Earnings per common share - Basic earnings per common share for the year ended
December 31, 1998, have been computed using the weighted average number of
52,506,445 common shares outstanding during that period. 1997 and 1996 basic
earnings per common share have been computed based on a "pro forma" basis using
the 13,655,000 Class A Common Shares and the 38,761,670 Class B Common Shares
outstanding on December 31, 1997. Diluted
44
<PAGE>
earnings per common share in 1998 and "pro forma" diluted earnings per common
share in 1997 and 1996 have been determined based on the number of shares used
in the calculation of basic earnings and pro forma basic earnings per common
share plus common stock equivalents of 1,692,515 and 820,695 in 1998 and 1997,
respectively, resulting from the Company's stock-based option plans.
Comprehensive income - Effective January 1, 1998, the Company retroactively
adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for disclosure of comprehensive income. The Company's
only item of other comprehensive income includes foreign currency translation
adjustments. Other comprehensive income and the total of comprehensive income
are now included within the statement of shareholders' equity.
Disclosures about segments - In June 1997, the Financial Accounting Standards
Board (the "FASB") issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which is effective for the Company's year
ending December 31, 1998. SFAS No. 131 redefines how operating segments are
determined and requires qualitative disclosures of certain financial and
descriptive information about a company's operating segments. The Company
believes that it operates in one segment, the household cleaning products
industry.
New accounting pronouncements - In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that the Company recognizes all derivatives as
either assets or liabilities in the statement of financial position and
measures those instruments at fair value. The Company has not yet evaluated the
effects of this change on its operations, which will be effective for the
Company's year ending December 31, 2000.
Other - Certain amounts included in the 1997 and 1996 Consolidated Financial
Statements have been restated to conform to the 1998 presentation.
3. ACCOUNTS RECEIVABLE
The Company factors certain of its third-party accounts receivable.
Historically, a major portion of these third-party accounts receivable was
factored to an affiliate. This activity has been discontinued as of June 1998.
The discontinued affiliate factoring agreement was on a limited recourse basis
with the Company responsible for 20% of any receivables sold to the affiliate
that were not collectable. Under this agreement, NLG 105.4 was outstanding as
of December 31, 1997. The total amount of receivables factored during the years
ended December 31, 1998, 1997 and 1996, and recorded as sales of receivables,
were NLG 462.7, NLG 1,184.4 and NLG 1,044.8 respectively. The Company has paid
a factoring fee to the affiliate, which is based on the monthly outstanding
balance and the London Interbank Offering Rate (LIBOR) for one month in the
relevant currency plus a fixed margin. The cost of affiliate factoring included
in the consolidated statements of operations amounted to NLG 3.5, NLG 6.4 and
NLG 5.4 for the years ended December 31, 1998, 1997 and 1996, respectively.
45
<PAGE>
Third-party factoring agreements are primarily on a limited recourse basis,
with recourse to the Company for a defined percentage of the accounts, which
become uncollectable. Under these agreements, a total of NLG 32.1 and NLG 27.9
were outstanding as of December 31, 1998 and 1997, respectively. Total
receivables factored to third parties for the years 1998, 1997 and 1996 were
NLG 414.6, NLG 441.2 and NLG 649.5, respectively.
The movements in the allowance for doubtful accounts for the years 1998, 1997
and 1996, respectively, are as follows:
Year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------
Balance at beginning of year 34.6 40.8 44.6
Charged to costs and expenses 3.0 10.3 7.5
Amounts written off during year (0.8) (14.9) (12.4)
Other changes (2.4) (1.6) 1.1
Balance at end of year 34.4 34.6 40.8
4. INVENTORIES
Inventories consist of the following:
Year ended December 31 1998 1997
- -------------------------------------------------------------------------------
Raw materials 64.5 65.3
Work in process 15.8 15.9
Finished products 183.0 176.7
263.3 257.9
46
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consists of the following:
<TABLE>
Land Machinery Office Furniture Construction
and and and in
Buildings Equipment Fixtures Progress Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost:
January 1, 1998 320.2 810.0 170.8 61.0 1,362.4
Additions 4.3 25.4 16.3 67.3 113.3
Disposals (58.5) (35.8) (13.2) (2.1) (109.6)
Reclassifications 25.8 53.9 15.4 (95.1) --
Effect of exchange rates (4.2) (12.6) (4.6) (5.4) (26.8)
December 31, 1998 287.6 841.3 184.7 25.7 1,339.3
Accumulated depreciation:
January 1, 1998 136.5 607.4 113.8 1.9 859.6
Depreciation 10.8 45.9 24.1 -- 80.8
Disposals (39.9) (32.4) (10.2) (1.9) (84.4)
Reclassifications 0.7 (0.3) (0.4) -- --
Effect of exchange rates (1.4) (7.8) (3.8) -- (13.0)
December 31, 1998 106.7 612.8 123.5 -- 843.0
Net:
December 31, 1997 183.7 203.0 57.0 59.1 502.8
December 31, 1998 180.9 228.5 61.2 25.7 496.3
Property, plant and equipment, net, under capital leases, included in the
above, consists of the following:
December 31 1998 1997
- -------------------------------------------------------------------------------
Land and buildings 52.9 50.6
Machinery and equipment -- 0.6
Cost 52.9 51.2
Accumulated depreciation (12.6) (11.5)
Net 40.3 39.7
</TABLE>
47
<PAGE>
6. INTANGIBLE ASSETS
Intangible assets, net, consist of the following:
Trademarks Goodwill
- -------------------------------------------------------------------------------
Cost:
January 1, 1998 559.3 603.9
Additions 80.3 37.6
Effect of exchange rates (2.7) (11.9)
December 31, 1998 636.9 629.6
Accumulated amortization:
January 1, 1998 287.2 195.4
Amortization 24.9 15.1
Effect of exchange rates (1.2) (5.5)
December 31, 1998 310.9 205.0
Net:
December 31, 1997 272.1 408.5
December 31, 1998 326.0 424.6
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
December 31 1998 1997
- -------------------------------------------------------------------------------
Materials and costs to be paid 108.4 91.0
Rebates and customer bonuses 108.0 93.8
Payroll and employee benefits 92.5 99.7
Other 133.8 118.1
442.7 402.6
Restructuring expenses
In 1997, the Company implemented an extensive program of identifying and
implementing cost reduction and profit enhancement initiatives designed to
increase the efficiency and profitability of its operations worldwide. These
initiatives included: (i) a restructuring program that includes the closure of
three factories in Western Europe and one in Puerto Rico; (ii) increasing
common components across product lines to simplify manufacturing and logistic
48
<PAGE>
operations and reduce working capital; and (iii) a restructuring of local sales
forces and administration activities. These changes resulted in the elimination
of approximately 310 positions in 1998, primarily as a result of the closure of
the factories. Further lay offs of approximately 330 positions will be
concluded during 1999.
These related restructuring expenses of NLG 62.3 were recorded in the second
half of 1997. The utilization of the accrual as of December 31, 1998, can be
summarized as follows:
<TABLE>
Non- Amount Remaining
December 31, 1998 Cash Cash Total Utilized Accrual
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lay-off and severance payments 37.7 -- 37.7 (18.6) 19.1
Asset write-offs -- 15.9 15.9 (15.9) --
Legal contract terminations and
administrative expenses 3.4 -- 3.4 (2.9) 0.5
Other 5.1 0.2 5.3 (3.3) 2.0
Total 46.2 16.1 62.3 (40.7) 21.6
</TABLE>
The Company anticipates that these cost reduction and profit enhancement
initiatives will be completed during 1999. Although the majority of the cash
payments were made in 1997 and 1998, some of the cash payments will be extended
to future periods due to lay-off and severance schemes.
8. DEBT OBLIGATIONS
Short-term debt
Bank overdrafts and unsecured short-term lines of credit - The Company
maintains bank overdrafts and short-term unsecured lines of credit of NLG
665.6, of which NLG 52.3 and NLG 90.4 were drawn down as of December 31, 1998
and 1997, respectively. Interest rates on amounts borrowed under these
short-term lines as of December 31, 1998, vary principally between 3.4% and
7.4% for Western Europe and North America, and between 2.9% and 7.9% for the
Rest of the World. These rates vary according to the country and local economic
conditions in which the Company has operations.
49
<PAGE>
Long-term debt
Long-term debt consists of the following:
December 31 1998 1997
- -------------------------------------------------------------------------------
Subordinated loans:
Austrian Schilling 350 million, LIBOR
plus 1.5%, repaid in 1998 -- 56.1
Subordinated loan due to affiliate:
Dutch guilder 100 million, 3 months LIBOR
plus 1.25%, repaid in 1998 -- 100.0
Term loans:
German Mark 450 million, fixed interest
(100 million at 5.12%, 350 million at 5.74%),
due in annual installments beginning in 1999
through 2004 507.0 507.1
French Franc 50 million, repaid in 1998 -- 12.6
Other term loans, floating interest due
through 2002 2.1 2.1
Long-term lines of credit:
Spanish Peseta 2.0 billion, variable interest
(4.85% as of December 31, 1998) maturing in 2000 6.8 3.2
German Mark 141 million, variable interest
(5.35% as of December 31, 1998) maturing in 2001 82.8 --
Capital lease obligations 35.1 47.2
633.8 728.3
Less: current portion of long-term debt (176.1) (5.3)
457.7 723.0
Term loans and long-term lines of credit
On October 31, 1997, a subsidiary of the Company entered into a seven-year
credit facility of German Mark 450 million (the "Credit Facility") with a
syndicate of banks led by Westdeutsche Landesbank Girozentrale, which is
guaranteed by Benckiser N.V. The Credit Facility replaced other loans and
affiliated borrowings from JAB. Drawings under the Credit Facility bear
interest at a rate based on the Reuters Monitor Money Services Page "ICAR" plus
a margin of 0.50% per annum. On the date of borrowing the rate is fixed for the
remaining term. During the term of the Credit Facility, the Company is required
to maintain certain covenants consisting of certain financial ratios. As of
December 31, 1998, the Company has utilized this credit facility in full.
The other term loans and long-term lines of credit are unsecured loans. The
borrowings are usually made in the country and currency in which the proceeds
will be used to avoid translation risks. The loans do not include any
restrictive covenants or other restrictions. As of December 31, 1998, the
Company had unused long-term lines of credit of NLG 389.8 available.
50
<PAGE>
The aggregate maturities of long-term debt, excluding capital leases and
long-term lines of credit as of December 31, 1998 are as follows:
1999 85.2
2000 85.0
2001 85.0
2002 84.7
2003 84.5
2004 and thereafter 84.7
Total 509.1
9. INCOME TAXES
The components of earnings before corporate income taxes are as follows:
1998 1997 1996
- -------------------------------------------------------------------------------
Earnings before income taxes:
The Netherlands 86.6 3.8 5.5
Foreign 306.2 246.7 267.9
392.8 250.5 273.4
The Netherlands statutory tax rate is 35%. The reconciliation between the
provision for income taxes shown in the consolidated statement of operations,
based on the effective tax rate, and expense based on the statutory tax rate,
is as follows:
1998 1997 1996
- -------------------------------------------------------------------------------
Income tax expense based on statutory rate 137.5 87.7 95.7
Foreign tax rate differential 31.2 42.0 38.5
Amortization principally due to
intangibles carried for tax purposes (27.6) (40.0) (36.8)
Non-deductible intangible amortization 3.6 3.3 3.5
Change in tax rate (0.6) (6.9) 2.0
Change in valuation adjustment 2.8 12.3 3.0
Other, net 12.9 7.0 4.5
Provision for income taxes shown in
the statements of operations 159.8 105.4 110.4
51
<PAGE>
The Company's provision for income taxes consists of the following:
1998 1997 1996
- -------------------------------------------------------------------------------
Provision (benefit) for income taxes
Current:
The Netherlands 9.2 7.1 3.7
Foreign 144.5 121.5 114.8
153.7 128.6 118.5
Deferred:
The Netherlands 8.8 (3.0) --
Foreign (2.7) (20.2) (8.1)
6.1 (23.2) (8.1)
Total provision for income taxes 159.8 105.4 110.4
Deferred income tax assets and liabilities consist of the following:
December 31 1998 1997
- -------------------------------------------------------------------------------
Current deferred income tax assets:
Accrued liabilities and allowances 25.9 28.0
Net operating loss carryforwards 2.3 2.2
Other 1.0 12.5
Valuation allowance (0.8) (7.0)
Total current deferred income tax assets 28.4 35.7
Long-term deferred income tax assets:
Net operating loss carryforwards 14.1 6.3
Pensions and other long-term liabilities 9.3 4.5
Other 6.2 21.7
Valuation allowance (3.4) (9.4)
Total long-term deferred income tax assets 26.2 23.1
Long-term deferred income tax liabilities:
Tangible fixed assets (10.3) (13.6)
Intangible assets (60.4) (54.8)
Other (7.0) (4.3)
Total long-term deferred income tax liabilities (77.7) (72.7)
Net long-term deferred income tax liabilities (51.5) (49.6)
52
<PAGE>
As of December 31, 1998, the Company had net tax loss carryforwards aggregating
NLG 79.2 million, which expire as follows:
Total
- -------------------------------------------------------------------------------
1999 2.7
2000 5.9
2001 8.4
2002 24.6
2003 20.8
2004 and thereafter 16.8
Total 79.2
Generally, the utilization of net operating losses and other temporary
differences are limited by the income of the companies that incurred the
losses. Therefore, a valuation allowance has been established to reduce the tax
benefit of these losses to an amount that is more likely than not realizable.
10. EMPLOYEE BENEFITS
Pensions plans - The Company sponsors contributory and non-contributory defined
benefit pension plans covering employees in its subsidiaries in Austria,
Belgium, France, Germany, Greece and the Netherlands, and non-contributory
defined benefit pension plans for substantially all full-time US employees.
The plans in Austria, France, Germany and Greece are unfunded plans, whereas
the plans in Belgium and the Netherlands are funded based on contractual
requirements in those countries. The Company funds the US plans in amounts not
less than the minimum ERISA funding requirements and not more than the maximum
amount that can be deducted for US income tax purposes.
The components of net periodic pension costs for Company-sponsored plans are as
follows:
1998 1997 1996
- -------------------------------------------------------------------------------
Service cost 2.8 2.4 3.8
Interest costs on projected benefit
obligation 4.0 3.1 3.7
Actual return on plan assets (1.3) (1.7) (2.3)
Net amortization and deferral (1.3) 0.8 1.3
Net periodic pension costs 4.2 4.6 6.5
53
<PAGE>
Reconciliations of the funded status of the plans to the prepaid (accrued)
pension liability recognized in the accompanying consolidated balance sheets
are as follows:
1998 1997
- -------------------------------------------------------------------------------
Benefit obligation at beginning of year 57.3 52.2
Service cost 2.8 2.4
Interest cost 4.0 3.1
Actuarial (gain) loss 1.3 0.1
Benefits paid (2.9) (0.5)
Benefit obligation at end of year 62.5 57.3
Fair value of plan assets at beginning of year 15.7 14.0
Actual return on plan assets 1.3 1.7
Employer contributions 0.1 --
Benefits paid (2.9) --
Fair value of plan assets at end of year 14.2 15.7
Funded status 48.3 41.6
Unrecognized net actuarial loss 0.2 2.1
Unrecognized prior service cost (1.9) (0.1)
Accrued pension cost (46.6) (43.6)
As of December 31, 1998 and 1997, substantially all of the pension plans'
assets were invested in common stocks and corporate obligations.
The assumptions used to compute the above information were as follows:
1998 1997 1996
- -------------------------------------------------------------------------------
Discount rate 5%-7% 7%-12% 6%-12%
Expected long-term rate
of return on plan assets 6%-8% 3.5%-8% 5%-8%
Future compensation growth rate 2.5%-7% 3.5%-8% 3%-12%
54
<PAGE>
The year-to-year fluctuations in the discount rate assumptions primarily
reflect changes in interest rates in those countries with pension plans. The
discount rates represent the expected yield on a portfolio of high-grade
fixed-income investments with cash flow streams sufficient to satisfy benefit
obligations under the plans when due. The Company also sponsors defined
contribution plans for its North American and international employees. Such
plan expenses for the North American plans were NLG 0.7, NLG 0.3 and NLG 0.9 in
1998, 1997 and 1996, respec-tively. Plan expenses for the international plans
were NLG 9.9, NLG 6.9 and NLG 4.4 in 1998, 1997 and 1996, respectively. As of
December 31, 1998 and 1997, the amounts included in pensions and other
long-term liabilities for defined contribution plans were NLG 31.1 and NLG
30.4, respectively.
Post-retirement benefits - The Company also provides life insurance and health
care benefits for certain retired employees meeting age and service
requirements at its US subsidiaries. The total costs recognized for
post-retirement life insurance and health care plans were NLG 0.4 in 1998, NLG
1.4 in 1997 and NLG 1.5 in 1996. The Company's post-retirement benefits are not
funded. The accrued post-retirement benefit costs as of December 31, 1998 and
1997, were NLG 16.2 and NLG 17.1, respectively, of which NLG 5.1 and NLG 5.9
were vested as of December 31, 1998 and 1997, respectively. The assumed
discount rate used in determining post-retirement benefit obligation was
6.75%and 7.5% as of December 31, 1998 and 1997, respectively.
For measurement purposes, per capita costs of covered health care cost benefits
were assumed to increase for 1998 by 7% and 7% for non-Medicare and
Medicare-covered employees, decreasing gradually to 5% for 2007 and remaining
at that level thereafter. To illustrate this, a 1% increase in the assumed
health care cost trend would increase the accumulated post-retirement benefit
obligation by approximately NLG 1.2 and the service and interest costs by NLG
0.1.
Bonus Plan - Effective January 1, 1997, the Company adopted the Benckiser N.V.
Annual Performance Plan (the "Performance Plan") for executive officers and
other key employees of the Company. The participants of the Performance Plan
are eligible to receive, on an annual basis, a cash bonus as a percentage of
their base salary based on achievement of specified operating objectives (the
"Target Bonus"). Based on the achievement of results in excess of the Target
Bonus, the cash bonus may be increased up to 3.51 times the Target Bonus.
Conversely, if operating objectives are below the Target Bonus amounts, the
cash bonus amounts are reduced, or eliminated if minimum levels are not met.
Expenses recorded under this plan were NLG 27.9 in 1998 and NLG 27.8 in 1997.
Employment agreements - On July 1, 1997, the Company entered into employment
agreements with members of the Management Board and Executive Vice Presidents
of the Company for an indefinite period of time, subject to termination as set
forth in the agreements. The employment agreements contain restrictive
non-competition and confidentiality clauses during the term of employment and
for an eighteen-month period thereafter. The agreements also contain
termination, death and disability benefits, which provide lump sum payments to
the amount of two times the base salary of the employee plus two times the
average bonus received by the employee for the two most recent years. The
termination benefits are payable to the employee for reasons not attributed to
performance or for an "urgent reason" under applicable Dutch law. On a "change
of control" of the Company, if the Company or the
55
<PAGE>
employee terminate the agreement within twelve months of the change of control,
the employee will receive three times the base salary plus three times the
average bonus received by the employee for the three most recent years. Stock
Option Plans - Effective January 1, 1997, the Company adopted two stock-based
award plans, the Initial Award Plan (the "Initial Award Plan") and the
Benckiser Long-Term Incentive Plan (the "Long-Term Incentive Plan").
Initial Award Plan
Under the terms of the Initial Award Plan, the Human Resources and Compensation
Committee was authorized to grant up to 3,100,000 Class B Common Shares to
selected employees, as determined by the Compensation Committee at its sole
discretion.
The Class B Common Shares to be distributed may be issued
from authorized but previously unissued Class B Common Shares or through the
Company's purchase of Class B Common Shares issued and outstanding. The Initial
Award Plan authorizes the Human Resources and Compensation Committee to issue,
with certain restrictions, stock options, tandem options and restricted stock.
The stock options vest at the earlier of: (i) in equal installments over a
three-year period beginning one year after the grant date; (ii) the
participant's termination without cause, or death; and (iii) change of control
of the Company. For certain eligible employees who purchased Class B Common
Shares prior to the initial public offering, the Human Resources and
Compensation Committee granted tandem options to purchase three additional
Class B Common Shares for each Class B Common Share purchased. The tandem
options issued vest after three years. The restricted Class B Common Shares
will be transferred to participants in stages on the attainment of specified
increases in the fair market value of the Class B Common Shares. Any restricted
Class B Common Shares that have not been transferred within five years after
the grant date will be cancelled. On transfer of restricted Class B Common
Shares to a participant in the restricted stock plan, such a participant is
entitled to receive the aggregate of the dividends or distributions paid with
respect to any restricted Class B Common Shares from the grant date through the
date of transfer to the participant. The exercise price of stock options and
tandem options issued under the Initial Award Plan may be paid for in cash. The
Human Resources and Compensation Committee, however, may permit a participant
to pay the exercise price in a combination of the following: in whole or in
part with either Class B Common Shares held by the participant, with Class B
Common Shares issuable on exercise of the options, or by transfer of a number
of options equal to the exercise price.
The Initial Award Plan contains a reload option (the "Restoration Option"),
which allows the Human Resources and Compensation Committee to grant
Restoration Options to employees who deliver Class B Common Shares or options
for the payment of the exercise price. Such Restoration Options entitle the
holder to purchase a number of Class B Common Shares equal to the number of
Class B Common Shares delivered or withheld on exercise of the original
options. The exercise price of the Restoration Options are to be determined by
the Human Resources and Compensation Committee, but not to be below the fair
market value of the Class B Common Shares at the date the original options were
exercised.
56
<PAGE>
Effective January 1, 1997, the Human Resources and Compensation Committee of
the Company granted a total of 2,335,000 stock options to purchase 2,335,000
Class B Common Shares at an exercise price of German Mark 30 per Class B Common
Share, and 325,000 restricted Class B Common Shares to key employees of the
Company, of which 25,000 restricted Class B Common Shares were subsequently
forfeited in 1997 and the remaining restricted Class B Common Shares vested in
1997. The restricted Class B Common Shares were purchased by the Company from
JAB Investment B.V. at the fair value on the date the restricted Class B Common
Shares vested. Of the stock options granted, 950,000 tandem options to purchase
Class B Common Shares at an exercise price of German Mark 30 per Class B Common
Share were granted to certain employees, who purchased 316,670 Class B Common
Shares on August 15, 1997, at a fair market value (as of January 1, 1997) of
German Mark 30 per Class B Common Share.
Long-Term Incentive Plan
Under the terms of the Long-Term Incentive Plan, the Human Resources and
Compensation Committee of the Company is authorized to grant up to 2,670,000
Class B Common Shares to employees, the Management Board, the Supervisory Board
of the Company or subsidiaries of the Company. The features of the Long-Term
Incentive Plan are effectively the same as the stock options of the Initial
Award Plan, and also contain a Restoration Option provision as described above.
750,000 options were granted under the Long-Term Incentive Plan in 1997. The
Initial Award Plan and Long-Term Incentive Plan expire at the earlier of
December 31, 2002, or on a resolution for the termination of the Plans by the
Supervisory Board of the Company.
Stock-Based Compensation Award for Supervisory Directors - effective July 1,
1997, the Company adopted two stock-based compensation plans for its
Supervisory Directors: the Benckiser Initial Award Plan for Supervisory
Directors (the "Initial Award Plan for Supervisory Directors") and the
Benckiser Long-Term Award Plan for Supervisory Directors (the "Long-Term Award
Plan for Supervisory Directors"). The Class B Common Shares to be distributed
under these plans may be issued from authorized but previously unissued Class B
Common Shares or through the Company's purchase of Class B Common Shares issued
and outstanding. No stock options were granted in 1998.
Initial Award Plan for Supervisory Directors
Under the terms of the Initial Award Plan for Supervisory Directors, the Human
Resources and Compensation Committee was authorized to grant options to
Supervisory Directors to purchase up to 30,000 Class B Common Shares. On
September 19, 1997, Supervisory Directors purchased 30,000 Class B Common
Shares at the January 1, 1997, fair market value of German Mark 30 per Class B
Common Share. The Class B Common Shares were purchased from JAB Investments
B.V. by the Supervisory Directors. Simultaneously, Supervisory Directors were
granted tandem options to purchase 30,000 Class B Common Shares at an exercise
price of German Mark 30 per Class B Common Share. Such tandem options vest in a
manner similar to the stock options granted under the Initial Award Plan.
57
<PAGE>
Long-Term Award Plan for Supervisory Directors
The Long-Term Award Plan for Supervisory Directors authorized the Human
Resources and Compensation Committee to grant up to 200,000 Class B Common
Shares either in the form of Class B Common Shares or options to purchase Class
B Common Shares. The annual remuneration for the members of the Supervisory
Board is such number of Class B Common Shares in the capital of the Company
equal to NLG 100,000 (NLG 200,000 for the chairman of the Supervisory Board) at
a price per share equal to the closing price of the Class B Common Shares on
the Amsterdam Stock Exchange at the date of the first constitutive meeting of
the Supervisory Board immediately following the General Meeting of
Shareholders, being May 27, 1998.
In addition, each of the persons who is appointed as a member of the
Supervisory Board at the Annual Meeting will be granted options under the
Company's Long-Term Award Plan for Supervisory Directors to purchase a number
of Class B Common Shares in the capital of the Company equivalent to the number
and under the same conditions as previously mentioned.
Furthermore, that an additional compensation per Committee Chairmanship will be
granted of such number of Class B Common Shares in the capital of the Company
equal to NLG 25,000 under the same conditions previously mentioned, and options
to purchase a number of Class B Common Shares in the capital of the Company
equivalent to the number of shares granted per Committee Chairmanship under the
same conditions as previously mentioned. In 1998, the Supervisory Directors
received 10,637 Class B Common Shares as well as 10,637 options to purchase
Class B Common Shares at a weighted average exercise price of NLG 103.58 per
Class B Common Share as compensation, including 3,000 Class B Common Shares in
the capital of the Company and options to purchase 3,000 Class B Common Shares
in the capital of the Company at a price of NLG 83.90, being the closing price
at the Amsterdam Stock Exchange at the year end 1997, for the serving period as
from January 1, 1998, until the date of the General Meeting of Shareholders on
May 26, 1998. In 1997, the Supervisory Directors received 3,000 Class B Common
Shares as well as options to purchase 3,000 Class B Common Shares at an
exercise price of German Mark 30 per Class B Common Share as compensation for
the period until December 31, 1997. The features of the options granted to the
Supervisory Directors are effectively the same as the stock options of the
Initial Award Plan, and contain a Restoration Option provision similar to that
of the Initial Award Plan.
58
<PAGE>
Information relating to stock-based options is summarized below. There were no
stock-based option plans prior to 1997.
<TABLE>
1998 1998 1997 1997
Number of Average exercise Number of Average exercise
options price per share in NLG options price per share in NLG
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding
as of January 1 3,069,000 45.89 0 0.00
Granted 10,637 103.58 3,118,000 45.70
Exercised (292,323) 34.25 0 0.00
Cancelled (80,419) 74.00 (49,000) (33.60)
Options outstanding
as of December 31 2,706,895 46.54 3,069,000 45.89
Options exercisable
as of December 31 271,406 59.61 0 0.00
</TABLE>
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", under which no compensation cost for stock
options is recognized for stock option awards granted at or above fair market
value. Had compensation expense for the Company's stock-based compensation
plans been determined based upon fair values on the grant dates for awards
under those plans in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's Net earnings and earnings per share would have
been reduced to the pro forma amounts shown below.
1998 1997
- -------------------------------------------------------------------------------
Net earnings As reported 239.7 154.8
Pro forma 229.1 145.7
Basic earnings per share As reported 4.57 2.95
Pro forma 4.36 2.78
Diluted earnings per share As reported 4.42 2.91
Pro forma 4.24 2.74
Weighted average fair value of options
granted during the year 26.46 10.91
59
<PAGE>
The fair value of options granted is estimated on the dates of grant using the
Black-Scholes option pricing model and is based on the following assumptions:
1998 1997
- -------------------------------------------------------------------------------
Expected life in years 3 3
Dividend yield 1.67% 1.62%
Volatility factor 35% 29%
Risk free interest rate range 5.0%-5.1% 5.1%- 5.5%
11. SHARE CAPITAL
The Company's Class A Common Shares and Class B Common Shares may be
automatically converted into Common Shares with a par value of NLG 4.00 per
share if a "Triggering Event" occurs. A Triggering Event occurs if: i) any
Class A Common Shares are held by a person other than a "Permitted Transferee",
namely JAB, a group company of JAB, or a person designated by the shareholder
of the Class B Common Shares; ii) the voting rights to any Class A Common
Shares are held by a person other than a Permitted Transferee; iii) control of
the activities of JAB is acquired by one or more persons other than one or more
of the lineal descendants of Dr. Albert Reimann, a person who has made a public
offer for and acquired at least 50% of all Class B Common Shares not already
held by such a person, pursuant to the requirements of the Merger Code 1975 of
the Social and Economic Council, as amended, and who, pursuant to an
acquisition of Class A Common Shares, shall acquire 30% or more of the nominal
amount of issued share capital of the Company, such percentage to be calculated
without reference to the Class B Common Shares acquired pursuant to the public
offer; or iv) the total number of votes that may be cast by the holders of
Class A Common Shares in a General Meeting of Shareholders falls below 50.1% of
the aggregate votes of the issued share capital. On the conversion into Common
Shares from a Triggering Event, if the general premium reserves of the Company
are not adequate to convert the Class B Common Shares to Common Shares with a
par value of NLG 4.00 per share, all Class A and Class B Common Shares will be
converted to Common Shares with a par value of NLG 1.00 per share with any
difference between par values allocated to the general premium reserves of the
Company.
At the General Meeting of Shareholders, each Class A Common Share shareholder
is entitled to four votes per share held and each Class B Common Share
shareholder is entitled to one vote per share held. Holders of Class A and
Class B Common Shares have a preemptive right to acquire shares in the event of
an issue of additional shares in proportion to the aggregate amount of shares
held.
All shareholders of Class A and Class B Common Shares are entitled to
distributions, if any, in proportion to the number of shares held, irrespective
of the nominal value of such shares. The Company is dependent on payments,
dividends and distributions from its operating subsidiaries in various
jurisdictions for funds to pay dividends to shareholders. The ability of the
Company and its principal operating subsidiaries to pay dividends is subject to
60
<PAGE>
certain statutory limitations in their respective jurisdictions, which
primarily relate to the required allocation of a nominal percentage of earnings
to the establishment and maintenance of statutory reserves. As a result, the
ability to pay dividends may be limited. It is expected that cash dividends, if
any, will be declared by the Company in Dutch guilders, although dividends may
be declared in other currencies.
12. RELATED PARTY TRANSACTIONS
Transactions between the Company and JAB are effected at prices that are
considered to reflect the market value of the products and services involved.
Effective July 1, 1997, JAB and the Company entered into a transitional
services agreement (the "Transitional Services Agreement") pursuant to which
JAB agreed to provide or cause to be provided to the Company certain specified
services for a transitional period. The period for which the services will be
provided will vary depending on the type of services, but is expected, for the
most part, not to exceed two years. Each party has the right to discontinue one
or all of the services it receives from the other on reasonable notice to the
party providing the services.
The Company has the irrevocable right to use certain trademarks and licenses
owned by Benckiser Marken GmbH & Co. KG, an affiliate of JAB, for a term of 20
years with automatic extensions of 5 years thereafter, subject to certain
conditions, with a right of first refusal with respect to the purchase of any
or all of the trademarks and licenses. Under the terms of the Trademark License
Agreement effective June 30, 1997, the Company pays the affiliate a fee of 3%
of net sales in countries in which the brand was sold as of the date of the
agreement for the exclusive use of such trademarks and licenses. The 1998, 1997
and 1996 consolidated financial statements reflect expenses incurred by the
Company of NLG 29.0, NLG 25.7 and NLG 21.3, respectively, for these trademarks
and licenses.
The Company manufactures certain products for an affiliated company, recording
sales of NLG 3.9, NLG 6.9 and NLG 10.7 in 1998, 1997 and 1996, respectively,
for the actual costs incurred, plus an agreed mark-up. The Company, JAB and
other affiliates have entered into a tax sharing agreement (the "Tax Sharing
Agreement") that sets forth each party's rights and obligations with respect to
payments and refunds relating to certain taxes and related matters such as the
filing of tax returns and the conduct of audits or other proceedings involving
claims made by taxing authorities. In general, the Company agrees to indemnify
JAB and other affiliates for certain taxes relating to the household cleaning
products business and for certain taxes relating to the purchase and
contribution of subsidiaries from JAB (the "Reorganization"), and JAB and other
affiliates agree to indemnify the Company for certain taxes relating to all
other businesses of JAB and other affiliates, respectively, and for certain
taxes relating to the Reorganization, in each case for certain periods as set
forth in the Tax Sharing Agreement. Both companies, JAB and Coty Inc., a
subsidiary of JAB, also agree not to take certain actions that would have an
adverse tax effect on other parties to the Agreement. The Company does not
expect to incur any material liabilities as a result of this agreement.
61
<PAGE>
On August 15, 1997, the Company purchased 316,670 Class B Common Shares from
JAB Investments B.V. and subsequently transferred these Class B Common Shares
to certain employees, who purchased such Class B Common Shares under the
Initial Award Plan of the Company. The Company has paid for such Class B Common
Shares the amount equivalent to the amount paid by the respective employees at
the fair market value (as of January 1, 1997) of German Mark 30 per Class B
Common Share. On October 2, 1998, the Company terminated a subordinated loan
agreement with JAB Investments B.V., and repaid the outstanding amount of NLG
100.0.
13. COMMITMENTS AND CONTINGENCIES
The Company has capital and operating lease commitments expiring at various
dates, primarily for buildings and equipment. Minimum rental lease commitments
as of December 31, 1998, are as follows:
Capital Leases Operating Leases
- -------------------------------------------------------------------------------
1999 5.4 23.2
2000 5.4 22.0
2001 5.4 22.7
2002 5.0 14.7
2003 5.0 13.5
2004 and thereafter 23.3 59.0
Total minimum payments required 49.5 155.1
Less amount representing interest (14.4) --
Present value of net minimum lease payments 35.1 155.1
Less current portion 1.4 23.2
Long-term obligations 33.7 131.9
Rental expense net of sublease income was NLG 23.7, NLG 34.0 and NLG 22.6 for
the years 1998, 1997 and 1996, respectively.
The Company leases certain property, plant and equipment from affiliates under
capital and operating leases. The present value of obligations under capital
leases with affiliates included above totaled NLG 34.1 as of December 31, 1998.
Rental expense under operating leases with affiliates was NLG 0.8, NLG 0.6, and
NLG 0.6 for the years 1998, 1997 and 1996, respectively.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, and bank and affiliated short-term and long-term debt
approximate the fair market values.
62
<PAGE>
As of December 31, 1998, the Company has entered into foreign exchange
contracts to hedge net receivable/payable positions arising from trade
transactions. As of December 31, 1998, the Company has exchange contracts
outstanding to purchase British Pounds, Swiss Francs, German Marks, Danish
Crowns, Portuguese Escudos and Spanish Pesetas totaling NLG 140.8 (NLG 226.1 as
of December 31, 1997), and exchange contracts to sell British Pounds, French
Francs, German Marks, US Dollars, Australian Dollars, Czech Crowns, Italian
Liras and Spanish Pesetas in exchange for NLG 230.0 (NLG 73.5 as of December
31, 1997). Contracts held as of December 31, 1998, expire from January 1999
through October 1999. The fair value of such contracts approximated their
carrying value as of December 31, 1998. Losses on foreign currency transactions
totaled NLG 7.7 for the year ended December 31, 1998. Gains on foreign currency
transactions totaled NLG 3.1 and NLG 7.6 in the years 1997 and 1996,
respectively.
As of December 31, 1998, a subsidiary of the Company has one cross currency
interest rate swap agreement, which expires in 1999. This cross currency
interest rate swap effectively hedges a portion of the Company's net investment
in the Spanish subsidiary. The Company has agreed to swap 4,265 Spanish Peseta
as of December 31, 1998, (Spanish Peseta 4,265 as of December 31, 1997) for
German Mark 50.0 (German Mark 50.0 as of December 31, 1997). In addition, the
Company has agreed to pay the Madrid Interbank Offering Rate ("MIBOR" less
0.93%) on the nominal amount (Spanish Peseta 4,265.0) and receive German Mark
at LIBOR plus 1% in exchange. The gains and losses from the currency swap
component of the cross currency interest rate swap are accounted for as hedges,
in a manner similar to forward exchange contracts. Accordingly, the gain or
loss in each period offsets the translation gain or loss on the debt of the
Spanish subsidiary in the cumulative translation adjustment. The interest rate
swap component of the cross currency interest rate swap is recorded at market
value with resulting gains and losses recorded in the consolidated statements
of operations. This cross currency interest rate swap has an average pay rate
of 3.4883% and an average receive rate of 4.5674% as of December 31, 1998. The
market value of the cross currency interest rate swap was NLG 0.8 and NLG 1.9
as of December 31, 1998 and 1997, respectively. The fair value of the cross
currency interest rate swap agreement is the amount at which it could be
settled, based on estimates obtained from dealers.
15. GEOGRAPHICAL INFORMATION
The Company is engaged in one segment, namely, the manufacturing and marketing
of household and consumer products. Geographical segments are aligned into
three regions: Western Europe, consisting of Austria, Belgium, Denmark,
Finland, France, Germany, Greece, Israel, Italy, the Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United Kingdom; North America,
consisting of Canada and the United States; and Rest of World consisting of
Australia, Belorussia, the People's Republic of China, Croatia, the Czech
Republic, Dubai, Estonia, Hungary, Japan, Latvia, Lithuania, New Zealand,
Poland, Romania, Russia, Slovak Republic, Slovenia, Turkey, the Ukraine and
Yugoslavia.
63
<PAGE>
The following table summarizes net revenues, operating income and identifiable
assets of the Company's operations in the aforementioned geographical regions.
<TABLE>
Western North Rest of Corporate &
Europe America World Eliminations Consolidated
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues:
1998
Sales to customers 2,603.4 556.9 697.1 -- 3,857.4
Sales between geographic areas 665.0 12.1 53.4 (730.5) --
Net revenues 3,268.4 569.0 750.5 (730.5) 3,857.4
1997
Sales to customers 2,434.9 531.6 615.9 0 3,582.4
Sales between geographic areas 609.5 22.9 42.8 (675.2) --
Net revenues 3,044.4 554.5 658.7 (675.2) 3,582.4
1996
Sales to customers 2,223.4 392.7 422.9 -- 3,039.0
Sales between geographic areas 761.4 21.1 25.7 (808.2) --
Net revenues 2,984.8 413.8 448.6 (808.2) 3,039.0
Operating income:
1998 448.1 (0.7) 2.7 (13.9) 436.2
1997 309.7 1.6 11.2 (15.9) 306.6
1996 309.0 20.5 13.7 0.8 344.0
Identifiable assets:
1998 1,570.6 155.4 393.0 138.2 2,257.2
1997 1,678.1 128.3 330.2 (66.3) 2,070.3
1996 1,906.3 287.4 265.3 (393.9) 2,065.1
</TABLE>
16. SELECTED OPERATING EXPENSES AND ADDITIONAL INFORMATION
The aggregate remuneration, including pension costs, paid or accrued by the
Company for its Management Board were NLG 7.0, NLG 6.9 and NLG 4.2 for the
years 1998, 1997 and 1996, respectively. Aggregate remuneration for the members
of the Supervisory Board were NLG 1.1, NLG 0.1 and NLG 0.0 for the years 1998,
1997 and 1996, respectively.
64
<PAGE>
Wages, salaries, social security expenses and pension expenses for all
employees are as follows:
Year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------
Wages and salaries 355.5 347.3 269.1
Social security expenses 83.4 88.0 68.9
Pension expenses 15.2 8.9 10.5
454.1 444.2 348.5
The average number of employees in full time equivalents are as follows:
Year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------
Western Europe 2,865 2,890 2,898
North America 451 391 295
Rest of the World 2,074 2,067 1,374
5,390 5,348 4,567
17. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incident to the
ordinary course of its business. The Company believes that the outcome of all
pending and threatened legal proceedings will, on the whole, not have a
material adverse effect on its results of operations, financial position or net
cash flows.
65
<PAGE>
Independent Auditors' Report
To the Supervisory Board and Managing Board of Benckiser N.V.
We have audited the accompanying consolidated balance sheets of Benckiser N.V.
and its subsidiaries (collectively, the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1998, 1997 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America and the Netherlands. These standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
accounting principles generally accepted in the United States of America.
Our audits also comprehended the translation of Dutch guilder amounts into US
dollar and Euro amounts, and, in our opinion, such translations have been made
in conformity with the basis stated in Note 1 to the consolidated financial
statements. Such US dollar and Euro amounts are presented solely for the
convenience of the reader.
February 23, 1999
Amsterdam, the Netherlands
66
<PAGE>
6. LIST OF SUBSIDIARIES
Name Location % ownership
- -------------------------------------------------------------------------------
Consolidated subsidiaries:
Benckiser Deutschland GmbH Ludwigshafen, Germany 100%
Benckiser Produktion GmbH Ladenburg, Germany 100%
Benckiser Detergents GmbH Ludwigshafen, Germany 100%
Propack Produkte fur Haushalt
und Korperpflege GmbH Ladenburg, Germany 100%
Benckiser Versicherungsvermittlungs
GmbH Ludwigshafen, Germany 100%
Benckiser Ltd. Swindon, United Kingdom 100%
Skandinavisk Benckiser A/S Lyngby, Denmark 100%
Benckiser Investment B.V. Amsterdam, The Netherlands 100%
Benckiser Oleochemicals B.V. Amsterdam, The Netherlands 100%
Benckiser Central and Latin
America B.V. Amsterdam, The Netherlands 100%
Benckiser International Finance N.V. Amsterdam, The Netherlands 100%
Benckiser Asian Pacific B.V. Amsterdam, The Netherlands 100%
Benckiser China B.V. Amsterdam, The Netherlands 100%
Benckiser Nederland B.V. Hoofddorp, The Netherlands 100%
S.A. Benckiser N.V. Vilvoorde, Belgium 100%
S.A. Propack N.V. Vilvoorde, Belgium 100%
Benckiser France S.A. Nanterre, France 100%
Propack France S.a.r.l. Nanterre, France 100%
Joh. A. Benckiser (Portugal) Lda. Lisbon, Portugal 100%
Benckiser Italia S.p.A. Milan, Italy 99.6%
Benckiser S.A. Barcelona, Spain 100%
Union Derivan S.A. Barcelona, Spain 100%
Benckiser Espana S.A. Granollers, Spain 100%
Tendesa S.A. Barcelona, Spain 100%
Camp Industrial S.A. Barcelona, Spain 100%
Benckiser (Schweiz) AG Winterthur, Switzerland 100%
Benckiser Austria GmbH Hallein, Austria 100%
Benckiser Hellas ABEE Athens, Greece 100%
Benckiser Temizlik Malzemesi
Sanayi ve Ticaret A.S. Istanbul, Turkey 100%
72
<PAGE>
Financial Summary
<TABLE>
1998 1) 1998 1) 1998 1997 1996 1995 1994 2)
(In millions, except per share data) US$ EUR NLG NLG NLG NLG NLG
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations:
Net revenues 2,042.3 1,750.4 3,857.4 3,582.4 3,039.0 2,674.5 2,693.4
Cost of sales 1,146.9 983.0 2,166.2 2,052.1 1,803.0 1,674.0 1,655.8
Selling, general and administrative
expenses 643.3 551.3 1,215.0 1,120.7 850.9 680.7 713.7
Restructuring expenses -- -- -- 62.3 -- -- --
Amortization of intangibles 21.2 18.1 40.0 40.7 41.1 33.5 37.6
Operating income 3) 230.9 198.0 436.2 306.6 344.0 286.3 286.3
Interest expense, net 23.0 19.8 43.4 56.1 70.6 79.5 79.2
Provision for income taxes 84.6 72.5 159.8 105.4 110.4 86.0 76.8
Net earnings 126.9 108.8 239.7 154.8 164.9 120.7 130.3
Consolidated Balance Sheet data:
Cash and cash equivalents 50.8 43.6 96.0 80.6 36.0 20.3 35.1
Net current assets 4) (134.0) (114.9) (253.1) (215.2) (148.2) (27.5) 8.9
Tangible and intangible assets, net 660.2 565.8 1,246.9 1,183.4 1,195.5 1,151.4 1,239.4
Total assets 1,195.1 1,024.3 2,257.2 2,070.3 2,065.1 1,960.5 2,034.3
Total interest bearing debt 363.2 311.2 686.1 818.8 1,019.4 1,012.0 1,018.0
Total shareholders' equity 140.4 120.3 265.2 90.5 44.8 131.5 254.6
Consolidated Statements of Cash Flows:
Cash flows from operating activities:
Net earnings 126.9 108.8 239.7 154.8 164.9 120.7 130.3
Depreciation and amortization 63.9 54.8 120.8 132.8 127.0 115.9 122.5
Compensation expenses from
stock-based plans -- -- -- 15.1 -- -- --
Restructuring expenses -- -- -- 62.3 -- -- --
Changes in working capital 12.0 10.3 22.7 16.2 110.0 15.5 83.0
Other (6.2) (5.3) (11.6) (30.1) (3.9) (5.3) (14.5)
Net cash provided by operating activities 196.6 168.6 371.6 351.1 398.0 246.8 321.3
Cash flows from investing activities:
Purchase of fixed assets (60.0) (51.4) (113.3) (138.9) (103.0) (73.2) (58.0)
Other (40.7) (34.9) (77.0) (5.7) 7.9 44.2 9.7
Net cash used in investing activities (100.7) (86.3) (190.3) (144.6) (95.1) (29.0) (48.3)
Cash flows from financing activities:
Dividend distribution (19.6) (16.8) (36.9) (141.0) (304.3) (240.0) (265.8)
Other (60.6) (51.9) (114.7) (32.2) (4.8) 2.1 31.6
Net cash used in financing activities (80.2) (68.7) (151.6) (173.2) (309.1) (237.9) (234.2)
Effect of exchange rates on cash and
cash equivalents (7.5) (6.5) (14.3) 11.3 21.9 5.3 (17.8)
Net increase (decrease) in cash and
cash equivalents 8.2 7.1 15.4 44.6 15.7 (14.8) 21.0
Data per common share
Basic earnings per common share 2.42 2.07 4.57 2.95 3.15 2.30 2.49
Diluted earnings per common share 2.34 2.01 4.42 2.91 3.15 2.30 2.49
</TABLE>
1) Amounts in Dutch guilders translated into US dollars and Euro have been
translated, solely for the convenience of the reader, at a rate of US $1.00 =
NLG 1.8888, the Noon Buying Rate on December 31, 1998, and of EUR 1.00 = NLG
2.20371, the permanently fixed rate of the Dutch guilder against the Euro on
December 31, 1998. 2) 1994 Consolidated Balance Sheet data are unaudited. 3)
Operating income in 1997 includes restructuring expenses of NLG 62.3 million
and compensation expenses for stock-based plans of NLG 15.1 million. 4) "Net
current assets", which is not a measure defined under US GAAP, comprises
current assets (net of cash and cash equivalents) less current liabilities
(excluding short-term borrowings and the current portion of subordinated
loans). For the years through 1996, the amounts due from affiliates and the
amounts due to affiliates have been excluded from "net current assets" as the
amounts through 1996 have been considered to be short-term investments and
short-term borrowings. Management considers "net current assets" to be a useful
measure of the amount of the Company's funds that are invested in net current
operating needs.
77
<PAGE>
Shares: Relationship with JAB and JAB Investments B.V.
At December 31, 1998, JAB owned 100% of the outstanding Class A Common Shares
of the Company (Class A Common Shares are entitled to four votes per share on
any matter submitted to a vote at the Company's General Meeting of
Shareholders). JAB Investments B.V., an affiliated Company of JAB, owns 43.8%
of the outstanding Class B Common Shares of the Company (Class B Shares are
entitled to one vote per share).
At December 31, 1998, the Common Shares owned directly or indirectly by JAB
represent 76.6% of the combined voting power of all classes of the Company's
voting stock. JAB intends to utilize its voting power to elect a majority of
unrelated members to the Supervisory Board, and, under Dutch law, no member of
the Management Board can be a member of the Supervisory Board. However, the
Articles of Association of the Company will not restrict JAB's rights as a
shareholder of the Company to nominate and elect a full Supervisory Board of
its choosing or to vote for or against any nominees. The following table sets
forth certain information regarding the beneficial ownership of the Company's
Class B Common Shares and Class A Common Shares at December 31, 1998.
<TABLE>
Class B Class A Total
Common Shares Common Shares Common Shares
Number 1) % Number 1) % Voting Power %
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joh. A. Benckiser GmbH
Ludwig-Bertram-Strasse 8 + 10
D-67059 Ludwigshafen Germany 13,655,000 100.0% 58.3%
JAB Investment B.V.
World Trade Center
Amsterdam Airport, Tower C
Schiphol Boulevard 229
1118 BH Schiphol Airport 17,112,000 43.8% 18.3%
All Members of the Supervisory Board,
Management Board
and officers as a group 2) 686,295 1.8% 0.7%
</TABLE>
1) All Class A Common Shares and Class B Common Shares convert into New Common
Shares on the occurrence of a Triggering Event, including the transfer of any
Class A Common Share to any other than a Permitted Transferee as defined in the
Company's Articles of Association. The number of Class A Common Shares and
percentages contained under this heading do not account for such a conversion
right.
2) The members of the Supervisory Board as a group own 42,239 Class B Common
Shares and the members of the Management Board as a group own 265,000 Class B
Common Shares. In addition, both groups have been granted options to purchase
1,118,624 Class B Common Shares.
On November 24, 1997, Dr. Albert Reimann Verwaltungs GmbH has given notice, in
accordance with the Disclosure of Major Holdings in Listed Companies Act, of
its holding of 76.6% in the capital of Benckiser N.V. No notification has been
received of any other holdings of more than 5%.
In connection with the Disclosure of Major Holdings in Listed Companies Act,
the Company reported the changes in issued capital of 39,064,630 Class B Shares
to the Amsterdam Exchanges.
81
