<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): November 9, 1999
Commission file number 1-13879
OCTEL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 98-0181725
----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Global House
Bailey Lane
Manchester
United Kingdom M90 4AA
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 011-44-161-498-8889
<PAGE>
Item 2 of Form 8-K dated November 9, 1999, filed by Octel Corp. ("Octel") on
November 12, 1999, is hereby updated and amended as follows:
ITEM 2 - ACQUISITION OR DISPOSITION OF ASSETS
- ---------------------------------------------
Regarding the Federal Trade Commission ("FTC") Agreement and Consent Order
approving the OBOAdler acquisition, the 60 day public notice period referenced
in the November 9, 1999 Form 8-K expired on December 9, 1999. Thereafter the
FTC gave final approval and as a result the Agreement and Consent Order became
final as of December 28, 1999.
Item 7 of the Current Report on Form 8-K dated November 9, 1999, filed by Octel
Corp. ("Octel") on November 12, 1999, is hereby amended as set out below.
ITEM 7 - FINANCIAL STATEMENTS
- -----------------------------
(a) Financial Statements of Business Acquired.
The Consolidated Financial Statements of OBOAdler Company Limited (OBOAdler) as
of June 30, 1999 and for the period then ended are filed herewith as Exhibit
99.1.
(b) Unaudited Proforma Combined Financial Information.
On November 9, 1999 Octel completed its acquisition of all the outstanding
shares of OBOAdler, for payment of $94.5 million. The purchase price was funded
by entering into a $100 million credit agreement with Barclays Bank plc
repayable by December 2002. OBOAdler acquired the Alcor group of companies on
June 4, 1999. The Alcor group is based in Baar, Switzerland and includes a TEL
manufacturing plant in Germany.
The business combination will be accounted for as a purchase.
The following unaudited pro forma balance sheet as at September 30, 1999
illustrates the effect of the acquisition of OBOAdler as if it had taken place
on September 30, 1999. The unaudited pro forma statements of income illustrate
the results of operations for the year ended December 31, 1998 and the nine
months ended September 30, 1999 as if the acquisition occurred on January 1,
1998.
The unaudited proforma combined financial statements have been adjusted to give
effect to (i) the goodwill and associated amortization expense generated by the
acquisition of OBOAdler referred to above, (ii) the related financing
transactions and associated interest expense (described in note d), (iii) the
uplift in the customer contracts intangible asset (described in note c) and (iv)
the elimination of sales and purchases between Octel and OBOAdler group
(described in note g).
These unaudited pro forma financial statements should be read in conjunction
with the historical financial statements of Octel and OBOAdler group. The
historical financial statements of Octel are contained in Octel's Quarterly
Report on Form 10-Q for the nine months ended September 30, 1999 and in Octel's
-2-
<PAGE>
Annual Report on Form 10-K for the year ended December 31, 1998. The historical
consolidated financial statements of OBOAdler group for the period ended June
30, 1999 are filed herein as exhibit 99.1.
For pro forma presentation, OBOAdler group's historical financial statements
have been conformed to Octel's calendar year by deducting the results for the
six months ended June 30, 1999 and adding the results for the six months ended
June 30, 1998. The unaudited pro forma financial statements for the nine months
ended September 30, 1999 include OBOAdler's unaudited results for the three
months to September 30, 1999 and the unaudited balance sheet as at that date.
The unaudited pro forma financial statements are for illustrative purposes only
and are not meant to be indicative of actual results that may have been achieved
had the transaction occurred as of the date indicated above, nor do they purport
to indicate results which may be attained in the future.
-3-
<PAGE>
PRO FORMA COMBINED BALANCE SHEET AT SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
(millions of dollars) Octel OBOAdler Proforma Adjustments Combined
(Note a)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 25.8 21.9 47.7
Accounts receivable 153.7 17.3 g. (2.2) 168.8
Inventories 62.7 5.0 67.7
Prepaid expenses 5.1 1.4 6.5
----- -------- -------- -------- ------- --------
Total current assets 247.3 45.6 g. (2.2) 290.7
Property, plant and equipment 106.9 3.2 110.1
Investments b. 100.4 c.(100.4)
Goodwill 332.1 48.0 c. 15.6 395.7
Intangible asset 21.3 c. 3.7 25.0
Prepaid pension cost 73.4 73.4
Other assets 22.4 b. (10.4) 12.0
----- -------- -------- -------- ------- --------
782.1 118.1 b. 90.0 c. (81.1) g. (2.2) 906.9
===== ======== ======== ======== ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses 107.0 20.7 g. (2.2) 125.5
Accrued income taxes 39.2 2.9 42.1
Current portion of long-term
debt 60.0 60.0
----- -------- -------- -------- ------- --------
Total current liabilities 206.2 23.6 g. (2.2) 227.6
Plant closure provisions 30.9 11.0 41.9
Deferred income taxes 23.7 0.9 24.6
Long-term debt 194.1 90.0 b. 90.0 c. (90.0) 284.1
Other liabilities 2.8 1.5 4.3
Stockholders' equity
Common stock 0.1 0.8 c. (0.8) 0.1
Additional paid-in capital 276.1 0.7 c. (0.7) 276.1
Treasury stock (14.2) (14.2)
Retained earnings 74.3 (10.5) c. 10.5 74.3
Accumulated other
comprehensive income (11.9) 0.1 c. (0.1) (11.9)
----- -------- -------- -------- ------- --------
Total stockholders' equity 324.4 (8.9) c. 8.9 324.4
----- -------- -------- -------- ------- --------
782.1 118.1 b. 90.0 c. (81.1) g. (2.2) 906.9
===== ======== ======== ======== ======= ========
</TABLE>
-4-
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
(millions of dollars) Octel OBOAdler Proforma Adjustments Combined
(Note a)
<S> <C> <C> <C> <C> <C> <C>
Net sales 465.0 79.9 544.9
Cost of goods sold 244.3 42.7 287.0
------ -------- ------- -------- ------- --------
Gross profit 220.7 37.2 257.9
Sales, general and admin. 43.2 2.5 45.7
Amortization of intangible assets 42.6 e. 17.7 60.3
------ -------- ------- -------- ------- --------
85.8 2.5 e. 17.7 106.0
------ -------- ------- -------- ------- --------
Operating income 134.9 34.7 e. (17.7) 151.9
Interest expense/(income) 22.5 (1.3) d. 7.1 28.3
Other expense/(income) 0.5 (1.6) (1.1)
------ -------- ------- -------- ------- --------
Income before income taxes 111.9 37.6 d. (7.1) e. (17.7) 124.7
Income taxes 41.5 7.1 f. (2.1) 46.5
------ -------- ------- -------- ------- --------
Net income 70.4 30.5 d. (7.1) e. (17.7) f. 2.1 78.2
====== ======== ======= ======== ======= ========
Earnings per share:
Basic 4.85 5.39
------ --------
Diluted 4.85 5.39
------ --------
Weighted average shares outstanding
(in thousands)
Basic 14,514 14,514
------ --------
Diluted 14,514 14,514
------ --------
</TABLE>
-5-
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
(millions of dollars) Octel OBOAdler Proforma Adjustments Combined
(Note a)
<S> <C> <C> <C> <C> <C> <C>
Net sales 384.7 52.4 g. (2.2) 434.9
Cost of goods sold 238.2 24.7 g. (2.2) 260.7
------ -------- ------- ------- ------- --------
Gross profit 146.5 27.7 174.2
Sales, general and admin. 36.4 1.5 37.9
Amortization of intangible assets 34.4 6.1 e. 7.2 47.7
------ -------- ------- ------- ------- --------
70.8 7.6 e. 7.2 85.6
------ -------- ------- ------- ------- --------
Operating income 75.7 20.1 e. (7.2) 88.6
Interest expense/(income) 16.5 2.2 d. 2.5 21.2
Other expense/(income) 0.6 (4.2) (3.6)
Income before income taxes 58.6 22.1 d. (2.5) e. (7.2) 71.0
Income taxes 24.2 4.8 f. (1.4) 27.6
------ -------- ------- ------- ------- --------
Net income 34.4 17.3 d. (2.5) e. (7.2) f. 1.4 43.4
====== ======== ======= ======= ======= ========
Earnings per share:
Basic 2.48 3.12
------ --------
Diluted 2.46 3.10
------ --------
Weighted average shares outstanding
(in thousands)
Basic 13,895 13,895
------ --------
Diluted 13,992 13,992
------ --------
</TABLE>
-6-
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
a. The consolidated financial statements of OBOAdler have been prepared in
accordance with US GAAP and translated into US$ at the following rates:
<TABLE>
<CAPTION>
September December
30, 1999 31, 1998
<S> <C> <C>
$1 to CHF 1.5006 1.3735
DM 1.8365 1.6655
GBP 0.6072 0.6010
</TABLE>
b. Reflects the reclassification of $10.4 million Octel advances and
acquisition costs already incurred in respect of OBOAdler from other assets
to investments and a further $90 million investment by Octel in OBOAdler,
financed by amounts drawn down under the credit arrangement dated June 3,
1999 with Barclays Bank plc.
c. Reflects the adjustment to create the equity position of the combined group
by netting off Octel's investment against OBOAdler group creditor, common
stock and pre-acquisition reserves and retained earnings. The intangible
asset relating to OBOAdler group customer contracts is uplifted by $3.7
million to its estimated value of $25 million. The balance of $15.6 million
is recognized as goodwill, which together with the $48 million goodwill
arising on OBOAdler's balance sheet leaves a total of $63.6 million
goodwill in the combined balance sheet relating to the Alcor group of
companies.
d. Reflects the increase in interest expense arising from $100 million Senior
Debt raised in connection with the acquisition ($90 million in note b.
above and $10 million raised previously by Octel) had the Senior Debt been
in place throughout the period.
e. Reflects the amortization of goodwill over 10 years from January 1, 1998,
and of the OBOAdler customer list over the relevant contract periods, the
average period being 2.25 years.
f. Reflects the reduction in income tax arising as a result of the increase in
interest expense in d. above.
g. Reflects the removal of intercompany sales and purchases between Octel and
OBOAdler and of the related period end intercompany balances.
-7-
<PAGE>
(c) Exhibits.
Number Exhibit
7.1* Share purchase agreement between OBOAdler Holdings Limited and
The Associated Octel Company Limited relating to the sale and
purchase of the whole of the issued share capital of OBOAdler
Company Limited, dated June 1, 1999.
7.2* $100,000,000 term loan agreement between Octel Corp., Octel
Associates, Barclays Capital, Barclays Bank plc and others, dated
June 3, 1999.
99.1 Consolidated financial statements of OBOAdler Company Limited, as
of June 30, 1999 and for the year then ended.
* Previously filed.
-8-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OCTEL CORP.
Date: January 20, 2000 By: /s/ Alan G Jarvis
------------------------------------------
Alan G Jarvis
Vice President and Chief Financial Officer
-9-
<PAGE>
Exhibit 99.1
OBOAdler Company Limited
Audited Financial Statements
For the year ended June 30, 1999
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
OBOAdler Company Limited and Subsidiaries
In our opinion, the accompanying consolidated balance sheet and the related
combined and consolidated income statements, statements of cash flows, and
statement of shareholders' equity present fairly in all material respects the
financial position of OBOAdler Company Limited and its subsidiaries (successor)
at June 30, 1999 and the consolidated results of their operations and their cash
flows for the period from June 4 to June 30, 1999 and of the combined results of
operations and cash flows of Alcor Chemie AG, Alcor Chemie Vertriebs AG and
Novoktan GmbH (predecessor) for the period from July 1, 1998 to June 3, 1999 in
conformity with accounting principles generally accepted in Switzerland.
These financial statements are the responsibility of OBOAdler's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States. 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Accounting principles generally accepted in Switzerland vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
combined and consolidated net income expressed in Swiss Francs for the year
ended June 30, 1999 and the determination of the consolidated shareholders'
equity and consolidated financial position also expressed in Swiss Francs at
June 30, 1999 to the extent summarised in note 6 to the consolidated financial
statements.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Leeds
England
January 20, 2000
<PAGE>
Consolidated balance sheet at June 30, 1999
(in Thousands of Swiss Francs)
<TABLE>
<CAPTION>
1999
<S> <C>
Assets
Current assets
Liquid funds -
Cash and cash equivalents 17,393
Trade accounts receivable -
Third parties 28,609
Bad debt provision (2,000)
--------
26,609
Other receivables -
Third parties (note 5) 13,715
Withholding tax - Switzerland 121
Withholding tax - Germany 691
Value added tax - Switzerland 33
Value added tax - Germany 442
--------
15,002
Inventories
Raw materials 4,030
Finished goods and work in progress 1,789
--------
5,819
Prepayments and accrued income 157
--------
64,980
--------
Fixed assets
Tangible fixed assets -
Technical equipment and machines 3,455
Fittings and EDP equipment 751
Property, plant and equipment 787
Intangible assets -
Goodwill 117,805
--------
122,798
--------
Total assets 187,778
========
</TABLE>
<PAGE>
Consolidated balance sheet at June 30, 1999
(in Thousands of Swiss Francs)
<TABLE>
<CAPTION>
1999
<S> <C>
Liabilities and shareholders' equity
Current liabilities
Trade accounts payable -
Third parties 915
Other current liabilities -
Third parties 1,572
Value added tax - Switzerland 4
Loans -
Bank (note 3.1) 139,914
Octel 6,555
----------
146,469
Accruals and deferred income 3,252
Tax provision 9,479
----------
161,691
----------
Non-current liabilities
Provision for foreign exchange risks 1,400
Provision for decontamination 16,393
Provision for production costs 1,000
Other provisions 2,255
----------
21,048
----------
176,182
Shareholders' equity
Share capital (note 3.4) 1,225
Other reserves 2,067
Retained earnings 1,747
----------
5,039
----------
Total liabilities and shareholders' equity 187,778
==========
</TABLE>
<PAGE>
Statements of income for the year ended June 30, 1999
(in Thousands of Swiss Francs)
<TABLE>
<CAPTION>
Combined | Consolidated
Predecessor | Successor
July 1, 1998 to | June 4 to
June 3, 1999 | June 30, 1999
<S> <C> | <C>
Turnover |
|
Income from sales 111,591 | 13,327
Other operational income 233 | 32
Distribution costs (3,034) | (413)
Sales commissions (1,964) | (268)
Increase in bad debt provision (264) | (36)
--------------- | --------------
|
106,562 | 12,642
|
Cost of sales (39,923) | (3,558)
--------------- | --------------
|
Gross profit 66,639 | 9,084
|
Staff costs (14,422) | (1,311)
Depreciation and amortization (1,365) | (1,279)
Other operating costs (6,078) | (707)
--------------- | --------------
Operating profit before financial items 44,774 | 5,787
|
Financial income/expense - |
Interest income 1,063 | 96
Interest expense (227) | (857)
Other expenses (5) | -
Exchange losses/gains (net) (4,466) | (2,839)
--------------- | --------------
Operating profit 41,139 | 2,187
|
Non-operating income/(expense) - |
Release of provisions 532 | -
Others (1,350) | -
--------------- | --------------
Income before tax 40,321 | 2,187
|
Taxes (7,855) | (440)
--------------- | --------------
Net income for the period 32,466 | 1,747
=============== | ==============
</TABLE>
<PAGE>
Statements of cash flows for the year ended June 30, 1999
(in Thousands of Swiss Francs)
<TABLE>
<CAPTION>
Combined | Consolidated
Predecessor | Successor
July 1, 1998 to | June 4 to
June 3, 1999 | June 30, 1999
<S> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES |
|
Net income 32,466 | 1,747
Adjustments to reconcile net income to net cash |
provided by operating activities: |
Depreciation and amortization 1,365 | 1,279
Changes in operating assets and liabilities (9,361) | (850)
Other (13,665) | (222)
--------------- | --------------
Net cash provided by operating activities 10,805 | 1,954
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
Capital expenditure (234) | -
OBOAdler investment - | (145,000)
--------------- | --------------
Net cash used in investing activities (234) | (145,000)
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
Receipt of borrowings - | 146,469
Dividends paid (55,662) | -
Share issues - | 2,293
--------------- | --------------
Net cash used in financing activities (55,662) | 148,762
|
|
Effect of exchange rates - | 999
|
--------------- | --------------
Net change in cash and cash equivalents (45,091) | 6,715
Cash and cash equivalents at beginning of period 55,769 | 10,678
--------------- | --------------
Cash and cash equivalents at end of period 10,678 | 17,393
=============== | ==============
</TABLE>
<PAGE>
Notes to the financial statements 1998/99
1. Acquisition and Basis of Preparation
The new successor group was formed on June 4, 1999 when OBOAdler Company Limited
(OBOA) acquired all outstanding shares in Alcor Chemie AG (AG) and Alcor Chemie
Vertriebs AG (Vertriebs). AG owned all outstanding shares in its subsidiary
Novoktan GmbH (Novoktan), a TEL manufacturing company. AG had also previously
operated a pharmaceutical sales business until December 31, 1998. The
acquisition has been accounted for under the purchase method.
The balance sheet at June 30, 1999 and the income statement for the period from
June 4 through 30, 1999 reflect the consolidated net assets and operating
results of the successor OBOA group.
For further information an income statement has been compiled to present the
operating results of the predecessor group which comprised the combined
businesses of Novoktan, Vertriebs, and AG (excluding its pharmaceutical sales
business) for the period from July 1, 1998 to June 3, 1999.
The combined income statement is not necessarily indicative of the results of
the business if it had operated on a stand-alone basis.
2. The principal accounting policies used in the preparation of the accounts
are set out below:
Revenue recognition
-------------------
Revenue from sales of products is recognised at the time products are shipped to
the customer.
Cash equivalents
----------------
Investment securities with maturities of three months or less when purchased are
considered to be cash equivalents.
Inventories
-----------
Inventories are stated at the lower of cost (FIFO method) or market price.
Property, plant and equipment
-----------------------------
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the assets using the
reducing balance method. Maintenance and repairs are charged to expense when
incurred. Provision is made for repair costs expected to arise within a period
of three months following the balance sheet date.
<PAGE>
Goodwill
--------
Goodwill, the excess of investments over the net assets of subsidiaries
acquired, is on a straight line basis amortised over 8.5 years.
Environmental compliance and remediation
----------------------------------------
Environmental compliance costs include ongoing maintenance, monitoring and
similar costs. Environmental costs are accrued when environmental assessments
or remedial efforts are probable and the cost can be reasonably estimated. Such
accruals are adjusted as further information develops or circumstances change.
Costs of future obligations are not discounted to their present values.
Foreign currencies
------------------
The local currency has been used as the functional currency throughout the OBOA
group. Exchange differences arising on the retranslation of opening balance
sheets of foreign subsidiaries are taken to reserves. Gains and losses on
foreign currency transactions are included in financial income/expenses in the
income statement.
3. Notes in accordance with Article 663b of the Swiss Code of Obligations
3.1. Pledges on assets to secure own liabilities
In June 1999, OBOA entered into a $90 million term loan agreement with Barclays
Bank plc which was secured upon the assets of the OBOA group of companies. The
loan was repaid in full in November 1999.
At June 30, 1999 the assets of Vertriebs were subject to a pledge of CHF 713,000
in respect of German value added tax (1998 - nil).
3.2 Fire insurance value of tangible fixed assets
The fire insurance value of the group's tangible fixed assets at June 30, 1999
was CHF 62.9 million.
3.3 Significant investments
<TABLE>
<CAPTION>
Company Business Capital in Interest in
Thousands Capital in %
<S> <C> <C> <C>
Alcor Chemie AG Sub-holding company CHF 60 100
Alcor Chemie Vertriebs AG Import and export of chemical products CHF 100 100
Novoktan GmbH Development, production, distribution as well DEM 2000 100
as import and export of chemical products
</TABLE>
<PAGE>
All investments were acquired on June 4, 1999 as described in note 1 above.
3.4 Share capital
<TABLE>
(in Thousands of Swiss Francs) June 30,
1999
<S> <C>
OBOAdler Company Limited,
Ordinary shares of GBP 1 each
Authorised 1 million shares 2,450
=====
Issued 500,001 shares 1,225
=====
</TABLE>
One ordinary share was issued on April 28, 1999 when the company was
formed. A further 500,000 shares were issued on June 3, 1999 for US$ 1.5
million in cash (CHF 2.3 million). The share premium of CHF 1,068,000 was
credited to other reserves.
4. Other disclosures required by the law
Movements in retained earnings
(in Thousands of Swiss Francs)
<TABLE>
<S> <C>
Retained earnings at June 4, 1999 0
Net income for the period 1,747
-----
Retained earnings at June 30, 1999 1,747
=====
</TABLE>
The board of directors proposes that all retained earnings should be carried
forward.
5. Other third party receivables
Other third party receivables of CHF 13,715,000 at June 30, 1999 represent
advances to the owner of the predecessor group on account of dividends proposed
at June 30, 1999 but which under Swiss GAAP are not accrued for at the balance
sheet date.
<PAGE>
6. Reconciliation of financial information to United States generally accepted
accounting principles
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in Switzerland (Swiss GAAP), which
differ in certain material respects from generally accepted accounting
principles in the United States (US GAAP). The principal differences between
Swiss GAAP and US GAAP are described as follows:-
<TABLE>
<CAPTION>
6.1 Reconciliation of Consolidated Statement of Income Combined | Consolidated
(in Thousands of Swiss Francs) Predecessor | Successor
July 1, 1998 to | June 4 to
June 3, 1999 | June 30, 1999
<S> <C> | <C>
Net income for the period as reported under Swiss |
GAAP: 32,466 | 1,747
US GAAP adjustments: |
|
Reversal of provision charges (a) 9 | 20
Depreciation of plant (b) (398) | (36)
Deferred taxation charge (c) 118 | 7
Intangible amortization (d) - | (1,065)
Proposed dividends (e) - | (213)
------------ | -------------
32,195 | 460
============ | =============
</TABLE>
<TABLE>
<CAPTION>
6.2 Reconciliation of Consolidated Shareholders' Equity June 30, 1999
(in Thousands of Swiss Francs)
<S> <C>
Total shareholders' equity as reported under Swiss
GAAP: 5,039
US GAAP adjustments:
Reversal of provisions (a) 6,763
Depreciation of plant (b) (36)
Deferred taxation (c) (1,294)
Intangible amortization (d) (1,065)
Proposed dividends (e) (213)
------------
9,194
============
</TABLE>
<PAGE>
6.3 Reconciling items
(a) Reversal of provisions
----------------------
Swiss GAAP allows the establishment of certain provisions for taxation purposes
which under US GAAP are viewed as general in nature and so do not meet the
criteria of provisions. These are therefore removed from the relevant balance
sheet areas and added back to retained earnings. These may be analysed as
follows:-
<TABLE>
<CAPTION>
Balance | Combined | Consolidated
Sheet | Predecessor | Successor
(in Thousands of Swiss Francs) | Income | Income
| Statement | Statement
| July 1, 1998 | June 4 to June
| to June 3, 1999 | 30, 1999
<S> <C> | <C> | <C>
Accounts receivable, bad debt provision 2,000 | 57 | 19
Inventories provision 1,724 | 19 | 7
Production cost provision 1,000 | - | -
Foreign exchange risk provision 1,400 | - | -
Repairs and maintenance provision 639 | (67) | (6)
------------ | ------------ | ------------
6,763 | 9 | 20
============ | ============ | ============
</TABLE>
(b) Depreciation of plant
---------------------
Swiss GAAP allows accelerated depreciation of plant for taxation purposes in
certain circumstances. In order to comply with US GAAP the release in the 11
months to June 3, 1999 has been reversed. The charge in the period from June 4
to June 30, 1999 reflects the increased depreciation due to the step up of
property, plant and equipment to fair value on acquisition.
(c) Deferred taxation
-----------------
This adjustment reflects the taxation which would be payable on the increase in
retained earnings caused by the reversal of provisions noted in (a) and (b), at
the effective tax rate of the companies in whose balance sheets the provisions
were made.
(d) Intangible asset and amortization
---------------------------------
Under Swiss GAAP the difference between the acquisition cost and the net assets
acquired is classified as goodwill in the consolidated balance sheet. The gross
cost at June 30, 1999 was CHF 118.96 million. Under US GAAP this total needs to
be split between the fair value of individual identifiable intangible assets and
general goodwill. Management identified an intangible asset relating to
unexpired customer contracts and attributed to it a fair value of CHF 38.9
million, leaving general goodwill of CHF 80.06 million.
<PAGE>
Under Swiss GAAP the goodwill is being amortised over 8.5 years, resulting in a
post-acquisition charge of CHF 1.155 million. This rate would still apply to
general goodwill under US GAAP, but the unexpired customer contract intangible
asset has a shorter useful life of 2.25 years. Writing off the CHF 38.9 million
over this shorter period would increase the amortization in the post-acquisition
period by CHF 1.065 million.
(e) Proposed dividends
------------------
Under Swiss GAAP proposed dividends are not accrued in the balance sheet.
Dividends of CHF 21.2 million were proposed at June 30, 1999 and subsequently
were paid to the owner of the predecessor group. This reduces the retained
earnings at the acquisition date and increases goodwill by CHF 21.2 million.
The effect on net income from June 4 to June 30, 1999 and on shareholders'
equity is the amortisation charge on the increase in goodwill, which amounted to
CHF 213,000.
6.4 Statement of shareholders' equity
<TABLE>
<CAPTION>
(in Thousands of Swiss Francs) Share Other Retained Accumulated
Capital Reserves Earnings Comprehensive
Income
<S> <C> <C> <C> <C>
At July 1, 1998 3,453 45,782 49,235
Net income 32,466 32,466
Dividends (55,662) (55,662)
------------ ------------- ------------ ------------
At June 3, 1999 3,453 22,586 26,039
Capitalised on acquisition
(3,453) (22,586) (26,039)
Net income 1,747 1,747
Shares issued 1,225 1,068 1,068
Foreign exchange 999 999
------------ ------------- ------------ ------------
At June 30, 1999 1,225 2,067 1,747 3,814
============ ============= ============ ============
</TABLE>
7. Subsequent events
On November 9, 1999 the entire outstanding shares in OBOAdler Limited were
acquired by Octel Trading Limited, a subsidiary of Octel Corp.
