<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): August 20, 1999
GENTEK INC.
(Exact name of registrant as specified in charter)
Delaware
(State or other jurisdiction of incorporation)
<TABLE>
<S> <C>
001-14789 02-0505547
(Commission File No.) (IRS employer identification no.)
Liberty Lane, Hampton, New Hampshire 03842
(Address of principal executive offices) (zip code)
</TABLE>
Registrant's telephone number, including area code: (603) 929-2264
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As described in the Registrant's Current Report on Form 8-K filed on
September 3, 1999 (the "Initial 8-K"), on August 20, 1999, GenTek Inc. (the
"Company") acquired Krone AG ("Krone"), a leading global supplier of connector
technology for telecommunications and data networks, from Jenoptik AG, a major
German technology group (the "Krone Acquisition"). The Company acquired Krone
through Krone Holding GmbH, a wholly owned indirect subsidiary of the Company.
The Company did not acquire the wireless loop business of Krone, which
manufactures and sells radio telephone systems.
This Current Report on Form 8-K/A supplements the Initial 8-K to include
financial statements and pro forma financial information required by Item 7.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of the Business Acquired
See Exhibit 1
(b) Pro Forma Financial Information
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet and statements of
operations have been derived from our historical financial statements. The pro
forma balance sheet has been prepared on the basis that the Krone Acquisition
had occurred on June 30, 1999. The pro forma statements of operations for the
year ended December 31, 1998 and the six months ended June 30, 1999 have been
prepared on the basis that the Krone Acquisition, the acquisition of Noma
Industries Limited and Defiance,Inc. ("Previously Acquired Companies") and the
spin-off of GenTek from The General Chemical Group, Inc. had all occurred as of
the day of the period presented.
The pro forma adjustments, as described in the notes to the pro forma
balance sheet and statements of operations, are based on currently available
information and certain adjustments that management believes are reasonable.
This pro forma financial information is presented for informational purposes
only and does not necessarily represent what our financial position or results
of operations would have been if these transactions had in fact occurred on
such date, or as of the beginning of such periods, and is not necessarily
indicative of our financial position or results of operations for any future
date or period.
2
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<TABLE>
<CAPTION>
UNAUDITED PRO FORMA BALANCE SHEET
As of June 30, 1999
--------------------------------------------------------
Pro Forma for
GenTek Proforma Acquired
Historical Krone(a) Adjustments Companies
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,454 $ 9,769 $ -- $ 24,223
Receivables, net 129,914 64,371 -- 194,285
Inventories 65,338 46,100 -- 111,438
Deferred income taxes 16,378 -- -- 16,378
Other current assets 7,896 8,382 -- 16,278
---------- --------- --------- ----------
Total current assets 233,980 128,622 -- 362,602
Property, plant and equipment, net 270,367 66,813 -- 337,180
Goodwill, net of amortization 256,026 -- 134,735(b) 390,761
Other assets 25,704 43,029 -- 68,733
---------- --------- --------- ----------
Total assets $786,077 $238,464 $134,735 $1,159,276
========== ========= ========= ===========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 68,738 $ 15,471 $ -- $ 84,209
Accrued liabilities 78,031 54,792 -- 132,823
Income taxes payable 7,702 -- -- 7,702
Current portion of long-term debt 1,739 35,265 -- 37,004
---------- --------- --------- ----------
Total current liabilities 156,210 105,528 -- 261,738
Long-term debt 499,563 40,618 146,117(b) 686,298
Other liabilities 132,296 80,936 -- 213,232
---------- --------- --------- ----------
Total liabilities 788,069 227,082 146,117 1,161,268
Equity
Preferred Stock, $.01 par value; authorized 10,000,000
shares; none issued or outstanding -- -- -- --
Common Stock, $.01 par value; authorized 100,000,000
shares; issued: 12,654,489 and 16,875,252 shares at
December 31, 1998 and June 30, 1999, respectively 168 -- -- 168
Class B Common Stock, $.01 par value; authorized
40,000,000 shares: issued and outstanding:
9,758,421 and 3,958,421 shares at December 31, 1998 and
June 30, 1999, respectively 39 -- -- 39
Capital deficit (5,605) 11,382 (11,382)(b) (5,605)
Accumulated other comprehensive income 25 -- -- 25
Retained earnings 3,611 -- -- 3,611
Treasury stock, at cost: 1,641,166 and 15,427 shares at
December 31, 1998 and June 30, 1999, respectively (230) -- -- (230)
---------- --------- --------- ----------
Total equity (deficit) (1,992) 11,382 (11,382) (1,992)
---------- --------- --------- ----------
Total liabilities and equity (deficit) $786,077 $238,464 $134,735 $1,159,276
========== ========= ========= ===========
</TABLE>
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(a) See consolidated financial statements of Krone AG. Krone's balance sheet
data have been converted from DM to US$ at the rate of DM1.8893=US$1.00,
representing the DM/US$ exchange rate at June 30, 1999
(b) To record the acquisition of Krone. Determination of the value of the
assets and liabilities of Krone is in progress. Management believes that
any difference between the amount allocated to goodwill on a pro forma
basis and the final amount allocated to goodwill will not have a material
impact on the pro forma results of operations. The excess of the purchase
price over the net book value of $134,735 for Krone is recorded as
goodwill.
3
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<TABLE>
<CAPTION>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
Year Ended December 31, 1998
-------------------------------------------------------------------------
Previously Pro Forma for
GenTek Acquired Proforma Acquired
Historical Companies(a) Krone(b) Adjustments Companies
---------- ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $443,919 $361,665 $330,051 $ -- $1,135,635
Cost of sales 326,626 290,624 203,867 9,287(c) 830,404
Selling, general and
administrative expense 65,572 30,692 104,804 2,000(d) 203,068
Provision for restructuring -- -- 12,144 -- 12,144
-------- -------- -------- ----------- ----------
Operating profit 51,721 40,349 9,236 (11,287) 90,019
Interest expense 14,624 3,368 4,906 42,246(e) 65,144
Interest income 1,165 -- -- -- 1,165
Other (income) expense, net 949 210 (263) -- 896
-------- -------- -------- ----------- ----------
Income from continuing operations
before income taxes and
extraordinary item 37,313 36,771 4,593 (53,533) 25,144
Income tax provision (3,756) 12,277 6,479 (16,499) (1,499)
Minority interest in income -- -- 90 -- 90
-------- -------- -------- ----------- ----------
Income from continuing operations $ 41,069 $ 24,494 $ (1,977) $(37,034) $ 26,522
======== ======== ======== =========== ==========
</TABLE>
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(a) Includes the results of Noma and Defiance Inc.
(b) See consolidated financial statements of Krone AG. Krone's statement of
operations data have been converted from DM to US$ at the rate of
DM1.7591=US$1.00, representing the average daily DM/US$ exchange rate for
1998
(c) To record incremental goodwill amortization
(d) To record estimated incremental general and administrative expenses
expected to be incurred as a result of GenTek operating as a stand alone
entity
(e) To record an increase in interest expense for the incurrence of additional
debt to finance the acquisitions and to reflect the amortization of
deferred financing costs associated with the new borrowings
4
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<TABLE>
<CAPTION>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1999
-------------------------------------------------------------------------
Previously Pro Forma for
GenTek Acquired Proforma Acquired
Historical Companies(a) Krone(b) Adjustments Companies
---------- ----------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues $345,489 $79,442 $160,502 $ -- $585,433
Cost of sales 258,146 64,436 97,186 3,139(c) 422,907
Selling, general and
administrative expense 45,844 7,599 54,830 650(d) 108,923
-------- -------- -------- -------- -------
Operating profit 41,499 7,407 8,486 (3,789) 53,603
Interest expense 12,301 637 4,018 15,616(e) 32,572
Interest income 593 148 -- -- 741
Other (income) expense, net (250) (206) 149 -- (307)
-------- -------- -------- -------- -------
Income from continuing operations
before income taxes and
extraordinary item 30,041 7,124 4,319 (19,405) 22,079
Income tax provision 12,994 2,374 (58) (5,933) 9,377
Minority interest in income -- -- 264 -- 264
-------- -------- -------- -------- --------
Income from continuing operations $ 17,047 $ 4,750 $ 4,114 $(13,472) $ 12,439
======== ======== ======== ======== ========
</TABLE>
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(a) Includes the results of Noma and Defiance Inc. for all pre-acquisition
periods.
(b) See consolidated financial statements of Krone AG. Krone's statement of
operations data have been converted from DM to US$ at the rate of
DM1.7983=US$1.00, representing the average daily DM/US$ exchange rate for
the six month period ended June 30, 1999.
(c) To record incremental goodwill amortization.
(d) To record estimated incremental general and administrative expenses
expected to be incurred as a result of GenTek operating as a stand alone
entity.
(e) To record an increase in interest expense for the incurrence of additional
debt to finance the acquisitions and to reflect the amortization of
deferred financing costs associated with the new borrowings.
5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
GenTek Inc. and Krone AG:
We have audited the accompanying consolidated balance sheets of Krone AG as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the years then ended (all
expressed in DEM). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Germany and the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Krone AG as of December 31, 1998
and 1997, and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in
Germany.
Accounting principles generally accepted in Germany 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 net earnings
for each of the two years in the period ended December 31, 1998 and the
determination of shareholders' equity and financial position at December 31,
1998 and 1997 to the extent summarized in Note 3.
DELOITTE & TOUCHE GmbH
Berlin/Duesseldorf, Germany
October 20, 1999
<PAGE>
KRONE AG
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DEUTSCHE MARK)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
NOTE 1998 1997
------- ----------- ----------
<S> <C> <C> <C>
Sales revenue 4 580,593 598,725
Cost of sales 5 (362,243) (358,579)
---------- ---------
GROSS PROFIT 218,350 240,146
Research and development costs (17,144) (17,019)
Sales costs (103,180) (93,125)
General administration costs (63,923) (79,896)
Other operating income 7 41,127 43,433
Other operating expense 8 (40,486) (19,391)
Financial results, net 9 (8,631) (9,055)
---------- ---------
RESULTS FROM ORDINARY BUSINESS ACTIVITIES 26,113 65,093
Extraordinary results 10 -- (2,822)
Income taxes 11 (11,397) (7,485)
Other taxes 12 (1,156) (98)
---------- ---------
NET INCOME OF CONTINUING BUSINESS BEFORE INCOME (EXPENSE)
FROM PROFIT (LOSS) TRANSFER 13,560 54,688
Loss related to WLL division 13 (34,401) (18,840)
---------- ---------
Total net income (loss) before income (expense) from profit (loss) transfer (20,841) 35,848
Income (expense) from profit transfer 39,974 (28,354)
---------- ---------
NET INCOME BEFORE (INCOME) LOSS APPLICABLE TO MINORITY SHAREHOLDERS 19,133 7,494
Loss (income) applicable to minority shareholders (159) 152
---------- ---------
NET EARNINGS 18,974 7,646
========== =========
</TABLE>
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KRONE AG
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DEUTSCHE MARKS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------
NOTE 1998 1997
-------- ---------- ----------
<S> <C> <C> <C>
ASSETS
NON-CURRENT ASSETS
Intangible assets 14 3,063 5,092
Fixed assets 15 124,009 118,300
Financial asssets 16 5,620 4,862
---------- ----------
132,692 128,254
---------- ----------
CURRENT ASSETS
Inventories 17 77,584 83,863
Accounts receivable 18 95,275 100,116
Receivables from affiliated companies 18 42,527 1,280
Receivables from associated companies 18 12,497 11,566
Other assets 18 17,664 42,219
Cash and cash equivalents 19 8,716 15,629
----------- ----------
254,263 254,673
----------- ----------
Prepaid expenses and deferred taxes 20 3,335 3,696
Assets of WLL division 24 88,010 98,251
----------- ----------
TOTAL ASSETS 478,300 484,874
=========== ==========
STOCKHOLDERS' EQUITY AND LIABILITIES
STOCKHOLDERS' EQUITY 21
Capital stock 64,400 64,400
Additional paid-in capital 53,453 25,100
Retained earnings 15,393 33,961
Minority interest 2,615 2,869
----------- ----------
135,861 126,330
----------- ----------
PROVISIONS
Provisions for pensions and similar obligations 6 61,065 58,049
Other provisions 22 56,754 47,711
----------- ----------
117,819 105,760
----------- ----------
LIABILITIES 23
Liabilities due to banks 163,158 165,382
Accounts payable 30,455 31,763
Liabilities to affiliated company 14 16,173
Other liabilities 19,440 32,930
----------- ----------
213,067 246,248
----------- ----------
Customer deposits 964 --
Provisions and liablities of WLL division 24 10,589 6,536
----------- ----------
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES 478,300 484,874
=========== ==========
</TABLE>
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<PAGE>
KRONE AG
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DEUTSCHE MARKS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year before minority interests 19,133 7,494
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Shareholder subsidy (26,947) --
Depreciation and amortization 36,328 37,289
Loss (gain) on sale of non-current assets 1,524 (15,984)
Change in minority interest (413) (55)
Change in pension provision 3,016 (5,226)
Change in inventories 3,308 918
Change in accounts receivables and other assets 25,816 (41,072)
Increase in deferred taxes (1,007) (505)
Change in accounts payable and other liabilities (10,587) 12,491
Change in other provisions and tax reserve 8,286 (4,641)
Change in other prepaid and deferred items 2,332 (1,183)
--------- ----------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 60,789 (10,474)
--------- ----------
INVESTING ACTIVITIES
Capital expenditures (53,476) (50,877)
Proceeds from sale of non-current assets 3,516 35,027
Change in assets and liabilities of WLL division (10,261) (54,811)
--------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (60,221) (70,661)
--------- ----------
FINANCING ACTIVITIES
Capital contribution 28,353 --
Shareholder subsidy 23,747 --
Profit/loss transfer to shareholder (39,974) 28,354
Increase in accounts payable to affiliated companies (18,363) (10,784)
Proceeds from bank loans 14,038 68,942
Redemption of bank loans (16,262) (3,561)
Shareholder subsidy regarding WLL division 3,200 --
--------- ----------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (5,261) 82,951
--------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OF
CONTINUING BUSINESS (4,693) 1,816
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (2,220) 210
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 15,629 13,603
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR 8,716 15,629
========= ==========
</TABLE>
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<PAGE>
KRONE AG
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(THOUSANDS OF DEUTSCHE MARKS)
<TABLE>
<CAPTION>
CAPITAL ADDITIONAL RETAINED MINORITY TOTAL
STOCK PAID-IN CAPITAL EARNINGS INTEREST
---------- ---------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1, 1997 64,400 25,100 27,476 3,021 119,997
Net earnings 1997 -- -- 7,494 -- 7,494
Loss applicable to minority shareholders -- -- 152 (152) --
Goodwill deduction -- -- (3,845) -- (3,845)
Foreign currency translation adjustment -- -- 2,804 -- 2,804
Change in tax reserve -- -- (120) -- (120)
---------- ---------------- ---------- --------- ---------
BALANCE AS OF DECEMBER 31, 1997 64,400 25,100 33,961 2,869 126,330
---------- ---------------- ---------- --------- ---------
Capital contribution -- 28,353 -- -- 28,353
Net earnings 1998 -- -- 19,133 -- 19,133
Income applicable to minority shareholders -- -- (159) 159 --
Change in minority interest -- -- -- (413) (413)
Goodwill deduction -- -- (24,555) -- (24,555)
Foreign currency translation adjustment -- -- (12,230) -- (12,230)
Change in tax reserve -- -- (757) -- (757)
---------- ---------------- ---------- --------- ---------
BALANCE AS OF DECEMBER 31, 1998 64,400 53,453 15,393 2,615 135,861
========== ================ ========== ========= =========
</TABLE>
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<PAGE>
KRONE AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. BASIS OF PRESENTATION
The consolidated financial statements of KRONE AG and its subsidiaries ("KRONE")
or the "Company") have been prepared in accordance with the German Commercial
Code, which represents generally accepted accounting principles in Germany
("German GAAP") and comply with the significant accounting policies described in
Note 2. Generally accepted accounting principles in Germany vary in certain
respects from generally accepted accounting principles in the United States
("U.S. GAAP"). Application of U.S. GAAP would have affected the net income for
each of the years in the two-year period ended December 31, 1998 and
shareholders' equity as of December 31, 1998 and 1997 to the extent summarized
in Note 3 to the consolidated financial statements. Unless explicitly stated
otherwise, all amounts herein are shown in thousands of Deutsche Marks ("TDM").
KRONE operates in two industry segments: telecommunication networking and
wireless local loop ("WLL"). On August 20, 1999 (effective July 1, 1999 for
German statutory purposes), the Company was acquired by GenTek
Inc. ("GenTek"), a U.S. company. Simultaneous with the acquisition of the
Company, KRONE sold the WLL division and an unrelated investment ("WLL
division") to the parent of KRONE, Jenoptik AG ("Jenoptik"). For the convenience
of the reader, the Company has presented the assets, liabilities, results of
operations and cash flows of the WLL division separately on the face of the
financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting principles and valuation methods have been consistently
applied for all periods presented.
CONSOLIDATION METHODS -- All material companies, in which KRONE has legal or
effective control, are fully consolidated. In each year presented KRONE
consolidated 28 domestic and foreign companies. Two companies, which were
established in 1998 and 1997, were not consolidated, as their effect on the
financial position and results of operations was not material.
All effects of intercompany transactions have been eliminated in the financial
statements.
MANAGEMENT'S ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent amounts at the date of the balance
sheet and reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
FOREIGN CURRENCIES -- Foreign currency receivables and payables are recorded at
historical rates unless the use of the exchange rate at the balance sheet date
would result in a lower receivable or a higher payable balance. This results in
unrealized losses being recognized currently and unrealized gains being deferred
until they are realized.
The financial statements of the Company's self-sustaining foreign subsidiaries
have been translated to TDM's using the current rate method. Assets and
liabilities are translated at the year-end exchange rate, revenues and expenses
are translated at the average exchange rate and capital stock at
- 6 -
<PAGE>
historical exchange rates. Gains and losses arising from the translation of the
financial statements are deferred in a "Foreign Currency Translation Adjustment"
account in shareholders' equity.
REVENUE RECOGNITION -- Revenue is recognized when title passes or services are
rendered, net of discounts, customer bonuses and rebates.
INTEREST COSTS -- All interest costs are charged directly to expense as
incurred.
INTANGIBLE ASSETS -- Intangible assets other than goodwill are valued at
acquisition cost and are amortized using the straight-line method over their
respective useful lives of generally 5 years. Goodwill arising from the excess
of the cost of the purchased business over the value of the net assets acquired
is generally deducted from retained earnings at the date acquired.
FIXED ASSETS -- Fixed assets are carried at acquisition or manufacturing cost
and subsequently reduced by scheduled depreciation charges over the assets'
estimated useful lives as follows: Buildings - 30 years; technical equipment and
facilities, factory and office equipment - range from 3 to 10 years. Fixed
assets are depreciated using the straight-line method. In general, depreciation
on additions during the first and second half of the year are calculated using
full-year or half-year rates, respectively. Low value items are expensed in the
year of acquisition.
FINANCIAL ASSETS -- Financial assets are valued at acquisition cost.
INVENTORY VALUATION -- Inventories are valued at acquisition or manufacturing
cost, determined on an average method, or lower net realizable value.
Manufacturing cost includes direct labor and applicable manufacturing overhead
including appropriated depreciation. Expenditures for advertising and sales
promotion are charged to expense as incurred. Provisions for obsolescence, slow
moving items and changes in price levels are made to the extent that inventory
risks are determinable.
RECEIVABLES AND OTHER ASSETS -- Receivables and other assets are valued at
nominal value taking into account all known risks. Non-interest bearing
receivables are reduced to their present value at the balance sheet date. A
lump-sum allowance for doubtful accounts is deducted from the receivables in
recognition of the general risk inherent in receivables.
PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS -- Provisions for pensions and
similar obligations are actuarially determined and are based on discounted
amounts using an interest rate of 6%.
OTHER PROVISIONS -- Other provisions include all recognizable risks and
uncertain obligations at the balance sheet date, valued at the expected payment
for such uncertainties.
LIABILITIES -- Liabilities are recorded at their repayment amounts.
INCOME TAXES -- Deferred tax assets are generally recognized for the elimination
of intercompany profits. Deferred tax liabilities are only considered to the
extent that such liabilities exceed
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<PAGE>
consolidated deferred tax assets. Deferred tax assets regarding operating loss
carryforwards are not taken into account.
PER SHARE AMOUNTS -- Per share amounts are not disclosed in the financial
statements because KRONE is a nonpublic enterprise.
3. SIGNIFICANT DIFFERENCES BETWEEN GERMAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The KRONE consolidated financial statements comply with generally accepted
accounting principles in Germany as prescribed by the German Commercial Code,
which differ in certain significant respects from those applicable in the United
States. The significant differences that affect the consolidated net income and
shareholders' equity of KRONE are set out below:
(a) GOODWILL AND BUSINESS ACQUISITION
Under German GAAP, the Company deducted goodwill directly from retained
earnings. Under U.S. GAAP, the difference between the purchase price and fair
value of net assets acquired as part of a business combination is capitalized as
goodwill and amortized over its estimated life, which may not exceed 40 years.
For the purpose of the reconciliation to U.S. GAAP, goodwill is being amortized
over an estimated useful life of 10 years.
(b) REVENUE RECOGNITION - SALE OF REAL ESTATE
In 1994 the Company sold a facility and leased the property back. Under German
GAAP, the gain on the sale is reflected in the period in which the transaction
occurred. Under U.S. GAAP, the profit on the sale is deferred and amortized
using the straight-line method over the lease term.
(c) CAPITAL LEASE CONTRACTS
Under German GAAP, the Company expenses lease payments when incurred. Under U.S.
GAAP, the lessee shall classify as a capital lease contracts that meet one or
more of the specific criteria in Statement of Financial Accounting Standards
(SFAS) No. 13, "Accounting for Leases". Capitalization of a lease will result in
the recording of an asset and an obligation at an amount equal to the present
value of the minimum lease payments net of executory costs. Assets recorded
under capital leases are amortized over the lesser of the estimated useful life
of the asset or the lease term.
(d) IMPAIRMENT OF ASSETS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed", requires that an impairment loss must be
measured and recognized as the amount by which the carrying amount of the asset
exceeds the fair value of the asset in the period the impairment is determined.
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<PAGE>
(e) PROVISIONS, RESERVES AND VALUATION DIFFERENCES
According to German GAAP, accruals or provisions shall be recorded for
uncertainties and loss contingencies. Application of German GAAP may lead to
higher provisions and reserves than are allowed under U.S. GAAP. In accordance
with SFAS No. 5, "Accounting for Contingencies", an accrual for a loss
contingency is recorded by a charge to income if it is both probable that an
asset has been impaired or a liability has been incurred and the minimum amount
of loss can be reasonably estimated. Certain reserves for future losses, costs
or risks do not meet the conditions for accrual under SFAS No. 5.
The adjustments to Shareholders' Equity of TDM 5,128 and TDM 4,207 would have
reduced other provisions at December 31, 1998 and 1997 by TDM 3,452 and TDM
2,852, respectively, and increased inventory by TDM 637 and TDM 570 and accounts
receivable by TDM 1,039 and TDM 785.
(f) UNREALIZED FOREIGN CURRENCY EXCHANGE GAINS
As allowed under German GAAP, unrealized exchange gains on receivables or
payables denominated in currencies other than the functional currency are not
recorded until they are realized. In accordance with SFAS No. 52, "Foreign
Currency Translation", for U.S. GAAP purposes, assets and liabilities
denominated in a foreign currency are recorded at period end rates with any
resulting unrealized gain or loss recognized in current period income.
(g) PENSION PROVISION
KRONE provides for pension cost and similar obligations based on actuarial
appraisals using the entry age normal method as defined in the German tax code.
U.S. GAAP, as defined by SFAS No. 87 "Employers' Accounting for Pensions", is
more prescriptive particularly as to the use of actuarial assumptions and
require that a different actuarial method, the projected unit credit method, be
used. The U.S. GAAP reconciliation has been prepared as if the Company has
adopted SFAS No. 87 as of January 1, 1997. The Company has assumed that the
total transition obligation has been fully amortized as of January 1, 1997.
(h) SHAREHOLDERS' SUBSIDY
During 1998, the Company received a shareholders' subsidy. Under German GAAP the
subsidy is reflected in the Consolidated Statements of Operations for the year
ended December 31, 1998 as other operating income. Under U.S. GAAP the subsidy
must be accounted for as a capital contribution.
- 9 -
<PAGE>
(i) PROFIT AND LOSS TRANSFER AGREEMENT
Krone AG has a profit and loss sharing agreement with Jenoptik whereby the
profit or loss resulting from the operations of Krone AG on a non-consolidated
basis are transferred to or reimbursed by Jenoptik. Under German GAAP, the
transfer is reflected in the Consolidated Statements of Operations for the years
ended December 31, 1998 and 1997. Under U.S. GAAP the transfer must be accounted
for as a capital transaction.
(j) DEFERRED TAXES
Under German GAAP, deferred tax assets are generally recognized for the
elimination of intercompany profits. Deferred tax liabilities are only
considered to the extent that such liabilities exceed consolidated deferred tax
assets. Deferred tax assets regarding operating loss carryforwards are not taken
into account.
Due to the profit and loss transfer and control agreement with Jenoptik, Krone
AG does not have any operating losses carried forward at December 31, 1998 and
1997 and cannot utilize losses from periods prior to this agreement. As far as
the subsidiaries are concerned, no significant timing differences or losses
carried forward exist at December 31, 1998 and 1997.
- 10 -
<PAGE>
RECONCILIATION TO US GAAP
The following is a summary of significant adjustments to net income for the
years ended December 1998 and 1997 and to shareholders' equity at December 31,
1998 and 1997, which would be required if U.S. GAAP had been applied instead of
German GAAP.
<TABLE>
<CAPTION>
NOTE 1998 1997
-------- ---------- ----------
<S> <C> <C> <C>
Reconciliation of net income
Net income as reported in consolidated
statements of operations under German GAAP(1) 18,974 7,646
Loss related to WLL division 34,401 18,840
--------- ---------
Adjusted net income of continuing business
under German GAAP 53,375 26,486
Adjustsments required to conform with U.S. GAAP:
Goodwill and business acquisitions (a) (638) (285)
Revenue recognition - sale of real estate (b) 8,126 8,126
Capital lease contracts (c) 96 59
Impairment of assets (d) (834) -
Provisions, reserves, valuation differences (e) 921 1,037
Unrealized foreign currency exchange gains (f) (259) 302
Pensions provision (g) (543) (380)
Shareholder subsidy (h) (23,747) -
Profit and loss transfer agreement (i) (39,974) 28,354
Deferred taxes (j) - -
--------- ---------
NET INCOME (LOSS) OF CONTINUING BUSINESS IN
ACCORDANCE WITH U.S. GAAP (3,477) 63,699
========= =========
COMPREHENSIVE INCOME (LOSS) IN ACCORDANCE
WITH U.S. GAAP (15,707) 66,503
========= =========
</TABLE>
- ----------------
(1) Includes the following in operating income and expense which would be
included as non-operating under U.S. GAAP:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Gain on sale of fixed assets 824 16,487
Foreign currency transaction gains 7,120 11,576
Foreign currency transaction losses (7,481) (11,337)
Financial result, net (8,631) (9,055)
</TABLE>
Included in the TDM 16,487 gain on sale of fixed assets in 1997 is a TDM 15,565
gain related to the sale of fixed assets to another subsidiary of the Company's
parent Jenoptik AG for TDM 25,464.
Also includes extraordinary results of TDM 2,882 in 1997 related to the sale of
two subsidiaries which would not be considered an extraordinary item under U.S.
GAAP and would be included in non-operating income.
- 11 -
<PAGE>
<TABLE>
<CAPTION>
NOTE 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Reconciliation of shareholders' equity
Shareholders' equity as reported in the
consolidated balance sheet under German GAAP 135,861 126,330
Adjustsments required to conform with
U.S. GAAP:
Goodwill and business acquisitions (a) 4,396 5,034
Revenue recognition - sale of real estate (b) (48,752) (56,878)
Capital lease contracts (c) (106) (202)
Impairment of assets (d) (834) 0
Provisions, reserves, valuation difference (e) 5,128 4,207
Unrealized foreign currency exchange gains (f) 162 421
Pension provision (g) (10,198) (9,655)
Deferred Taxes (j)
--------- --------
SHAREHOLDERS' EQUITY IN ACCORDANCE WITH
U.S. GAAP 85,657 69,257
========= ========
</TABLE>
4. SALES REVENUE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Sales revenue from:
Telecommunication Network 548,619 556,525
Others 31,974 42,200
--------------------------
Total sales revenue 580,593 598,725
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Sales revenue by region:
Federal Republic of Germany 107,884 124,079
Europe (without the Federal Republic of Germany) 233,704 247,338
Overseas 273,178 270,945
Less: WLL division (34,173) (43,637)
--------------------------
580,593 598,725
</TABLE>
- 12 -
<PAGE>
5. COST OF MATERIALS
Material cost included in cost of sales composed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Cost of raw materials, supplies, and goods
purchased for resale 219,450 207,607
Cost of services purchased 47,287 55,207
Less: WLL division (35,421) (37,797)
--------------------------
231,316 225,017
</TABLE>
6. PERSONNEL EXPENSES/EMPLOYMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Wages and salaries 179,766 169,888
Social levies and expenses for pensions 35,365 33,439
Less: WLL division (15,897) (14,079)
--------------------------
199,234 189,248
Staff numbers:
Wage earners 1,371 1,337
Salaried employees 1,626 1,511
Less: Employees WLL division (231) (213)
--------------------------
2,766 2,635
</TABLE>
Pension costs are actuarially determined on the basis of an assumed interest
rate of 6% using the entry age actuarial cost method. Pension expenses charged
to the income statement were TDM 6,747 and TDM 5,216 for 1998 and 1997,
respectively. The share of additions to provisions for pensions and similar
obligations at KRONE AG in the amount of TDM 3,400 and TDM 3,263 for 1998 and
1997, which reflects the discount factor of 6%, was allocated to interest
expense rather than personnel expense.
7. OTHER OPERATING INCOME
Other operating income includes mainly rental and lease income, profits from
foreign currency transactions, investment gains, gains from the reversal of
provisions and charges to third parties and parent company.
Included in the net loss of WLL division is TDM 8,490 (1997: TDM 5,181) related
to other operating income.
- 13 -
<PAGE>
8. OTHER OPERATING EXPENSE
Other operating expense includes additions to provisions and allowances, foreign
exchange losses, restructuring costs and provisions and charges to third
parties.
Included in the net loss of WLL division is TDM 9,599 (1997: TDM 3,915) related
to other operating income.
9. FINANCIAL RESULTS, NET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Income from other securities and long-term financial assets 57 117
Other interest and similar income 1,970 2,333
Interest and similar expenses (14,250) (12,666)
Less: WLL division 3,592 1,161
-------------------------
(8,631) (9,055)
</TABLE>
10. EXTRAORDINARY RESULTS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
----
<S> <C>
Extraordinary income 13,792
Extraordinary expense (16,614)
---------
(2,882)
</TABLE>
The extraordinary income results from the gain on the sale of Krone
Kommunikationstechnik GmbH. Extraordinary expenses are in connection with the
divestment of Krone Elektronik GmbH (TDM 14,652) and unscheduled write-offs of
tangible assets (TDM 1,962).
11. INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Income Taxes:
Germany (1,822) (569)
Foreign (10,802) (11,182)
Deferred Taxes 951 4,284
Less: WLL 276 (18)
-------------------------
(11,397) (7,485)
</TABLE>
12. OTHER TAXES
Other taxes include mainly real estate tax and value added tax not deductible
and vehicle tax.
- 14 -
<PAGE>
13. LOSS RELATED TO WLL DIVISION
The results of the WLL division have been reported separately in the financial
statements. Summarized results of the WLL division are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Sales revenue 34,173 43,637
Cost of sales (35,684) (36,591)
---------------------------
Gross profit (1,511) 7,046
Research and development costs (9,947) (7,683)
Sales costs (16,745) (16,591)
General administration costs (1,242) (1,731)
Other operating (expense) income, net (1,109) 1,266
Financial results, net (3,592) (1,161)
Income and other taxes (255) 14
---------------------------
Loss related to WLL division (34,401) (18,840)
</TABLE>
14. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
OTHER ADVANCE
INTANGIBLES GOODWILL PAYMENTS TOTAL
----------- -------- -------- -----
<S> <C> <C> <C> <C>
ACQUISITION COSTS:
BALANCE AT
JANUARY 1, 1997 10,914 4,243 129 15,286
Foreign currency
adjustment 116 - - 116
Additions 2,951 - - 2,951
Disposals (705) - (121) (826)
Reclassifications 8 - (8) -
BALANCE AT DECEMBER
31, 1997 13,284 4,243 - 17,527
Foreign currency
adjustment (78) - - (78)
Additions 2,604 - - 2,604
Disposals (2,045) (4,243) - (6,288)
Reclassifications - - - -
BALANCE AT DECEMBER
31, 1998 13,765 - - 13,765
</TABLE>
- 15 -
<PAGE>
<TABLE>
<CAPTION>
OTHER ADVANCE
INTANGIBLES GOODWILL PAYMENTS TOTAL
----------- -------- -------- -----
<S> <C> <C> <C> <C>
ACCUMULATED
DEPRECIATION:
BALANCE AT
JANUARY 1, 1997 8,345 1,414 - 9,759
Foreign currency
adjustment 96 - - 96
Additions 2,271 353 - 2,624
Disposals (44) - - (44)
Reclassifications - - - -
BALANCE AT
DECEMBER 31, 1997 10,668 1,767 - 12,435
Foreign currency
adjustment (64) - - (64)
Additions 1,683 - - 1,683
Disposals (1,585) (1,767) - (3,352)
Reclassifications - - - -
BALANCE AT
DECEMBER 31, 1998 10,702 - - 10,702
NET BOOK VALUE AT
DECEMBER 31, 1997 2,616 2,476 - 5,092
DECEMBER 31, 1998 3,063 - - 3,063
</TABLE>
Other intangible assets consist of acquired EDP software, patents, industrial
property rights and similar rights as well as licenses to such rights. The above
figures are shown net of WLL intangible assets amounting to TDM 367 and TDM
22,600 as of December 31, 1998 and 1997, respectively.
- 16 -
<PAGE>
<TABLE>
<CAPTION>
OTHER FACTORY PLANTS
LAND AND PLANT AND AND OFFICE UNDER
BUILDINGS MACHINERY EQUIPMENT CONSTRUCTION TOTAL
--------- --------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS:
BALANCE AT
JANUARY 1, 1997 90,009 105,003 176,864 8,283 380,159
Foreign currency
adjustment 1,269 1,104 1,660 330 4,363
Additions 287 10,921 23,026 9,137 43,371
Disposals (28,446) (14,848) (32,502) (285) (76,081)
Reclassifications 3 6,480 1,688 (8,171) -
BALANCE AT
DECEMBER 31, 1997 63,122 108,660 170,736 9,294 351,812
Foreign currency
adjustment (2,052) (4,083) (2,635) (180) (8,950)
Additions 608 11,504 24,455 9,255 45,822
Disposals (149) (3,105) (10,241) (117) (13,612)
Reclassifications 1,372 4,933 3,266 (9,571) -
BALANCE AT
DECEMBER 31, 1998 62,901 117,909 185,581 8,681 375,072
</TABLE>
<TABLE>
<CAPTION>
OTHER FACTORY PLANTS
LAND AND PLANT AND AND OFFICE UNDER
BUILDINGS MACHINERY EQUIPMENT CONSTRUCTION TOTAL
--------- --------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
ACCUMULATED
DEPRECIATION:
BALANCE AT
JANUARY 1, 1997 36,944 67,647 150,373 - 254,964
Foreign currency
adjustment 307 419 1,063 - 1,789
Additions 5,519 11,256 17,890 - 34,665
Disposals (18,320) (10,909) (28,677) - (57,906)
Reclassifications - (1) 1 - -
BALANCE AT
DECEMBER 31, 1997 24,450 68,412 140,650 - 233,512
Foreign currency
adjustment (775) (2,701) (1,857) - (5,333)
Additions 2,910 13,020 18,615 - 34,545
Disposals (120) (2,221) (9,320) - (11,661)
Reclassifications - 102 (102) - -
BALANCE AT
DECEMBER 31, 1998 26,465 76,612 147,986 - 251,063
NET BOOK VALUE AT
DECEMBER 31, 1997 38,672 40,248 30,086 9,294 118,300
DECEMBER 31, 1998 36,436 41,297 37,595 8,681 124,009
</TABLE>
The above figures are shown net of WLL fixed assets amounting to TDM 6,662 and
TDM 6,057 as of December 31, 1998 and 1997, respectively.
- 17 -
<PAGE>
16. FINANCIAL ASSETS
<TABLE>
<CAPTION>
INVESTMENTS INVESTMENTS INVESTMENTS
IN AFFILIATED IN IN LONG-TERM OTHER LONG-
COMPANIES PARTICIPATION SECURITIES TERM LOANS TOTAL
--------- ------------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS:
BALANCE AT
JANUARY 1, 1997 23 2,800 1,378 135 4,336
Additions 600 - 66 45 711
Disposals (23) - - (63) (86)
BALANCE AT
DECEMBER 31, 1997 600 2,800 1,444 117 4,961
Additions 1,001 - 10 - 1,011
Disposals - (200) - (53) (253)
BALANCE AT
DECEMBER 31, 1998 1,601 2,600 1,454 64 5,719
</TABLE>
<TABLE>
<CAPTION>
INVESTMENTS INVESTMENTS INVESTMENTS
IN AFFILIATED IN IN LONG-TERM OTHER LONG-
COMPANIES PARTICIPATION SECURITIES TERM LOANS TOTAL
--------- ------------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
ACCUMULATED
DEPRECIATION:
BALANCE AT
JANUARY 1, 1997 - - 99 - 99
Additions - - - - -
Disposals - - - - -
BALANCE AT
DECEMBER 31, 1997 - - 99 - 99
Additions - 100 - - 100
Disposals - (100) - - (100)
BALANCE AT
DECEMBER 31, 1998 - - 99 - 99
NET BOOK VALUE AT
DECEMBER 31, 1997 600 2,800 1,345 117 4,862
DECEMBER 31, 1998 1,601 2,600 1,355 64 5,620
</TABLE>
Investments in long-term securities represent equity securities. None of the
financial assets relate to the WLL division.
- 18 -
<PAGE>
17. INVENTORIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials and manufacturing supplies 46,109 48,749
Work in progress 38,414 42,029
Finished goods and goods purchased for resale 37,225 40,836
Payments on account 880 1,298
Less: advance payments received (592) (1,814)
--------------------------
122,036 131,098
Less: WLL division (44,452) (47,235)
--------------------------
77,584 83,863
</TABLE>
18. OTHER RECEIVABLES AND ASSETS
<TABLE>
<CAPTION>
At December 31,
1998 1997
---- ----
<S> <C> <C>
Accounts receivable
Of which mature after one year: TDM 90 (1997: TDM 120) 95,275 100,116
Receivable from affiliated companies
Of which mature after one year: TDM none (1997: TDM none) 42,527 1,280
Receivable from associated companies
Of which mature after one year: TDM none (1997: TDM none) 12,497 11,566
Other assets
Of which mature after one year: TDM 2,086 (1997: TDM 6,081) 17,664 42,219
--------------------
Total receivables 167,963 155,181
</TABLE>
The above figures are shown net of WLL other receivables and assets amounting to
TDM 35,720 and TDM 21,820 as of December 31, 1998 and 1997, respectively.
At December 31, 1998, an allowance for doubtful accounts of DM 6,156 (1997:
DM 3,502) has been deducted from total receivables.
Other assets represent mainly non-trade receivables.
Under U.S. GAAP, amounts due after one year would be classified as non-current
assets.
19. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
AT DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Cash 8,439 15,595
Securities 431 569
Less: WLL division (154) (535)
-------------------------
8,716 15,629
</TABLE>
- 19 -
<PAGE>
20. PREPAID EXPENSES AND DEFERRED TAXES
<TABLE>
<CAPTION>
AT DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Prepaid expenses 2,274 2,963
Loan discounts 106 134
Deferred Taxes 1,610 603
Less: WLL division (655) (4)
-------------------------
3,335 3,696
</TABLE>
21. SHAREHOLDERS' EQUITY
KRONE AG's capital stock of TDM 64,400 during each of the two-year period ended
December 31, 1998 and 1997 consisted of 992,619 ordinary shares and 295,381
preferred shares each of TDM 50 par value.
On June 30, 1998, the sole shareholder, JENOPTIK AG, contributed TDM 28,353 to
capital reserves.
22. OTHER PROVISIONS
Other provisions consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Estimated future losses on open contracts 6,363 4,936
Employee benefits and social costs 29,127 15,395
Accrued warranty and contracts costs 3,413 3,717
Provisions for taxes 11,910 11,921
All other, including restructuring costs 14,156 15,062
Less: WLL division (8,215) (3,320)
-----------------------
56,754 47,711
</TABLE>
- 20 -
<PAGE>
23. LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Liabilities due to banks
Of which due within one year: TDM 87,017 (1997: TDM 83,488) 163,158 165,382
In more than 5 years: TDM 5,744 (1997: TDM 8,257)
Accounts payable
Of which due within one year: TDM 30,455 (1997: TDM 31,763) 30,455 31,763
Liabilities to affiliated companies
Of which due within one year: TDM 14 (1997: TDM 16,173) 14 16,173
Other liabilities
Of which due within one year: TDM 16,126 (1997: TDM 27,113)
Of which for taxes: TDM 6,011 (1997: TDM 6,641)
Of which for social benefits: TDM 4,312 (1997: TDM 4,406) 19,440 32,930
--------------------
Total liabilities 213,067 246,248
</TABLE>
All liabilities payable after more than one year would be classified as
non-current under U.S. GAAP. The above figures are shown net of WLL liabilities
amounting to TDM 2,171 and TDM 3,062 as of December 31, 1998 and 1997,
respectively.
24. ASSETS, PROVISIONS, AND LIABILITIES OF WLL DIVISION
The assets, provisions, and liabilities of the WLL division have been reported
separately in the financial statements and are composed as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Assets:
Intangible assets 367 22,600
Fixed assets 6,662 6,057
Inventories 44,452 47,235
Receivables and prepaid expenses 36,375 21,824
Cash 154 535
-------------------------
Assets of WLL division 88,010 98,251
Provisions and liabilities:
Provisions for pensions and similar obligations 154 154
Other provisions 8,215 3,320
Accounts payable and other liabilities 2,220 3,062
-------------------------
Provisions and liabilities of WLL division 10,589 6,536
</TABLE>
- 21 -
<PAGE>
25. COMMITMENTS AND CONTINGENCIES
Other financial commitments for rent, leases and similar agreements are due as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Due within one year 23,912 24,453
Due between 2 and 5 years 52,108 65,058
More than 5 years 10,255 6,421
-----------------------
86,275 95,392
</TABLE>
In the normal course of business, the Company has guaranteed approximately TDM
16,686 (1997: TDM 17,704) of obligations of others. In addition, the Company has
sold TDM 1,390 (1997: TDM 1,471) of receivables for which the Company remains
liable in the event of default by the third party.
*****
- 22 -
<PAGE>
KRONE AG
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DEUTSCHE MARK)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
-------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
Sales revenue 288,630 281,651
Cost of sales (183,633) (173,361)
----------------- ----------------
GROSS PROFIT 104,997 108,290
Research and development costs (9,905) (9,133)
Sales costs (55,801) (51,579)
General administration costs (32,895) (34,853)
Other operating income 13,065 13,128
Other operating expense (9,752) (21,988)
Financial results, net (7,225) (4,418)
----------------- ----------------
RESULTS FROM ORDINARY BUSINESS ACTIVITIES (2,484) (553)
Income taxes (5,565) (8,489)
----------------- ----------------
NET LOSS OF CONTINUING BUSINESS (3,081) (9,042)
Loss related to WLL division (82,565) (16,845)
----------------- ----------------
NET LOSS BEFORE INCOME (LOSS) APPLICABLE TO MINORITY SHAREHOLDERS (85,646) (25,887)
Loss (income) applicable to minority shareholders (474) 658
----------------- ----------------
NET EARNINGS (86,120) (25,229)
================= ================
</TABLE>
<PAGE>
KRONE AG
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DEUTSCHE MARK)
<TABLE>
<CAPTION>
AS OF JUNE 30,
(UNAUDITED)
-------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
ASSETS
NON-CURRENT ASSETS
Intangible assets 2,889 6,316
Fixed assets 124,140 128,583
Financial assets 3,726 4,249
----------------- ----------------
130,755 139,148
----------------- ----------------
CURRENT ASSETS
Inventories 86,735 91,965
Accounts receivable 111,501 97,004
Receivables from affiliated companies 6,791 11,486
Receivables from associated companies - 12,008
Other assets 10,915 19,757
Cash and cash equivalents 18,456 18,415
----------------- ----------------
234,398 250,635
----------------- ----------------
Prepaid expenses and deferred taxes 4,921 3,268
Assets of WLL division 64,933 96,563
================= ================
TOTAL ASSETS 435,007 489,614
================= ================
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Capital stock 64,400 64,400
Additional paid-in capital 53,453 53,453
Retained earnings (60,160) 6,642
Minority interest 3,062 2,211
----------------- ----------------
60,755 126,706
----------------- ----------------
PROVISIONS
Provisions for pensions and similar obligations 63,632 59,005
Other provisions 83,739 51,475
----------------- ----------------
147,371 110,480
----------------- ----------------
LIABILITIES
Liabilities due to banks 140,583 184,124
Accounts payable 29,230 33,112
Liabilities to affiliated companies 77 101
Other liabilities 22,560 26,852
----------------- ----------------
192,450 244,189
----------------- ----------------
Deferred income 1,605 -
Provisions and liabilities of WLL division 32,826 8,239
================= ================
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 435,007 489,614
================= ================
</TABLE>
<PAGE>
KRONE AG
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DEUTSCHE MARK)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
-------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year before minority interests (85,646) (25,887)
Depreciation and amortization of non-current assets 19,315 17,733
Changes in assets and liabilities:
Inventories (4,959) (8,102)
Receivables and other assets 41,785 15,354
Provisions 29,552 4,720
Accounts payable and other operating liabilities (3,304) (20,801)
----------------- ----------------
CASH USED FOR OPERATING ACTIVITIES (3,257) (16,983)
----------------- ----------------
----------------- ----------------
NET CASH USED FOR INVESTING ACTIVITIES (11,959) (28,627)
----------------- ----------------
FINANCING ACTIVITIES:
Capital contribution - 28,353
Change in bank liabilities (22,575) 18,742
Change in assets and liabilities of WLL division 45,314 3,391
----------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,739 50,486
----------------- ----------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 7,523 4,876
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2,217 (2,090)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,716 15,629
----------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 18,456 18,415
================= ================
</TABLE>
<PAGE>
KRONE AG
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements of KRONE AG and its subsidiaries
("KRONE" or the "Company") are unaudited and have been prepared in accordance
with the German Commercial Code, which represents generally accepted accounting
principles in Germany ("German GAAP"). Generally accepted accounting principles
in Germany vary in certain respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). Application of U.S. GAAP would
have affected the net income for the six-month periods ended June 30, 1999
and 1998 and shareholders' equity at June 30, 1999 and June 30, 1998 to the
extent summarized in Note 2 to the condensed consolidated financial statements.
All amounts herein are shown in thousands of Deutsche Marks ("TDM").
KRONE operates in two industry segments: telecommunication networking and
wireless local loop ("WLL"). On August 20, 1999 (effective July 1, 1999 for
German statutory purposes, the Company was acquired by GenTek Inc. ("GenTek"),
a U.S. company. Simultaneous with the acquisition of the Company, KRONE sold
the WLL division and an unrelated investment ("WLL division") to the parent of
KRONE, Jenoptik AG ("Jenoptik"). For the convenience of the reader, the Company
has presented the assets, liabilities, results of operations and cash flows
separately on the face of the financial statements.
The information included in the condensed consolidated financial statements is
unaudited but reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of income for the interim periods presented. The
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements for the years ended December 31, 1998 and
1997 and the accompanying notes.
2. SIGNIFICANT DIFFERENCES BETWEEN GERMAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The KRONE unaudited condensed consolidated financial statements comply with
generally accepted accounting principles in Germany as prescribed by the German
Commercial Code, which differ in certain significant respects from those
applicable in the United States. The principal differences that affect the
consolidated net income and shareholders' equity are explained in Note 3 to the
consolidated financial statements for the years ended December 31, 1998
and 1997.
<PAGE>
RECONCILIATION TO US GAAP
The following is a summary of significant adjustments to net income for the
six-month periods ended June 30, 1999 and 1998 and to shareholders' equity at
June 30, 1999 and 1998, which would be required if U.S. GAAP had been applied
instead of German GAAP.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
NOTE 1999 1998
----------- ----------------- -----------------
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS
Net loss as reported in consolidated
statements of operations under German GAAP(1) (86,120) (25,229)
Loss related to WLL division 82,565 16,845
----------------- -----------------
Adjusted net loss for continuing business
under German GAAP (3,555) (8,384)
Adjustments required to conform with U.S. GAAP:
Goodwill and business acquisitions (319) (320)
Revenue recognition - sale of real estate 4,063 4,063
Capital lease contracts 11 51
Impairment of assets 236 -
Provisions, reserves, valuation difference 349 395
Unrealized foreign currency exchange gains 906 (74)
Pension provision 37 (433)
Deferred taxes 4 5,670 -
----------------- -----------------
NET INCOME (LOSS) FOR CONTINUING OPERATION IN
ACCORDANCE WITH U.S. GAAP 7,398 (4,702)
================= =================
COMPREHENSIVE INCOME (LOSS) IN ACCORDANCE
WITH U.S. GAAP 17,938 (6,792)
================= =================
</TABLE>
(1) Includes the following in operating income and expense which would be
included as non-operating under U.S. GAAP:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
----------------- -----------------
<S> <C> <C>
Loss on sale of fixed assets (63) (15)
Foreign currency transaction gains 5,379 4,806
Foreign currency transaction losses (5,584) (10,364)
Financial result, net (7,225) (4,418)
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
NOTE 1999 1998
----------- ----------------- -----------------
<S> <C> <C> <C>
RECONCILIATION OF SHAREHOLDERS' EQUITY
Shareholders' equity as reported in the
consolidated balance sheet under German GAAP 60,755 126,706
Adjustments required to conform with U.S. GAAP:
Goodwill and business acquisitions 4,077 4,715
Revenue recognition - sale of real estate (44,689) (52,815)
Capital lease contracts (95) (151)
Impairment of assets (598) -
Provisions, reserves, valuation difference 5,477 4,032
Unrealized foreign currency exchange gains 1,068 364
Pension provision (10,161) (10,088)
Deferred taxes 4 5,670 -
----------------- -----------------
SHAREHOLDERS' EQUITY IN ACCORDANCE WITH
U.S. GAAP 21,504 72,763
================= =================
</TABLE>
<PAGE>
KRONE AG
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
3. SHAREHOLDERS' EQUITY
A reconciliation of changes in shareholders' equity follows:
<TABLE>
<CAPTION>
CAPITAL ADDITIONAL RETAINED MINORITY TOTAL
STOCK PAID-IN CAPITAL EARNINGS INTEREST
---------- ------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1, 1999 64,400 53,453 15,393 2,615 135,861
Net loss for the period ended June 30, 1999 - - (85,646) - (85,646)
Loss applicable to minority shareholders - - (474) 474 -
Foreign currency translation adjustment - - 10,567 (27) 10,540
---------- ------------------ ------------- ------------- -------------
BALANCE AS OF JUNE 30, 1999 64,400 53,453 (60,160) 3,062 60,755
========== ================== ============= ============= =============
</TABLE>
4. DEFERRED TAXES
As of June 30, 1999, the Company recognized a deferred tax asset in the amount
of TDM 8,417 on loss carry forwards in the amount of TDM 16,187 resulting from
operating losses resulting from the six months period ending June 30, 1999. A
statutory federal German tax rate of 52% was used.
The Company has tax loss carry forwards available in the amount of approximate
TDM 55,073 for corporation income tax purposes and TDM 55,290 for trade tax
resulting from periods prior to the Profit and Loss Transfer and Control
Agreement. In connection with the acquisition of the Company's shares and the
restructuring presently under way, the utilization of such losses, if any, has
yet to be determined.
5. PROFIT AND LOSS TRANSFER AGREEMENT
On the Closing Date, the Profit and Loss Transfer and Control Agreement between
the Seller (Jenoptik AG) and Krone AG was terminated effective for tax
purposes as of January 1, 1999 and for other purposes as of the Closing Date
(August 20, 1999). Accordingly, the Company is entitled to be reimbursed for all
losses incurred by Krone AG on a non-consolidated basis until that date.
6. SUBSEQUENT EVENTS
During the third quarter of 1999 Krone AG adopted a restructuring program in
order to further reduce its fixed costs. Approximately 200 employees will be
released during the following year. The program also includes a scheduled shut
down of the sleeve production in Gladbeck. In addition, a warranty risk for a
specific product became evident and the closing of the production of such
product at the U.S. operation was agreed during the third quarter of 1999. There
will be a charge to earnings in respect of the estimated cost of the program in
the second half of 1999. The Company currently estimates that the pre-tax charge
will be in the range of DM 34,000.
During the third quarter of 1999, Krone AG realized additional losses totalling
more than 50% of its capital stock. According to German commercial law
the board of directors informed the shareholder in an extraordinary shareholders
meeting. However, the Company is entitled to be reimbursed for all losses
incurred until August 20, 1999 (see note 5).
<PAGE>
Pursuant to the requirements of the Securities Exchange of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENTEK INC.
By: /s/ Michael R. Herman
-------------------------------
Name: Michael R. Herman
Title: Vice President and General Counsel
Dated: November 3, 1999
