<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 8-K/A
-------------------
CURRENT REPORT
(Amendment No. 2)
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 1, 1997
DECORA INDUSTRIES, INC.
(Exact name of issuer as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-016072 68-0003300
(Commission File Number) (IRS Employer Identification No.)
1 Mill Street, Fort Edward, New York 12828
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 747-6255
- --------------------------------------------------------------------------------
<PAGE> 2
Decora Industries, Inc. previously reported on Form 8-K that it had
acquired 73.2% of the stock of Konrad Hornschuch AG ("Hornschuch"). Its previous
amendment to Form 8-K provided historical audited financial statements on
Hornschuch and proforma financial information relative to the Hornschuch
acquisition. This Amendment No. 2 restates Item 7 to correct certain financial
information.
ITEM 2. ACQUISITION OF SHARES
On October l, l997, a recently formed wholly-owned German subsidiary
("Newco") of Decora Industries, Inc. (the "Company") acquired 73.2 percent of
the voting stock (the "Shares") of Konrad Hornschuch. AG ("Hornschuch"). The
Shares were acquired directly from Hornschuch's two largest shareholders in
private transactions for total consideration of DM 61,582,280, or approximately
$35,000,000. The remaining 26.8 percent of the voting stock of Hornschuch is
currently traded on the Frankfurt and Stuttgart stock exchanges. The Company
intends to purchase all or most of the remaining 26.8 percent of the voting
stock of Hornschuch as soon as practicable using a combination of (i) open
market purchases sufficient to reach a minimum of 75 percent voting control,
which purchases have commenced, and (ii) a tender offer pursuant to German law
to all minority shareholders of Hornschuch which is anticipated to be completed
within l8 months of the initial purchase of the Shares (the "Minority Tender
Offer") . The transactions are being accounted for pursuant to the purchase
method of accounting.
Hornschuch employs approximately 760 persons; its revenues for calendar
year l996 were DM 202,044,000, or approximately $133,979,000. Hornschuch is the
manufacturer and marketer of d-c fix and Noblessa decorative products which
account for approximately fifty-two percent of its revenues. Along with its
self-adhesive products, Hornschuch also markets a full line of complementary
table coverings and other decorative kitchen and table oriented products. In
addition to its market presence in Europe, Hornschuch has products sales and
distribution capabilities in Eastern Europe, Russia, the Middle East and the Far
East with over 80 sales, marketing and distribution representatives worldwide.
Hornschuch also manufacturers decorative and functional films for use by
manufacturers in the automotive, building , furniture, handbag, shoe and
interior decoration markets. Approximately one-half of its total revenues is
derived from sales in Germany; the remainder is derived from sales in other
countries.
Hornschuch's self-adhesive products are similar to Decora's core product
offerings, and Decora anticipates ongoing benefits from manufacturing synergies
between the two companies following the acquisition. Potential synergies include
raw material purchasing, manufacturing efficiencies (including capacity
utilization), cross merchandising and distribution utilizing Hornschuch's
existing sales and distribution capabilities described above, research and
development (including product refinement) and overhead efficiencies. No
assurances can be given as to the amount of such benefits which will depend on a
variety of factors.
The purchase of the Shares and a portion of the transaction costs was
funded from (i) a loan of approximately $21,026,000 to Newco from a German bank
(the "Bank Loan"), which loan includes a commitment to fund approximately 33
percent of the Company's cash needs to complete the Minority Tender Offer, and
(ii) a subordinated loan of $18,000,000 (the "Subordinated Loan") from a pension
fund of an unrelated company (the "Pension Fund"). The Pension Fund was also
granted several warrants to purchase common stock of the Company. Of the
Subordinated Loan proceeds, $2,900,000 was used to repay existing subordinated
debt of Decora Incorporated (a subsidiary of the Company) and $15,100,000 was
utilized toward the purchase of the Shares. The Company also raised $750,000
through the private placement of common stock to an institutional investment
fund. Closing costs associated with the transaction of approximately $3,400,000,
which included commitment fees, legal, accounting and investment banking fees as
well as other expenses, were either paid at closing or are to be paid in the
future pursuant to agreements between the parties.
The Subordinated Loan bears interest at 13.00% with the first cash
interest payment commencing in September 1998 and with principal payments of
$6,000,000 each due in September 2003, 2004 and 2005. The Bank Loan bears
interest at LIBOR plus 2.50% and requires quarterly interest payments beginning
in December 1997 with principal payments of approximately $1,700,000 each due
semi-annually commencing in March 1999 through September 2004.
The warrants include (i) a warrant to purchase 2,136,534 shares of the Company's
common stock, (ii) a warrant to purchase 69,557 shares of Series A Preferred
Stock (with each share of Series A Preferred Stock to automatically convert to
l00 shares of common stock if authorized common stock is available), and (iii) a
contingent warrant to purchase a fixed percentage of certain additional shares
of common stock which may be issued in the future. The ability to exercise such
contingent warrant is triggered solely by the issuance of shares of the
Company's common stock in connection with an existing exchange agreement or the
sale of additional shares of common stock of the Company, the proceeds of which
are used to finance the Minority Tender Offer. A proposal to reverse split the
common stock of the Company on a one-for-five basis and to decrease the
authorized shares to 20,000,000 will be presented to the Company's Shareholders
for approval at a special meeting to be held on December 18, 1997. If approved,
there will be sufficient authorized shares for the additional common stock.
So long as the Subordinated Loan or any of the Warrants are outstanding,
the Pension Fund shall have the right to nominate one person to the Company's
Board of Directors. The Subordinated Loan also provides that, in the event the
shareholders of the Company fail to authorize the additional common stock by
December 31, l997, the existing l3% interest rate will increase to l4% and
increase further to l5% on March 31, l998. Immediately following shareholder
approval, the interest rate on the Subordinated Loan will return to its
original l3% rate. If shareholder approval is not obtained by June l998, it
is an event of default and the entire Subordinated Loan balance can be declared
due and payable. Further, the interest rate increases to l7%. An event of
default under the Subordinated Loan would likely constitute an event of default
under the Company's other outstanding financing arrangements. Further, if there
is no shareholder approval by June 30, l998, the Pension Fund shall have the
right to nominate a second member to the Company's Board of Directors.
This report on Form 8-K and Form 8-K/A includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended.
All statements other than statements of historical facts, including, without
limitation, the statements regarding potential synergies, industry prospects and
the Company's financial position, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Factors that could cause actual results to differ
materially from the Company's expectations are disclosed in this report and in
the Company's Form 10-K for the year ended March 31, 1997 and Form 10-Q for its
quarter ended September 30, 1997
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS PROFORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of business acquired.
(b) Pro Forma financial information.
(c) Exhibits
2.1 Stock Purchase Agreement by and between
Baden-Wurttenbergische Bank AG and Newco dated as of
September 3, 1997, as amended(1)
2.2 Stock Purchase Agreement by and between der Kunz Holding
GmbH & Co. KG and Newco dated as of August 18, 1997, as
amended(1)
4.1 Certificate of Designation of Series A Preferred Stock
of Holdings dated September 26, 1997(1)
23.l Consent of Dr. Ebner, Dr. Stolz and Partners GmbH
(1) Previously filed as Exhibits to Registrant's current Form 8-K,
dated October 1, 1997.
3
<PAGE> 4
ITEM 7(A) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED:
GERMAN OPINION
The consolidated financial statements based on the financial statements of the
parent company KHAG to 31 December 1996 have been examined by us and we give our
unqualified opinion thereon. The financial statements of foreign affiliated
companies have been examined by local auditors and they have also given their
unqualified opinion thereon.
We verify that this report complies with the regulations according to ss. 321
(1) HGB and finally confirm that the consolidated financial statements of Konrad
Hornschuch Aktiengesellschaft, WeiBbach, to 31 December 1996 and the group
management report for the financial year 1996 comply with the legal regulations.
On the basis of our examination, we give our unqualified opinion as follows:
"The consolidated financial statements, which we have audited in
accordance with professional standards, comply with the legal
regulations. The consolidated financial statements present, in
compliance with required accounting principles, a true and fair view of
the net worth, financial position and results of the group. The group
management report is in agreement with the consolidated financial
statements."
Stuttgart, 2 April 1997
Dr. Ebner, Dr.Stolz und Partner GmbH
Wirtschaftsprufungsgesellschaft,Weissbach
Steuerberatungsgesellschaft
UNITED STATES OPINION
In our opinion, the consolidated financial statements of Konrad Hornschuch AG
present fairly, in all material respects, the financial position of the group at
31st December 1996 and 1995 and the results of its operations for each of the
two years in the period ended 31st December 1996 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 consolidated
net income for each of the two years in the period ended 31st December 1996 and
consolidated shareholders' equity at 31st December 1996 and 1995 as shown in
the summary of differences between German and U.S. generally accepted accounting
principles.
Stuttgart, 11 December 1997
Dr. Ebner, Dr.Stolz und Partner GmbH
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
4
<PAGE> 5
CONSOLIDATED BALANCE SHEET OF KONRAD HORNSCHUCH AKTIENGESELLSCHAFT, WEIBBACH,
AS OF 31 DECEMBER 1996
<TABLE>
<CAPTION>
A S S E T S As of As of
December 31, December 31,
1996 1995
--------------------------------------------------
DM DM TDM
<S> <C> <C> <C>
A. FIXED ASSETS
I. Intangible Assets
Licences, trademarks and patents 299.107 197
II. Tangible Assets
1. Land and buildings 6.340.823 6.475
2. Technical equipment and machinery 33.525.077 34.934
3. Other equipment, office
furniture and equipment 6.237.569 6.652
4. Assets under construction 200.806 292
---------- -------
46.304.275 48.353
III. Financial Assets
Shares in affiliated companies 80.001 80
B. CURRENT ASSETS
I. Inventories
1. Raw materials and supplies 5.275.366 6.407
2. Work in process 4.358.104 4.106
3. Finished goods 26.845.904 28.561
---------- -------
36.479.374 39.074
II. Receivables and other
current assets
1. Trade receivables 31.138.688 30.297
2. Due from affiliated
companies 2.375.872 3.116
3. Other current assets 2.474.673 2.769
---------- -------
35.989.233 36.182
III. Marketable securities
Shares in affiliated companies 50.000 229
IV. Cash and cash equivalents 673.618 718
C. PREPAID EXPENSES
1. Debt discount 13.500 37
2. Other 1.153.763 898
---------- -------
1.167.263 935
----------- -------
121.042.871 125.768
=========== =======
</TABLE>
5
<PAGE> 6
Enclosure 1
<TABLE>
<CAPTION>
L I A B I L I T I E S A N D E Q U I T Y As of As of
December 31, December 31,
1996 1995
---------------------------------------------------
DM DM TDM
<S> <C> <C> <C>
A. SHAREHOLDERS' EQUITY
I. Capital Stock 30.800.000 30.800
II. Additional paid in capital 4.400.000 4.400
III. Revenue Reserves 2.240.993 1.244
IV. Accumulated deficit -3.107.454 -2.050
---------- -------
34.333.539 34.394
B. ACCRUALS
1. Accruals for pensions 11.149.716 11.261
2. Accrued taxes 19.331 28
3. Other accruals 16.192.682 8.070
---------- -------
27.361.729 19.359
C. LIABILITIES
1. Liabilities to banks 46.145.714 56.332
2. Advance payments
received 125.457 183
3. Trade payables 8.224.028 9.664
4. Amounts due to
affiliated companies 11.284 227
5. Other liabilities 4.841.120 5.607
---------- -------
59.347.603 72.013
D. DEFERRED INCOME 0 2
----------- -------
121.042.871 125 768
=========== =======
</TABLE>
6
<PAGE> 7
Enclosure 2
CONSOLIDATED PROFIT AND LOSS ACCOUNT OF KONRAD-HORNSCHUCH AKTIENGESELLSCHAFT,
WEIBBACH, FOR THE PERIOD OF 1 JANUARY TO 31 DECEMBER 1996
<TABLE>
<CAPTION>
1996 1995
DM DM TDM TDM
---------------------------------------------------
<S> <C> <C> <C> <C>
1. SALES 202.044.414 189.163
2. Decrease in finished goods and work in process - 2.981.808 - 896
3. Other capitalized labor, overheads and material 332.139 333
4. Other operating income 2.909.993 202.304.738 5.261 193.861
----------- -------
5. Material costs
a) Raw materials, supplies and purchased goods 81.706.517 86.118
b) Purchased services 3.805.427 85.511.944 5.220 91.338
----------- -------
6. Personnel costs
a) Wages and salaries 45.117.026 47.354
b) Social security and pension 10.767.142 55.884.168 10.800 58.154
----------- -------
7. Depreciation on intangible and tangible assets 10.772.854 11.305
8. Other operating expenses 46.977.947 38.084
----------- -------
3.157.825 - 5.020
9. Income from profit and loss transfer agreement 1.989 0
10. Other interest and similar income 227.048 420
- -. Write-down of shares in affiliated companies 0 29
- -. Expenses from loss absorption 0 212
11. Interest and similar expenses 3.468.742 - 3.239.705 3.684 - 3.505
----------- ----------- ------- -------
12. RESULTS OF ORDINARY OPERATIONS - 81.880 - 8.525
13. Taxes on income 128.404 227
14. Other taxes 548.123 676.527 743 970
----------- ----------- ------- -------
15. NET LOSS OF THE YEAR - 758.407 - 9.495
16. (Accumulated deficit)/retained earnings - 2.049.511 617
beginning of year
17. Withdrawal from revenue reserves 979.176 6.973
18. Earnings appropriated to revenue reserves 1.278.712 145
----------- -------
19. ACCUMULATED DEFICIT - 3.107.454 - 2.050
=========== =======
</TABLE>
7
<PAGE> 8
Enclosure 3
DEVELOPMENT CONSOLIDATED FIXED ASSETS OF KONRAD HORNSCHUCH AKTIENGESELLSCHAFT,
WEIBBACH, IN THE FISCAL YEAR 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Costs
- ----------------------------------------------------------------------------------------------
As of Differences Additions Transfers Disposals As of
1.1.1996 in currency 31.12.1996
- ----------------------------------------------------------------------------------------------
DM DM DM DM DM DM
<S> <C> <C> <C> <C> <C> <C>
I. INTANGIBLE ASSETS
Licences, trademarks
and patents 4.864.835 455 201.478 50.279 3.868 5.113.179
- -----------------------------------------------------------------------------------------------
II. TANGIBLE ASSETS
1. Land and
buildings 23.832.200 0 468.429 0 197.671 24.102.958
- -----------------------------------------------------------------------------------------------
2. Technical equipment
and machinery 136.765.328 0 6.261.809 260.974 5.493.449 137.794.662
- -----------------------------------------------------------------------------------------------
3. Other equipment,
office furniture
and equipment 26.888.242 128.817 1.895.492 - 19.151 813.183 28.080.217
- -----------------------------------------------------------------------------------------------
4. Assets under
construction 291.718 384 200.806 - 292.102 0 200.806
- -----------------------------------------------------------------------------------------------
187.777.488 129.201 8.826.536 - 50.279 6.504.303 190.178.643
- -----------------------------------------------------------------------------------------------
III. FINANCIAL ASSETS
Shares in affiliated
Companies 328.702 0 0 0 28.700 300.002
- -----------------------------------------------------------------------------------------------
192.971.025 129.656 9.028.014 0 6.536.871 195.591.824
- -----------------------------------------------------------------------------------------------
Licences, trademarks
and patents 4.864.835 455 201.478 50.279 3.868 5.113.179
- -----------------------------------------------------------------------------------------------
II. TANGIBLE ASSETS
1. Land and buildings 23.832.200 0 468.429 0 197.671 24.102.958
- -----------------------------------------------------------------------------------------------
2. Technical equipment
and machinery 136.765.328 0 6.261.809 260.974 5.493.449 137.794.662
- -----------------------------------------------------------------------------------------------
3. Other equipment,
office furniture
and equipment 26.888.242 128.817 1.895.492 - 19.151 813.183 28.080.217
- -----------------------------------------------------------------------------------------------
4. Assets under
construction 291.718 384 200.806 - 292.102 0 200.806
- -----------------------------------------------------------------------------------------------
187.777.488 129.201 8.826.536 - 50.279 6.504.303 190.178.643
- -----------------------------------------------------------------------------------------------
III. FINANCIAL ASSETS
Shares in affiliated
companies 328.702 0 0 0 28.700 300.002
- -----------------------------------------------------------------------------------------------
192.971.025 129.656 9.028.014 0 6.536.871 195.591.824
- -----------------------------------------------------------------------------------------------
</TABLE>
Enclosure 3
DEVELOPMENT CONSOLIDATED FIXED ASSETS OF KONRAD HORNSCHUCH AKTIENGESELLSCHAFT,
WEIBBACH, IN THE FISCAL YEAR 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Net book
Accumulated depreciation value
- ---------------------------------------------------------------------------------------------------------------------------
As of Differences As of As of As of
1.1.1996 in currency Additions Transfers Disposals 31.12.1996 31.12.1996 31.12.1996
- ---------------------------------------------------------------------------------------------------------------------------
DM DM DM DM DM DM DM DM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I. INTANGIBLE ASSETS
Licences, trademarks
and patents 4.667.852 170 130.912 18.085 2.947 4.814.072 299.107 196.983
- ---------------------------------------------------------------------------------------------------------------------------
II. TANGIBLE ASSETS
1. Land and buildings 17.357.412 0 545.538 0 140.815 17.762.135 6.340.823 6.474.788
- ---------------------------------------------------------------------------------------------------------------------------
2. Technical equipment
and machinery 101.831.602 0 7.892.660 0 5.454.677 104.269.585 33.525.077 34.933.726
- ---------------------------------------------------------------------------------------------------------------------------
3. Other equipment,
office furniture
and equipment 20.236.379 88.620 2.203.744 - 18.085 668.010 21.842.648 6.237.569 6.651.863
- ---------------------------------------------------------------------------------------------------------------------------
4. Assets under
construction 0 0 0 0 0 0 200.806 291.718
- ---------------------------------------------------------------------------------------------------------------------------
139.425.393 88.620 10.641.942 - 18.085 6.263.502 143.874.368 46.304.275 48.352.095
- ---------------------------------------------------------------------------------------------------------------------------
III. FINANCIAL ASSETS
Shares in affiliated
Companies 248.700 0 0 0 28.699 220.001 80.001 80.002
- ---------------------------------------------------------------------------------------------------------------------------
144.341.945 88.790 10.772.854 0 6.295.148 148.908.441 46.683.383 48.629.080
- ---------------------------------------------------------------------------------------------------------------------------
Licences, trademarks
and patents 4.667.852 170 130.912 18.085 2.947 4.814.072 299.107 196.983
- ---------------------------------------------------------------------------------------------------------------------------
II. TANGIBLE ASSETS
1. Land and buildings 17.357.412 0 545.538 0 140.815 17.762.135 6.340.823 6.474.788
- ---------------------------------------------------------------------------------------------------------------------------
2. Technical equipment
and machinery 101.831.602 0 7.892.660 0 5.454.677 104.269.585 33.525.077 34.933.726
- ---------------------------------------------------------------------------------------------------------------------------
3. Other equipment,
office furniture
and equipment 20.236.379 88.620 2.203.744 - 18.085 668.010 21.842.648 6.237.569 6.651.863
- ---------------------------------------------------------------------------------------------------------------------------
4. Assets under
construction 0 0 0 0 0 0 200.806 291.718
- ---------------------------------------------------------------------------------------------------------------------------
139.425.393 88.620 10.641.942 - 18.085 6.263.502 143.874.368 46.304.275 48.352.095
- ---------------------------------------------------------------------------------------------------------------------------
III. FINANCIAL ASSETS
Shares in affiliated
companies 248.700 0 0 0 28.699 220.001 80.001 80.002
- ---------------------------------------------------------------------------------------------------------------------------
144.341.945 88.790 10.772.854 0 6.295.148 148.908.441 46.683.383 48.629.080
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
Enclosure 5
SCHEDULE OF INVESTMENTS OF KONRAD HORNSCHUCH AKTIENGESELLSCHAFT, WEIBBACH,
AS OF 31 DECEMBER 1996
(Amounts in 1.000 units local currency)
<TABLE>
<CAPTION>
Share in authorized Result
Name and domicile capital share capital Net assets of the year
of the company Currency % 31.12.1996 31.12.1996 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Affiliated companies
1. Consolidated companies
Hornschuch Italia S.R.L.,
Rho/Italy ITL 100 1,000,000 1,055,000 - 662,000(1)
Hornschuch U.K. Limited,
Northampton/Great Britain GBP 100 50 9 - 21(1)
Hornschuch CS spol. s.r.o.,
Kraluv Dvur/Czech Republic
CZK 100 400 - 905 - 3,514(1)
2. Non-consolidated
companies
Verwaltungsgesellschaft
WeiBbach Gesellschaft
mit be-schrankter Haftung,
WeiBbach DM 100 50 50 (2)(2)
Spinnereien und Webereien
im Wiesental Gesellschaft
mit beschrankter Haftung,
Lorrach DM 100 2,500 2,500 (1,785)(3)
Hornschuch (Suisse) GmbH,
Lenzburg/Suisse CHF 100 50 99 7
</TABLE>
An inactive foreign participation was not listed because of the little
importance.
- --------------------
(1) according to commercial balance sheet II
(2) Konrad Hornschuch Aktiengesellschaft maintains a profit pooling
agreement with this subsidiary whereby profits or losses of the
subsidiary are consolidated with the parent company both for income
tax and trade tax filing purposes. No tax impact is included in the
results at the subsidiary level. The result of the financial year
1995 of TDM 2 was transferred to Konrad Hornschuch
Akt;engesellschaft. This result includes the profit of TDM 1,765 of
Spinnerelen und Webereien im Wiesental GmbH.
(3) Verwaltungsgesellschaft WeiBbach GmbH maintains a profit
pooling agreement with this subsidiary whereby profits and losses of
the subsidiary are consolidated with the parent company. No tax
impact is included in the results at the subsidiary level. The
profit of TDM 1,785 was transferred to Verwaltungsgeselischaft
WeiBbach GmbH.
9
<PAGE> 10
APPENDIX OF THE PUBLIC COMPANY AND THE GROUP
KONRAD HORNSCHUCH AG, WEIBBACH,
FOR THE FISCAL YEAR 1996
The individual and the consolidated financial statements of Konrad Hornschuch AG
are explained together below; unless otherwise stated, these explanations apply
to both these financial statements.
To improve the overview, the amounts of the balance sheet and the profit and
loss account are stated in full DM.
I. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The financial statements of Konrad Hornschuch AG and the consolidated financial
statements have been drawn up according to the regulations of the commercial
code or the company law.
For the profit and loss accounts, the cost-summary method has been used
consistently.
The remarks which have to be made, according to the legal regulations, for the
items of the profit and loss account as well as extensive explanations are
stated in the summarized appendix for the Konrad Hornschuch AG and the group.
II. CONSOLIDATED COMPANIES
The consolidated financial statements include, apart from Konrad Hornschuch AG,
the marketing companies in Italy, Great Britain and Czech Republic:
Hornschuch Italia S.R.L., Rho/Italy
Hornschuch U.K. Limited, Northampton/Great Britain
Hornschuch CS spol. s r.o., Kraluv Dvur/Czech Republic
For all companies, Konrad Hornschuch AG holds 100 % of the capital shares; a
year end closing date of 31 December is used for the group.
The group financial statements exclude an inactive foreign subsidiary as well as
the Hornschuch (Suisse) GmbH, according to ss. 296 Abs. 2 HGB because of their
secondary importance. Hornschuch (Suisse) GmbH, which has no individual
organization, provides for billing of deliveries to the Swiss customers.
In addition, the Verwaltungsgesellschaft WeiBbach Gesellschaft mit
beschrankter Haftung as well as its subsidiary Spinnereien und Webereien im
Wiesental GmbH have not been consolidated because their exclusive purpose is the
utilization of the no longer operational plant areas in Urbach and Lorrach (ss.
296 Abs. 1 Nr. 3 HGB).
The VICO AG and the Hornschuch France S.A.R.L. were liquidated during the fiscal
year. They have not been included in the consolidated financial statements, as
in the prior year.
10
<PAGE> 11
III. CAPITAL CONSOLIDATION IN THE GROUP
The capital consolidation reflects cost method investment accounting.
Differences between the cost basis investment and the equity of the consolidated
subsidiary is recorded against retained earnings revenue reserve account:
<TABLE>
<CAPTION>
1996 1995
TDM TDM
---- ----
<S> <C> <C>
Active difference amounts 484 484
Passive difference amounts - 14 - 14
==== ====
Charged to the revenue reserves account 470 470
==== ====
</TABLE>
For the following consolidation entities, taking the equity value at the
beginning of the fiscal year, the date the entities were first included in the
consolidated financial statements was:
Hornschuch Italia S.R.L., Rho/Italy 1.1.1990
Hornschuch U.K. Limited, Northampton/Great Britain 1.1.1990
Hornschuch CS spol s r.o., Kraluv Dvur/Czech Republic 1.1.1993
IV. DEBT-, EXPENSE- AND PROFIT-CONSOLIDATION AS WELL AS INTERCOMPANY PROFIT
ELIMINATION IN THE GROUP
Receivables and liabilities as well as expense- and profit movements between the
included companies have been eliminated.
Intercompany profits have been eliminated.
V. FOREIGN CURRENCY TRANSLATION
The values of the annual financial statements of the foreign companies have been
converted with the spot rates of the balance sheet date into German Mark (DM):
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
---------- ----------
<S> <C> <C> <C>
1,000 ITL 1.0174 0.9045
1 GBP 2.6267 2.2135
100 CZK 5.69 5.37
</TABLE>
In the consolidation of the balance sheet and income statement accounts, the
differences resulting from the elimination of intercompany accounts have not
impacted operating results but are reflected in shareholders' equity, whereas
exchange rate differences resulting from the consolidation of intercompany
transactions are reflected in the income statement
11
<PAGE> 12
VI. ACCOUNTING AND VALUATION METHODS
For the individual company financial statements and the consolidated financial
statements, the same accounting and valuation methods have been used which are
valid for corporations.
INTANGIBLE ASSETS
Purchased EDP-programs as well as licences and patents are capitalized at
acquisition cost and depreciated in a straight-line method over three to five
years.
TANGIBLE ASSETS
The tangible fixed assets are valued at acquisition or manufacturing cost minus
accumulated depreciation.
The straight-line depreciation for buildings is based on a useful life from 20
to 50 years.
An owner-occupied flat will be depreciated degressive according to ss. 7 Abs. 5
EStG.
For moveable tangible fixed assets, the depreciation is calculated according to
the straight-line method with a useful life of four to ten years which is usual
in the industry. For multi-shift operation depreciation rates are increased.
Additions to the moveable tangible fixed assets within the first half year are
depreciated at the full annual rate; those acquired during the second half of
the year at a half year rate (R 44 Abs. 2 Satz 3 EStR).
Low value intangible assets will be fully depreciated according to ss. 6 Abs. 2
EStG in the year of addition and will be shown as disposal in the analysis of
fixed assets.
FINANCIAL ASSETS
The shares in group companies are recorded at acquisition cost or at the lower
estimated fair value at the balance sheet date.
INVENTORIES
Raw materials and supplies as well as purchased trading stock are activated to
acquisition cost considering the lower of cost or market principle. For stock
with limited usability adequate reserves have been made.
Finished and unfinished goods are recorded at manufacturing cost but limited to
a maximum value which results from the principle of the loss free valuation.
In addition to the direct materials, factory and special production costs,
manufacturing costs also include the following optional items: prorated indirect
material costs, general and special production overheads as well as
depreciation.
Limited usability as well as low stock turnover have been considered by adequate
write-downs.
RECEIVABLES AND OTHER CURRENT ASSETS
For receivables and other current assets, identifiable individual risks have
been taken into account by valuation reserves.
For the general risk of credit as well as the expected discount deductions there
will be made a general allowance.
12
<PAGE> 13
Receivables denominated in foreign currency have been valued at the rate of the
day the receivable was incurred or to the lower buying rate at the balance sheet
date. A long term receivable has been discounted.
The other receivables and assets are shown at nominal value.
SECURITIES, STOCKS AND BONDS
The shares in subsidiaries are recorded at acquisition cost.
PREPAID EXPENSES
The debt discounts included in the prepaid expenses will be depreciated
straight-line over the interest bearing period of the respective loans.
ACCRUALS
Accruals for pensions and similar obligations correspond to the actuarial going
concern value which has been determined on the basis of an interest rate of 6 %.
They have been built up with the possible extent according to ss. 6 a EStG.
The other accruals take into account all recognizable balance risks and
uncertain obligations and have been calculated according to reasonable business
judgments.
LIABILITIES
All liabilities are valued at the repayment amount, liabilities denominated in
foreign currency are valued at the rate on the day the liabilities were incurred
or at the higher offer rate on the balance sheet date.
VII. EXPLANATIONS TO THE INDIVIDUAL BALANCE SHEET ITEMS
FIXED ASSETS
The development of the fixed assets of the public company and the group which
are shown separately, are integral part of the appendix.
The capital expenditure of Konrad Hornschuch AG for intangible and tangible
assets amounts to DM 8.3 million (prior year: DM 9.5 million).
The main stress of the capital expenditures were for production and auxiliary
machinery as well as for equipment.
The list of investments will be deposited at the trade register of Schwabisch
Hall under HRB 167 K.
INVENTORIES
Devaluations for inventory risks which could occur because of period of storage,
reduced usability or fashion tendencies have been reflected in the inventory
valuation at the rate of DM 7.5 million (prior year: DM 6.9 million) for the
individual accounts and in the group at the rate of DM 7.7 million (prior year:
DM 7.1 million).
13
<PAGE> 14
RECEIVABLES AND OTHER ASSETS
The receivables and other assets include receivables due within more than one
year up to the following amounts:
<TABLE>
<CAPTION>
KONRAD HORNSCHUCH AG TDM
-----
<S> <C>
Trade receivables 680
Due from affiliated companies 2,783
Other current assets 408
=====
3,871
=====
GROUP 1,518
=====
</TABLE>
DUE FROM AFFILIATED COMPANIES
Receivables due from affiliated companies of TDM 1,228 result from normal trade
activities.
SECURITIES
The shares in the Verwaltungsgesellschaft WeiBbach GmbH are shown as
current assets consistent with prior year.
The difference concerns the disposal of VICO AG which was liquidated in the
fiscal year.
LIQUID ASSETS
The liquid assets include cash on hand and cash at banks.
PREPAID EXPENSES
The prepaid expenses contain, apart from debt discounts for loans, bonuses for
closed interest security business.
SUBSCRIBED CAPITAL
The capital stock of KONRAD HORNSCHUCH AG is divided into the following bearer
stock:
<TABLE>
<CAPTION>
Nominal value Number of
votes
DM DM
------------- -------
<S> <C> <C>
616,000 common stock each DM 50.00 30,800,000.00 616,000
</TABLE>
By the resolution of the ordinary general meeting on 20 June 1996, 4,000
preferred stock are converted into 4,000 common stock.
By the resolution of the ordinary general meeting on 20 June 1996, there exists
an approved capital at a rate of DM 10 million which can be used until 19 June
2001. This opportunity has not been used in the fiscal year.
CAPITAL RESERVES
Capital reserves include the premium of the capital increase in 1978.
14
<PAGE> 15
REVENUE RESERVES
The CONSOLIDATED FINANCIAL STATEMENTS the legal reserve and other revenue
reserves are combined.
ACCRUALS
<TABLE>
<CAPTION>
KONRAD HORNSCHUCH AG 31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Accruals for pensions 11,150 11,261
Tax accruals 0 8
Other accruals 14,542 7,633
------ -----
25,692 18,902
====== ======
GROUP 27,362 19,359
====== ======
</TABLE>
The accruals for pensions concern obligations from current pension services and
pension rights.
The pension reserves are based on the actuarial calculations of SCHITAG Ernst &
Young Deutsche Allgemeine Treuhand AG, Stuttgart, on the basis of probability
figures according to the guide table of Dr. Klaus Heubeck as well as an interest
rate of 6 %. Actuarial retirement age is the retirement age according to the
employment contract or, where early retirement is envisaged, the minimum
retirement age according to the statutory pension insurance.
The accruals for pensions correspond to the going concern value according to ss.
6 a EStG.
Other accruals contain mainly accruals for personnel expenditures (TDM 2,647),
warranties (TDM 1,301), outstanding invoices (TDM 739), customer credit
notes/bonuses/discounts (TDM 2,039), environmental obligations (TDM 2,050),
deferred maintenance (TDM 600) as well as accruals for measures implemented to
improve the efficiency of work in progress (TDM 3,300).
LIABILITIES
The liabilities to banks of KONRAD HORNSCHUCH AG are as follows:
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 26,463 23,573
Due within 1 - 5 years 15,994 30,207
Due over more than 5 years 1,575 775
====== ======
44,032 54,555
====== ======
</TABLE>
An amount of TDM 34,458 is secured through mortgage liens on the real estate of
KHAG in WeiBbach.
15
<PAGE> 16
The other liabilities of KONRAD HORNSCHUCH AG are structured as follows:
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 3,878 3,778
Due within 1 - 5 years 587 1,443
===== =====
4,465 5,221
===== =====
</TABLE>
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Tax liabilities 443 637
Liabilities in respect of
social security 1,121 1,293
Liabilities to
employee welfare fund 1,799 2,243
Other liabilities 1,102 1,048
===== =====
4,465 5,221
===== =====
</TABLE>
The liabilities to banks in the GROUP are as follows:
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 28,577 25,350
Due within 1 - 5 years 15,994 30,207
Due over more than 5 years 1,575 775
====== ======
46,146 56,332
====== ======
</TABLE>
An amount of TDM 34,458 is secured through mortgage liens.
16
<PAGE> 17
The other liabilities in the GROUP are structured as follows:
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 4,254 4,164
Due within 1 - 5 years 587 1,442
===== =====
4,841 5,606
===== =====
</TABLE>
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Tax liabilities 665 826
Liabilities in respect of
social security 1,213 1,426
Liabilities to
employee welfare fund 1,799 2,243
Other liabilities 1,164 1,111
===== =====
4,841 5,606
===== =====
</TABLE>
For the trade payable, the supplier retains the title of the goods until fully
paid for.
All other liabilities are due within one year.
VIII. CONTINGENT LIABILITIES AND OTHER OBLIGATIONS
The contingent liabilities and other financial obligations of KONRAD HORNSCHUCH
AG and the GROUP exist as follows:
<TABLE>
<CAPTION>
31.12.1996 31.12.1995
TDM TDM
---------- ----------
<S> <C> <C>
Contingent liabilities 421 1,681
Guarantee obligations 103 129
=== =====
524 1,810
=== =====
Thereof for affiliated companies 103 129
=== =====
</TABLE>
In addition financial obligations from lease contracts are:
<TABLE>
<CAPTION>
KHAG Konzern
TDM TDM
----- -------
<S> <C> <C>
Due within 1 year 1,648 2,009
Due within 1 - 5 years 3,232 4,253
Due over more than 5 years 0 475
===== =====
4,880 6,737
===== =====
</TABLE>
17
<PAGE> 18
The purchase commitment for investment goods is within the framework of the
planning which has been released in 1997.
The deficit from the pension obligations of the employee welfare funds which
results as difference between the tax part value according to ss. 6 a EStG of
the promised services and the cash on hand amounts to about DM 13.4 million for
31 December 1996.
IX. EXPLANATIONS FOR THE PROFIT AND LOSS ACCOUNTS
SALES
The sales are spread at KONRAD HORNSCHUCH AG as follows:
Division in product areas
<TABLE>
<CAPTION>
1996 1995
million million
DM DM
------- -------
<S> <C> <C>
Fashion products 42 45
Technical products 55 51
Decorative products 93 83
=== ===
190 179
=== ===
</TABLE>
Division in regions
<TABLE>
<CAPTION>
1996 1995
million million
DM DM
------- -------
<S> <C> <C>
Federal Republic of Germany 102 107
Other Europe 65 50
Outside Europe 23 22
=== ===
190 179
=== ===
</TABLE>
GROUP sales are spread as follows:
Division in product areas
<TABLE>
<CAPTION>
1996 1995
million million
DM DM
------- -------
<S> <C> <C>
Fashion products 43 46
Technical products 55 51
Decorative products 104 92
=== ===
202 189
=== ===
</TABLE>
18
<PAGE> 19
Division in regions
<TABLE>
<CAPTION>
1996 1995
million million
DM DM
------- -------
<S> <C> <C>
Federal Republic of Germany 102 107
Other Europe 76 59
Outside Europe 24 23
=== ===
202 189
=== ===
</TABLE>
OTHER OPERATING INCOME
The other operating income of KONRAD HORNSCHUCH AG include the following:
<TABLE>
<CAPTION>
1996 1995
TDM TDM
----- -----
<S> <C> <C>
Know-how 126 1,561
Exchange profit 367 315
Insurance indemnification 162 292
Further charged cost 165 163
Tax liable remunerations in kind 347 255
Others 386 1,355
Sale of fixed assets and adjustments of reserves 1,253 1,158
----- -----
2,806 5,099
===== =====
GROUP 2,910 5,261
===== =====
</TABLE>
MATERIALS COSTS
The material costs, related to the total product cost, reflects the decreases in
the raw material markets, and the general decrease in price levels.
PERSONNEL EXPENSES
<TABLE>
<CAPTION>
1996 1995
KONRAD HORNSCHUCH AG TDM TDM
------ ------
<S> <C> <C>
Wages and salaries 44,104 45,793
Social security 8,320 8,837
Pension costs 1,963 1,479
====== ======
54,387 56,109
====== ======
</TABLE>
<TABLE>
<CAPTION>
1996 1995
GROUP TDM TDM
------ ------
<S> <C> <C>
Wages and salaries 45,117 47,353
Social security 8,788 9,286
Pension costs 1,979 1,515
====== ======
55,884 58,154
====== ======
</TABLE>
19
<PAGE> 20
OTHER OPERATING EXPENSES
The other operating expenses of KONRAD HORNSCHUCH AG include the following:
<TABLE>
<CAPTION>
1996 1995
TDM TDM
------ ------
<S> <C> <C>
Licences/commissions 2,121 2,676
Other selling expenses 14,705 14,275
Legal and professional fees 2,416 1,842
Other administrative expenses 2,127 2,079
Catastr.-/Work-/Environmental protection 2,308 1,567
Other maintainance/EDP-maintainance 5,383 4,228
Other expenses 6,491 7,449
Neutral expenses 5,852 953
------ ------
41,403 35,069
====== ======
GROUP 46,978 38,084
====== ======
</TABLE>
INCOME FROM PARTICIPATIONS
In the fiscal year 1996, KONRAD HORNSCHUCH AG has participation income of TDM 51
(prior year: TDM 139) from affiliated companies.
INCOME FROM PROFIT AND LOSS ABSORPTION
This income results from transfers based on profit pooling with affiliated
companies.
OTHER INTERESTS AND SIMILAR INCOME
At KONRAD HORNSCHUCH AG the income from affiliated companies have been realized
at a rate of TDM 460 (prior year: TDM 325).
DEPRECIATION ON FINANCIAL ASSETS
The disclosure relates to affiliated companies and includes investment write
down for the Italian subsidiary.
TAXES
Because of the negative result of the year and the loss carry forward from
previous fiscal years, no domestic income taxes arise. Amounts reflect the
balance from tax back-payments/tax refund for previous years and foreign
withholding taxes.
The other taxes are mainly related to the net asset-, trading capital-, land-
and automobile taxes which are not dependent on income.
INCOME RELATING TO OTHER PERIODS
The other operating income, social expenses, income from participation, taxes
from income and the other taxes include income relating to other periods of TDM
1.386.
EXPENSES RELATING TO OTHER PERIODS
The other operating expenses, wages and salaries and other taxes include
expenses relating to other periods of TDM 204.
20
<PAGE> 21
X. OTHER NOTES
1. The total remunerations of the members of the board for the fiscal
year 1996 amount to DM 1,044,375.00 (group DM 1,044,375.00).
The remunerations of former board members and their surviving
dependents amount to DM 690,867.00 (GROUP DM 701,068.00).
For pension obligations with regard to former members of the board
and their surviving dependents DM 5,150,180.00 (GROUP DM
5,202,314.00) has been reserved.
2. The remunerations for the supervisory board for the fiscal year 1996
amount to DM 92,000.00 plus value added tax.
3. The members of the supervisory board and the management board are
listed on page 2 of the annual report.
The supervisory board of the company consists of nine members.
Appointed members of the supervisory board are:
Wilhelm Freiherr Haller von Hallerstein, Stuttgart (chairman),
Eberhard Christian Kunz, Nurtingen (first deputy chairman),
Dr. Wilhelm Dengler, Gschwend,
Dieter Maier, Stuttgart,
Helmut Menges, Welzheim,
Dr. Roland Schelling, Stuttgart,
and as representative of the employees:
Hans Roth, Hohebach (second deputy chairman), Willi Bobka,
WeiBbach, and Hans Fenzl, WeiBbach.
The administrative period of the supervisory board closes with the
end of the shareholders general meeting which decides above the
discharge for the fiscal year 1997.
The management board consists of two persons. Members of the board
are or have been, appointed by the supervisory board,
Hans-Georg Stahmer, Taunusstein (speaker), Dr. Roland
Schulze-Kadelbach, Flein (until 31 December 1996), and
Dr. Bernhard Muller, Saarbrucken (from 1. April 1997).
4. With the letter of 3 February 1984 the Kunz Holding GmbH & Co. KG,
Gschwend, has told according to ss. 20 Abs. 4 AktG that she has the
majority holding for Konrad Hornschuch AG.
To the majority shareholder Kunz Holding GmbH & Co. KG and the related
companies there existed only minor delivery- and service relations.
5. In the fiscal year KONRAD HORNSCHUCH AG has ordinarily employed:
<TABLE>
<CAPTION>
1996 1995
persons persons
------- -------
<S> <C> <C>
Salaried employees(*) 296 294
Payroll employee 453 446
Trainees 49 38
=== ===
798 778
=== ===
</TABLE>
21
<PAGE> 22
The GROUP has employed:
<TABLE>
<CAPTION>
1996 1995
persons persons
------- -------
<S> <C> <C>
Salaried employees**) 324 327
Payroll employees 462 455
Trainees 49 38
=== ===
835 820
=== ===
</TABLE>
- -------------------
*) including members of the board
**) including members of the board and managers
6. Because of special tax depreciations in the previous fiscal years on
tangible fixed assets, the annual result is only insignificantly
influenced. Also the effects on future annual results are not
significant.
7. The annual financial statements of Konrad Hornschuch AG to 31
December 1996 which have been drawn up by the management board shows
an accumulated deficit of DM - 3,107,454.24. The board suggests to
carry forward the deficit to the next year.
WeiBbach, March 1997
Konrad Hornschuch AG
Management Board
A:\state96\KHAGU3.DOC
GERMAN OPINION
The consolidated financial statements based on the financial statements of the
parent company Konrad Hornschuh Aktiengese IIschaft to 31 December 1995 have
been examined by us and we give our unqualified opinion thereon. The financial
statements of foreign affiliated companies have been examined by local auditors
and they have also given their unqualified opinion thereon.
We verify that this report complies with the regulations according to ss. 321
(1) HGB and finally confirm that the consolidated financial statements of Konrad
Hornschuch Aktiengesellschaft, WeiBbach, to 31 December 1995 and the group
management report for the financial year 1995 comply with the legal regulations.
On the basis of our examination, we give our unqualified opinion as follows:
"The consolidated financial statements, which we have audited in
accordance with professional standards, comply with the legal
regulations. The consolidated financial statements present, in
compliance with required accounting principles, a true and fair view of
the net worth, financial position and results of the group. The group
management report is in agreement with the consolidated financial
statements."
Stuttgart, 22 March 1996
Dr. Ebner, Dr.Stolz und Partner GmbH
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
22
<PAGE> 23
CONSOLIDATED BALANCE SHEET OF KONRAD HORNSCHUCH AG, WEIBBACH, AS OF 31 DECEMBER
1995
<TABLE>
<CAPTION>
ASSETS As of As of
December 31, December 31,
1995 1994
---------- ------------ ------------
DM DM TDM
<S> <C> <C> <C>
A. FIXED ASSETS
I. Intangible Assets
Licences, trademarks and patents 196,983 69
Advances paid on intangible assets 0 23
---------- -------
196,983 92
II. Tangible Assets
1. Land and buildings 6,474,788 6,464
2. Technical equipment and machinery 34,933,726 37,885
3. Other equipment, office
furniture and equipment 6,651,863 4,935
4. Assets under construction 291,718 1,032
---------- -------
48,352,095 50,316
III. Financial Assets
Shares in affiliated companies 80,002 106
B. CURRENT ASSETS
I. Inventories
1. Raw materials and supplies 6,407,438 8,896
2. Work in process 4,106,154 4,156
3. Finished goods 28,560,878 28,737
---------- -------
39,074,470 41,789
II. Receivables and other
current assets
1. Trade receivables 30,297,140 28,958
2. Due from group companies 3,115,819 4,405
3. Other current assets 2,769,479 4,012
---------- -------
36,182,438 37,375
III. Securities
Shares in affiliated companies 228,800 229
IV. Cash and cash equivalents 718,263 591
C. PREPAID EXPENSES
1. Debt discount 37,300 55
2. Other 897,610 363
---------- -------
934,910 418
=========== =======
125,767,961 130,916
=========== =======
</TABLE>
23
<PAGE> 24
Enclosure 1
<TABLE>
<CAPTION>
L I A B I L I T I E S A N D E Q U I T Y As of As of
December 31, December 31,
1995 1994
----------- ------------ ------------
DM DM TDM
<S> <C> <C> <C>
A. SHAREHOLDERS' EQUITY
I. Capital Stock 30,800,000 30,800
II. Additional paid in capital 4,400,000 4,400
III. Revenue Reserves 1,243,944 8,168
IV. (Accumulated deficit)/
Retained earnings - 2,049,511 617
----------- -------
34,394,433 43,985
B. ACCRUALS
1. Accruals for pensions 11,260,832 11,211
2. Accrued taxes 28,018 0
3. Other accruals 8,070,067 11,308
----------- -------
19,358,917 22,519
C. LIABILITIES
1. Liabilities to banks 56,332,012 46,284
2. Advance payments
received on account of orders 183,120 435
3. Trade payables 9,664,123 11,175
4. Amounts due to
affiliated companies 227,154 184
5. Other liabilities 5,606,876 6,329
----------- -------
72,013,285 64,407
D. DEFERRED INCOME 1,326 5
----------- -------
125,767,961 130,916
=========== =======
</TABLE>
24
<PAGE> 25
]
Enclosure 2
CONSOLIDATED PROFIT AND LOSS ACCOUNT OF KONRAD-HORNSCHUCH AKTIENGESELLSCHAFT,
WEIBBACH, FOR THE PERIOD OF 1 JANUARY TO 31 DECEMBER 1995
<TABLE>
<CAPTION>
1995 1994
DM DM TDM TDM
----------- ----------- ------- -------
<S> <C> <C> <C> <C>
1. SALES 189,162,654 184,190
2. (Decrease)/(Prior year: Increase in finished goods - 895,540 4,816
and work in process)
3. Other capitalized labor, overheads and material 332,963 221
4. Other operating income 5,261,095 193,861,172 3,621 192,848
----------- -------
5. Material costs
a) Raw materials, supplies and purchased goods 86,118,229 76,622
b) Purchased services 5,220,206 91,338,435 5,620 82,242
----------- -------
6. Personnel costs
a) Wages and salaries 47,353,482 49,385
b) Social security and pension costs 10,800,194 58,153,676 10,669 60,054
----------- -------
7. Depreciation on intangible and tangible assets 11,305,141 10,844
8. Other operating expenses 38,083,824 35,081
----------- -------
- 4,627
5,019,904
9. Other interest and similar income 420,334 3,762
10. Write-down of shares in affiliated companies 28,699 3,034
11. Expenses from loss absorption 212,419 0
12. Interest and similar expenses 3,684,454 - 3,824 - 3,096
3,505,238
----------- ----------- ------- -------
13. RESULTS FROM ORDINARY OPERATIONS - 1,531
8,525,142
-.Extraordinary income 0 13,690
-.Extraordinary expense 0 11,391
----------- -------
-.Extraordinary result 0 2,299
14. Taxes on income 227,218 324
15. Other taxes 743,127 970,345 601 925
----------- ----------- ------- -------
16. (NET LOSS)/(PRIOR YEAR: INCOME OF THE YEAR) 2,905
9,495,487
17. Retained earnings beginning of year 617,000 0
18. Withdrawal from revenue reserves 6,973,696 652
19. Earnings appropriated to revenue reserves 144,720 2,940
----------- -------
20. (ACCUMULATED DEFICIT)/(Prior year: Retained earnings) - 617
2,049,511
=========== =======
</TABLE>
25
<PAGE> 26
Enclosure 3
DEVELOPMENT CONSOLIDATED FIXED ASSETS OF KONRAD HORNSCHUCH
AKTIENGESELLSCHAFT, WEIBBACH,
IN THE FISCAL YEAR 1995
<TABLE>
<CAPTION>
Costs
---------------------------------------------------------------------------------------
As of Differeces in As of
1.1.1995 Currency Additions Transfer Disposals 31.12.1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM
I. INTANGIBLE ASSETS
- --------------------
Licences, trademarks
and patents 4,685,711 - 103 180,376 0 1,149 4,864,835
Payments on account 23,000 0 0 0 23,000 0
---------------------------------------------------------------------------------------
4,708,711 - 103 180,376 0 24,149 4,864,835
II. TANGIBLE ASSETS
1. Land and buildings 23,327,799 0 504,401 0 0 23,832,200
2. Technical equipment
and machinery 132,066,332 0 4,555,242 887,268 743,514 136,765,328
3. Other equipment, office
furniture and equipment 23,995,256 - 52,804 4,311,066 143,970 1,509,246 26,888,242
4. Assets under
construction 1,032,378 - 1,140 291,718 1,031,238 0 291,718
---------------------------------------------------------------------------------------
180,421,765 - 53,944 9,662,427 0 2,252,760 187,777,488
III. FINANCIAL ASSETS
Shares in affiliated
companies 325,818 0 2,884 0 0 328,702
185,456,294 - 54,047 9,845,687 0 2,276,909 192,971,025
=======================================================================================
<CAPTION>
Net book
Accumulated depreciation value
------------------------ ----------
As of Differences in As of As of As of
1.1.1995 currency Additions Disposal 31.12.1995 31.12.1995 31.12.1994
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM DM
I. INTANGIBLE ASSETS
- --------------------
Licences, trademarks
and patents 4,616,629 - 44 52,097 830 4,667,852 196,983 69,082
Payments on account 0 0 0 0 0 0 23,000
------------------------------------------------------------------------------------------------------
4,616,629 - 44 52,097 830 4,667,852 196,983 92,082
II. TANGIBLE ASSETS
1. Land and buildings 16,863,549 0 493,863 0 17,357,412 6,474,788 6,464,250
2. Technical equipment
and machinery 94,181,954 0 8,354,027 704,379 101,831,602 34,933,726 37,884,378
3. Other equipment, office
furniture and equipment 19,060,054 - 37,762 2,405,154 1,191,067 20,236,379 6,651,863 4,935,201
4. Assets under
construction 0 0 0 0 0 291,718 1,032,378
------------------------------------------------------------------------------------------------------
130,105,557 37,762 11,253,044 1,895,446 139,425,393 48,352,095 50,316,207
III. FINANCIAL ASSETS
Shares in affiliated
companies 220,001 0 28,699 0 248,700 80,002 105,817
134,942,187 37,806 11,333,840 1,896,276 144,341,945 48,629,080 50,514,106
======================================================================================================
</TABLE>
26
<PAGE> 27
Enclosure 5
SCHEDULE OF INVESTMENTS OF KONRAD HORNSCHUCH AKTIENGESELLSCHAFT, WEIBBACH,
AS OF 31 DECEMBER 1995
(Amounts in 1,000 units local currency)
<TABLE>
<CAPTION>
Name and domicile Currency Share in authorized Net assets
of the company capital share 31.12.1995 Result
% capital of the year
31.12.1995 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Affiliated companies
1. Consolidated companies
Hornschuch Italia S.R.L.,
Pero-Milano/Italy ITL 100 1,000,000 1,767,000 160,000
Hornschuch U.K. Limited,
Northampton/Great Britain GBP 100 50 30 - 33
Hornschuch CS spol. s.r.o.,
Prag/Czech Republic CZK 100 400 849 176
2. Non-consolidated
companies
Verwaltungsgesellschaft
WeiBbach Gesellschaft mit be-
schrankter Haftung, DM 100 50 50 (- 45)(1)
WeiBbach
Spinnereien und Webereien
im Wiesental Gesellschaft
mit beschrankter Haftung,
Lorrach DM 100 2,500 2,500 (1,775)(2)
VICO AG i.L., Zug/Schweiz CHF 100 100 140 - 8
Hornschuch (Suisse) GmbH,
Lenzburg/Schweiz CHF 100 50 93 - 5
Hornschuch France
S.A.R.L.,
Villeurbanne/Frankreich FFR 100 100 - 2,079 - 1,850
</TABLE>
An inactive foreign participation was not listed because of the little
importance.
- ----------
(1) Konrad Hornschuch Aktiengesellschaft maintains a profit pooling
agreement with this subsidiary whereby profits or losses of the
subsidiary are consolidated with the parent company for income
tax and trade tax filing purposes. No tax impact is included in
the results at the subsidiary level. Verwaltungsgesellschaft
WeiBbach GmbH maintains a similar arrangement with its
subsidiary Spinnereien und Webereien im Wiesental GmbH.
(2) Verwaltungsgesellschaft WeiBbach GmbH maintains a profit pooling
agreement with this subsidiary whereby profits or losses of the
subsidiary are consolidated with the parent company for
corporate income and trade tax filing purposes. No tax impact is
included in the results at the subsidiary level.
27
<PAGE> 28
APPENDIX OF THE PUBLIC COMPANY AND THE GROUP
KONRAD HORNSCHUCH AG, WEIBBACH,
FOR THE FISCAL YEAR 1995
The individual and the consolidated financial statements of Konrad Hornschuch AG
are explained together below; unless otherwise stated, these explanations apply
to both these financial statements.
To improve the overview, the amounts of the balance sheet and the profit and
loss account are stated in full DM.
I. APPLICATION OF ACCOUNTING DIRECTIVES ACT
The financial statements of Konrad Hornschuch AG and the consolidated financial
statements have been drawn up according to the regulations of the commercial
code or the company law.
For the profit and loss accounts, the cost-summary method has been used
consistently.
The remarks which have to be made, according to the legal regulations, for the
items of the profit and loss account as well as extensive explanations are
stated in the summarized appendix for the Konrad Hornschuch AG and the group.
II. CONSOLIDATED COMPANIES
The consolidated financial statements include, apart from Konrad Hornschuch AG,
the marketing companies in Leipzig, Italy, Great Britain and Czech Republic:
Konrad Hornschuch GmbH, Leipzig
Hornschuch Italia S.R.L., Pero-Milano/Italy
Hornschuch U.K. Limited, Northampton/Great Britain
Hornschuch CS spol. s r.o., Prag/Czech Republic
For all companies, Konrad Hornschuch AG holds 100 % of the capital shares; a
year end closing date of the 31 December is used for the group.
The participation in Konrad Hornschuch GmbH has been sold in the fiscal year to
Verwaltungsgesellschaft WeiBbach GmbH and was merged with this company. The
consolidated financial statements of this company reflect this permanent
consolidation.
28
<PAGE> 29
The group financial statements exclude inactive foreign subsidiaries, the
Hornschuch (Suisse) GmbH as well as the Hornschuch France S.A.R.L., according to
ss. 296 Abs. 2 HGB, because of their secondary importance. Hornschuch (Suisse)
GmbH, which has no individual organization, provides for billing of deliveries
to the Swiss customers.
In addition, the Verwaltungsgesellschaft WeiBbach Gesellschaft mit
beschrankter Haftung as well as its subsidiary Spinnereien und Webereien im
Wiesental GmbH have not been consolidated because their exclusive purpose is the
utilization of the no longer operational plant areas in Urbach and Lorrach (ss.
296 Abs. 1 Nr. 3 HGB). Also not consolidated is the VICO AG (ss. 296 Abs. 2 HGB)
because it is in liquidation.
III. CAPITAL CONSOLIDATION IN THE GROUP
The capital consolidation reflects cost method investment accounting.
Differences between the cost basis investment and the equity of the consolidated
subsidiary is recorded against retained earnings revenue reserve account:
<TABLE>
<CAPTION>
1995 1994
TDM TDM
---- ----
<S> <C> <C>
Active difference amounts 484 484
Passive difference amounts - 14 - 22
=== ===
Charged to the revenue reserves account 470 462
=== ===
</TABLE>
For the following consolidated entities, taking the equity value at the
beginning of the fiscal year, the date the entities were first included in the
consolidated financial statements was:
Konrad Hornschuch GmbH 1.1.1990
Hornschuch Italia S.R.L. 1.1.1990
Hornschuch U.K. Limited 1.1.1990
Hornschuch CS spol s r.o. 1.1.1993
IV. DEBT-, EXPENSE- AND PROFIT-CONSOLIDATION AS WELL AS
INTERCOMPANY PROFIT ELIMINATION IN THE GROUP
Receivables and liabilities as well as expense- and profit movements between the
included companies have been eliminated.
Intercompany profits have been eliminated.
V. FOREIGN CURRENCY TRANSLATION
The values of the annual financial statements of the foreign companies have been
converted with the spot rates of the balance sheet date into German Mark (DM).
The differences which resulted from the so determined value and the
corresponding DM-value in the balance sheet of Konrad Hornschuch AG have been
classified within the equity section to the revenue reserves.
29
<PAGE> 30
VI. ACCOUNTING AND VALUATION METHODS
For the individual company financial statements and the consolidated financial
statements, the same accounting and valuation methods have been used which are
valid for corporations.
INTANGIBLE ASSETS
Purchased EDP-programmes as well as licences and patents are capitalized at
acquisition cost and depreciated in a straight-line method over three to five
years.
TANGIBLE ASSETS
The tangible fixed assets are valued at acquisition or manufacturing cost minus
accumulated depreciations.
The straight-line depreciations for buildings is based on a useful life from 20
to 50 years.
An owner-occupied flat will be depreciated degressive according to ss. 7 Abs. 5
EStG.
For movable tangible fixed assets, the depreciation is calculated according to
the straight-line method with a useful life of four to ten years which is usual
in the industry. For multi-shift operation depreciation rates are increased.
Low value intangible assets will be fully depreciated according to ss. 6 Abs. 2
EStG in the year of addition and will be shown as disposal in the analysis of
fixed assets.
FINANCIAL ASSETS
The shares in group companies are recorded at acquisition cost or at the lower
estimated fair value at the balance sheet date.
INVENTORIES
Raw materials and supplies as well as purchased trading stock are activated to
acquisition cost considering the lower of cost or market principle. For stock
with limited usability adequate reserves have been made.
Finished and unfinished goods are recorded at manufacturing cost but limited to
a maximum value which results from the principle of the loss free valuation.
The manufacturing cost are based on actually incurred costs or standard
calculations.
Limited usability as well as low stock turnover have been considered by adequate
write downs.
RECEIVABLES AND OTHER CURRENT ASSETS
For receivables and other current assets, identifiable individual risks have
been taken into account by valuation reserves.
For the general risk of credit as well as the expected discount deductions there
will be made a general allowance.
Receivables denominated in foreign currency have been valued at the rate of the
day the receivable was incurred or to the lower buying rate at the balance sheet
date. A long term receivable has been discounted. The other receivables and
assets are shown at nominal value.
30
<PAGE> 31
SECURITIES, STOCKS AND BONDS
The shares in subsidiaries are recorded at acquisition cost, reduced for any
write-downs.
PREPAID EXPENSES
The debt discounts included in the prepaid expenses will be depreciated
straight-line over the interest bearing period of the respective loans.
ACCRUALS
Accruals for pensions and similar obligations correspond to the actuarial going
concern value which has been determined on the basis of an interest rate of 6 %.
They have been built up with the possible extent according to ss. 6 a EStG.
The other accruals take into account all recognizable balance risks and
uncertain obligations and have been calculated according to reasonable business
judgments.
LIABILITIES
All liabilities are valued at the repayment amount, liabilities denominated in
foreign currency are valued at the rate on the day the liabilities were incurred
or to the higher offer rate on the balance sheet date.
VII. EXPLANATIONS TO THE INDIVIDUAL BALANCE SHEET ITEMS
FIXED ASSETS
The development of the fixed assets of the public company and the group which
are shown separately, are integral part of the appendix.
The capital expenditure of Konrad Hornschuch AG for intangible and tangible
assets amounts to DM 9.5 million (prior year: DM 8.7 million).
The main stress of the capital expenditures were for production and auxiliary
machinery as well as for office furniture.
The list of investments is integral part of the appendix and will be deposited
at the trade register of Schwabisch Hall under HRB 167 K.
31
<PAGE> 32
INVENTORIES
Devaluations for inventory risks which could occur because of period of storage,
reduced usability or fashion tendencies have been reflected in the inventory
valuation.
RECEIVABLES AND OTHER ASSETS
The receivables and other assets include receivables due within more than one
year up to the following amounts:
<TABLE>
<CAPTION>
KONRAD HORNSCHUCH AG TDM
------
<S> <C>
Trade receivables 759
Due from affiliated companies 3,390
Other current assets 356
=====
4,505
=====
GROUP 1,115
=====
</TABLE>
DUE FROM AFFILIATED COMPANIES
Receivables due from affiliated companies of TDM 632 result from normal trade
activities.
SECURITIES
The shares in the VICO AG i.L. and the Verwaltungsgesellschaft WeiBbach
GmbH are shown as current assets, consistent with prior year.
LIQUID ASSETS
The liquid assets include cash on hand, balances on post office bank accounts
and cash at banks.
PREPAID EXPENSES
The prepaid expenses contain, apart from debt discounts for loans, bonuses for
closed interest security business.
SUBSCRIBED CAPITAL
The capital stock of KONRAD HORNSCHUCH AG is divided into the following bearer
stock:
<TABLE>
<CAPTION>
Nominal value Number of
votes
DM DM
-------------- --------
<S> <C> <C>
612,000 common stock each DM 50.00 30,600,000.00 612,000
4,000 preferred stock each DM 50.00 200,000.00 48,000
============= =======
30,800,000.00 660,000
============= =======
</TABLE>
By the resolution of the ordinary meeting on 5 July 1990, there existed an
approved capital at a rate of DM 10 million which could be used until 4 July
1995. This opportunity has not been used.
32
<PAGE> 33
CAPITAL RESERVES
Capital reserves include the premium of the capital increase in 1978.
REVENUE RESERVES
The consolidated balance sheet reflects, in contrast to the prior year, the
combining of the legal reserve and the other reserves.
ACCRUALS
<TABLE>
<CAPTION>
KONRAD HORNSCHUCH AG 31.12.1995 31.12.1994
TDM TDM
---------- --------
<S> <C> <C>
Accruals for pensions 11,261 11,211
Accrued taxes 8 0
Other accruals 7,633 10,715
------ ------
18,902 21,926
====== ======
GROUP 19,359 22,519
====== ======
</TABLE>
The other accruals contain mainly separations for holiday and flex-time credits,
customer bonuses and discounts, waste water disposal, warranties, customer
credit notes and open invoices.
LIABILITIES
The liabilities to banks of KONRAD HORNSCHUCH AG are as follows:
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
-------- --------
<S> <C> <C>
Due within 1 year 23,573 20,192
Due within 1 - 5 years 30,207 21,180
Due over more than 5 years 775 1,162
====== ======
54,555 42,534
====== ======
</TABLE>
An amount of TDM 2.787 is secured through mortgage liens on the real estate of a
subsidiary.
The other liabilities of KONRAD HORNSCHUCH AG are structured as follows:
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 3,778 3,366
Due within 1 - 5 years 1,443 2,393
===== =====
5,221 5,759
===== =====
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
---------- ----------
<S> <C> <C>
Tax liabilities 637 752
Liabilities in respect of
social security 1,293 1,255
Liabilities to
employee welfare funds 2,243 3,193
Other liabilities 1,048 559
----- ---
5,221 5,759
===== =====
</TABLE>
The liabilities to banks in the GROUP are as follows:
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
------------ ---------
<S> <C> <C>
Due within 1 year 25,350 23,942
Due within 1 - 5 years 30,207 21,180
Due over more than 5 years 775 1,162
------ ------
56,332 46,284
====== ======
</TABLE>
An amount of TDM 2.787 is secured through mortgage liens.
The other liabilities in the GROUP are structured as follows:
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
------------ ----------
<S> <C> <C>
Due within 1 year 4,164 3,936
Due within 1 - 5 years 1,443 2,393
----- -----
5,607 6,239
===== =====
</TABLE>
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
------------ ----------
<S> <C> <C>
Tax liabilities 826 1,024
Liabilities in respect of
social security 1,426 1,423
Liabilitites to
employee welfare fund 2,243 3,193
Other liabilities 1,112 689
----- -----
5,607 6,329
===== =====
</TABLE>
For the trade payable, the supplier retains the title of goods until fully paid.
The amounts due to affiliated companies of Konrad Hornschuch AG are TDM 5 from
the trade activities.
All other liabilities are due within one year.
34
<PAGE> 35
VIII. CONTINGENT LIABILITIES AND OTHER FINANCIAL OBLIGATIONS
The contingent liabilities and other financial obligations of KONRAD HORNSCHUCH
AG and the GROUP exist as follows:
<TABLE>
<CAPTION>
31.12.1995 31.12.1994
TDM TDM
------------ ---------
<S> <C> <C>
Contingent liabilities 1,681 1,337
Guarantee obligations 129 189
----- -----
1,810 1,526
===== =====
</TABLE>
In addition financial obligations from lease contracts are:
<TABLE>
<CAPTION>
KHAG Group
TDM TDM
---------- ----------
<S> <C> <C>
Due within 1 year 962 1,324
Due within 1 - 5 years 131 1,065
Due over more than 5 years 0 197
----- -----
1,093 2,586
===== =====
</TABLE>
The purchase commitment for investment goods is within the framework of the
planning which has been released in 1996.
The deficit from the pension obligations of the employee welfare funds which
results as difference between the tax part value according to ss. 6 a EStG of
the promised services and the cash on hand amounts to about DM 13.2 million for
31 December 1995.
IX. EXPLANATIONS FOR THE PROFIT AND LOSS ACCOUNTS
SALES
The sales are spread at KONRAD HORNSCHUCH AG as follows:
Division in product areas
<TABLE>
<CAPTION>
1995 1994
million DM million DM
----------- -----------
<S> <C> <C>
Fashion products 45 46
Technical products 51 46
Decorative products 83 82
--- ---
179 174
=== ===
</TABLE>
35
<PAGE> 36
Division in regions
<TABLE>
<CAPTION>
1995 1994
million DM million DM
---------- -----------
<S> <C> <C>
Federal Republic of Germany 107 108
Other Europe 50 47
Outside Europe 22 19
--- ---
179 174
=== ===
</TABLE>
GROUP sales are spread as follows:
Division in product areas
<TABLE>
<CAPTION>
1995 1994
million DM million DM
---------- -----------
<S> <C> <C>
Fashion products 46 49
Technical products 51 46
Decorative products 92 89
--- ---
189 184
=== ===
</TABLE>
Division in regions
<TABLE>
<CAPTION>
1995 1994
million DM million DM
----------- -----------
<S> <C> <C>
Federal Republic of Germany 107 108
Other Europe 59 57
Outside Europe 23 19
--- ---
189 184
=== ===
</TABLE>
OTHER OPERATING INCOME
The other operating income of KONRAD HORNSCHUCH AG include the following:
<TABLE>
<CAPTION>
1995 1994
TDM TDM
----------- -----------
<S> <C> <C>
Know-how 1,561 583
Exchange profit 315 161
Insurance indemnification 292 1,327
Further charged costs 163 246
Tax liable remunerations in kind 255 181
Others 1,355 390
Neutral income 1,158 743
----- -----
5,099 3,631
===== =====
GROUP 5,261 3,621
===== =====
</TABLE>
36
<PAGE> 37
MATERIAL COSTS
The material costs, related to the total product cost, reflects the increases in
the raw material markets and the general increase in price levels.
PERSONNEL EXPENSES
<TABLE>
<CAPTION>
1995 1994
KONRAD HORNSCHUCH AG TDM TDM
----------- ---------
<S> <C> <C>
Wages and salaries 45,793 47,419
Social security 8,837 8,990
Pension costs 1,479 1,083
------ ------
56,109 57,492
====== ======
</TABLE>
<TABLE>
<CAPTION>
1995 1994
GROUP TDM TDM
-------- ---------
<S> <C> <C>
Wages and salaries 47,354 49,385
Social security 9,285 9,540
Pension costs 1,515 1,129
------ ------
58,154 60,054
====== ======
</TABLE>
OTHER OPERATING EXPENSES
The other operating expenses of KONRAD HORNSCHUCH AG include the following:
<TABLE>
<CAPTION>
KONRAD HORNSCHUCH AG 1995 1994
TDM TDM
------------ -------
<S> <C> <C>
Licences/commissions 2,676 3,530
Other selling expenses 14,275 12,851
Legal and professional fees 1,842 1,195
Other administrative expenses 2,079 2,113
Catastr.-/Work-/Environmental protection 1,567 1,102
Other maintenance/EDP-maintenance 4,228 4,653
Other expenses 7,449 5,340
Sale of fixed assets and adjustments of reserves 953 805
------ ------
35,069 31,589
====== ======
GROUP 38,084 35,081
====== ======
</TABLE>
INCOME FROM PARTICIPATIONS
In the fiscal year 1995, KONRAD HORNSCHUCH AG had participation income of TDM
139 (prior year: TDM 201) from affiliated companies.
OTHER INTERESTS AND SIMILAR INCOME
37
<PAGE> 38
At KONRAD HORNSCHUCH AG the income from affiliated companies have been realized
at a rate of TDM 325 (prior year: TDM 3.714).
EXPENSES FROM LOSS TRANSFERS
These expenses result from loss transfers based on profit pooling with
affiliated companies.
INCOME RELATING TO OTHER PERIODS
The other operating income, taxes from income and the other taxes include income
relating to other periods of TDM 1.238.
EXPENSES RELATING TO OTHER PERIODS
The other operating expenses and the taxes from income include expenses relating
to other periods of TDM 365.
TAXES
Because of the negative result of the year and the loss carry forward from
previous fiscal years, no domestic income taxes arise. Amounts reflect the
balance from tax back-payments/tax refund for previous years and foreign
withholding taxes.
The other taxes are mainly related to the net asset-, trading capital-, land-
and automobile taxes which are not dependent on income.
X. OTHER NOTES
1. The total remunerations of the members of the board for the
fiscal year 1995 amount to DM 992,145.00.
The remunerations of former board members and their surviving
dependents amount to DM 698,950.00 (GROUP DM 709,027.00).
For pension obligations with regard to former members of the
board and their surviving dependents, DM 5,255,617.00 (GROUP DM
5,310,029.00) has been reserved.
2. The remunerations for the supervisory board for the fiscal year
1995 amount to DM 85,300.00 plus value added tax.
3. The supervisory board of the company consists of nine members.
Appointed members of the supervisory board are:
Wilhelm Freiherr Haller von Hallerstein, Stuttgart (chairman),
Eberhard Christian Kunz, Nurtingen (first deputy chairman),
Dr. Wilhelm Dengler, Gschwend,
Dieter Maier, Stuttgart,
Helmut Menges, Welzheim,
Dr. Roland Schelling, Stuttgart,
and as representative of the employees:
Hans Roth, Hohebach (second deputy chairman), Willi Bobka,
WeiBbach, and Hans Fenzl, WeiBbach.
38
<PAGE> 39
The administrative period of the supervisory board closes with the end
of the shareholders general meeting which decides above the discharge
for the fiscal year 1997.
*) The supervisory board has in his meeting on 9 December 1994 appointed
Mr Helmut Menges according to ss. 105 Abs.
2 AktG from 1 January 1995 for the maximum of one year, as managing
director of the company and as chairman of the management. For this
time, his supervisory board client has rested.
The management board consists of two persons. Members of the management
board are or have been, appointed by the supervisory board,
Hans-Georg Stahmer, Taunusstein
(from 1 October 1995; chairman from 1 November 1995),
Dr. Roland Schulze-Kadelbach, Flein, and
Helmut Menges, Welzheim,
(from 1 January until 31 October 1995; chairman until 31.
Oktober 1995)*)
4. With the letter of 3 February 1984 the Kunz Holding GmbH & Co. KG,
Gschwend, has told according to ss. 20 Abs. 4 AktG that she has the
majority holding for Konrad Hornschuch AG.
To the majority shareholder Kunz Holding GmbH & Co. KG and the related
companies there existed only minor delivery- and service relations.
5. In the fiscal year KONRAD HORNSCHUCH AG has ordinarily employed:
<TABLE>
<CAPTION>
1995 1994
persons persons
---------- ----------
<S> <C> <C>
Salaried employees**) 294 295
Payroll employees 446 509
Trainees 38 35
--- ---
Employees 778 839
=== ===
The GROUP has employed:
Salaried employees***) 333 339
Payroll employees 455 520
Trainees 38 35
--- ---
Employees 826 894
=== ===
</TABLE>
39
<PAGE> 40
6. Because of special tax depreciations in the previous fiscal years on tangible
fixed assets, the annual result is only insignificantly influenced. Also the
effects on future annual results are not significant.
*) The supervisory board has in his meeting on 9 December 1994 appointed Mr
Helmut Menges according to ss. 105 Abs. 2 AktG from 1 January 1995 for the
maximum of one year, as managing director of the company and as chairman of the
management. For this time, his supervisory board client has rested.
**) including members of the board
***) including members of the board and managers
7. The annual financial statements of Konrad Hornschuch AG to 31 December
1995 which have been drawn up by the board show, after charging with the
retained earnings brought forward from the previous year at a rate of DM
617,000.00 and withdrawals from the other retained earnings at a rate of
DM 6,282,000.00 an accumulated deficit of DM - 2,049,511.00.
The management board suggests to carry forward the deficit to the next year.
WeiBbach, March 1996
Konrad Hornschuch AG
Board
40
<PAGE> 41
KONRAD HORNSCUCH GROUP ACCOUNTS
MEASUREMENT OF MATERIAL VARIATIONS IN ACCOUNTING
METHODS USED UNDER GERMAN GAAP VERSUS U.S. GAAP
ON BALANCE SHEET ACCOUNTS
(GERMAN MARKS, IN THOUSANDS)
<TABLE>
<CAPTION>
GERMAN U.S. 1996 GERMAN U.S. 1995
GAAP GAAP DIFFERENCE GAAP GAAP DIFFERENCE
AMOUNT AMOUNT INCREASE/ AMOUNT AMOUNT INCREASE/
1996 1996 <DECREASE> 1995 1995 <DECREASE>
<S> <C> <C> <C> <C> <C>
Asset affected:
ITEM 1- Deferred tax asset:
0 9,313 9,313 0 9,421 9,421
ITEM 2- Intangible asset
0 13,241 13,241 0 15,132 15,132
Total assets affected:
0 22,554 22,554 0 24,553 24,553
Liabilities affected:
ITEM 2- Pension obligation:
12,948 27,958 15,010 13,503 28,390 14,887
ITEM 3- Accrued expenses-repair and maintenance:
600 0 (600) 0 0 0
ITEM 4- Accrued expenses- restructuring charges
3,300 1,700 (1,600) 0 0 0
Total liabilities affected:
16,848 29,658 12,810 13,503 28,390 14,887
Net equity:
9,744 9,666
</TABLE>
41
<PAGE> 42
KONRAD HORNSCHUCH GROUP ACCOUNTS
MEASUREMENT OF MATERIAL VARIATIONS IN ACCOUNTING METHODS
USED IN COMPUTING NET INCOME UNDER GERMAN GAAP VERSUS
U.S. GAAP FOR THE YEARS ENDED DECEMBER 31,
(GERMAN MARKS, IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net loss as reported in the audited financial statements of Konrad
Hornschuch under German GAAP
(758) (9,495)
Income <expense>:
Item 1- Differences in tax provision (assumes initial
implementation of FAS 109 in 1994 and an effective
Tax rate of 43.8%)
(107) 5,058
Item2- Differences in pension expense as calculated
under FAS 87 of U.S. GAAP versus German
GAAP
(2,014) (2,810)
Item 3- Accrued liability for repair and maintenance
costs under German GAAP
600 0
Item 4- Accrued liability for restructuring costs under
German GAAP
1,600 0
Net loss as reported in the audited financial
statements of Konrad Hornschuch under
U.S. GAAP
(679) (7,247)
</TABLE>
42
<PAGE> 43
KONRAD HORNSCHUCH GROUP ACCOUNTS
QUANTITATIVE RECONCILIATION OF FINANCIAL STATEMENTS
PREPARED ON A COMPREHENSIVE BASIS OTHER THAN U.S. GAAP
Item 1- Under U.S. GAAP -SFAS NO. 109- " Accounting for Income Taxes " - a
deferred tax asset or liability is determined based on the difference between
the financial reporting and the tax basis of the asset or liability tax effected
using enacted tax rates in effect in the years in which the differences are
expected to reverse. Included in the tax effects is the recognition of a
deferred tax asset for German net operating loss carryforwards which have an
unlimited life under German tax law. Considering the unlimited NOL life and the
earnings potential of the Company, the deferred tax asset determined in
accordance with FAS 109 has been calculated , as well as the impact on the
provision for income taxes and is shown as a reconciling item between German
GAAP and U.S. GAAP.
Item 2- Under German GAAP, the Company has two pension liabilities, one recorded
and one unrecorded. In addition , the German GAAP actuarial calculation does not
consider anticipated salary increases or cost of living increases for pension
payments. For German GAAP purposes, both pension liabilities are calculated
using a statutorily mandated 6% interest rate to present value the pension
liabilities. For U.S. GAAP purposes, both pension liabilities have been
calculated in accordance with FAS No. 87 - "Employer Accounting for Pensions"
for each of the periods presented and an appropriate U.S. GAAP pension expense
was recognized for each year presented. The German requirements are funded on a
cash basis, therefore no plan assets exist. In accordance with SFAS No. 87, an
additional minimum liability for the unfunded accumulated benefit obligation has
also been recognized as a liability. In addition, an intangible asset equal to
the amount of the unamortized transition obligation has been recognized in
accordance with SFAS 87. The differences between German GAAP and U.S. GAAP
valuations at each balance sheet date have been reflected.
Item 3- Under U.S. GAAP, repair and maintenance costs are expensed as incurred,
while under German GAAP, a liability can be established for future repair and
maintenance costs. Accordingly, the differences between German GAAP and U.S.
GAAP at each balance sheet date have been reflected.
Item 4- Under U.S. GAAP, restructuring charges are recognized in accordance with
EITF 94-3. Under German GAAP, the 1996 restructuring charge includes an employee
reduction plan plus accruals relative to future consulting fees to reengineer/
implement new automated accounting and administrative technology. Under U.S.
GAAP, these consulting fees cannot be accrued as they benefit future periods.
Accordingly, the differences between German GAAP and U.S. GAAP for accrued
restructuring charges at each balance date have been reflected.
43
<PAGE> 44
ITEM 7(b) UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma financial statements give
effect to the acquisition by Decora Industries, Inc. ( "Decora") of Konrad
Hornschuch AG ("Hornschuch"), a German Company, in a transaction to be accounted
for as a purchase. The unaudited pro forma balance sheet is based on the
individual consolidated balance sheets of Decora and of Hornschuch as of
September 30, 1997 and has been prepared to give effect to the acquisition as if
it occurred on September 30, 1997. The unaudited pro forma statements of income
are based on the individual consolidated statements of income of Decora for the
six months ended September 30, 1997 and the year ended March 31, 1997 and of
Hornscuch for the six months ended September 30, 1997 and the year ended
December 31, 1996. The results of operations of Decora and Hornschuch have been
combined to give effect to the acquisition as if it had occurred on April 1,
1996, the beginning of Decora's 1997 fiscal year. During the quarter ended
March 31, 1997, Hornschuch's sales, operating income and net income were
$30,277,000, $1,189,000 and $730,000, respectively. Such amounts have not
been included in the pro forma information.
The unaudited pro forma consolidated financial information is
based upon preliminary fair value allocations relative to the purchase of
Hornschuch. The final allocation of the purchase price may vary as additional
information is obtained, and accordingly, the ultimate allocations may differ
from the allocations used in the unaudited pro forma consolidated financial
statements. The pro forma balance sheet presented was converted at a rate of
$1.75/ German Mark, while the income statements of Hornschuch for the six months
ended September 30, 1997 and the twelve months ended December 31, 1996 were
converted at rates of $1.76/ German Marks and $1.51/ German Marks, respectively.
The pro forma financial statements were prepared in accordance with U.S. GAAP.
The unaudited pro forma consolidated financial information
presented is not necessarily indicative of the operating results that would have
been reported had the acquistion actually occurred on the dates indicated or
which may be obtained in the future. The pro forma financial statements should
be read in conjunction with the audited financial statements and related notes
thereto of Hornschuch appearing in the response to Item 7(a) of this current
report on Form 8-K/A and the historical financial statements, related notes, and
" Management's Discussion and Analysis of Financial Condition and Results of
Operation"of Decora for the year ended March 31, 1997and the six months ended
September 30, 1997, previously filed with the Securities and Exchange
Commission.
44
<PAGE> 45
DECORA INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
( IN THOUSANDS OF U.S.$ )
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Assets Decora Hornschuch Adjustments Consolidated
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $527 $889 $ (8) (a) $2,158
750 (c)
Accounts receivable, net 5,525 18,684 24,209
Inventories 5,944 21,136 338 (b) 27,418
Prepaid expenses and other current assets 903 1,275 2,178
------- ------- ------- --------
Total current assets 12,899 41,984 1,080 55,963
Property and equipment, net 7,294 22,916 16,892 (b) 47,102
Notes receivable 850 371 1,221
Intangibles, net 2,612 6,852 (6,119) (b) 3,345
Goodwill 8,102 - 12,655 (b) 20,757
Deferred income taxes 4,343 4,986 (3,958) 5,371
Assets available for sale - 1,782 (615) (b) 1,167
Other non-current assets, net 274 45 936 (b) 1,255
------- ------- ------- --------
Total assets $36,374 $78,936 $20,871 $136,181
======= ======= ======= ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $2,766 $5,065 $7,831
Accrued liabilities 2,352 15,883 $ 2,292 (a) 20,527
Current portion of long-term debt 3,594 5,800 9,394
------- ------- ------ --------
Total current liabilities 8,712 26,748 2,292 37,752
Long-term debt 13,003 12,896 35,307 (a) 61,206
Pension obligation - 14,332 - 14,332
------ ------- ------ -------
Total liabilities 21,715 53,976 37,599 113,290
Minority interests - - 6,689 (b) 6,689
Shareholders' equity
Preferred stock - - - -
Common stock 357 17,505 (17,505) (b) 366
9 (c)
Additional paid-in capital 31,922 2,501 (2,501) (b) 33,456
741 (c)
793 (a)
Retained earnings (accumulated deficit) (17,620) 4,954 (4,954) (b) (17,620)
------- ------- ------- --------
Total shareholders' equity 14,659 24,960 (23,417) 16,202
Total liabilities and shareholders' equity $36,374 $78,936 $20,871 $136,181
======= ======= ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
45
<PAGE> 46
DECORA INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS OF U.S. $, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Decora Hornschuch Adjustments Consolidated
<S> <C> <C> <C> <C> <C>
Net Sales $19,455 $59,791 $79,246
Cost of goods sold 14,454 43,572 $ 474 (d) 58,500
------ ------ ----- --- ------
Gross profit 5,001 16,219 (474) 20,746
Selling, general and administrative expenses 2,567 14,211 301 (e) 17,079
Non-recurring charges 1,461 -- 1,461
----- ------ ----- ------
Operating income 973 2,008 (775) 2,206
Interest expense 838 848 1,694 (f) 3,380
--- --- ----- --- -----
Income (loss) before taxes 135 1,160 (2,469) (1,174)
Income tax provision (benefit) 41 566 (894) (g) (287)
-- --- ----- --- -----
Net income (loss) after tax 94 594 (1,575) (887)
Minority interest -- -- 159 (h) 159
--- ------ ------- --- ------
Net income (loss) $94 $ 594 ($1,734) ($1,046)
=== ====== ======= ======
Net income (loss) per common share $0.00 ($0.03)
Average shares of common stock used in
computation of income per share 35,699 36,637
------ ------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
46
<PAGE> 47
DECORA INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 31, 1997
(IN THOUSANDS OF U.S. $, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Decora Hornschuch Adjustments Consolidated
<S> <C> <C> <C> <C>
Net Sales $41,082 $133,979 $175,061
Cost of goods sold 30,503 98,483 $ 656 (i) 129,642
------ ------ --- --- -------
Gross profit 10,579 35,496 (656) 45,419
Selling, general and administrative
expenses 5,853 32,390 625 (j) 38,868
----- ------ --- --- ------
Operating income 4,726 3,106 (1,281) 6,551
Interest expense 2,319 2,148 3,409 (k) 7,876
------- ----- ------- -------
Income (loss) before taxes 2,407 958 (4,690) (1,325)
Income tax provision (benefit) (1,159) 499 (1,690) (l) (2,350)
------- --- ------- --- -------
Net income 3,566 459 (3,000) 1,025
Minority interest -- -- 123 (m) 123
------ -- ------- --- -------
Net income $3,566 $459 ($3,123) $902
====== ==== ======= ======
Net income per common share $0.10 $0.02
Average shares of common stock used 35,219 36,157
in computation of income per share ------ ------
</TABLE>
See Notes to unaudited Pro Forma Consolidated Financial Statements
47
<PAGE> 48
DECORA INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Note 1- Pro Forma Adjustments for the Balance Sheet as of September 30, 1997
(a) Reflects the debt and accrued liabilities incurred in connection with the
acquisition of Hornschuch .
(b) Reflects the following preliminary purchase accounting adjustments resulting
from the acquisition of Hornschuch.
Step-up in basis of property and equipment $ 16,892
Step-up in basis of inventory 338
Write-down of assets held for sale 615
Recognition of non-compete agreement 600
Write-off of intangible relative to pension 6,719
Goodwill on acquisition 12,655
Deferred financing fees 936
Recognition of minority interests 6,689
Elimination of common stock of Hornschuch 17,505
Elimination of additional paid-in capital of Hornschuch 2,501
Elimination of retained earnings of Hornschuch 4,954
Recognition of deferred tax liability 3,958
(c) Reflects proceeds from sale of common stock as follows:
Cash 750
Common stock 9
Additional paid in capital 741
Note 2- Pro forma adjustments to the statement of income for the six months
ended September 30, 1997
(d) Reflects the increase in depreciation expense for manufacturing related
assets based on the step up in basis of property and equipment acquired
and the increase in cost of goods sold relative to the step up in
basis of inventory.
(e) Reflects the increase in depreciation expense for selling, general and
administrative assets based on the step up in basis of property and
equipment acquired and the amortization of goodwill and of the
non-compete agreement.
(f) Reflects interest expense on indebtedness and related fees incurred in
connection with the acquisition.
(g) Reflects the estimated income tax effect of the pro forma adjustments.
(h) Reflects the impact of the minority interest on Hornschuch's earnings.
Note 3- Pro forma adjustments to the statement of income for the twelve months
ended March 31, 1997
(i) Reflects the increase in depreciation expense for manufacturing
related assets based on the step up in basis of property and equipment
acquired and the increase in cost of goods sold relative to the
step up in basis of inventory.
(j) Reflects the increase in depreciation expense for selling, general and
administrative assets based on the step up in basis of property and
equipment acquired and the amortization of goodwill of the non-compete
agreement.
(k) Reflects interest expense on indebtedness incurred in connection with
the acquisition.
(l) Reflects the estimated income tax effect of the pro forma adjustments.
(m) Reflects the impact of the minority interest on Hornschuch's earnings.
48
<PAGE> 49
EXHIBIT 23.1 CONSENT OF DR. EBNER, DR. STOLZ AND PARTNERS GMBH
CONSENT
We hereby consent to the inclusion in the Form 8-K/A of Decora Industries, Inc.
dated December 15, 1997 our reports dated April 2, 1997 and March 22, 1996
related to the consolidated financial statements for Konrad Hornschuch
Aktiengesellschaft for the years ended December 31, 1996 and 1995 and 1995 and
1994, respectively.
Stuttgart, 11 December 1997
Dr. Ebner, Dr.Stolz und Partner GmbH
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
49
<PAGE> 50
DECORA INDUSTRIES, INC.
SIGNATURES
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 hereunto duly authorized.
DECORA INDUSTRIES, INC.
(Registrant)
By: s/Timothy N. Burditt
----------------------------------------
Timothy N. Burditt
Principal Accounting Officer
Dated: December 15, 1997
50
