<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
Pursuant to Section 13 of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 16, 1996
Owens-Illinois, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9576 22-2781933
--------------- ----------- -------------------
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation)
Owens-Illinois Group, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-13061 34-1559348
--------------- ----------- -------------------
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation)
One SeaGate, Toledo, Ohio 43666
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrants' telephone number,
including area code: 419-247-5000
Exhibit Index -- Page 4
Page 1 of 4 pages
<PAGE>
On December 31, 1996, the Registrants filed a Current Report on Form 8-K to
include the information required under Item 2 regarding the December 16, 1996,
agreement to acquire a controlling interest in Avir S.p.A.
On March 3, 1997, the Registrants amended the December 16, 1996, Current
Report, via Form 8-K/A, to include the information required under Items 7(a),
7(b) and 7(c) with regard to audited financial statements as of and for the
year ended December 31, 1995, and unaudited financial statements as of and for
the six months ended June 30, 1996.
The Registrants hereby further amend the December 16, 1996, Current Report to
include the information required under Items 7(a), 7(b) and 7(c) with regard
to audited financial statements as of and for the year ended December 31, 1996,
following the availability of such financial statements.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
(1) Audited consolidated financial statements of Avir S.p.A.
and subsidiaries for the year ended December 31, 1996 (with
comparative information as of and for the year ended
December 31, 1995).
- Report of Independent Public Accountants (Avir S.p.A.
and subsidiaries) - Arthur Andersen S.p.A.
- Consolidated Balance Sheets
- Consolidated Profit and Loss Accounts
- Consolidated Statements of Changes in Net Equity
- Consolidated Cash Flow Statements
- Notes to Consolidated Financial Statements
- Independent Auditors' Report (Avirunion, a.s.) - KPMG Ceska
republika Audit, spol. S.r.o.
- Audit Report on the Annual Accounts (Vidrieria Rovira, S.A.
and subsidiary companies) - AUDIHISPANA
(b) Unaudited pro forma financial information.
- Pro Forma Condensed Consolidated Balance Sheet at
December 31, 1996
- Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1996
- Notes to Pro Forma Condensed Consolidated Financial Statements
(c) Exhibits.
23.1 Consent of Arthur Andersen S.p.A., Milan, Italy
23.2 Consent of KPMG Ceska republika Audit, spol. S.r.o.,
Prague, Czech Republic
23.3 Consent of AUDIHISPANA, Barcelona, Spain
Page 2 of 4 pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
OWENS-ILLINOIS, INC.
OWENS-ILLINOIS GROUP, INC.
By /s/ Lee A. Wesselmann
--------------------------
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Dated: May 9, 1997
Page 3 of 4 pages
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
23.1 Consent of Arthur Andersen S.p.A., Milan, Italy
23.2 Consent of KPMG Ceska republika Audit, spol. S.r.o.,
Prague, Czech Republic
23.3 Consent of AUDIHISPANA, Barcelona, Spain
Page 4 of 4 pages
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders
Avir S.p.A.:
We have audited the accompanying consolidated balance sheet of Avir S.p.A. and
subsidiaries as of December 31, 1996, and the related consolidated profit and
loss accounts, statement of changes in net equity and cash flow statement for
the year then ended. These consolidated financial statements are the
responsibility of Avir S.p.A.'s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the consolidated financial statements of Avirunion a.s and
Vidrieria Rovira S.A., which statements reflect total assets of 21% and total
revenues of 18% of the related consolidated totals. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Avirunion a.s, and
for Vidrieria Rovira S.A. is based solely on the report of the other auditors.
The financial statements of Avir S.p.A. as of December 31, 1995, were audited
by other auditors whose report dated May 13, 1996, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the Republic of Italy, which standards are substantially
equivalent to auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Avir S.p.A. and subsidiaries as
of December 31, 1996, and the results of their operations and their cash flows
for the year then ended, in conformity with generally accepted accounting
principles in the Republic of Italy.
Accounting principles generally accepted in the Republic of Italy vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Application of accounting principles generally
accepted in the United States of America would have affected net profit for
the year ended December 31, 1996 and net equity as of December 31, 1996, to
the extent summarized in Note 20 to the consolidated financial statements.
ARTHUR ANDERSEN S.p.A.
Milan, Italy
March 28, 1997
1
<PAGE>
CONSOLIDATED BALANCE SHEETS Avir S.p.A.
Millions of Italian Lire
December 31, 1995 1996
- ------------ ------- -------
Assets
A) Receivables from shareholders for
unpaid capital -- --
B) Fixed Assets
I) Intangible assets:
1) Start-up and improvement costs 323 344
2) Costs of research, development and
publicity 38 4
3) Patents and rights to use third-party
patents 1,053 1,233
4) Concessions, licenses, brands and
similar rights 9 20
5) Differences on consolidation 1,933 587
6) Assets in progress and advances 50 41
7) Other 1,563 1,200
- -----------------------------------------------------------------------------
Total 4,969 3,429
II) Tangible assets:
1) Land and buildings 107,009 101,836
2) Plant and machinery 188,364 217,408
3) Industrial and commercial equipment 20,754 23,786
4) Other assets 1,089 793
5) Assets under construction and
advances 47,310 84,223
- -----------------------------------------------------------------------------
Total 364,526 428,046
III) Financial assets:
1) Investment in:
b) associated companies 24,147 27,239
d) other companies 1,621 1,421
2) Loans receivable:
d) from third-parties
due within one year 257 --
due after one year 8,838 9,050
3) other securities 860 260
- -----------------------------------------------------------------------------
Total 35,723 37,970
=============================================================================
Total fixed assets (B) 405,218 469,445
=============================================================================
2
<PAGE>
CONSOLIDATED BALANCE SHEETS Avir S.p.A. (continued)
Millions of Italian Lire
December 31, 1995 1996
- ------------ --------- ---------
C) Current assets
I) Inventories
1) raw materials and supplies 45,303 58,985
2) work-in-progress and semi-finished
products 5,563 3,236
4) finished products and goods for resale 85,071 117,124
5) advances 26 232
- -----------------------------------------------------------------------------
Total 135,963 179,577
II) Receivables:
1) from customers
due within one year 250,366 188,922
due after one year 8,907 9,626
3) from associated companies
due within one year 293 1,083
5) from third parties
due within one year 25,076 22,718
due after one year 26,523 24,752
- -----------------------------------------------------------------------------
Total 311,165 247,101
III) Financial assets:
4) other investments 6,569 4,215
6) loans receivable:
-- from associated companies
due within one year -- 159
-- from third parties
due within one year 178,231 112,432
- -----------------------------------------------------------------------------
Total 184,800 116,806
IV) Cash on hand and at bank
1) bank and postal accounts 84,313 84,603
2) checks -- 2
3) cash on hand 198 122
- -----------------------------------------------------------------------------
Total 84,511 84,727
=============================================================================
Total current assets 716,439 628,211
=============================================================================
D) Prepaid expenses and accrued income 8,796 2,644
=============================================================================
Total Assets 1,130,453 1,100,300
=============================================================================
3
<PAGE>
CONSOLIDATED BALANCE SHEETS Avir S.p.A. (continued)
Millions of Italian Lire
December 31, 1995 1996
- ------------ --------- ---------
Liabilities and Net Equity
A) Net equity
I) Share capital 22,092 20,995
II) Share premium reserve -- --
III) Revaluation reserve 4,224 44,290
IV) Legal reserve 4,418 4,199
V) Treasury stock -- --
VI) Statutory reserves -- --
VII) Other reserves
-- extraordinary reserve 78,584 68,108
-- taxed reserves 202 202
-- reserve for CASMEZ grants 991 17,620
-- reserve on gains re. Law 170 1,767 1,767
-- reserve re. Law 27/83 -- 159
-- reserve for VAT deduction -- 3,087
-- reserve re. Law 308/82 -- 5,698
-- reserve for grants re. L.P. 26/72 -- 799
-- reserve for grants re. L.P. 4/81 -- 207
-- reserve re. Law 10/91 -- 3,709
-- reserve for investments grants -- 48
-- reserve re. Law 104/95 -- 160
-- incorporation surplus -- 166,002
-- consolidation reserve 257,642 124,228
-- foreign exchange translation reserve 1,771 (8,954)
VIII) Retained earnings -- --
IX) Net profit for the year attributable to the
Group 102,153 61,115
- -----------------------------------------------------------------------------
Total net equity attributable to the Group 472,952 513,439
=============================================================================
Share capital and reserves attributable to
minorities 72,454 48,862
Net profit for the year attributable to
minorities 11,599 8,785
- -----------------------------------------------------------------------------
Total net equity attributable to minorities 84,053 57,647
- -----------------------------------------------------------------------------
Total Consolidated Net Equity 557,005 571,086
=============================================================================
B) Risk and other provisions
1) Deferred compensation 308 192
2) Income taxes 34,281 38,856
3) Other 19,724 48,403
- -----------------------------------------------------------------------------
Total 54,313 87,451
- -----------------------------------------------------------------------------
4
<PAGE>
CONSOLIDATED BALANCE SHEETS Avir S.p.A. (continued)
Millions of Italian Lire
December 31, 1995 1996
- ------------ --------- ---------
C) Employees' termination indemnity 57,385 59,298
D) Payables
3) Banks overdrafts:
due within one year 46,265 30,717
due after one year 63,109 53,253
4) Due to other financial institutions:
due within one year 1,101 6,242
due after one year 30,296 33,427
5) Advances
due within one year 385 843
6) Trade payables
due within one year 182,416 180,796
7) Notes payable
due within one year 703 40
due after one year 40 --
9) Due to associated companies
due within one year 25 2,325
11) Due to fiscal authorities
due within one year 97,315 37,821
12) Due to social security
due within one year 13,167 8,375
due after one year 44 529
13) Other payables
due within one year 16,068 16,014
due after one year 537 315
- -----------------------------------------------------------------------------
Total 451,471 370,697
=============================================================================
E) Accrued expenses and deferred income 10,279 11,768
- -----------------------------------------------------------------------------
Total net equity and liabilities 1,130,453 1,100,300
=============================================================================
Memorandum Accounts
Liens on real estate on the Group's liabilities:
-- mortgages and privileges 83,787 71,275
-- reservation of property 743 40
- -----------------------------------------------------------------------------
Total guarantees 84,530 71,315
Other memorandum, commitments and
contingency accounts 3,901 6,581
- -----------------------------------------------------------------------------
Total Memorandum Accounts 88,431 77,896
=============================================================================
5
<PAGE>
CONSOLIDATED PROFIT AND LOSS ACCOUNTS Avir S.p.A.
Millions of Italian Lire
Years ended December 31, 1995 1996
- ------------------------ --------- ---------
A) Value of production
1) Revenues from sales 1,150,874 1,036,041
2) Variation in inventories of work-in-
progress, semi-finished and finished
products (3,615) 32,464
4) Capitalized labor 7,382 10,136
5) Other
-- contribution on operating expenses
revenues 144 171
-- other 8,452 11,435
- -----------------------------------------------------------------------------
Total 1,163,237 1,090,247
B) Cost of production
6) Raw materials, supplies and goods for
resale (397,644) (374,334)
7) Services received (284,966) (276,081)
8) Rentals and leasing charges (3,091) (3,441)
9) Personnel:
a) wages and salaries (132,094) (133,900)
b) social security contributions (48,441) (47,128)
c) employees' severance indemnities (9,713) (9,250)
d) deferred compensation (77) (327)
e) other (2,519) (2,877)
10) Depreciation and write-downs:
a) amortization of intangible assets (2,682) (2,652)
b) depreciation of tangible assets (69,734) (71,753)
c) other write-downs to fixed assets (132) (60)
d) provision for doubtful accounts risks (3,249) (3,723)
11) Variation in inventories of raw materials,
supplies and goods for resale 6,111 14,586
12) Provisions for risks (6,580) (30,209)
13) Other provisions (677) (193)
14) Other operating costs (20,118) (22,031)
- -----------------------------------------------------------------------------
Total (975,606) (963,373)
- -----------------------------------------------------------------------------
Difference between value and cost of production 187,631 126,874
- -----------------------------------------------------------------------------
C) Financial income and expense
15) Income from investments:
-- dividends 115 1,545
16) Other financial income
b) on investment securities 116 49
d) other
-- on associated companies -- 9
-- on third parties 26,043 21,123
6
<PAGE>
CONSOLIDATED PROFIT AND LOSS ACCOUNTS Avir S.p.A. (continued)
Millions of Italian Lire
Years ended December 31, 1995 1996
- ------------------------ --------- ---------
17) Interest and other financial charges
-- third-parties (22,534) (17,620)
- -----------------------------------------------------------------------------
Total 3,740 5,106
D) Adjustment to the value of financial assets
18) Revaluation
a) investments 8,645 6,606
19) Write-downs
a) investments (961) (1,289)
- -----------------------------------------------------------------------------
Total 7,684 5,317
E) Extraordinary income and expense
20) Extraordinary income
-- gains on disposals 1,361 8,573
-- other 13,601 11,170
21) Extraordinary expense
-- losses on disposals (1,647) (644)
-- prior year income taxes (1,123) (79)
-- other (4,012) (5,119)
- -----------------------------------------------------------------------------
Total 8,180 13,901
- -----------------------------------------------------------------------------
Profit before income taxes 207,235 151,198
- -----------------------------------------------------------------------------
22) Income taxes (93,483) (81,298)
23) Net profit for the year 113,752 69,900
of which:
-- attributable to the Group 102,153 61,115
-- attributable to minorities 11,599 8,785
7
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN NET EQUITY Avir S.p.A.
Millions of Italian Lire
Years ended December 31, 1996 and 1995
- --------------------------------------
- ----------------------------------------------------------------------------
Attributable to the Group
- ----------------------------------------------------------------------------
Total
Net net
profit equity
Share Other Consolidation for the of the
capital reserves reserves Total year Group
- ----------------------------------------------------------------------------
Balance at
December 31,
1994 22,092 85,320 215,502 370,799 102,153 472,952
Dividends
distributed -- -- (13,255) (13,255) -- (13,255)
Appropriation of
net profit to
reserves -- 3,974 57,903 61,877 (61,877) --
Variations in
reserves -- -- (737) (737) -- (737)
Net profits for
the year -- -- -- -- 102,153 102,153
- ----------------------------------------------------------------------------
Balance at
December 31,
1995 22,092 89,294 259,413 370,799 102,153 472,952
============================================================================
- ----------------------------------------------------------------------------
Attributable
to the Group Attributable to minorities
------------ --------------------------
Share Net
Total net capital profit
equity of and for the Consolidated
the Group reserves year Total net equity
- ----------------------------------------------------------------------------
Balance at
December 31, 1994 384,791 69,261 5,492 74,753 459,544
Dividends distributed (13,255) (3,106) -- (3,106) (16,361)
Appropriation of net
profit to reserves -- 5,492 (5,492) -- --
Variations in reserves (737) 807 -- 807 70
Net profit for the
year 102,153 -- 11,599 11,599 113,752
- ----------------------------------------------------------------------------
Balance at
December 31, 1995 472,952 72,454 11,599 84,053 557,005
============================================================================
8
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN NET EQUITY Avir S.p.A.
Millions of Italian Lire
Years ended December 31, 1996 and 1995
- ----------------------------------------------------------------------------
Attributable to the Group
- ----------------------------------------------------------------------------
Total
Net net
profit equity
Share Other Consolidation for the of the
capital reserves reserves Total year Group
- -----------------------------------------------------------------------------
Balance at
December 31,
1995 22,092 89,294 259,413 370,799 102,153 472,952
Exercise of
right of
recourse (1,097) (24,666) -- (25,763) -- (25,763)
Dividends
distributed -- -- (17,673) (17,673) -- (17,673)
Appropriation of
net profit to
reserves -- 13,971 88,182 102,153 (102,153) --
Variations in
reserves -- 237,456 (214,648) 22,808 -- 22,808
Net profits for
the year -- -- -- -- 61,115 61,115
- -----------------------------------------------------------------------------
Balance at
December 31,
1996 20,995 316,055 115,274 452,324 61,115 513,439
=============================================================================
Attributable
to the Group Attributable to minorities
------------ --------------------------
Share Net
Total net capital profit
equity of and for the Consolidated
the Group reserves year Total net equity
- ----------------------------------------------------------------------------
Balance at
December 31, 1995 472,952 72,454 11,599 84,053 557,005
Exercise of
right of recourse (25,763) -- -- -- (25,763)
Dividends distributed (17,673) (6,071) -- (6,071) (23,744)
Appropriation of net
profit to reserves -- 11,599 (11,599) -- --
Variations in reserves 22,808 (29,120) -- (29,120) (6,312)
Net profit for the
year 61,115 -- 8,785 8,785 69,900
- ----------------------------------------------------------------------------
Balance at
December 31, 1996 513,439 48,862 8,785 57,647 571,086
============================================================================
9
<PAGE>
CONSOLIDATED CASH FLOW STATEMENTS Avir S.p.A.
Millions of Italian Lire
Years ended December 31, 1995 1996
- ------------------------ -------- --------
Net Cash - beginning 137,537 241,467
Cash flows from operating activities
Net income - Group 102,153 61,115
Net income - External 11,599 8,785
Depreciation 72,416 74,405
Reversal of Group shares of the net result of
companies valued at net equity (8,626) (6,574)
(Gain)/Loss from disposal of assets 1,656 (8,204)
(Revaluation)/Devaluation of assets 131 610
Movement in working capital 39,393 (35,551)
Net movement in severance indemnity 2,734 1,913
Net movement in allowance for risks and charges (631) 33,138
- ----------------------------------------------------------------------------
220,825 129,637
Cash flows from investing activities
Investments in assets:
-- intangible (493) (1,292)
-- fixed (108,793) (138,609)
-- financial (9,680) (350)
Sales proceeds on disposal of fixed assets 12,304 15,666
- ----------------------------------------------------------------------------
(106,662) (124,585)
Cash flows from financing activities
-- Additional borrowings 31,310 16,438
-- Capital contributions 383 3,408
-- Loan repayments (24,278) (18,421)
- ----------------------------------------------------------------------------
7,415 1,425
Dividends paid (13,255) (17,673)
Right of recourse paid -- (25,763)
Other movements that do not form part of cash flows
from financing activities
Movements in reserves 2,546 (18,212)
Movements in shares of net equity of third parties (3,106) (6,071)
Conversion differences (3,833) 8,613
- ----------------------------------------------------------------------------
(4,393) (15,670)
Cash flows for the period 103,930 (52,629)
- ----------------------------------------------------------------------------
Net Cash - final 241,467 188,838
============================================================================
10
<PAGE>
CONSOLIDATED CASH FLOW STATEMENTS Avir S.p.A.
Millions of Italian Lire
December 31, 1996 and 1995
- --------------------------
Movements in 1996 not included into consolidated cash-flow statements that do
not form variations of cash-flows:
- revaluation of fixed assets (R.D.L. 7/96 Spain) 11,974
- movement in reserves for the above-mentioned revaluation (11,974)
--------
Total -
========
Net cash, at year end, is as follows:
1995 1996
-------- --------
- -- Bank deposits and liquid funds 84,511 84,603
- -- Current financial debtors 184,800 116,806
- -- Current financial creditors (27,844) (12,695)
- ----------------------------------------------------------------------------
241,467 188,838
============================================================================
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Description of business
Avir Group is the largest manufacturer of glass containers in Italy (15
plants) and Czech Republic (2 plants) and the fourth in Spain (2 plants); its
major customers are producers of wine, spirits, beer and food.
The consolidated financial statements, consisting of the consolidated balance
sheets, consolidated profit and loss accounts, consolidated cash flow
statements and notes thereto, have been drawn up in accordance with the
requirements of Legislative Decree no. 127 on April 9, 1991 enacted as a
result of the VIIth EEC Directive.
1. Consolidation Group
The consolidation group includes the Parent Company, AZIENDE VETRARIE
INDUSTRIALI RICCIARDI- AVIR S.p.A., and the Italian and foreign companies in
which AVIR S.p.A. (the "Company" and together with its subsidiaries, the
"Group") holds the majority of the voting rights and over which it exercises
significant control.
The list of the companies consolidated with the full consolidation method has
been showed in Attachment 1.
On October 31, 1996, the following subsidiaries were merged into the Company:
ADIGE VETRO S.r.l., AVIR COMMERCIALE S.r.l., AZIENDE VETRARIE ITALIANE
RICCIARDI - A.V.I.R. S.p.A., BENINVEST S.r.l., BORMA S.p.A., CO.GE.VE S.p.A.,
I.A.G. HOLDING S.r.l., IMMOBILIARE AGRICOLA INDUSTRIALE S.r.l., VETROCERAMICA
TURRITANA S.p.A., VETROPIAVE S.p.A., VETROSILEX S.p.A. and VETRO UMBRA S.r.l..
Such merger has not involved any effect on the consolidated balance sheet and
consolidated profit and loss accounts.
In July 1996, the Company sold S.C.V.- SOCIETA' COMMERCIALE VETRO S.r.l., and
on October 1996 liquidated SILICES DE CATALUNA S.A.. All costs relating to
the liquidation were properly accrued by the Company, therefore these
subsidiaries have been excluded from consolidation as of the beginning of the
year since the effect on profit and loss is immaterial. There were no
significant gains or losses on the disposition of these subsidiaries.
2. Changes in Unconsolidated Investments
Non-consolidated investments, over which the Group exercises significant
influence and normally represented by shareholdings of between 20% and 50%,
are valued using the equity method and classified as "Investment in associated
companies".
In accordance with the equity method, the consolidated financial statements do
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
not include the assets, liabilities, costs and revenues of the relevant
companies, but the Group's share of their equity, including the result for the
year, is proportionately credited to profit and loss under the caption
"Adjustment to the value of financial assets".
The list of the Companies accounted for under the equity method is included in
Attachment 2. There have been no changes from prior year.
Minority investments in other companies are valued at cost and such companies
are listed in Attachment 3.
The increase in such investments is due to the purchase of 200 shares with a
nominal value of 5,000 pesetas each of Daniel Rosas S.A. in Barcelona (Spain).
3. Basis of Consolidation
Financial statements used for the consolidation
- -----------------------------------------------
The financial statements used for the consolidation are those approved as of
December 31, 1996 by the Board of Directors for the shareholders' approval.
Financial statements denominated in foreign currency are converted into
Italian Lire as follows: profit and loss items at the average rate for the
year and balance sheet items at year-end exchange rates, except for the result
for the year which was converted using the same rate as the profit and loss
account. The difference arising on the result for the year between the
application of average rates and year-end rates is recorded in the "Foreign
exchange translation reserve" in net equity. The effects on net equity due to
the fluctuation of exchange rates between the end of 1996 and the end of 1995
are also recorded in this account.
The exchange rates applied for the conversion are as follows:
1995 December 31, 1996 December 31,
Average 1995 Average 1996
Czech crown 61.57 59.42 56.77 56.23
Dutch guilder 1,015.89 987.73 915.79 875.56
Pound sterling 2,556.27 2,458.22 2,409.58 2,583.91
Swiss franc -- -- 1,250.61 1,131.58
Spanish peseta 13.08 13.05 12.19 11.66
These financial statements have been adjusted, where necessary, to eliminate
items recorded exclusively to obtain fiscal benefits and to ensure they comply
with the accounting principles adopted by the Company.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
4. Accounting and consolidation principles
The accounting principles adopted in the preparation of the consolidated
financial statements are those issued by the Consigli Nazionali dei Dottori
Commercialisti e dei Ragionieri and, where non existent, those recommended by
IASC - International Accounting Standards Committee.
All the consolidated companies have been included through the full
consolidation method, the main characteristics of which are as follows:
- -- assets, liabilities, costs and revenues are included at their full amount;
- -- equity and result for the year attributable to minority shareholders are
shown separately in specific items of the financial statements;
- -- the book value of the investments is eliminated against the corresponding
value of their equity, any differences between acquisition cost and the
proportional value of net equity at the date of acquisition, in respect of
consolidated subsidiaries and investments valued under the equity method,
have been treated as follows:
- negative differences are credited to the consolidation reserve;
- positive differences, if they do not relate to specific assets, are
recorded as difference in consolidation under intangible assets;
- -- balances and transactions between the Group companies are eliminated;
- -- if significant, profits arising from transactions between Group companies
with respect to inventories held at year end by the acquiring company are
eliminated;
- -- if significant, gains and losses resulting from the transfer of fixed
assets between Group companies are eliminated;
- -- intercompany dividends and write-downs in the value of investments in
consolidated companies are eliminated;
- -- conversion differences in respect of financial statements expressed in
foreign currencies are recorded under a specific reserve in net equity;
- -- items recorded exclusively to obtain fiscal benefits are eliminated.
Use of estimates
- ----------------
The preparation of the financial statements are in conformity with Italian
GAAP, along with the reconciliation to U.S. GAAP, requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
The most significant accounting principles adopted by the Group and by the
single consolidated entities in the preparation of the consolidated financial
statement are as follows:
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Intangible assets
- -----------------
Intangible assets are recorded at acquisition cost; they include
incorporation and share capital costs, patents and rights.
Start-up and improvement costs, relating primarily to incorporation and share
capital increase fees, and research, development and publicity costs are
amortized over a period not exceeding 5 years.
Patents and rights to use patents of third-parties, relating principally to
trademarks and software programs are amortized over their duration and 5
years, respectively.
Brands are written-off over 10 years.
The difference on consolidation relates to the goodwill paid on acquisition of
investments and is amortized over a maximum of 5 years.
Other intangibles include the acquired voting rights on Avirunion a.s. shares,
costs related to loan agreements and improvements made to third-party assets
and are amortized on the basis of the duration of the underlying contracts.
Tangible assets
- ---------------
Tangible assets are recorded at acquisition cost or manufacturing cost,
including directly attributable ancillary costs and increased by monetary
revaluation carried out by Italian subsidiaries in accordance with specific
legislation, and are shown net of accumulated depreciation.
Depreciation is calculated using the straight-line method, based on the useful
lives of the assets as well as on their effective utilization. In the year of
acquisition the rates used are decreased by half. The depreciation rates used
are as follows:
Percentage
----------
Buildings 3%-10%
Plant and machinery 10%-22%
Furniture and fixture 12%-20%
Vehicles 20%-22%
Tools 25%-40%
Assets under construction and advances are recorded on the basis of actual
costs incurred.
Ordinary maintenance and repairs are expensed as incurred, extraordinary
maintenance and repairs, which extend asset lives, are capitalized.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Investments
- -----------
Investments in non-consolidated companies, in which the Group holds an
interest of at least 20%, are valued using the equity method.
Other investments relating to ownership of less than 20% are valued at cost,
eventually reduced to take into consideration any permanent reduction in
value.
Fixed financial assets - other securities
- -----------------------------------------
Long-term securities are recorded at acquisition cost, which is equivalent to
nominal value since they are not marketable.
Inventories
- -----------
Inventories are recorded at the lower of cost (purchase or internal
production) or market value. Cost is determined using the LIFO method with
annual layers.
Receivables and payables
- ------------------------
Receivables (both current and long-term) and payables are recorded at their
nominal value.
The value of receivables is adjusted to correspond to their net realizable
value.
Receivables and payables denominated in foreign currencies have been converted
into Italian Lire using the exchange rates on the transaction date; losses on
exchange are covered by a specific provision recorded under "Risk and other
provisions - Other", calculated as the negative difference between the
balances converted at the year-end exchange rates and the original transaction
exchange rates.
Securities purchased under resale agreements are recorded under financial
assets in current assets at their acquisition cost; the difference between
the sale and acquisition value is recorded as interest over the term of the
agreement.
Investments not classified as fixed assets
- ------------------------------------------
The investments in other companies, related to quoted share, are stated at the
lower of cost and market value, determined on the basis of the average Stock
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Exchange prices in the last month of the year.
If in subsequent periods the reason for any write down no longer applies, the
asset is restated at cost.
Accruals and prepayments
- ------------------------
They consist of income and expense items relating to more than one financial
year and are recorded under the accrual method of accounting.
Deferred income taxes
- ---------------------
The provision includes deferred taxes recorded by Italian subsidiaries on
realized gains on disposal of fixed assets and on prior year income, whose
taxation effects are spread over the year of realization and a number of
subsequent years, as well as those with respect to the elimination of
accelerated depreciation.
The provision also includes the amounts provided for by each consolidated
company with respect to expected fiscal charges on outstanding positions or
amounts under dispute.
Employees' severance indemnities
- --------------------------------
The provision is calculated in accordance with the relevant legislation and
labor contracts and reflects amounts accruing to each individual employee of
the consolidated companies at year-end.
Costs and revenues
- ------------------
They are recorded on the basis of prudent criteria using the accrual method of
accounting. Revenues from sales are recognized upon shipment of the related
goods.
Income taxes
- ------------
Income taxes are calculated by each consolidated company based on a realistic
estimate of taxes payable in accordance with local current relevant
legislation.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
5. Fixed Assets
Intangible assets
- -----------------
Intangible assets and related accumulated amortization consist of the
following:
- ----------------------------------------------------------------------------
1996 1995
---------------------------------- -----
Accumulated
Gross amortization Net Net
- ----------------------------------------------------------------------------
Start-up and improvement costs 1,127 (783) 344 323
Cost of research, development
and publicity 173 (169) 4 38
Patents and rights to use
third-party patents 2,837 (1,604) 1,233 1,053
Concessions, licenses, brands
and similar rights 23 (3) 20 9
Difference on consolidation 6,343 (5,756) 587 1,933
Assets in progress and
advances 41 -- 41 50
Other 3,429 (2,229) 1,200 1,563
- ----------------------------------------------------------------------------
13,973 (10,544) 3,429 4,969
============================================================================
The schedule below outlines the movements for the year in intangible assets
and accumulated amortization:
- -----------------------------------------------------------------------------
Accumulated
Gross amortization
- -----------------------------------------------------------------------------
Balance at December 31, 1995 14,923 (9,954)
Increases 1,292 --
Decreases (2,000) 1,904
Write-off (60) --
Amortization -- (2,652)
Exchange differences (182) 158
- -----------------------------------------------------------------------------
Balance at December 31, 1996 13,973 (10,544)
=============================================================================
The difference on consolidation of 587 relates to the positive differences
between the acquisition cost of investments and the corresponding share of net
equity, as explained in the accounting principles.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Movements during the year were as follows:
- -----------------------------------------------------------------------------
Balance at December 31, 1995 1,933
Amortization (1,346)
- -----------------------------------------------------------------------------
Balance at December 31, 1996 587
=============================================================================
Other intangible assets of 1,200 includes 673 with respect to acquired voting
rights on Avirunion a.s. shares.
Tangible assets
- ---------------
- ----------------------------------------------------------------------------
1996 1995
--------------------------------------- -------
Accumulated
Gross depreciation Net Net
- ----------------------------------------------------------------------------
Land and buildings 196,514 (94,678) 101,836 107,009
Plant and machinery 682,002 (464,594) 217,408 188,364
Industrial and
commercial equipment 83,620 (59,834) 23,786 20,754
Other assets 2,186 (1,393) 793 1,089
Assets under
construction and
advances 84,223 -- 84,223 47,310
- ----------------------------------------------------------------------------
1,048,545 (620,499) 428,046 364,526
============================================================================
The schedule below outlines the movements for the year in tangible assets and
accumulated depreciation:
- ---------------------------------------------------------------------------
Accumulated
Gross depreciation
- ---------------------------------------------------------------------------
Balance at December 31, 1995 967,675 (603,149)
Increases (decreases) for the year:
- -- acquisitions 138,609 --
- -- revaluation (R.D.L 7/96 Spain) 11,974 --
- -- disposals (53,504) 46,783
- -- depreciation -- (71,753)
- -- exchange differences (16,209) 7,620
- ---------------------------------------------------------------------------
Balance at December 31, 1996 1,048,545 (620,499)
===========================================================================
Medium and long-term loans are collateralized by mortgages (land and
buildings) and privileges (on plant and machinery) on tangible fixed assets.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
In addition, machinery of 40, purchased in accordance with Law 1329/65 (so-
called Sabatini law), is held under capital leases.
The following schedule details the various revaluation carried out on fixed
assets held by the Group at December 31, 1996:
- ----------------------------------------------------------------------------
Industrial
and
Land and Plant and Commercial Other
buildings machinery equipment assets (*) Total
- ----------------------------------------------------------------------------
Law no. 576 of
2.12.75 3,231 2,579 225 -- 6,035
Law no. 72 of
18.3.83 17,102 17,516 632 -- 35,250
Law no. 413 of
30.12.91 32,948 -- -- 512 33,460
- ----------------------------------------------------------------------------
53,281 20,095 857 512 74,745
============================================================================
(*) Industrial building concessions.
Financial assets
- ----------------
In associated companies
- -----------------------
The balance consist of the following:
- --------------------------------------------------------------------------
1995 1996
- --------------------------------------------------------------------------
Attivita' Industriali Friuli S.r.l 5,412 8,863
Avir Serapo S.r.l. 228 198
Nord Vetri S.p.A. 7,274 6,859
Sicilvetro S.p.A. 11,233 11,319
- --------------------------------------------------------------------------
24,147 27,239
==========================================================================
The change is due to the effect of the results of companies valued under the
equity method.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Other companies
- ---------------
The balance consists of the following:
- --------------------------------------------------------------------------
1995 1996
- --------------------------------------------------------------------------
Sanita S.p.A. (formerly Acque e Terme di
Bognanco S.p.A.) 800 250
CESI S.p.A. 16 16
Confidi Soc. Coop. a r.l 5 5
Consorzio nazionale obbligatorio per il riciclaggio
dei contenitori per liquidi in vetro
(compulsory national consortium for the recycling
of glass bottles) 35 35
Daniel Rosas S.A. -- 350
Vetrerie Venete S.p.A. 765 765
- --------------------------------------------------------------------------
1,621 1,421
==========================================================================
The changes relate to the acquisition of the investment in Daniel Rosas S.A.
and to the write-down of Sanita S.p.A. due to losses incurred.
The list of the above-mentioned investments valued under the equity method is
included in the Attachment 2, while the investments in other companies valued
at cost are listed in Attachment 3.
Loans receivable from third-parties
- -----------------------------------
- --------------------------------------------------------------------------
1995 1996
- --------------------------------------------------------------------------
Due within one year 257 --
Due after one year (guarantee deposits) 8,838 9,050
- --------------------------------------------------------------------------
9,095 9,050
==========================================================================
Receivables due after one year consist of the following:
Guarantee deposits on utilities' contracts 1,442
Term deposit due on March 31, 1998 7,358
Term deposit for V.A.T. credit collection 250
------
9,050
======
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
The term deposit due on March, 1998 relates to the Company and is connected to
the guarantee (principal and interest) provided by a primary Italian bank in
favor of Mediocredito Centrale for a loan; according to the contract, the
deposit will bear interest to the Company at the best market conditions and
eventually through other forms of investment designed to maximize earnings.
The year-end balance of 7,358 was used to purchase treasury certificates under
agreements to resell expiring on January 1, 1997 and has been renewed at
due-date.
Other securities
- ----------------
These are as follows:
- --------------------------------------------------------------------------
1995 1996
- --------------------------------------------------------------------------
Treasury certificates, issue date January 1, 1994,
expiring January 1998, interest 12.5% p.a. 260 260
Vetrerie Veneta S.p.A. debentures, expiring
July 1, 1999, variable interest rate credited
every six months on January 1 and July 1 600 --
- --------------------------------------------------------------------------
860 260
==========================================================================
The change is due to the redemption of Vetrerie Venete S.p.A. debentures.
6. Current assets
Inventories
- -----------
- ---------------------------------------------------------------------------
1995 1996
- ---------------------------------------------------------------------------
Raw materials and supplies 45,303 58,985
Work-in-progress and semi-finished products 5,563 3,236
Finished products and goods for resale 85,071 117,124
Advances 26 232
- ---------------------------------------------------------------------------
135,963 179,577
===========================================================================
The increase in inventories is due, for finished products, to sales decline
and, for raw materials and supplies, to a lower consumption because of
productive stops of some plants.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Inventories are valued using the LIFO method; had inventories been valued at
current costs their value in the consolidated financial statements would have
been higher by approximately 15,000. At December 31, 1995, the difference
would have amounted to 24,000.
Receivables from customers
- --------------------------
- ---------------------------------------------------------------------------
1995 1996
- ---------------------------------------------------------------------------
Due within one year 265,475 197,191
Provision for doubtful accounts (15,109) (8,269)
- ---------------------------------------------------------------------------
250,366 188,922
Due after one year 12,888 9,626
Provision for doubtful accounts (3,981) --
- ---------------------------------------------------------------------------
8,907 9,626
- ---------------------------------------------------------------------------
Total 259,273 198,548
===========================================================================
The decrease is related to the reduction in the volume of business.
Receivables from associated companies
- -------------------------------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Nord Vetri S.p.A. -- 703
Sicilvetro S.p.A. 293 380
- ----------------------------------------------------------------------------
293 1,083
============================================================================
The item relates to trade receivables due within one year.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Receivables from third-parties
- ------------------------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Due within one year
- -- State and public offices 11,129 8,659
- -- Personnel 364 333
- -- Debit balances with suppliers 10,671 9,481
- -- Other 2,912 4,245
- ----------------------------------------------------------------------------
25,076 22,718
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Due after one year:
- -- State and public offices 23,314 24,681
- -- Personnel 22 5
- -- Other 3,187 66
- ----------------------------------------------------------------------------
26,523 24,752
- ----------------------------------------------------------------------------
Total 51,599 47,470
============================================================================
Financial assets
- ----------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Other investments 6,569 4,215
============================================================================
The item relates to shares of Italian public companies valued at the lower of
cost or average market prices for the month of December 1996. The change is
principally related to the sale of 380,000 shares of STET.
Loans receivable from associated companies
- ------------------------------------------
- -----------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------
Due within one year
Avir Serapo S.r.l. -- 159
=============================================================================
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Loans receivable from third parties
- -----------------------------------
- -----------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------
Due within one year 178,231 112,432
=============================================================================
They mainly relate to treasury certificates purchased under agreement to
resell and to commercial papers.
Cash on hand and at bank
- ------------------------
- -----------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------
Bank and postal accounts 84,313 84,603
Checks -- 2
Cash on hand 198 122
- -----------------------------------------------------------------------------
84,511 84,727
=============================================================================
7. Prepaid expenses and accrued income
- -----------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------
Accrued income
Interest income 7,922 1,901
Other 117 187
- -----------------------------------------------------------------------------
8,039 2,088
- -----------------------------------------------------------------------------
Prepaid expenses
Interest expense and commissions 97 51
Rental, hiring and maintenance charges 60 70
Insurance premiums 130 148
Other items 470 287
- -----------------------------------------------------------------------------
757 556
- -----------------------------------------------------------------------------
Total 8,796 2,644
=============================================================================
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
8. Net equity
- -----------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------
Attributable to the Company
Share capital 22,092 20,995
Reserves 348,707 431,329
Net profit for the year 102,153 61,115
- -----------------------------------------------------------------------------
472,952 513,439
- -----------------------------------------------------------------------------
Attributable to minorities
Share capital and reserves 72,454 48,862
Net profit for the year 11,599 8,785
- -----------------------------------------------------------------------------
84,053 57,647
- -----------------------------------------------------------------------------
Total net equity 557,005 571,086
=============================================================================
At December 31, 1996 the share capital of the Company, issued and fully paid,
amounts to 20,995 and is made up of 41,989,240 shares with a nominal value of
five-hundred Lire each.
The Statutory financial statements at December 31, 1996 of the consolidated
companies include the following reserves with respect to which no deferred
income taxes have been provided for since their distribution is not expected:
- -- revaluation reserve of 53,659, net of 21,860 utilized for share capital
increases in prior years;
- -- investment grants and other reserves of 53,886.
In addition the following are included:
- -- other reserves of 19,472 which, in the event of distribution, would be
taxed at an additional rate of 15% and 13,825 at an additional rate of
56.25%.
The reconciliation between the financial statements of the Company and the
consolidated financial statements with respect to net equity and profit for
the year follows:
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
- ----------------------------------------------------------------------------
Capital
and
Net profit reserves
for the of the Consolidation Net
year Group reserve equity
- ----------------------------------------------------------------------------
Financial statements of
the Company at
December 31, 1996 58,425 337,050 -- 395,475
Net profit of other
consolidated companies,
net of minorities 15,700 -- -- 15,700
Consolidation adjustments:
- -- dividends recorded by
Group (19,584) -- 19,584 --
- -- valuation of equity
investments 6,574 -- 13,797 20,371
- -- difference between net
equity of consolidated
companies and relevant
net equity, net of
minorities -- -- 51,658 51,658
Other consolidation
adjustments -- -- 30,235 30,235
- ----------------------------------------------------------------------------
Consolidated financial
statements of the Company
at December 31, 1996 61,115 337,050 115,274 513,439
============================================================================
9. Risk and other provisions
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Deferred compensation 308 192
Income taxes 34,281 38,856
Other 19,724 48,403
- ----------------------------------------------------------------------------
54,313 87,451
============================================================================
The provision for deferred compensation includes agents' leaving indemnities.
Income taxes relates primarily to deferred taxes which have arisen due to
differences between financial reporting used for consolidation and tax
reporting methodologies relating to depreciation. The provision also includes
deferred taxes on gains on disposals of fixed assets and on prior year income
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
which will be subject to taxation in future years as well as the presumed tax
charges on outstanding positions and items under litigation.
Other provisions reflect principally the provision for foreign exchange
fluctuations which is calculated in accordance with the net difference on
receivables and payables denominated in foreign currencies valued at year-end
exchange rates as well as provisions for reorganization costs, incentivated
resignations from employees, and for possible future costs coming from the
investigation of the "Autorita Garante della Concorrenza e del Mercato"
(Antitrust Commission) which is currently in progress. In addition, there are
claims regarding the transportation companies utilized by the Group. In
particular regarding the inquiry of Antitrust Commission, in April 1996 the
Commission began an investigation on the principal producers of glass, to
establish whether an agreement had been reached to charge uniform prices to
customers, prohibited by Art. 2 of Law 287/90, at the time of renewing supply
contracts during 1996, for the supply and repurchase of packaging (pallets and
buffers).
The inquiry was pursued throughout all of 1996 and concluded on February 4,
1997. As a result of the inquiry the Commission expanded its investigation,
assuming a wider agreement against free market had been made and already
exists between the Company and the other Italian producers of glass. Although
this assumption will be contested by the Company in the courts the Company has
provided 15,980 for contingent liabilities both for different repurchase of
packaging prices and possible penalty. It is management's opinion that the
ultimate resolution of this matter will not have a material effect on the
financial statements as a whole.
Relating to contingent litigation from transportation companies, Italian
regulations, concerning free competition, do not comply with the corresponding
European regulations and, accordingly, Italian regulations are expected to be
modified in the near future. However, although at this moment it is very
difficult to evaluate the contingent liability, the Company, based on legal
advise, has provided 5,000 for this exposure. The Company intends to
vigorously defend any actions resulting from the Constitutional Court,
sentence 386 October 17, 1996 and November 5, 1996, relating to Art. 3 D.L.
29/3/93 82, concerning mandatory rules and regulations governing the
application of rates for transportation companies (tariffe a forcella). It is
management's opinion that the ultimate resolution of this matter will not have
a material effect on the financial statements as a whole.
10. Employees' termination indemnity
- --------------------------------------------------------------------------
Balance at December 31, 1995 57,385
Charge for the year 9,250
Utilization for indemnities paid (7,337)
- --------------------------------------------------------------------------
Balance at December 31, 1996 59,298
==========================================================================
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
The closing balance represents the amounts due to employees in accordance with
relevant legislation and labor contracts.
11. Payables
Bank overdrafts
- ---------------
Bank overdrafts are made up as follows:
- ---------------------------------------------------------------------------
1995 1996
- ---------------------------------------------------------------------------
Short-term 27,844 12,695
Long-term:
due within one year 18,421 18,022
due after one year 63,109 53,253
- ---------------------------------------------------------------------------
109,374 83,970
===========================================================================
Long-term loans relate to mortgage and other loans, whose changes during the
year were as follows:
Balance at December 31, 1995 81,530
New loans 8,166
Installments paid (18,421)
- ---------------------------------------------------------------------------
Balance at December 31, 1996 71,275
===========================================================================
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Detail of the long-term loans is as follows:
- ----------------------------------------------------------------------------
Maturity
- ----------------------------------------------------------------------------
Between
Within 1 and 5 After 5
1 year years years Total
- ----------------------------------------------------------------------------
BIMER-BANCA S.p.A. 1,333 2,667 -- 4,000
B.N.L. - Sezione di Credito
Industriale 766 -- -- 766
Cassa di Risparmio delle
Provincie Lombarde 1 3 1 5
Credito Industriale Sardo 425 1,334 567 2,326
Istituto Mobiliare Italiano 7,942 23,915 7,748 39,605
Mediocredito Centrale 3,297 11,539 -- 14,836
Mediocredito della Puglia 2,301 4,107 -- 6,408
Mediocredito Trentino Alto
Adige 187 550 -- 737
SFIRS 283 -- -- 283
Mediosud 1,485 824 -- 2,309
- ----------------------------------------------------------------------------
18,020 44,939 8,316 71,275
============================================================================
Interest rates vary between 4.05% and 14.55%.
Mortgage loans are collateralized by mortgages on land and buildings,
privileges on plant and machinery while the loan of 14,836 from Mediocredito
Centrale is collateralized by a bank guarantee.
Due to other financial institutions
- -----------------------------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Due within one year 1,101 6,242
Due after one year 30,296 33,427
- ----------------------------------------------------------------------------
31,397 39,669
============================================================================
At December 31, 1996 amounts due after one year include a loan to the
subsidiary Avirunion a.s. (21,926) and to Vidreria Rovira S.A. (7,149). Such
loans are repayable within 5 years.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Advances
- --------
- -----------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------
Due within one year 385 843
=============================================================================
Trade payables
- --------------
- -----------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------
Due within one year 182,416 180,796
=============================================================================
Notes payable
- -------------
- -----------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------
Due within one year 703 40
Due after one year 40 --
- -----------------------------------------------------------------------------
743 40
=============================================================================
Notes payable relate to principal and interest amounts in respect of loans
granted for the purchase of machinery in accordance with Law 170 of November
28, 1965; the amounts due are collateralized by the machinery acquired.
Due to associated companies:
- ---------------------------
- -----------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------
Nord Vetri S.p.A. - 15
Sicilvetro S.p.A. 25 2,310
- -----------------------------------------------------------------------------
25 2,325
=============================================================================
They relate to commercial transactions due within one year.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Due to fiscal authorities
- -------------------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Income taxes 76,839 26,773
Tax on net equity 2,646 2,096
Withholding taxes 6,416 4,698
Value-added taxes 2,560 161
Other 8,854 4,093
- ----------------------------------------------------------------------------
97,315 37,821
============================================================================
Due to social security
- ----------------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Due within one year 13,167 8,375
Due after one year 44 529
- ----------------------------------------------------------------------------
13,211 8,904
============================================================================
Amounts mainly relate to contributions matured at the end of the year and
payable to the relevant authorities within the following year.
Other payables
- --------------
Other payables due within one year are as follows:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Personnel 12,915 11,685
Directors and statutory auditors 631 1,183
Credit balances with customers 1,217 417
Other 1,305 2,729
- ----------------------------------------------------------------------------
16,068 16,014
============================================================================
Other payables due after one year, amounting to 315 at December 31, 1996
(1995: 537) relate mainly to guarantee deposits of tenants and interest
matured thereon.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
12. Accrued expenses and deferred income
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Accrued expenses
- -- holiday leave due to employees 3,411 3,127
- -- interest on loans 671 437
- -- insurance premiums 23 42
- -- other 624 715
- ----------------------------------------------------------------------------
4,729 4,321
============================================================================
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Deferred income
- -- interest grants 52 --
- -- investment grants 5,157 7,243
- -- rental charges 12 17
- -- other 329 187
- ----------------------------------------------------------------------------
5,550 7,447
- ----------------------------------------------------------------------------
10,279 11,768
============================================================================
In accordance with art. 55 of Presidential Decree 917/86, investment grants,
under the Law 308/82, 64/86 and 104/95, amounting to 7,243 will be credited to
profit and loss accounts over the next years as follows:
- ----------------------------------------------------------------------------
Between
Within one 1 and 5 After 5
year years years Total
- ----------------------------------------------------------------------------
Investment grants 1,322 4,604 1,317 7,243
============================================================================
Had the company credited such investment grants to net equity, net of fiscal
effect on taxable amount, net equity and profit of the year would have been
higher by 3.491 and lower by 619, respectively, net of fiscal effect.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
13. Memorandum accounts
Guarantees given by the Group
- -----------------------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Mortgages and privileges on fixed
assets of consolidated companies 83,787 71,275
Reservation of property, as per Law 1329/65
(Sabatini) on machinery of consolidated
companies 743 40
- ----------------------------------------------------------------------------
84,530 71,315
============================================================================
The amount of the guarantees corresponds to the amounts due on secured loans
still outstanding at year-end. For amounts in foreign currency the adjustment
to year end rates has been taken into consideration.
Other memorandum, commitments and contingency accounts
- ------------------------------------------------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Leasing installments 101 116
Contingencies -- 1,080
Commitments 3,800 5,385
- ----------------------------------------------------------------------------
3,901 6,581
============================================================================
Commitments are with respect of the obligation of the Company to repurchase,
on July 30, 1998, 4,552 shares of Avirunion a.s. (representing 7% of the share
capital) at the agreed-upon base price of 3,800; the commitment is secured by
a bank guarantee.
14. Profit and loss account
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Value of production 1,163,237 1,090,247
============================================================================
The following schedule shows the detail of revenues divided by category and
geographical area:
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
- ----------------------------------------------------------------------------
1996
Geographical Area
------------------------------- 1995
Italy Europe Total Total
- ----------------------------------------------------------------------------
Revenues from sales:
- -- glass containers 621,522 226,538 848,060 936,007
- -- glass household products 11,156 24,285 35,441 41,911
- -- glass insulators 10,800 13,326 24,126 25,639
- -- molds 116 160 276 613
- -- raw materials and supplies 108,883 16,804 125,687 137,592
- ----------------------------------------------------------------------------
752,477 281,113 1,033,590 1,141,762
- ----------------------------------------------------------------------------
Services rendered 2,446 5 2,451 9,112
- ----------------------------------------------------------------------------
754,923 281,118 1,036,041 1,150,874
============================================================================
Other revenues are made up as follows:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Revenues from properties 1,252 1,318
Gains on disposal of fixed assets 888 2,457
Indemnities received on damaged goods 209 1,241
Expenses recovered 4,705 3,481
Other 1,398 2,938
- ----------------------------------------------------------------------------
8,452 11,435
- ----------------------------------------------------------------------------
Contributions on operating expenses 144 171
- ----------------------------------------------------------------------------
8,596 11,606
============================================================================
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Cost of production 975,606 963,373
============================================================================
Costs for the purchase of raw materials, supplies and goods for resale are as
follows:
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Raw materials 181,490 174,094
Suppliers 214,373 198,380
Goods for resale 1,781 1,860
- ----------------------------------------------------------------------------
397,644 374,334
============================================================================
Costs for services received are as follows:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Purchased services 32,666 36,275
Energy 136,059 136,043
Other manufacturing services 31,964 29,891
Commercial services 75,751 63,746
Administrative services 8,526 10,126
- ----------------------------------------------------------------------------
284,966 276,081
============================================================================
Rental and leasing charges comprise:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Rentals 3,037 3,406
Leasing installments 54 35
- ----------------------------------------------------------------------------
3,091 3,441
============================================================================
Personnel costs are as follows:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Salaries and benefits 192,844 193,482
============================================================================
The amount includes wages and salaries, the year's charge with respect to
employees' termination indemnities, accrued holiday leave, social security
contributions arising from the application of labor contracts and current
legislation as well as other costs relating to canteen services and public
utility charges.
The average number of employees, divided by category, of the Group is as
follows:
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Managers 48 53
White collar employees 757 775
Intermediates 277 255
Blue collar workers 2,883 2,606
- ----------------------------------------------------------------------------
3,965 3,689
of which on temporary lay-off schemes 63 42
============================================================================
Depreciation and write-downs are as follows:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Amortization of intangible assets 2,682 2,652
Depreciation of tangible assets 69,734 71,753
Other write-downs of intangible assets 132 60
Charge to the provision for doubtful accounts 3,249 3,723
- ----------------------------------------------------------------------------
75,797 78,188
============================================================================
The charge to the provision for doubtful accounts was calculated to adjust the
nominal value of receivables to their net realizable value.
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Provision for risks 6,580 30,209
============================================================================
The charge has been already disclosed in "risk and other provision".
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Other provisions 677 193
============================================================================
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Other operating costs are as follows:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Tax on net equity 2,383 2,861
Municipal tax on building premises 1,100 1,131
Indirect duties and taxes 2,253 3,176
Membership fees 1,432 1,512
Emoluments to Directors and Statutory Auditors 3,335 3,306
Losses on disposal of fixed assets 2,258 2,182
Other 7,357 7,863
- ----------------------------------------------------------------------------
20,118 22,031
============================================================================
15. Financial income and expense
Financial income and expense is composed of the following:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Income from investments 116 1,545
Other financial income 26,158 21,181
Interest and other financial expense (22,534) (17,620)
- ----------------------------------------------------------------------------
3,740 5,106
============================================================================
They are made up as follows:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Income from investments
- -- dividends from other companies 115 1,545
============================================================================
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Other financial income
- -- interest on fixed-interest securities and
resale agreements (long-term) 116 49
- -- interest on fixed-interest securities and
resale agreements (short-term) 11,986 9,333
- -- interest on commercial paper transactions 870 1,551
- -- interest grants 462 640
- -- other interest income 7,351 8,727
- -- exchange gains 5,373 881
- ----------------------------------------------------------------------------
26,158 21,181
============================================================================
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Interest and other financial expense
- -- interest on mortgage loans 6,690 6,230
- -- interest on amount due to banks 527 395
- -- other interest expense 4,298 2,742
- -- discounts and other financial expense 6,394 3,955
- -- exchange losses 4,625 4,298
- ----------------------------------------------------------------------------
22,534 17,620
============================================================================
No interest charges were capitalized during the year.
16. Adjustment to the value of financial assets
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Revaluation of investments 8,645 6,606
Write-down of investments (961) (1,289)
- ----------------------------------------------------------------------------
7,684 5,317
============================================================================
The balance includes the Group's share of the year's results of companies
valued under the equity method.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
17. Extraordinary income and expense
They are as follows:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Extraordinary income 14,962 19,743
Extraordinary expense (6,782) (5,842)
- ----------------------------------------------------------------------------
8,180 13,901
============================================================================
Extraordinary income for 1995 and 1996 consists of:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Gains on disposals of fixed assets 1,361 8,573
Utilization of charges recorded in prior years 1,130 744
Portion of investment grants 639 1,322
Other extraordinary income and prior year income:
- -- indemnities received from suppliers of machinery 5,306 3,130
- -- indemnities received for thermic overprice -- 1,750
- -- indemnities received for flood damages 2,100
- -- other 4,426 4,224
- ----------------------------------------------------------------------------
14,962 19,743
============================================================================
Extraordinary expense for 1995 and 1996 is comprised of:
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Losses on disposals of fixed assets 1,647 644
Prior year income taxes 1,123 79
Incentives paid to leaving employees and related
contributions 62 921
Other extraordinary expenses and prior year expenses 3,950 4,198
- ----------------------------------------------------------------------------
6,782 5,842
============================================================================
1996 Extraordinary gains and losses are related to the disposal of land and
factories of the industrial plant of Livorno of the merged company Borma
S.p.A..
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
18. Income taxes
- ----------------------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------------------
Current and deferred taxes 93,483 81,298
============================================================================
They relate to the income taxes of each consolidated company and to the
deferred taxes mainly related to the elimination of accelerated depreciation.
19. Emoluments to directors and statutory auditors
Emoluments due to Directors and Statutory Auditors of the Company in respect
of similar functions carried out in other consolidated companies are as
follows:
- -- 1,996 for directors
- -- 166 for statutory auditors
The following schedules are attached to these notes to the consolidated
financial statements at December 31, 1996:
1. list of companies included in the consolidation with the full
consolidation method;
2. list of companies valued using the equity method;
3. list of companies valued at cost;
20. Differences between Italian GAAP and U.S. GAAP
The Group's accounting policies differ from accounting principles generally
accepted in the United States (hereafter "U.S. GAAP"). Differences which have
an effect on net profit and net equity are described below:
A. Revaluation of property -- Certain buildings were revalued to amounts in
excess of historical cost. These revaluations, which were either
authorized or required by Italian law, are permissible under Italian
accounting principles.
The total increase in tangible assets resulting from these revaluations
was credited to net equity. Assets revalued under Italian accounting
principles are depreciated over their remaining useful lives based on
their revalued basis. U.S. GAAP does not permit the revaluation of such
assets. Accordingly, the increase in net equity and the related increase
in depreciation expense occurring as a result of such revaluation have
been reversed for U.S. GAAP purposes.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
At December 31, 1996 net equities of the consolidated companies included
approximately 83,700 resulting from revaluations which occurred prior to
1993. Deferred tax liabilities on the taxable portion of such revaluation
reserve have not been provided. In accordance to SFAS 109 all revaluation
reserves that arose prior to 1993 are not required to recognize a deferred
tax liability. Should the Company had recorded deferred taxes it would
have been in the amount of approximately 42,000.
In addition, during 1996 the Spanish Companies made a revaluation on fixed
assets (Lire 11,974 million), authorized by Spanish law (R.D.L. 7/96).
For U.S GAAP purposes such revaluation has been reversed.
B. Depreciation on land -- Included in this adjustment is the reversal of
depreciation on land which is not permitted under U.S. GAAP.
C. Accounting for intangible assets and deferred charges -- The Group has
capitalized and deferred various costs which should be expensed under U.S.
GAAP. At December 31, 1996 these costs include research and development,
advertising expenses and certain other deferred charges.
D. Accounting for balances in foreign currencies -- The Group has certain
receivables and payables denominated in foreign currencies which are
recorded in the financial statements at the exchange rate prevailing at
the date of the transaction. Under U.S. GAAP, these balances are adjusted
at each balance sheet date using rates prevailing on the respective date
and both unrealized gains and losses are recognized. At each of the
balance sheet dates, the Group has recorded an adjustment only if an
unrealized loss resulted. Accordingly, the accompanying reconciliation
includes adjustments to recognize the unrealized gains.
E. Accounting for Government Grants -- The Group has received a number of
government grants for primarily investments in tangible assets. The Group
has accounted for these grants as either a direct credit to net equity or
as deferred revenue recognized over five to ten years based on the
prevailing Italian regulations and accounting principles at the time of
the grant. Under U.S. GAAP, all such grants would be deferred and
recognized through income over the estimated useful life of the related
assets.
F. Investments in Equity Securities -- During 1995 and 1996, the Group
invested in the equity securities of several Italian publicly traded
companies. At December 31, 1995 and 1996, the Group has adjusted the
carrying value of these investments to the current market value with the
resulting charge being recorded in the income statement. Under SFAS 115,
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
these investments would be considered available-for-sale securities and
the unrealized gains and losses would be recorded as a separate component
of net equity, net of the related deferred taxes.
G. Accounting for income taxes -- The Group has recorded deferred taxes
following the accounting principles in those countries in which it
operates. The deferred taxes recorded substantially all relate to
differences in the basis of tangible assets for income tax and financial
reporting purposes. The accompanying reconciliation includes the effect
of establishing deferred tax assets and liabilities in accordance with
SFAS 109 and the related change in the provision for income taxes. These
changes relate primarily to: (1) establishing deferred tax assets for
provisions for inventory, accounts receivable and plant shutdowns which
are not yet deductible for tax purposes; (2) establishing deferred tax
liabilities for government grants received after 1992 and undistributed
earnings of domestic subsidiaries after 1992 which are not taxable until
distributed; and (3) establishing deferred tax assets and liabilities on
the U.S. GAAP adjustments.
H. Cash Flow Statement -- The cash flow statement presented by the Group
differs from that of a statement of cash flows under U.S. GAAP primarily
in the definition of cash, classification of cash flows and gross versus
net reporting. Italian GAAP considers current financial debtors and
current financial creditors as a component of cash, while U.S. GAAP
classifies these items as operating activities. In addition, Italian GAAP
presents dividends paid and other movements as a separate cash flows,
while U.S. GAAP provides for dividends paid to be presented as financing
activities and other movements as either operating, investing or
financing, depending on the type of cash flow.
I. Extraordinary items: Italian GAAP for identifying extraordinary items
differ from those under U.S. GAAP. Items recorded by Avir as
extraordinary in 1996 and 1995 would not classify as extraordinary under
U.S. GAAP.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
The following table reconciles net equity of December 31, 1995 and 1996
between Italian GAAP and U.S. GAAP:
Dec 31, 1995 Dec 31, 1996
------------ ------------
Net equity as reported in the Italian
consolidated financial statements 472,952 513,439
A. Elimination of revaluation of property,
net of related accumulated depreciation (31,441) (27,387)
Elimination of revaluation (Spain) -- (11,974)
B. Reversal of accumulated depreciation on land 2,846 3,155
C. Write-off of certain intangible assets and
deferred charges, net of accumulated
amortization (341) (348)
D. Unrealized foreign exchange gains 1,737 --
E. Deferral of the recognition of government
grants (unamortized portion) (6,554) (4,013)
G. Recognition of deferred taxes under FAS 109
-- net deferred income taxes on provisions
(for inventory, accounts receivable, plant
shutdowns, etc) which are not yet
deductible for tax purposes 7,258 14,815
-- deferred tax liabilities on the
undistributed earnings of domestic
subsidiaries and Government grants
received after 1992 (4,791) (5,061)
-- net deferred income taxes on U.S. GAAP
adjustments 17,957 15,211
------- --------
Net equity in accordance with U.S. GAAP 459,623 497,837
======= ========
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir S.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
The following table reconciles net profit for the year ended December 31, 1995
and 1996 between Italian GAAP and U.S. GAAP:
1995 1996
------- -------
Net income as reported in the Italian consolidated
financial statements 102,153 61,115
A. Reversal of depreciation related to
revaluation of property 2,302 4,054
B. Reversal of depreciation of land 566 309
C. Write-off of certain intangible assets and
deferred charges, net of amortization expense 180 (7)
D. Unrealized foreign exchange gains 363 (1,737)
E. Recognition of government grants 3,023 3,310
F. Reversal of amounts recognized for the change
in fair market value of investments in
equity securities 941 706
G. Recognition of deferred taxes under FAS 109:
-- net deferred income taxes on provision (for
inventory, accounts receivable, plant
shutdowns, etc.) which are not yet
deductible for tax purposes 342 7,558
-- deferred tax liabilities on undistributed
earnings of domestic subsidiaries and government
grants received after 1992 (118) --
-- net deferred income taxes on U.S. GAAP
adjustments (3,923) (3,529)
------- -------
Net profit in accordance with U.S. GAAP 105,829 71,779
======= =======
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir A.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
<TABLE>
Attachment 1)
Page 1 of 2
LIST OF FULLY CONSOLDIATED COMPANIES
- ------------------------------------------------------------------------------------------------------------
Name Registered Share % Held by
(activity) Office Capital Ownership
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Parent company:
AVIR S.p.A.
- ------------------------------------------------------------------------------------------------------------
Companies controlled directly or indirectly
- ------------------------------------------------------------------------------------------------------------
AVIRUNION a.s.
(glass manufacturing) Dubi U Teplic Kcs 650,340,000 93.000(*) AVIR
(Czech Rep) (*) 7% for
usufruct
- ------------------------------------------------------------------------------------------------------------
BORMA INTERNATIONAL Ltd.
(commercial company) London GBP 10,000 100.000 AVIR
(Great Britain)
- ------------------------------------------------------------------------------------------------------------
CRISBISBAL S.A.
(glass manufacturing) Castellbisbal ESP 1,220,690,000 99.984 VIDRIERIA
(Barcelona - Spain) ROVIRA
- ------------------------------------------------------------------------------------------------------------
KAOLINIFERAS DEL TURIA S.A.
(extraction industry) Villar Del Arzo Bispo ESP 71,300,000 99.860 VIDRIERIA
(VALENCIA - SPAIN) ROVIRA
- ------------------------------------------------------------------------------------------------------------
P.S.C. - Pegaso
Services and Consulting S.A. Lugano (Swiss) CHF 200,000 100.000 SONATOR
INVESTMENTS
- ------------------------------------------------------------------------------------------------------------
SAN DOMENICO VETRARIA S.r.l.
(glass manufacturing) Ottaviano (NA) Lit. 5,000,000,000 56.936 AVIR
- ------------------------------------------------------------------------------------------------------------
SONATOR INVESTMENTS B.V.
(investment company) Amsterdam NLG 20,526,500 100.000 AVIR
(Holland)
- ------------------------------------------------------------------------------------------------------------
TRASVE S.r.l.
(services company) Corsico (MI) Lit. 50,000,000 100.000 AVIR
- ------------------------------------------------------------------------------------------------------------
VETRERIA MERIDIONALI S.p.A.
(glass manufacturing) Castellana Grotte (BA) Lit. 2,200,000,000 50.000 AVIR
- ------------------------------------------------------------------------------------------------------------
VEBAR S.p.A.
(glass manufacturing-inactive) Naples Lit. 2,010,000,000 100.000 AVIR
- ------------------------------------------------------------------------------------------------------------
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir A.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
Attachment 1)
Page 2 of 2
LIST OF FULLY CONSOLDIATED COMPANIES
- ------------------------------------------------------------------------------------------------------------
VIDRIERIA ROVIRA S.A. SONATOR
(glass manufacturing) Barcelona (Spain) ESP 2,636,541,360 62.415 INVESTMENTS
- ------------------------------------------------------------------------------------------------------------
ZANOTTI VETRO S.r.l.
(re-working glass scrap) Tortona (AL) Lit. 2,000,000,000 52.000 AVIR
- ------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Avir A.p.A.
Millions of Italian Lire, except as otherwise indicated
December 31, 1996 and 1995
- --------------------------
<TABLE>
Attachment 2)
LIST OF COMPANIES VALUED UNDER THE EQUITY METHOD
- ------------------------------------------------------------------------------------------------------------
Name Registered Share % Held by
(activity) Office Capital Ownership
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
ATTIVITA' INDUSTRIALI
FRIULI S.r.l. San Vito al
(glass manufacturing) Tagliamento (PN) Lit. 1,000,000,000 49.000 AVIR
- ------------------------------------------------------------------------------------------------------------
AVIR SERAPO S.r.l.
(real estate-non operating) Desio (MI) Lit. 600,000,000 50.000 AVIR
- ------------------------------------------------------------------------------------------------------------
NORD VETRI S.p.A.
(glass manufacturing) Pergine Lit. 3,000,000,000 48.450 AVIR
Valsugana (TN)
- ------------------------------------------------------------------------------------------------------------
SICILVETRO S.p.A.
(glass manufacturing) Marsala (TP) Lit. 3,400,000,000 50.000 AVIR
- ------------------------------------------------------------------------------------------------------------
Attachment 3)
LIST OF COMPANIES VALUED AT COST
- ------------------------------------------------------------------------------------------------------------
Name Registered Share % Held by
(activity) Office Capital Ownership
- ------------------------------------------------------------------------------------------------------------
CESI CENTRO ELETTROTECNICO
SPERIMENTALE ITALIANO
GIACINTO MOTTA S.p.A.
(experimental electronic centre) Milano Lit. 16,000,000,000 (x) AVIR
- ------------------------------------------------------------------------------------------------------------
CONFIDI SOC. COOP a.r.l.
(finance company) Trento Lit. 4,338,100,000 (x) AVIR
- ------------------------------------------------------------------------------------------------------------
CONSORZIO NAZIONALE
OBBLIGATORIO PER IL Societa
RICICLAGGIO DEI CONTENITORI industriali
PER LIQUIDI IN VETRO vetrarie
(collection and recycling of glass italiane
containers - Law 475/88) Roma Lit. 110,000,000 (x) consolidate
- ------------------------------------------------------------------------------------------------------------
DANIEL ROSAS S.A.
(re-working of glass scrap) Barcelona ESP 10,000,000 10.00 Vidreria
Rovira
- ------------------------------------------------------------------------------------------------------------
SANITA' S.p.A. Frosinone Lit.191,387,052,000 (x) Vetrerie
Meridionali
- ------------------------------------------------------------------------------------------------------------
VETRERIE VENETE S.p.A.
(glass manufacturing) Verona Lit. 5,000,000,000 15.30 AVIR
- ------------------------------------------------------------------------------------------------------------
(x) not significant
</TABLE>
48
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
Avirunion, a.s.
We have audited the accompanying balance sheet of Avirunion, a.s. as of
December 31, 1996, and the related statements of income, cash flows, and
changes in shareholders' equity for the year then ended. These financial
statements are the responsibility of Avirunion, a.s. management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the Czech Republic, which standards are substantially equivalent
to auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Avirunion, a.s. as of
December 31, 1996, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles in the Czech Republic.
KPMG Ceska republika Audit, spol. S.r.o.
Prague, Czech Republic
February 17, 1997
49
<PAGE>
AUDIT REPORT ON THE ANNUAL ACCOUNTS
To the shareholders of
VIDRIERIA ROVIRA, S.A.
1. We have audited the consolidated annual accounts of VIDRIERIA ROVIRA, S.A.
and SUBSIDIARY COMPANIES (hereafter the Group) which comprise the
consolidated balance sheet at 28 December, 1996, the consolidated profit
and loss account and the notes to the consolidated annual accounts for the
year then ended, the preparation of which is the responsibility of the
directors of VIDRIERIA ROVIRA, S.A. Our responsibility is to express an
opinion on the aforementioned annual accounts as a whole, based upon the
audit work carried out. We conducted our audit in accordance with auditing
standards which are generally accepted in Spain, which standards are
substantially equivalent to auditing standards in the United States of
America; these require an examination, by carrying out selective tests, of
the evidence supporting the annual accounts and an evaluation of their
presentation, of the accounting principles applied and of the estimates
made.
2. In accordance with the commercial legislation, the directors present, as
well as the figures for 1996, the prior year comparative figures for each
of the classifications appearing in the balance sheet and the profit and
loss account. Our opinion is expressed exclusively on the 1996
consolidated annual accounts. On 2 April, 1996, we issued our audit
report on the 1995 consolidated annual accounts in which we expressed an
unqualified opinion.
3. At 28 December, 1996, some of the companies of the Group have taken
advantage of the provisions of the Royal Decree Law 7/96 and re-valued
certain balance sheet items. The effects of this revaluation, which are
included in the attached consolidated annual accounts, are explained in
notes 4 and 6 to the consolidated annual accounts.
4. In our opinion the attached 1996 consolidated annual accounts present, for
all the significant aspects, a true and fair view of the shareholders'
funds and the financial situation of VIDRIERIA ROVIRA, S.A. and
SUBSIDIARY COMPANIES at 28 December, 1996 and of the results of its
operations during the year then ended. They contain that information
which is both sufficient and necessary for their adequate interpretation
and comprehension, in accordance with generally accepted accounting
principles which have been applied on a consistent basis with the prior
year.
50
<PAGE>
5. The attached report of the directors for 1996 contains that information
considered relevant by the directors of VIDRIERIA ROVIRA, S.A. concerning
the situation of the Group, the development of its business and other
matters and does not form an integral part of the consolidated annual
accounts. We have verified that the accounting information contained in
the aforementioned report of the directors is consistent with that of the
1996 consolidated annual accounts. Our work as auditors is limited to
verifying the report of the directors in accordance with the scope
mentioned in this paragraph and does not include the review of information
other than that which has been obtained from the accounting records of the
Company.
AUDIHISPANA
/s/Alberto Ribas
-----------------
Alberto Ribas
Partner
Barcelona, 5 February, 1997
51
<PAGE>
Item 7(b) PRO FORMA FINANCIAL STATEMENTS
The following pro forma condensed consolidated balance sheet and pro forma
condensed consolidated statement of operations depict the effects of the
acquisition of 100% of Avir Finanziaria S.p.A. ("AVIR") and the related
financing. For purposes of the pro forma condensed consolidated balance
sheet, the transaction is assumed to have occurred on December 31, 1996,
whereas for purposes of the pro forma condensed consolidated statement of
operations, the transaction is assumed to have occurred on January 1, 1996.
The pro forma financial statements do not purport to represent what Owens-
Illinois, Inc.'s ("Company") financial position or results of operations would
actually have been if all of the above transactions had actually occurred on
the dates indicated, or to project the Company's financial position or results
of operations for any future period or date.
Acquisition of AVIR
- -------------------
On December 16, 1996, the Company announced that it completed a definitive
agreement to purchase a controlling interest of approximately 76% in AVIR, the
largest manufacturer of glass containers in Italy. AVIR is based in Milan,
Italy and its shares are traded on the Milan Stock Exchange. Approximately
21% of the shares are publicly held, with the remaining shares controlled by
Dr. Natale Maderna, AVIR chairman, and members of the Maderna and Ricciardi
families. On February 3, 1997, the Company completed the acquisition of a 79%
controlling interest. In addition to acquiring this controlling interest, the
Company will also initiate a tender offer for the 21% of the shares of AVIR
that are publicly held. Assuming an exchange rate of 1,536.00 Italian Lire
per U.S. dollar at the purchase date, total consideration for 100% of the AVIR
shares is expected to be approximately $582 million.
The acquisition is being accounted for under the purchase method of account-
ing. The total purchase cost of approximately $582 million will be allocated
to the tangible and identifiable intangible assets and liabilities of AVIR
based upon their respective fair values. Such allocations will be based upon
valuation and studies that have not been finalized. Accordingly, the alloca-
tion of the purchase cost included in the accompanying pro forma condensed
consolidated balance sheet is preliminary and, among other things, no alloca-
tion has been made to property, plant, and equipment. The unallocated excess
of purchase cost over net assets acquired is being amortized over 30 years in
the pro forma condensed consolidated statement of operations. Such period is
an estimate of the average life of the tangible and intangible assets to which
the excess purchase cost will be assigned.
1
<PAGE>
Owens-Illinois, Inc.
Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 1996
(Millions of Dollars)
AVIR
Consolidation Purchase
of AVIR Accounting Adjusted
Historical and Financing Company
Historical Amounts (1) Adjustments (2) Pro Forma
Assets ---------- ------------- --------------- ---------
Current assets:
Cash and short
term investments $ 175.3 $131.2 $ 306.5
Receivables, net 488.8 124.9 613.7
Inventories 494.6 116.9 $ 9.8 621.3
Prepaid expenses 126.4 15.3 141.7
Total current -------- ------ ------- --------
assets 1,285.1 388.3 9.8 1,683.2
Investments and other
assets 1,250.6 48.7 (440.1) 859.2
Prepaid pension 624.5 624.5
Excess of purchase cost
over net assets
acquired 1,003.5 .4 252.3 1,256.2
Property, plant, and
equipment, net 1,941.6 254.4 2,196.0
-------- ------ ------- --------
Total assets $6,105.3 $691.8 $(178.0) $6,619.1
======== ====== ======= ========
Liabilities and
Share owners' Equity
Current liabilities:
Short-term loans and
long-term debt due
within one year $ 141.5 $ 24.1 $ 165.6
Accounts payable
and other
liabilities 763.4 194.6 958.0
Total current -------- ------ --------
liabilities 904.9 218.7 1,123.6
Long-term debt 3,253.2 56.4 $ 141.8 3,451.4
Deferred taxes and
other liabilities 1,022.8 56.0 4.4 1,083.2
Minority share owners'
interests 194.7 36.5 231.2
Share owners' equity 729.7 324.2 (324.2) 729.7
Total liabilities -------- ------ ------- --------
and share owners'
equity $6,105.3 $691.8 $(178.0) $6,619.1
======== ====== ======= ========
See accompanying Notes to Pro Forma Condensed Consolidated Balance Sheet.
2
<PAGE>
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(1) AVIR Historical Amounts -- Represents the historical carrying value of
AVIR's assets and liabilities prior to purchase accounting adjustments.
The translation into U. S. dollars has been made using the exchange rate
of 1,536.00 Italian Lire per U. S. dollar.
(2) Acquisition and Financing Adjustments -- The initial escrow funding of
$440.1 million has been eliminated from investments and other assets as
reflected in the Company's December 31, 1996 balance sheet, and long-
term debt has been increased by $141.8 million representing the amount
paid in February 1997 for an approximate additional 3% interest in AVIR
and the estimated amount required to complete the tender offer for the
remaining 21% of AVIR. The excess of purchase cost over the historical
value of the net assets acquired is $252.3 million. Such excess will be
allocated based upon the fair value of the assets and liabilities of
AVIR, the determination of which has not been completed. Therefore, the
amounts reflected are preliminary estimates and subject to further
refinement upon final determination of the detailed allocation of the
AVIR purchase cost.
3
<PAGE>
Owens-Illinois, Inc.
Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1996
(Millions of Dollars, except per share amounts)
AVIR
AVIR Purchase
Historical Accounting Adjusted
Results of and Financing Company
Historical Operations (1) Adjustments (2) Pro Forma
---------- -------------- --------------- ---------
Revenues:
Net Sales $3,845.7 $594.4 $4,440.1
Other 130.5 38.0 168.5
-------- ------ --------
3,976.2 632.4 4,608.6
Costs and expenses:
Manufacturing,
shipping, and
delivery 3,025.6 455.5 3,481.1
Research, engineering,
selling, and
administrative 245.3 37.5 282.8
Interest 302.6 11.5 $ 37.2 351.3
Other 78.6 25.0 8.4 112.0
-------- ------ ------ --------
3,652.1 529.5 45.6 4,227.2
-------- ------ ------ --------
Earnings (loss) before
income taxes and
minority share owners'
interests 324.1 102.9 (45.6) 381.4
Provision (credit) for
income taxes 104.9 50.2 (14.2) 140.9
Minority share owners'
interests 28.1 6.0 34.1
-------- ------ ------ --------
Net earnings (loss) $ 191.1 $ 46.7 $(31.4) $ 206.4
======== ====== ====== ========
Net earnings per share
of common stock $ 1.58 $ 1.70
======== ========
Average shares
outstanding
(thousands) 120,276 120,276
======= =======
See accompanying Notes to Pro Forma
Condensed Consolidated Statement of Operations.
4
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(1) Consolidation of AVIR Historical Results -- Reflects the actual results
of operations for AVIR based on historical costs for the year ended
December 31, 1996 prior to purchase accounting adjustments and the
effects of the related financing. The translation into U. S. dollars
has been made using the average rate for the year ended December 31,
1996 of 1,537.41 Italian Lire per U. S. dollar.
Financing for the acquisition has been assumed to be provided by
additional borrowings under the Company's Bank Credit Agreement which
was amended in November 1996. Interest is based on average rates in
effect under the Company's Bank Credit Agreement during the period. In
the event any portion of the acquisition is financed or refinanced with
borrowings from sources other than under the Company's Bank Credit
Agreement, the incremental interest cost may be higher than that shown
in the pro forma condensed consolidated statements of operations.
(2) AVIR Purchase Accounting and Financing Adjustments -- Includes the
following increases (decreases) in earnings:
Year
ended
December 31,
1996
------------
(Millions of Dollars)
Incremental interest cost assuming the
financing related to the acquisition
occurred on January 1, 1996 $(37.2)
Amortization of the unallocated excess
of purchase cost over net assets
acquired over 30 years (8.4)
------
(45.6)
Tax benefits related to the incremental
interest cost, at incremental U. S.
statutory rates 14.2
------
$(31.4)
======
5
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in the registration statement (No. 333-25175) on Form S-3 of Owens-
Illinois, Inc., in the registration statement (No. 33-57139) on Form S-8 of
Owens-Illinois, Inc. Stock Purchase and Savings Plan, Non-Union Retirement and
Savings Plan, Supplemental Retirement Plan and Long-Term Savings Plan, in the
registration statement (No. 33-44252) on Form S-8 pertaining to the Stock
Option Plan for Key Employees of Owens-Illinois, Inc., in the registration
statement (No. 33-57141) on Form S-8 pertaining to the Stock Option Plan for
Directors of Owens-Illinois, Inc. of our report dated March 28, 1997, with
respect to the consolidated financial statements of AVIR S.p.A. as of and for
the year ended December 31, 1996, which report appears in the Form 8-K/A of
Owens-Illinois, Inc. dated May 9, 1997.
ARTHUR ANDERSEN S.p.A.
Milan, Italy
May 9, 1997
<PAGE>
Exhibit 23.2
Consent Of Independent Auditors
The Board of Directors
Avirunion, a.s.:
We consent to the incorporation by reference in the following registration
statements of our report dated February 17, 1997, with respect to the
financial statements of Avirunion, a.s. as of and for the year ended December
31, 1996, which report appears in the Form 8-K/A of Owens-Illinois, Inc. dated
May 9, 1997.
Registration
Name Form Number
---- ---- ------
Owens-Illinois, Inc. S-3 333-25175
Owens-Illinois, Inc. Stock Purchase and Savings
Plan, Non-Union Retirement and Savings Plan,
Supplemental Retirement Plan and Long-Term
Savings Plan S-8 33-57139
Stock Option Plan for Key Employees of Owens-
Illinois, Inc. S-8 33-44252
Stock Option Plan for Directors of Owens-
Illinois, Inc. S-8 33-57141
KPMG Ceska republika Audit, spol. S.r.o.
Prague, Czech Republic
May 9, 1997
<PAGE>
Exhibit 23.3
Consent of AUDIHISPANA
----------------------
We consent to the incorporation by reference in the registration statement
(No. 333-25175) on Form S-3 of Owens-Illinois, Inc., in the registration
statement (No. 33-57139) on Form S-8 of Owens-Illinois, Inc. Stock Purchase
and Savings Plan, Non-Union Retirement and Savings Plan, Supplemental
Retirement Plan and Long-Term Savings Plan, in the registration statement (No.
33-44252) on Form S-8 pertaining to the Stock Option Plan for Key Employees of
Owens-Illinois, Inc., in the registration statement (No. 33-57141) on Form S-8
pertaining to the Stock Option Plan for Directors of Owens-Illinois, Inc. of
our report dated 5 February, 1997 with respect to the consolidated financial
statements of Vidrieria Rovira, S.A. as of and for the year ended 28 December,
1996, which report appears in the Form 8-K/A of Owens-Illinois, Inc. dated
May 9, 1997.
AUDIHISPANA
/s/ Alberto Ribas
-----------------
Alberto Ribas
Partner
Barcelona, 9 May, 1997
