<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): OCTOBER 30, 1997
FLEXTRONICS INTERNATIONAL LTD.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
SINGAPORE
--------------------------------------------
(State or Other Jurisdiction of
Incorporation)
0-23354 NOT APPLICABLE
- ---------------------- --------------------
(Commission (IRS Employer
File Number) Identification
No.)
514 CHAI CHEE LANE, #04-13, BEDOK INDUSTRIAL ESTATE, SINGAPORE 469029
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(65) 449-5255
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
This report on Form 8-K/A-1 supplements the report on Form 8-K filed
with the Securities and Exchange Commission on November 10, 1997 by Flextronics
International Ltd. (the "Company") to report its acquisition of 92% of the
outstanding capital stock of Neutronics Electronic Industries Holding A.G.
("Neutronics") in exchange for 2,806,000 shares of the Company's ordinary
shares.
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The following financial statements are filed herewith:
2
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
The Management and Supervisory Boards and Shareholders of NEUTRONICS ELECTRONIC
INDUSTRIES HOLDING A.G.
Gutheil-Schodergasse 10
A-1102 Wien
Austria
We have audited the accompanying consolidated balance sheets of Neutronics
Electronic Industries Holding A.G. and its subsidiaries (the "Group") as at
December 31, 1996, 1995 and 1994 and the related consolidated statements of
operations and retained earnings, and cash flows for the periods then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with International Standards on Auditing
established by the International Federation of Accountants Committee (IFAC).
Those standards require that we plan and perform the audit to obtain reasonable
assurances about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly in all
material respects the financial position of the Group as at December 31, 1996,
1995 and 1994, and the results of its operations and its cash flows for the
periods then ended and have been properly prepared in conformity with Austrian
Generally Accepted Accounting Principles ("Austrian GAAP"), and as far as the
consolidated financial statement schedules are concerned, make proper disclosure
in conformity with United States Generally Accepted Principles ("US GAAP").
Furthermore, the reconciliation from Austrian to US GAAP of consolidated net
income and shareholders' equity as set out in note 2 of the consolidated
financial statements has been properly prepared.
Moore Stephens
Registered Auditors
St. Paul's House
Warwick Lane
London EC4P 4BN
October 17, 1997
3
<PAGE> 4
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION)
------------------------------------------------------- TO DECEMBER 31,
NOTE 1996 1996 1995 1994
---- --------- -------- -------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues .......................... $ 128,645 ATS 1,583,754 ATS 1,241,447 ATS 620,959
Increase (decrease) in
inventories of
finished goods
and work in process.............. 67 830 13,247 (5,992)
Other capitalized
costs............................ 2,145 26,412 5,549 1,439
Other operating
income........................... 4 1,357 16,705 245 7,381
Cost of materials ................. (86,868) (1,069,442) (723,592) (390,118)
Personnel expenses ................ 5 (23,255) (286,300) (295,508) (126,605)
Amortization of
intangible ssets and
depreciation of
non-current assets............... 6 (3,910) (48,144) (32,506) (11,550)
Other operating expenses........... 7 (12,972) (159,698) (188,258) (97,917)
Financial result, net.............. 9 (1,563) (19,236) (11,538) (34)
--------- -------- -------- ----------
NET INCOME (LOSS).................. $ 3,646 ATS 44,881 ATS 9,086 ATS (2,437)
========= ========== ========= ==========
Income applicable to
Neutronics ...................... 3,618 44,531 8,916 (3,006)
Income applicable to
minority interest................ 28 350 170 569
-------- ---------- --------- ----------
NET INCOME (LOSS).................. $ 3,646 ATS 44,881 ATS 9,086 ATS (2,437)
======== ========== ========= ==========
EARNINGS (LOSS) PER
SHARE ........................... $ 2.26 ATS 27.83 ATS 5.57 ATS (1.88)
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------
NOTE 1996 1996 1995 1994
---- ------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
NON-CURRENT ASSETS
Initial contract costs 11 $ 1,462 ATS 18,000 ATS -- ATS --
Intangible assets .......... 12 1,912 23,535 25,044 21,757
Property, plant and
equipment ................. 13 34,229 421,392 315,709 243,687
Financial assets ........... 14 1,063 13,082 44,243 9,100
------- ----------- ----------- -----------
38,666 476,009 384,996 274,544
------- ----------- ----------- -----------
CURRENT ASSETS
Inventories ................ 15 15,654 192,713 134,023 133,618
Receivables and other assets 16 19,416 239,031 223,830 235,192
Cash and cash equivalents .. 453 5,574 21,161 80,768
------- ----------- ----------- -----------
35,523 437,318 379,014 449,578
------- ----------- ----------- -----------
Prepaid expenses ........... 954 11,739 5,992 11,202
------- ----------- ----------- -----------
TOTAL ASSETS ............... $75,143 ATS 925,066 ATS 770,002 ATS 735,324
======= =========== =========== ===========
SHAREHOLDERS' EQUITY AND
LIABILITIES
SHAREHOLDERS' EQUITY 18
Share capital .............. $ 6,498 ATS 80,000 ATS 80,000 ATS 80,000
Capital reserves ........... 3,249 40,000 40,000 40,000
Retained earnings .......... 4,094 50,397 5,866 (3,006)
Minority interests ......... 215 2,645 5,860 7,021
------- ----------- ----------- ----------
14,056 173,042 131,726 124,015
------- ----------- ----------- ---------
PROVISIONS
Provision for severance 8 3,025 37,244 36,527 35,205
costs.....................
Other provisions........... 19 5,987 73,704 70,741 77,522
------- ----------- ----------- ----------
9,012 110,948 107,268 112,727
------- ----------- ----------- ----------
LIABILITIES
Accounts payable trade ..... 20 21,385 263,257 172,220 184,763
Other liabilities .......... 21 28,824 354,851 355,112 311,868
------- ----------- ----------- -----------
50,209 618,108 527,332 496,631
Deferred income ............ 22 1,866 22,968 3,676 1,951
------- ----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY
AND LIABILITIES ........... $75,143 ATS 925,066 ATS 770,002 ATS 735,324
======= =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
JULY 1, 1994
(INCEPTION)
YEAR ENDED DECEMBER 31, TO DECEMBER 31,
-------------------------------- --------------
1996 1996 1995 1994
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ............ $ 3,646 ATS 44,881 ATS 9,086 ATS (2,437)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization .............. 3,911 48,144 32,506 11,550
Amortization of employee
related provisions ........ (711) (8,755) (9,489) (5,896)
Loss (gain) on sale of
non-current assets ....... 215 2,644 383 (186)
Gain on sale of subsidiary . (882) (10,864) -- --
Capitalization of initial
contract costs ............ (1,949) (24,000) -- --
Share of loss in associated
company ................... 93 1,150 -- --
Changes in assets and
liabilities net of effects
from purchase and disposal
of subsidiaries:
(Increase) decrease in
receivables and other
assets .................. (2,334) (28,736) 83 (91,827)
(Increase) decrease in
prepaid expenses ......... (627) (7,714) 5,210 (11,148)
Increase in inventories .... (4,863) (59,864) (403) (111,683)
Increase (decrease) in
liabilities and
provisions ............... 8,821 108,613 (229) 192,851
Increase in deferred
income ................... 1,600 19,700 1,725 20
Other adjustments ............. (110) (1,358) (62) (32)
------- ---------- ---------- -----------
NET CASH PROVIDED BY
(USED FOR) OPERATING
ACTIVITIES .................. $ 6,810 ATS 83,841 ATS 38,810 ATS (18,788)
======= ========== ========== ===========
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of financial assets .. (121) (1,489) (35,143) (9,100)
Purchase of property, plant
and equipment ................ (9,037) (111,256) (77,702) (156,679)
Purchase of intangible assets . (183) (2,254) (6,455) (1,291)
Proceeds from disposal of
non-current assets ........... 3,446 42,425 4,055 433
Purchase of subsidiaries, net
of cash acquired ............. -- -- -- 32,292
Proceeds from disposal of
subsidiaries, net of cash
disposed of .................. 870 10,706 -- --
------- ---------- ---------- -----------
NET CASH USED FOR INVESTING
ACTIVITIES ................... $(5,025) ATS (61,868) ATS (115,245) ATS (134,345)
------- ---------- ---------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in borrowings
under line of credit
agreements ................... 984 12,108 64,775 21,596
Proceeds from long term
borrowings ................... 4,735 58,298 36,418 102,177
Payments on long term
borrowings and capital
leases ....................... (4,839) (59,576) (12,557) (9,573)
Proceeds from related company
financing ................... -- -- -- 119,201
Payments on related company
financing .................... (3,931) (48,390) (70,811) --
Dividends paid to minority
interests .................... -- -- (997) --
------- ---------- ---------- -----------
NET CASH (USED FOR)
PROVIDED BY FINANCING
ACTIVITIES ................... $(3,051) ATS (37,560) ATS 16,828 ATS 233,401
------- ---------- ---------- -----------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS .... (1,266) (15,587) (59,607) 80,268
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ......... 1,719 21,161 80,768 500
------- ---------- ---------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD ................ $ 453 ATS 5,574 ATS 21,161 ATS 80,768
======= ========== ========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
6
<PAGE> 7
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARE CAPITAL RETAINED MINORITY
CAPITAL RESERVES EARNINGS INTERESTS TOTAL
---------- ---------- ---------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1994 .... ATS 500 ATS -- ATS -- ATS -- ATS 500
Contributed capital ........ 79,500 40,000 -- -- 119,500
1994 net income to retained
earnings .................. -- -- (3,006) 569 (2,437)
Change in minority
interests ................. -- -- -- 6,452 6,452
---------- ---------- ---------- --------- -----------
BALANCE AT DECEMBER 31,1994 ATS 80,000 ATS 40,000 ATS (3,006) ATS 7,021 ATS 124,015
========== ========== ========== ========= ===========
BALANCE AT JANUARY 1, 1995 . 80,000 40,000 (3,006) 7,021 124,015
1995 net income to retained
earnings .................. -- -- 8,916 170 9,086
Change in minority
interests ............... -- -- -- (378) (378)
Dividends paid to minority
interests ................. -- -- -- (997) (997)
Other ...................... -- -- (44) 44 --
---------- ---------- ---------- --------- -----------
BALANCE AT DECEMBER 31, 1995 ATS 80,000 ATS 40,000 ATS 5,866 ATS 5,860 ATS 131,726
========== ========== ========== ========= ===========
BALANCE AT JANUARY 1, 1996 . 80,000 40,000 5,866 5,860 131,726
1996 net income to retained
earnings .................. -- -- 44,531 350 44,881
Change in minority
interests ............... -- -- -- (3,565) (3,565)
---------- ---------- ---------- --------- -----------
BALANCE AT DECEMBER 31, 1996 ATS 80,000 ATS 40,000 ATS 50,397 ATS 2,645 ATS 173,042
========== ========== ========== ========= ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
7
<PAGE> 8
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Description of Business -- Neutronics Electronic Industries Holding
Aktiengesellschaft and its subsidiaries ("Neutronics" or the "Group") are
engaged in contract manufacturing of electronic products and other supplies,
such as plastics, to the electronics industry.
Basis of Presentation -- The consolidated financial statements of Neutronics
have been prepared in accordance with the Austrian Commercial Code, which
represents accounting principles generally accepted in Austria ("Austrian
GAAP"), and comply with the accounting policies described below. Austrian GAAP
varies in certain significant respects from accounting principles generally
accepted in the United States ("U.S. GAAP"). Application of U.S. GAAP would have
affected the results of operations for each of the years in the two-year period
ended December 31, 1996 and for the six months ended December 31, 1994, and
shareholders' equity as of December 31, 1996, 1995 and 1994 to the extent
summarized in Note 2 to the consolidated financial statements.
The Company was incorporated on June 17, 1994, but did not commence
operations as a group until July 1, 1994. Accordingly, all references in these
financial statements to the Company's inception refer to July 1, 1994.
All amounts herein are shown in Austrian Schillings ("ATS"), unless otherwise
indicated, and for the year 1996 are also presented in U.S. dollars ("dollars"
or "$"), the latter being unaudited and presented solely for the convenience of
the reader at the rate of ATS 12.311 = $1, the Noon Buying Rate of the Federal
Reserve Bank of New York on October 15, 1997.
Consolidation Methods -- All companies in which Neutronics has control are
fully consolidated.
Significant investments in which Neutronics has an ownership interest in the
range of 20% to 50% are accounted for using the equity method, except a 35%
interest in Philips Monitoripar Magyarorszag Vamszabadterueleti ("PMM") acquired
by Neutronics on December 13, 1994 and disposed of on December 20, 1996. The
investment in PMM was accounted for at cost because any significant influence
was expected to be only temporary.
These financial statements include references to associated and related
companies. Associated companies represent entities in which Neutronics owns
between 20% to 50% and are accounted for using the equity method. Related
companies include entities which are members of groups which have significant
ownership interests in Neutronics.
The effects of intercompany transactions have been eliminated.
Total Cost Method -- The income statements are presented according to the
total-cost (or type-of-expenditure) format as commonly used in Austria.
According to this format, production and all other expenses incurred during the
period are classified by type of expenses.
Use of Estimates -- The preparation of financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent amounts at the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currencies -- Foreign currency receivables and payables are recorded
at historical rates unless the use of the exchange rate at the balance sheet
date would result in a lower receivable or a higher payable balance. This
results in unrealized losses being recognized currently and unrealized gains
being deferred until they are realized.
The functional currency of the Hungarian subsidiaries is the Austrian
Schilling as these subsidiaries are a direct and integral extension of the
Austrian operations. The balance sheets of the Hungarian subsidiaries are
therefore remeasured on the basis of historical exchange rates for non-monetary
assets and liabilities and at year-end exchange rates for all other assets and
liabilities. Revenue, expense, gain, and loss accounts are remeasured at average
exchange rates except for depreciation and amortization and cost of goods sold
which are remeasured at historical exchange rates. Differences resulting from
remeasuring the books of record into the functional currency are reflected in
other operating income in the case of gains or other operating expenses in the
case of losses.
8
<PAGE> 9
Property, Plant and Equipment -- Property, plant and equipment is valued at
acquisition or manufacturing cost and is subsequently reduced by depreciation
charges on a straight-line basis over the assets' useful lives as follows:
buildings -- 25 to 40 years; plant and machinery and factory and office
equipment -- 4 to 10 years. In the Austrian entities, depreciation on additions
and disposals during the first and second half of the year are calculated using
full-year or half-year rates, respectively. In the Hungarian entities,
depreciation is calculated on a monthly basis. Low value items are expensed in
the year of acquisition.
Intangible Assets -- Intangible assets other than goodwill are valued at
acquisition cost and are amortized over their useful lives (3 to 20 years).
Goodwill derived from acquisitions is amortized over 10 years.
Impairment of Long-term Assets -- Pursuant to guidance established in
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", the relevant long-term assets of the Company are reviewed when changes in
circumstances indicate that their carrying value may have been impaired.
Management considers assets to be impaired if the carrying value exceeds the
future projected cash flows from related operations (undiscounted and without
interest charges) in which case the assets will be written down to fair value or
the relevant projected discounted cash flows from related operations. Management
also re-evaluates the period of amortization and depreciation to determine
whether subsequent events and circumstances warrant revised estimates of useful
lives. As at December 31, 1996, management expects these assets to be fully
recoverable.
Revenue Recognition and Manufacturing Contracts -- Costs and revenues
relating to the initial phase of a contract (including design, testing and
tooling for products) are deferred. Contract costs deferred are included within
non-current assets as initial contract costs and amortized on a straight-line
basis over the weighted average length of production phases. Any revenues
relating to the initial phase of a contract are included in deferred income and
released to the income statement over the same period.
Revenues relating to the production phase of a manufacturing contract are
recognized on shipment of product to customers. Revenues are recognized net of
discounts, customer bonuses and rebates granted.
Research and Development -- Research and development is conducted under both
customer and company sponsored programs. Company sponsored research and
development costs are expensed in the year in which they are incurred. Customer
sponsored research and development costs are accounted for as any other contract
costs incurred in the initial phase of a manufacturing contract. Total research
and development costs incurred by Neutronics were ATS 16.8 million in 1996, ATS
12.4 million in 1995 and ATS 4.0 million for the six months ended December 31,
1994. These costs related mainly to customer sponsored programs.
Pension and Severance Costs -- Neutronics sponsors defined contribution
pension plans, with the contributions payable in the year charged to the income
statement.
Austrian law requires that termination indemnities (severance pay) are
provided to substantially all employees upon severance of employment by the
employer and upon retirement. The payment method is a lump sum or a few payments
over a short period of time, with the amount of the payment dependent on years
of service and compensation at termination. Such termination indemnities are in
substance comparable to a pension plan as defined by the provisions of SFAS No.
87, "Employers' Accounting for Pensions." Because amounts recognized in the
balance sheet and income statement under U.S. GAAP are acceptable under Austrian
GAAP, Neutronics decided to account for its severance costs in accordance with
the provisions of SFAS 87.
Inventory Valuation -- Raw materials and manufacturing supplies are valued at
the lower of cost, determined on a first-in, first-out method, or market.
Finished goods are valued at the lower of manufacturing cost, determined on a
first-in, first-out method, or net realizable value and comprise direct material
and labor and applicable manufacturing overheads, including depreciation
charges. Obsolescence provisions are made to the extent that inventory risks are
determinable.
Income Taxes -- Deferred taxes are determined using the liability method.
Deferred taxes are recognized only to the extent that consolidated deferred tax
liabilities exceed consolidated deferred tax assets, including net operating
loss carry forwards.
Securities -- Fixed income securities are valued at cost, with any decline in
fair value below cost that is other than temporary resulting in a write down
charged to income.
9
<PAGE> 10
Earnings Per Share -- From July 1, 1994 to December 31, 1996, Neutronics was
constituted under Austrian law as a Gesellschaft mit beschrankter Haftung
("GmbH"), and therefore its share capital was in the form of contributed capital
rather than issued shares. On September 19, 1997, Neutronics converted to an
Aktiengesellschaft ("A.G.") under Austrian law and with effect from January 1,
1997 has an issued share capital of 1,600,000 fully paid ordinary shares of ATS
100 each. Earnings per share for each of the years in the two-year period ended
December 31, 1996, and for the six months ended December 31, 1994, have
therefore been calculated by adding to or deducting from net income amounts
applicable to minority interests and then dividing the resulting amount by
1,600,000 shares being the number of ordinary shares outstanding in 1997.
Leased Equipment -- Assets held under capital leases, which confer rights and
obligations similar to those attached to owned assets, are capitalized as
property, plant and equipment and are depreciated over their useful lives. The
capital elements of future lease obligations are recorded as liabilities, while
the interest elements are charged to the income statement over the period of the
leases to produce a constant rate of interest on the balance of capital
repayments outstanding.
Cash Equivalents -- Cash equivalents are highly liquid investments purchased
with an original maturity of less than three months.
Financial Instruments -- Provisions are established for unrealized losses
arising from financial instruments up to the balance sheet date, while
unrealized gains from financial instruments are deferred. Gains and losses on
financial instruments used to manage currency risks of identifiable assets and
liabilities are deferred and recognized along with the effects of the related
transaction.
Government Grants -- Government grants relating to investments in noncurrent
assets are deferred and amortized over the useful lives of the related assets.
Grants relating to the provision of a specified number of workplaces are treated
as deferred income and released to the income statement over the period
specified in the terms of the grant.
2. SIGNIFICANT DIFFERENCES BETWEEN AUSTRIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of Neutronics comply with Austrian
GAAP, which differs in certain significant respects from U.S. GAAP. The Group's
accounting policies under Austrian GAAP are disclosed in Note 1. The significant
differences that affect consolidated net income and shareholders' equity of
Neutronics are set out below.
a. Manufacturing Contracts
Under Austrian GAAP, costs and revenues relating to the initial phase of a
contract (including design, testing and tooling for products) are deferred.
Contract costs deferred are included within non-current assets as initial
contract costs and amortized on a straight line basis over the weighted average
length of production phases. Any revenues relating to the initial phase of a
contract are included in deferred income and released to the income statement
over the same period. Revenues relating to the production phase of a
manufacturing contract are recognized on shipment of product to customers.
Under U.S. GAAP, revenues and costs on manufacturing contracts are recognized
using the percentage-of-completion method of accounting. The level of
percentage-of-completion on a particular contract is measured using the
units-of-delivery method. All costs and revenues relating to the initial phase
of a contract are deferred and recognized in the income statement during the
production phase of a contract in accordance with the percentage of units
delivered to date on a contract.
b. Business Combinations
Austrian GAAP requires that no deferred tax asset is recognized for
differences between the assigned values and the tax bases of assets and
liabilities recognized in a business combination accounted for as a purchase as
far as such treatment would result in an excess of the fair values of the
identifiable assets (including the deferred tax asset) and liabilities acquired
over the cost of the acquisition. An excess of identifiable assets acquired less
liabilities assumed over the cost of an acquired company may be allocated only
against retained earnings or provisions recorded in the balance sheet.
U.S. GAAP requires the recognition of a deferred tax liability or asset for
differences between the assigned values and the tax bases of assets and
liabilities recognized in a business combination accounted for as a purchase.
Also, an excess of identifiable assets acquired less liabilities assumed over
cost of the acquired company should be allocated to reduce proportionately the
values assigned to non-current assets in determining their fair values. When
accounting for the acquisition of Althofen Electronics GmbH, a deferred
10
<PAGE> 11
tax asset of ATS 28.6 million was recorded, and non-current assets were reduced
by ATS 9.2 million. The remaining excess of identifiable assets acquired less
liabilities assumed totaled ATS 19.4 million and was, under U.S. GAAP, recorded
as a deferred credit which is amortized on a straight-line basis over 10 years.
c. Financial Instruments
Neutronics uses financial instruments to cover certain foreign currency risks
related to liabilities and anticipated transactions. As stated in Note 1,
according to Austrian GAAP, a reserve is set up for unrealized losses relating
to financial instruments, whereas unrealized gains are not recognized until
realized. Under U.S. GAAP, at the balance sheet date, financial instruments
which are not designated as hedges of specific assets or liabilities are marked
to market and any resulting unrealized gains and losses are recognized in the
income statement.
d. Deferred Taxation
Under Austrian GAAP, deferred taxes are recognized for timing differences
limited usually to those that resulted from the preparation of consolidated
accounts. Deferred tax assets are only permitted to compensate effective tax
expenses in the past. Under U.S. GAAP, deferred taxes are provided for all
temporary differences, subject only to specific exceptions, and loss
carryforwards at currently enacted tax rates. For deferred tax assets, which
shall not be netted against deferred tax liabilities, a valuation allowance is
to be established if it is more likely than not that some portion of such assets
will not be realized.
The deferred tax adjustment included in the following reconciliation to U.S.
GAAP also includes the income tax effects of the above U.S. GAAP adjustments
where appropriate.
e. Minority Interest
Under Austrian GAAP, income applicable to minority interests is included as
part of net income for the period and minority interests are included as part of
shareholders' equity. Under U.S. GAAP, net income excludes income applicable to
minority interests, and shareholders' equity excludes minority interests.
RECONCILIATION TO U.S. GAAP
The following is a summary of the significant adjustments to net income for
the years ended December 31, 1996 and 1995 and for the period from July 1, 1994
(inception) to December 31, 1994, and to shareholders' equity at December 31,
1996, 1995 and 1994 which would be required if U.S. GAAP had been applied
instead of Austrian GAAP. The translation of 1996 amounts from ATS into dollars
is unaudited and has been made solely for the convenience of the reader at the
rate of ATS 12.311 = $1, the Noon Buying Rate of the Federal Reserve Bank of New
York on October 15, 1997.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION)
------------------------------------------------- TO DECEMBER 31,
NOTE 1996 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income (loss) as
reported in the consolidated
income statements under
Austrian GAAP .............. $ 3,646 ATS 44,881 ATS 9,086 ATS (2,437)
Less: Income applicable to
minority interests ......... (28) (350) (170) (569)
--------- ---------- ---------- ----------
Adjusted net income (loss)
under Austrian GAAP ........ 3,618 44,531 8,916 (3,006)
Adjustments required to
conform with U.S. GAAP:
Manufacturing contracts ... (a) (24) (297) -- --
Business combinations ..... (b) 167 2,057 2,057 1,028
Financial instruments ..... (c) (28) (350) 350 --
Deferred income taxes ..... (d) 159 1,962 (564) (1,414)
--------- ---------- ---------- ----------
274 3,372 1,843 (386)
--------- ---------- ---------- ----------
Net income in accordance
with U.S. GAAP ............. $ 3,892 ATS 47,903 ATS 10,759 ATS (3,392)
========= ========== ========== ==========
Earnings per share in
accordance with U.S. GAAP .. $2.43 ATS 29.94 ATS 6.72 ATS (2.12)
========= ========== ========== ==========
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------
NOTE 1996 1996 1995 1994
---- ---- ---- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Shareholders' equity as
reported in the consolidated
balance sheets under Austrian GAAP $14,056 ATS 173,042 ATS 131,726 ATS 124,015
Less: Minority interests .......... (215) (2,645) (5,860) (7,021)
-------- -------- -------- -------
Adjusted shareholders' equity under
Austrian GAAP .................... 13,841 170,397 125,866 116,994
Adjustments required to conform
with U.S. GAAP
Manufacturing contracts ......... (a)
Initial contract costs ....... (88) (1,082) -- --
Deferred contract revenues ... 64 785 -- --
Business combinations ............. (b)
Property, plant and equipment (726) (8,942) (9,059) (9,175)
Deferred credit .............. (1,182) (14,555) (16,495) (18,436)
Financial instruments ........... (c) -- -- 350 --
Deferred income taxes ........... (d) 2,325 28,623 26,661 27,225
-------- -------- -------- -------
393 4,829 1,457 (386)
-------- -------- -------- -------
Shareholders' equity in accordance
with U.S. GAAP ................... $ 14,234 ATS 175,226 ATS127,323 ATS116,608
======== ======== ======== =======
</TABLE>
3. ACQUISITIONS AND DIVESTITURES
The Neutronics group was established effective July 1, 1994, when Neutronics
acquired investments in the four companies described below in exchange for ATS
119.5 million, consisting of nominal capital of ATS 79.5 million and capital
reserves of ATS 40.0 million. These business combinations were all accounted for
under the purchase method, with revenues and expenses, gains and losses, and
cash flows of the subsidiaries included in the Group's consolidated statements
of income and cash flows beginning July 1, 1994. Any resulting goodwill and
deferred credits are being amortized on a straight-line basis over 10 years.
Details of the subsidiaries acquired follow:
100% of the shares of Althofen Electronics GmbH ("Althofen"), an Austrian
company, was acquired for ATS 36.4 million. 100% of HTR Technikai
Rendszerszolgaltato Kft ("HTR"), a Hungarian company, was acquired for ATS 48.8
million. 80% of ECOPLAST Muanyagipari Termekeket Gyarto Kft. ("Ecoplast"), a
Hungarian company, was acquired for ATS 31.1 million. 51% of EUROTON
Electronikai Ipari es Kereskedelmi Kft. ("Euroton"), a Hungarian company, was
acquired for ATS 3.2 million.
In 1994 and 1995, Ecoplast issued new shares in several steps, all of which
was purchased by Neutronics, thereby increasing its holding in Ecoplast to 88.5%
by December 31, 1994 and 95.9% by December 31, 1995. On January 1, 1996,
Neutronics sold its investment in Euroton for ATS 14.1 million cash, which
resulted in a gain on disposal of ATS 10.9 million which is included in other
operating income in 1996. Euroton contributed to 7% of revenues and 3.6% of net
income of Neutronics in 1995.
On December 13, 1994, Neutronics purchased a 35% interest in Philips
Monitoripar Magyararszag Vamszabadteruleti Kft. ("PMM") for ATS 9.1 million
cash. In February 1995, PMM issued additional shares, 35% of which was purchased
by Neutronics for ATS 22.4 million cash. Neutronics disposed of its investment
in PMM on December 20, 1996 under a put option for ATS 32.8 million cash,
resulting in a gain on disposal of ATS 1.3 million which is included in
financial result in 1996.
On January 15, 1996, Neutronics acquired a 35% interest in Hotman Handels
GmbH ("Hotman") for ATS 1.2 million cash.
12
<PAGE> 13
The following table sets out Neutronics' investments, including its
subsidiaries:
<TABLE>
<CAPTION>
% INTEREST
AS OF DECEMBER 31, CONSOLIDATION
COMPANY LOCATION 1994 1995 1996 METHOD
- ------- -------- ------ ------- ------ ----------
<S> <C> <C> <C> <C> <C>
Althofen Electronics
GmbH Althofen Austria 100.0% 100.0% 100.0% Fully
consolidated
--purchase
method
HTR Technikai...........Tab Hungary 100.0% 100.0% 100.0% Fully
Rendszerszolgaltato Kft. consolidated
--purchase
method
ECOPLAST Muanyagipari...Tab Hungary 88.5% 95.9% 95.9% Fully
Termekeket Gyarto Kft. consolidated
--purchase
method
EUROTON Electronikai
Sarbogard Ipari.........Hungary 51.0% 51.0% -- Fully
es Kereskedelmi Kft. consolidated
--purchase
method
Philips Monitoripar
Magyararszag...........Szombathely 35.0% 35.0% -- Not
Vamszabadteruleti Kft. Hungary consolidated
HOTMAN..................Vienna Austria -- -- 35.0% Equity
Handelsgesellschaft mbH accounting
</TABLE>
On September 22, 1997, the Company acquired the remaining 4.1% of the issued
share capital of Ecoplast for cash ATS 4.1 million. Payment for the shares is
not due until December 1998.
4. OTHER OPERATING INCOME
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION)
------------------------ TO DECEMBER 31,
1996 1995 1994
---------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Transaction gains ...................................... ATS 378 ATS -- ATS --
Remeasurement into functional currency ................. 5,225 -- 2,892
Gain on disposal of subsidiary ......................... 10,864 -- --
Gain on disposal of non-current assets ................. -- -- 186
Release of provisions .................................. 122 185 30
Other .................................................. 116 60 4,273
---------- ------- ---------
ATS 16,705 ATS 245 ATS 7,381
========== ======= =========
</TABLE>
5. PERSONNEL EXPENSES
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION)
--------------------------- TO DECEMBER 31,
1996 1995 1994
------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Wages..................... ATS 83,853 ATS 102,021 ATS 43,266
Salaries.................. 115,594 104,194 45,230
Expenses for severance and
pension obligations....... 7,221 8,812 1,771
Social security payments.. 67,259 71,976 29,263
Other benefits............ 12,373 8,505 7,075
----------- ----------- -----------
ATS 286,300 ATS 295,508 ATS 126,605
=========== =========== ===========
</TABLE>
6. AMORTIZATION OF INTANGIBLE ASSETS AND DEPRECIATION OF NON-CURRENT ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION)
--------------------------- TO DECEMBER 31,
1996 1995 1994
------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Amortization of intangible
assets................. ATS 9,805 ATS 3,059 ATS 1,261
Depreciation of non-
current assets......... 38,339 29,447 10,289
------------ ----------- -----------
ATS 48,144 ATS32,506 ATS 11,550
============ =========== ===========
</TABLE>
7. OTHER OPERATING EXPENSES
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION)
-------------------------- TO DECEMBER 31,
1996 1995 1994
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Transaction losses........... ATS -- ATS 13,556 ATS 7,450
Remeasurement into functional
currency.................... -- 1,951 --
Repair and maintenance costs. 15,529 12,519 6,460
Legal and tax consultancy.... 10,744 9,353 1,562
Other purchased services..... 17,056 10,833 3,669
Freight costs................ 33,923 29,703 12,141
Travel costs................. 21,788 21,933 7,981
EDP-related expenses......... 12,491 12,977 4,961
Rental expense for operating
leases...................... 5,837 11,985 5,139
Taxes........................ 4,932 8,373 9,785
Other........................ 37,398 55,075 38,769
---------- ---------- --------
ATS 159,698 ATS 188,258 ATS 97,917
=========== =========== ==========
</TABLE>
8. PENSION AND SEVERANCE COSTS
a) Pension plans
Neutronics sponsors two defined contribution pension plans, covering senior
management and certain of its Althofen employees. Contributions are determined
as 8% and 4%, respectively, of each covered employee's basic salary, and totaled
ATS 2.5 million and ATS 2.4 million in 1996 and 1995 respectively and ATS 1.0
million for the six months ended December 31, 1994.
b) Severance obligations
The following information for the Group's severance obligations is provided
in accordance with the requirements of SFAS No. 87.
As discussed in Note 1, substantially all Austrian employees of the Group are
entitled by law to termination indemnities. Benefits are based on years of
service and the employee's compensation at termination. In accordance with
common practice in Austria, severance obligations are unfunded and, accordingly,
are fully accrued for in the financial statements. Certain securities held by
Neutronics due to the requirements of Austrian tax law covering 31.8% and 33.4%
of the projected benefit obligation as of December 31, 1996 and 1995,
respectively, do not meet the criteria of plan assets in accordance with SFAS 87
because such securities are not segregated in a trust or otherwise effectively
restricted.
The funded status of the Group's severance obligations under SFAS No. 87 is
as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996 1995
---- ----
(IN THOUSANDS)
Actuarial present value of benefit
obligations:
<S> <C> <C>
Vested................................ ATS 30,804 ATS 29,031
Non-vested............................ 1,205 616
--------- --------
Accumulated benefit obligation............. 32,009 29,647
Effect of projected future salary increase. 8,834 8,494
--------- --------
Unfunded projected benefit obligation...... 40,843 38,141
Unrecognized net gain (loss)............... (4,780) (5,109)
Prior service cost not yet recognized in
net periodic pension cost.................. 1,107 --
--------- --------
Accrued cost for severance obligation...... 37,170 33,032
Obligations due to terminations............ 74 3,495
--------- --------
Provision for severance obligation
recognized in the balance sheet............ ATS 37,244 ATS 36,527
========== ==========
</TABLE>
13
<PAGE> 14
The weighted-average assumed discount rates and rates of increase in future
compensation levels used to measure the actuarial present value of the projected
benefit obligation were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate........................... 5.5% 7.0% 6.5%
Long-term rate of increase in future
compensation levels.................... 3.0% 4.0% 4.0%
</TABLE>
Net periodic cost for the severance obligation under SFAS No. 87 included the
following components:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION)
----------------------- TO DECEMBER 31,
1996 1995 1994
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- present value
of benefits earned during the year..... ATS 3,328 ATS 2,619 ATS 1,261
Interest cost........................... 2,213 2,289 1,019
Net amortization and deferral........... 108 -- --
--------- --------- ----------
Net periodic severance cost............. ATS 5,649 ATS 4,908 ATS 2,280
========= ========= ==========
</TABLE>
9. FINANCIAL RESULT, NET
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION)
----------------------------- TO DECEMBER 31,
1996 1995 1994
-------------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income from
securities................ ATS 770 ATS -- ATS --
Other interest income..... 681 4,610 1,427
Profit on disposal of
investments.............. 1,270 -- --
Other financial income.... 20 -- --
Interest expense.......... (20,827) (16,148) (1,461)
Share in loss of
associated company....... (1,150) -- --
----------- ----------- ---------
ATS (19,236) ATS (11,538) ATS (34)
=========== =========== =========
</TABLE>
10. INCOME TAXES
Current income taxes are nil for all periods presented due to a tax holiday
in Hungary and due to negative taxable income of the Austrian entities of the
Group. Deferred income taxes are nil under Austrian GAAP. Under U.S. GAAP,
deferred income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION)
-------------------------- TO DECEMBER 31,
1996 1995 1994
------------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred income tax expense
(benefit)................... ATS (1,962) ATS 564 ATS 1,414
</TABLE>
14
<PAGE> 15
Deferred income tax assets and liabilities in accordance with U.S. GAAP are
as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Property, plant and equipment ... ATS 3,040 ATS 3,080
Severance and jubilee obligation 6,224 6,651
Other employee-related provisions 12,851 15,828
Other ........................... 215 117
Net operating loss carry forwards 23,069 16,209
--------- ---------
Total deferred tax assets ......... 45,399 41,885
Valuation allowance:
Beginning of year ............... (13,046) (11,589)
Net change for year ............. (2,126) (1,457)
Total valuation allowance ......... (15,172) (13,046)
Deferred tax liabilities:
Low value items-- fixed assets .. (1,499) (2,059)
Financial instruments ........... -- (119)
Other ........................ (105) --
Total deferred tax liabilities .... (1,604) (2,178)
---------- ----------
Net deferred tax asset ............ ATS 28,623 ATS 26,661
========== ==========
</TABLE>
At December 31, 1996, the Group had net operating losses ("NOLs") of
approximately ATS 67.9 million. All NOLs have an unlimited carry forward period
under Austrian tax law, except that the majority of NOLs cannot be used in 1997.
The Company recorded a deferred tax asset of ATS 23.1 million at December 31,
1996, reflecting the benefit of these NOLs. This asset is reduced by a valuation
allowance of ATS 15.2 million. Management believes that it is more likely than
not that the remaining deferred tax asset resulting from NOLs of ATS 7.9 million
will be realized, although realization is not assured. Management also believes
that all other deferred tax assets will be realized, although realization is not
assured.
Distributions of earnings by foreign subsidiaries are exempt from Austrian
income taxes under the so-called international participation privilege. No
deferred tax liability has been provided for foreign withholding taxes on
distributions of dividends because earnings of foreign subsidiaries are intended
to be reinvested indefinitely. Unrecognized deferred tax liabilities for
temporary differences related to investments in foreign subsidiaries are ATS 5.9
million at December 31, 1996. No unrecognized deferred tax liabilities for
undistributed earnings of foreign subsidiaries existed at December 31, 1995
because no withholding tax applied to dividend distributions.
Worldwide income before income taxes is attributable to the following
geographic locations:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION) TO
------------------------ DECEMBER 31,
1996 1995 1994
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Austria...... ATS 1,087 ATS (3,295) ATS (18,375)
Foreign...... 43,794 12,381 15,938
---------- ---------- -----------
ATS 44,881 ATS 9,086 ATS (2,437)
========== ========== ===========
</TABLE>
15
<PAGE> 16
The overall effective income tax rate under Austrian GAAP is 0% for all
periods presented and can be reconciled as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION) TO
------------------------- DECEMBER 31,
1996 1995 1994
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected provision for income taxes .... ATS 15,260 ATS 3,089 ATS (829)
Tax holiday -- foreign subsidiaries .... (15,497) (6,498) (3,707)
Permanent differences .................. (4,152) (750) (4,938)
Amortization of goodwill ............... 705 682 348
Effects of remeasuring assets and
liabilities from local currency into
functional currency at historical
exchange rates ........................ (387) 2,425 (1,216)
Temporary differences and net
operating loss carry forwards for which
no tax benefit was recorded ........... 3,988 1,052 10,342
Other .................................. 83 -- --
------ --------- -------
Actual provision for income taxes ..... ATS -- ATS -- ATS --
====== ========= =======
</TABLE>
Under U.S. GAAP, the effective income tax rate would approximate a benefit of
4.2% for 1996 and a charge of 5.0% for 1995 and of 71.5% for the six months
ended December 31, 1994. Generally, the principal reason for differences to the
Austrian GAAP effective rate is that all temporary differences are tax effected
under U.S. GAAP, including the tax benefits on the portion of net operating
losses not subject to valuation allowances.
The tax holiday in Hungary is due to expire on December 31, 1997. Effective
January 1, 1998, the Hungarian entities of the Group will be subject to
corporate income taxes at a flat rate of 18%, which will effectively be reduced
to 7.2% in the years 1998 through 2002 because a 60% exemption will apply. As a
result of this change in tax status, Neutronics expects to be subject to current
income taxes in Hungary in future years. The change in tax status will not
result in the recognition of material deferred tax assets or liabilities as of
January 1, 1998.
11. INITIAL CONTRACT COSTS
In 1996, in accordance with Neutronics' policy for accounting for
manufacturing contracts, as disclosed in Note 1, certain costs relating to the
initial phase of contracts have been capitalized and amortized on a straight
line basis over the weighted average length of production phases.
<TABLE>
<CAPTION>
INITIAL
CONTRACT COSTS
--------------
(IN THOUSANDS)
<S> <C>
Acquisition costs
Balance at January 1, 1996..... ATS --
Additions...................... 24,000
------------
Balance at December 31, 1996... ATS 24,000
------------
Accumulated depreciation
Balance at January 1, 1996..... ATS --
Additions...................... 6,000
------------
Balance at December 31, 1996... ATS 6,000
------------
1996 NET BOOK VALUE............ ATS 18,000
===========
</TABLE>
16
<PAGE> 17
12. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
OTHER INTANGIBLES GOODWILL TOTAL
----------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition costs
Balance at July 1, 1994 ............... ATS -- ATS -- ATS --
Change in consolidation of companies... 748 21,063 21,811
------- ------- -------
748 21,063 21,811
Additions ............................. 1,291 -- 1,291
------- ------- -------
Balance at December 31, 1994 .......... 2,039 21,063 23,102
------- ------- -------
Accumulated amortization
Balance at July 1, 1994
Change in consolidation of companies... 85 -- 85
------- ------- -------
85 -- 85
Additions ............................. 207 1,053 1,260
------- ------- -------
Balance at December 31, 1994 .......... 292 1,053 1,345
------- ------- -------
1994 NET BOOK VALUE ................... ATS 1,747 ATS 20,010 ATS 21,757
======= ======= =======
Acquisition costs
Balance at January 1, 1995 ............ 2,039 21,063 23,102
Additions ............................. 6,455 -- 6,455
Reclassifications ..................... 300 -- 300
Deductions ............................ (121) (377) (498)
------- ------- -------
Balance at December 31, 1995 .......... 8,673 20,686 29,359
------- ------- -------
Accumulated amortization
Balance at January 1, 1995 ............ 292 1,053 1,345
Additions ............................. 992 2,067 3,059
Deductions ............................ (89) -- (89)
------- ------- -------
Balance at December 31, 1995 .......... 1,195 3,120 4,315
------- ------- -------
1995 NET BOOK VALUE ................... ATS 7,478 ATS 17,566 ATS 25,044
======= ======= =======
Acquisition costs
Balance at January 1, 1996 ............ 8,673 20,686 29,359
Change in consolidation of companies... (134) -- (134)
------- ------- -------
8,539 20,686 29,225
Additions ............................. 2,243 57 2,300
Reclassifications ..................... 42 -- 42
------- ------- -------
Balance at December 31, 1996 .......... 10,824 20,743 31,567
------- ------- -------
Accumulated amortization
Balance at January 1, 1996 ............ 1,195 3,120 4,315
Change in consolidation of companies... (87) -- (87)
------- ------- -------
1,108 3,120 4,228
Additions ............................. 1,731 2,073 3,804
------- ------- -------
Balance at December 31, 1996 .......... 2,839 5,193 8,032
------- ------- -------
1996 NET BOOK VALUE ................... ATS 7,985 ATS 15,550 ATS 23,535
======= ======= =======
</TABLE>
Other intangible assets consist of software, industrial property rights and
similar rights.
13. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
ADVANCE
FACTORY PAYMENTS AND
LAND AND PLANT AND AND OFFICE CONSTRUCTION
BUILDINGS MACHINERY EQUIPMENT IN PROGRESS TOTAL
--------- --------- ---------- ------------- -----
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
1994 ATS -- ATS -- ATS -- ATS -- ATS --
Acquisition costs
Balance at July 1, 1994................
Change in consolidation of companies... 58,898 33,248 4,605 6,613 103,364
-------- -------- -------- -------- --------
58,898 33,248 4,605 6,613 103,364
Additions ............................. 48,917 45,939 15,533 46,290 156,679
Reclassifications ..................... -- 235 -- (235) --
Disposals ............................. (207) -- (1,246) -- (1,453)
-------- -------- -------- -------- --------
Balance at December 31, 1994 .......... 107,608 79,422 18,892 52,668 258,590
-------- -------- -------- -------- --------
Accumulated depreciation
Balance at July 1, 1994 ............... -- -- -- -- --
Change in consolidation of companies... 1,026 3,645 1,149 -- 5,820
-------- -------- -------- -------- --------
1,026 3,645 1,149 -- 5,820
Additions ............................. 1,769 6,025 2,495 -- 10,289
Disposals ............................. -- -- (1,206) -- (1,206)
-------- -------- -------- -------- --------
Balance at December 31, 1994 .......... 2,795 9,670 2,438 -- 14,903
-------- -------- -------- -------- --------
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
ADVANCE
FACTORY PAYMENTS AND
LAND AND PLANT AND AND OFFICE CONSTRUCTION
BUILDINGS MACHINERY EQUIPMENT IN PROGRESS TOTAL
----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
1994 NET BOOK VALUE ................ ATS 104,813 ATS 69,752 ATS 16,454 ATS 52,668 ATS 243,687
=========== =========== ========== ========== ===========
1995
Acquisition costs
Balance at January 1, 1995 ......... ATS 107,608 ATS 79,422 ATS 18,892 ATS 52,668 ATS 258,590
Additions .......................... 38,671 40,490 11,531 15,485 106,177
Reclassifications .................. 46,750 -- 834 (47,884) (300)
Disposals .......................... (4,106) (1,829) (39) -- (5,974)
----------- ----------- ---------- ---------- -----------
Balance at December 31, 1995 ....... 188,923 118,083 31,218 20,269 358,493
----------- ----------- ---------- ---------- -----------
Accumulated depreciation
Balance at January 1, 1995 ......... 2,795 9,670 2,438 -- 14,903
Additions .......................... 5,778 17,638 6,031 -- 29,447
Disposals .......................... (82) (1,454) (30) -- (1,566)
----------- ----------- ---------- ---------- -----------
Balance at December 31, 1995 ....... 8,491 25,854 8,439 -- 42,784
----------- ----------- ---------- ---------- -----------
1995 NET BOOK VALUE ................ ATS 180,432 ATS 92,229 ATS 22,779 ATS 20,269 ATS 315,709
=========== =========== ========== ========== ===========
1996
Acquisition costs
Balance at January 1, 1996 ......... ATS 188,923 ATS 118,083 ATS 31,218 ATS 20,269 ATS 358,493
Change in consolidation of companies (911) (372) (2,371) -- (3,654)
----------- ----------- ---------- ---------- -----------
188,012 117,711 28,847 20,269 354,839
Additions .......................... 65,422 78,092 3,628 13,448 160,590
Reclassifications .................. 148 15,623 677 (16,490) (42)
Disposals .......................... -- (14,884) (4,522) (2,756) (22,162)
----------- ----------- ---------- ---------- -----------
Balance at December 31, 1996 ....... 253,582 196,542 28,630 14,471 493,225
----------- ----------- ---------- ---------- -----------
Accumulated depreciation
Balance at January 1, 1996 ......... 8,491 25,854 8,439 -- 42,784
Change in consolidation of companies 82 (249) (531) -- (698)
----------- ----------- ---------- ---------- -----------
8,573 25,605 7,908 -- 42,086
Additions .......................... 6,873 24,265 7,201 -- 38,339
Disposals .......................... -- (5,235) (3,357) -- (8,592)
----------- ----------- ---------- ---------- -----------
Balance at December 31, 1996 ....... 15,446 44,635 11,752 -- 71,833
----------- ----------- ---------- ---------- -----------
1996 NET BOOK VALUE ................ ATS 238,136 ATS 151,907 ATS 16,878 ATS 14,471 ATS 421,392
=========== =========== ========== ========== ===========
</TABLE>
The value of land as of December 31, 1996 was ATS 18.3 million.
During the periods covered, Neutronics entered into capital leases for
buildings and machinery. The leases for buildings expire in 9 to 10 years and
the leases for machinery in 3 to 5 years. For all capital leases, either
ownership passes to Neutronics at the end of the lease term or the lease
agreement contains a bargain purchase option.
Included above within property, plant and equipment are the following amounts
relating to capital leases.
<TABLE>
<CAPTION>
LAND AND PLANT AND
BUILDINGS MACHINERY TOTAL
--------- --------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition costs
Balance at July 1, 1994 .... ATS -- ATS -- ATS --
Additions .................. -- 11,282 11,282
---------- ---------- ----------
Balance at December 31, 1994 -- 11,282 11,282
---------- ---------- ----------
Accumulated depreciation
Balance at July 1, 1994 .... -- -- --
Additions .................. -- 705 705
---------- ---------- ----------
Balance at December 31, 1994 -- 705 705
---------- ---------- ----------
1994 NET BOOK VALUE ........ ATS -- ATS 10,577 ATS 10,577
========== ========== ==========
Acquisition costs
Balance at January 1, 1995 . -- 11,282 11,282
Additions .................. 28,475 -- 28,475
---------- ---------- ----------
Balance at December 31, 1995 28,475 11,282 39,757
---------- ---------- ----------
Accumulated depreciation
Balance at January 1, 1995 . -- 705 705
Additions .................. 285 1,410 1,695
---------- ---------- ----------
Balance at December 31, 1995 285 2,115 2,400
---------- ---------- ----------
1995 NET BOOK VALUE ........ ATS 28,190 ATS 9,167 ATS 37,357
========== ========== ==========
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
LAND AND PLANT AND
BUILDINGS MACHINERY TOTAL
--------- --------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition costs
Balance at January 1, 1996 . 28,475 11,282 39,757
Additions .................. 47,959 40,845 88,804
---------- ---------- -----------
Balance at December 31, 1996 76,434 52,127 128,561
---------- ---------- -----------
Accumulated depreciation
Balance at January 1, 1996 . 285 2,115 2,400
Additions .................. 1,629 3,416 5,045
---------- ---------- -----------
Balance at December 31, 1996 1,914 5,531 7,445
---------- ---------- -----------
1996 NET BOOK VALUE ........ ATS 74,520 ATS 46,596 ATS 121,116
========== ========== ===========
</TABLE>
14. FINANCIAL ASSETS
<TABLE>
<CAPTION>
INVESTMENT IN
INVESTMENT INVESTMENT ASSOCIATED
SECURITIES IN PMM COMPANY TOTAL
---------- ---------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Acquisition costs
Balance at July 1, 1994 ........... ATS -- ATS -- ATS -- ATS --
Additions ......................... -- 9,100 -- 9,100
---------- ---------- ------ ----------
BALANCE AT DECEMBER 31, 1994 ...... ATS -- ATS 9,100 ATS -- ATS 9,100
Acquisition costs
Balance at January 1, 1995 ........ -- 9,100 -- 9,100
Additions ......................... 12,743 22,400 -- 35,143
---------- ---------- ------ ----------
BALANCE AT DECEMBER 31, 1995 ...... ATS 12,743 ATS 31,500 ATS -- ATS 44,243
========== ========== ====== ==========
Acquisition costs
Balance at January 1, 1996 ........ 12,743 31,500 -- 44,243
Additions ......................... 264 -- 1,225 1,489
Share of loss in associated company -- -- (1,150) (1,150)
Disposals ......................... -- (31,500) -- (31,500)
---------- ---------- ------ ----------
BALANCE AT DECEMBER 31, 1996 ...... ATS 13,007 ATS -- ATS 75 ATS 13,082
========== ========== ====== ==========
</TABLE>
No allowances were made against financial assets in 1996, 1995 or 1994.
15. INVENTORIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials and manufacturing supplies .............................. ATS 164,460 ATS 105,523 ATS 121,304
Work in process ....................................................... -- 3,140 1,810
Finished goods, parts and goods purchased for
resale .............................................................. 20,352 4,766 10,263
Services received but not yet invoiced ................................ 6,776 17,585 170
Advanced payments to suppliers ........................................ 1,125 3,009 71
----------- ----------- -----------
ATS 192,713 ATS 134,023 ATS 133,618
=========== =========== ===========
</TABLE>
16. RECEIVABLES AND OTHER ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1996 1995 1994
---------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Receivables from sales of goods and
services ................................. ATS 78,716 ATS 79,332 ATS 28,326
Receivables from associated company ........ 8,731 -- --
Receivables from related companies ......... 109,578 113,632 122,506
Other receivables and other assets of which
maturing after more than one year: ATS nil
(1995: ATS 1,356; 1994: ATS nil) ......... 42,006 30,866 84,360
----------- ----------- -----------
Total receivables and other assets of which
maturing after more than one year: ATS nil
(1995: ATS 1,356; 1994: ATS nil) ......... ATS 239,031 ATS 223,830 ATS 235,192
=========== =========== ===========
</TABLE>
Included above within other receivables and other assets at December 31, 1996
is an amount of ATS 0.7 million (1995: ATS 0.5
19
<PAGE> 20
million) relating to advances to the members of the management board.
At December 31, 1996 an allowance for doubtful accounts of ATS 4.5 million
(1995: ATS 1.9 million; 1994: ATS nil) has been recorded.
Under U.S. GAAP, amounts due after one year would be classified as noncurrent
assets.
17. ADDITIONAL CASH FLOW INFORMATION
The following information is provided for purposes of additional analysis of
the cash flow statements:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1,
1994
(INCEPTION)
YEAR ENDED DECEMBER 31, TO DECEMBER 31,
------------------------ -----------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest paid...................... ATS 20,114 ATS 15,657 ATS 754
</TABLE>
No income tax was paid in any of the above periods.
The cash balance of ATS 0.5 million as of July 1, 1994 represents capital
contributed by the shareholders to Neutronics on June 17, 1994.
Neutronics entered into capital leases for both buildings and materials and
hence incurred capital lease obligations in each of the periods covered. For
further information on capital leases, see Note 13.
Neutronics acquired investments in four subsidiaries effective July 1, 1994 in
exchange for recognizing capital contributed at that date by the shareholders in
the amount of ATS 119.5 million. For further information on these non-cash
transactions, see Note 3.
18. SHAREHOLDERS' EQUITY
From July 1, 1994 to December 31, 1996, Neutronics was constituted as a GmbH
under Austrian law and therefore its share capital was in the form of
contributed capital rather than issued shares. As of December 31, 1996, 1995 and
1994, Neutronics had contributed capital of ATS 80.0 million and capital
reserves of ATS 40.0 million.
<TABLE>
<CAPTION>
SHARE CAPITAL RETAINED MINORITY
CAPITAL RESERVES EARNINGS INTERESTS TOTAL
---------- ---------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1994 .... ATS 500 ATS -- ATS -- ATS -- ATS 500
Contributed capital ........ 79,500 40,000 -- -- 119,500
1994 net income to retained
earnings ................. -- -- (3,006) 569 (2,437)
Change in minority interests -- -- -- 6,452 6,452
---------- ---------- ----------- --------- -----------
BALANCE AT DECEMBER 31, 1994 ATS 80,000 ATS 40,000 ATS (3,006) ATS 7,021 ATS 124,015
========== ========== =========== ========= ===========
BALANCE AT JANUARY 1, 1995 . 80,000 40,000 (3,006) 7,021 124,015
1995 net income to retained -- -- 8,916 170 9,086
earnings
Change in minority interests -- -- -- (378) (378)
Dividends paid to minority . -- -- -- (997) (997)
interests
Other ...................... -- -- (44) 44 --
---------- ---------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1995 ATS 80,000 ATS 40,000 ATS 5,866 ATS 5,860 ATS 131,726
========== ========== =========== ========== ===========
BALANCE AT JANUARY 1, 1996 . 80,000 40,000 5,866 5,860 131,726
1996 net income to retained -- -- 44,531 350 44,881
earnings
Change in minority interests -- -- -- (3,565) (3,565)
---------- ---------- ----------- --------- -----------
BALANCE AT DECEMBER 31, 1996 ATS 80,000 ATS 40,000 ATS 50,397 ATS 2,645 ATS 173,042
========== ========== =========== ========= ===========
</TABLE>
20
<PAGE> 21
With effect from January 1, 1997, its share capital was increased by ATS 80.0
million as set out below.
<TABLE>
<CAPTION>
SHARE CAPITAL RETAINED MINORITY
CAPITAL RESERVES EARNINGS INTERESTS TOTAL
------- -------- -------- --------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 ...........
ATS 80,000 ATS 40,000 ATS 50,397 ATS 2,645 ATS 173,042
Increase in share capital ............... 80,000 (40,000) (40,000) -- --
---------- ---------- ----------- --------- -----------
BALANCE AT JANUARY 1, 1997 .............. ATS160,000 ATS -- ATS 10,397 ATS 2,645 ATS 173,042
========== ========== =========== ========= ===========
</TABLE>
On August 25, 1997, the shareholders of the Company approved a resolution to
convert the Company into a joint stock company under Austrian law, and to
increase the Company's authorized and issued share capital to ATS 160 million,
comprising 1,600,000 ordinary bearer shares with a nominal value of ATS 100
each. The change in legal status was formally approved by the Commercial Court
in Austria on September 19, 1997, whilst the increase in the authorized share
capital was formally approved by the Commercial Court in Austria on September
10, 1997.
On October 15, 1997, the shareholders of the Company approved a resolution to
increase the Company's authorized share capital to ATS 240 million, comprising
2,400,000 ordinary bearer shares with a nominal value of ATS 100 each.
Management expects the Commercial Court in Austria to approve such increase in
the near future.
19. OTHER PROVISIONS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Vacation accrual ................................................ ATS 13,835 ATS 11,198 ATS 9,190
Provision for jubilee payments .................................. 7,890 9,185 8,938
Other employee-related provisions ............................... 37,798 46,553 56,042
Tax accruals .................................................... 15 8 --
Badwill ......................................................... -- 514 574
Provision for unrealized losses on forward
exchange contracts ............................................ 3,441 -- --
Accrued transport costs ......................................... 3,200 -- 119
Other provisions and accrued expenses ........................... 7,525 3,283 2,659
----------- ----------- -----------
ATS 73,704 ATS 70,741 ATS 77,522
=========== =========== ===========
</TABLE>
Jubilee payments are one-off payments made to employees in Austria on an
employee reaching specific periods of service. Costs for jubilee payments are
attributed to periods of employees' service to date, considering expected total
service periods and the time value of money.
Other employee-related provisions represent obligations for labor contracts
relating to the acquisition of Althofen. The obligation was determined at net
present values of amounts expected to be paid to employees in excess of normal
compensation and on the assumption that management will be able -- by means of
several measures -- to gradually reduce the effects of the obligation over a
period of 10 years. The previous owner of Althofen contractually assumed the
full obligation when Neutronics acquired Althofen and compensated Neutronics for
it in cash. The obligation as of July 1, 1994, was ATS 61.9 million. The
provision is being released to the income statement based on the assumptions
described above, and recorded as a reduction of personnel expenses.
The provision for unrealized losses on forward exchange contracts at December
31, 1996, relate to Japanese Yen forward foreign exchange contracts. Due to the
change in the Japanese Yen exchange rate in relation to the Austrian Schilling
in 1997, substantially all of these unrealized losses had reversed as at May 31,
1997.
21
<PAGE> 22
20. ACCOUNTS PAYABLE TRADE
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts payable to third parties
of which due within one year ATS 166,228
(1995: ATS 93,319; 1994: ATS 110,583) .. ATS 166,228 ATS 93,413 ATS 110,583
Accounts payable to related companies
of which due within one year ATS 97,029
(1995: ATS 78,807; 1994: ATS 74,180) ... 97,029 78,807 74,180
----------- ----------- -----------
Total accounts payable trade
of which due within one year ATS 263,257
(1995: ATS 172,126; 1994: ATS 184,763) . 263,257 172,220 184,763
=========== =========== ===========
</TABLE>
21. OTHER LIABILITIES
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST RATE AT DECEMBER 31,
------------------- --------------------------------------
1996 1995 1996 1995 1994
------- -------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Bank overdrafts
of which due within one year ATS 98,479
(1995: ATS 86,371; 1994: ATS 21,596) .......... 4.64% 5.17% ATS 98,479 ATS 86,371 ATS 21,596
Bank loans
of which due within one year ATS 25,524
(1995: ATS 28,175; 1994: ATS 8,409)
in more than 5 years ATS 5,572
(1995: ATS 13,276; 1994: ATS 24,917) .......... 5.88% 6.12% 93,010 130,323 115,794
Liabilities to other financial institutions
of which due within one year ATS 207
(1995: ATS 193; 1994: ATS 181)
in more than 5 years ATS 5,930
(1995: ATS 6,203; 1994: ATS 6,458) ............ 6.75% 6.75% 7,126 7,319 7,500
Liabilities due to leasing activities
of which due within one year ATS 19,489
(1995: ATS 4,065; 1994: ATS 1,769)
in more than 5 years ATS 42,255
(1995: ATS 16,860; 1994: ATS 446) ............. 6.52% 7.39% 127,477 37,988 11,281
Other liabilities to related companies
of which due within one year ATS nil
(1995: ATS 48,390; 1994: ATS 119,201) ......... -- -- -- 48,390 119,201
Advanced payments from customers
of which relating to period within one year ATS
329 (1995: ATS 25,866; 1994: ATS 1,773) ....... 329 25,866 1,773
Other liabilities
of which due within one year ATS 28,430 (1995:
ATS 18,527; 1994: ATS 34,723) ................. ATS 28,430 ATS 18,855 ATS 34,723
----------- ----------- -----------
Total liabilities
of which due within one year ATS 172,458
(1995: ATS 211,587; 1994: ATS 187,652)
in more than 5 years ATS 53,757
(1995: ATS 36,339; 1994: ATS 31,821) .......... ATS 354,851 ATS 355,112 ATS 311,868
=========== =========== ===========
</TABLE>
At December 31, 1996, all bank loans were denominated in Schillings. At
December 31, 1995, ATS 24.6 million of bank loans were denominated in Deutsche
marks.
Liabilities to banks and other financial institutions are largely secured by
mortgages on land and buildings to the value according to the entry in the land
register of ATS 188.0 million (1995: ATS 188.0 million), a mortgage over plant
and machinery at Althofen of ATS 60.0 million (1995: ATS 60.0 million) and the
assignment of receivables of ATS 147.9 million (1995: ATS 92.5 million).
22
<PAGE> 23
Aggregate amounts of liabilities to banks and other financial institutions that
mature during the next five years and thereafter are as follows.
<TABLE>
<CAPTION>
TOTAL
1997 1998 1999 2000 2001 THEREAFTER
----------- ---------- ---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Bank loans and overdrafts .... ATS 124,003 ATS 17,543 ATS 18,379 ATS 13,607 ATS 12,385 ATS 5,572
Liabilities to other financial
institutions ............... 207 222 239 255 273 5,930
</TABLE>
Other liabilities to related companies in 1995 represent the outstanding
balance for interest-free financing received from a related company of ATS 119.2
million in 1994. This amount was repaid in full by December 31, 1996.
Neutronics had unused short-term credit lines at December 31, 1996, of ATS
30.6 million (1995: ATS 24.2 million) and no unused long-term credit lines
(1995: ATS nil). At December 31, 1996, Neutronics had an additional credit line
available of ATS 30.0 million, the use of which is limited by the level of
export receivables. Of the unused short-term credit lines, ATS 23.9 million
(1995: ATS 15.9 million) is subject to a commitment fee of 0.5% per annum.
All liabilities payable after more than one year would be classified as
non-current under U.S. GAAP.
22. DEFERRED INCOME
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995 1994
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Grants ..................................... ATS 3,440 ATS -- ATS --
Deferred initial contract revenues ......... 10,583 -- --
Other deferred income ...................... 8,945 3,676 1,951
---------- --------- ---------
ATS 22,968 ATS 3,676 ATS 1,951
========== ========= ==========
</TABLE>
23. COMMITMENTS AND CONTINGENCIES
a) Capital leases
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: (IN THOUSANDS)
- ------------------------
<S> <C>
1997.......................................... ATS 26,802
1998.......................................... 23,134
1999.......................................... 23,134
2000.......................................... 21,074
2001.......................................... 18,779
Later years................................... 50,797
-----------
Total minimum lease payments.................. 163,720
Less: amount representing interest (36,243)
-----------
Present value of net minimum lease payments ATS 127,477
===========
</TABLE>
In addition to the above obligations under capital leases, Neutronics entered
into another capital lease agreement for a building in 1996 which did not come
into effect until 1997. The fair value of the building is approximately ATS 69.0
million, with an option for Neutronics to purchase the building after 10 years
for ATS 100,000. The first repayment is due in September 1997.
23
<PAGE> 24
b) Operating leases
The following is a schedule by years of future minimum rental payments under
non-cancelable operating leases that have lease terms in excess of one year as
of December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: (IN THOUSANDS)
- ------------------------
<S> <C>
1997 .......................... ATS 2,742
1998 .......................... 1,475
1999 .......................... 809
2000 .......................... 270
2001 .......................... 40
Later years ................... 16
---------
Total minimum payments
required.................... ATS 5,352
=========
</TABLE>
The following is a schedule by years of future minimum rental payments under
all operating leases for the following year and the following five years.
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
1996 1995 1994
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
For the following year ............. ATS 6,181 ATS 7,478 ATS 12,485
For the following 5 years .......... 20,612 13,964 19,596
</TABLE>
c) Contingent liabilities
During 1996, Neutronics recognized in the income statement as income ATS 1.6
million relating to government grants. In the event that Neutronics does not
meet the required conditions of the grant, this amount will need to be repaid.
d) Guarantees
Neutronics has guaranteed an amount of ATS 1.2 million to a member of the
supervisory board. Subsequent to the year end, this guarantee has been canceled.
24. INFORMATION ABOUT FINANCIAL INSTRUMENTS
The following information is presented in accordance with SFAS No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk," SFAS No.
107, "Disclosure about Fair Value of Financial Instruments," and SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments." These statements require the disclosure of off-balance-sheet
instruments and estimated fair values for all financial instruments.
Neutronics has only limited involvement with derivative financial instruments
with off-balance sheet risk in the normal course of business as a means of
hedging its Japanese Yen and U.S. dollar currency exposure in relation to trade
accounts payable and anticipated purchases for the following 12 months. These
instruments are executed with creditworthy financial institutions for periods of
between 6 and 12 months. Management does not anticipate any material adverse
effect on its financial position resulting from its involvement in these
instruments.
The following is a summary of contract principal amounts of off-balance sheet
financial instruments as at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
CONTRACT PRINCIPAL AMOUNT
--------------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Forward foreign exchange contracts .... ATS 72,306 ATS 65,081
</TABLE>
24
<PAGE> 25
The following table presents the carrying amounts and estimated fair values of
Neutronics' financial instruments at December 31, 1996 and 1995. FASB Statement
No. 107, "Disclosures about Fair Value of Financial Instruments", defines the
fair value of a financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1996 1995
------------------------------ -------------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Investment securities ATS 13,007 ATS 13,244 ATS 12,743 ATS 12,754
Investment in PMM -- -- 31,500 31,075
Forward foreign exchange
contracts.................................... -- -- -- 303
FINANCIAL LIABILITIES
Forward foreign exchange
contracts.................................... 3,606 3,663 -- --
Financial liabilities 198,615 199,530 224,013 224,723
</TABLE>
The carrying values of cash, trade receivables and trade payables approximate
fair values because of the short maturity of those instruments.
The methods and assumptions used to estimate the fair values of financial
instruments are summarized below.
Investment securities: The fair values of securities were based on quoted
market prices at the reporting dates.
Investment in PMM: The fair value of Neutronics' investment in PMM was
estimated based on discounting expected cash flows from exercising the put
option at the earliest opportunity.
Forward foreign exchange contracts: The fair values of forward foreign
exchange contracts were estimated based on quoted market prices for contracts of
similar terms at the reporting date.
Financial liabilities: The fair values of Neutronics' loans were estimated by
discounting expected cash flows at the rates currently offered to Neutronics for
debt of the same remaining maturities. The carrying values of bank overdrafts
were assumed to approximate fair values due to their short maturities.
25. SEGMENT REPORTING
Neutronics operates in 2 industry segments. A description of the products and
services from which each segment derives its revenue follows:
- Contract electronic manufacturing ("CEM") -- This involves
development, engineering and production of all kinds of
electronic products (half-finished products, modules and finished
products mainly in the fields of: consumer electronics, business
electronics and computers, telecommunications, personal care,
medical appliances and automotive electronics).
- Plastic key component manufacturing ("plastics") -- This involves
moulding, lacquering, printing and subassembly of all kinds of
plastic parts, supplied mainly to the electronics industry.
Sales and revenues related to transactions between segments are recorded at
values that approximate commercial selling prices.
<TABLE>
<CAPTION>
ADJUSTMENTS
CEM PLASTICS CORPORATE AND ELIMINATIONS CONSOLIDATED
------------- ----------- ----------- ---------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1996
Revenues ........... ATS 1,375,021 ATS 208,733 ATS -- ATS -- ATS 1,583,754
============= =========== ======= ====== ========
Operating profit ... 55,540 7,103 10,864 -- 73,507
============= =========== ======= ====== ========
Identifiable assets 718,451 196,320 10,295 -- 925,066
============= =========== ======= ====== ========
Depreciation and
amortization ..... (35,048) (12,824) (272) -- (48,144)
============= =========== ======= ====== ========
Capital
expenditures(2) .. 105,380 53,600 234 1,376 160,590
============= =========== ======= ====== ========
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
ADJUSTMENTS
CEM PLASTICS CORPORATE AND ELIMINATIONS CONSOLIDATED
------------- ----------- ----------- ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995
Revenues ........... ATS 1,146,013 ATS 95,434 ATS -- ATS -- ATS 1,241,447
============= =========== ======= ====== =============
Operating profit
(loss) ........... 35,279 (6,174) -- 60 29,165
============= =========== ======= ====== =============
Identifiable assets 589,970 132,110 47,922 -- 770,002
============= =========== ======= ====== =============
Depreciation and
amortization ..... (23,381) (9,062) (63) -- (32,506)
============= =========== ======= ====== =============
Capital expenditures 60,128 45,966 83 -- 106,177
============= =========== ======= ====== =============
1994
Revenues ........... ATS 591,778 ATS 29,181 ATS -- ATS -- ATS 620,959
============= =========== ======= ====== =============
Operating profit
(loss) ........... 6,494 (1,439) -- 29 5,084
============= =========== ======= ====== =============
Identifiable assets 638,913 72,400 24,011 -- 735,324
============= =========== ======= ====== =============
Depreciation and
amortization ..... (8,927) (2,584) (39) -- (11,550)
============= =========== ======= ====== =============
Capital expenditures 146,110 10,412 157 -- 156,679
============= =========== ======= ====== =============
</TABLE>
- ----------
1 Represents the profit on disposal of Euroton.
2 Represents the expenditure for property, plant and equipment excluding
the costs of fixed assets acquired through business combinations.
A reconciliation of operating profit to net income follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
(INCEPTION)
YEAR ENDED DECEMBER 31, TO DECEMBER 31,
--------------------------- ----------------
1996 1995 1994
----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating profit ..................... ATS 73,507 ATS 29,165 ATS 5,084
Financial result, net ................ (19,236) (11,538) (34)
Corporate overhead and other items not
allocable to segments .............. (9,390) (8,541) (7,487)
------- ------- ---------
Net income (loss) .................... 44,881 9,086 (2,437)
======= ======= =========
</TABLE>
Geographic information with respect to Neutronics' revenues, net income and
identifiable assets by operation follows:
<TABLE>
<CAPTION>
AUSTRIA HUNGARY CONSOLIDATED
----------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
1996
Revenues .......... ATS 556,533 ATS 1,027,221 ATS 1,583,754
=========== ============= =============
Net income ........ 1,087 43,794 44,881
=============
Identifiable assets ATS 390,504 ATS 534,562 ATS 925,066
=========== ============= =============
1995
Revenues .......... ATS 513,249 ATS 728,198 ATS 1,241,447
=========== ============= =============
Net income (loss) . (3,295) 12,381 9,086
=========== ============= =============
Identifiable assets ATS 392,677 ATS 377,325 ATS 770,002
=========== ============= =============
1994
Revenues .......... ATS 205,940 ATS 415,019 ATS 620,959
=========== ============= =============
Net income (loss) . (18,375) 15,938 (2,437)
=========== ============= =============
Identifiable assets ATS 409,590 ATS 325,734 ATS 735,324
=========== ============= =============
</TABLE>
Geographic information with respect to revenues from the domestic operation's
export sales follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
(INCEPTION)
YEAR ENDED DECEMBER 31, TO DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Europe ................................... ATS 210,276 ATS 289,546 ATS 54,732
Rest of the World ........................ 190,409 46,821 36,009
----------- ----------- ------
ATS 400,685 ATS 336,367 ATS 90,741
=========== =========== ======
</TABLE>
26
<PAGE> 27
Geographic information with respect to revenues by destination follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
(INCEPTION)
YEAR ENDED DECEMBER 31, TO DECEMBER 31,
----------------------------- -------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Domestic sales .... 35.13% 40.06% 4.19%
Export Sales ...... 64.87% 59.94% 95.81%
------- -------- -------
100% 100% 100%
======= ======== ========
</TABLE>
26. MAJOR CUSTOMERS
Net sales to companies in the Philips Group amounted to ATS 1,265.0 million
and ATS 1,024.0 million in 1996 and 1995, respectively, and ATS 514.9 million
for the six months ended December 31, 1994. This group of companies, however,
consists of more than 10 independently operating companies in different industry
segments which have individual contracts with Neutronics.
The Philips Group contributed 80%, 83% and 83% of revenues in 1996, 1995 and
1994, respectively. An unplanned significant reduction in sales to the biggest
independent company within the Philips Group, which accounts for 18% of total
sales, could have a material adverse effect on the results of operations. As a
result of this level of sales, a considerable proportion of receivables relates
to the Philips Group, and, as such, represents a concentration of credit risk.
27. RELATED PARTY TRANSACTIONS
During the periods covered, Neutronics made in the ordinary course of
business, sales to and purchases from companies in the Philips Group which has a
significant ownership interest in Neutronics. Amounts owed to and by these
related companies are disclosed in Notes 16 and 21 and details of sales made to
these related companies are disclosed in Note 26. Purchases from these companies
amounted to ATS 317.7 million and ATS 188.9 million in 1996 and 1995,
respectively, and ATS 74.3 million for the six months ended December 31, 1994.
All such transactions with related parties are conducted at arm's length.
In addition, as disclosed in Note 21, Neutronics received interest-free
financing from the Philips Group in 1994 of ATS 119.2 million which was repaid
in full by December 31, 1996.
60% of Neutronics is owned by Sandaplast B.V., a Dutch corporation which is
ultimately controlled by Mr. S. L. Hui, a resident of Malaysia. On August 1,
1997, the four members of the Management Board exercised their options to
purchase Shares in the Company from existing shareholders pursuant to a share
option agreement between the Management Board and the existing shareholders,
dated March 13, 1995 and Sandaplast B.V.'s holding was reduced to 54%. On
October 9, 1997, Sandaplast B.V. transferred its 54% interest in the Company to
Mr. S.L. Hui.
During the periods covered, Neutronics made, in the ordinary course of
business, sales to Hotman totalling ATS 1.2 million for the year ended December
31, 1996. Amounts owed by Hotman are disclosed in Note 16.
Humphrey Porter, Chairman of the Company's Management Board, has been granted
an option by the Company to purchase the house he lives in Althofen, Austria.
The purchase price will be the lower of the net book value of the house at the
time of purchase, or the average of the appraisal values determined by two
independent property appraisers.
28. SUBSEQUENT EVENTS
During 1997, the plastics facility belonging to Ecoplast in Tab, Hungary was
closed as part of a restructuring and integrated with the HTR factory in Tab.
Major parts were transferred to the remaining factory belonging to Ecoplast in
Sarvar, Hungary. In the future, all plastics manufacturing will be concentrated
at this one location. Costs incurred in 1997 relating to this restructuring
amounted to approximately ATS 9.0 million.
The management of the Company is considering introducing a share option scheme
for senior executives, however the details of the scheme are still to be
finalized.
27
<PAGE> 28
The Company has entered into an agreement with ING Barings to have the
Company's Shares approved for trading on EASDAQ which is expected to take place
in October 1997.
As shown in Note 23(a), the Company has entered into a capital lease for a
factory extension in Sarvar, Hungary. Production at this factory commenced in
October 1997. In addition, in October 1997 the construction of a new factory in
Sarvar, Hungary was completed at a cost of ATS 36.5 million. The Company is to
enter into a capital lease to finance the purchase of this factory.
29. ADDITIONAL DISCLOSURES REQUIRED UNDER AUSTRIAN GAAP
a) Emoluments to members of the management board
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
(INCEPTION)
YEAR ENDED DECEMBER 31, TO DECEMBER 31,
- ---------------------------- ----------------
1996 1995 1994
- ----------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ATS 7,861 ATS 7,172 ATS 3,977
========= ========= =========
</TABLE>
b) Expenses for severance and pension obligations
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 1, 1994
(INCEPTION)
YEAR ENDED DECEMBER 31, TO DECEMBER 31,
------------------------------ --------------------
1996 1995 1994
--------- ---------- ----------
(IN THOUSANDS)
Members of management board and senior
management as defined by ss.80 subsec. 1
<S> <C> <C> <C>
Austrian Stock Corporation Act .................. ATS 1,128 ATS 1,033 ATS 487
Other employees ................................... ATS 6,094 ATS 7,779 ATS 1,284
--------- --------- ---------
ATS 7,222 ATS 8,812 ATS 1,771
========= ========= =========
</TABLE>
c) Number of employees
The average number of employees during the periods presented was:
<TABLE>
<CAPTION>
1996 1995 1994
----------- -------------- ---------------
<S> <C> <C> <C>
Salaried employees ............ 528 575 470
Workers......................... 1,388 2,046 1,430
----------- -------------- --------------
1,916 2,621 1,900
=========== ============== ==============
</TABLE>
The average for 1994 has been calculated for the period July 1 to December 31,
1994. The effect of the disposal of Euroton at the beginning of 1996 was to
reduce the number of employees by 1,100.
28
<PAGE> 29
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------
NOTE 1997 1997 1996
---- -------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues.................................. $ 70,978 ATS 873,809 ATS 701,709
Increase in inventories of finished goods
and work in process..................... 411 5,059 20,271
Other capitalized costs................... 1,239 15,251 3,807
Other operating income.................... 3 1,305 16,065 19,464
Cost of materials......................... (46,196) (568,728) (473,807)
Personnel expenses........................ (14,691) (180,860) (139,555)
Amortization of intangible assets and
depreciation of non-current assets...... (3,062) (37,691) (18,601)
Other operating expenses.................. (8,885) (109,380) (89,129)
Financial result, net..................... (906) (11,152) (8,935)
-------- ------------ -----------
NET INCOME................................ $ 193 ATS 2,373 ATS 15,224
======== ============ ===========
Income applicable to Neutronics........... 236 2,901 15,185
(Loss) income applicable to minority
interests............................... (43) (528) 39
-------- ------------ -----------
NET INCOME................................ $ 193 ATS 2,373 ATS 15,224
======== ============ ===========
EARNINGS PER SHARE........................ $ 0.15 ATS 1.81 ATS 9.49
======== ============ ===========
</TABLE>
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements
29
<PAGE> 30
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------------------------
NOTE 1997 1997 1996
---- ------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
NON-CURRENT ASSETS
Initial contract costs.................... $ 1,784 ATS 21,963 ATS --
Intangible assets......................... 1,923 23,676 23,340
Property, plant and equipment............. 41,180 506,961 321,544
Financial assets.......................... 1,056 13,006 44,336
--------- -----------
----
45,943 565,606 389,220
--------- -----------
----
CURRENT ASSETS
Inventories............................... 5 16,854 207,489 143,022
Receivables and other assets.............. 6 23,934 294,657 300,930
Cash and cash equivalents................. 1,826 22,472 6,700
--------- -----------
----
42,614 524,618 450,652
--------- -----------
----
Prepaid expenses.......................... 710 8,738 1,720
--------- -----------
----
TOTAL ASSETS.............................. $89,267 ATS 1,098,962 ATS 841,592
============= ===========
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY 7
Share capital............................. $12,997 ATS 160,000 ATS 80,000
Capital reserves.......................... -- -- 40,000
Retained earnings......................... 1,080 13,298 21,051
Minority interest......................... 172 2,117 2,334
--------- -----------
----
14,249 175,415 143,385
--------- -----------
----
PROVISIONS
Provision for severance costs............. 3,259 40,121 36,256
Other provisions.......................... 5,001 61,571 73,714
--------- -----------
----
8,260 101,692 109,970
--------- -----------
----
LIABILITIES
Accounts payable trade.................... 8 20,099 247,436 192,210
Other liabilities......................... 9 42,392 521,888 389,805
--------- -----------
----
62,491 769,324 582,015
--------- -----------
----
Deferred income........................... 4,267 52,531 6,222
--------- -----------
----
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES............................. $89,267 ATS 1,098,962 ATS 841,592
============= ===========
</TABLE>
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements
30
<PAGE> 31
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------
1997 1997 1996
-------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 193 ATS 2,373 ATS 15,224
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 3,062 37,691 18,601
Amortization of employee related provisions...... (325) (4,001) (4,378)
Loss on sale of non-current assets............... 8 102 1,160
Gain on sale of subsidiary....................... -- -- (10,864)
Capitalization of initial contract costs......... (1,119) (13,775) --
Share of loss in associated company.............. 6 75 783
Changes in assets and liabilities net of effects
from purchase and disposal of subsidiaries:
Increase in receivables and other assets...... (3,654) (44,986) (90,635)
Decrease in prepaid expenses.................. 244 3,001 2,305
Increase in inventories....................... (1,200) (14,776) (10,173)
(Decrease) increase in liabilities and
provisions.................................. (1,501) (18,479) 48,772
Increase in deferred income................... 2,401 29,563 2,954
Other adjustments................................ 10 120 (138)
-------- ------------ ------------
NET CASH USED FOR OPERATING ACTIVITIES............. $ (1,875) ATS (23,092) ATS (26,389)
-------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of financial assets....................... -- -- (875)
Purchase of property, plant and equipment.......... (4,067) (50,066) (27,381)
Purchase of intangible assets...................... (174) (2,143) (156)
Proceeds from disposal of non-current assets....... 32 398 842
Proceeds from disposal of subsidiaries, net of
cash disposed of................................. -- -- 10,706
-------- ------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES............. $ (4,209) ATS (51,811) ATS (16,864)
-------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in borrowings under line of credit
agreements....................................... 8,932 109,961 47,850
Proceeds from long term borrowings................. -- -- 10,000
Payments on long term borrowings and capital
leases........................................... (1,475) (18,160) (17,653)
Payments on related company financing.............. -- -- (11,405)
-------- ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... $ 7,457 ATS 91,801 ATS 28,792
-------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 1,373 16,898 (14,461)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... 453 5,574 21,161
-------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......... $ 1,826 ATS 22,472 ATS 6,700
======= =========== ===========
</TABLE>
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements
31
<PAGE> 32
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARE CAPITAL RETAINED MINORITY
CAPITAL RESERVES EARNINGS INTERESTS TOTAL
----------- ---------- ---------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1996................ ATS 80,000 ATS 40,000 ATS 5,866 ATS 5,860 ATS 131,726
1996 net income to
retained earnings... -- -- 15,185 39 15,224
Change in minority
interests........... -- -- -- (3,565) (3,565)
----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30,
1996................ ATS 80,000 ATS 40,000 ATS 21,051 ATS 2,334 ATS 143,385
=========== =========== =========== =========== ===========
BALANCE AT JANUARY 1,
1997................ 80,000 40,000 50,397 2,645 173,042
Increase in share
capital............. 80,000 (40,000) (40,000) -- --
1997 net income to
retained earnings... -- -- 2,901 (528) 2,373
----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30,
1997................ ATS 160,000 ATS -- ATS 13,298 ATS 2,117 ATS 175,415
=========== =========== =========== =========== ===========
</TABLE>
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements
32
<PAGE> 33
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited consolidated condensed financial statements were
prepared in accordance with Austrian GAAP. Application of U.S. GAAP would have
affected the results of operations for the six months ended June 30, 1997 and
1996, and shareholders' equity as of June 30, 1997 and 1996 to the extent
summarized in Note 2 to these consolidated condensed financial statements. The
disclosure given in the notes to these consolidated condensed financial
statements is in accordance with accounting principles for interim financial
statements generally accepted in the United States. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company, all adjustments (consisting of normally recurring accruals) considered
necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. These consolidated condensed financial statements should be
read in conjunction with the Company's audited annual financial statements.
All amounts herein are shown in Austrian Schillings ("ATS"), unless
otherwise indicated, and for the six months ended June 30, 1997 are also
presented in U.S. dollars ("dollars" or "$"), the latter being presented solely
for the convenience of the reader at the rate of ATS 12.311 = $1, the Noon
Buying Rate of the Federal Reserve Bank of New York on October 15, 1997.
2. SIGNIFICANT DIFFERENCES BETWEEN AUSTRIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The consolidated condensed financial statements of Neutronics comply with
Austrian GAAP, which differs in certain significant respects from U.S. GAAP. The
Group's accounting policies under Austrian GAAP are disclosed in Note 1 of the
audited consolidated financial statements. The significant differences that
affect consolidated net income and shareholders' equity of Neutronics are set
out below.
a. Manufacturing Contracts
Under Austrian GAAP, costs and revenues relating to the initial phase of a
contract (including design, testing and tooling for products) are deferred.
Contract costs deferred are included within non-current assets as initial
contract costs and amortized on a straight line basis over the weighted average
length of production phases. Any revenues relating to the initial phase of a
contract are included in deferred income and released to the income statement
over the same period. Revenues relating to the production phase of a
manufacturing contract are recognized on shipment of product to customers.
Under U.S. GAAP, revenues and costs on manufacturing contracts are
recognized using the percentage-of-completion method of accounting. The level of
percentage-of-completion on a particular contract is measured using the
units-of-delivery method. All costs and revenues relating to the initial phase
of a contract are deferred and recognized in the income statement during the
production phase of a contract in accordance with the percentage of units
delivered to date on a contract.
b. Business Combinations
Austrian GAAP requires that no deferred tax asset is recognized for
differences between the assigned values and the tax bases of assets and
liabilities recognized in a business combination accounted for as a purchase as
far as such treatment would result in an excess of the fair values of the
identifiable assets (including the deferred tax asset) and liabilities acquired
over the cost of the acquisition. An excess of identifiable assets acquired less
liabilities assumed over the cost of an acquired company may be allocated only
against retained earnings and provisions recorded in the balance sheet.
U.S. GAAP requires the recognition of a deferred tax liability or asset for
differences between the assigned values and the tax bases of assets and
liabilities recognized in a business combination accounted for as a purchase.
Also, an excess of identifiable assets acquired less liabilities assumed over
cost of the acquired company should be allocated to reduce proportionately the
values assigned to non-current assets in determining their fair values. When
accounting for the acquisition of Althofen Electronics GmbH, a deferred tax
asset of ATS 28.6 million was recorded, and non-current assets were reduced by
ATS 9.2 million. The remaining excess
33
<PAGE> 34
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
of identifiable assets acquired less liabilities assumed totaled ATS 19.4
million and was, under U.S. GAAP, recorded as a deferred credit which is
amortized on a straight-line basis over 10 years.
c. Financial Instruments
Neutronics uses financial instruments to cover certain financial currency
risks related to liabilities and anticipated transactions. As stated in Note 1
of the audited consolidated financial statements, according to Austrian GAAP, a
reserve is set up for unrealized losses relating to financial instruments,
whereas unrealized gains are not recognized until realized. Under U.S. GAAP, at
the balance sheet date, financial instruments which are not designated as hedges
of specific assets or liabilities are marked to market and any resulting
unrealized gains and losses are recognized in the income statement.
d. Deferred Taxation
Under Austrian GAAP, deferred taxes are recognized at currently enacted tax
rates for all temporary differences that are expected to reverse, with the
restrictions that deferred taxes on losses carried forward must not be provided
for and that deferred tax assets must never exceed effective tax expenses in the
past. Deferred tax assets must be netted against deferred tax liabilities.
Under U.S. GAAP, deferred taxes are provided for all temporary differences,
subject only to specific exceptions, and loss carryforwards at currently enacted
tax rates. For deferred tax assets, which shall not be netted against deferred
tax liabilities, a valuation allowance is to be established if it is more likely
than not that some portion of such assets will not be realized.
The deferred tax adjustment included in the following reconciliation to
U.S. GAAP also includes the income tax effects of the above U.S. GAAP
adjustments where appropriate.
e. Minority Interests
Under Austrian GAAP, income applicable to minority interests is included as
part of net income for the period and minority interests are included as part of
shareholders' equity. Under U.S. GAAP, net income excludes income applicable to
minority interests, and shareholders' equity excludes minority interests.
RECONCILIATION TO U.S. GAAP
The following is a summary of the significant adjustments to net income for
the six months ended June 30, 1997 and 1996 and to shareholders' equity at June
30, 1997 and 1996 which would be required if U.S. GAAP had been applied instead
of Austrian GAAP. The translation of 1997 amounts from ATS into dollars has been
made solely for the convenience of the reader at the rate of ATS 12.311 = $1,
the Noon Buying Rate of the Federal Reserve Bank of New York on October 15,
1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------
1997 1997 1996
----- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net income as reported in the consolidated income
statements under Austrian GAAP........................ $ 193 ATS 2,373 ATS 15,224
Less: Loss (income) applicable to minority interests.... 43 528 (39)
----- --------- ----------
Adjusted net income under Austrian GAAP................. 236 2,901 15,185
Adjustments required to conform with U.S. GAAP:
Manufacturing contracts............................... 164 2,022 --
Business combinations................................. 84 1,028 1,028
Financial instruments................................. 24 300 (350)
Deferred income taxes................................. (11) (135) (1,332)
----- --------- ----------
261 3,215 (654)
----- --------- ----------
Net income in accordance with U.S. GAAP................. 497 ATS 6,116 ATS 14,531
===== ========= ==========
Earnings per share in accordance with U.S. GAAP......... 0.31 ATS 3.82 ATS 9.08
===== ========= ==========
</TABLE>
34
<PAGE> 35
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------
1997 1997 1996
------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Shareholders' equity as reported in the
consolidated balance sheets under Austrian
GAAP............................................. $14,249 ATS 175,415 ATS 143,385
Less: Minority interests........................... (172) (2,117) (2,334)
------- ----------- -----------
Adjusted shareholders' equity under Austrian
GAAP............................................. 14,077 173,298 141,051
Adjustments required to conform with U.S. GAAP:
Manufacturing contracts
Initial contract costs........................ 127 1,565 --
Deferred contract revenues.................... 13 160 --
Business combinations
Property, plant and equipment................. (722) (8,884) (9,000)
Deferred credit............................... (1,103) (13,584) (15,525)
Financial instruments............................ 24 300 --
Deferred income taxes............................ 2,314 28,487 25,329
------- ----------- -----------
653 8,044 804
======= =========== ===========
Shareholders' equity in accordance with U.S.
GAAP............................................. $14,730 ATS 181,342 ATS 141,855
======= =========== ===========
</TABLE>
3. DISPOSAL OF SUBSIDIARY
On January 1, 1996, Neutronics sold its investment in Euroton for ATS 14.1
million cash, which resulted in a gain on disposal of ATS 10.9 million which is
included in other operating income for the six months ended June 30, 1996.
4. RESTRUCTURING COSTS
During 1997, the plastics facility belonging to Ecoplast in Tab, Hungary
was closed as part of a restructuring and integrated with the HTR factory in
Tab. Major parts were transferred to the remaining factory belonging to Ecoplast
in Sarvar, Hungary. In the future, all plastics manufacturing will be
concentrated at this one location. Costs incurred in 1997 relating to this
restructuring amounted to approximately ATS 9 million and have been included in
the income statement for the six months ended June 30, 1997.
5. INVENTORIES
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and manufacturing supplies...................... ATS 174,621 ATS 95,934
Work in process............................................... 3,880 --
Finished goods, parts and goods purchased for resale.......... 25,640 24,199
Services received but not yet invoiced........................ 2,667 21,110
Advanced payments to suppliers................................ 681 1,779
----------- -----------
ATS 207,489 ATS 143,022
=========== ===========
</TABLE>
6. RECEIVABLES AND OTHER ASSETS
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Receivables from sales of goods and services.................. ATS 136,042 ATS 89,487
Receivables from associated company........................... 14,430 12,000
Receivables from related companies............................ 119,842 169,775
Other receivables and other assets............................ 24,343 29,668
----------- -----------
ATS 294,657 ATS 300,930
=========== ===========
</TABLE>
35
<PAGE> 36
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
7. SHAREHOLDERS' EQUITY
With effect from January 1, 1997, the contributed share capital of
Neutronics was increased by ATS 80 million to ATS 160 million by a reallocation
from reserves and retained earnings. On August 25, 1997, the shareholders of the
Company approved a resolution to convert the Company into a joint stock company
under Austrian law, and to increase the Company's authorized and issued share
capital to ATS 160 million, comprising 1,600,000 ordinary bearer shares with a
nominal value of ATS 100 each. The change in legal status was formally approved
by the Commercial Court in Austria on September 19, 1997, whilst the increase in
the authorized share capital was formally approved by the Commercial Court in
Austria on September 10, 1997.
On October 15, 1997, the shareholders of the Company approved a resolution
to increase the Company's authorized share capital to ATS 240 million,
comprising 2,400,000 ordinary bearer shares with a nominal value of ATS 100
each. Management expects the Commercial Court in Austria to approve such
increase in the near future.
8. ACCOUNTS PAYABLE TRADE
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable to third parties............................. ATS 175,942 ATS 96,487
Accounts payable to related companies......................... 71,494 95,723
----------- -----------
ATS 247,436 ATS 192,210
=========== ===========
</TABLE>
9. OTHER LIABILITIES
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Bank overdrafts............................................... ATS 208,440 ATS 134,221
Bank loans.................................................... 82,256 124,949
Liabilities to other financial institutions................... 7,224 7,023
Liabilities due to leasing activities......................... 188,670 36,005
Other liabilities to related companies........................ -- 36,985
Advanced payments from customers.............................. 1,503 --
Other liabilities............................................. 33,795 50,622
----------- -----------
ATS 521,888 ATS 389,805
=========== ===========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
Neutronics entered into a sale and lease back for machinery in 1997. The
lease qualifies as a capital lease and the sale and lease back resulted in no
profit or loss. The fair value of the machinery is ATS 10.6 million. The first
repayment is due in October 1997 and the lease term is five years.
11. FINANCIAL INSTRUMENTS
The provision for unrealized losses on Japanese Yen forward exchange
contracts made at December 31, 1996 has been released during the six months
ended June 30, 1997 due to the change in the Japanese Yen exchange rate in
relation to the Austrian Schilling.
12. RELATED PARTY TRANSACTIONS
During the periods covered, Neutronics made, in the ordinary course of
business, sales to and purchases from companies in the Philips Group which has a
significant ownership interest in Neutronics. Amounts owed to and by these
related companies are disclosed in Notes 6, 8 and 9. Net sales to companies in
the Philips Group amounted to ATS 528.2 million (61% of total revenues) and ATS
620.6 million (88% of total revenues) for the six months ended June 30, 1997 and
1996, respectively. Purchases from these companies amounted to ATS 97.7 million
and ATS 135.7 million for the six months ended June 30, 1997, and 1996,
respectively. All such transactions with related parties are conducted at arm's
length.
36
<PAGE> 37
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, as disclosed in Note 9, Neutronics had an interest-free
outstanding financing creditor balance with the Philips Group at June 30, 1996
which was repaid in full by December 31, 1996.
During the periods covered, Neutronics made, in the ordinary course of
business, sales to Hotman totalling ATS 5.0 million and ATS 1.2 million for the
six months ended June 30, 1997 and 1996, respectively. Amounts owed by Hotman
are disclosed in Note 6.
Humphrey Porter, Chairman of the Company's Management Board, has been
granted an option by the Company to purchase the house he lives in in Althofen,
Austria. The purchase price will be the lower of the net book value of the house
at the time of purchase, or the average of the appraisal values determined by
two independent property appraisers.
15. SUBSEQUENT EVENTS
On September 22, 1997, the Company acquired the remaining 4.1% of the
issued share capital of Ecoplast for cash ATS 4.1 million. Payment for the
shares is not due until December 1998.
The management of the Company is considering introducing a share option
scheme for senior executives, however, details of the scheme are still to be
finalized.
The Company has entered into an agreement with ING Barings to have the
Company's Shares approved for trading on EASDAQ which is expected to take place
in October 1997.
The Company has entered into a capital lease for a factory extension in
Sarvar, Hungary. Production at this factory commenced in October 1997. In
addition, in October 1997 the construction of a new factory in Sarvar, Hungary
was completed at a cost of ATS 36.5 million. The Company is to enter into a
capital lease to finance the purchase of this factory.
37
<PAGE> 38
(b) Pro Forma Financial Information.
The following pro forma financial information is being filed herewith:
38
<PAGE> 39
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL
INFORMATION OF NEUTRONICS AND FLEXTRONICS
On October 30, 1997, Flextronics International Ltd. (the "Company" or
"Flextronics") acquired 92% of the outstanding stock of Neutronics Electronics
Industries Holding A. G. ("Neutronics") by issuing approximately 2,806,000
shares of Flextronics Ordinary Shares at an exchange ratio of 1.91 shares of
Flextronics stock for one share of Neutronics common stock (the "Merger").
The unaudited pro forma combined statements of operations for the three
years ended March 31, 1997 and the six months ended September 30, 1997 give
effect to the Merger, which will be accounted for as a pooling of interests, as
if the Merger was completed at the beginning of the earliest period presented.
The unaudited pro forma condensed combined balance sheet has been prepared as if
the Merger was completed as of September 30, 1997.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the Merger had been consummated at the beginning of
the earliest period presented, nor is it necessarily indicative of future
operating results or financial position. The following unaudited pro forma
condensed combined financial statements should be read in conjunction with the
historical financial statements and accompanying notes for the Company and
Neutronics included elsewhere herein and in the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1997 and the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997.
39
<PAGE> 40
FLEXTRONICS INTERNATIONAL LTD. AND
NEUTRONICS ELECTRONICS INDUSTRIES HOLDING A.G.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Pro
Flextronics Neutronics Adjustment Forma
September 30, 1997 September 30, 1997 (See notes 1 & 2) Combined
------------------ --------------------- ----------------- --------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash ............................ $ 17,825 $ 1,417 $ $ 19,242
Accounts receivable ............. 90,270 5,699 95,969
Inventories, net ................ 112,906 17,227 130,133
Receivables from associated
companies...................... 0 7,092 7,092
Other current assets ............ 18,055 2,807 20,862
--------- ------- --------- --------
Total current assets ............ 239,056 34,242 273,298
OTHER NON-CURRENT ASSETS:
Property and equipment, net ..... 147,607 43,476 191,083
Investments and other
non-current assets............. 10,054 4,968 15,022
Intangible assets, net .......... 9,691 743 10,434
Goodwill net of amortization .... 19,892 72 19,964
--------- ------- --------- --------
Total non-current assets ........ 187,244 49,259 236,503
========= ======= ========= ========
TOTAL ASSETS .................... $ 426,300 $83,502 $ $509,801
========= ======= ========= ========
CURRENT LIABILITIES:
Bank borrowings ................. $ 81,500 $13,378 $ $ 94,848
Current portion of capital lease 5,313 4,005 9,319
Current portion of long term debt 5,414 0 5,414
Accounts payable ................ 96,683 17,598 114,281
Other current liabilities ....... 57,679 3,963 61,642
Income tax payable .............. 5,314 1 5,315
--------- ------- --------- --------
Total current liabilities ....... 251,903 38,946 290,849
NON-CURRENT LIABILITIES:
Capital lease, less current
portion........................ 7,622 11,323 18,945
Long term debt, less current
portion........................ 66,680 9,754 76,434
Notes payable to shareholders ... 115 0 115
Other payables .................. 0 8,456 8,456
Deferred income tax ............. 3,128 0 3,128
--------- ------- --------- --------
Total non-current liabilities ... 77,545 29,533 107,078
Deferred income ................. 0 2,290 2,290
Minority interests .............. 485 171 124 (1) 780
SHAREHOLDERS' EQUITY:
Ordinary shares ................. 89 7,337 (7,318)(2) 108
Additional paid-in capital ...... 96,559 3,668 7,318 (2) 107,545
Accumulated profits/(deficit) ... (281) 1,556 (124)(1) 1,151
--------- ------- --------- --------
Total shareholders' equity ...... 96,367 12,561 (124) 108,804
========= ======= ========= ========
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY............. $ 426,300 $83,502 $ $509,801
========= ======= ========= ========
</TABLE>
40
<PAGE> 41
FLEXTRONICS INTERNATIONAL LIMITED AND
NEUTRONICS ELECTRONICS INDUSTRIES HOLDING A.G.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the period
from (July 1, 1994)
Fiscal inception
year ended to
March December
31, 1995 31, 1994
------------- ------------ Pro forma Pro forma
Flextronics Neutronics adjustment Combined
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ...................... $ 237,386 $ 54,763 $ $ 292,149
Cost of sales .................. 214,865 50,561 265,426
--------- -------- --------- ---------
Gross profit ................... 22,521 4,202 26,723
Selling, general and
administrative expenses ........ 11,468 4,303 15,771
Goodwill amortization .......... 510 7 517
Intangible assets amortization . 245 0 245
Reserach and development ....... 91 0 91
--------- -------- --------- ---------
Operating income(loss) ......... 10,207 (108) 10,099
Interest expense, net .......... (774) 15 (759)
Merger expenses ................ (816) 0 (816)
Other expense, net ............. (998) (81) 24(1) (1,055)
--------- -------- --------- ---------
Income (loss) before income taxes 7,619 (174) 24 7,469
Provision for income taxes ..... 1,463 125 1,588
========= ======== ========= =========
Net income (loss) .............. $ 6,156 $ (299) $ 24 $ 5,881
========= ======== ========= =========
Net income (loss) per share .... $ 0.51 $ (0.19) $ 0.39
========= ========= =========
Weighted average outstanding
Ordinary Shares and equivalents. 12,103 1,600 1,206(2) 14,909
========= ======== ========= =========
</TABLE>
41
<PAGE> 42
FLEXTRONICS INTERNATIONAL LIMITED AND
NEUTRONICS INDUSTRIES HOLDING A.G.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Fiscal
year ended year ended
March 31, December 31,
1996 1995
------------- ------------ Pro forma Pro forma
Flextronics Neutronics adjustment Combined
------------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Net sales ...................... $ 448,346 $ 123,699 $ $ 572,045
Cost of sales .................. 407,457 110,275 517,732
--------- --------- --------- ---------
Gross profit.................... 40,889 13,424 54,313
Selling, general and
administrative expenses......... 18,787 9,351 28,138
Goodwill amortization .......... 739 13 752
Intangible assets amortization . 544 0 544
Provision for plant closings ... 1,254 0 1,254
Acquired in-process research and
development..................... 29,000 0 29,000
--------- --------- --------- ---------
Operating income(loss) ......... (9,435) 4,060 (5,375)
Interest expense, net .......... (2,380) (1,149) (3,529)
Merger expense ................. 0 0 0
Other income (expense), net .... 474 (1,783) (86)(1) (1,395)
--------- --------- --------- ---------
Income (loss) before income taxes (11,341) 1,128 (86) (10,299)
Provision for income taxes ..... 3,791 56 3,847
========= ========= ========= =========
Net income (loss) .............. $ (15,132) $ 1,072 $ (86) $ (14,146)
========= ========= ========= =========
Net income (loss) per share .... $ (1.19) $ 0.67 $ (0.91)
========= ========= =========
Weighted average outstanding
Ordinary Shares and equivalents. 12,684 1,600 1,206(2) 15,490
========= ========= ========= =========
</TABLE>
42
<PAGE> 43
FLEXTRONICS INTERNATIONAL LIMITED AND
NEUTRONICS INDUSTRIES HOLDING A.G.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Year ended
Year ended December 31,
March 31, 1997 1996
------------ ----------- Pro forma Pro forma
Flextronics Neutronics adjustment Combined
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales ...................... $ 490,585 $ 149,422 $ $ 640,007
Cost of sales .................. 440,448 134,694 575,142
--------- --------- --------- ---------
Gross profit.................... 50,137 14,728 64,865
Selling, general and
administrative expenses....... 26,765 9,512 36,277
Goodwill amortization .......... 989 13 1,002
Intangible assets amortization . 1,646 0 1,646
Provision for plant closings ... 5,868 0 5,868
--------- --------- --------- ---------
Operating income(loss) ......... 14,869 5,203 20,072
Interest expense, net .......... (3,885) (1,835) (5,720)
Merger expense ................. 0 0 0
Other income (expense), net .... (1,309) 965 (361)(1) (705)
--------- --------- --------- ---------
Income(loss) before income taxes 9,675 4,333 (361) 13,647
Provision for income taxes ..... 2,212 (185) 2,027
========= ========= ========= =========
Net income (loss) .............. $ 7,463 $ 4,518 $ (361) $ 11,620
========= ========= ========= =========
Net income (loss) per share .... $ 0.50 $ 2.82 $ 0.66
========= ========= =========
Weighted average outstanding
Ordinary Shares and equivalents .. 14,877 1,600 1,206(2) 17,683
========= ========= ========= =========
</TABLE>
43
<PAGE> 44
FLEXTRONICS INTERNATIONAL LIMITED AND NEUTRONICS INDUSTRIES
HOLDING A.G.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended Six months ended
September 30, September 30,
1997 1997
---------------- ------------------ Pro forma Pro forma
Flextronics Neutronics adjustment Combined
---------------- ------------------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales ........................ $ 406,970 $ 80,045 $ $487,015
Cost of sales .................... 366,018 73,286 439,303
--------- -------- --------- --------
Gross profit ..................... 40,952 6,759 47,711
Selling, general and
administrative expenses......... 20,016 4,354 24,369
Goodwill amortization ............ 970 5 975
Intangible assets amortization ... 778 0 778
--------- -------- --------- --------
Operating income(loss) ........... 19,188 2,400 21,588
Interest expense and other, net... (7,116) (1,140) (8,256)
Merger expenses .................. 0 0 0
Other income (expense), net ...... 1,418 193 (116)(1) 1,495
--------- -------- --------- --------
Income(loss) before income taxes.. 13,490 1,453 (116) 14,827
Provision for income taxes ....... 1,653 6 1,659
========= ======== ========= ========
Net income (loss) ................ $ 11,837 $ 1,447 $ (116) $ 13,168
========= ======== ========= ========
Net income (loss) per share ...... $ 0.78 $ 0.90 $ 0.74
========= ======== ========
Weighted average outstanding
Ordinary Shares and equivalents... 15,107 1,600 1,206(2) 17,913
========= ======== ========= ========
</TABLE>
44
<PAGE> 45
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL
Note 1. Basis of Presentation
The unaudited pro forma condensed statements of operations combine the
historical income statements of Neutronics for the two years ended December 31,
1996 and 1995 and the period from inception (July 1, 1994) to December 31, 1994
with the historical income statements of Flextronics for the three years ended
March 31, 1997 to reflect results based on the pooling-of-interests method of
accounting. The pro forma condensed interim financial statements combine the
historical income statement for the six months ended September 30, 1997 for both
companies. In addition, for purposes of the pro forma condensed financial
statements, the financial statements of Neutronics have been translated from
Austrian Schillings into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation". Accordingly, all of
Neutronics' assets and liabilities have been translated at the exchange rates
prevailing at the respective balance sheet dates and all income and expense
items have been translated at the average rates for each of the periods
presented. The following average exchange rates were used to translate income
and expenses for the periods ended December 31, 1994, 1995 and 1996, and
September 30, 1997 (in Schillings to the U.S. dollar): 10.60, 10.04, 11.34, and
12.38 respectively. The ending exchange rate used to translate the September 30,
1997 condensed pro forma balance sheet was 12.44. These rates were based on the
Noon Buy Rates for Austrian Schillings. No adjustments were necessary to conform
the accounting policies of the combining companies.
Note 2. Pro Forma Net Income Per Share
The pro forma combined net income per share is based on the combined
weighted average number of common and dilutive equivalent shares of Flextronics
and Neutronics based upon the exchange ratio of 1.91 Flextronics Ordinary Shares
for each share of Neutronics common stock. Primary and fully diluted pro forma
net income per share are not materially different
Note 3. Merger Related Expenses of Flextronics and Neutronics
Flextronics and Neutronics estimate that they will incur merger-related
expenses, consisting primarily of investment banking, legal and accounting fees,
financial printing and other related charges, of approximately $4.0 million.
This estimate is preliminary and is therefore subject to change. These costs
were incurred in the three month period ended December 31, 1997 and will be
expensed in that period. As such, no merger-related expenses are included in the
pro forma condensed statements of operations.
Pro forma adjustments:
(1) To accrue 8% minority interest in earnings of Neutronics resulting from
certain Neutronics shareholders not participating in the merger.
Minority interest was accrued as if it existed as of July 1, 1994.
(2) Reflects exchange of 92% of Neutronics outstanding common stock for
2,806,000 shares of Flextronics Ordinary Shares.
45
<PAGE> 46
(C) EXHIBITS.
(2) Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or
Succession.
Exhibit 2 Exchange Agreement, dated as of October 19, 1997, by and
among Flextronics International Ltd., Neutronics Electronic
Industries Holding A.G. and the named Shareholders of
Neutronics Electronic Industries Holding A.G. The Company
agrees to furnish a copy of any omitted schedule to the
Commission upon request.*
(10) Material Contracts.
Exhibit 10 Loan Agreement, dated as of October 19, 1997, by and among
Flextronics International Ltd., Neutronics Electronic
Industries Holding A.G. and Althofen Electronics GmbH.*
(23) Consents of Experts and Counsel.
Exhibit 23 Consent of Independent Public Accountants for Neutronics
Electronic Industries Holding A.G.
(99) Additional Exhibits.
Exhibit 99 Letter from Independent Public Accountants for Neutronics
Electronics Industries Holding A.G. regarding audit of
Neutronics Electronics Industries Holding A.G.
*The asterisked exhibits were included in the registrant's report on Form 8-K
as filed by the registrant on November 10, 1997.
46
<PAGE> 47
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
FLEXTRONICS INTERNATIONAL LTD.
Date: January 13, 1998 By: /s/ Robert R. B. Dykes
--------------------------------------
Robert R. B. Dykes
Senior Vice President of Finance
and Administration
47
<PAGE> 48
EXHIBIT INDEX
Exhibit 2
Exchange Agreement, dated as of October 19, 1997, by and among Flextronics
International Ltd., Neutronics Electronic Industries Holding A.G. and the named
Shareholders of Neutronics Electronic Industries Holding A.G. The Company agrees
to furnish a copy of any omitted schedule to the Commission upon request.*
Exhibit 10
Loan Agreement, dated as of October 19, 1997, by and among Flextronics
International Ltd., Neutronics Electronic Industries Holding A.G. and Althofen
Electronics GmbH.*
Exhibit 23
Consent of Independent Public Accountants for Neutronics Electronics Industries
Holding A.G.
Exhibit 99
Letter from Independent Public Accountants for Neutronics Electronics
Industries Holding A.G. regarding audit of Neutronics Electronics Industries
Holding A.G.
*The asterisked exhibits were included in the registrant's report on Form 8-K
as filed by the registrant on November 10, 1997.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated October 17, 1997 on the consolidated financial statements of Neutronics
Electronic Industries Holding A.G. as of December 31, 1996, 1995 and 1994 and
for the periods then ended, included in this Form 8-K of Flextronics
International Limited.
/s/ MOORE STEPHENS
------------------
Moore Stephens
Moore Stephens, London
January 9, 1998
<PAGE> 1
EXHIBIT 99
[MOORE STEPHENS LETTERHEAD]
13th January 1998
PRIVATE AND CONFIDENTIAL
The Directors,
Flextronics International Limited,
2241 Lundy Avenue,
San Jose,
California 95131.
Dear Sirs,
NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G.
Our audit report dated October 17, 1997 states that the audit of Neutronics AG
for the years ended December 31, 1995 and 1996 were performed in accordance with
International Standards on Auditing. Those standards do not materially differ
from generally accepted auditing standards in the United States of America.
Yours faithfully,
/s/ Moore Stephens
Moore Stephens
