<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
January 3, 1997
- --------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
SINTER METALS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-13366 25-1677695
--------------- ----------- -------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
Incorporation)
50 Public Square, Cleveland, Ohio 44113
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 771-6700
---------------
Page 1 of 34 Pages
-- --
<PAGE> 2
The undersigned Registrant hereby amends the following items,
financial statements, exhibits or other portions of its Current Report on Form
8-K dated January 3, 1997 as set forth in the pages attached hereto.
"Item 7. Financial Statements, Pro Forma Financial Information and Exhibits" is
hereby amended and restated to update the historical financial information
provided in connection with the acquisition of Krebsoge Sinterholding GmbH
("Krebsoge") by the Registrant and pro forma financial information for the
Registrant for the year ended December 31, 1996, which information is based on
the historical financial statements of the Registrant, Powder Metal Holding,
Inc. ("PMH") and Krebsoge and has been prepared to illustrate the effects of
the acquisitions of Krebsoge and PMH by the Registrant and the credit facility
entered into by the Registrant to finance such acquisitions. The financial
statements at and for the years ended December 31, 1994 and December 31, 1995
of Krebsoge were previously included in the Registrant's Current Report on
Form 8-K dated January 3, 1997 but have also been included in this Form 8K-A
for the convenience of the reader.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of Krebsoge Sinterholding GmbH
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1995 and December 19, 1996
Consolidated Statements of Income for the years ended December
31, 1994, and December 31, 1995 and for the period ended December 19, 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
and December 31, 1995 and for the period ended December 19, 1996
Notes to the Consolidated Financial Statements
(b) Pro forma financial information
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1996
(c) Not applicable
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
To the Board of Management and
Shareholders of Krebsoge Sinterholding GmbH
We have audited the consolidated balance sheets of Krebsoge Sinterholding
GmbH as of December 31, 1995 and December 19, 1996, and the related statements
of income and cash flows for the year ended December 31, 1995 and the period
ended December 19, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Germany, which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Krebsoge Sinterholding GmbH as of December 31, 1995 and December 19, 1996, and
the consolidated results of its operations and cash flows for the year ended
December 31, 1995 and the period ended December 19, 1996 in conformity with
generally accepted accounting principles in Germany.
Generally accepted accounting principles in Germany vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected the results of operations for the year ended December
31, 1995 and the period ended December 19, 1996, and shareholders' equity as of
December 31, 1995 and December 19, 1996 to the extent summarized in Note 26 to
the consolidated financial statements.
The consolidated financial statements of Krebsoge Sinterholding GmbH for
the year ended December 31, 1994 were audited by other independent auditors
whose report dated February 17, 1995 and December 12, 1996 expressed an
unqualified opinion on those statements.
Dusseldorf,
January 17, 1997
Price Waterhouse GmbH
Wirtschaftsprufungsgesellschaft
Dr. H. Schmick
Wirtschaftsprufer
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
To the Board of Management and
Shareholders of Krebsoge Sinterholding GmbH
We have audited the consolidated statements of income and cash flows of
Krebsoge Sinterholding GmbH for the year ended December 31, 1994. 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 audit in accordance with generally accepted auditing
standards in Germany, which are substancially the same as those followed in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall finacial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of Krebsoge Sinterholding GmbH for the year ended
December 31, 1994, in conformity with generally accepted accounting principles
in Germany.
Dusseldorf,
February 17, 1995, except Note 27, Subsequent Event, as to which the date is
December 12, 1996
BDO GRUNEWALDER TREUHAND GMBH
Wirtschaftsprufungsgesellschaft
Dr. F. Nehles Dr. G. Kaulen
Wirtschaftsprufer Wirtschaftsprufer
<PAGE> 5
KREBSOGE SINTERHOLDING GMBH
CONSOLIDATED BALANCE SHEETS
(in thousands of DM)
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
NOTE 1995 1996
------------ ------------
<S> <C> <C> <C>
ASSETS
Non-Current Assets
Intangible assets...................................... 2 1,706 1,583
Property, plant and equipment.......................... 3 55,754 54,036
Financial assets....................................... 4 485 751
---------- ----------
Total noncurrent assets.............................. 57,945 56,370
---------- ----------
Current Assets
Inventories............................................ 5 31,371 37,884
Receivables and other assets........................... 6 30,300 39,816
Cash................................................... 3,038 1,124
---------- ----------
Total current assets.............................. 64,709 78,824
---------- ----------
Prepaid expenses.......................................... 7 652 112
Cumulative loss in excess of equity....................... 8 54,905 48,382
---------- ----------
Total assets and cumulative loss in excess
of equity....................................... 178,211 183,688
========== ==========
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' Equity
Subscribed capital..................................... 33,700 33,700
Capital reserve........................................ 10,000 10,000
Cumulative translation adjustment...................... (329) (207)
Accumulated loss brought forward....................... (98,276) (91,875)
Cumulative loss in excess of equity.................... 54,905 48,382
---------- ----------
Total shareholders' equity........................ 8 -- --
---------- ----------
Accruals
Accruals for pensions.................................. 9 15,124 15,405
Tax accruals........................................... 10 2,949 4,242
Other accruals......................................... 11 10,508 11,425
---------- ----------
Total accruals.................................... 28,581 31,072
---------- ----------
Liabilities
Liabilities to banks................................... 68,801 58,384
Payments received on account of orders................. 567 9,064
Trade payables......................................... 9,739 14,783
Liabilities on bills accepted and drawn................ 2,070 645
Payable to affiliated enterprises...................... 53,672 51,621
Payable to associated enterprises...................... 634 438
Other liabilities...................................... 13,903 17,393
---------- ----------
Total liabilities................................. 12 149,386 152,328
---------- ----------
Deferred income........................................ 13 244 288
---------- ----------
Total shareholders' equity and liabilities........ 178,211 183,688
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
KREBSOGE SINTERHOLDING GMBH
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of DM)
<TABLE>
<CAPTION>
YEAR ENDED AT PERIOD
DECEMBER 31, ENDED
--------------------- DECEMBER 19,
NOTE 1994 1995 1996
-------- -------- ------------
<S> <C> <C> <C> <C>
Net sales......................................... 16 178,936 224,798 245,438
Increase (decrease) in inventories of finished
products
and work in progress............................ (733) 1,614 560
Other self-manufactured items capitalized......... 1,420 1,448 1,408
-------- -------- -----------
Total output............................... 179,623 227,860 247,406
Other operating income............................ 17 3,028 4,231 2,959
Cost of materials................................. 18 (50,819) (67,738) (74,168)
Personnel expenses................................ 19 (79,366) (105,448) (116,228)
Depreciation and amortization..................... (12,207) (12,092) (12,194)
Other operating expenses.......................... 20 (21,272) (29,937) (30,904)
Financial income (expense)........................ 21 (10,127) (8,862) (8,435)
-------- -------- -----------
Result from ordinary business activities... 8,860 8,014 8,436
Extraordinary income (expense).................... 22 (1,850) 1,700 --
-------- -------- -----------
7,010 9,714 8,436
Taxes on income................................... 23 (2,340) (1,627) (1,869)
Other taxes....................................... (254) (305) (166)
-------- -------- -----------
Consolidated net income (loss)............. 4,416 7,782 6,401
======== ======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 7
KREBSOGE SINTERHOLDING GMBH
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of DM)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
AT DECEMBER 31, ENDED AT
---------------------- DECEMBER 19,
1994 1995 1996
-------- --------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ 4,416 7,782 6,401
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization.................... 12,207 12,242 12,194
(Gain) loss on sale of fixed assets.............. (24) 20 (100)
(Gain) loss from waiver/reversal of waiver of
liability
to affiliated enterprise...................... 1,850 -- --
(Increase) decrease in receivables and other
assets........................................ (2,488) 4,310 (9,516)
(Increase) decrease in inventories............... 1,049 (2,385) (6,513)
(Increase) decrease in prepaid expenses.......... 243 62 540
Less gain due to merger.......................... -- (2,700) --
Increase (decrease) in accruals for pensions..... 262 191 281
Increase (decrease) in total liabilities......... 1,834 (7,345) 15,411
Increase (decrease) in accruals.................. 1,859 2,889 2,210
Other............................................ (33) 12 43
-------- --------- -----------
Total adjustments............................. 16,759 7,296 14,550
-------- --------- -----------
Cash provided by operating activities................... 21,175 15,078 20,951
-------- --------- -----------
Cash flows from investing activities:
Repayment of financial assets......................... 301 967 --
Proceeds from sales of tangible and intangible
assets............................................. 44 133 129
Capital expenditures.................................. (7,942) (12,092) (10,182)
-------- --------- -----------
Cash used by investing activities....................... (7,597) (10,992) (10,053)
-------- --------- -----------
Cash flows from financing activities:
Acquisition of financial assets....................... -- (420) (466)
Cash from merger...................................... -- 572 --
Net repayment of financial liabilities to banks....... (8,567) (5,272) (10,417)
Increase (decrease) in liabilities to affiliated
enterprises........................................ (3,150) -- (2,051)
-------- --------- -----------
Cash used by financing activities....................... (11,717) (5,120) (12,934)
Effect of foreign exchange rate changes................. 199 (112) 122
-------- --------- -----------
Net increase (decrease) in cash......................... 2,060 (1,146) (1,914)
Cash at beginning of the year........................... 2,124 4,184 3,038
-------- --------- -----------
Cash at end of period................................... 4,184 3,038 1,124
======== ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 8
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DM)
(1) SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Krebsoge Sinterholding GmbH ("KSH"
or "the Company") have been prepared in accordance with the German Commercial
Code ("HGB") which represents generally accepted accounting principles in
Germany ("German GAAP") using the significant accounting policies described
hereunder. German GAAP varies in certain significant respects from generally
accepted accounting principles in the United States ("US GAAP"). See Note 26 for
a discussion of the significant differences between German GAAP and US GAAP. The
accounting principles and valuation methods of the group have been consistently
applied, except that anniversary payments are accrued for the first time in
1996.
The consolidated financial statements of KSH as of and for the period ended
December 19, 1996 are based on the financial statements of the consolidated
group consistent with the prior years' presentation as of and for the year ended
December 31, 1996 adjusted for significant movements occurring during the period
December 20, 1996 and December 31, 1996.
Nature of Operations
The Company is engaged in designing, engineering and manufacturing
precision pressed powder metal components for use in the automotive, machine,
power tool and home appliance industries.
Organization
The Company is owned by MAAG Holding AG (87.24%), SGL Carbon AG (10.98%),
and Dr. Lothar Albano Muller (1.78%). SGL Carbon AG acquired its interest in the
Company by exchanging its 100% interest in Ringsdorff Sinter GmbH, Bonn, with
effect from April 1, 1995.
Consolidation Principles
The following subsidiary companies, in addition to KSH, have been included
in the group accounts applying the full consolidation method:
<TABLE>
<CAPTION>
PERCENTAGE
HOLDING
NAME AND LOCATION OF SUBSIDIARY (%)
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Sintermetallwerk Krebsoge GmbH, Radevormwald/Germany.............................. 100
Metallwerk Unterfranken GmbH, Bad Bruckenau/Germany............................... 100
Pressmetall Krebsoge GmbH, Radevormwald/Germany................................... 100
Sintermetallwerk Lubeck GmbH, Lubeck/Germany...................................... 100
Metallwerk Langensalza GmbH, Bad Langensalza/Germany.............................. 100
Krebsoge USA, Inc., Wilmington/USA................................................ 100
Newmet Krebsoge, Inc., Terryville/USA............................................. 100
</TABLE>
Results of operations for 1995 include the results of the former Ringsdorff
Sinter GmbH, Bonn, from the effective date, April 1, 1995 to December 31, 1995.
Ringsdorff Sinter GmbH was merged with KSH on April 1, 1995.
The 63% participation in Danyang Kaifuda Filters Co., Ltd., Jiangsu
Province/China, was not consolidated due to materiality considerations but
accounted for under the cost method.
The 51% participation in Krebsoge Excel Private Ltd., Ahmedabad/India, was
not consolidated due to materiality considerations but accounted for under the
cost method.
<PAGE> 9
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
The Company's 50% investment in PEAK Werkstoff GmbH, Velbert, is accounted
for as an associated enterprise according to the equity method.
The 26% participation in Sintered Metal Components (Pty.) Limited,
Bellville/South Africa, is accounted for according to the cost method due to
materiality considerations.
Capital consolidation for full consolidated subsidiaries has been performed
following the book value method under German GAAP. Under this method, the
purchase consideration for an acquisition is allocated to the assets and
liabilities acquired based on their book values. Any resulting excess of the
purchase consideration over the parent's interest in the book value of net
assets acquired is allocated to assets, liabilities or capitalized as goodwill.
In accordance with a transition rule of sec. 27 Implementation Law for German
Commercial Code ("EGHGB" in the case of Sintermetallwerk Krebsoge GmbH (SMK) and
Pressmetall Krebsoge GmbH (PMK)) the excess of the acquisition costs for shares
over the book value of net assets was allocated exclusively to goodwill rather
than to any hidden reserves in net assets. Goodwill is amortized over four years
in accordance with sec. 309 No. 1 HGB in the case of SMK and PMK, except for the
American and all other subsidiaries, which is amortized over its prospective 15
years useful life. See note 26 regarding German GAAP and U.S. GAAP
reconciliation.
Intra-group receivables and payables as well as revenues, income and
expense of transactions between consolidated entities have been eliminated.
Intangible Assets
Intangible assets consist mainly of purchased computer software and
goodwill. Purchased computer software is stated at cost and amortized over 3 to
5 years using the straight-line method. The treatment of goodwill is as
described above.
Property Plant and Equipment
Property plant and equipment is valued at acquisition or manufacturing
costs less accumulated depreciation. Taxable government grants have been
deducted from the purchase price of the assets, for which they were given.
Non-taxable government grants were taken to income in the year of the investment
for which they were received.
Depreciation is provided using the accelerated and straight-line method
generally over the following estimated useful lives: Buildings from 40 to 50
years, machinery from 2 to 20 years; furniture and equipment from 2 to 12 years.
Depreciation on additions during the first and second half of the year are
calculated using full or half-year rates, respectively.
Financial Assets
Financial assets are stated at lower of cost or market. Amortization is
provided as necessary for a permanent impairment of the value of assets.
Inventories
Raw materials and manufacturing supplies are stated at the lower of cost or
market, determined on a weighted average method. Work in progress and finished
products are valued at the lower of manufacturing cost or net realizable value,
and comprise direct material and labor and applicable manufacturing overheads
including depreciation charges.
<PAGE> 10
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Receivables and Other Assets
Accounts receivable are presented net of allowances for doubtful accounts.
Allowances include a provision for general risks inherent in trade receivables.
Generally, the Company does not require collateral on sales.
Cash and Cash Equivalents
Cash equivalents represent short-term investments with a maturity of three
months or less when purchased.
Prepaid Expenses
Prepaid expenses consist mainly of loan premiums which are amortized over
the term of the loan.
Pension Obligations
Accruals and provisions for pensions are actuarially determined and based
on discounted amounts.
Liabilities and Other Accruals
Liabilities are presented at their repayment amounts. Other accruals,
including those for product warranty risks and losses on sales, are provided.
Revenue Recognition
Revenue is recognized when title passes or services are rendered, net of
discounts and rebates granted.
Research and Development
The Company engages in product development and incurs costs in this regard
which are expensed. These expenses totalled 5,039 in 1996, 4,367 in 1995, and
3,835 in 1994.
Foreign Currency Translation
The balance sheets of the American subsidiary have been translated at year
end to Deutsche Mark using exchange rates at the balance sheet date except for
equity which has been translated using historical rates. The income statements
have been translated at the average exchange rates for the years. Translation
adjustments have been recorded as a separate component of equity.
Foreign Currency Transactions
Foreign currency receivables and payables are recorded at historical rates
unless using the exchange rate at the fiscal year-end would result in an
unrealized foreign currency exchange loss. This results in unrealized losses
being recognized currently and unrealized gains being recognized when realized.
Earnings Per Share
The Company is a limited liability company under German law. Earnings per
share is not calculated due to the fact that a limited liability company
expresses ownership as a percentage of the subscribed capital.
<PAGE> 11
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Total Cost Method of Presentation
The statements of income have been presented using the total cost (or type
of expenditure) method of presentation which is the most common German GAAP
method in use. In this format, production and all other expenses incurred during
the period are classified by type of expense. Sales for the period and the net
increase (decrease) in inventories of finished products and work in progress and
other work capitalized is classified as Total Output.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(2) INTANGIBLE ASSETS
<TABLE>
<CAPTION>
INTELLECTUAL
PROPERTY AND
(SIMILAR RIGHTS*) GOODWILL TOTAL
------------------ -------- --------
<S> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1995................................. 4,293 111,117 115,410
Additions due to merger.................................... 91 -- 91
Additions.................................................. 375 -- 375
Reclassifications.......................................... 1 -- 1
Disposals.................................................. (664) -- (664)
Currency translation....................................... (8) -- (8)
------- -------- --------
Balance at December 31, 1995............................... 4,088 111,117 115,205
------- -------- --------
Additions.................................................. 320 -- 320
Reclassifications.......................................... 1 -- 1
Disposals.................................................. (6) -- (6)
Currency translation....................................... 8 -- 8
------- -------- --------
Balance at December 19, 1996............................... 4,411 111,117 115,528
======= ======== ========
ACCUMULATED AMORTIZATION
at December 31, 1995....................................... (2,657) (110,842) (113,499)
======= ======== ========
at December 19, 1996....................................... (3,080) (110,865) (113,945)
======= ======== ========
AMORTIZATION FOR THE
year ended December 31, 1994............................... 529 23 552
======= ======== ========
year ended December 31, 1995............................... 385 23 408
======= ======== ========
period ended December 19, 1996............................. 425 23 448
======= ======== ========
NET BOOK VALUE
at December 31, 1995....................................... 1,431 275 1,706
======= ======== ========
at December 19, 1996....................................... 1,331 252 1,583
======= ======== ========
<FN>
- ------------------
* Industrial and similar rights and assets and licenses in such rights and
assets
</TABLE>
<PAGE> 12
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Intellectual property and similar rights are comprised of the following:
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
1995 1996
------------- -------------
<S> <C> <C>
Software................................................ 850 828
Licences and intellectual property...................... 524 447
Other................................................... 57 56
----- -----
1,431 1,331
===== =====
</TABLE>
Software relates to purchased software. Licences and intellectual property
consist of 30 (prior year 41) purchased patent rights and 417 (prior year 483)
purchased technical production know how.
The Goodwill results from the consolidation and refers to the following
entities:
<TABLE>
<CAPTION>
ACQUISITION ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
----------- ----------- --------
<S> <C> <C> <C>
Sintermetallwerk Krebsoge GmbH....................... 108,792 108,792 --
Pressmetall Krebsoge GmbH............................ 1,982 1,982 --
Krebsoge USA, Inc.................................... 343 91 252
------- ------- ---
Total Goodwill at December 19, 1996............. 111,117 110,865 252
======= ======= ===
</TABLE>
<PAGE> 13
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(3) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
OTHER ADVANCE
TECHNICAL EQUIPMENT, PAYMENTS
EQUIPMENT FACTORY AND AND
LAND AND AND OFFICE CONSTRUCTION
BUILDINGS MACHINES EQUIPMENT IN PROGRESS TOTAL
--------- --------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1995.................. 45,723 126,494 45,605 1,689 219,511
Additions due to merger..................... 0 14,556 2,204 4 16,764
Additions................................... 1,046 6,212 2,230 2,439 11,927
Reclassifications........................... 587 198 683 (1,469) (1)
Disposals................................... 0 (1,520) (1,928) (91) (3,539)
Currency translation........................ (198) (257) (28) -- (483)
Write-ups................................... 12 12 -- -- 24
------- -------- ------- ------ --------
Balance at December 31, 1995................ 47,170 145,695 48,766 2,572 244,203
------- -------- ------- ------ --------
Additions................................... 141 4,893 2,790 2,038 9,862
Reclassifications........................... 1,870 444 (2,315) (1)
Disposals................................... (2,234) (2,235) (5) (4,474)
Currency translation........................ 246 265 41 -- 552
------- -------- ------- ------ --------
Balance at December 19, 1996................ 47,557 150,489 49,806 2,290 250,142
------- -------- ------- ------ --------
ACCUMULATED DEPRECIATION
at December 31, 1995........................ (23,666) (123,331) (41,452) -- (188,449)
======= ======== ======= ====== ========
at December 19, 1996........................ (24,864) (128,643) (42,599) -- (196,106)
======= ======== ======= ====== ========
DEPRECIATION FOR THE
year ended December 31, 1994................ 1,085 6,965 3,605 -- 11,655
======= ======== ======= ====== ========
year ended December 31, 1995................ 1,110 7,032 3,542 -- 11,684
======= ======== ======= ====== ========
period ended December 19, 1996.............. 1,109 7,328 3,309 -- 11,746
======= ======== ======= ====== ========
NET BOOK VALUE
at December 31, 1995........................ 23,504 22,364 7,314 2,572 55,754
======= ======== ======= ====== ========
at December 19, 1996........................ 22,693 21,846 7,207 2,290 54,036
======= ======== ======= ====== ========
</TABLE>
<PAGE> 14
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(4) FINANCIAL ASSETS
<TABLE>
<CAPTION>
INVESTMENTS IN
NON INVESTMENTS IN LOANS TO THE
CONSOLIDATED ASSOCIATED ASSOCIATED OTHER OTHER
GROUP-COMPANIES ENTERPRISES ENTERPRISES INVESTMENTS LOANS TOTAL
--------------- -------------- ------------ ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1995....... -- 650 950 11 13 1,624
Additions due to merger.......... -- -- -- -- 61 61
Additions........................ 420 -- -- -- -- 420
Reclassifications................ -- -- -- -- -- --
Disposals........................ -- -- (950) -- (18) (968)
Currency translation............. -- -- -- -- -- --
---- ---- ---- -- --- -----
Balance at December 31, 1995..... 420 650 -- 11 56 1,137
---- ---- ---- -- --- -----
Additions........................ 466 -- -- -- -- 466
Disposals........................ -- -- -- -- (15) (15)
Balance at December 19, 1996..... 886 650 11 41 1,588
---- ---- ---- -- --- -----
ACCUMULATED AMORTIZATION
at December 31, 1995............. -- (650) -- -- (2) (652)
---- ---- ---- -- --- -----
at December 19, 1996............. (185) (650) -- -- (2) (837)
---- ---- ---- -- --- -----
AMORTIZATION FOR THE
year ended December 31, 1994..... -- -- -- -- -- --
==== ==== ==== == === =====
year ended December 31, 1995..... -- 150 -- -- -- 150
==== ==== ==== == === =====
period ended December 19, 1996... (185) -- -- -- -- 185
==== ==== ==== == === =====
NET BOOK VALUE
at December 31, 1995............. 420 150 -- 11 54 485
==== ==== ==== == === =====
at December 19, 1996............. 701 -- -- 11 39 751
==== ==== ==== == === =====
</TABLE>
The investments in non-consolidated group companies relate to 63%
participation in Danyang Kaifuda Filters Co., Ltd., Jiangsu Province/China,
according to a partnership agreement with Danyang Feida Industrial General
Corporation, Jiangsu Province/China. Total equity as of December 31, 1995
amounts to 897, and the loss for the year amounts to 38. Total equity as of
December 19, 1996 amounts to 1,075 and the loss for the period amounts to 212.
The write-down of 185 was recorded for permanent impairment of value.
The investments in non-consolidated group companies also relate to a 51%
participation in Krebsoge Excel Private Ltd., Ahmedabad/India, according to a
partnership agreement with Uniexcel Agencies & Services Pvt. Ltd.,
Ahmedabad/India. Total equity as of December 19, 1996 amounts to 133 and profit
for the period amounts to 3.
<PAGE> 15
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Investment in associated enterprises relate to the participations held by
Sintermetallwerk Krebsoge GmbH, Radevormwald, in the following companies:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 19,
1995 1996
---------------- ----------------
(LOSS) (LOSS) AT DECEMBER 31, AT DECEMBER 19,
EQUITY INCOME EQUITY INCOME 1995 1996
------ ------- ------ ------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sintered Metal Components (Pty.),
Limited Bellville/South Africa
(26%).......................... 2,385 570 n/a n/a -- --
PEAK Werkstoff GmbH, Velbert
(50%).......................... 300 (1,269) 300 (876) -- --
---- ----
-- --
==== ====
<FN>
- ---------------
n/a = not available
</TABLE>
The participation in PEAK Werkstoff GmbH was written off in full in the
amount of 150 in 1995 due to the permanent loss situation of the Company. Bank
loans of PEAK Werkstoff GmbH amount to 2,631 as of December 19, 1996.
Loans to the associated enterprises relate to a loan granted by
Sintermetallwerk Krebsoge GmbH to PEAK Werkstoff GmbH, Velbert. The loan was
repaid in full in 1995.
(5) INVENTORIES
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
1995 1996
------------- -------------
<S> <C> <C>
Raw materials......................................... 8,051 8,073
Work in progress...................................... 13,441 15,689
Finished goods and merchandise........................ 9,879 14,122
------- -------
31,371 37,884
======= =======
</TABLE>
(6) RECEIVABLES AND OTHER ASSETS
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
1995 1996
------------- -------------
<S> <C> <C>
Trade receivables..................................... 28,626 37,845
Less allowance for doubtful accounts.................. (893) (781)
------- -------
Trade receivables, net................................ 27,733 37,064
Receivables from affiliated enterprises............... 97 429
Receivables from associated enterprises............... 57 99
Receivables from shareholders......................... 171 196
Other assets.......................................... 2,242 2,028
------- -------
30,300 39,816
======= =======
</TABLE>
<PAGE> 16
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Receivables from affiliated enterprises are composed as follows and relate
to trade:
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
1995 1996
------------ ------------
<S> <C> <C>
MAAG France S.A., Courbevoie/France......................... 97 --
Dayang Feida Industrial General Corporation,/
Jiangsu Province/China.................................... -- 19
Krebsoge Excel Private Ltd., Ahmedabad/India................ -- 410
--
---
97 429
== ===
</TABLE>
Receivables from associated enterprises relate to trade with equity
investments and are composed as follows:
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
1995 1996
------------ ------------
<S> <C> <C>
PEAK Werkstoff GmbH, Velbert................................ 57 99
== ==
</TABLE>
Receivables from shareholders are composed as follows:
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
1995 1996
------------ ------------
<S> <C> <C>
SGL Carbon AG, Wiesbaden.................................... 171 196
=== ===
</TABLE>
The receivables relate to trade tax of 171 for the former Ringsdorff Sinter
GmbH, Bonn, in the first quarter 1995, which is still the responsibility of the
seller, and to trade.
Other Assets are composed as follows:
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
1995 1996
------------ ------------
<S> <C> <C>
Receivables from fiscal authorities......................... 837 888
Cash surrender value of life insurance contracts............ 702 766
Prepayments................................................. 347 8
Overpayments................................................ 148 78
Other....................................................... 208 288
----- -----
2,242 2,028
===== =====
</TABLE>
Life insurance contracts are provided to cover a portion of the pension
obligations for key employees.
(7) PREPAID EXPENSES
No loan origination costs included in prepaid expenses amounts in 1996
(prior year 523). The remaining balance relates to other accrued items such as
insurance.
<PAGE> 17
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(8) SHAREHOLDERS' EQUITY/CUMULATIVE LOSS IN EXCESS OF EQUITY
<TABLE>
<CAPTION>
CUMULATIVE ACCUMULATED CUMULATIVE
SHARE CAPITAL REVENUE TRANSLATION LOSS BROUGHT LOSS IN EXCESS
CAPITAL RESERVES RESERVES ADJUSTMENT FORWARD OF EQUITY TOTAL
------- -------- -------- ---------- ------------ -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994......... 30,000 10,000 11 (27) (110,485) 70,501 --
Release of revenue reserves........ -- -- (11) -- 11 -- --
Income of the year................. -- -- -- -- 4,416 (4,416) --
Currency translation............... -- -- -- (189) -- 189 --
------ ------ ---- ---- -------- ------ ----
BALANCE AT DECEMBER 31, 1994....... 30,000 10,000 -- (216) (106,058) 66,274 --
Income of the year................. -- -- -- -- 7,782 (7,782) --
Currency translation............... -- -- -- (113) -- 113 --
Capital increase................... 3,700 -- -- -- -- (3,700) --
------ ------ ---- ---- -------- ------ ----
BALANCE AT DECEMBER 31, 1995....... 33,700 10,000 -- (329) (98,276) 54,905 --
Income of the period............... -- -- -- -- 6,401 (6,401) --
Currency translation............... -- -- -- 122 -- (122) --
------ ------ ---- ---- -------- ------ ----
BALANCE AT DECEMBER 19, 1996....... 33,700 10,000 -- (207) (91,875) 48,382 --
====== ====== ==== ==== ======== ====== ====
</TABLE>
The cumulative loss in excess of equity is a result of the excess of the
purchase price over the net equity in the amount of 110,774 relating to the
purchase in 1986 of the investment of Sintermetallwerk Krebsoge GmbH and
Pressmetall Krebsoge GmbH which was treated as goodwill and amortized over four
years.
(9) ACCRUALS FOR PENSIONS
The Company operates a range of defined benefit pension plans for members
of the board of management, leading officers and employees which are based on
individually fixed DM amounts. The pension plans are unfunded and the
obligations from the plans are accrued for in the consolidated financial
statements. The accrual is determined based on the legal discount rate of 6%
using the entry age actuarial cost method. The plans are underaccrued by 387
(prior year 525) for German GAAP purposes.
(10) TAX ACCRUALS
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
1995 1996
------------ ------------
<S> <C> <C>
Trade tax................................................... 2,223 3,606
Corporate income tax........................................ 658 603
Net assets tax.............................................. 68 33
----- -----
Tax accruals................................................ 2,949 4,242
===== =====
</TABLE>
<PAGE> 18
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(11) OTHER ACCRUALS
<TABLE>
<CAPTION>
AT DECEMBER AT DECEMBER
31, 19,
1995 1996
------------- -------------
<S> <C> <C>
Vacation pay............................................ 2,956 3,403
Severance and other salary payable...................... 1,578 701
Salary bonus............................................ 1,407 1,490
Anniversary payments.................................... -- 670
Product warranties...................................... 1,177 1,318
Workman's compensation.................................. 722 560
Outstanding invoices.................................... 698 1,481
Estimated future losses on sales........................ 536 519
Deferred maintenance accrual............................ 520 205
Audit fees.............................................. 287 304
Unemployment insurance.................................. 190 323
Commissions............................................. 93 21
Interest................................................ 167 110
Other................................................... 177 320
------ ------
10,508 11,425
====== ======
</TABLE>
Accruals for anniversary payments are actuarially determined and based on
discounted amounts and accrued in 1996 for the first time.
Severance and other salary payable includes a charge in 1995 of 1,000 for a
general manager of one of the group companies.
(12) LIABILITIES
<TABLE>
<CAPTION>
OF WHICH DUE
--------------------------------------
WITHIN IN ONE TO AFTER
TOTAL ONE YEAR FIVE YEARS FIVE YEARS
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1995
Liabilities to banks.............................. 68,801 49,778 13,976 5,047
Payments received on account of orders............ 567 567 -- --
Trade payables.................................... 9,739 9,719 20 --
Liabilities on bills accepted and drawn........... 2,070 2,070 -- --
Payable to affiliated enterprises................. 53,672 53,672 -- --
Payable to associated enterprises................. 634 634 -- --
Other liabilities................................. 13,903 13,345 272 286
------- ------- ------ -----
TOTAL LIABILITIES.......................... 149,386 129,785 14,268 5,333
======= ======= ====== =====
AT DECEMBER 19, 1996
Liabilities to banks.............................. 58,384 58,384 -- --
Payments received on account of orders............ 9,064 9,064 -- --
Trade payables.................................... 14,783 14,783 -- --
Liabilities on bills accepted and drawn........... 645 645 -- --
Payable to affiliated enterprises................. 51,621 51,621 -- --
Payable to associated enterprises................. 438 438 -- --
Other liabilities................................. 17,393 16,762 316 315
------- ------- ------ -----
TOTAL LIABILITIES.......................... 152,328 151,697 316 315
======= ======= ====== =====
</TABLE>
<PAGE> 19
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Of total liabilities to banks (all DM denominated) none (prior year 62,141)
are secured by liens on land and buildings, investments in subsidiaries,
technical equipment and subordination of receivables from subsidiaries; 58,384
of the total relates to current overdrafts. Average interest rate was
approximately 6% for 1995 and 1996. Loan fees were capitalized as prepaid
expenses and are amortized over the term of the loan. The Company has a line of
credit amounting to 58,384.
Payables to affiliated enterprises are composed as follows:
<TABLE>
<CAPTION>
AT DECEMBER AT DECEMBER
31, 19,
1995 1996
------------- -------------
<S> <C> <C>
MAAG Overseas International N.V., Curacao/Netherland
Antilles, loans....................................... 53,613 51,563
MAAG France S.A., Courbevoie/France..................... 59 58
------ ------
53,672 51,621
====== ======
</TABLE>
The loans from MAAG Overseas International N.V. are cancellable by MAAG
after December 31, 1996 with three months notice and are as follows:
<TABLE>
<S> <C>
LOAN 1...................................................................... 16,000
LOAN 2...................................................................... 15,000
LOAN 3...................................................................... 20,000
------
51,000
Interest.................................................................... 563
------
51,563
======
</TABLE>
Interest is LIBOR plus 0.25%, but at least 5%.
Payables to associated enterprises in the amount of 438 (prior year 634)
relate to the assumption of the loss of the equity subsidiary PEAK Werkstoff
GmbH, Velbert, in 1996.
Other liabilities consist of:
<TABLE>
<CAPTION>
AT DECEMBER AT DECEMBER
31, 19,
1995 1996
------------ ------------
<S> <C> <C>
Loans from former shareholders (inclusive of accrued
interest)................................................ 4,847 4,831
Loan from a shareholder (inclusive of accrued interest).... 1,274 1,271
Taxes...................................................... 2,394 2,770
Social costs............................................... 2,159 2,550
Wages...................................................... 1,618 4,273
Loan from Albano-Muller Unterstutzungskasse e.V............ 627 711
Commissions payable........................................ 336 523
Government grants at risk.................................. 151 --
Other...................................................... 497 464
------ ------
13,903 17,393
====== ======
</TABLE>
The loans from former shareholders relate to outstanding debt in respect to
MAAG Holding AG's purchase of the company in 1986. The loan from a shareholder
relates to the loan granted from Dr. Lothar Albano-Muller, chairman of the
Krebsoge Sinterholding GmbH's Board of Management. The interest rate
<PAGE> 20
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
applicable to the loans from former shareholders and loan from a shareholder is
LIBOR plus 0.25% (at least 5%). The loans are renewed automatically on quarterly
basis.
The other liabilities contain a loan from the Albano-Muller
Unterstutzungskasse e.V. in the amount of 711 (prior year 627). The Company
transfers amounts to the staff benevolent fund to provide for pension and other
financial assistance liabilities. The transferred amounts are transferred back
to the Company in the form of a loan. This loan is repaid back by direct
payments made by the Company to the employees whose rights to pension or other
financial benefits are to be provided by the fund. The interest rate is the
German Federal Reserve Bank's discount rate (2.5% at December 19, 1996 and
December 31, 1995) plus 1%.
(13) DEFERRED INCOME
Deferred income refers to a payment in the amount of 750 received in 1983
from the Wupperverband electrical utility as compensation for non-compliance of
a contract according to which the Wupperverband had to provide electric energy
to the Company for several years under market price. The amount is being
released over 25 years. Current year income effect is 30.
[(14) COMMITMENTS
The Company also leases certain facilities and machinery and equipment
under operating leases. Rent and minimum operating lease commitments in excess
of one year are as follows after December 19, 1996:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------------------------------ ------
<S> <C>
1997........................................................ 2,374
1998........................................................ 1,148
1999........................................................ 812
2000........................................................ 426
2001 and after.............................................. 93
-----
4,853
=====
</TABLE>
Rent expense was 1,510, 1,649 and 1,786 in 1994, 1995 and 1996.
Commitments from purchasing contracts amount to 5,298.]
[(15) CONTINGENCIES
In the normal course of business the Company has guaranteed approximately
2,306 loans and investment grants.
Financial contingencies relate to the issuance and transfer of bills of
exchange in the amount of 315 (prior year: 367).]
<PAGE> 21
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(16) SEGMENT SALES
Geographic composition
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, FOR THE PERIOD ENDED
------------------- DECEMBER 19,
1994 1995 1996
------- ------- --------------------
<S> <C> <C> <C>
Net sales:
Germany...................................... 126,396 151,941 169,823
Other countries.............................. 56,309 74,660 78,322
------- ------- -------
182,705 226,601 248,145
Less discounts............................... (3,769) (1,803) (2,707)
------- ------- -------
178,936 224,798 245,438
======= ======= =======
</TABLE>
Sales to one customer represented 13.9%, 11% and 12% of total net sales in
1994, 1995, and 1996, respectively.
(17) OTHER OPERATING INCOME
Other operating income is comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, FOR THE PERIOD ENDED
--------------- DECEMBER 19,
1994 1995 1996
----- ----- --------------------
<S> <C> <C> <C>
Income from release of provisions................ 158 1,783 641
Governments grants............................... 1,220 920 670
Revenue from licenses............................ 422 473 133
Cafeteria sales.................................. 127 152 170
Investment allowances............................ 28 148 40
Reduction in allowances for doubtful accounts.... 257 98 118
Exchange rate gain............................... 71 55 146
Gain of disposal of fixed assets................. 24 -- 116
Credit notes..................................... 370 12 --
Other............................................ 351 590 925
----- ----- -----
3,028 4,231 2,959
===== ===== =====
</TABLE>
(18) COST OF MATERIALS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, FOR THE PERIOD ENDED
------------------- DECEMBER 19,
1994 1995 1996
------ ------ --------------------
<S> <C> <C> <C>
Raw materials, consumables, supplies
and merchandise.............................. 44,536 55,319 59,321
Purchased services............................. 6,283 12,419 14,847
------ ------ ------
50,819 67,738 74,168
====== ====== ======
</TABLE>
F-38
<PAGE> 22
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(19) PERSONNEL EXPENSES
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------ AT DECEMBER 19,
1994 1995 1996
------ ------- ---------------
<S> <C> <C> <C>
Wages and salaries................................. 66,328 88,234 96,875
Social security and pension expense (of which for
pensions 1,294 (1995: 1042)...................... 13,038 17,214 19,353
------ ------- -------
79,366 105,448 116,228
====== ======= =======
Employment (weighted average number of employees)
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- ---------------
<S> <C> <C> <C>
Wage earners...................................... 787 1,007 1,089
Salaried employees................................ 294 367 368
----- ----- -----
1,081 1,374 1,457
===== ===== =====
</TABLE>
(20) OTHER OPERATING EXPENSES
Other operating expenses are comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE
DECEMBER 31, PERIOD ENDED
----------------- DECEMBER 19,
1994 1995 1996
------ ------ ------------
<S> <C> <C> <C>
Maintenance......................................... 4,555 6,925 5,830
Commissions......................................... 2,908 3,275 3,703
Freight expenses.................................... 1,615 2,713 2,673
Professional fees................................... 1,729 2,516 2,920
Rent and leasing.................................... 1,510 1,649 1,786
Insurance........................................... 1,105 1,174 1,168
Waste removal....................................... 772 1,050 1,149
Travel expenses..................................... 829 850 1,170
Advertising......................................... 398 620 304
Telephone postage................................... 561 558 564
Additional personnel costs.......................... 487 540 705
Exchange rate loss.................................. 250 257 52
Additions to accruals............................... 264 333 573
Additions to allowances for doubtful accounts....... 147 192 146
Other............................................... 4,142 7,285 8,161
------ ------ ------
21,272 29,937 30,904
====== ====== ======
</TABLE>
<PAGE> 23
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(21) FINANCIAL INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE
DECEMBER 31, PERIOD ENDED
------------------ DECEMBER 31,
1994 1995 1996
------- ------ ------------
<S> <C> <C> <C>
Income from long-term loans........................ 82 11 --
Other interest and similar income.................. 310 50 57
Assumption of loss from associated enterprises..... (963) (634) (438)
Write-down of investment due to impairment......... -- (150) (185)
Interest and similar expenses...................... (9,556) (8,139) (7,869)
------- ------ ------
(10,127) (8,862) (8,435)
======= ====== ======
</TABLE>
Assumption of loss from associated enterprises relates to 50% net loss for
the year of the equity investment PEAK Werkstoff GmbH, Velbert.
The write-down of investment in 1995 due to permanent impairment relates to
the 50% equity investment in PEAK Werkstoff GmbH, Velbert. In 1996 the
write-down of investment due to permanent impairment relates to the 63%
investment in Danyang Kaifuda Filters Co., Ltd., Jiangsu Province/China.
(22) EXTRAORDINARY INCOME (EXPENSE)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER FOR THE
31, PERIOD ENDED
----------------- DECEMBER 19,
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Extraordinary income............................... -- 2,700 --
Extraordinary expense.............................. (1,850) (1,000) --
------ ------ -----
(1,850) 1,700 --
====== ====== =====
</TABLE>
As of April 4, 1995 Krebsoge Sinterholding GmbH (KSH) acquired the shares
of Ringsdorff Sinter GmbH, Bonn, effective April 1, 1995 from SGL Carbon AG in
exchange for issuance of 11% shares in KSH (nominal value 3,700). As of November
14, 1995 Ringsdorff Sinter GmbH was merged with KSH retroactively effective as
of April 1, 1995. The nominal value of the shares issued (3,700) under the book
value of assets and liabilities (6,400) was recorded as an extraordinary gain of
2,700 for German GAAP purposes. This gain is non-taxable.
The 1,850 extraordinary expense relates to a receivable from MAAG Holding
AG which was forgiven in 1993 and recognized as extraordinary income, upon
conditions that if the business improved to a certain point the Company would
have to pay the amount back. This happened in 1994 and the Company recognized
the expense. Both aspects of this transaction were non-taxable.
(23) TAXES ON INCOME
The provision for income taxes follows:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER FOR THE
31, PERIOD ENDED
----------------- DECEMBER 19,
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Municipal trade tax on income...................... 1,934 1,813 1,999
Foreign income tax................................. 44 26 --
Solidarity tax..................................... -- (8) --
Corporate income tax............................... 362 (204) (130)
------ ------ -----
2,340 1,627 1,869
====== ====== =====
</TABLE>
<PAGE> 24
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
A reconciliation of income taxes determined using the statutory federal
German rate of 45% to actual income taxes provided is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER FOR THE
31, PERIOD ENDED
----------------- DECEMBER 19,
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Corporate rate at German federal statutory rate.... 3,040 4,411 3,795
Municipal trade taxes, net of federal tax
benefit.......................................... 1,064 1,177 896
Non-taxable extraordinary gain..................... -- (1,215) --
Net operating loss utilization..................... (2,968) (2,596) (2,934)
Net operating loss carryforward.................... 452 -- --
Nondeductible extraordinary loss................... 833 -- (656)
Nondeductible expenses............................. (41) 36 620
Other.............................................. (40) (186) 148
------ ------ ------
Provision for income taxes......................... 2,340 1,627 1,869
====== ====== ======
Effective rate..................................... 35% 18% 22%
====== ====== ======
</TABLE>
German Corporation tax law applies the imputation system to the income
taxation of a corporation and its shareholders. Upon distribution of retained
earnings in the form of a dividend, shareholders receive an income tax credit
for taxes previously paid by the corporation.
In general, corporate income is initially subject to a federal tax rate of
45%. Upon distribution of retained earnings to shareholders, the corporate tax
rate is adjusted to 30% by receiving a refund from the government for taxes
previously paid on income in excess of these rates (the distributed earnings
rate).
In addition, corporate income is subject to a municipal tax on income
varying in rates from 15% to 20% depending on municipality. Municipal tax on
income is deductible for corporate income tax purposes.
Corporate income tax loss carryforwards used in 1995 and 1996 of 11,629 of
former Ringsdorff Sinter GmbH are challenged by revenue agents with an
unpredictable outcome. There are additional tax loss carry forwards of 4,230 of
the former Ringsdorff Sinter GmbH which will be challenged as well. The net
operating loss carryforwards have an indefinite carryover period.
(24) RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER FOR THE
31, PERIOD ENDED
----------------- DECEMBER 19,
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Interest expense on loans/amounts due parent....... 3,091 2,763 2,564
Management fees.................................... 1,270 1,601 2,014
Sales.............................................. -- 492 119
Purchases.......................................... -- 227 --
</TABLE>
Other related party transactions consist of the interest paid for the loans
from shareholders and former shareholders of 292 for 1996, and 263 in 1995.
Management fees are included in professional fees in Note 20 Other
Operating Expense. For further information on related party transactions refer
to Notes 6 and 12.
(25) 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 Concentration of
<PAGE> 25
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
Credit Risk", and SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments". These statements require the disclosure of off-balance-sheet
instruments and estimated fair values for all financial instruments.
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business as a means of hedging its currency rate
exposure in regards to foreign currency trade receivables. 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 or
notional principal amounts outstanding at December 31, 1995 and December 19,
1996.
<TABLE>
<CAPTION>
NOTIONAL PRINCIPAL
AMOUNT
-------------------
1995 1996
----- -----
<S> <C> <C>
Forward foreign exchange contracts............................. 2,879 938
===== =====
</TABLE>
These instruments are executed with creditworthy financial institutions,
and all foreign currency contracts are denominated in currencies of major
industrial countries.
The fair value of forward exchange contracts was estimated based on
exchange rates at December 31, 1995 and December 19, 1996. The estimated fair
values of the Company's financial instruments at December 31, 1995 and December
19, 1996 follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 19, 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Forward foreign exchange contracts............. 2,879 2,878 938 969
===== ===== ===== =====
</TABLE>
Gains are recorded when realized and losses are recorded currently.
(26) RECONCILIATION OF NET INCOME AND SHAREHOLDERS' EQUITY AS DETERMINED USING
U.S. GAAP
German GAAP varies in certain significant respects from generally accepted
accounting principles in the United States (U.S. GAAP). Application of U.S. GAAP
would have affected net income for the year ended December 31, 1995 and the
period ended December 19, 1996 to the extent quantified below, as well as
shareholders' equity (deficit) at December 31, 1995 and December 19, 1996.
<PAGE> 26
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
RECONCILIATION OF NET INCOME TO U.S. GAAP
The following is a reconciliation of the significant adjustments necessary
to reconcile net income in accordance with U.S. GAAP to the amounts determined
under German GAAP, for the year ended December 31, 1995 and the period ended
December 19, 1996.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
1995 1996
------------ ------------
<S> <C> <C>
Net income as reported in the consolidated profit and loss account
under German GAAP................................................ 7,782 6,401
Amortization of step-up -- MAAG purchase of KSH.................... (10,848) (9,091)
Amortization of step-up -- former Ringsdorff Sinter GmbH........... (220) (391)
Elimination of extraordinary gains on purchase of Ringsdorff....... (2,700) --
Pensions and similar obligations................................... (753) (1,431)
Non-taxable investment allowances.................................. 190 312
Reserves not required for U.S. GAAP................................ 370 (334)
Anniversary payments............................................... (204) 1,097
Depreciation....................................................... (580) (943)
Deferred taxes on U.S./German differences
Amortization of step-up of buildings............................. 167 167
Pensions and similar obligations................................. 324 615
Reserves not required for U.S. GAAP.............................. (159) 144
Anniversary payments............................................. 88 (170)
Depreciation..................................................... 249 405
Net operating loss carryforwards................................. (275) (44)
------ ------
Net loss in accordance with U.S. GAAP.............................. (6,569) (3,262)
====== ======
</TABLE>
INCOME STATEMENT PRESENTATION UNDER U.S. GAAP
Certain items in the profit and loss account would be classified
differently under U.S. GAAP. These items include reversals for accrued expenses
and allowances to doubtful accounts that would generally be recorded as
reductions to the original expense line items under U.S. GAAP rather than as
income.
The extraordinary expenses reported under German GAAP would be classified
as an expense charged to income from ordinary business activities under U.S.
GAAP.
The following is a presentation of certain income statement information in
accordance with U.S. GAAP.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
1995 1996
------------ ------------
<S> <C> <C>
Results from ordinary activities................................... (5,336) (2,511)
Loss before income taxes........................................... (5,336) (2,511)
Income taxes....................................................... (1,233) (751)
------ ------
Net loss in accordance with U.S. GAAP.............................. (6,569) (3,262)
====== ======
</TABLE>
<PAGE> 27
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
RECONCILIATION OF SHAREHOLDERS' DEFICIT TO U.S. GAAP
The following is a reconciliation of the significant adjustments necessary
to reconcile shareholders' equity (deficit) in accordance with U.S. GAAP to the
amounts determined under German GAAP, as of December 31, 1995 and December 19,
1996:
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
1995 1996
------------ ------------
<S> <C> <C>
Shareholders' equity (deficit) as reported in the consolidated
balance sheet under German GAAP.................................. -- --
Cumulative loss in excess of equity -- 1 January................... (54,905) (48,382)
Amortization of step-up -- MAAG purchase of KSH.................... 43,013 33,922
Amortization of step-up -- Ringsdorff Sinter GmbH.................. 2,711 2,318
Elimination of extraordinary gain on purchase of Ringsdorff........ (2,700) (2,700)
Pensions and similar obligations................................... (1,594) (3,025)
Non-taxable investment allowances.................................. (1,499) (1,187)
Reserves not required for U.S. GAAP................................ 1,648 1,314
Anniversary payments............................................... (1,097) --
Accumulated depreciation........................................... 25,147 24,204
Deferred taxes on U.S./German differences
Pensions and similar obligations................................. 685 1,301
Reserves not required for U.S. GAAP.............................. (709) (565)
Anniversary payments............................................. 472 302
Depreciation..................................................... (10,813) (10,408)
Net operating loss carryforwards................................. 1,604 1,560
Step-up of buildings............................................. (3,167) (3,000)
------- -------
Shareholders' deficit in accordance with U.S. GAAP................. (1,206) (4,346)
======= =======
</TABLE>
RECONCILIATION OF CHANGES IN SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
1995 1996
------------ ------------
<S> <C> <C>
Shareholders' deficit, beginning of year, in accordance with U.S.
GAAP............................................................. (1,154) (1,206)
Net loss in accordance with U.S. GAAP.............................. (6,569) (3,262)
Increase in share capital.......................................... 3,700 --
Increase in capital attributable to the purchase of Ringsdorff
Sinter GmbH...................................................... 2,930 --
Difference from currency translation............................... (113) 122
------- -------
Shareholders' deficit, end of period, in accordance with U.S.
GAAP............................................................. (1,206) (4,346)
======= =======
</TABLE>
CASH FLOW PRESENTATION UNDER U.S. GAAP
There are no material differences between the amounts or presentation of
the Statement of Cash Flows and FAS 95, except for, at December 19, 1996, the
difference in cash and cash equivalents results from an overdraft of DM4,166
which is classified as short term debt for U.S. GAAP purposes and a reduction to
cash for German GAAP purposes. The cash provided by financing activities under
U.S. GAAP would reflect an increase by a corresponding amount.
BALANCE SHEET PRESENTATION UNDER U.S. GAAP
Under U.S. GAAP, all receivables due after one year and all liabilities
payable after one year are classified as non-current.
<PAGE> 28
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
German GAAP does not require presentation of a classified balance sheet.
Summarized balance sheet information measured and classified in accordance with
U.S. GAAP is as follows:
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 19,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ 3,038 5,290
Other current assets............................................. 62,323 77,812
------- -------
Total current assets..................................... 65,361 83,102
Noncurrent assets.................................................. 126,114 114,114
------- -------
Total assets............................................. 191,475 197,216
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. 26,913 41,693
Short-term debt and current portion of long-term debt............ 102,872 114,171
Accruals......................................................... 13,457 15,667
------- -------
Total current liabilities................................ 143,242 171,531
Noncurrent liabilities:
Long-term debt................................................... 19,601 631
Other noncurrent liabilities..................................... 29,838 29,400
------- -------
Total long-term liabilities.............................. 49,439 30,031
Shareholders' deficit:
Shareholders' deficit............................................ (1,206) (4,346)
------- -------
Total liabilities and shareholders' equity............... 191,475 197,216
======= =======
</TABLE>
A brief explanation of the most significant differences follows.
(a) Cumulative loss in excess of equity
Under German GAAP, the cumulative loss in excess of net equity is reflected
as an asset. This is not permitted in U.S. GAAP, as this amount resides in
equity.
(b) Amortization of step-up -- MAAG purchase of KSH
The acquisition of 74% and 24% of KSH by MAAG Holding AG on September 22,
1986 and August 19, 1993, respectively, did not impact the financial statements
for German GAAP purposes. For U.S. GAAP purposes the purchase price paid by MAAG
has been allocated to the fair value of the assets and liabilities acquired. The
excess of the price paid by MAAG over the fair value of the assets and
liabilities acquired has been allocated to goodwill and is being amortized over
10 years.
(c) Amortization of step-up -- former Ringsdorff Sinter GmbH
Elimination of extraordinary gain on purchase of Ringsdorff
As of April 4, 1995 Krebsoge Sinterholding GmbH (KSH) acquired the shares
of Ringsdorff Sinter GmbH, Bonn, from SGL Carbon AG in exchange for 11%
ownership of the subscribed capital in KSH with a nominal value 3,700. Under
German GAAP a nontaxable extraordinary gain of 2,700 was recorded for the
<PAGE> 29
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
excess of the net equity of 6,400 of the acquired company over the nominal value
of the consideration given. U.S. GAAP requires the acquiring company to record
an acquisition on the basis of the fair value of the consideration given (8,950)
or the fair value of the acquired net assets whichever is more readily
determinable. The excess of the purchase price over net book value is allocated
to machinery and equipment and is amortized over ten years.
(d) Pensions and similar obligations
The pension obligations of KSH are provided for by a range of defined
benefit pensions plans. The amount of the accrual was calculated in accordance
with German GAAP and tax legislation, which does not take inflation into account
and uses the discount rate according to the legislation. Under U.S. GAAP the
accrual has been calculated by an actuary applying the principles of SFAS 87.
For 1995 and 1996, the assumed discount rate and post-retirement pension
increases used in calculating the projected benefit obligation were 6.5% and
2.5%.
The Company adopted SFAS 87, Employers Accounting for Pensions effective
December 31, 1992 because it was not feasible to apply the statement
retroactively to the year ended December 31, 1989, the applicable adoption date
specified in the standard. The portion of the transition obligation applicable
to periods prior to 1992 was not considered material.
(e) Non-taxable investment allowances
Under German GAAP tax free investment allowances are accounted for under
the flow-through method (taken to income) of which treatment is not consistent
under U.S. GAAP.
(f) Reserves not required for U.S. GAAP
(i) Deferred maintenance accrual
As required by German GAAP, the costs of maintenance performed within three
months following the year end have been accrued as liabilities at year end.
Under U.S. GAAP, the cost of maintenance is recognized in the periods incurred.
(ii) Estimated losses on future contracts
As required by German GAAP, the expected loss to be incurred on future
delivery contracts have been accrued as liabilities at year end. Such loss
considers all internal costs, including indirect selling and administrative.
Under U.S. GAAP, allocation of indirect costs for purposes of determining
inventoriable costs is not permitted.
(iii) Allowance for doubtful accounts
Under German GAAP, an allowance for doubtful accounts has been accrued in
the amount of 3% of outstanding receivables less VAT. Under U.S. GAAP an
allowance of 2% would be more appropriate as this more clearly approximates past
experience.
(iv) Warranty expense
Under German GAAP, an accrual for warranty expense has been provided in the
amount of 0.5% of sales. Under U.S. GAAP an accrual of 0.25% would be more
appropriate as this more closely approximates past experience.
<PAGE> 30
KREBSOGE SINTERHOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DM)
(g) Anniversary payments
Prior to 1996 the Company expensed anniversary payments for long-term
service to the company as incurred under German GAAP; beginning in 1996 these
costs were accrued based on vesting, but are only tax deductible as paid. Under
U.S. GAAP these costs are accrued based on vesting.
(h) Depreciation
Under German GAAP, accelerated methods of depreciation as well as straight
line depreciation are used. Estimates of the difference between accelerated and
straight line methods of depreciation were prepared by the company based on
certain assumptions of average useful lives. Assumed average useful lives were
as follows:
<TABLE>
<S> <C>
Land and buildings......................................... 40 years
Machinery and equipment.................................... 10 years
Office equipment........................................... 5 years
</TABLE>
(i) Deferred taxes
Under German GAAP, deferred tax assets are generally provided for temporary
differences using the partial liability method. Deferred taxes are not provided
for differences that are not expected to reverse in the foreseeable future, nor
are they recognized for the effects of NOLs.
Under U.S. GAAP, deferred taxes are provided for all temporary differences
between the financial reporting and tax bases of assets and liabilities that
will reverse during future taxable periods, including deferred tax assets
relating to NOLs. Deferred taxes are also provided for the income tax effects of
differences between U.S. GAAP and German GAAP. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.
OTHER MATTERS
Unrealized exchange gains
Under German GAAP, unrealized exchange gains are not recognized. Under U.S.
GAAP, unrealized exchange gains were not of a material amount.
(27) SUBSEQUENT EVENT
On October 11, 1996, Sinter Metals, Inc., Cleveland/USA (SMI), signed a
definitive purchase agreement with MAAG Holding AG to purchase the Company for
U.S. $150 million (exchange rate DM 1.50 = U.S. $1.00), less net indebtedness of
approximately DM 116 million; the agreement was consummated on December 19, 1996
and the Company was acquired by SMI and affiliates.
These financial statements are prepared using the historical cost basis,
and do not reflect any purchase accounting or other decisions taken or to be
taken by SMI in connection with the purchase of the Company.
(28) KREBSOGE SINTERHOLDING GMBH'S BOARD OF MANAGEMENT
Dr.-Ing. Lothar Albano-Muller, Schwelm (Chairman)
Dipl.- Wirtsch.-Ing. Eckhard Hirschfeld, Remscheid-Lennep (until December
31, 1995)
Total remuneration of the management was 472 (1995: 797).
<PAGE> 31
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the
"Unaudited Pro Forma Financial Information") is based on the historical
financial statements of the Registrant and of Powder Metal Holding, Inc. and
Krebsoge Sinterholding GmbH (each of which was acquired by the Registrant on
December 19, 1996 (the "Acquisitions")), and has been prepared to illustrate
the effects of such Acquisitions and the New Credit Facility entered into by
the Registrant to finance the Acquisitions (the "New Credit Facility"). The
Acquisitions and such New Credit Facility are more completely described on the
Registrant's 8-K to which this 8-KA relates.
The unaudited pro forma condensed consolidated statements of operations for
the year ended December 31, 1996 give effect to each of these transactions as if
such transactions had been completed as of January 1, 1996.
The Acquisitions have been accounted for using the purchase method of
accounting. The total purchase cost of the Acquisitions has been allocated to
the tangible and intangible assets acquired and liabilities assumed based upon
their respective fair values. The cash purchase price for the Acquisitions is
final but the purchase price allocation at December 31, 1996 is preliminary.
The final allocation of the purchase price is contingent upon the receipt of
the final appraisals of certain acquired assets and final determination of
assumed liabilities, and is not expected to differ materially from the
preliminary allocation.
The Unaudited Pro Forma Financial Information does not purport to
represent the actual results of operations of the Registrant had the
transactions and events assumed therein in fact occurred on the date specified,
nor is it necessarily indicative of the results of operations that may be
achieved in the future. The Unaudited Pro Forma Financial Information is based
on certain assumptions and adjustments described in the notes hereto and should
be read in conjunction therewith.
<PAGE> 32
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------
HISTORICAL (1) PRO FORMA
------------------------------ --------------------------
SINTER KREBSOGE PMH ADJUSTMENTS CONSOLIDATED
-------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $111,888 $159,265 $101,671 $ -- $372,824
Cost of sales....................... 86,176 125,439 90,730 (908)(2) 301,437
-------- -------- -------- ------- --------
Gross profit...................... 25,712 33,826 10,941 908 71,387
Selling, general and administrative
expenses.......................... 10,289 24,470 6,167 (2,000)(3) 38,926
Amortization of intangible assets... 415 6,315 -- (3,331)(4) 3,399
-------- -------- -------- ------- --------
Income from operations............ 15,008 3,041 4,774 6,239 29,062
Interest expense.................... 456 5,379 2,314 11,250(5) 19,399
Other expense/(income).............. (153) (670) 250 -- (573)
-------- -------- -------- ------- --------
Income before income tax
expense........................ 14,705 (1,668) 2,210 (5,012) 10,235
Income tax expense.................. 5,350 499 38 (1,587) 4,300
-------- -------- -------- ------- --------
Net income/(loss)................... $ 9,355 $ (2,167) $ 2,172 $(3,425) $ 5,935
======== ======== ======== ======= ========
Weighted average common shares
outstanding....................... 7,550 7,750
Net income per share................ $ 1.24 $ .79
OTHER FINANCIAL DATA:
Depreciation and amortization....... $ 5,025 $ 15,024 $ 5,812 $(1,857) $ 24,004
Capital expenditures................ 11,035 6,763 7,050 24,848
</TABLE>
- ---------------
(1) Reflects the historical financial statements of the companies. The 1996
statement of operations for PMH includes only the results for the period
from January 1, 1996 to November 22, 1996. The 1996 statement of operations
for Krebsoge includes the results of operations for the period January 1,
1996 to December 19, 1996, which corresponds with the audited financial
statements of Krebsoge included elsewhere herein. All references in this
report to the year ended 1996 refer to the period from January 1, 1996 to
November 22, 1996 with respect to PMH, and the period from January 1, 1996
to December 19, 1996 with respect to Krebsoge. The consolidated statement
of income for 1996 included in the audited financial statements of Krebsoge
included elsewhere herein was prepared in accordance with German GAAP but
has been converted into U.S. GAAP for purposes of this pro forma
presentation. See Note 26 to the audited financial statements of Krebsoge
for discussion of the primary differences between German GAAP and U.S.
GAAP. Krebsoge's results of operations were converted to U.S. dollars using
the average exchange rate for 1996 of 1.50 DMs per U.S. dollar.
<PAGE> 33
(2) Represents the adjustment to cost of sales resulting from:
<TABLE>
<S> <C>
Increased depreciation as a result of the step-up in value of
property, plant and equipment................................ $ 617
Reversal of step-up in finished goods inventory................ 800
Reduced raw material costs by purchasing under existing Sinter
contracts.................................................... (1,000)
Elimination of operating lease as a result of property
acquisition.................................................. (1,325)
--------
$ (908)
========
</TABLE>
(3) Represents the cost reductions that result directly from the Acquisitions,
summarized as follows:
<TABLE>
<S> <C>
Reduced administrative headcount from closing duplicative
facilities................................................... $ 1,700
Elimination of other duplicative costs......................... 300
--------
$ 2,000
========
</TABLE>
(4) Represents the net reduction in goodwill amortization, as follows:
(a) Pro forma amortization of goodwill and other intangible assets
recognized as a result of the Acquisitions:
<TABLE>
<CAPTION>
ANNUAL
VALUE AMORTIZATION
-------- ------------
<S> <C> <C>
Goodwill recognized after identification of all
other assets.................................. $117,015 $2,925
Intangible assets identified during purchase
price allocation.............................. 1,000 59
-------- ------
$118,015 $2,984
======== ======
</TABLE>
Consistent with the historical accounting policies of Sinter, and
the expected cash flows from these investments, goodwill is being
amortized over 40 years.
(b) The results of operations for Krebsoge include goodwill associated
with prior acquisitions. Since there is a new basis of accounting as
a result of the Acquisitions, the historical amortization is
reversed, as follows:
<TABLE>
<S> <C>
Goodwill amortization reflected in Krebsoge historical
results of operations (U.S. GAAP)......................... $ (6,315)
Pro forma goodwill amortization (per Note (a) above)......... 2,925
Pro forma intangible asset amortization...................... 59
--------
$ (3,331)
========
</TABLE>
(5) Represents the adjustment to reflect (i) interest expense of $18,311 on
$219,039 of borrowings under the New Credit Facility to complete the
Acquisitions and repay a portion of the Registrant's debt, (ii) amortization
expense representing the New Credit Facility costs of $6,936, amortized
over the eight year life of the facility and (iii) the interest expense
related to a capital lease obligation recorded in the application of
purchase accounting of $230. In the aggregate, such adjustments equate
to a pro forma consolidated interest expense of $19,399 for the period
ended December 31, 1996. The interest on the borrowings under the New
Credit Facility was calculated using the rates in effect on December 31,
1996.
(6) Represents the estimated tax effects of the adjustments, including the
reversal of the utilization of operating loss carryforwards of PMH and
Krebsoge that will be limited as a result of the Acquisitions.
<PAGE> 34
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 hereunto duly authorized.
SINTER METALS, INC.
Date: February 21, 1997 /s/ Joseph W. Carreras
-------------------------
By: Joseph W. Carreras
Chairman of the Board
and Chief Executive Officer
/s/ Michael T. Kestner
-------------------------
By: Michael T. Kestner
Chief Financial Officer
