SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
FIRST AMENDMENT TO FORM 8-K
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 14, 1999
ANDEAN DEVELOPMENT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 33-90696 65-0648697
State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
600 BRICKELL AVENUE, SUITE 301-B, MIAMI, FLORIDA 33131
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 358-4400
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 30, 1999, Andean Development Corporation ("ADC") acquired
1,332,600 shares of common stock of Consonni USA, Inc. ("CONUSA") representing
44.32% of the issued and outstanding common stock of CONUSA from Pedro Pablo
Errazuriz, ADC's Chairman and CONUSA's controlling shareholder. ADC acquired the
CONUSA common stock in exchanged for certain assets, including certain real
property located in Chile, as well as the forgiveness of debt in the sum of
approximately $125,000 due from Errazuriz. The Company obtained an independent
appraisal of the common stock of CONUSA as well as an independent appraisal of
certain of the assets exchanged for the stock.
Prior to this transaction, ADC owned 11.18% of CONUSA's common stock.
ADC owns 55.5% of CONUSA's common stock as a result of this transaction.
CONUSA is a holding company and its main asset is 88% of Construcciones
Electromecanicas Consonni S.A. of Bilbao, Spain, a manufacturer of control
panels and substations.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The audited financial statements of Equipos de Control
Electrico, S.A. for the year ended December 31, 1998 are being
filed herewith as Exhibit 99.1 and the audited financial
statements of Construcciones electromecanicas Consonni, S.A.
for the year ended December 31, 1998 are being filed herewith
as Exhibit 99.2.
(b) Pro Forma Financial Information.
The pro forma financial information for the year ended
December 31, 1998 and for the six months ended June 30, 1999
are being filed herewith as Exhibit 99.3.
(c) Exhibits.
The following documents are being filed as exhibits to this report:
23.1 Consent of Price Waterhouse Auditores, S.A, independent auditors
as to Equipos de Control Electrico, S.A.
23.2 Consent of Price Waterhouse Auditores, S.A, independent auditors
as to Construcciones electromecanicas Consonni, S.A.
99.1 Audited Financial Statements of Equipos de Control Electrico, S.A.
as of December 31, 1998.
<PAGE>
99.2 Audited Financial Statements of Construcciones Electromecanicas
Consonni, S.A. as of December 31, 1998.
99.3 Unaudited pro forma financial information for the year ended
December 31, 1998 and for the six months ended June 30, 1999 are
incorporated by reference to the Quarterly Report for the Period Ended
June 30, 1999 on Form 10-QSB.
99.4 Unaudited pro forma financial information for the year ended
December 31, 1997 and December 31, 1998 including 55.96% of CONUSA as
part of ADC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ANDEAN DEVELOPMENT CORPORATION
Date: September 16, 1999 By:/S/ MAURICIO DE LA BARRA
--------------------------------------
Mauricio De la Barra, President
<PAGE>
EXHIBIT INDEX
EXHIBITS DESCRIPTION
- -------- -----------
23.1 Consent of Price Waterhouse Auditores, S.A, independent
auditors as to Equipos de Control Electrico, S.A.
23.2 Consent of Price Waterhouse Auditores, S.A, independent
auditors as to Construcciones electromecanicas Consonni, S.A.
99.1 Audited Financial Statements of Equipos de Control Electrico,
S.A. as of December 31, 1998.
99.2 Audited Financial Statements of Construcciones
Electromecanicas Consonni, S.A. as of December 31, 1998.
99.3 Unaudited pro forma financial information for the year ended
December 31, 1998 and for the six months ended June 30, 1999
are incorporated by reference to the Quarterly Report for the
Period Ended June 30, 1999 on Form 10-QSB.
99.4 Unaudited pro forma financial information for the year ended
December 31, 1997 and December 31, 1998 including 55.96% of
CONUSA as part of ADC.
INDEPENDENT AUDITORS' REPORT ON THE ANNUAL ACCOUNTS
To the shareholders of Construcciones Electromecanicas Consonni, S.A.
1. We have audited the annual accounts of Construcciones Electromecanicas
Consonni, S.A., consisting of the balance sheet at 31 December 1998,
the profit and loss account and the notes for the year then ended,
whose preparation is the responsibility of the Company's Directors. Our
responsibility is to express an opinion on the aforementioned annual
accounts as a whole, based on our audit work carried out in accordance
with generally accepted auditing standards in Spain, which require
examining, on a test basis, evidence supporting the annual accounts, as
well as evaluating their overall presentation and assessing the
accounting principles applied and estimates made.
2. In accordance with company legislation, the Directors have presented,
for comparative purposes only, for each item of the balance sheet, the
profit and loss account and the statement of source and application of
funds, the corresponding amounts for the previous year as well as the
amounts for 1998. Our opinion refers exclusively to the annual accounts
for 1998. On 16 April 1998 and 4 March 1999 we issued our audit report
on the annual accounts for 1997 in which we expressed a qualified
opinion.
3. As mentioned in Note 1 to the annual accounts, Company Management
applied for a declaration of temporary receivership, in a decision
adopted by the Board of Directors on 23 July 1996, which was ratified
by the Universal, Extraordinary General Shareholders Meeting on 10
September 1996.
On 5 March 1998 the Court Decision which approved the Agreement with
Creditors was given. Under the terms of the Agreements reached between
the Company and its Creditors, an overall acquittal of thousands of
Pesetas - PThs 735,744 was made, with respect to the debts originally
recorded, which the Company recorded crediting the profit and loss
account for the year 1997.
In accordance with the principle of prudence, and as any failure to
comply with the terms of the Creditors' Agreement or the agreements
with the Preferred Creditors would lead to their termination and,
hence, to the cancellation of the acquittal recorded, this item should
be taken to profit and loss in proportion to the amount of the related
debt repaid (Notes 1 and 11 to the accompanying annual accounts). Up to
31 December, and in accordance with the terms of the agreed plan, debts
relating to the receivership have been cancelled (net of the
corresponding acquittal, PThs 213,056) for an amount of PThs 115,817.
At 31 December 1998, the Company presents, net of the outstanding
payments of capital, PThs 213,500 (Note 12 to the accompanying annual
accounts), a positive net equity of PThs 208,236, which includes the
profit for 1998, amounting to PThs 97,655.
In spite of the improvement in the economic and financial situation and
of the Company's profits in 1998, the strengthening of the Company's
financial situation and equity and its
<PAGE>
ability to meet its financial commitments and, hence, to continue as a
going concern, will depend on the fulfillment of the objectives and
plans set out in Note 17 to the annual accounts and the payment
commitments entered into with its preferred and ordinary creditors,
affected by the temporary receivership (Notes 1 and 11 to the annual
accounts).
4. The accompanying annual accounts have been prepared on the basis of
accounting principles generally accepted in Spain and include, to
facilitate your understanding, a summary of significant differences
between Spanish and U.S. Generally Accepted Accounting Principles and
their effect on the Company's equity (Note 19 to the annual accounts).
5. In our opinion, except for the effects of any adjustment that might be
necessary if we knew the final outcome of the uncertainty described in
Paragraph 3, above, the accompanying annual accounts for 1998 present
fairly, in all material respects, a true and fair view of the
shareholders' equity and financial position of Construcciones
Electromecnicas Consonni, S.A. at 31 December 1998 and the results of
its operations and the resources obtained and applied for the year then
ended, and they contain the necessary and relevant information in order
to adequately interpret and understand them, in conformity with
generally accepted accounting principles applied on a basis consistent
with that of the preceding year.
6. The accompanying Directors' Report for 1998 contains the information
considered relevant to the Company's situation, the evolution of its
business and of other matters and does not form an integral part of the
annual accounts. We have verified that the accounting information
contained in the aforementioned Directors' Report coincides with that
of the annual accounts for 1998. Our work as auditors is limited to
verifying the Directors' Report within the scope already mentioned in
this paragraph and does not include the review of information other
than that obtained from the Company's accounting records.
Price Waterhouse Auditores, S.A.
/S/ F. JAVIER DOMINGO
- --------------------------------
F. Javier Domingo
Partner - Auditor
12 March 1999
INDEPENDENT AUDITORS' REPORT ON THE ANNUAL ACCOUNTS
To the shareholders of
Equipos de Control E1ectrico, S.A.
as requested by the Management of the Company
1. We have audited the annual accounts of Equipos de Control E1ectrico,
S.A., consisting of the balance sheet at 31 December 1998, the profit
and loss account and the notes for the 11-month period then ended,
whose preparation is the responsibility of the Company's Directors. Our
responsibility is to express an opinion on the aforementioned annual
accounts as a whole, based on our audit work carried out. Except for
the qualification mentioned in paragraph 3, the work has been carried
out in accordance with generally accepted auditing standards, which
require examining, on a test basis, evidence supporting the annual
accounts, as well as evaluating their overall presentation and
assessing the accounting principles applied and estimates made.
2. In accordance with Company legislation, the Directors have presented,
for comparative purposes only, for each item of the balance sheet, the
profit and loss account and the statement of source and application of
funds, the corresponding amounts for the previous year as well as the
amounts for the 11-month period ended 31 December 1998. Our opinion
refers exclusively to the annual accounts for the I 1 -month period
ended 31 December 1998. On 4 June 1998 we issued our audit report on
the annual accounts for the year ended 31 January 1998 in which we
expressed an opinion containing the same qualification as stated in
paragraph 3 below.
3. We have not been provided with the documentation necessary to review
the tax situation for the year ended 31 January 1996 and previous years
which are open to inspection, that correspond to a period previous to
the Company's current activities and its present Administrators. As a
result, we are unaware of any possible tax contingencies relating to
these years which may not have been recorded in the annual accounts at
31 December 1998.
<PAGE>
Page 2
4. In our opinion, except for the effects of any adjustment that might
have been considered necessary if we had been able to review the
Company's tax situation with respect to the years open to inspection
previous to 31 January 1996, the accompanying annual accounts for the
11-month period ended 31 December present fairly, in all material
respects, a true and fair view of the shareholders' equity and
financial position of Equipos de Control E1ectrico, S.A. at 31 December
1998 and the results of its operations and the resources obtained and
applied for the period then ended, and they contain the necessary and
relevant information in order to adequately interpret and understand
them, in conformity with generally accepted accounting principles,
applied on a basis consistent with that of the preceding year.
5. The accompanying Directors' Report for the 11-month period ended 31
December 1998 contains the information considered relevant to the
Company's situation, the evolution of its business and of other matters
and does not form an integral part of the annual accounts. We have
verified that the accounting information contained in the
aforementioned Directors' Report coincides with that of the annual
accounts for the 11-month period ended 31 December 1998. Our work as
auditors is limited to verifying the Directors' Report within the scope
already mentioned in this paragraph and does not include the review of
information other than that obtained from the Company's accounting
records.
Price Waterhouse Auditores, S.A.
/S/ F. JAVIER DOMINGO
- ---------------------------------
Francisco Javier Domingo
Partner-Auditor
19 March -1999
Equipos de Control Electrico, S.A.
Audit report and annual accounts
as at 31 December 1998 and Directors' Report
for the period ended 31 December 1998
<PAGE>
EQUIPOS DE CONTROL ELECTRICO, S.A.
- --------------------------------------------------------------------------------
AUDIT REPORT OF THE
ANNUAL ACCOUNTS
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL ACCOUNTS
AT 31 DECEMBER 1998
- --------------------------------------------------------------------------------
CONSTRUCCIONES ELECTROMECANICAS CONSONNI, S.A.
AUDIT REPORT AND ANNUAL ACCOUNTS
AS AT 31 DECEMBER 1998 AND
DIRECTORS' REPORT 1998
<PAGE>
AUDIT REPORT OF THE
ANNUAL ACCOUNTS
<PAGE>
Page 3
ANNUAL ACCOUNTS
AT 31 DECEMBER 1998
<PAGE>
Page 4
CONSTRUCCIONES ELECTROMECANICAS CONSONNI, S.A.
PROFIT AND LOSS ACCOUNT FOR THE YEARS ENDED ON 31 DECEMBER 1998 AND 1997
(Expressed in thousands of Pesetas -- PThs)
<TABLE>
<CAPTION>
DEBIT 1998 1997 CREDIT
- ----- ---- ---- ------
A) EXPENSES B) INCOME
<S> <C> <C> <C>
2. Consumption and other outside expenses
(Note 15.2) 976,641 750,193 1. Net turnover
a) Sales (Note 15.1)
3. Personnel costs (Note 15.3) 366,742 388,781
a) Salaries and wages 292,935 314,811 2. Increases in inventories of finished
b) Social Security and other charges 73,807 73,970 work in progress (Note 15.2)
4. Provision for depreciation and 35,904 57,519 4. Other operating income
amortization (Notes 5 and 6) a) Other income and other current
operating income
5. Variation in trade provisions 11,789
a) Variation in the provision for
decline in value of inventories -- 10,463
b) Variation in the provision for -- 1,326
doubtful debts
6. Other operating expenses 103,667 119,947
a) External services (Note 15.4) 102,681 118,979
b) Taxes 986 968
I. OPERATING PROFIT 130,292 --
7. Financial expenses 28,481 21,531
a) Debts with group companies (Note 12,534 --
10.2)
c) Debts and expenses with third parties 15,947 21,531
II. FINANCIAL PROFIT -- -- II. FINANCIAL LOSS
III. PROFIT FROM ORDINARY ACTIVITY 101,811 -- III. LOSS ON ORDINARY ACTIVITY
11. Losses on disposal of fixed assets 165,776 10. Extraordinary income
---------- -----------
13. Extraordinary expenses 10,947 274,216 13. Income and Profit from previous
years
---------- -----------
---------- -----------
14. Expenses and losses from previous years 211 48,622 14. Results From the temporary
receivership
---------- -----------
---------- -----------
IV. EXTRAORDINARY PROFIT -- 255,793 IV. EXTRAORDINARY LOSS
---------- -----------
---------- -----------
V. PROFIT BEFORE TAX 97,655 182,573 V. LOSSES BEFORE TAX
---------- -----------
========== ===========
VI. NET PROFIT FOR THE YEAR PThs 97,655 182,573 VI. NET LOSS FOR THE YEAR PThs
========== ===========
</TABLE>
<PAGE>
Page 5
CONSTRUCCIONES ELECTROMECANICAS CONSONNI, S.A.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED ON 31 DECEMBER 1998
(Expressed in Thousands of Pesetas - PThs)
NOTE 1 -- ACTIVITY
Construcciones Electromecanicas Consonni, S.A., hereinafter the Company, was set
up on 21 July 1972 under the name "Equipos E1ectricos Consonni, S.A.", and
changed its name to its present name on 9 March 1973.
Its corporate object is to study, design, build, perfect, repair and install and
sell high-, medium- and low-voltage electric equipment.
Its corporate address and its production facilities and administrative offices
are located in Bilbao.
The worsening of the economic and financial situation brought about by the drop
in market demand, together with the reduction in prices and margins forced
Company Management to apply for a declaration of temporary receivership, in a
decision adopted by the Board of Directors on 23 July 1996, which was ratified
by the Universal, Extraordinary General Shareholders Meeting on 10 September
1996. The court issued the relevant report on 7 march 1997.
The proposal for an Agreement, executed on 21 July 1997, which has been agreed
to by creditors for an amount totaling PThs 191,282 of total liabilities which,
after deducting the credits entitled to abstain, amounted to PThs 264,597, thus
fulfilling the requirement that it must be more than two-thirds of the debtor's
liabilities, includes, inter alia, the following agreements:
b) Holders of credit rights which do not qualify for any special system
and who are affected by this agreement, shall be paid 10% of their
credits in the following manner and periods:
- During the first two years after the date
this agreement is approved, no amount
shall be paid.
- On the dates the 3rd, 4th, 5th, 6th, 7th and
8th year after the Decision approving the
Agreement becomes firm, they shall be paid
17% in each of the four first years
mentioned above and 16% in the two last
years mentioned, i.e. the 7th and 8th years,
of the amount that is equal to 10% of the
debts owed to them. No interest shall accrue
on the debts.
<PAGE>
Page 6
c) The remainder of the debts owed to them, i.e. 90%, shall be cleared,
subject to the final settlement and payment of the amounts resulting
from point a) above.
d) Consequently, any failure to pay any of the amounts on the
aforementioned dates shall entail non-performance of the agreement, and
the agreement shall be deemed not to have been approved and the
creditor who has accepted the settlement shall recover its right to be
paid the entire amount owed to it as set out in the final list
submitted to the Court by the Receiver.
e) The preferred debts (pledged, separately privileged, etc.) shall be
paid in the manner which is agreed with each of the private individuals
or legal entities who are entitled to such preferences. This agreement
shall apply to them if they formally agree to it.
f) The debts owed to the Social Security and Tax Authorities of Bizkaia
are recognized as being preferential and privileged. Therefore, said
debts shall be paid by the Company, for the amounts, on the dates and
in the manner and subject to any other terms that are expressly agreed
with the General Treasury of the Social Security and the Tax
Authorities of Bizkaia.
g) A Watchdog Committee shall be set up to check that this Agreement is
complied with.
The Creditor's Agreement has been approved by a Court Decision dated 5 March
1998.
NOTE 2 -- BASES OF PRESENTATION OF THE ANNUAL ACCOUNTS
The annual accounts have been obtained from the Company's accounting records and
are presented in accordance with the generally accepted accounting principles
set out in current legislation. The Company's annual accounts for 1998 have yet
to be approved by the General Shareholders Meeting. However, the Board of
Directors does not expect may changes to be made to them as a result of said
approval.
The figures set out in the documents that make up these annual accounts, the
balance sheet, the profit and loss account and these notes to the accounts, are
expressed in thousands of pesetas (PThs).
NOTE 3 -- PROPOSED DISTRIBUTION OF PROFIT
The General Shareholders Meeting will be asked to approve the profit for the
year, PThs 97,655, and its distribution to the Legal Reserve (10%) and to
Voluntary Reserves after Tax loss carryforwards have been offset.
<PAGE>
Page 7
NOTE 4 -- VALUATION STANDARDS
The most significant accounting principles and practices used in the preparation
of the annual accounts are as follows:
a) RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are valued according to the incurred
costs.
They are amortized using the straight line method, over 7 years
starting from the year after they are included in fixed assets.
b) COMPUTER APPLICATIONS
They are stated at cost.
They are amortized over 7 years starting from the year after they are
included in fixed assets.
c) ASSETS BEING ACQUIRED UNDER FINANCE LEASES
The relating to the finance lease contracts are recorded in the
accounts as intangible assets at the cash value of the asset, net of
its accumulated amortization, calculated in accordance with the
estimated useful life of the related assets, and recording under
liabilities the debt for the outstanding installments plus the amount
of the purchase option, credited to the captions Bank loans and
overdrafts - Creditors for short-term finance leases and Bank loans -
Creditors for long-term finance leases on the balance sheet.
Furthermore, the deferred financial expenses arising from these
operations are recorded as a charge under the capital Deferred expenses
on the asset side of the balance sheet, and charged to profit and loss
in each year on a pay-back basis.
d) TANGIBLE FIXED ASSETS
The tangible fixed assets that were recorded on the balance sheet at 31
December 1992 are stated in accordance with valuations made by Galtier
Hispania, S.A., in December 1989 and in January 1992, and updated in
line with the Retail Price Index for 1992. Additions made as from 1993
are stated at purchase or production cost, in the case of work carried
out by the company's staff.
The effect of the revaluation made in 1996, in accordance with Local
Law 1996/6, to Update Balance Sheets, dated 21 November, has been
included in the value of the assets. The maximum rates allowed under
Local Law 1996/6 were used in the revaluation carried out in 1996.
<PAGE>
Page 8
The company's tangible fixed assets at 31 December 1997 were valued by
an Independent expert. This valuation has determined that the net book
value of the assets at the aforementioned date was slightly lower than
the result of the valuation carried out.
Tangible fixed assets are depreciated using the straight line method
over the useful lives of the respective assets, taking into account the
depreciation that is effectively suffered as a result of operating,
using and enjoying the asset.
The useful lives used to calculate the depreciation of tangible fixed
assets are as follows:
PRIOR
--------------
Machinery 18
Installations 20
Tools and dies 10
Furniture and office equipment 10
Vehicles 5
e) INVESTMENTS
Investment securities, be they long-term or current -asset, fixed or
variable income, are valued at acquisition cost.
Provisions are set up as necessary to record any permanent decline in
the value of the investment, whenever the cost price is higher than the
amount that results from using rational valuation criteria.
f) DEFERRED EXPENSE
They record deferred financial expense which the Company considers
should be charged over several years. They are amortized when the debts
fall due.
g) INVENTORIES
Inventories of raw materials are valued at acquisition cost, using the
average weighted price method.
Work in progress is valued at production cost, which is determined by
adding the costs directly relating to manufacture to the cost of
acquiring the raw materials and other consumable materials.
Finished products are valued at selling price less the amount of costs
not yet incurred.
<PAGE>
Page 9
Whenever the market or replacement cost of inventories is lower than
those indicated in the previous paragraph, the values are corrected and
provisions for `decline in value are set Lip accordingly.
h) TRADE DEBTORS AND CREDITORS
Debits and credits that result from the company's trading activities,
be they debit or credit, short- or long-term, are valued at their
nominal value.
Provisions are set up according to the risk of bad debt.
i) BALANCES WITH GROUP AND ASSOCIATED UNDERTAKINGS
For reporting purposes, group and associated undertakings are deemed to
include companies in which the Company has no holding but which are
related to the Company because they are directly or indirectly
controlled by a single company or private individual related to the
shareholders of Construcciones Electromecnicas Consonni, S.A. (Note
12).
j) OTHER DEBTS
Credit line accounts are recorded as the balance of the amount drawn
down.
The amount of discounted bills is recorded, until it matures, under
Debtor accounts and Bank loans and overdrafts.
k) CORPORATION TAX
The profit and loss account records, when applicable, the Corporation
Tax effect, the calculation of which envisages the gross tax accruing
in the year, as well as any rebates and deductions in the gross tax to
which the Company is entitled.
According to the principle of conservative valuation, tax credits
stemming from tax loss carryforwards and tax rebates and deductions to
which the company is entitled are not taken to profit and loss in the
year they are generated, and are expensed in the year they are offset
or used.
l) EXCHANGE RATE DIFFERENCES
Debtors and creditors denominated in foreign currencies are valued at
year-end exchange rates.
m) LONG-TERM ASSETS AND LIABILITIES
Assets and liabilities are deemed to be long term when they accrue
after more than one year.
<PAGE>
Page 10
n) INCOME AND EXPENSES
Income and expenses are recorded on the accruals basis, regardless of
when the resulting monetary or financial flow occurs.
NOTE 5 -- INTANGIBLE ASSETS
5.1 The movements recorded in this caption during the year are as follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
31.12.97 ADDITIONS 31.12.98
---------------- ------------- ---------------
GROSS
<S> <C> <C> <C>
Other research and development expenses 98,737 - 98,737
Licenses 3,096 - 3,096
Computer applications 19,003 4,290 23,293
Rights over assets acquired under finance leases
- 7,408 7,408
---------------- ------------- ---------------
120,836 11,698 132,534
---------------- ------------- ---------------
ACCUMULATED AMORTIZATION
Other research and development expenses 36,682 13,814 50,496
Licenses 1,093 501 1,594
Computer applications 8,773 2,027 10,800
Rights over assets acquired under finance leases
- - -
---------------- ------------- ---------------
46,548 16,342 62,890
---------------- ------------- ---------------
NET PThs 74,288 69,644
--- ================ ===============
</TABLE>
5.2 Other research and development expenses include work carried out by the
Company to develop new medium-and low-voltage prototypes. The net
amount at 31 December 1998 is PThs 48,241.
5.3 The most significant data related to assets acquired under finance
leases is as follows:
<PAGE>
Page 11
<TABLE>
<CAPTION>
TERM OF ORIGINAL COST INSTALLMENTS VALUE
THE NOT INCLUDING PAID IN OF
CONTRACT MONTHS PURCHASE PRIOR INSTALLMENTS INSTALLMENTS PURCHASE
ASSET (MONTHS) ELAPSED OPTION YEARS PAID IN 1998 OUTSTANDING OPTION
- ----------- ---------- --------- ------------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Car 48 7 7,236 - 1,400 8,199 172
</TABLE>
Deferred interest expense not accrued at 31 December 1998 is
recorded under Deferred expenses on the asset side of the balance
sheet (Note 8).
The amount of installments outstanding at 31 December 1998 has been
recorded, together with the value of the purchase option yet to be
taken up, under the captions Bank loans-Creditors for long-term finance
lease and Bank loans and overdrafts-Creditors for short-term finance
lease in the balance sheet (Note 13), in line with the due dates of the
aforementioned installments, as broken down here below:
SHORT-TERM PThs 2,400
===================
LONG-TERM
2000 2,400
2001 2,400
2002 999
-------------------
PThs 5,799
===================
NOTE 6 -- TANGIBLE FIXED ASSETS
6.1 The movements in the accounts of this caption during the year are as
follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
31.12.97 ADDITIONS 31.12.98
---------------- ------------- ---------------
GROSS
<S> <C> <C> <C>
Machinery 163,206 1,099 164,305
Technical plant 105,828 1,301 107,129
Tools and dies 40,390 47 40,862
Furniture 66,016 3,216 69,232
Other fixed assets 9,034 - 390,562
---------------- ------------- ---------------
384,474 6,088 390,562
---------------- ------------- ---------------
ACCUMULATED AMORTIZATION
Machinery 78,259 6,865 85,124
Technical plant 44,843 6,068 50,911
Tools and dies 27,651 2,250 29,901
Furniture 44,513 3,520 48,033
</TABLE>
Page 12
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Other fixed assets 5,455 859 6,314
---------------- ------------- ---------------
200,721 19,562 220,283
---------------- ------------- ---------------
NET PThs 183,753 170,279
--- ================ ===============
</TABLE>
6.2 During 1988, 1991 and 1992, the Company carried out various different
voluntary reevaluations in accordance with the reports of independent
experts and on trends in the retail price indices since the assets had
first been recorded as tangible fixed assets. The approximate net
effect of these reevaluations was 217 million of pesetas.
On 31 December 1996 the Company also, in accordance with Local Law
6/1996, dated 21 November, restated its tangible fixed assets for a net
amount of PThs 30,580. Part of this revaluation was used in 1997 to
write off losses accumulated by the company.
6.3 The General Shareholders Meeting of the Company adopted a decision to
make up for the lack of documentation about certain tangible fixed
assets by proceeding to have the net values of the tangible fixed
assets assessed as at 31 December 1997.
The result of the assessment carried out by an independent expert was
that the net value of the company's assets as at 31 December 1997 was
slightly lower than their market value at the aforementioned date.
It is Company's policy to take out whatever insurance policies are
deemed necessary in order to cover against any risks that might affect
tangible fixed assets.
NOTE 7 -- INVESTMENTS
The movements in the various different accounts in the Investments caption
during the year are as follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
31.12.97 ADDITIONS 31.12.98
---------------- ------------- ---------------
<S> <C> <C> <C>
Long-term securities portfolio 175 275 450
Deposits and guarantee deposits given 1,610 4,200 5,810
---------------- ------------- ---------------
PThs 1,785 4,475 6,260
================ =============
</TABLE>
NOTE 8 -- DEFERRED EXPENSE
The movements recorded in the year under this caption are the following:
Interest expense
on finance lease
agreements
---------------------
<PAGE>
Page 13
Balance at 31 December 1997 --
New finance lease agreement in 1998 927
Transfer to profit and loss (262)
-------------
Balance at 31 December 1998 PThs 665
=============
NOTE 9 -- CUSTOMERS' ACCOUNTS FOR SALES AND SERVICES
9.1 The analysis of the caption Customers' accounts for sales and services
at 31 December 1998 is as follows:
BALANCE AT
31.12.98
----------------
Trade debtors 114,527
Trade bills
discounted pending maturity (Note 13) 12,736
Doubtful trade debts 1,326
------------
PThs 128,589
============
9.2 There has been no movement in the provision for doubtful debts in 1998.
NOTE 10 --BALANCES AND TRANSACTIONS WITH GROUP AND ASSOCIATED
COMPANIES
10.1 The balances with Group and associated companies as at 31 December 1998
are the following:
Equipos de Control Electrico, S.A.:
- Invoices receivable 349,511
- Unissued invoices 149,836
------------
PThs 499,347
============
10.2 Set out below are the transactions carried out with group and
associated undertakings during 1998:
PThs
-----------------
Sale 1,197,350
Interest expense 12,534
<PAGE>
Page 14
NOTE 11 -- PUBLIC ENTITIES
11.1
<TABLE>
<CAPTION>
SHORT-TERM LONG-TERM
----------------
DEBIT CREDIT CREDIT
BALANCE BALANCE BALANCE
------------ --------------- ----------------
<S> <C> <C> <C>
Bizkaia Tax Authorities
- Current debt:
Withholdings 194 -- --
VAT 1,130 8,358 --
Payroll withholding tax -- 10,901 --
- Deferred debt -- 35,450 283,600
Social Security:
- Current debt -- 7,508 --
- Deferred debt -- 8,196 148,947
Bilbao City Authorities -- -- 534
Basque Regional Authorities -- 6,000 48,550
------------ --------------- ----------------
PThs 1,324 76,413 481,631
============ =============== ================
</TABLE>
11.2 The balance of the deferred debt with the Local Tax Authorities of
Bizhaia includes the amount of the principal and late-payment interest
for VAT, Personal Income Tax and Sales Tax for prior years which
amounted to PTHs 631,716 at 1996 December 31.
Under an agreement between the Company and the Local Tax Authorities
dated 19 December 1997, the total debt was reduced by 45%, which
represented PThs 284,272. The remaining PThs 347,444 shall be paid by
the Company over a 10-year period, at 10% per year in quarterly
installments, starting in 1998.
Late-payment interest shall be charged on this deferral of 55% of
the total debt at a rate of 4.5% per annum.
11.3 The amount of the overdue debt owed to the Social Security authorities
records employer's contributions not paid in prior years, which totaled
PThs 273,292 as at 1996 December 31. On 16 February 1998, an agreement
was reached between the Company and the General Treasury of the Social
Security Authorities under which the Authorities reduced the total debt
by 40%, i.e. by PThs 109,317. The remaining debt, PThs 163,975 will be
paid over a period of 8 years, at the following rates: first and second
years 5%; third and fourth years 10%; fifth and sixth years 15% and
seventh and eighth years 20%.
<PAGE>
Page 15
Interest will be charged on the principal outstanding on this deferral
at a rate of 4.5% per annum.
11.4 The balance with the Basque Regional Authorities records the principal
and the interest on a loan originally granted by the Caixa and
guaranteed by this entity, which had to repay it, as the Company failed
to honor its repayments. At 31 December 1996 the debt totaled PThs
219,181.
Under an agreement between the Basque Regional Authorities dated 30
December 1997 the total debt was reduced by 45%, involving an amount of
PThs 98,631. Furthermore, an amount of PThs 60,000 was used to reduce
the debt as a result of the foreclosure on the mortgage on the
Company's property assets carried out in 1997. The remaining PThs
60,550 shall be paid over a period of 10 years in quarterly
installments, starting on 31 March 1998.
Interest will be charged on this deferral at a rate of 4.5% per annum.
11.5 Unaccrued income included in the debt deferral agreements entered into
with the bodies referred to in the above sections, which has not been
recorded as an increased debt with said institutions, amounts to PThs
99,378 in all.
11.6 The repayment schedule of the long-term deferred debt, based on the
agreements reached with the public entities indicated in the above
paragraphs is as follows:
2000 56,572
2001 57,939
2002 64,771
2003 66,137
2004 et seq. 236,212
--------------
PThs 481,631
==============
<PAGE>
Page 16
NOTE 12 -- SHAREHOLDERS' EQUITY
12.1 Set out below is an analysis of movements in the captions that make up
the Company's shareholders' equity during 1998:
<TABLE>
<CAPTION>
BALANCE 1997 BALANCE
AT PROFIT 1998 AT
31.12.97 DISTRIBUTION PROFIT 31.12.98
-------------- ---------- -------------
<S> <C> <C> <C> <C>
Share capital 350,000 -- -- 350,000
Revaluation reserves:
- Revaluation P.R. 6/96
(Note 6) 14,535 -- -- 14,535
-------------- ------------- ---------- -------------
Previous-year losses (223,027) 182,573 -- (40,454)
Profit/loss for the year 182,573 (182,573) 97,655 97,655
-------------- ------------- ---------- -------------
PThs 324,081 -- 97,655 421,736
============== ============= ========== =============
</TABLE>
12.2 The Extraordinary General Shareholders Meeting of the Company, held on
19 December 1997, decided to reduce the Company's share capital to zero
in order to offset losses and simultaneously to increase it by three
hundred and fifty million pesetas by creating and issuing 35,000 new
registered shares, each with a par value of Pts. 10,000, fully
subscribed.
As of 31 December 1998, 39% of the share capital has been paid in,
equal to an amount of PThs 136,500.
The analysis of shareholders' holdings at 31 December 1998 is as
follows:
<TABLE>
<CAPTION>
PERCENTAGE
PTHS HOLDING
------------ ---------------
<S> <C> <C>
Consonni USA Inc. 308,000 88%
Other shareholders, private individuals 42,500 12%
------------ ---------------
350,000 100%
============ ===============
</TABLE>
12.3 REVALUATION RESERVES RESTATEMENT LOCAL LAW 6/1996
The balance of this account may not be used until it has been checked
and accepted by the Authorities or five years elapse as from the date
the restated balance sheet date.
<PAGE>
Page 17
However, the part of the balance relating to losses on transfers of
restated assets may be used.
After the balance of the account has been checked or the deadline for
checking it has expired, it may be used for:
- - Eliminating book losses.
- - Increasing capital, one or more times, after the rectifications
proposed have been accepted and accumulated losses have been
eliminated. At the same time an appropriation may be made to the legal
reserve to increase it by up to 20% of the amount of the capital
increase.
- - The balance of the account yet to be used to reserves not available for
distribution.
If all or part of the balance of the account is used before it has been
checked and accepted or such check becomes statute-barred, or if it is
used for purposes other than those indicated in the previous paragraph,
the appropriate taxes must be paid.
NOTE 13 -- BANK LOANS AND OVERDRAFTS
The analysis of the balance at 31 December 1998 included in the captions Bank
loans and overdrafts is as follows:
<TABLE>
<CAPTION>
SHORT LONG
TERM TERM
----------
<S> <C> <C>
Creditors for finance lease (Note 5,3) 2,400 5,799
Creditors for bills discounted (Note 9) 12,736 --
Banco Exterior de Espana, credit balance of current account 18,165 --
----------- ----------
PThs 33,301 5,799
=========== ==========
</TABLE>
NOTE 14 -- TAX SITUATION
14.1 In spite of the profits recorded in 1998, there has been no Corporation
Tax expense because the tax loss carryforwards were higher.
The Corporation Tax basis of assessment and reported profits are the
same.
14.2 The tax losses carried forward from previous years yet to be offset as
at 31 December 1998 are set out below:
<PAGE>
Page 18
Year the Last year for Amount of
Loss was offsetting the loss
recorded
-------------------------
1996 2011 161,721
---------------
PThs 161,721
===============
14.3 The following taxes are open to inspection for the years mentioned
herebelow:
Corporation Tax 1993 and following
Value Added Tax 1994 and following
Transfer Tax 1994 and following
Personal Income Tax 1993 and following
NOTE 15 -- INCOME AND EXPENSES
15.1 Net turnover, PThs 1,595,593, virtually all relates to sales in the
domestic market.
15.2 Supplies and variation in inventories:
a) RAW MATERIALS CONSUMED
--------------------------------
Opening inventories 90,245
Purchases 977,920
Closing inventories (91.524)
------------------
PThs 976,641
==================
b) Changes in stocks of finished goods and work in progress
-------------------------------------------------------------
<TABLE>
<CAPTION>
CHANGE
OPENING CLOSING (INCREASE)
INVENTORIES INVENTORIES DECREASE
----------------- -----------------
<S> <C> <C> <C>
Work in progress and semi-
finished products 61,246 (173,741) (112,495)
Finished goods 94,842 -- 94,842
-------------- -----------------
PThs 156,086 (173,741) (17,653)
==============
</TABLE>
<PAGE>
Page 19
15.3 The distribution of the personnel by category is as follows:
Executives 5
Administrative staff 3
Sales staff 7
Purchases 2
Draughtsmen 8
Workshop 58
=====
Total 83
=====
15.4 The analysis of external services, PThs 102,681 is the following:
Leases 7,169
Repairs and maintenance 1,880
Supplies 8,451
Insurance 2,160
Services of independent professionals 8,624
Transport 13,747
Office material and communications 7,393
Other expenses 53,266
===========
Total PThs 102.681
===========
NOTE 14 -- OTHER INFORMATION
16.1 The members of the Board of Directors have not been paid any
remuneration for their duties as Board members, and have been paid a
global amount of PThs 13,487 in salaries.
16.2 The Company has been given guarantees by various different banks for an
amount totaling PThs 12,830, approximately, as security with regard to
customers for different orders that have been fulfilled.
16.3 As the Company's computer applications will not be significantly
affected by the Y2000K effect or the introduction of the euro, the
Company has not incurred any cost in the year not will have any
significant additional costs in the future in these connections.
16.4 At 31 December 1998 the Company does not hold own shares.
Page 19
NOTE 17 - THE COMPANY'S PLAN FOR THE FUTURE
<PAGE>
Page20
The company, in order to strengthen its financial and asset situation, and to
meet all its commitments, has drawn up a strategic plan for the future,
consisting of the following aspects:
a) LIFTING THE TEMPORARY RECEIVERSHIP
Towards the end of 1997 and the first two months of 1998, the Company
managed to reach agreements which have enabled the temporary
receivership to be lifted in March 1998 (Note 1).
Solutions that were acceptable to both parties were agreed with all the
creditors, which enabled it to continue normal operations with
suppliers and banks. A major reduction in debt of more than 735 million
of pesetas was obtained, and the balances owed to public authorities
were deferred over periods of between 8 and 10 years. In this way the
company's stability was ensured and new shareholders undertook,
together with the executive group, to contribute 350 million of pesetas
in a capital increase, which exceeds the best previous levels of
equity. At 31 December 1998, 136.5 million of pesetas of the 350
million of pesetas agreed had been contributed (Note 12).
(b) ACTION SCHEDULE
The resources obtained from contributions and being released from
immediate debt payment commitments are going to be used for:
1. Increasing the Company's ordinary activities.
2. Using outside resources to reduce manufacturing costs.
3. Developing new markets.
4. Improving the information systems in order to better control
production and costs, for which purpose the ideas set out in
the Modernisation and Management Plan proposed by our
consultants shall be followed.
5. Developing new activities in the commercial area, using the
Company's sales and technical department.
6. Broadening the product range.
The sales division shall be strengthened with a view to export
business.
<PAGE>
Page 21
c) Budget. follow-up and control
The Company has set up a committee of its administrative, financial and
technical managers to budget and set priorities for the points in the
Strategic Plan. It began to work as from the second quarter of 1998,
after the debt settlement agreements had been signed and the temporary
receivership had been lifted by court order.
<PAGE>
Page 22
NOTE 18 - STATEMENTS OF SOURCE AND APPLICATION OF FUNDS FOR THE YEARS ENDED ON
31 DECEMBER 1998 AND 1997
<TABLE>
<CAPTION>
APPLICATIONS 1998 1997 SOURCES 1998 1977
<S> <C> <C> <C> <C> <C>
3. Acquisitions of 1. Funds generated from
fixed assets operations 133,821 502,756
a) Intangible assets 11,698 947
b) Tangible assets 6,088 3,881
c) Investments 4,475 175
2. Shareholders' contributions 136,500 -
a) Capital increase
7. Cancellation or 4. Short term liabilities
transfer to short b) Bank
term of long-term 54,921 83,642 loans 5,799 -
debt
9. Deferred expense 927 - c) Other companies - 23,158
7. Early repayment or
transfer to short-term of
investments - 3,530
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Total applications PThs 78,109 88,645 Total sources PThs 276,120 589,444
========= ========== ========== =============
EXCESS OF SOURCES OVER
APPLICATIONS (INCREASE
IN WORKING CAPITAL) PThs
198,011 500,799
CHANGE IN WORKING 1998 1997
------------------------------- ---------------------------
CAPITAL Increase Decrease Increase Decrease
------------- ------------- ---------- -------------
2. Inventories 20,119 - - 155,215
330,980 - - 636
- 109,534 651,756 -
- - - 21,000
- 45,368 32,232 -
1,814 - - 6,338
------------- ------------- ---------- -------------
352,913 154,902 683,988 183,189
------------- ------------- ---------- -------------
PTHS 198,011 500,799
============= ==========
</TABLE>
<PAGE>
Page 22
The resources (used) generated in the operations are determined from the book
result, in the following manner:
<TABLE>
<CAPTION>
1998 1997
------------------ -------------------
<S> <C> <C>
Reported profit (loss) 97,655 182,573
+ Depreciation and amortisation for the year 35,904 57,519
+ Deferred expenses taken to profit and loss 262 81
+ Loss on disposal of tangible fixed assets - 165,776
+ Intangible assets written off - 96,807
------------------ -------------------
PThs 133,821 502,756
================== ===================
</TABLE>
Page 23
NOTE 19 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN SPANISH' GAAP AND US GAAP
FOR THE YEAR ENDED 1998
The following represents a description of certain differences in accounting
policies related to the Company between Spanish Generally Accepted Accounting
Principles (hereinafter Spanish GAAP) and United States Generally Accepted
Accounting Principles (hereinafter US GAAP):
(a) RECONCILIATION OF NET INCOME AND SHAREHOLDERS' EQUITY BETWEEN SPANISH
GAAP AND US GAAP
<TABLE>
<CAPTION>
NET PRIOR YEARS SHAREHOLDERS'
INCOME NET EQUITY EQUITY
----------------- ------------------- ----------------------
<S> <C> <C> <C>
As reported in the accompanying annual
accounts at December 31, 1998 97,655 324,081 421,736
Adjustments for US GAAP purposes:
1. Elimination uncalled share capital - (213,500) (213,500)
2. Research and development costs 13,814 (62,055) (48,241)
3. Tax effect (32.5%) (4,490) 20,168 15,678
4. Computer applications depreciation
</TABLE>
<PAGE>
Page 24
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- (6,308) (6,308)
5. Tax effect (32.5%) - 2,050 2,050
6. Fixed assets revaluation 1,700 (12,835) (11,135)
7. Tax effect (32.5%) (553) 4,171 3,618
8. Recognition of tax losses carried
forward from prior years - 52,559 52,559
9. Tax deferred assets, valuation
allowance 5,043 (78,948) (73,905)
----------------- ------------------- ----------------------
Total adjustments net of taxes 15,514 (294,698) (279,184)
----------------- ------------------- ----------------------
Net income and Shareholder's equity in
accordance with US GAAP at December 31, 1998
PThs 113,169 29,383 142,552
================= =================== ======================
</TABLE>
Page 24
1. Uncalled Share Capital
Elimination of the amount of share capital pending payment (uncalled
share capital) by charging the nominal value of the registered capital
(share capital).
2. Research and development costs
In accordance with Spanish GAAP, research and development costs are
capitalised when they are incurred, and are then generally amortised
over five years. In accordance with US GAAP, these costs must always be
expensed as incurred.
3. Recognition of the Deferred tax asset in the balance sheet, originated
by the adjustment included in paragraph 2 above, at full value,
calculated on balance sheet temporary differences using the tax rates
at which the taxes are expected to be paid.
4. Depreciation of Computer Applications
Adjustment to recalculate the amount of depreciation under the caption
Computer applications on the basis of an estimated useful life of 3
years.
The effect in the net income for the year 1998 has resulted
insignificant.
5. Recognition of the Deferred tax asset in the balance sheet, originated
by the adjustment included in paragraph 4, above, at full value,
calculated on balance sheet temporary differences using the tax rates
at which the taxes are expected to be paid.
<PAGE>
Page 25
6. Revaluation reserve
Under Spanish GAAP, and in accordance with Local Law 6/1996 on balance
sheet revaluation, dated November 21, companies may revalue their fixed
assets acquired before 1996.
Under US GAAP revaluations are not permitted.
Page 25
7. Recognition of the Deferred tax asset in the balance sheet, originated
by the adjustment included in paragraph 6, above, at full value,
calculated on balance sheet temporary differences using the tax rates
at which the taxes are expected to be paid.
8. Tax losses carried forward from prior years
Recognition of the Deferred tax asset in the balance sheet at full
value, due to tax losses carried forward from prior years yet to be
offset as at December 31, 1998, calculated using tax rates at which the
taxes are expected to be paid.
9. Deferred tax assets valuation allowance
Under US GAAP. deferred tax assets are recognised in the balance sheet
at full value, but reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that some
portion, or all, of the deferred tax asset will not be realised.
At present, the preparation of a viability plan is expected to justify
the recovery of the deferred tax asset recorded.
10. Other items
10.1 Statement of cash-flows
Spanish GAAP does not require presentation of a statement of
cash-flow. However, it is compulsory that a statement of
source and application of funds be included as a footnote to
the annual accounts of each individual company.
10.2 Extraordinary Income and Expense
Under Spanish GAAP, the company has recorded certain income
and expenses as extraordinary in the income statement. Under
US GAAP, these items would not have been classified as
extraordinary items but rather included in the determination
of operating results.
<PAGE>
Page 26
10.3 Leases
Under Spanish GAAP, total installments due under a finance lease are
credited to appropriate long and short term creditors and the cash cost
of the item is capitalized as an intangible asset ("rights over leased
assets") and the balance is recorded as deferred interest.
Under US GAAP, an asset and the corresponding liability should be
recognized at the lower of the fair value or the present value of the
minimum lease payments.
(b) RELATED PARTY TRANSACTIONS
The nature and extent of transactions with all related parties are disclosed,
together with the amounts involved, in Notes 4 i) and 10.
The sale of materials to Equipos de Control Elecctrico, S.A., implies that
intercompany transfer prices are established so that this company receives 3%
over the total amount invoiced to the final customer, which in 1998 amounted to
PThs 1,256,204.
The trading license, PThs 19,000, corresponds to the agreement for the exclusive
trading rights held by Equipos de Control E1ectrico, S.A.
<PAGE>
Page 27
DIRECTORS' REPORT
1998
<PAGE>
FREE TRANSLATION FROM THE ORIGINAL IN SPANISH
- --------------------------------------------------------------------------------
Page 28
FREE TRANSLATION FROM THE ORIGINAL IN SPANISH
- --------------------------------------------------------------------------------
1998 DIRECTORS' REPORT
Following the reorganization process carried out in the past years, 1998 has
seen the return to a profit situation for the Company. The adjustments made have
led to our being in a more competitive position, which, in turn has permitted
improving both production and sales figures, that have reached the highest level
in the company's history.
In the Business Area we would like to point out the following actions:
o A strengthening of our presence in neighboring countries, through
approaching major companies such as CEGELEC in France, TOSHIBA in England,
ABB in Switzerland and DANIELLI in Italy. For the first time we have
supplied the former two companies with equipment destined both towards the
Spanish market as well as regions as diverse as China and South America.
The business relationship with these two companies leads us to expect
excellent possibilities for future growth in the next year.
For 1999 we have also received firm orders both from DANIELLI and from the
ABB Group.
o Creation of an export consortium called Enertrade, composed of four
companies from the electromechanical sector, destined, basically, towards
promoting exports to North Africa and Central America.
In the Production Area we should highlight the following:
o Streamlining of production, eliminating almost completely those processes
that require minimal technical ability.
o Creation of a network of collaborating companies, capable of complementing
our activities so that our capacity for development of Engineering
generates greater final production.
o Establishment of the Quality Standard ISO 9001, to gain the qualification
for design and manufacture in accordance with the most demanding quality
requirements.
<PAGE>
FREE TRANSLATION FROM THE ORIGINAL IN SPANISH
- --------------------------------------------------------------------------------
Page 29
FREE TRANSLATION FROM THE ORIGINAL IN SPANISH
- --------------------------------------------------------------------------------
PAGE 2
Finally, we would like to point out that during the year just ended, we have
begun a collaboration program with a local company in Lima - Peru, for the
establishment of a new company called Consonni Peru, which will engage in the
manufacture of electronic equipment based on technology provided by C.E.
Consonni, S.A.
This company, which will be formally set up during March 1999, will allow us to
access an expanding market with high growth possibilities at the present time.
Lastly, in order to undertake the planned growth with a guarantee of success,
both in the domestic and international markets, the shareholders have taken on
the commitment to complete the repayment of the share capital increase before
the end of 1999, which will, without a doubt, assist in participating in new
projects that could demand a greater financing capacity.
*******
<PAGE>
FREE TRANSLATION FROM THE ORIGINAL IN SPANISH
- --------------------------------------------------------------------------------
Page 30
FREE TRANSLATION FROM THE ORIGINAL IN SPANISH
- --------------------------------------------------------------------------------
DRAWING UP THE ANNUAL ACCOUNTS AND DIRECTORS' REPORT
The Board of Directors of Construcciones Electromecanicas Consonni, S.A., on
March 8, 1999, in compliance with the requirements laid down in current
legislation proceeds to draw up the annual accounts and directors' report for
the year from 1 January 1998 to 31 December 1998.
S/S PEDRO PABLO ERRAZURIZ
- -------------------------------
MR. PEDRO PABLO ERRAZURIZ
(CHARIMAN)
S/S JUAN PHILLIPS DAVILA
- -------------------------------
MR. JUAN PHILLIPS DAVILA
(DIRECTOR)
S/S IGNACIO MONTALBAN
- -------------------------------
MR. IGNACIO MONTALBAN
(Deputy Chairman)
S/S PEDRO PABLO ERRAZURIZ DOMINGUEZ
- --------------------------------------------
MR. PEDRO PABLO ERRAZURIZ DOMINGUEZ
(DIRECTOR)
S/S JOSE IGNACIO CARRASCO
- -------------------------------
MR. JOSE IGNACIO CARRASCO
(DIRECTOR)
<PAGE>
FREE TRANSLATION FROM THE ORIGINAL IN SPANISH
- --------------------------------------------------------------------------------
Page 31
FORMULACION DE LAS CUENTAS ANUALES E INFORME DE GESTION
El Consejo de Adrninistracion de Construcciones Electromecanicas Consonni, S.A.,
en fecha 9 de marzo de 1999, y en cumplimiento de los requisitos establecidos en
la legislacion vigente precede a formular las cuentas anuales y el informe de
gestion, del ejercicio comprendido entre el 1 de enero de 1998 y el 31 de
diciembre de 1998.
S/S PEDRO PABLO ERRAZURIZ
- -------------------------------
S. D. PEDRO PABLO ERRAZURIZ
(PRESIDENTE)
S/S JUAN PHILLIPS DAVILA
- -------------------------------
D. JUAN PHILLIPS DAVILA
(Consejero)
S/S IGNACIO MONTALBAN
- -------------------------------
MR. IGNACIO MONTALBAN
(VICEPRESIDENTE)
S/S PEDRO PABLO ERRAZURIZ DOMINGUEZ
- -------------------------------
MR. PEDRO PABLO ERRAZURIZ DOMINGUEZ
(CONSEJERO)
S/S JOSE IGNACIO CARRASCO
- -------------------------------
MR. JOSE IGNACIO CARRASCO
(CONSEJERO)
ANDEAN DEVELOPMENT CORPORATION
Balance Sheet
December 31, 1998
1998 P R O F O R M A BALANCE SHEET
(Including 55,96% CONSONNI USA Inc. as part of Andean Development Corporation)
<TABLE>
<CAPTION>
- -------------------------------- ---------------------- --------------------------
ASSETS 1998 1997
- -------------------------------- ---------------------- --------------------------
CURRENT ASSETS
- -------------------------------- ---------------------- --------------------------
<S> <C> <C>
Cash and cash equivalents 166.733,39 324.556,00
- -------------------------------- ---------------------- --------------------------
Time Deposits 57.127,57 528.575,00
- -------------------------------- ---------------------- --------------------------
Accounts Receivable, net 6.689.853,30 3.205.385,00
- -------------------------------- ---------------------- --------------------------
Due from related parties 901.973,45 520.000,00
- -------------------------------- ---------------------- --------------------------
Other current assets 1.045.458,56 118.038,00
- -------------------------------- ---------------------- --------------------------
Inventory 3.298.575,00
- -------------------------------- ---------------------- --------------------------
- -------------------------------- ---------------------- --------------------------
- -------------------------------- ---------------------- --------------------------
- -------------------------------- ---------------------- --------------------------
Total Current Assets 12.159.721,27 4.696.554,00
- -------------------------------- ---------------------- --------------------------
- -------------------------------- ---------------------- --------------------------
FIXED ASSETS 672.875,00
- -------------------------------- ---------------------- --------------------------
- -------------------------------- ---------------------- --------------------------
Land & Building 1.174.143,13 0,00
- -------------------------------- ---------------------- --------------------------
Vineyard 315.856,24 0,00
- -------------------------------- ---------------------- --------------------------
Technical installations & 371.795,52 0,00
Machinery
- -------------------------------- ---------------------- --------------------------
Installations 538.236,41
- -------------------------------- ---------------------- --------------------------
Other property, plant & -1.791.004,30
equipment
- -------------------------------- ---------------------- --------------------------
Furniture and equipment
- -------------------------------- ---------------------- --------------------------
Less: Accumulated depreciation
- -------------------------------- ---------------------- --------------------------
- -------------------------------- ---------------------- --------------------------
Total Fixed Assets 3.359.959,00 672.875,00
- -------------------------------- ---------------------- --------------------------
- -------------------------------- ---------------------- --------------------------
OTHER ASSETS
- -------------------------------- ---------------------- --------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------- -------------------- --------------------------
LIABILITIES 1998 1997
- ------------------------------- -------------------- --------------------------
CURRENT LIABILITIES
- ------------------------------- -------------------- --------------------------
<S> <C> <C>
Obligations with banks 1.646.803,88 576.756,00
- ------------------------------- -------------------- --------------------------
Current portion Long term debt 57.223,10 30.320,00
- ------------------------------- -------------------- --------------------------
Accounts payable 4.328.602,02 787.155,00
- ------------------------------- -------------------- --------------------------
Due to related parties 615.434,24 24.264,00
- ------------------------------- -------------------- --------------------------
Income taxes payable 117.525,10 197.022,00
- ------------------------------- -------------------- --------------------------
Accrued expenses and withhold. 57.319,31 77.531,00
- ------------------------------- -------------------- --------------------------
Current portion of staff sev. 23.953,63 21.530,00
Ind.
- ------------------------------- -------------------- --------------------------
Dividends payable 564.020,00 150.000,00
- ------------------------------- -------------------- --------------------------
- ------------------------------- -------------------- --------------------------
Total Current Liabilities 7.410.881,28 1.844.578,00
- ------------------------------- -------------------- --------------------------
- ------------------------------- -------------------- --------------------------
LONG TERM LIABILITIES
- ------------------------------- -------------------- --------------------------
- ------------------------------- -------------------- --------------------------
Long term debt, ex.curr.port. 594.423,48 118.754,00
- ------------------------------- -------------------- --------------------------
Staff severance indemnities 65.093,15 87.317,00
- ------------------------------- -------------------- --------------------------
Public entities
- ------------------------------- -------------------- --------------------------
Others Debt
- ------------------------------- -------------------- --------------------------
- ------------------------------- -------------------- --------------------------
- ------------------------------- -------------------- --------------------------
Total Long Term Liabilities 4.134.477,63 206.071,00
- ------------------------------- -------------------- --------------------------
- ------------------------------- -------------------- --------------------------
- ------------------------------- -------------------- --------------------------
- ------------------------------- -------------------- --------------------------
STOCKHOLDERS'
- ------------------------------- -------------------- --------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------- ---------------------- --------------------------
<S> <C> <C>
Investments in affiliated Co. 1.086.704,91 1.629.998,00
- -------------------------------- ---------------------- --------------------------
Deferred charges 978.342,28 1.072.343,00
- -------------------------------- ---------------------- --------------------------
Real estate held for investment 1.147.389,43 789.447,00
- -------------------------------- ---------------------- --------------------------
Notes Rec. from related party 531.793,09 606.031,00
- -------------------------------- ---------------------- --------------------------
Notes Receivable - other 1.411.900,50 1.339.766,00
- -------------------------------- ---------------------- --------------------------
Deposit and other 133.096,32
- -------------------------------- ---------------------- --------------------------
- -------------------------------- ---------------------- --------------------------
- -------------------------------- ---------------------- --------------------------
Total Other Assets 5.289.226,53 5.437.585,00
- -------------------------------- ---------------------- --------------------------
- -------------------------------- ---------------------- --------------------------
TOTAL ASSETS 20.808.906,80 10.807.014,00
- -------------------------------- ---------------------- --------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------- -------------------- --------------------------
EQUITY
- ------------------------------- -------------------- --------------------------
- ------------------------------- -------------------- --------------------------
<S> <C> <C>
Common stock 282,00 282,00
- ------------------------------- -------------------- --------------------------
Additional paid in capital 5.724.319,56 5.724.320,00
- ------------------------------- -------------------- --------------------------
Retained earnings 2.289.693,31 2.197.810,00
- ------------------------------- -------------------- --------------------------
Earning of the period 737.014,11 937.903,00
- ------------------------------- -------------------- --------------------------
Cumulative translation adjust. -43.924,74 -103.950,00
- ------------------------------- -------------------- --------------------------
Monitary Interest 556.163,65
- ------------------------------- -------------------- --------------------------
Dividends 0,00
- ------------------------------- -------------------- --------------------------
- ------------------------------- -------------------- --------------------------
Total Stockholders' Equity 9.263.547,89 8.756.365,00
- ------------------------------- -------------------- --------------------------
- ------------------------------- -------------------- --------------------------
Total liabilities and stock. 20.808.906,80 10.807.014,00
- ------------------------------- -------------------- --------------------------
</TABLE>
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Statements of Operations
December 1998
1998 P ROFORMA STATEMENT OF OPERATION
(Including 55,96% CONSONNI USA Inc. as part of Andean Development Corporation)
<TABLE>
<CAPTION>
- -------------------------------------------------------- ---------------------------------- --------------------------------
REVENUES FROM OPERATIONS 1998 1997
- -------------------------------------------------------- ---------------------------------- --------------------------------
<S> <C> <C>
Revenues 15.251.022,45 3.879.062,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
Cost of Operations -12.513.204,63 -1.773.165,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
GROSS PROFIT 2.737.817,82 2.105.897,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
- -------------------------------------------------------- ---------------------------------- --------------------------------
Selling & Administrative Expensis -1.527.504,22 -1.053.221,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
- -------------------------------------------------------- ---------------------------------- --------------------------------
INCOME FROM OPERATIONS 1.210.313,60 1.052.676,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
- -------------------------------------------------------- ---------------------------------- --------------------------------
OTHER INCOME (EXPENSES)
- -------------------------------------------------------- ---------------------------------- --------------------------------
- -------------------------------------------------------- ---------------------------------- --------------------------------
Interest Expenses -305.701,21 -32.795,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
Depreciation and amortization -209.209,54 -67.046,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
Interest Incomes 143.402,34 121.174,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
Non operational incomes 220.135,92 6.031,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
Minority Interest -197.713,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
- -------------------------------------------------------- ---------------------------------- --------------------------------
Total other incomes (expenses) -349.085,49 27.364,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
- -------------------------------------------------------- ---------------------------------- --------------------------------
INCOME BEFORE INCOME TAX 861.228,11 1.080.040,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
Income Taxes -124.214,00 -142.137,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
NET INCOME (loss) 737.014,11 937.903,00
- -------------------------------------------------------- ---------------------------------- --------------------------------
</TABLE>
