2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of Report (date of earliest event reported): June 25, 1999
Commission File Number 1-6560
THE FAIRCHILD CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 34-0728587
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
45025 Aviation Drive, Suite 400
Dulles, VA 20166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 478-5800
ITEM 5. OTHER EVENTS
We hereby file the Nacanco Paketleme ("Nacanco") financial statements
for the years ended December 31, 1998, 1997 and 1996.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
*99.3 Financial statements, related notes thereto and Auditors' Report
of Nacanco Paketleme for the fiscal years ended December 31, 1998, 1997
and 1996.
(*) filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to the signed on
its behalf by the undersigned hereunto duly authorized.
For THE FAIRCHILD CORPORATION
(Registrant) and as its Chief
Financial Officer:
By: Colin M. Cohen
Senior Vice President and
Chief Financial Officer
Date: June 25, 1999
NACANCO PAKETLEME SANAYI VE TICARET A.S.
AUDITORS' REPORT AND FINANCIAL STATEMENTS
AT 31 DECEMBER 1998, 1997 AND 1996
AUDITORS' REPORT
To the Board of Directors
Nacanco Paketleme Sanayi ve
Ticaret A.
Manisa
1. We have audited the accompanying US dollar balance
sheets of Nacanco Paketleme Sanayi ve Ticaret A.. ("the
Company") at 31 December 1998, 1997 and 1996, and the
related US dollar statements of income, of changes in
shareholders' equity and of cash flows for the years
then ended. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audit.
2. We conducted our audit in accordance with the auditing
standards generally accepted in the United States of
America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement
presentation. We believe that our audit provides a
reasonable basis for our opinion.
3. In our opinion, the US dollar financial statements
audited by us present fairly, in all material respects,
the financial position of Nacanco Paketleme Sanayi ve
Ticaret A.. at 31 December 1998, 1997 and 1996 and the
results of its operations, the changes in its
shareholders' equity and its cash flows for the years
then ended in conformity with the accounting principles
generally accepted in the United States of America.
Ba aran Serbest Muhasebeci
Mali Mu avirlik Anonim irketi
a member of
PricewaterhouseCoopers
Zeynep Uras, SMMM
stanbul, 12 February 1999
<TABLE>
NACANCO PAKETLEME SANAY VE T CARET A.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
(Note 2) (Note 2)
<S> <C> <C> <C>
ASSETS
Current assets:-
Cash and cash equivalents
(Note 4) 13,812 14,768 17,026
Trade receivables (Note 5) 2,488 4,875 7,585
Due from related companies
(Note 16) - 48 -
Inventories (Note 6) 17,207 18,813 13,947
Other receivables and
prepaid expenses 935 166 118
Deferred tax assets (Note 10) 108 112 247
Total current assets 34,550 38,782 38,923
Long-term trade receivables 116 103 114
Property, plant and equipment
net (Note 7) 35,734 35,636 36,230
Other long-term assets
(Note 8) 3,822 4,383 1,401
Total assets 74,222 78,904 76,668
The accompanying notes form an integral part of these
financial statements.
</TABLE>
<TABLE>
NACANCO PAKETLEME SANAY VE T CARET A.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:-
Trade payables (Note 9) 604 2,546 2,328
Due to related companies
(Note 16) 1,223 649 2,029
Current portion of long-term borrowings
(Note 12) 35 54 103
Income taxes payable
(Note 10) 8,332 11,216 12,582
Accrued expenses and other
payables (Note 11) 551 888 1,720
Total current liabilities 10,745 15,353 18,762
Long-term borrowings (Note 12) - 54 206
Reserve for employment
termination benefits(Note 13) 591 411 360
Non-current deferred tax
liability - net (Note 10) 1,437 1,330 513
Total liabilities 12,773 17,148 19,841
Shareholders' equity:-
Share capital (Note 15) 18,267 18,267 18,267
Retained earnings (Note 14) 43,182 43,489 38,560
Total shareholders' equity 61,449 61,756 56,827
Total liabilities and
shareholders' equity 74,222 78,904 76,668
Commitments and contingencies (Note 22)
The accompanying notes form an integral part of these
financial statements.
</TABLE>
<TABLE>
NACANCO PAKETLEME SANAY VE T CARET A.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Net sales (Note 17) 81,620 99,551 105,069
Cost of sales (Note 18) (52,119) (62,419) (66,484)
Gross profit 29,501 37,132 38,585
General and administrative
expenses (Note 19) (897) (1,206) (1,342)
Selling and marketing expenses (601) (481) (356)
Royalty expenses (Note 21) (1,389) (1,603) (1,603)
Operating profit 26,614 33,842 35,284
Financial income
net (Note 20) 1,008 1,074 1,453
Other income/(expense) - net 428 (18) (399)
Income before taxes and
translation loss 28,050 34,898 36,338
Provision for taxes
(Note 10) (14,355) (20,609) (17,789)
Translation gain/(loss) 1,718 2,113 (430)
Net income 15,413 16,402 18,119
Weighted average number of shares
with TL1,000 face value
(Note 2) 166,500,000 166,500,000 166,500,000
Earning per share in
US dollars (Note 2) 0.093 0.099 0.109
The accompanying notes form an integral part of these
financial statements.
</TABLE>
<TABLE>
NACANCO PAKETLEME SANAY VE T CARET A.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996
<CAPTION>
Share Retained
capital earnings Total
US$'000 US$'000 US$'000
<S> <C> <C> <C>
1 January 1996 18,267 33,247 51,514
Dividends paid - (12,806) (12,806)
Net income for the year - 18,119 18,119
31 December 1996 18,267 38,560 56,827
Dividends paid - (11,473) (11,473)
Net income for the year - 16,402 16,402
31 December 1997 18,267 43,489 61,756
Dividends paid - (15,720) (15,720)
Net income for the year - 15,413 15,473
31 December 1998 18,267 43,182 61,509
The accompanying notes form an integral part of these
financial statements.
</TABLE>
<TABLE>
NACANCO PAKETLEME SANAY VE T CARET A.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
(Note 2) (Note 2)
<S> <C> <C> <C>
Cash flows from operating activities:-
Net income 15,413 16,402 18,119
Adjustments to reconcile net income to
net cash provided by operating activities :-
Depreciation for the year 2,924 2,804 2,413
Reserve for employment termination
benefits 180 51 71
Loss/(gain) on sale of property, plant
and equipment (428) (11) 25
Decrease/(increase) in trade
receivables 2,387 2,710 2,465
Decrease in due from related parties 48 (48) 12
Decrease in other receivables and
prepaid expenses (769) (48) 215
Decrease/(increase) in inventories 1,606 (4,866) 1,665
Decrease in long-term assets 561 (2,982) 491
Decrease/(increase) in long term
receivables (13) 11 (8)
(Decrease)/increase in trade payables (1,942) 218 (1,043)
(Decrease)/increase in due to related
parties 574 (1,380) (2,052)
(Decrease)/increase in accrued expenses (337) (832) (133)
Change in taxes (2,773) (414) 624
Total adjustments 2,018 (4,787) 4,745
Net cash provided by operating
activities 17,431 11,615 22,864
Cash flows used in investing activities:-
Capital expenditure (3,068) (2,210) (6,407)
Proceeds from sale of property,
plant and equipment 474 22 372
Investment in subsidiaries - - (24)
Net cash used in investing activities (2,594) (2,188) (6,059)
Cash flows from financing activities:-
Dividends paid (15,720) (11,473) (12,806)
Payments of bank borrowings (73) (201) (2,436)
Net cash used in financing activities (15,793) (11,674) (15,242)
Net (decrease)/increase in cash and
cash equivalents (956) (2,258) 1,563
Cash and cash equivalents at the beginning
of the year 14,768 17,026 15,463
Cash and cash equivalents at the end
of the year 13,812 14,768 17,026
Supplemental disclosure of cash flow information:-
Cash paid during the year for:
Interest 20 45 234
Income taxes 8,143 8,595 18,355
The accompanying notes form an integral part of these
financial statements.
</TABLE>
NACANCO PAKETLEME SANAY VE T CARET A.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996
NOTE 1 - NATURE OF OPERATIONS
Nacanco Paketleme Sanayi ve Ticaret A.. ("the Company")
was established on 10 April 1988 and is registered in
Manisa, Turkey. Its primary activity is the production
and sale of customized steel and aluminum cans for soft
drinks and beer. The Company is 65% owned by Pechiney
S.A. (Note 15).
NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
AND SIGNIFICANT ACCOUNTING POLICIES
The Company maintains its books of account and prepares
its financial statements both in Turkish lira ("TL") in
accordance with the Turkish Commercial Code("TCC"), tax
legislation and Turkish Standard Chart of Accounts and in
US dollars in accordance with the accounting principles
generally accepted in the United States of America (US
GAAP) (Note 3).
Dividends, when declared, are paid in Turkish lira.
There are no exchange restrictions with respect to the
Turkish Lira.
The following significant accounting policies have been
applied in the preparation of these financial statements.
Cash and cash equivalents
Cash and cash equivalents include cash, due from banks
and marketable securities with maturities of less than
three months.
Inventories
Inventories are stated at the lower of actual cost or
market value. During the year standard costing method is
applied for all inventories. At the year end, cost is
determined using the average cost method and price and
value differences between standard costs and actual costs
are allocated between inventories on hand and the cost of
goods sold accordingly. The cost elements included in
the inventory are materials, labor and an appropriate
amount of overhead (Note 6).
NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, plant and equipment and related depreciation
Property, plant and equipment are stated at cost (Note
7). Gains or losses related to property, plant and
equipment disposals are charged to statement of income.
The depreciation for property, plant and equipment is
provided for on a straight-line basis that approximates
the estimated useful lives of such assets as follows: -
%
Buildings 2
Machinery and equipment 5.8
Furniture and fixtures 33
Motor vehicles 33
Related companies
For the purpose of the financial statements,
shareholders, the investee company and the companies and
parties identified by the Company as being controlled
by/affiliated with them are considered and referred to as
related companies (Note 16).
Income taxation
Income taxes are recorded using the liability method.
Deferred tax assets and liabilities are recorded with
respect to differences between the basis of assets and
liabilities for tax purposes and financial reporting
purposes. Valuation allowances in respect of deferred
tax assets are recorded when it is considered more likely
than not that such deferred tax assets will not be
realized (Note 10).
Forward contracts
Forward contracts represent US dollar hedges against firm
raw material purchase commitments denominated in
Deutschemarks. Gains or losses on such forward contracts
are treated as elements of the cost of raw materials
purchased.
Employment termination benefits
Employment termination benefits, as required by Turkish
Labor Law, are recognised in the financial statements as
they are earned. The total provision represents the
vested benefit obligation assuming the termination of the
employment of all employees eligible for such termination
benefits at the balance sheet date (Note 13).
Revenue recognition
Revenue is recognised on the shipment of goods.
Disclosure about fair value of financial instruments
The fair values of certain financial instruments carried
at cost, including cash and cash equivalents and short-
term borrowings are considered to approximate their
respective carrying values due to their short-term
nature.
The carrying value of trade receivables is estimated to
be their fair values.
Balances denominated in foreign currencies are translated
at year-end exchange rates.
Fair value of derivatives and foreign exchange
instruments (Note 22) are based on the values of the
underlying currencies.
Earnings per share
Earnings per share disclosed in the accompanying
statement of income are determined by dividing net income
by the average number of shares in existence during the
year concerned.
Use of estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Additional information for the preparation of financial
statements
The figures for the years 1997 and 1996 are reclassified
for comparative purposes.
NOTE 3 - FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is the Turkish
lira. Primarily all revenues are denominated in Turkish
lira generally with purchase prices tied to the US dollar
exchange rates. A significant portion of purchases are
denominated in other currencies, primarily the US dollar
and the Deutschmark.
The Turkish lira has experienced significant inflation
since prior to the inception of the Company. Annual
inflation in Turkey for the year ended 31 December 1998
was 54.3% (1997: 91.0%, 1996: 84.9%) based on the
nationwide wholesale price index (WPI) announced by the
state institute of statistics of the Republic of Turkey.
Because the economy of Turkey has been highly
inflationary, the Company has selected the US dollar as
its reporting currency for international reporting
purposes. The translation of the financial statements
has been done in accordance with Financial Accounting
Standards Board Statement Number 52 "Foreign Currency
Translation" for entities in highly inflationary
economies by translating transactions denominated in
other than the US dollar at the exchange rate on the
transaction date. Gains and losses on foreign currency
translations are recorded to the statement of income in
the period that they occur. Monetary assets and
liabilities denominated in other than the US dollar are
translated into the US dollar at period end exchange
rates at the date of transaction.
NOTE 4 - CASH AND DUE FROM BANKS
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Cash on hand - 1 2
Due from banks: -
Demand deposits-US$ 189 - 174
- TL 10 92 136
- other currency 36 - 90
Time deposits-US$ 11,960 14,283 14,680
- TL - - 27
- other currency 1,192 - 1,523
Repurchase agreements with
banks 425 392 394
13,812 14,768 17,026
</TABLE>
NOTE 5 - TRADE RECEIVABLES
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Maksan Me rubat ve Kutulama San. A.. 648 1,920 1,975
Ege Birac l k ve Malt San. A. 488 550 611
Fruko Tamek Meyva Sular San. A. 302 755 1,747
Erbak Uluda Me rubat ve G da Sanayi A.. 187 21 45
Ektam K br s Ltd. 162 244 -
T Tuborg Bira ve Malt San. A.. 129 255 797
Guney Birac l k ve Malt San. A.. 50 740 738
Erciyes Birac l k ve Malt San.A.. - 56 -
Post-dated cheques - - 219
Other 522 334 1,453
2,488 4,875 7,585
</TABLE>
NOTE 6 - INVENTORIES
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Raw materials 7,323 2,377 2,025
Finished goods 5,912 6,399 4,743
Ends 1,812 2,007 1,093
Goods in transit 1,258 7,172 5,003
Spare parts 901 849 1,083
In process 1 9 -
17,207 18,813 13,947
</TABLE>
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1 January 1998 Additions Disposals Transfers31 December 1998
US$'000 US$'000 US$'000 US$'000 US$'000
<S> <C> <C> <C> <C> <C>
Land 294 - - - 294
Buildings 4,751 - - - 4,751
Machinery and equipment 41,148 460 (50) 3,424 44,982
Motor vehicles 304 21 (55) - 270
Furniture and fixtures 706 - (14) 60 752
47,203 481 (119) 3,484 51,049
Construction in progress 1,083 2,587 - (3,484) 186
48,286 3,068 (119) - 51,235
Less : Accumulated
depreciation (12,650) (2,924) 73 - (15,501)
Net book value 35,636 35,734
1 January 1997 Additions Disposals Transfers31 December 1997
US$'000 US$'000 US$'000 US$'000 US$'000
Land 294 - - - 294
Buildings 4,751 - - - 4,751
Machinery and equipment 38,889 773 - 1,486 41,148
Motor vehicles 284 8 (36) 48 304
Furniture and fixtures 477 - - 229 706
44,695 781 (36) 1,763 47,203
Construction in progress 1,417 1,429 - (1,763) 1,083
46,112 2,210 (36) - 48,286
Less : Accumulated
depreciation (9,882) (2,804) 36 - (12,650)
Net book value 36,230 35,636
1 January 1996 Additions Disposals Transfers31 December 1996
US$'000 US$'000 US$'000 US$'000 US$'000
Land 294 - - - 294
Buildings 4,751 - - - 4,751
Machinery and equipment 31,131 - (442) 8,200 38,889
Motor vehicles 239 - (12) 57 284
Furniture and fixtures 463 - - 14 477
36,878 - (454) 8,271 44,695
Construction in progress 3,281 6,407 - (8,271) 1,417
40,159 6,407 (454) - 46,112
Less : Accumulated
depreciation (7,526) (2,413) 57 - (9,882)
Net book value 32,633 36,230
</TABLE>
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT (Continued)
The gross carrying amounts of fully depreciated property,
plant and equipment still in use were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Furniture and fixtures 461 447 437
Motor vehicles 202 135 110
663 582 547
</TABLE>
The mortgage on real estate, amounting to approximately
US$281(1997: US$430, 1996: US$821) has been given to the
Manisa Chamber of Commerce.
In 1995, the Company gave a sequestration right on its
building and machinery to the customs authorities as
collateral against its import commitments (Note 21). The
limit of the global sequestration right on the Company's
building and machinery amounts to TL265.5 million
(US$849,000). The usage amounted to US$176,000 at 31
December 1998
(1997: US$1,292,000, 1996: US$1,162,000).
NOTE 8- OTHER LONG-TERM ASSETS
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Up-front payment for volume discount
- net of amortization 4,063 4,383 1,294
Accrual for potential future losses (241) - -
3,822 4,383 1,294
Other - - 107
3,822 4,383 1,401
</TABLE>
The Company made a special sales agreement with Fruko-
Tamek Meyva Sulari Sanayi A.. ("Fruko")(bottler of Pepsi
Cola in Turkey) in 1994. According to the agreement, the
Company paid US$2,000,000 to Fruko as a prepayment for
volume discount on future sales of a specified number of
units. Effective from 1 January 1995, the prepaid
discounts have been subject to amortisation based on the
quantity of goods sold to Fruko.
At April 1997, this agreement was renewed for eight years
concluding at year-end 2004. The Company made the new
agreement with Fruko and Ektam K br s Limited. According
to the agreement, the Company paid an additional
DM6,000,000 (US$3,481,863) as a prepayment for volume
discount on future sales of a specified number of units
in addition to the remaining US$1,294,159 from the first
sale agreement. Effective from 1 January 1997, the
prepaid discounts have been subject to amortization with
the new amortization rate calculated by using the total
quantity of goods to be sold.
The sales made to Fruko and Ektam were below the budgeted
amounts and therefore in addition to the calculated
volume discount, Company made an accrual for any
potential future losses at 31 December 1998.
NOTE 9 - TRADE PAYABLES
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Mc Kinsey&Company 208 - -
Impact Environmental Engineering Ltd. 32 - -
Alcan Deutschland GmbH - 1,332 -
Rasselstein AG - - 1,263
Other 364 1,214 1,065
604 2,546 2,328
</TABLE>
Alcan Deutschland GmbH and Pechiney Rhenalu SA are the
Company's main aluminium suppliers while Rasselstein AG
and Hoogovens S-AAL BV are the Company's main coil
suppliers. Other payables comprise of trade payables to
miscellaneous foreign and domestic suppliers for
purchases of raw and auxiliary materials.
NOTE 10 - TAXATION
The corporation tax rate (including fund premiums) is
27.5%, whereas the minimum effective rate on the total
income of a company before exemptions, if any, is 22%.
Investment incentive allowance and income from
participations are not subject to corporate tax, however
investment incentive allowance is subject to a
withholding tax of 16.5%.
Income after corporation tax (including fund premiums),
adjusted for certain exemptions and deductions, is
subject to withholding tax at 11% for quoted companies
(companies with a minimum of 15% of their nominal share
capital held by the public) and 22% for other companies.
Thus, the standard total effective rate is 44% for the
Company at 31 December 1998. However, in the event of
profit distribution, the withholding may be reduced to
15% due to the tax treaties between Turkey and
France/USA. In this way the effective tax rate may be
subject to further discussion.
On July 1998, certain amendments were made in the local
tax legislation (Law No 4369) which changes the effective
tax rate for the Company to 33% beginning from 1 January
1999. Effective from 1 January 1999, the Advance
Corporation Tax system has been changed substantially.
Under the newly introduced system, corporations are
required to declare quarterly tax return and pay advance
corporation tax at the rate of 25%.
Interest income on Turkish government bonds and Treasury
bills is subject to corporation tax, but is partially
exempt from the withholding tax. The partial exemption is
determined according to the proportion of the interest
income to total income.
NOTE 10 - TAXATION (Continued)
The total provision for taxes reflected in the
accompanying financial statements differs from the
amounts computed by applying the above mentioned standard
effective rates as follows:
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Provision for tax with effective
tax rate of 44% 12,342 15,355 15,989
Effect of remeasurement in US$ 2,013 5,254 1,800
Provision for taxes in the
accompanyingfinancial
statements 14,355 20,609 17,789
</TABLE>
Taxes payable calculated by the Company at 31 December
1998, 1997 and 1996 in Turkish lira and converted into US
dollars at the exchange rate prevailing at that date are
as follows:-
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Statutory taxation 11,395 13,756 14,702
Advance corporation taxes (3,063) (2,540) (2,120)
Statutory income taxes
payable - net 8,332 11,216 12,582
</TABLE>
Deferred taxes:-
The breakdowns of cumulative timing differences and
resulting deferred tax assets/liabilities provided at 31
December 1998, 1997 and 1996 using the
prevailing/expected future tax rates, were as follows:-
<TABLE>
<CAPTION>
1998
Cumulative
timing differences Deferred tax
(income)/expense assets/(liabilities)
TL million TL million US$'000
<S> <C> <C> <C>
Current timing differences: -
Accrual for export discounts
to be given 7,818 3,127 10
Accrual for professional fees 938 375 1
Accrual for customer claims - - -
Accrual for free cans to be given - - -
Accrual for bonuses to be given 38,091 15,236 48
Accrual for potential future losses
related to sales agreement with
Fruko and Ektam 30,005 12,002 38
Accrual for other expenses 7,878 3,151 11
33,891 108
Non-current timing differences: -
Adjustment for depreciation of
fixed assets according to their
useful lives (1,308,649) (523,460) (1,673)
Reserve for employment
termination benefits 184,749 73,900 236
(449,560) (1,437)
</TABLE>
NOTE 10 - TAXATION (Continued)
<TABLE>
<CAPTION>
1997
Cumulative
timing differences Deferred tax
(income)/expense assets/(liabilities)
TL million TL million US$'000
<S> <C> <C> <C>
Current timing differences:-
Accrual for export discounts
to be given 3,403 1,497 7
Accrual for professional fees 6,132 2,698 13
Accrual for customer claims - - -
Accrual for free cans to be given 14,869 6,542 32
Accrual for bonuses to be given 27,185 11,962 58
Accrual for potential future
losses related to sales
agreement with Fruko and Ektam - - -
Accrual for other expenses 367 161 2
22,860 112
Non-current timing differences: -
Adjustment for depreciation of fixed
assets according to their useful
lives (702,755) (309,212) (1,511)
Reserve for employment termination
benefits 84,187 37,042 181
(272,170) (1,330)
</TABLE>
<TABLE>
<CAPTION>
1996
Cumulative
timing differences Deferred tax
(income)/expense assets/(liabilities)
TL million TL million US$'000
<S> <C> <C> <C>
Current timing differences: -
Accrual for export discounts
to be given 41,891 18,432 171
Accrual for professional fees 9,783 4,304 40
Accrual for customer claims 6,672 2,936 27
Accrual for free cans to be given - - -
Accrual for bonuses to be given - - -
Accrual for potential future
losses related to sales
agreement with Fruko and Ektam - - -
Accrual for other expenses 1,906 839 9
26,511 247
Non-current timing differences:-
Adjustment for depreciation of
fixed assets according to their
useful lives (160,350) (70,554) (656)
Reserve for employment
termination benefits 35,074 15,432 143
(55,122) (513)
</TABLE>
NOTE 10 - TAXATION (Continued)
Tax charges in the accompanying statements of income
amounted to US$14,355,000 in total at 31 December 1998
(1997: US$20,609,000, 1996: US$17,789,000), including the
effects of deferred tax debits of US$641,000 (1997:
credits of US$1,422,000, 1996: credits of US$633,000).
In Turkey, there is no procedure for the final agreement
of tax assessments. Tax returns are filed within four
months of the end of the year to which they relate. The
tax authorities may, however, examine the accounting
records and/or revise assessments within five years.
NOTE 11 - ACCRUED EXPENSES AND OTHER PAYABLES
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Payroll and withholdings 375 594 571
Value added tax payable - - 658
Other 176 294 491
551 888 1,720
</TABLE>
NOTE 12 - BORROWINGS
<TABLE>
<CAPTION>
1998 1997 1996
Interest rate % Maturity US$'000 US$'000 US$'000
<S> <C> <C> <C> <C> <C>
Long-term borrowings: -
S nai Yat r m ve
Kredi Bankas A.O. 25 31 August 1999 35 108 309
Less: Current portion of
long-term borrowings (35) (54) (103)
Long-term borrowings - 54 206
At 31 December 1998, the letters of guarantee provided to
S nai Yat r mve Kredi Bankas A.O. for the above
borrowing amounted to US$93,000 (1997: US$211,000,
1996: US$402,000).
NOTE 13 - RESERVE FOR EMPLOYMENT TERMINATION BENEFITS
There are no agreements for pension commitments other
than the legal requirement as explained below.
Under Turkish labor law, as supplemented by union
agreements, the Company is required to pay termination
benefits to each employee who has completed one year of
service and whose employment is terminated without due
cause, who retires, completes 25 years of service (20
years for women), is called up for military service or
dies. The amount payable consists of one month's salary,
limited to TL200,625,000 (US$642) (1997:TL104,734,375 (
US$511),1996:TL53,312,500 (US$496)) for each year of
service. The Company has calculated the reserve in
accordance with these limits.
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
1 January 411 360 289
Increase in provision 182 85 71
Indemnitite paid (2) (34) -
31 December 591 411 360
</TABLE>
With effect from 1 January 1999 the limit has been
increased to US$916 for each year of service.
NOTE 14 - RETAINED EARNINGS AND LEGAL RESERVES
Retained earnings, as per the statutory financial
statements, other than legal reserves are available for
distribution, subject to the legal reserve requirements
referred to below.
The legal reserves consist of first and second legal
reserves, appropriated in accordance with the Turkish
Commercial Code (TCC). The TCC stipulates that the first
legal reserve is appropriated out of statutory profits at
the rate of 5% per annum, until the total reserve reaches
20% of the issued and fully paid-in share capital. The
second legal reserve is appropriated at the rate of 10%
per annum of all cash distributions in excess of 5% of
the paid-in share capital. Under the TCC, the legal
reserves are not available for distribution unless they
exceed 50% of the paid-in share capital but may be used
to offset losses in the event that the general reserve is
exhausted.
Dividend distribution is made by the Company in Turkish
lira in accordance with the Turkish Commercial Code (TCC)
after deducting taxes and setting aside the legal
reserves as discussed above.
In the accompanying financial statements, legal reserves
are not presented separately, but included in 'Retained
Earnings'. At 31 December 1998, 1997 and 1996, the legal
reserves per the statutory financial statements amounted
to TL701,913 million (US$2,245,000) and TL340,748 million
(US$1,664,000 at the exchange rate prevailing at 31
December 1997) and TL171,750 million (US$1,598,000 at the
exchange rate prevailing at 31 December 1996),
respectively. At 31 December 1998, 1997 and 1996,
unappropriated profits other than legal reserves per the
statutory financial statements amounted to TL218,583
million ( US$699,000) and TL218,583 million
(US$1,067,000 at the exchange rate prevailing at 31
December 1997) and TL11,104 million (US$103,000 at the
exchange rate prevailing at 31 December 1996),
respectively.
NOTE 15 - SHARE CAPITAL
The Company's authorized capital consists of 166,500,000
shares of TL1,000 each, which are fully paid up. The
Company's paid-in share capital and shareholding
structure in terms of Turkish lira at 31 December
1998,1997 and 1996 were as follows:-
<TABLE>
<CAPTION>
1998 1997 1996
TL million Share(%) TL million Share(%) TL million Share(%)
<S> <C> <C> <C> <C> <C> <C>
Pechiney S.A 108,219 65.00 108,219 65.00 - -
Pechiney
International S.A. - - - - 108,219 65.00
RHI Holdings
Incorporated 53,055 31.87 53,055 31.87 53,055 31.87
Jeffrey Steiner 5,220 3.13 5,220 3.13 5,220 3.13
National Can
Puerto Rico 3 - 3 - 3 -
American National
Can Company 3 - 3 - 3 -
166,500 100.00 166,500 100.00 166,500 100.00
Capital at historical
US dollar value
(US$'000) 18,267 18,267 18,267
</TABLE>
NOTE 16 - RELATED COMPANY TRANSACTIONS
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Due from related companies:-
Pechiney Rhenalu - 23 -
American National Can Company - 24 -
Nacanco China - - -
Nacanco France S.A. - 1 -
- 48 -
Due to related companies:-
Pechiney Rhenalu 948 - 1,417
Nacanco France S.A. 201 591 453
American National Can Company 11 30 106
Nacanco UK 53 18 53
Nacanco Spain 5 - -
Nacanco Dunkerque 2 3 -
Nacanco Limited 3 7 -
1,223 649 2,029
</TABLE>
NOTE 16 - RELATED COMPANY TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Sales to related companies:-
Pechiney Rhenalu - scrap
aluminium 1,695 1,682 1,497
Nacanco Spain - cans 2,214 - -
3,909 1,682 1,497
Purchases from related companies:-
Pechiney Rhenalu - aluminium coils 15,066 14,929 12,329
Nacanco France S.A. - ends 3,467 8,816 11,114
Nacanco Pianella(Sitac)
ends/cans 5,382 4,231 4,662
Nogara - ends/cans - - 857
American National Can Company
spare parts - 460 633
Nacanco Ireland - ends/cans 1,922 5,052 241
Nacanco UK - ends - 381 -
25,837 33,869 29,836
Property, plant and equipment purchases:-
American National Can Company - 192 3,054
Nacanco UK - 87 106
Nacanco Germany - - 3
Nacanco Spain - - 1
Nacanco Italy - - -
- 279 3,164
Other charges to the Company:-
Royalty expenses 1,250 1,250 1,250
</TABLE>
NOTE 17 - NET SALES
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Maksan Me rubat ve Kutulama San. A.. 28,733 29,281 26,941
Ege Birac l k ve Malt San. A. . 11,850 16,878 15,882
Fruko Tamek Meyva Sular San. A. . 13,947 20,673 22,043
T Tuborg Bira ve Malt San. A 10,726 15,678 17,224
Guney Birac l k ve Malt San. A.. 8,061 10,994 9,714
Other 8,303 6,047 13,265
81,620 99,551 105,069
</TABLE>
NOTE 18 - COST OF SALES
Cost of sales comprises the following:-
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Direct material costs 40,225 50,173 52,353
Labor 3,657 5,960 7,601
Depreciation 2,895 2,656 2,602
Other overheads 5,342 3,630 3,928
52,119 62,419 66,484
</TABLE>
NOTE 19 - GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Salaries 361 531 652
Fringe benefits 17 97 70
Travel expenses 34 92 102
Communication expenses 83 89 93
Audit and legal fees 58 59 88
Other 344 338 337
897 1,206 1,342
</TABLE>
NOTE 20 - FINANCIAL INCOME
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Financial income:-
Interest income on bank deposits 619 869 928
Interest income on marketable securities 208 185 303
Other 200 74 384
1,027 1,128 1,615
Financial expenses:-
Interest expense on borrowings 19 54 162
Financial income - net 1,008 1,074 1,453
</TABLE>
NOTE 21 - ROYALTY
The Company had a technical assistance and trademark
license agreement with the American National Can Company
for a period of five years from 4 April 1988. The
agreement included a clause stating that the agreement
would be automatically renewed for the subsequent years
unless 12 months' written notice was given by either
party. The parties drew up an amendment to the existing
contract effective from 1 January 1994, changing the
annual royalty amounting to US$1,250,000. The amendment
was approved by the Foreign Investment Department of
Treasury and of the Republic of Turkey. As of 1 January
1998, the withholding tax rate for royalty was reduced
from 22% to 11% including fund premiums, which the
Company is also liable to pay. At 31 December 1998,
royalty expenses including withholding tax amounted to
US$1,389,000 (1997: US$1,603,000,
1996: US$1,603,000).
NOTE 22 - COMMITMENTS AND CONTINGENCIES
The commitments and contingent liabilities of the Company
are summarised as follows:-
<TABLE>
<CAPTION>
1998 1997 1996
US$'000 US$'000 US$'000
<S> <C> <C> <C>
Letters of guarantee 417 874 1,686
Sequestration rights (Note 7) 176 1,292 1,162
Mortgage given (Note 7) - - 1
593 2,166 2,849
</TABLE>
