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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,
D.C. 20549
FORM
8-K/A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 12, 2006
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Twin Disc, Incorporated
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(Exact
name of registrant as specified in its charter)
Wisconsin 1-7635 39-0667110
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(State or other jurisdiction | (Commission file | (IRS Employer | ||
of incorporation) | number) | Identification No.) | ||
1328 Racine Street, Racine, Wisconsin | 53403 |
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(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (262) 638-4000
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(Former
name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 24014d-2(b))
[ ] Pre-commencement communications pursuant to
Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
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Item 2.01 Completion of Acquisition or Disposition of Assets
On May 16, 2006, Twin Disc, Incorporated (the Company) filed a Current Report on Form 8-K to report the acquisition of the stock of four related foreign entities: B.C.S. S.r.l., an Italian limited liability company; B.C.S. Service S.r.l., an Italian limited liability company; Boat Equipment Limited, a Maltese limited liability company; and Vetus Italia S.r.l., an Italian limited liability company (collectively, the Acquired Companies). The total purchase price for the acquisition of the Acquired Companies was €17,715,000 ($22,707,000), allocated among the Acquired Companies as set forth in the Stock Purchase Agreement between the Company and the shareholders of the Acquired Companies.
This Amendment No. 1 of the Current Report on Form 8-K/A provides audited financial statements of the Acquired Companies and certain pro forma financial information and amends Items 9.01(a) and (b) of the May 16, 2006, Current Report on Form 8-K.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
The audited aggregated income statement and audited aggregated balance sheet of the Acquired Companies for the year ended December 31, 2005, and the related Independent Auditors Report thereon, are included as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference.
(b) Unaudited Pro Forma Financial Information
The unaudited pro forma consolidated statement of earnings for the previous fiscal year of Twin Disc, Incorporated, which ended June 30, 2005, alongside the unaudited pro forma consolidated statement of earnings of the Acquired Companies for the year ended December 31, 2005, are included as Exhibit 99.2 to this Current Report on Form 8-K/A and are incorporated herein by reference.
The unaudited pro forma consolidated balance sheet of Twin Disc, Incorporated as of March 31, 2006, alongside the unaudited pro forma consolidated balance sheet of the Acquired Companies as of May 31, 2006, are included as Exhibit 99.3 to this Current Report on Form 8-K/A and are incorporated herein by reference.
In accordance with Regulation S-X, Section 210.11 - -02(c)(3), due to the unavailability of certain historical monthly financial information of the Acquired Companies, it was deemed not practicable to bring the statements of the Acquired Companies to within 93 days of the Companys year end. It was also deemed not practicable to present interim pro forma financial information for the nine months ended March 31, 2006.
The transaction described in this Form 8-K/A will be accounted for as an acquisition of the Acquired Companies by the Company under the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, Business
Combinations. Under the purchase method of accounting, the total purchase price is allocated to the net tangible and intangible assets acquired by the Company in connection with the transaction, based on their fair values as of the completion of the transaction. The excess cost over the net tangible and identifiable intangible assets is allocated to goodwill.
The unaudited pro forma consolidated financial statements present the acquisition of the Acquired Companies under the purchase method of accounting, and reflect the preliminary purchase price allocation based on the Companys estimate of the fair value of the assets acquired and liabilities assumed. The preliminary purchase price allocation is subject to finalization of the valuation of intangible assets, other assets acquired and liabilities assumed.
The unaudited pro forma statements of earnings have been prepared to illustrate the estimated effect of the acquisition by the Company of 100% of the outstanding stock of the Acquired Companies. The unaudited pro forma statements of earnings are presented for informational purposes only. The pro forma data is not necessarily indicative of what the financial position or results of operations actually would have been had the acquisition been completed as of any earlier date. In addition, the unaudited pro forma consolidated financial information does not purport to project the future financial position or operating results of the combined company.
(c) Exhibits |
99.1 | Audited consolidated statement of operations and audited condensed balance sheets of the Acquired Companies for the year ended December 31, 2005, and related Independent Auditors Report. |
99.2 | Unaudited pro forma consolidated statement of earnings for the previous fiscal year of Twin Disc, Incorporated, which ended June 30, 2005, alongside the unaudited pro forma consolidated statement of earnings of the Acquired Companies for the year ended December 31, 2005. |
99.3 | Unaudited pro forma consolidated balance sheet of Twin Disc, Incorporated as of March 31, 2006, alongside the unaudited pro forma consolidated balance sheet of the Acquired Companies as of May 31, 2006. |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
July 28, 2006 Twin Disc, Inc. |
/s/ Christopher J. Eperjesy
- --------------------------------------------
&nb
sp;
Christopher J. Eperjesy
VP-Finance, CFO and Secretary
Unaudited Pro Forma Consolidated Balance Sheet | |||||||||
March 31, 2006 | |||||||||
(dollars in thousands) | |||||||||
Pro Forma | Pro Forma | ||||||||
Twin Disc | BCS | Adjustments | Consolidated | ||||||
Assets | |||||||||
Current Assets | |||||||||
Cash and cash equivalents | 9,764 | 2,944 | - | 12,708 | |||||
Trade accounts receivable, net | 37,797 | 13,971 | (249) | (4) | 51,519 | ||||
Inventories, net | 55,398 | 6,707 | 1,442 | (1) | 63,547 | ||||
Deferred income taxes | 7,289 | 528 | 7,817 | ||||||
Other | 4,572 | 945 | 5,517 | ||||||
|
|
|
| ||||||
Total current assets | 114,820 | 25,095 | 1,193 | 141,108 | |||||
Property, plant and equipment, net | 38,958 | 998 | 3,137 | (1) | 43,093 | ||||
Goodwill | 12,624 | 2,415 | (1) | 15,039 | |||||
Other intangibles, net | 315 | 8,796 | (1) | 9,111 | |||||
Deferred income taxes | 14,664 | (5,350) | (1) | 9,314 | |||||
Other assets | 9,243 | 9,243 | |||||||
|
|
|
| ||||||
Total assets | 190,309 | 26,408 | 10,191 | 226,908 | |||||
|
|
|
| ||||||
Liabilities and Shareholders' Equity | |||||||||
Current liabilities | |||||||||
Notes Payable | - | 757 | 757 | ||||||
Current maturities of long term debt | 2,856 | - | 2,856 | ||||||
Accounts payable | 19,582 | 7,633 | (249) | (4) | 26,966 | ||||
Accrued liabilities | 38,568 | 5,184 | 43,752 | ||||||
|
|
|
| ||||||
Total current liabilities | 61,006 | 13,574 | (249) | 74,331 | |||||
Long-term debt | 15,739 | - | 23,274 | (2) | 39,013 | ||||
Accrued retirement benefits | 38,932 | - | 38,932 | ||||||
Other long-term liabilities | 130 | - | 130 | ||||||
Minority interest | 541 | 541 | |||||||
Shareholders' equity | |||||||||
Common stock | 11,509 | 1,276 | (1,276) | (3) | 11,509 | ||||
Retained earnings | 96,544 | 11,558 | (11,558) | (3) | 96,544 | ||||
Accumulated other comprehensive loss | (18,908) | (18,908) | |||||||
|
|
|
| ||||||
89,145 | 12,834 | (12,834) | 89,145 | ||||||
Less treasury stock, at cost | 15,184 | 15,184 | |||||||
|
|
|
| ||||||
Total shareholders' equity | 73,961 | 12,834 | (12,834) | 73,961 | |||||
Total liabilites and shareholders' equity | 190,309 | 26,408 | 10,191 | 226,908 | |||||
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|
|
| ||||||
1) Allocation of purchase price as follows: | |||||||||
Purchase price allocation: | |||||||||
Net cash paid for BCS acquisition | 22,707 | ||||||||
Estimated acquisition expenses | 567 | ||||||||
|
|||||||||
Total acquisition consideration | 23,274 | ||||||||
Less: estimated net book value of tangible assets acquired | (12,834) | ||||||||
|
|||||||||
Excess purchase price to be allocated | 10,440 | ||||||||
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|||||||||
Preliminary allocations of excess purchase price: | |||||||||
Inventory adjustments to reflect fair value | 1,442 | ||||||||
Fixed asset adjustment to reflect fair value | 3,137 | ||||||||
Identifiable intangible assets - finite life | 6,200 | ||||||||
Identifiable intangible assets - indefinite life | 2,596 | ||||||||
Deferred Tax Asset (@ 40%) | (5,350) | ||||||||
Goodwill | 2,415 | ||||||||
|
|||||||||
10,440 | |||||||||
|
2) | Issuance of $25 million of 6.05% Senior Notes due April, 2016. Consideration paid for BCS equals $23,274. |
3) | Reflects the elimination of BCS historical shareholders' equity accounts. |
4) | Reflects additional elimination of intercompany balances due to BCS activity with existing Twin Disc entities (TD Italia). |
TD Italia | 165 | |
TD Southeast | 84 | |
| ||
249 | ||
|
Unaudited Pro Forma Consolidated Statements of Earnings | |||||
For the Fiscal Year Ended June 30, 2005 | |||||
(dollars in thousands, except per share data) | |||||
Pro Forma | Pro Forma | ||||
Twin Disc | BCS | Adjustments | Consolidated | ||
Net sales | 218,472 | 26,809 | (636) (2) | 244,645 | |
Cost of goods sold | 161,052 | 23,176 | (5,362) (3) | 178,357 | |
(636) (2) | |||||
414 (4) | |||||
(287) (6) | |||||
|
|
|
| ||
Gross profit | 57,420 | 3,633 | 4,726 | 66,288 | |
Marketing, engineering and administrative expenses | 44,666 | - | 5,362 (3) | 50,904 | |
963 (4) | |||||
(87) (5) | |||||
Restructuring of operations | 2,076 | 2,076 | |||
|
|
|
| ||
Earnings from operations | 10,678 | 3,633 | (1,512) | 13,308 | |
Other income (expense): | |||||
Interest income | 140 | 140 | |||
Interest expense | (1,134) | (69) | (1,408) (1) | (2,611) | |
Other, net | (192) | 3 | (189) | ||
|
|
|
| ||
Earnings before income taxes and minority | |||||
interest | 9,492 | 3,567 | (2,920) | 10,648 | |
Income Taxes | 2,485 | 1,470 | (1,197) (7) | 2,758 | |
|
|
|
| ||
Earnings before minority interest | 7,007 | 2,097 | (1,723) | 7,891 | |
Minority Interest | (97) | (97) | |||
|
|
|
| ||
Net Income | 6,910 | 2,097 | (1,723) | 7,794 | |
|
|
|
| ||
Earnings per share data: | |||||
Basic earnings per share | 2.42 | 2.72 | |||
Diluted earnings per share | 2.38 | 2.68 | |||
Weighted average shares outstanding data: | |||||
Basic shares outstanding | 2,861 | 2,861 | |||
Dilutive stock options | 47 | 47 | |||
|
|
|
| ||
Diluted shares outstanding | 2,908 | - | - | 2,908 | |
|
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|
| ||
1) | Interest Expense - on the incremental debt assumed upon acquisition, at 6.05%. | ||||
Incremental Debt | 23,274 | ||||
Interest Rate | 6.05% | ||||
Months | 12 | ||||
|
|||||
Interest Expense | 1,408 | ||||
|
|||||
2) | Eliminate intercompany trading activity between BCS and existing Twin Disc subsidiaries | ||||
Sales to TD Italia | 321 | ||||
Sales to Technodrive | 137 | ||||
Sales to TD Southeast | 178 | ||||
|
|||||
636 | |||||
|
3) | Reflects the reclassification of an estimate of costs classified as cost of sales by BCS to conform to Twin Disc's classification as marketing, engineering and administrative. |
4) | Reflects the expected amortization of identifiable finite-lived intangible assets acquired as part of the BCS acquisition and the incremental depreciation on the write-up of the fixed assets to fair value. |
- non-compete agreements | 769 | ME&A | ||
- customer relationships | 160 | ME&A | ||
- distribution network | 34 | ME&A | ||
- incremental depreciation | 414 | COGS | ||
|
||||
1,377 | ||||
5) | Eliminate historical amortization of intangibles | 87 | ||
6) | Eliminate historical depreciation | 287 |
7) | Tax effects of the pro forma adjustments have been calculated based on the BCS effective rate of 41%. |
8) | Not reflected in the unaudited pro forma consolidated statement of earnings above is the amortization of the purchase accounting adjutstemnt to record inventory at its fair value. This adjustment is excluded as it will impact the first year only, and thus is not reflective of the ongoing results of the combined operations. |
BCS GROUP | ||
AGGREGATED BALANCE SHEET | ||
December 31, 2005 | ||
(in Euro) | ||
|
|
|
ASSETS | ||
CURRENT ASSETS | ||
Cash and cash equivalents | 952,912 | |
Receivables | 9,814,325 | |
Inventories | 6,031,724 | |
Accrued income and prepaid expenses | 13,865 | |
TOTAL CURRENT ASSETS | 16,812,826 | |
NON-CURRENT ASSETS | ||
Fixed assets | 1,465,875 | |
Intangible assets | 448,666 | |
Investments | 45,864 | |
TOTAL NON-CURRENT ASSETS | 1,960,405 | |
TOTAL ASSETS | 18,773,231 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | ||
CURRENT LIABILITIES | ||
Bank overdrafts | 756,807 | |
Short-term bank loans | 88,106 | |
Current portion of long-term debt | 63,751 | |
Advances from customers | 164,220 | |
Payables due to suppliers | 3,918,200 | |
Tax payables | 649,809 | |
Payables due to social security institutions | 120,181 | |
Payables due to others | 1,444,334 | |
Accrued expenses and deferred income | 155,252 | |
TOTAL CURRENT LIABILITIES | 7,360,660 | |
NON-CURRENT LIABILITIES | ||
Long-term debt | 410,333 | |
Allowances for risks and charges | 26,893 | |
Employee severance indemnity | 1,015,951 | |
TOTAL NON-CURRENT LIABILITIES | 1,453,177 | |
TOTAL LIABILITIES | 8,813,837 | |
SHAREHOLDERS' EQUITY | ||
Share capital | 362,750 | |
Revaluation reserve | 368,832 | |
Legal reserve | 65,816 | |
Other reserves | ||
other reserve | 204,705 | |
reserve for rounding | (1) | |
unavailable reserve | 1,791 | |
currency translation reserve | 13,100 | |
Retained earnings | 7,171,295 | |
Net income | 1,771,106 | |
TOTAL SHAREHOLDERS' EQUITY | 9,959,394 | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 18,773,231 | |
MEMORANDUM ACCOUNTS | ||
Capital lease obligation | 207,875 |
BCS GROUP | ||
AGGREGATED INCOME STATEMENT | ||
For the year ended December 31, 2005 | ||
(in Euro) | ||
REVENUE | ||
Revenues from sales and services | 22,766,560 | |
Change in finished goods and work in progress inventory | (322,543) | |
Other income and revenues | 189,702 | |
TOTAL REVENUE | 22,633,719 | |
OPERATING COSTS | ||
Raw materials, consumables and goods | 11,049,486 | |
Services | 3,355,675 | |
Leases and rentals | 473,066 | |
Personnel costs | ||
Wages and salaries | 2,452,600 | |
Social security costs | 673,209 | |
Provision for severance indemnity | 175,616 | |
Pension costs | 288 | |
Other costs relating to employees | 51,337 | |
Valuation adjustments | ||
Amortization of intangible assets | 73,444 | |
Depreciation of fixed assets | 241,530 | |
Write downs of current receivables and liquid assets | 48,598 | |
Changes in inventories of raw materials, consumables and goods | 535,174 | |
Other provisions | 143,161 | |
Other operating costs | 294,302 | |
TOTAL OPERATING COSTS | 19,567,486 | |
OPERATING MARGIN | 3,066,233 | |
FINANCIAL INCOME AND EXPENSE | ||
Other financial income | 5,257 | |
Interest expense and other financial charges | (58,319) | |
Foreign exchange gain (loss) | (1,771) | |
TOTAL FINANCIAL INCOME AND EXPENSE | (54,833) | |
EXTRAORDINARY INCOME AND CHARGES | ||
Income | 967 | |
Charges | (148) | |
TOTAL EXTRAORDINARY INCOME AND CHARGES | 819 | |
INCOME BEFORE INCOME TAXES | 3,012,219 | |
Income taxes | (1,241,113) | |
current income tax expense | (1,250,437) | |
deferred income tax benefit | 9,324 | |
NET INCOME | 1,771,106 |
(2)
AGGREGATED STATEMENT OF CASH FLOWS | ||
For the year ended December 31, 2005 | ||
(in Euro) | ||
| ||
Cash flows from operating activities: | ||
|
| |
Net income | 1,771,106 | |
Depreciation and amortization | 314,974 | |
Write-down of receivables | 48,598 | |
Write-down of investment in subsidiaries | 14,641 | |
Provision for employee severance indemnity | 175,616 | |
Cash generated from operating income before changes in working capital | 2,324,935 | |
Decrease in receivables | 590,521 | |
Decrease in inventories | 862,976 | |
Decrease in accrued income and prepaid expenses | 8,998 | |
Decrease in payables due to suppliers | (891,813) | |
Increase in advances from customers | 154,703 | |
Increase in tax payables | 385,168 | |
Decrease in payables due to social security institutions | (4,115) | |
Increase in payables due to others | 328,447 | |
Decrease in allowances for risks and charges | (13,437) | |
Decrease in employee severance indemnity | (125,037) | |
Decrease in accrued expenses and deferred income | (115,334) | |
|
| |
Net cash provided from operating activities | 3,506,012 | |
|
| |
Cash flows from investing activities: | ||
|
| |
Purchase of fixed assets | (433,752) | |
Purchase of intangible assets | (1,400) | |
Disposal of fixed assets | 98,894 | |
Investment in subsidiary | (14,641) | |
|
| |
Net cash used in investing activities | (350,899) | |
|
| |
Cash flows from financing activities: | ||
|
| |
Repayment of short-term debt | (195,860) | |
Repayment of long-term debt | (185,390) | |
|
| |
Net cash used in financing activities | (381,250) | |
|
| |
Net increase in cash and cash equivalents | 2,773,863 | |
|
| |
Cash and cash equivalents at beginning of period | (2,577,758) | |
Cash and cash equivalents at end of period | 196,105 | |
|
|
(3)
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of BCS Group
We have audited the accompanying aggregated balance sheet of BCS Group, comprising BCS Srl, BCS Service Srl, Vetus Srl and Boat Equipment Ltd, as of December 31, 2005, and the related aggregated statements of income and cash flows for the year then ended. These financial statements are the responsibility of the Groups management. Our responsibility is to express an opinion on these financial statements based on our audit.
Except as explained in the following two paragraphs, we conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
Our audit scope was limited for the following two items:
· | We did not observe the taking of the physical inventory as of December 31, 2005 and December 31, 2004, as those dates were prior to our appointment as independent accountants for the Group, and we were unable to satisfy ourselves regarding the inventory quantities representing approximately 25% of the value of inventory of the Group as of those dates by means of other auditing procedures. Inventory amounts as of December 31, 2004 enter into the determination of net income and cash flows for the year ended December 31, 2005. |
(4)
· | We did not obtain audit evidence related to the fixed asset revaluations made by the Group in accordance with various Italian laws, which represent approximately 22% and 4% of fixed assets and shareholders equity, respectively, as of December 31, 2005. |
In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to perform and complete audit procedures on the items described in the preceding paragraph, the aggregated financial statements referred to above present fairly, in all material respects, the financial position of BCS Group at December 31, 2005, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in Italy.
Accounting principles generally accepted in Italy vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Notes 17 and 18 of the financial statements.
Rome, July 24,
2006 |
/s/ PricewaterhouseCoopers
SPA ----------------------------------------------- PricewaterhouseCoopers SpA |
(5)
BCS GROUP
Explanatory notes to the aggregated financial statements December 31, 2005
1 Background |
The aggregated financial statements of BCS Group at December 31, 2005 and for the year then ended are comprised of BCS Srl, BCS Service Srl, Vetus Srl and Boat Equipment Ltd (hereinafter, the Group). BCS Srl, BCS Service Srl and Vetus Srl are Italian limited liability companies, whereas Boat Equipment Ltd is incorporated in Malta. The Group manufactures and sells nautical systems for motor pleasure boats, provides assistance and maintenance services and distributes Vetus branded nautical equipment.
On May 12, 2006, each of the companies was acquired by Twin Disc Incorporated from a common group of shareholders.
2 Summary of significant accounting and reporting policies Basis of presentation
The aggregated financial statements of BCS Group have been prepared in accordance with principles prescribed by Italian law and supplemented by the accounting principles issued by the Consiglio Nazionale dei Dottori Commercialisti e dei Ragionieri, by the Organismo Italiano di Contabilità or, in the absence thereof and if applicable, the International Accounting Standards Board (IASB) (collectively, "Italian GAAP"). Italian GAAP differs in certain respects from generally accepted accounting principles in the United States ("U.S. GAAP"). A description of these differences and their effects on net income and shareholders equity is set forth in Notes 17 and 18. The financial statements have been reformatted from the Italian statutory financial statement presentation. Reclassifications reflect essentially a different aggregation of certain items that were segregated between current and non-current.
Principles of aggregation |
The aggregated financial statements of BCS Group include the statutory accounts of the four companies acquired by Twin Disc Incorporated as described above. Other companies owned by the shareholder group that were not acquired by Twin Disc Incorporated have been excluded. Furthermore, insignificant subsidiaries have not been aggregated. These companies are accounted for under the cost method as described below under the heading Investments.
Intercompany transactions |
All intercompany balances and transactions have been eliminated.
Foreign currency translation |
Assets and liabilities of Boat Equipment Ltd have been translated at the exchange rate prevailing at year-end, whereas income statement accounts have been translated at the average exchange rate for the period. Related translation adjustments are reported as a component of shareholders equity.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into Euro using the prevailing rate at the balance sheet date. All exchange rate differences are recognized in earnings in the period.
Cash and cash equivalents |
Cash and cash equivalents include cash on hand and at banks and are recorded at nominal value. In the Statement of Cash Flows, bank overdrafts are included as part of cash and cash equivalents in accordance with International Accounting Standards.
Receivables and payables |
Receivables are recorded at their estimated net realizable value. Payables are recorded at their nominal value.
Inventories |
Inventories consist of raw materials, work in progress and finished goods and are valued at the lower of weighted average cost or market value.
Prepayments and accrued income |
Such items relate to revenues and expenses referring to two or more financial periods and are recorded on an accrual basis.
(7)
Fixed assets |
Fixed assets are stated at purchase or production cost, including any incidental expenses and all costs directly chargeable to the assets, as adjusted by revaluations in accordance with various Italian laws; revaluations are included in aggregated shareholders equity.
The recorded value of fixed assets is depreciated using the straight-line method by applying depreciation rates that are based on the estimated useful lives of the fixed assets.
Fixed assets purchased during the year are depreciated at 50% of the ordinary rates to reflect the reduced usage of the related asset. In the event of an other than temporary impairment in value, such cost is written down accordingly. The original value of such fixed assets is subsequently reinstated if the reasons for any write-downs cease to apply. The Group has not recorded any impairment charges. Routine maintenance costs are expensed to the income statement as incurred. The costs of significant betterments or improvements in production capacity are attributed to the relevant asset and depreciated over the remaining useful life of the asset.
The depreciation rates applied to the principal categories of fixed assets are the following:
_____%____ | ||
Land and building | 3% | |
Machinery and equipment | 15% | |
Commercial and industrial equipment | 10% - 15% | |
Fittings and furniture | 12% | |
Vehicles | 20% - 25% |
Intangible assets |
Intangible assets are stated at purchase or production cost, including any incidental expenses and all costs directly chargeable to the assets. Such assets are amortized on a straight-line basis in accordance with the rates shown below, which are representative of their useful economic lives.
(8)
_____%____ | ||
Start up and expansion | 10% | |
Research, development and advertising costs | 20% | |
Industrial patents and intellectual property rights | 10% | |
Permits, licenses, trademarks and similar rights | 10% | |
Goodwill | 10% |
In the event of an other than temporary impairment in the value of such intangibles, the relevant asset is written down accordingly. The original value of such assets is subsequently reinstated if the reasons for any write-down cease to apply. The Group has not recorded any impairment charges.
Start-up and expansion costs include non-recurring costs incurred during the startup and expansion of the Group in relation to exceptional corporate events that provide long-term benefits.
Research, development and advertising costs are capitalized if they provide long-term benefits.
Industrial patents and intellectual property rights include the purchase cost of application software licenses allowing unlimited use, as well as the capitalized costs of the time spent by Group personnel on design, development and implementation activities for information systems.
Permits, licenses, trademarks and similar rights are recorded at the cost of their development or purchase price, including incidental expenses. The cost is amortized over the duration of the license.
Goodwill represents the difference between the amount paid for the acquisition of companies and their related net book value.
Investments |
Equity investments relate to investments in subsidiaries and related companies and are valued at cost. In the event of an other than temporary impairment in value, such cost is written down. The original value of such assets is subsequently reinstated if the reasons for any write-down cease to apply.
Provisions for contingencies and other liabilities
Provisions for contingencies or other liabilities relate to losses that are either likely or certain to be incurred but are uncertain as to their amount or the date on which they become due. Such provisions represent managements best estimate based on available information.
(9)
Employee severance indemnity
The employee severance indemnity is calculated and recorded in accordance with Italian law and existing labor agreements and represents the entire liability owed to employees, if terminated at the balance sheet date, net of any advances paid.
Revenues and
costs |
Revenues from the sales of products and services are recognized upon transfer of title or completion of service. Costs are recognized when the related goods and services are sold, consumed or allocated.
Income taxes
The provision for current taxes is determined in accordance with enacted regulations and tax rates.
Deferred tax assets or liabilities are recognized for differences between the financial reporting and tax bases of assets and liabilities. Deferred tax liabilities are not recognized if ultimate payment is not deemed probable.
Deferred tax assets are recognized when there is a reasonable expectation of their realization.
Statement of cash flows
The statement of cash flows is prepared in accordance with International Accounting Standards using the indirect method.
(10)
3 Receivables |
At December 31, 2005 receivables total €9,881 thousand, as follows (in €/000):
RECEIVABLES | Dec. 31, 2005 | |
|
| |
Trade receivables | 8,889 | |
Tax receivable | 2 | |
Deferred tax assets | 372 | |
Other receivables | 551 | |
|
| |
Total receivables | 9,814 | |
|
|
Deferred tax assets include €274 thousand related to the provision for slow-moving inventory, €65 thousand related to the elimination of margin on intercompany sales and €33 thousand related to the bad debt provision.
Other receivables include €499 thousand related to an insurance policy to cover the indemnity that the Group must pay to members of the board of directors when they step down. The related liability is recorded in payables due to others.
The bad debt provision totals €264 thousand.
4 Inventories |
At December 31, 2005 inventories total €6,032 thousand, as follows (in €/000):
INVENTORIES | Dec. 31, | 2005 | ||||
|
|
|
| |||
Raw materials and consumables | 2,892 | |||||
Provision for raw materials and consumables | (295) | |||||
|
|
| ||||
Total raw materials and consumables | 2,597 | |||||
|
|
| ||||
Finished goods and goods for resale | 3,875 | |||||
Provision for finished goods and goods for resale | (440) | |||||
|
|
| ||||
Total finished goods and goods for resale | 3,435 | |||||
|
|
| ||||
Total inventories | 6,032 | |||||
|
|
|
5 Fixed assets
At December 31, 2005 fixed assets total €1,466 thousand and reflect an increase of €434 thousand, a decrease of €100 thousand for disposals and €241 thousand for depreciation.
The following tables provide data on the historical cost, purchases, disposals, and depreciation during the year and the closing balance (in €/000):
(11)
HISTORICAL COST | ||||||||||||||||
|
|
|
|
|
|
| ||||||||||
FIXED ASSETS | Dec. 31, 2004 | Purchases | Disposals | Dec. 31, 2005 | ||||||||||||
|
|
|
|
| ||||||||||||
Land and buildings | 821 | - | - | 821 | ||||||||||||
Machinery and equipment | 698 | 31 | 2 | 727 | ||||||||||||
Commercial and industrial | 1,093 | 232 | 82 | 1,243 | ||||||||||||
Other | 382 | 69 | 16 | 435 | ||||||||||||
Fixed assets under | ||||||||||||||||
construction and advances | - | 102 | - | 102 | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Total fixed assets | 2,994 | 434 | 100 | 3,328 | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
ACCUMULATED DEPRECIATION | ||||||||||||||||
|
|
|
| |||||||||||||
FIXED ASSETS | Dec. 31, 2004 | Increase | Decrease | Dec. 31, 2005 | ||||||||||||
|
|
|
|
| ||||||||||||
Land and buildings | 175 | 22 | - | 197 | ||||||||||||
Machinery and equipment | 506 | 55 | - | 561 | ||||||||||||
Commercial and industrial | 639 | 130 | - | 769 | ||||||||||||
Other | 301 | 34 | - | 335 | ||||||||||||
Fixed assets under | ||||||||||||||||
construction and advances | - | - | - | - | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Total fixed assets | 1,621 | 241 | - | 1,862 | ||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Dec. 31, 2004 | Dec. 31, 2005 | |||||||||||||||
|
|
|
|
|
|
| ||||||||||
Historical Accumulated | Historical Accumulated | |||||||||||||||
FIXED ASSETS | Net Value | Net Value | ||||||||||||||
Cost | depreciation | Cost | depreciation | |||||||||||||
|
|
|
|
|
|
| ||||||||||
Land and buildings | 821 | 175 | 646 | 821 | 197 | 624 | ||||||||||
Machinery and equipment | 698 | 506 | 192 | 727 | 561 | 166 | ||||||||||
Commercial and industrial equipment | 1,093 | 639 | 454 | 1,243 | 769 | 474 | ||||||||||
Other | 382 | 301 | 81 | 435 | 335 | 100 | ||||||||||
Fixed assets under construction and | ||||||||||||||||
advances | - | - | - | 102 | - | 102 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fixed assets | 2,994 | 1,621 | 1,373 | 3,328 | 1,862 | 1,466 | ||||||||||
|
|
|
|
|
|
|
Revaluations made in previous years in accordance with Italian laws are as follows (in €/000):
Year | Amount | |||
|
|
| ||
Land and buildings | 2003 | 328 | ||
Machinery and equipment | 2001 | 127 | ||
|
|
| ||
TOTAL | 455 | |||
|
|
|
(12)
The following table shows the effects on the financial statements if the Group had treated qualifying leases as capital leases (in €/000):
€/000 | ||||
|
|
| ||
Income Statement: | ||||
Rent expense | 168 | |||
Depreciation | (184) | |||
Interest expense | (14) | |||
Tax effect | 11 | |||
|
| |||
Total effect - Income Statement | (19) | |||
|
| |||
Balance sheet: | ||||
Fixed assets | 346 | |||
Pre-paid expenses | (10) | |||
Capital lease obligations | (207) | |||
Tax effect | (48) | |||
|
| |||
Total effect - Balance Sheet | 81 | |||
|
| |||
6 | Intangible assets | |||
At December 31, 2005, intangible fixed assets total €449 thousand. |
The following tables provide data on the historical cost, purchases, disposals and amortization made during the year and the closing balance (in €/000):
HISTORICAL COST | ||||||||
|
|
|
| |||||
Dec. 31, | Dec. 31, | |||||||
INTANGIBLE ASSETS | Purchases Disposals | |||||||
2004 | 2005 | |||||||
|
|
|
|
| ||||
Start-up and expansion costs | 22 | - | - | 22 | ||||
Research, development and advertising costs | 62 | 1 | - | 63 | ||||
Industrial patents and intellectual property rights | 2 | - | - | 2 | ||||
Permits, licenses, trademarks and similar rights | 260 | - | - | 260 | ||||
Goodwill | 489 | - | - | 489 | ||||
Other | 15 | - | - | 15 | ||||
|
|
|
|
| ||||
Total intangible assets | 850 | 1 | - | 851 | ||||
|
|
|
|
| ||||
AMORTIZATION | ||||||||
|
|
|
| |||||
Dec. 31, | Dec. 31, | |||||||
INTANGIBLE ASSETS | Increase Decrease | |||||||
2004 | 2005 | |||||||
|
|
|
|
| ||||
Start-up and expansion costs | 4 | 2 | - | 6 | ||||
Research, development and advertising costs | 29 | 12 | - | 41 | ||||
Industrial patents and intellectual property rights | 1 | - | - | 1 | ||||
Permits, licenses, trademarks and similar rights | 78 | 29 | - | 107 | ||||
Goodwill | 208 | 27 | - | 235 | ||||
Other | 9 | 3 | - | 12 | ||||
|
|
|
|
| ||||
Total intangible assets | 329 | 73 | - | 402 | ||||
|
|
|
|
|
(13)
NET VALUE | ||||||||||||
|
|
|
|
| ||||||||
Dec. 31, 2004 | Dec. 31, 2005 | |||||||||||
|
|
| ||||||||||
Historical Cost |
Accum. Amort. |
Historical Cost |
|
|||||||||
INTANGIBLE ASSETS | Net Value | Net Value | ||||||||||
|
|
|
|
|
|
| ||||||
Start-up and expansion costs | 22 | 4 | 18 | 22 | 6 | 16 | ||||||
Research, development and advertising | ||||||||||||
costs | 62 | 29 | 33 | 63 | 41 | 22 | ||||||
Industrial patents and intellectual property | ||||||||||||
rights | 2 | 1 | 1 | 2 | 1 | 1 | ||||||
Permits, licenses, trademarks and similar | ||||||||||||
rights | 260 | 78 | 182 | 260 | 107 | 153 | ||||||
Goodwill | 489 | 208 | 281 | 489 | 235 | 254 | ||||||
Other | 15 | 9 | 6 | 15 | 12 | 3 | ||||||
|
|
|
|
|
|
| ||||||
Total intangible assets | 850 | 329 | 521 | 851 | 402 | 449 | ||||||
|
|
|
|
|
|
|
Goodwill arose from the acquisition of other companies, as follows:
7 Investments |
At December 31, 2005 investments total €46 thousand.
The following table provides data on the historical cost, write-down, revaluations, acquisition and disposals made in current year:
Dec. 31, | Dec. 31, | |||||||||
INVESTMENTS | Acquisitions | Disposals | Writedowns | |||||||
2004 | 2005 | |||||||||
|
|
|
|
|
| |||||
(Amounts expressed in €/000) | ||||||||||
|
|
|
| |||||||
Equity investments in: | ||||||||||
subsidiary companies | 43 | 15 | - | 15 | 43 | |||||
other companies | 3 | - | - | - | 3 | |||||
|
|
|
|
|
| |||||
Total equity investments | 46 | 15 | - | 15 | 46 | |||||
|
|
|
|
|
|
(14)
The following table provides financial data of subsidiary companies:
Loss in | Value in | |||||||||||||
Parent | Share | % | aggregated | |||||||||||
Subsidiary | Equity | current | ||||||||||||
Company | capital | owned | financial | |||||||||||
period | statements | |||||||||||||
|
|
|
|
|
|
|
| |||||||
(Amounts expressed in €) | ||||||||||||||
|
|
|
|
| ||||||||||
Hydraflex Srl | BCS Srl | 30,600 | 9,147 | (4,568) | 50.00 | 15,494 | ||||||||
Vema Boat Srl | Vetus Srl | 25,500 | 22,878 | (2,622) | 99.99 | 27,481 | ||||||||
|
|
|
|
|
|
| ||||||||
Total | 42,975 | |||||||||||||
|
|
|
|
|
|
| ||||||||
8 | Current liabilities |
At December 31, 2005 current liabilities total €7,360 thousand, as follows (in €/000):
Amount at Dec. | ||
Current liabilities | 31, 2005 | |
|
| |
Bank overdrafts | 757 | |
Short-term bank loans | 88 | |
Current portion of long-term debt | 64 | |
Advances from customers | 164 | |
Payables due to suppliers | 3,918 | |
Tax payables | 650 | |
Payables due to social security institutions | 120 | |
Payables due to others | 1,444 | |
Accrued expenses and deferred income | 155 | |
|
| |
Total current liabilities | 7,360 | |
|
|
Tax payables are as
follows: |
Payables due to others include €1,049 thousand related to the indemnity that the Group owes to members of the board of directors when they step down.
9 Debt |
The Group has various credit facilities with several banks. The short-term bank loans bear interest at rates ranging from 5.73% to 5.95% .
Long-term debt relates to a loan obtained through government incentives. The loan bears interest at 1% per annum and is repayable in semi-annual installments through January 1, 2012.
(15)
10 Allowances for risks and charges
At December 31, 2005 the allowance for risks and charges totals 27 thousand, a 45 thousand decrease from the prior year.
The following table shows the breakdown of the items and changes during the year (in /000):
Allowances for risks and charges | 12/31/2004 Provisions Utilization | Dec. 31, | ||||||
2005 | ||||||||
|
|
|
|
|
||||
Provisions for pensions and similar | ||||||||
commitments | 10 | 30 | 30 | 10 | ||||
Provision for taxation | 47 | - | 30 | 17 | ||||
|
|
|
|
|
||||
Total allowances for risks and charges | 57 | 30 | 60 | 27 | ||||
|
|
|
|
|
Provision for taxation represents the deferred tax liabilities related to the temporary taxable differences.
11 Employee severance indemnity |
At December 31, 2005 the employee severance indemnity totals 1,016 thousand, a net increase of 50 thousand over the prior year.
The following table shows the changes during the year (in /000):
Amount accrued during the year | 175 | |
|
|
|
Amount paid during the year | (125) | |
|
|
|
Amount at Dec. 31, 2005 | 1,016 | |
|
|
12 Shareholders equity |
Share capital and reserves represent the aggregation of such items in the statutory accounts of each company comprising the Group. Changes in shareholders equity during the year are as follows:
(16)
Share capital |
Legal
reserve |
Revaluation reserve |
Extra- ordinary reserve |
Un- available reserve |
Currency translation account |
Retained earnings |
Net income |
|||||||||||
Description | TOTAL | |||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||
Amount at Dec. | ||||||||||||||||||
31, 2004 | 363 | 66 | 369 | 205 | - | - | 6,713 | 458 | 8,174 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Allocation of prior | ||||||||||||||||||
year net income | ||||||||||||||||||
- | 0 | - | - | - | - | 458 | (458) | 0 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Translation of | ||||||||||||||||||
Boat Equipment | ||||||||||||||||||
Ltd to Euro | - | - | - | - | - | 13 | - | - | 13 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Accrual for | ||||||||||||||||||
specific law | - | - | - | - | 1 | - | - | - | 1 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Net income | - | - | - | - | - | - | - | 1,771 | 1,771 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Amount at Dec. | ||||||||||||||||||
31, 2005 | 363 | 66 | 369 | 205 | 1 | 13 | 7,171 | 1,771 | 9,959 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
The following table shows the possible utilization for each item of equity: | ||||||||||||||||||
|
| |||||||||||||||||
Amounts at | ||||||||||||||||||
SHAREHOLDERS' EQUITY | Notes | |||||||||||||||||
Dec. 31, 2005 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
(in €/000) | ||||||||||||||||||
|
||||||||||||||||||
Share capital | 363 | |||||||||||||||||
Revaluation reserve | 369 | A,B | ||||||||||||||||
Legal reserve | 66 | A,B | ||||||||||||||||
Other reserves | ||||||||||||||||||
other reserve | 205 | A,B,C | ||||||||||||||||
reserve for rounding | (0) | |||||||||||||||||
unavailable reserve | 2 | |||||||||||||||||
currency transaction reserve | 13 | A, B | ||||||||||||||||
Retained earnings | 7,171 | A,B,C | ||||||||||||||||
Net income | 1,771 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total Group shareholders' equity | 9,959 |
Notes |
A: | for capital increase; |
B: | for coverage of losses; |
C: | for distribution to shareholders. |
(17)
13 | Revenues | |||
|
|
|
||
Description | 12/31/2005 | |||
|
|
|
||
(/000) | ||||
|
||||
Revenues from sales and services | 22,767 | |||
Change in finished goods and WIP inventory | (323) | |||
Other income and revenues | 190 | |||
|
|
|||
Total aggregated revenues | 22,634 | |||
|
|
Sales of goods and services
For the year ended December 31, 2005 sales comprised the following:
14 Operating costs |
For the year ended December 31, 2005 operating costs total 19,567 thousand, as follows (in /000):
Description | Total | |
|
|
|
Raw materials, consumables and goods | 11,049 | |
Services | 3,356 | |
Leases and rentals | 473 | |
Personnel costs | ||
Wages and salaries | 2,453 | |
Social security costs | 673 | |
Provision for severance indemnity | 176 | |
Other costs relating to employees | 51 | |
Valuation adjustments | ||
Amortization of intangible assets | 73 | |
Depreciation of fixed assets | 242 | |
Writedowns of current receivables and liquid assets | 49 | |
Changes in inventories of raw materials, consumables and goods | 535 | |
Other provisions | 143 | |
Other operating costs | 294 | |
|
|
|
Total | 19,567 | |
|
|
(18)
Raw materials, consumables and goods for sale
The cost of raw materials, consumables and goods for sale for 2005 totals 11,049 thousand, of which 7,283 thousand for the purchase of raw materials, 1,298 thousand for work in progress and 140 thousand for the purchase of finished goods. The remaining amount of 2,328 thousand relates to the purchase of other material goods, packaging costs and other.
Services |
Services costs for 2005 include emoluments of the members of the Board of Directors of 954 thousand and fees of the board of statutory auditors of 24 thousand.
Leases and rentals |
Leases and rentals cost for 2005 totals 473 thousand and relates for 213 thousand to leased goods and for 260 thousand to the rental of the Groups premises from the company BCS di Bini, Cecchi e Salvadori Srl, whose owners are primarily the same as the ownership group of the Group.
Other provisions |
Other provisions relate to the indemnity that the Group owes to members of the board of directors when they step down.
15 Financial income and expense Other financial income |
Other financial income relates to bank interest income.
Interest expense |
Interest expense totals 58 thousand for 2005, as follows:
Foreign exchange gains and losses |
Foreign exchange gains and losses includes both realized gains and losses arising from changes in exchange rates upon the collection of receivables and settlement of payables denominated in foreign currencies, as well as unrealized gains and losses arising upon the translation of assets and liabilities originally denominated in foreign currencies at exchange rates prevailing at the balance sheet date.
16 Income taxes |
Income tax expense for 2005 totals 1,241 thousand, of which 1,250 thousand relates to current taxes, partially offset by a deferred tax benefit of 9 thousand.
(19)
The following tables provide the reconciliation from the enacted tax rate to the effective tax rate (in /000):
IRES | ||
|
||
Total | ||
|
|
|
Profit before taxes | 3,012 | |
Enacted tax (33%) | 994 | |
Profit before taxes | 3,012 | |
Nondeductible expenses and other additions to taxable income | 144 | |
Non taxable income and other reductions to taxable income | (293) | |
|
||
Taxable income | 2,863 | |
Effective tax (33%) | 944 | |
|
|
|
IRAP | ||
|
||
Total | ||
|
|
|
Profit before taxes | 3,012 | |
Enacted tax (4,25%) | 128 | |
Profit before taxes | 3,012 | |
Nondeductible expenses and other additions to taxable income | 4,715 | |
Non taxable income and other reductions to taxable income | (529) | |
|
||
Taxable income | 7,198 | |
Effective tax (4,25%) | 306 | |
|
|
|
TOTAL CURRENT TAX EXPENSE | 1,250 | |
|
|
(20)
17 Summary of significant differences between Italian accounting principles and U.S. GAAP
The Groups aggregated financial statements have been prepared in accordance with Italian GAAP, which differs in certain respects from U.S. GAAP. A description of the significant differences and their effects on net income and shareholders equity is set forth in the following notes. Those differences described below that are not included in the reconciliation of net income or shareholders equity (see note 18) either had no effect, or their effect was not significant. See also note 2, Summary of significant accounting and reporting policies for additional information on the accounting principles that the Group follows.
A) Aggregation policy |
The companies included in the aggregated financial statements and the principles applied in preparing the aggregated financial statements are those described in Notes 1 and 2. The Group has not included in the aggregated financial statements subsidiaries of the aggregated companies.
Under U.S. GAAP, investments of greater than 50% of share capital are consolidated by the investor when the investor has control. Investments of between 20% and 50% are accounted for by the equity method when the investor does not have control but exercises significant influence over the investee.
In addition, U.S. GAAP also requires an entity that absorbs the majority of a variable interest entitys (VIE) expected losses, or in the absence of this, the majority of a VIEs expected residual returns (such an entity being the Primary Beneficiary) to consolidate the VIE.
B) Valuation of assets and subsequent revaluation
Both Italian and U.S. GAAP require that assets which are impaired be written down to their fair value. However, under Italian GAAP, in order to determine whether an impairment exists, the book value of an asset in question is compared to the sum of the discounted cash flows expected to be generated by such asset. If the sum of such discounted cash flows is less than the carrying value of the asset, an impairment exists. Under U.S. GAAP, the performance of the same analysis uses undiscounted cash flows.
In addition, under Italian GAAP impairment charges are reversed when the situation giving rise to an impairment ceases to exist. Under U.S. GAAP reversals of impairment charges are not permitted.
C) Monetary revaluation of assets |
Under Italian GAAP, certain assets have been revalued at various times in accordance with various Italian laws. Under U.S. GAAP, such revaluations are not permitted.
(21)
D) Deferred tax assets and liabilities
Under Italian GAAP deferred taxes are recorded if recoverable with reasonable certainty. Taxes payable relating to certain potential distributions from shareholders equity or upon liquidation of a company are accrued only to the extent such distributions are planned.
Under U.S. GAAP, deferred tax assets are recorded if their recovery is more likely than not. The potential taxes on equity reserves are considered deferred tax liabilities and are accrued accordingly.
The adjustments included in the reconciliations to U.S. GAAP take into account the deferred tax effect of U.S. GAAP adjustments.
E) Intangible assets |
Under Italian GAAP, goodwill is amortized on a straight-line basis over its estimated useful life, not to exceed twenty years. Under U.S. GAAP, goodwill is not amortized, but is subject to an annual evaluation in order to define the relevant impairment, if any.
Under Italian GAAP, start-up costs, research and development and advertising costs may be capitalized if they benefit more than one financial period. Under U.S. GAAP, such costs are expensed as incurred.
(22)
F) Lease accounting |
Under Italian GAAP, all leases are treated as operating and all lease payments are expensed as incurred. For fixed assets under capital lease, disclosure is provided in the footnotes as to the effect on the income statement and shareholders equity as if the leases had been accounted for as capital leases.
Under U.S. GAAP, fixed assets under capital lease are capitalized and depreciated over the lease period or estimated useful life of the asset and a liability is recorded for the present value of future lease payments.
G) Transactions with entities under common control
The Group purchased three businesses from the shareholder group. Under Italian GAAP, transactions with entities under common control are accounted for at the exchange value and the difference between the acquisition cost and the underlying net carrying value of the net assets acquired is recorded as goodwill. Under U.S. GAAP, transactions with entities under common control are accounted for at predecessor basis.
H) Extraordinary income and expense |
All items recorded by the Group as extraordinary under Italian GAAP would not qualify as extraordinary under U.S. GAAP.
18 Reconciliations between net income and shareholders equity determined under Italian GAAP to U.S. GAAP
The following is a summary of the significant adjustments to net income for the year ended December 31, 2005 and to shareholders equity at December 31, 2005 that would be required if U.S. GAAP had been applied instead of Italian GAAP in the aggregated financial statements.
(23)
RECONCILIATION OF NET INCOME (in /000) | ||
|
|
|
2005 | ||
|
|
|
Net income according to the financial statements prepared | ||
under Italian GAAP | 1,771 | |
Items increasing (decreasing) reported net income: | ||
A. effect of the differences related to companies carried at cost | ||
under Italian GAAP but consolidated under U.S. GAAP | (3) | |
A. effect of the differences related to companies carried at cost | ||
under Italian GAAP but accounted for under the equity method | ||
under U.S. GAAP | (2) | |
C. effect of the elimination of monetary revaluations | 30 | |
D. deferred income taxes | (24) | |
E. effect of the write-off of intangible assets | 14 | |
F. effect of lease accounting | (19) | |
G. effect of the elimination of transactions with entities under | ||
common control | 27 | |
Net adjustment | 22 | |
Net income in accordance with U.S. GAAP | 1,793 | |
|
|
(24)
RECONCILIATION OF SHAREHOLDERS EQUITY (in /000) | ||||
|
|
|
||
Dec. 31, 2005 | ||||
|
|
|
||
Shareholders' equity according to the financial statements prepared | ||||
under Italian GAAP | 9.959 | |||
Items increasing (decreasing) reported shareholders' equity: | ||||
A. effect of the differences related to companies carried at cost | under Italian | |||
GAAP but consolidated under U.S. GAAP | (4) | |||
A. effect of the differences related to companies carried at cost | under Italian | |||
GAAP but accounted for under the equity method under U.S. GAAP | (11) | |||
C. effect of the elimination of monetary revaluations | (327) | |||
D. deferred income taxes | 184 | |||
E. effect of the write-off of intangible assets | (38) | |||
F. effect of lease accounting | 81 | |||
G. effect of the elimination of transactions with entities under common | (254) | |||
Net adjustment | (368) | |||
Shareholders' equity in accordance with U.S. GAAP | 9.591 | |||
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(25)