-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SZa1vuLWEtdFeZrt08nlLF8YNRgf+NVYFx/ykdCMdFCE14LNfZvJ23jTQSY1n+vz 6yONp3g7g5K0qYklaX1dig== 0000891618-98-000108.txt : 19980114 0000891618-98-000108.hdr.sgml : 19980114 ACCESSION NUMBER: 0000891618-98-000108 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971030 ITEM INFORMATION: FILED AS OF DATE: 19980113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEXTRONICS INTERNATIONAL LTD CENTRAL INDEX KEY: 0000866374 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-23354 FILM NUMBER: 98506116 BUSINESS ADDRESS: STREET 1: BLK 514 CHAI CHEE LANE #04-13 STREET 2: BODEK INDUSTRIAL ESTATE REPUBLIC OF SING CITY: SINGAPORE 1646 STATE: U0 BUSINESS PHONE: 0654495255 FORMER COMPANY: FORMER CONFORMED NAME: FLEX HOLDINGS PTE LTD DATE OF NAME CHANGE: 19940201 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A-1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): OCTOBER 30, 1997 FLEXTRONICS INTERNATIONAL LTD. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) SINGAPORE -------------------------------------------- (State or Other Jurisdiction of Incorporation) 0-23354 NOT APPLICABLE - ---------------------- -------------------- (Commission (IRS Employer File Number) Identification No.) 514 CHAI CHEE LANE, #04-13, BEDOK INDUSTRIAL ESTATE, SINGAPORE 469029 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (65) 449-5255 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) NOT APPLICABLE - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) 2 This report on Form 8-K/A-1 supplements the report on Form 8-K filed with the Securities and Exchange Commission on November 10, 1997 by Flextronics International Ltd. (the "Company") to report its acquisition of 92% of the outstanding capital stock of Neutronics Electronic Industries Holding A.G. ("Neutronics") in exchange for 2,806,000 shares of the Company's ordinary shares. ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Businesses Acquired. The following financial statements are filed herewith: 2 3 REPORT OF INDEPENDENT AUDITORS The Management and Supervisory Boards and Shareholders of NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. Gutheil-Schodergasse 10 A-1102 Wien Austria We have audited the accompanying consolidated balance sheets of Neutronics Electronic Industries Holding A.G. and its subsidiaries (the "Group") as at December 31, 1996, 1995 and 1994 and the related consolidated statements of operations and retained earnings, and cash flows for the periods then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with International Standards on Auditing established by the International Federation of Accountants Committee (IFAC). Those standards require that we plan and perform the audit to obtain reasonable assurances about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly in all material respects the financial position of the Group as at December 31, 1996, 1995 and 1994, and the results of its operations and its cash flows for the periods then ended and have been properly prepared in conformity with Austrian Generally Accepted Accounting Principles ("Austrian GAAP"), and as far as the consolidated financial statement schedules are concerned, make proper disclosure in conformity with United States Generally Accepted Principles ("US GAAP"). Furthermore, the reconciliation from Austrian to US GAAP of consolidated net income and shareholders' equity as set out in note 2 of the consolidated financial statements has been properly prepared. Moore Stephens Registered Auditors St. Paul's House Warwick Lane London EC4P 4BN October 17, 1997 3 4 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIOD FROM JULY 1, 1994 YEAR ENDED DECEMBER 31, (INCEPTION) ------------------------------------------------------- TO DECEMBER 31, NOTE 1996 1996 1995 1994 ---- --------- -------- -------- ------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues .......................... $ 128,645 ATS 1,583,754 ATS 1,241,447 ATS 620,959 Increase (decrease) in inventories of finished goods and work in process.............. 67 830 13,247 (5,992) Other capitalized costs............................ 2,145 26,412 5,549 1,439 Other operating income........................... 4 1,357 16,705 245 7,381 Cost of materials ................. (86,868) (1,069,442) (723,592) (390,118) Personnel expenses ................ 5 (23,255) (286,300) (295,508) (126,605) Amortization of intangible ssets and depreciation of non-current assets............... 6 (3,910) (48,144) (32,506) (11,550) Other operating expenses........... 7 (12,972) (159,698) (188,258) (97,917) Financial result, net.............. 9 (1,563) (19,236) (11,538) (34) --------- -------- -------- ---------- NET INCOME (LOSS).................. $ 3,646 ATS 44,881 ATS 9,086 ATS (2,437) ========= ========== ========= ========== Income applicable to Neutronics ...................... 3,618 44,531 8,916 (3,006) Income applicable to minority interest................ 28 350 170 569 -------- ---------- --------- ---------- NET INCOME (LOSS).................. $ 3,646 ATS 44,881 ATS 9,086 ATS (2,437) ======== ========== ========= ========== EARNINGS (LOSS) PER SHARE ........................... $ 2.26 ATS 27.83 ATS 5.57 ATS (1.88)
See accompanying Notes to Consolidated Financial Statements 4 5 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, ---------------------------------------------------------------- NOTE 1996 1996 1995 1994 ---- ------- ----------- ----------- ----------- (IN THOUSANDS) ASSETS NON-CURRENT ASSETS Initial contract costs 11 $ 1,462 ATS 18,000 ATS -- ATS -- Intangible assets .......... 12 1,912 23,535 25,044 21,757 Property, plant and equipment ................. 13 34,229 421,392 315,709 243,687 Financial assets ........... 14 1,063 13,082 44,243 9,100 ------- ----------- ----------- ----------- 38,666 476,009 384,996 274,544 ------- ----------- ----------- ----------- CURRENT ASSETS Inventories ................ 15 15,654 192,713 134,023 133,618 Receivables and other assets 16 19,416 239,031 223,830 235,192 Cash and cash equivalents .. 453 5,574 21,161 80,768 ------- ----------- ----------- ----------- 35,523 437,318 379,014 449,578 ------- ----------- ----------- ----------- Prepaid expenses ........... 954 11,739 5,992 11,202 ------- ----------- ----------- ----------- TOTAL ASSETS ............... $75,143 ATS 925,066 ATS 770,002 ATS 735,324 ======= =========== =========== =========== SHAREHOLDERS' EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY 18 Share capital .............. $ 6,498 ATS 80,000 ATS 80,000 ATS 80,000 Capital reserves ........... 3,249 40,000 40,000 40,000 Retained earnings .......... 4,094 50,397 5,866 (3,006) Minority interests ......... 215 2,645 5,860 7,021 ------- ----------- ----------- ---------- 14,056 173,042 131,726 124,015 ------- ----------- ----------- --------- PROVISIONS Provision for severance 8 3,025 37,244 36,527 35,205 costs..................... Other provisions........... 19 5,987 73,704 70,741 77,522 ------- ----------- ----------- ---------- 9,012 110,948 107,268 112,727 ------- ----------- ----------- ---------- LIABILITIES Accounts payable trade ..... 20 21,385 263,257 172,220 184,763 Other liabilities .......... 21 28,824 354,851 355,112 311,868 ------- ----------- ----------- ----------- 50,209 618,108 527,332 496,631 Deferred income ............ 22 1,866 22,968 3,676 1,951 ------- ----------- ----------- ----------- TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES ........... $75,143 ATS 925,066 ATS 770,002 ATS 735,324 ======= =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements 5 6 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JULY 1, 1994 (INCEPTION) YEAR ENDED DECEMBER 31, TO DECEMBER 31, -------------------------------- -------------- 1996 1996 1995 1994 ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ............ $ 3,646 ATS 44,881 ATS 9,086 ATS (2,437) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .............. 3,911 48,144 32,506 11,550 Amortization of employee related provisions ........ (711) (8,755) (9,489) (5,896) Loss (gain) on sale of non-current assets ....... 215 2,644 383 (186) Gain on sale of subsidiary . (882) (10,864) -- -- Capitalization of initial contract costs ............ (1,949) (24,000) -- -- Share of loss in associated company ................... 93 1,150 -- -- Changes in assets and liabilities net of effects from purchase and disposal of subsidiaries: (Increase) decrease in receivables and other assets .................. (2,334) (28,736) 83 (91,827) (Increase) decrease in prepaid expenses ......... (627) (7,714) 5,210 (11,148) Increase in inventories .... (4,863) (59,864) (403) (111,683) Increase (decrease) in liabilities and provisions ............... 8,821 108,613 (229) 192,851 Increase in deferred income ................... 1,600 19,700 1,725 20 Other adjustments ............. (110) (1,358) (62) (32) ------- ---------- ---------- ----------- NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES .................. $ 6,810 ATS 83,841 ATS 38,810 ATS (18,788) ======= ========== ========== =========== CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets .. (121) (1,489) (35,143) (9,100) Purchase of property, plant and equipment ................ (9,037) (111,256) (77,702) (156,679) Purchase of intangible assets . (183) (2,254) (6,455) (1,291) Proceeds from disposal of non-current assets ........... 3,446 42,425 4,055 433 Purchase of subsidiaries, net of cash acquired ............. -- -- -- 32,292 Proceeds from disposal of subsidiaries, net of cash disposed of .................. 870 10,706 -- -- ------- ---------- ---------- ----------- NET CASH USED FOR INVESTING ACTIVITIES ................... $(5,025) ATS (61,868) ATS (115,245) ATS (134,345) ------- ---------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in borrowings under line of credit agreements ................... 984 12,108 64,775 21,596 Proceeds from long term borrowings ................... 4,735 58,298 36,418 102,177 Payments on long term borrowings and capital leases ....................... (4,839) (59,576) (12,557) (9,573) Proceeds from related company financing ................... -- -- -- 119,201 Payments on related company financing .................... (3,931) (48,390) (70,811) -- Dividends paid to minority interests .................... -- -- (997) -- ------- ---------- ---------- ----------- NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES ................... $(3,051) ATS (37,560) ATS 16,828 ATS 233,401 ------- ---------- ---------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .... (1,266) (15,587) (59,607) 80,268 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......... 1,719 21,161 80,768 500 ------- ---------- ---------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ................ $ 453 ATS 5,574 ATS 21,161 ATS 80,768 ======= ========== ========== ===========
See accompanying Notes to Consolidated Financial Statements 6 7 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SHARE CAPITAL RETAINED MINORITY CAPITAL RESERVES EARNINGS INTERESTS TOTAL ---------- ---------- ---------- --------- ----------- (IN THOUSANDS) BALANCE AT JULY 1, 1994 .... ATS 500 ATS -- ATS -- ATS -- ATS 500 Contributed capital ........ 79,500 40,000 -- -- 119,500 1994 net income to retained earnings .................. -- -- (3,006) 569 (2,437) Change in minority interests ................. -- -- -- 6,452 6,452 ---------- ---------- ---------- --------- ----------- BALANCE AT DECEMBER 31,1994 ATS 80,000 ATS 40,000 ATS (3,006) ATS 7,021 ATS 124,015 ========== ========== ========== ========= =========== BALANCE AT JANUARY 1, 1995 . 80,000 40,000 (3,006) 7,021 124,015 1995 net income to retained earnings .................. -- -- 8,916 170 9,086 Change in minority interests ............... -- -- -- (378) (378) Dividends paid to minority interests ................. -- -- -- (997) (997) Other ...................... -- -- (44) 44 -- ---------- ---------- ---------- --------- ----------- BALANCE AT DECEMBER 31, 1995 ATS 80,000 ATS 40,000 ATS 5,866 ATS 5,860 ATS 131,726 ========== ========== ========== ========= =========== BALANCE AT JANUARY 1, 1996 . 80,000 40,000 5,866 5,860 131,726 1996 net income to retained earnings .................. -- -- 44,531 350 44,881 Change in minority interests ............... -- -- -- (3,565) (3,565) ---------- ---------- ---------- --------- ----------- BALANCE AT DECEMBER 31, 1996 ATS 80,000 ATS 40,000 ATS 50,397 ATS 2,645 ATS 173,042 ========== ========== ========== ========= ===========
See accompanying Notes to Consolidated Financial Statements 7 8 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF ACCOUNTING POLICIES Description of Business -- Neutronics Electronic Industries Holding Aktiengesellschaft and its subsidiaries ("Neutronics" or the "Group") are engaged in contract manufacturing of electronic products and other supplies, such as plastics, to the electronics industry. Basis of Presentation -- The consolidated financial statements of Neutronics have been prepared in accordance with the Austrian Commercial Code, which represents accounting principles generally accepted in Austria ("Austrian GAAP"), and comply with the accounting policies described below. Austrian GAAP varies in certain significant respects from accounting principles generally accepted in the United States ("U.S. GAAP"). Application of U.S. GAAP would have affected the results of operations for each of the years in the two-year period ended December 31, 1996 and for the six months ended December 31, 1994, and shareholders' equity as of December 31, 1996, 1995 and 1994 to the extent summarized in Note 2 to the consolidated financial statements. The Company was incorporated on June 17, 1994, but did not commence operations as a group until July 1, 1994. Accordingly, all references in these financial statements to the Company's inception refer to July 1, 1994. All amounts herein are shown in Austrian Schillings ("ATS"), unless otherwise indicated, and for the year 1996 are also presented in U.S. dollars ("dollars" or "$"), the latter being unaudited and presented solely for the convenience of the reader at the rate of ATS 12.311 = $1, the Noon Buying Rate of the Federal Reserve Bank of New York on October 15, 1997. Consolidation Methods -- All companies in which Neutronics has control are fully consolidated. Significant investments in which Neutronics has an ownership interest in the range of 20% to 50% are accounted for using the equity method, except a 35% interest in Philips Monitoripar Magyarorszag Vamszabadterueleti ("PMM") acquired by Neutronics on December 13, 1994 and disposed of on December 20, 1996. The investment in PMM was accounted for at cost because any significant influence was expected to be only temporary. These financial statements include references to associated and related companies. Associated companies represent entities in which Neutronics owns between 20% to 50% and are accounted for using the equity method. Related companies include entities which are members of groups which have significant ownership interests in Neutronics. The effects of intercompany transactions have been eliminated. Total Cost Method -- The income statements are presented according to the total-cost (or type-of-expenditure) format as commonly used in Austria. According to this format, production and all other expenses incurred during the period are classified by type of expenses. Use of Estimates -- The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currencies -- Foreign currency receivables and payables are recorded at historical rates unless the use of the exchange rate at the balance sheet date would result in a lower receivable or a higher payable balance. This results in unrealized losses being recognized currently and unrealized gains being deferred until they are realized. The functional currency of the Hungarian subsidiaries is the Austrian Schilling as these subsidiaries are a direct and integral extension of the Austrian operations. The balance sheets of the Hungarian subsidiaries are therefore remeasured on the basis of historical exchange rates for non-monetary assets and liabilities and at year-end exchange rates for all other assets and liabilities. Revenue, expense, gain, and loss accounts are remeasured at average exchange rates except for depreciation and amortization and cost of goods sold which are remeasured at historical exchange rates. Differences resulting from remeasuring the books of record into the functional currency are reflected in other operating income in the case of gains or other operating expenses in the case of losses. 8 9 Property, Plant and Equipment -- Property, plant and equipment is valued at acquisition or manufacturing cost and is subsequently reduced by depreciation charges on a straight-line basis over the assets' useful lives as follows: buildings -- 25 to 40 years; plant and machinery and factory and office equipment -- 4 to 10 years. In the Austrian entities, depreciation on additions and disposals during the first and second half of the year are calculated using full-year or half-year rates, respectively. In the Hungarian entities, depreciation is calculated on a monthly basis. Low value items are expensed in the year of acquisition. Intangible Assets -- Intangible assets other than goodwill are valued at acquisition cost and are amortized over their useful lives (3 to 20 years). Goodwill derived from acquisitions is amortized over 10 years. Impairment of Long-term Assets -- Pursuant to guidance established in Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the relevant long-term assets of the Company are reviewed when changes in circumstances indicate that their carrying value may have been impaired. Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges) in which case the assets will be written down to fair value or the relevant projected discounted cash flows from related operations. Management also re-evaluates the period of amortization and depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As at December 31, 1996, management expects these assets to be fully recoverable. Revenue Recognition and Manufacturing Contracts -- Costs and revenues relating to the initial phase of a contract (including design, testing and tooling for products) are deferred. Contract costs deferred are included within non-current assets as initial contract costs and amortized on a straight-line basis over the weighted average length of production phases. Any revenues relating to the initial phase of a contract are included in deferred income and released to the income statement over the same period. Revenues relating to the production phase of a manufacturing contract are recognized on shipment of product to customers. Revenues are recognized net of discounts, customer bonuses and rebates granted. Research and Development -- Research and development is conducted under both customer and company sponsored programs. Company sponsored research and development costs are expensed in the year in which they are incurred. Customer sponsored research and development costs are accounted for as any other contract costs incurred in the initial phase of a manufacturing contract. Total research and development costs incurred by Neutronics were ATS 16.8 million in 1996, ATS 12.4 million in 1995 and ATS 4.0 million for the six months ended December 31, 1994. These costs related mainly to customer sponsored programs. Pension and Severance Costs -- Neutronics sponsors defined contribution pension plans, with the contributions payable in the year charged to the income statement. Austrian law requires that termination indemnities (severance pay) are provided to substantially all employees upon severance of employment by the employer and upon retirement. The payment method is a lump sum or a few payments over a short period of time, with the amount of the payment dependent on years of service and compensation at termination. Such termination indemnities are in substance comparable to a pension plan as defined by the provisions of SFAS No. 87, "Employers' Accounting for Pensions." Because amounts recognized in the balance sheet and income statement under U.S. GAAP are acceptable under Austrian GAAP, Neutronics decided to account for its severance costs in accordance with the provisions of SFAS 87. Inventory Valuation -- Raw materials and manufacturing supplies are valued at the lower of cost, determined on a first-in, first-out method, or market. Finished goods are valued at the lower of manufacturing cost, determined on a first-in, first-out method, or net realizable value and comprise direct material and labor and applicable manufacturing overheads, including depreciation charges. Obsolescence provisions are made to the extent that inventory risks are determinable. Income Taxes -- Deferred taxes are determined using the liability method. Deferred taxes are recognized only to the extent that consolidated deferred tax liabilities exceed consolidated deferred tax assets, including net operating loss carry forwards. Securities -- Fixed income securities are valued at cost, with any decline in fair value below cost that is other than temporary resulting in a write down charged to income. 9 10 Earnings Per Share -- From July 1, 1994 to December 31, 1996, Neutronics was constituted under Austrian law as a Gesellschaft mit beschrankter Haftung ("GmbH"), and therefore its share capital was in the form of contributed capital rather than issued shares. On September 19, 1997, Neutronics converted to an Aktiengesellschaft ("A.G.") under Austrian law and with effect from January 1, 1997 has an issued share capital of 1,600,000 fully paid ordinary shares of ATS 100 each. Earnings per share for each of the years in the two-year period ended December 31, 1996, and for the six months ended December 31, 1994, have therefore been calculated by adding to or deducting from net income amounts applicable to minority interests and then dividing the resulting amount by 1,600,000 shares being the number of ordinary shares outstanding in 1997. Leased Equipment -- Assets held under capital leases, which confer rights and obligations similar to those attached to owned assets, are capitalized as property, plant and equipment and are depreciated over their useful lives. The capital elements of future lease obligations are recorded as liabilities, while the interest elements are charged to the income statement over the period of the leases to produce a constant rate of interest on the balance of capital repayments outstanding. Cash Equivalents -- Cash equivalents are highly liquid investments purchased with an original maturity of less than three months. Financial Instruments -- Provisions are established for unrealized losses arising from financial instruments up to the balance sheet date, while unrealized gains from financial instruments are deferred. Gains and losses on financial instruments used to manage currency risks of identifiable assets and liabilities are deferred and recognized along with the effects of the related transaction. Government Grants -- Government grants relating to investments in noncurrent assets are deferred and amortized over the useful lives of the related assets. Grants relating to the provision of a specified number of workplaces are treated as deferred income and released to the income statement over the period specified in the terms of the grant. 2. SIGNIFICANT DIFFERENCES BETWEEN AUSTRIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The consolidated financial statements of Neutronics comply with Austrian GAAP, which differs in certain significant respects from U.S. GAAP. The Group's accounting policies under Austrian GAAP are disclosed in Note 1. The significant differences that affect consolidated net income and shareholders' equity of Neutronics are set out below. a. Manufacturing Contracts Under Austrian GAAP, costs and revenues relating to the initial phase of a contract (including design, testing and tooling for products) are deferred. Contract costs deferred are included within non-current assets as initial contract costs and amortized on a straight line basis over the weighted average length of production phases. Any revenues relating to the initial phase of a contract are included in deferred income and released to the income statement over the same period. Revenues relating to the production phase of a manufacturing contract are recognized on shipment of product to customers. Under U.S. GAAP, revenues and costs on manufacturing contracts are recognized using the percentage-of-completion method of accounting. The level of percentage-of-completion on a particular contract is measured using the units-of-delivery method. All costs and revenues relating to the initial phase of a contract are deferred and recognized in the income statement during the production phase of a contract in accordance with the percentage of units delivered to date on a contract. b. Business Combinations Austrian GAAP requires that no deferred tax asset is recognized for differences between the assigned values and the tax bases of assets and liabilities recognized in a business combination accounted for as a purchase as far as such treatment would result in an excess of the fair values of the identifiable assets (including the deferred tax asset) and liabilities acquired over the cost of the acquisition. An excess of identifiable assets acquired less liabilities assumed over the cost of an acquired company may be allocated only against retained earnings or provisions recorded in the balance sheet. U.S. GAAP requires the recognition of a deferred tax liability or asset for differences between the assigned values and the tax bases of assets and liabilities recognized in a business combination accounted for as a purchase. Also, an excess of identifiable assets acquired less liabilities assumed over cost of the acquired company should be allocated to reduce proportionately the values assigned to non-current assets in determining their fair values. When accounting for the acquisition of Althofen Electronics GmbH, a deferred 10 11 tax asset of ATS 28.6 million was recorded, and non-current assets were reduced by ATS 9.2 million. The remaining excess of identifiable assets acquired less liabilities assumed totaled ATS 19.4 million and was, under U.S. GAAP, recorded as a deferred credit which is amortized on a straight-line basis over 10 years. c. Financial Instruments Neutronics uses financial instruments to cover certain foreign currency risks related to liabilities and anticipated transactions. As stated in Note 1, according to Austrian GAAP, a reserve is set up for unrealized losses relating to financial instruments, whereas unrealized gains are not recognized until realized. Under U.S. GAAP, at the balance sheet date, financial instruments which are not designated as hedges of specific assets or liabilities are marked to market and any resulting unrealized gains and losses are recognized in the income statement. d. Deferred Taxation Under Austrian GAAP, deferred taxes are recognized for timing differences limited usually to those that resulted from the preparation of consolidated accounts. Deferred tax assets are only permitted to compensate effective tax expenses in the past. Under U.S. GAAP, deferred taxes are provided for all temporary differences, subject only to specific exceptions, and loss carryforwards at currently enacted tax rates. For deferred tax assets, which shall not be netted against deferred tax liabilities, a valuation allowance is to be established if it is more likely than not that some portion of such assets will not be realized. The deferred tax adjustment included in the following reconciliation to U.S. GAAP also includes the income tax effects of the above U.S. GAAP adjustments where appropriate. e. Minority Interest Under Austrian GAAP, income applicable to minority interests is included as part of net income for the period and minority interests are included as part of shareholders' equity. Under U.S. GAAP, net income excludes income applicable to minority interests, and shareholders' equity excludes minority interests. RECONCILIATION TO U.S. GAAP The following is a summary of the significant adjustments to net income for the years ended December 31, 1996 and 1995 and for the period from July 1, 1994 (inception) to December 31, 1994, and to shareholders' equity at December 31, 1996, 1995 and 1994 which would be required if U.S. GAAP had been applied instead of Austrian GAAP. The translation of 1996 amounts from ATS into dollars is unaudited and has been made solely for the convenience of the reader at the rate of ATS 12.311 = $1, the Noon Buying Rate of the Federal Reserve Bank of New York on October 15, 1997.
FOR THE PERIOD FROM JULY 1, 1994 YEAR ENDED DECEMBER 31, (INCEPTION) ------------------------------------------------- TO DECEMBER 31, NOTE 1996 1996 1995 1994 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income (loss) as reported in the consolidated income statements under Austrian GAAP .............. $ 3,646 ATS 44,881 ATS 9,086 ATS (2,437) Less: Income applicable to minority interests ......... (28) (350) (170) (569) --------- ---------- ---------- ---------- Adjusted net income (loss) under Austrian GAAP ........ 3,618 44,531 8,916 (3,006) Adjustments required to conform with U.S. GAAP: Manufacturing contracts ... (a) (24) (297) -- -- Business combinations ..... (b) 167 2,057 2,057 1,028 Financial instruments ..... (c) (28) (350) 350 -- Deferred income taxes ..... (d) 159 1,962 (564) (1,414) --------- ---------- ---------- ---------- 274 3,372 1,843 (386) --------- ---------- ---------- ---------- Net income in accordance with U.S. GAAP ............. $ 3,892 ATS 47,903 ATS 10,759 ATS (3,392) ========= ========== ========== ========== Earnings per share in accordance with U.S. GAAP .. $2.43 ATS 29.94 ATS 6.72 ATS (2.12) ========= ========== ========== ==========
11 12
AT DECEMBER 31, -------------------------------------------------- NOTE 1996 1996 1995 1994 ---- ---- ---- ----- ----- (IN THOUSANDS) Shareholders' equity as reported in the consolidated balance sheets under Austrian GAAP $14,056 ATS 173,042 ATS 131,726 ATS 124,015 Less: Minority interests .......... (215) (2,645) (5,860) (7,021) -------- -------- -------- ------- Adjusted shareholders' equity under Austrian GAAP .................... 13,841 170,397 125,866 116,994 Adjustments required to conform with U.S. GAAP Manufacturing contracts ......... (a) Initial contract costs ....... (88) (1,082) -- -- Deferred contract revenues ... 64 785 -- -- Business combinations ............. (b) Property, plant and equipment (726) (8,942) (9,059) (9,175) Deferred credit .............. (1,182) (14,555) (16,495) (18,436) Financial instruments ........... (c) -- -- 350 -- Deferred income taxes ........... (d) 2,325 28,623 26,661 27,225 -------- -------- -------- ------- 393 4,829 1,457 (386) -------- -------- -------- ------- Shareholders' equity in accordance with U.S. GAAP ................... $ 14,234 ATS 175,226 ATS127,323 ATS116,608 ======== ======== ======== =======
3. ACQUISITIONS AND DIVESTITURES The Neutronics group was established effective July 1, 1994, when Neutronics acquired investments in the four companies described below in exchange for ATS 119.5 million, consisting of nominal capital of ATS 79.5 million and capital reserves of ATS 40.0 million. These business combinations were all accounted for under the purchase method, with revenues and expenses, gains and losses, and cash flows of the subsidiaries included in the Group's consolidated statements of income and cash flows beginning July 1, 1994. Any resulting goodwill and deferred credits are being amortized on a straight-line basis over 10 years. Details of the subsidiaries acquired follow: 100% of the shares of Althofen Electronics GmbH ("Althofen"), an Austrian company, was acquired for ATS 36.4 million. 100% of HTR Technikai Rendszerszolgaltato Kft ("HTR"), a Hungarian company, was acquired for ATS 48.8 million. 80% of ECOPLAST Muanyagipari Termekeket Gyarto Kft. ("Ecoplast"), a Hungarian company, was acquired for ATS 31.1 million. 51% of EUROTON Electronikai Ipari es Kereskedelmi Kft. ("Euroton"), a Hungarian company, was acquired for ATS 3.2 million. In 1994 and 1995, Ecoplast issued new shares in several steps, all of which was purchased by Neutronics, thereby increasing its holding in Ecoplast to 88.5% by December 31, 1994 and 95.9% by December 31, 1995. On January 1, 1996, Neutronics sold its investment in Euroton for ATS 14.1 million cash, which resulted in a gain on disposal of ATS 10.9 million which is included in other operating income in 1996. Euroton contributed to 7% of revenues and 3.6% of net income of Neutronics in 1995. On December 13, 1994, Neutronics purchased a 35% interest in Philips Monitoripar Magyararszag Vamszabadteruleti Kft. ("PMM") for ATS 9.1 million cash. In February 1995, PMM issued additional shares, 35% of which was purchased by Neutronics for ATS 22.4 million cash. Neutronics disposed of its investment in PMM on December 20, 1996 under a put option for ATS 32.8 million cash, resulting in a gain on disposal of ATS 1.3 million which is included in financial result in 1996. On January 15, 1996, Neutronics acquired a 35% interest in Hotman Handels GmbH ("Hotman") for ATS 1.2 million cash. 12 13 The following table sets out Neutronics' investments, including its subsidiaries:
% INTEREST AS OF DECEMBER 31, CONSOLIDATION COMPANY LOCATION 1994 1995 1996 METHOD - ------- -------- ------ ------- ------ ---------- Althofen Electronics GmbH Althofen Austria 100.0% 100.0% 100.0% Fully consolidated --purchase method HTR Technikai...........Tab Hungary 100.0% 100.0% 100.0% Fully Rendszerszolgaltato Kft. consolidated --purchase method ECOPLAST Muanyagipari...Tab Hungary 88.5% 95.9% 95.9% Fully Termekeket Gyarto Kft. consolidated --purchase method EUROTON Electronikai Sarbogard Ipari.........Hungary 51.0% 51.0% -- Fully es Kereskedelmi Kft. consolidated --purchase method Philips Monitoripar Magyararszag...........Szombathely 35.0% 35.0% -- Not Vamszabadteruleti Kft. Hungary consolidated HOTMAN..................Vienna Austria -- -- 35.0% Equity Handelsgesellschaft mbH accounting
On September 22, 1997, the Company acquired the remaining 4.1% of the issued share capital of Ecoplast for cash ATS 4.1 million. Payment for the shares is not due until December 1998. 4. OTHER OPERATING INCOME
FOR THE PERIOD FROM JULY 1, 1994 YEAR ENDED DECEMBER 31, (INCEPTION) ------------------------ TO DECEMBER 31, 1996 1995 1994 ---------- -------- --------- (IN THOUSANDS) Transaction gains ...................................... ATS 378 ATS -- ATS -- Remeasurement into functional currency ................. 5,225 -- 2,892 Gain on disposal of subsidiary ......................... 10,864 -- -- Gain on disposal of non-current assets ................. -- -- 186 Release of provisions .................................. 122 185 30 Other .................................................. 116 60 4,273 ---------- ------- --------- ATS 16,705 ATS 245 ATS 7,381 ========== ======= =========
5. PERSONNEL EXPENSES
FOR THE PERIOD FROM JULY 1, 1994 YEAR ENDED DECEMBER 31, (INCEPTION) --------------------------- TO DECEMBER 31, 1996 1995 1994 ------------- ------------- ----------- (IN THOUSANDS) Wages..................... ATS 83,853 ATS 102,021 ATS 43,266 Salaries.................. 115,594 104,194 45,230 Expenses for severance and pension obligations....... 7,221 8,812 1,771 Social security payments.. 67,259 71,976 29,263 Other benefits............ 12,373 8,505 7,075 ----------- ----------- ----------- ATS 286,300 ATS 295,508 ATS 126,605 =========== =========== ===========
6. AMORTIZATION OF INTANGIBLE ASSETS AND DEPRECIATION OF NON-CURRENT ASSETS
FOR THE PERIOD FROM JULY 1, 1994 YEAR ENDED DECEMBER 31, (INCEPTION) --------------------------- TO DECEMBER 31, 1996 1995 1994 ------------- ------------- ----------- (IN THOUSANDS) Amortization of intangible assets................. ATS 9,805 ATS 3,059 ATS 1,261 Depreciation of non- current assets......... 38,339 29,447 10,289 ------------ ----------- ----------- ATS 48,144 ATS32,506 ATS 11,550 ============ =========== ===========
7. OTHER OPERATING EXPENSES
FOR THE PERIOD FROM JULY 1, 1994 YEAR ENDED DECEMBER 31, (INCEPTION) -------------------------- TO DECEMBER 31, 1996 1995 1994 ----------- ----------- ---------- (IN THOUSANDS) Transaction losses........... ATS -- ATS 13,556 ATS 7,450 Remeasurement into functional currency.................... -- 1,951 -- Repair and maintenance costs. 15,529 12,519 6,460 Legal and tax consultancy.... 10,744 9,353 1,562 Other purchased services..... 17,056 10,833 3,669 Freight costs................ 33,923 29,703 12,141 Travel costs................. 21,788 21,933 7,981 EDP-related expenses......... 12,491 12,977 4,961 Rental expense for operating leases...................... 5,837 11,985 5,139 Taxes........................ 4,932 8,373 9,785 Other........................ 37,398 55,075 38,769 ---------- ---------- -------- ATS 159,698 ATS 188,258 ATS 97,917 =========== =========== ==========
8. PENSION AND SEVERANCE COSTS a) Pension plans Neutronics sponsors two defined contribution pension plans, covering senior management and certain of its Althofen employees. Contributions are determined as 8% and 4%, respectively, of each covered employee's basic salary, and totaled ATS 2.5 million and ATS 2.4 million in 1996 and 1995 respectively and ATS 1.0 million for the six months ended December 31, 1994. b) Severance obligations The following information for the Group's severance obligations is provided in accordance with the requirements of SFAS No. 87. As discussed in Note 1, substantially all Austrian employees of the Group are entitled by law to termination indemnities. Benefits are based on years of service and the employee's compensation at termination. In accordance with common practice in Austria, severance obligations are unfunded and, accordingly, are fully accrued for in the financial statements. Certain securities held by Neutronics due to the requirements of Austrian tax law covering 31.8% and 33.4% of the projected benefit obligation as of December 31, 1996 and 1995, respectively, do not meet the criteria of plan assets in accordance with SFAS 87 because such securities are not segregated in a trust or otherwise effectively restricted. The funded status of the Group's severance obligations under SFAS No. 87 is as follows:
AT DECEMBER 31, --------------- 1996 1995 ---- ---- (IN THOUSANDS) Actuarial present value of benefit obligations: Vested................................ ATS 30,804 ATS 29,031 Non-vested............................ 1,205 616 --------- -------- Accumulated benefit obligation............. 32,009 29,647 Effect of projected future salary increase. 8,834 8,494 --------- -------- Unfunded projected benefit obligation...... 40,843 38,141 Unrecognized net gain (loss)............... (4,780) (5,109) Prior service cost not yet recognized in net periodic pension cost.................. 1,107 -- --------- -------- Accrued cost for severance obligation...... 37,170 33,032 Obligations due to terminations............ 74 3,495 --------- -------- Provision for severance obligation recognized in the balance sheet............ ATS 37,244 ATS 36,527 ========== ==========
13 14 The weighted-average assumed discount rates and rates of increase in future compensation levels used to measure the actuarial present value of the projected benefit obligation were as follows:
1996 1995 1994 ---- ---- ---- Discount rate........................... 5.5% 7.0% 6.5% Long-term rate of increase in future compensation levels.................... 3.0% 4.0% 4.0%
Net periodic cost for the severance obligation under SFAS No. 87 included the following components:
FOR THE PERIOD FROM JULY 1, 1994 YEAR ENDED DECEMBER 31, (INCEPTION) ----------------------- TO DECEMBER 31, 1996 1995 1994 --------- --------- ---------- (IN THOUSANDS) Service cost -- present value of benefits earned during the year..... ATS 3,328 ATS 2,619 ATS 1,261 Interest cost........................... 2,213 2,289 1,019 Net amortization and deferral........... 108 -- -- --------- --------- ---------- Net periodic severance cost............. ATS 5,649 ATS 4,908 ATS 2,280 ========= ========= ==========
9. FINANCIAL RESULT, NET
FOR THE PERIOD FROM JULY 1, 1994 YEAR ENDED DECEMBER 31, (INCEPTION) ----------------------------- TO DECEMBER 31, 1996 1995 1994 -------------- -------------- --------- (IN THOUSANDS) Interest income from securities................ ATS 770 ATS -- ATS -- Other interest income..... 681 4,610 1,427 Profit on disposal of investments.............. 1,270 -- -- Other financial income.... 20 -- -- Interest expense.......... (20,827) (16,148) (1,461) Share in loss of associated company....... (1,150) -- -- ----------- ----------- --------- ATS (19,236) ATS (11,538) ATS (34) =========== =========== =========
10. INCOME TAXES Current income taxes are nil for all periods presented due to a tax holiday in Hungary and due to negative taxable income of the Austrian entities of the Group. Deferred income taxes are nil under Austrian GAAP. Under U.S. GAAP, deferred income taxes are as follows:
FOR THE PERIOD FROM JULY 1, 1994 YEAR ENDED DECEMBER 31, (INCEPTION) -------------------------- TO DECEMBER 31, 1996 1995 1994 ------------- ---------- --------- (IN THOUSANDS) Deferred income tax expense (benefit)................... ATS (1,962) ATS 564 ATS 1,414
14 15 Deferred income tax assets and liabilities in accordance with U.S. GAAP are as follows:
AT DECEMBER 31, --------------- 1996 1995 ---- ---- (IN THOUSANDS) Deferred tax assets: Property, plant and equipment ... ATS 3,040 ATS 3,080 Severance and jubilee obligation 6,224 6,651 Other employee-related provisions 12,851 15,828 Other ........................... 215 117 Net operating loss carry forwards 23,069 16,209 --------- --------- Total deferred tax assets ......... 45,399 41,885 Valuation allowance: Beginning of year ............... (13,046) (11,589) Net change for year ............. (2,126) (1,457) Total valuation allowance ......... (15,172) (13,046) Deferred tax liabilities: Low value items-- fixed assets .. (1,499) (2,059) Financial instruments ........... -- (119) Other ........................ (105) -- Total deferred tax liabilities .... (1,604) (2,178) ---------- ---------- Net deferred tax asset ............ ATS 28,623 ATS 26,661 ========== ==========
At December 31, 1996, the Group had net operating losses ("NOLs") of approximately ATS 67.9 million. All NOLs have an unlimited carry forward period under Austrian tax law, except that the majority of NOLs cannot be used in 1997. The Company recorded a deferred tax asset of ATS 23.1 million at December 31, 1996, reflecting the benefit of these NOLs. This asset is reduced by a valuation allowance of ATS 15.2 million. Management believes that it is more likely than not that the remaining deferred tax asset resulting from NOLs of ATS 7.9 million will be realized, although realization is not assured. Management also believes that all other deferred tax assets will be realized, although realization is not assured. Distributions of earnings by foreign subsidiaries are exempt from Austrian income taxes under the so-called international participation privilege. No deferred tax liability has been provided for foreign withholding taxes on distributions of dividends because earnings of foreign subsidiaries are intended to be reinvested indefinitely. Unrecognized deferred tax liabilities for temporary differences related to investments in foreign subsidiaries are ATS 5.9 million at December 31, 1996. No unrecognized deferred tax liabilities for undistributed earnings of foreign subsidiaries existed at December 31, 1995 because no withholding tax applied to dividend distributions. Worldwide income before income taxes is attributable to the following geographic locations:
FOR THE PERIOD FROM JULY 1, 1994 YEAR ENDED DECEMBER 31, (INCEPTION) TO ------------------------ DECEMBER 31, 1996 1995 1994 --------- --------- ----------- (IN THOUSANDS) Austria...... ATS 1,087 ATS (3,295) ATS (18,375) Foreign...... 43,794 12,381 15,938 ---------- ---------- ----------- ATS 44,881 ATS 9,086 ATS (2,437) ========== ========== ===========
15 16 The overall effective income tax rate under Austrian GAAP is 0% for all periods presented and can be reconciled as follows:
FOR THE PERIOD FROM JULY 1, 1994 YEAR ENDED DECEMBER 31, (INCEPTION) TO ------------------------- DECEMBER 31, 1996 1995 1994 ---------- ----------- --------- (IN THOUSANDS) Expected provision for income taxes .... ATS 15,260 ATS 3,089 ATS (829) Tax holiday -- foreign subsidiaries .... (15,497) (6,498) (3,707) Permanent differences .................. (4,152) (750) (4,938) Amortization of goodwill ............... 705 682 348 Effects of remeasuring assets and liabilities from local currency into functional currency at historical exchange rates ........................ (387) 2,425 (1,216) Temporary differences and net operating loss carry forwards for which no tax benefit was recorded ........... 3,988 1,052 10,342 Other .................................. 83 -- -- ------ --------- ------- Actual provision for income taxes ..... ATS -- ATS -- ATS -- ====== ========= =======
Under U.S. GAAP, the effective income tax rate would approximate a benefit of 4.2% for 1996 and a charge of 5.0% for 1995 and of 71.5% for the six months ended December 31, 1994. Generally, the principal reason for differences to the Austrian GAAP effective rate is that all temporary differences are tax effected under U.S. GAAP, including the tax benefits on the portion of net operating losses not subject to valuation allowances. The tax holiday in Hungary is due to expire on December 31, 1997. Effective January 1, 1998, the Hungarian entities of the Group will be subject to corporate income taxes at a flat rate of 18%, which will effectively be reduced to 7.2% in the years 1998 through 2002 because a 60% exemption will apply. As a result of this change in tax status, Neutronics expects to be subject to current income taxes in Hungary in future years. The change in tax status will not result in the recognition of material deferred tax assets or liabilities as of January 1, 1998. 11. INITIAL CONTRACT COSTS In 1996, in accordance with Neutronics' policy for accounting for manufacturing contracts, as disclosed in Note 1, certain costs relating to the initial phase of contracts have been capitalized and amortized on a straight line basis over the weighted average length of production phases.
INITIAL CONTRACT COSTS -------------- (IN THOUSANDS) Acquisition costs Balance at January 1, 1996..... ATS -- Additions...................... 24,000 ------------ Balance at December 31, 1996... ATS 24,000 ------------ Accumulated depreciation Balance at January 1, 1996..... ATS -- Additions...................... 6,000 ------------ Balance at December 31, 1996... ATS 6,000 ------------ 1996 NET BOOK VALUE............ ATS 18,000 ===========
16 17 12. INTANGIBLE ASSETS
OTHER INTANGIBLES GOODWILL TOTAL ----------------- -------- -------- (IN THOUSANDS) Acquisition costs Balance at July 1, 1994 ............... ATS -- ATS -- ATS -- Change in consolidation of companies... 748 21,063 21,811 ------- ------- ------- 748 21,063 21,811 Additions ............................. 1,291 -- 1,291 ------- ------- ------- Balance at December 31, 1994 .......... 2,039 21,063 23,102 ------- ------- ------- Accumulated amortization Balance at July 1, 1994 Change in consolidation of companies... 85 -- 85 ------- ------- ------- 85 -- 85 Additions ............................. 207 1,053 1,260 ------- ------- ------- Balance at December 31, 1994 .......... 292 1,053 1,345 ------- ------- ------- 1994 NET BOOK VALUE ................... ATS 1,747 ATS 20,010 ATS 21,757 ======= ======= ======= Acquisition costs Balance at January 1, 1995 ............ 2,039 21,063 23,102 Additions ............................. 6,455 -- 6,455 Reclassifications ..................... 300 -- 300 Deductions ............................ (121) (377) (498) ------- ------- ------- Balance at December 31, 1995 .......... 8,673 20,686 29,359 ------- ------- ------- Accumulated amortization Balance at January 1, 1995 ............ 292 1,053 1,345 Additions ............................. 992 2,067 3,059 Deductions ............................ (89) -- (89) ------- ------- ------- Balance at December 31, 1995 .......... 1,195 3,120 4,315 ------- ------- ------- 1995 NET BOOK VALUE ................... ATS 7,478 ATS 17,566 ATS 25,044 ======= ======= ======= Acquisition costs Balance at January 1, 1996 ............ 8,673 20,686 29,359 Change in consolidation of companies... (134) -- (134) ------- ------- ------- 8,539 20,686 29,225 Additions ............................. 2,243 57 2,300 Reclassifications ..................... 42 -- 42 ------- ------- ------- Balance at December 31, 1996 .......... 10,824 20,743 31,567 ------- ------- ------- Accumulated amortization Balance at January 1, 1996 ............ 1,195 3,120 4,315 Change in consolidation of companies... (87) -- (87) ------- ------- ------- 1,108 3,120 4,228 Additions ............................. 1,731 2,073 3,804 ------- ------- ------- Balance at December 31, 1996 .......... 2,839 5,193 8,032 ------- ------- ------- 1996 NET BOOK VALUE ................... ATS 7,985 ATS 15,550 ATS 23,535 ======= ======= =======
Other intangible assets consist of software, industrial property rights and similar rights. 13. PROPERTY, PLANT AND EQUIPMENT
ADVANCE FACTORY PAYMENTS AND LAND AND PLANT AND AND OFFICE CONSTRUCTION BUILDINGS MACHINERY EQUIPMENT IN PROGRESS TOTAL --------- --------- ---------- ------------- ----- (IN THOUSANDS) 1994 ATS -- ATS -- ATS -- ATS -- ATS -- Acquisition costs Balance at July 1, 1994................ Change in consolidation of companies... 58,898 33,248 4,605 6,613 103,364 -------- -------- -------- -------- -------- 58,898 33,248 4,605 6,613 103,364 Additions ............................. 48,917 45,939 15,533 46,290 156,679 Reclassifications ..................... -- 235 -- (235) -- Disposals ............................. (207) -- (1,246) -- (1,453) -------- -------- -------- -------- -------- Balance at December 31, 1994 .......... 107,608 79,422 18,892 52,668 258,590 -------- -------- -------- -------- -------- Accumulated depreciation Balance at July 1, 1994 ............... -- -- -- -- -- Change in consolidation of companies... 1,026 3,645 1,149 -- 5,820 -------- -------- -------- -------- -------- 1,026 3,645 1,149 -- 5,820 Additions ............................. 1,769 6,025 2,495 -- 10,289 Disposals ............................. -- -- (1,206) -- (1,206) -------- -------- -------- -------- -------- Balance at December 31, 1994 .......... 2,795 9,670 2,438 -- 14,903 -------- -------- -------- -------- --------
17 18
ADVANCE FACTORY PAYMENTS AND LAND AND PLANT AND AND OFFICE CONSTRUCTION BUILDINGS MACHINERY EQUIPMENT IN PROGRESS TOTAL ----------- ----------- ---------- ------------ ----------- (IN THOUSANDS) 1994 NET BOOK VALUE ................ ATS 104,813 ATS 69,752 ATS 16,454 ATS 52,668 ATS 243,687 =========== =========== ========== ========== =========== 1995 Acquisition costs Balance at January 1, 1995 ......... ATS 107,608 ATS 79,422 ATS 18,892 ATS 52,668 ATS 258,590 Additions .......................... 38,671 40,490 11,531 15,485 106,177 Reclassifications .................. 46,750 -- 834 (47,884) (300) Disposals .......................... (4,106) (1,829) (39) -- (5,974) ----------- ----------- ---------- ---------- ----------- Balance at December 31, 1995 ....... 188,923 118,083 31,218 20,269 358,493 ----------- ----------- ---------- ---------- ----------- Accumulated depreciation Balance at January 1, 1995 ......... 2,795 9,670 2,438 -- 14,903 Additions .......................... 5,778 17,638 6,031 -- 29,447 Disposals .......................... (82) (1,454) (30) -- (1,566) ----------- ----------- ---------- ---------- ----------- Balance at December 31, 1995 ....... 8,491 25,854 8,439 -- 42,784 ----------- ----------- ---------- ---------- ----------- 1995 NET BOOK VALUE ................ ATS 180,432 ATS 92,229 ATS 22,779 ATS 20,269 ATS 315,709 =========== =========== ========== ========== =========== 1996 Acquisition costs Balance at January 1, 1996 ......... ATS 188,923 ATS 118,083 ATS 31,218 ATS 20,269 ATS 358,493 Change in consolidation of companies (911) (372) (2,371) -- (3,654) ----------- ----------- ---------- ---------- ----------- 188,012 117,711 28,847 20,269 354,839 Additions .......................... 65,422 78,092 3,628 13,448 160,590 Reclassifications .................. 148 15,623 677 (16,490) (42) Disposals .......................... -- (14,884) (4,522) (2,756) (22,162) ----------- ----------- ---------- ---------- ----------- Balance at December 31, 1996 ....... 253,582 196,542 28,630 14,471 493,225 ----------- ----------- ---------- ---------- ----------- Accumulated depreciation Balance at January 1, 1996 ......... 8,491 25,854 8,439 -- 42,784 Change in consolidation of companies 82 (249) (531) -- (698) ----------- ----------- ---------- ---------- ----------- 8,573 25,605 7,908 -- 42,086 Additions .......................... 6,873 24,265 7,201 -- 38,339 Disposals .......................... -- (5,235) (3,357) -- (8,592) ----------- ----------- ---------- ---------- ----------- Balance at December 31, 1996 ....... 15,446 44,635 11,752 -- 71,833 ----------- ----------- ---------- ---------- ----------- 1996 NET BOOK VALUE ................ ATS 238,136 ATS 151,907 ATS 16,878 ATS 14,471 ATS 421,392 =========== =========== ========== ========== ===========
The value of land as of December 31, 1996 was ATS 18.3 million. During the periods covered, Neutronics entered into capital leases for buildings and machinery. The leases for buildings expire in 9 to 10 years and the leases for machinery in 3 to 5 years. For all capital leases, either ownership passes to Neutronics at the end of the lease term or the lease agreement contains a bargain purchase option. Included above within property, plant and equipment are the following amounts relating to capital leases.
LAND AND PLANT AND BUILDINGS MACHINERY TOTAL --------- --------- ----- (IN THOUSANDS) Acquisition costs Balance at July 1, 1994 .... ATS -- ATS -- ATS -- Additions .................. -- 11,282 11,282 ---------- ---------- ---------- Balance at December 31, 1994 -- 11,282 11,282 ---------- ---------- ---------- Accumulated depreciation Balance at July 1, 1994 .... -- -- -- Additions .................. -- 705 705 ---------- ---------- ---------- Balance at December 31, 1994 -- 705 705 ---------- ---------- ---------- 1994 NET BOOK VALUE ........ ATS -- ATS 10,577 ATS 10,577 ========== ========== ========== Acquisition costs Balance at January 1, 1995 . -- 11,282 11,282 Additions .................. 28,475 -- 28,475 ---------- ---------- ---------- Balance at December 31, 1995 28,475 11,282 39,757 ---------- ---------- ---------- Accumulated depreciation Balance at January 1, 1995 . -- 705 705 Additions .................. 285 1,410 1,695 ---------- ---------- ---------- Balance at December 31, 1995 285 2,115 2,400 ---------- ---------- ---------- 1995 NET BOOK VALUE ........ ATS 28,190 ATS 9,167 ATS 37,357 ========== ========== ==========
18 19
LAND AND PLANT AND BUILDINGS MACHINERY TOTAL --------- --------- ----- (IN THOUSANDS) Acquisition costs Balance at January 1, 1996 . 28,475 11,282 39,757 Additions .................. 47,959 40,845 88,804 ---------- ---------- ----------- Balance at December 31, 1996 76,434 52,127 128,561 ---------- ---------- ----------- Accumulated depreciation Balance at January 1, 1996 . 285 2,115 2,400 Additions .................. 1,629 3,416 5,045 ---------- ---------- ----------- Balance at December 31, 1996 1,914 5,531 7,445 ---------- ---------- ----------- 1996 NET BOOK VALUE ........ ATS 74,520 ATS 46,596 ATS 121,116 ========== ========== ===========
14. FINANCIAL ASSETS
INVESTMENT IN INVESTMENT INVESTMENT ASSOCIATED SECURITIES IN PMM COMPANY TOTAL ---------- ---------- ------------- ---------- (IN THOUSANDS) Acquisition costs Balance at July 1, 1994 ........... ATS -- ATS -- ATS -- ATS -- Additions ......................... -- 9,100 -- 9,100 ---------- ---------- ------ ---------- BALANCE AT DECEMBER 31, 1994 ...... ATS -- ATS 9,100 ATS -- ATS 9,100 Acquisition costs Balance at January 1, 1995 ........ -- 9,100 -- 9,100 Additions ......................... 12,743 22,400 -- 35,143 ---------- ---------- ------ ---------- BALANCE AT DECEMBER 31, 1995 ...... ATS 12,743 ATS 31,500 ATS -- ATS 44,243 ========== ========== ====== ========== Acquisition costs Balance at January 1, 1996 ........ 12,743 31,500 -- 44,243 Additions ......................... 264 -- 1,225 1,489 Share of loss in associated company -- -- (1,150) (1,150) Disposals ......................... -- (31,500) -- (31,500) ---------- ---------- ------ ---------- BALANCE AT DECEMBER 31, 1996 ...... ATS 13,007 ATS -- ATS 75 ATS 13,082 ========== ========== ====== ==========
No allowances were made against financial assets in 1996, 1995 or 1994. 15. INVENTORIES
AT DECEMBER 31, ------------------------------------- 1996 1995 1994 ----------- ----------- ----------- (IN THOUSANDS) Raw materials and manufacturing supplies .............................. ATS 164,460 ATS 105,523 ATS 121,304 Work in process ....................................................... -- 3,140 1,810 Finished goods, parts and goods purchased for resale .............................................................. 20,352 4,766 10,263 Services received but not yet invoiced ................................ 6,776 17,585 170 Advanced payments to suppliers ........................................ 1,125 3,009 71 ----------- ----------- ----------- ATS 192,713 ATS 134,023 ATS 133,618 =========== =========== ===========
16. RECEIVABLES AND OTHER ASSETS
AT DECEMBER 31, ------------------------------------------- 1996 1995 1994 ---------- ------------ ----------- (IN THOUSANDS) Receivables from sales of goods and services ................................. ATS 78,716 ATS 79,332 ATS 28,326 Receivables from associated company ........ 8,731 -- -- Receivables from related companies ......... 109,578 113,632 122,506 Other receivables and other assets of which maturing after more than one year: ATS nil (1995: ATS 1,356; 1994: ATS nil) ......... 42,006 30,866 84,360 ----------- ----------- ----------- Total receivables and other assets of which maturing after more than one year: ATS nil (1995: ATS 1,356; 1994: ATS nil) ......... ATS 239,031 ATS 223,830 ATS 235,192 =========== =========== ===========
Included above within other receivables and other assets at December 31, 1996 is an amount of ATS 0.7 million (1995: ATS 0.5 19 20 million) relating to advances to the members of the management board. At December 31, 1996 an allowance for doubtful accounts of ATS 4.5 million (1995: ATS 1.9 million; 1994: ATS nil) has been recorded. Under U.S. GAAP, amounts due after one year would be classified as noncurrent assets. 17. ADDITIONAL CASH FLOW INFORMATION The following information is provided for purposes of additional analysis of the cash flow statements:
FOR THE PERIOD FROM JULY 1, 1994 (INCEPTION) YEAR ENDED DECEMBER 31, TO DECEMBER 31, ------------------------ ----------------- 1996 1995 1994 ---------- ---------- ---------- (IN THOUSANDS) Interest paid...................... ATS 20,114 ATS 15,657 ATS 754
No income tax was paid in any of the above periods. The cash balance of ATS 0.5 million as of July 1, 1994 represents capital contributed by the shareholders to Neutronics on June 17, 1994. Neutronics entered into capital leases for both buildings and materials and hence incurred capital lease obligations in each of the periods covered. For further information on capital leases, see Note 13. Neutronics acquired investments in four subsidiaries effective July 1, 1994 in exchange for recognizing capital contributed at that date by the shareholders in the amount of ATS 119.5 million. For further information on these non-cash transactions, see Note 3. 18. SHAREHOLDERS' EQUITY From July 1, 1994 to December 31, 1996, Neutronics was constituted as a GmbH under Austrian law and therefore its share capital was in the form of contributed capital rather than issued shares. As of December 31, 1996, 1995 and 1994, Neutronics had contributed capital of ATS 80.0 million and capital reserves of ATS 40.0 million.
SHARE CAPITAL RETAINED MINORITY CAPITAL RESERVES EARNINGS INTERESTS TOTAL ---------- ---------- ----------- --------- ----------- (IN THOUSANDS) BALANCE AT JULY 1, 1994 .... ATS 500 ATS -- ATS -- ATS -- ATS 500 Contributed capital ........ 79,500 40,000 -- -- 119,500 1994 net income to retained earnings ................. -- -- (3,006) 569 (2,437) Change in minority interests -- -- -- 6,452 6,452 ---------- ---------- ----------- --------- ----------- BALANCE AT DECEMBER 31, 1994 ATS 80,000 ATS 40,000 ATS (3,006) ATS 7,021 ATS 124,015 ========== ========== =========== ========= =========== BALANCE AT JANUARY 1, 1995 . 80,000 40,000 (3,006) 7,021 124,015 1995 net income to retained -- -- 8,916 170 9,086 earnings Change in minority interests -- -- -- (378) (378) Dividends paid to minority . -- -- -- (997) (997) interests Other ...................... -- -- (44) 44 -- ---------- ---------- ----------- ---------- ----------- BALANCE AT DECEMBER 31, 1995 ATS 80,000 ATS 40,000 ATS 5,866 ATS 5,860 ATS 131,726 ========== ========== =========== ========== =========== BALANCE AT JANUARY 1, 1996 . 80,000 40,000 5,866 5,860 131,726 1996 net income to retained -- -- 44,531 350 44,881 earnings Change in minority interests -- -- -- (3,565) (3,565) ---------- ---------- ----------- --------- ----------- BALANCE AT DECEMBER 31, 1996 ATS 80,000 ATS 40,000 ATS 50,397 ATS 2,645 ATS 173,042 ========== ========== =========== ========= ===========
20 21 With effect from January 1, 1997, its share capital was increased by ATS 80.0 million as set out below.
SHARE CAPITAL RETAINED MINORITY CAPITAL RESERVES EARNINGS INTERESTS TOTAL ------- -------- -------- --------- ----- (IN THOUSANDS) BALANCE AT DECEMBER 31, 1996 ........... ATS 80,000 ATS 40,000 ATS 50,397 ATS 2,645 ATS 173,042 Increase in share capital ............... 80,000 (40,000) (40,000) -- -- ---------- ---------- ----------- --------- ----------- BALANCE AT JANUARY 1, 1997 .............. ATS160,000 ATS -- ATS 10,397 ATS 2,645 ATS 173,042 ========== ========== =========== ========= ===========
On August 25, 1997, the shareholders of the Company approved a resolution to convert the Company into a joint stock company under Austrian law, and to increase the Company's authorized and issued share capital to ATS 160 million, comprising 1,600,000 ordinary bearer shares with a nominal value of ATS 100 each. The change in legal status was formally approved by the Commercial Court in Austria on September 19, 1997, whilst the increase in the authorized share capital was formally approved by the Commercial Court in Austria on September 10, 1997. On October 15, 1997, the shareholders of the Company approved a resolution to increase the Company's authorized share capital to ATS 240 million, comprising 2,400,000 ordinary bearer shares with a nominal value of ATS 100 each. Management expects the Commercial Court in Austria to approve such increase in the near future. 19. OTHER PROVISIONS
AT DECEMBER 31, ------------------------------------- 1996 1995 1994 ----------- ----------- ----------- (IN THOUSANDS) Vacation accrual ................................................ ATS 13,835 ATS 11,198 ATS 9,190 Provision for jubilee payments .................................. 7,890 9,185 8,938 Other employee-related provisions ............................... 37,798 46,553 56,042 Tax accruals .................................................... 15 8 -- Badwill ......................................................... -- 514 574 Provision for unrealized losses on forward exchange contracts ............................................ 3,441 -- -- Accrued transport costs ......................................... 3,200 -- 119 Other provisions and accrued expenses ........................... 7,525 3,283 2,659 ----------- ----------- ----------- ATS 73,704 ATS 70,741 ATS 77,522 =========== =========== ===========
Jubilee payments are one-off payments made to employees in Austria on an employee reaching specific periods of service. Costs for jubilee payments are attributed to periods of employees' service to date, considering expected total service periods and the time value of money. Other employee-related provisions represent obligations for labor contracts relating to the acquisition of Althofen. The obligation was determined at net present values of amounts expected to be paid to employees in excess of normal compensation and on the assumption that management will be able -- by means of several measures -- to gradually reduce the effects of the obligation over a period of 10 years. The previous owner of Althofen contractually assumed the full obligation when Neutronics acquired Althofen and compensated Neutronics for it in cash. The obligation as of July 1, 1994, was ATS 61.9 million. The provision is being released to the income statement based on the assumptions described above, and recorded as a reduction of personnel expenses. The provision for unrealized losses on forward exchange contracts at December 31, 1996, relate to Japanese Yen forward foreign exchange contracts. Due to the change in the Japanese Yen exchange rate in relation to the Austrian Schilling in 1997, substantially all of these unrealized losses had reversed as at May 31, 1997. 21 22 20. ACCOUNTS PAYABLE TRADE
AT DECEMBER 31, --------------------------------------- 1996 1995 1994 ----------- ----------- ----------- (IN THOUSANDS) Accounts payable to third parties of which due within one year ATS 166,228 (1995: ATS 93,319; 1994: ATS 110,583) .. ATS 166,228 ATS 93,413 ATS 110,583 Accounts payable to related companies of which due within one year ATS 97,029 (1995: ATS 78,807; 1994: ATS 74,180) ... 97,029 78,807 74,180 ----------- ----------- ----------- Total accounts payable trade of which due within one year ATS 263,257 (1995: ATS 172,126; 1994: ATS 184,763) . 263,257 172,220 184,763 =========== =========== ===========
21. OTHER LIABILITIES
WEIGHTED AVERAGE INTEREST RATE AT DECEMBER 31, ------------------- -------------------------------------- 1996 1995 1996 1995 1994 ------- -------- ---------- ----------- ----------- (IN THOUSANDS) Bank overdrafts of which due within one year ATS 98,479 (1995: ATS 86,371; 1994: ATS 21,596) .......... 4.64% 5.17% ATS 98,479 ATS 86,371 ATS 21,596 Bank loans of which due within one year ATS 25,524 (1995: ATS 28,175; 1994: ATS 8,409) in more than 5 years ATS 5,572 (1995: ATS 13,276; 1994: ATS 24,917) .......... 5.88% 6.12% 93,010 130,323 115,794 Liabilities to other financial institutions of which due within one year ATS 207 (1995: ATS 193; 1994: ATS 181) in more than 5 years ATS 5,930 (1995: ATS 6,203; 1994: ATS 6,458) ............ 6.75% 6.75% 7,126 7,319 7,500 Liabilities due to leasing activities of which due within one year ATS 19,489 (1995: ATS 4,065; 1994: ATS 1,769) in more than 5 years ATS 42,255 (1995: ATS 16,860; 1994: ATS 446) ............. 6.52% 7.39% 127,477 37,988 11,281 Other liabilities to related companies of which due within one year ATS nil (1995: ATS 48,390; 1994: ATS 119,201) ......... -- -- -- 48,390 119,201 Advanced payments from customers of which relating to period within one year ATS 329 (1995: ATS 25,866; 1994: ATS 1,773) ....... 329 25,866 1,773 Other liabilities of which due within one year ATS 28,430 (1995: ATS 18,527; 1994: ATS 34,723) ................. ATS 28,430 ATS 18,855 ATS 34,723 ----------- ----------- ----------- Total liabilities of which due within one year ATS 172,458 (1995: ATS 211,587; 1994: ATS 187,652) in more than 5 years ATS 53,757 (1995: ATS 36,339; 1994: ATS 31,821) .......... ATS 354,851 ATS 355,112 ATS 311,868 =========== =========== ===========
At December 31, 1996, all bank loans were denominated in Schillings. At December 31, 1995, ATS 24.6 million of bank loans were denominated in Deutsche marks. Liabilities to banks and other financial institutions are largely secured by mortgages on land and buildings to the value according to the entry in the land register of ATS 188.0 million (1995: ATS 188.0 million), a mortgage over plant and machinery at Althofen of ATS 60.0 million (1995: ATS 60.0 million) and the assignment of receivables of ATS 147.9 million (1995: ATS 92.5 million). 22 23 Aggregate amounts of liabilities to banks and other financial institutions that mature during the next five years and thereafter are as follows.
TOTAL 1997 1998 1999 2000 2001 THEREAFTER ----------- ---------- ---------- ---------- ---------- --------- (IN THOUSANDS) Bank loans and overdrafts .... ATS 124,003 ATS 17,543 ATS 18,379 ATS 13,607 ATS 12,385 ATS 5,572 Liabilities to other financial institutions ............... 207 222 239 255 273 5,930
Other liabilities to related companies in 1995 represent the outstanding balance for interest-free financing received from a related company of ATS 119.2 million in 1994. This amount was repaid in full by December 31, 1996. Neutronics had unused short-term credit lines at December 31, 1996, of ATS 30.6 million (1995: ATS 24.2 million) and no unused long-term credit lines (1995: ATS nil). At December 31, 1996, Neutronics had an additional credit line available of ATS 30.0 million, the use of which is limited by the level of export receivables. Of the unused short-term credit lines, ATS 23.9 million (1995: ATS 15.9 million) is subject to a commitment fee of 0.5% per annum. All liabilities payable after more than one year would be classified as non-current under U.S. GAAP. 22. DEFERRED INCOME
AT DECEMBER 31, 1996 1995 1994 --------- --------- ----------- (IN THOUSANDS) Grants ..................................... ATS 3,440 ATS -- ATS -- Deferred initial contract revenues ......... 10,583 -- -- Other deferred income ...................... 8,945 3,676 1,951 ---------- --------- --------- ATS 22,968 ATS 3,676 ATS 1,951 ========== ========= ==========
23. COMMITMENTS AND CONTINGENCIES a) Capital leases The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 1996.
YEAR ENDING DECEMBER 31: (IN THOUSANDS) - ------------------------ 1997.......................................... ATS 26,802 1998.......................................... 23,134 1999.......................................... 23,134 2000.......................................... 21,074 2001.......................................... 18,779 Later years................................... 50,797 ----------- Total minimum lease payments.................. 163,720 Less: amount representing interest (36,243) ----------- Present value of net minimum lease payments ATS 127,477 ===========
In addition to the above obligations under capital leases, Neutronics entered into another capital lease agreement for a building in 1996 which did not come into effect until 1997. The fair value of the building is approximately ATS 69.0 million, with an option for Neutronics to purchase the building after 10 years for ATS 100,000. The first repayment is due in September 1997. 23 24 b) Operating leases The following is a schedule by years of future minimum rental payments under non-cancelable operating leases that have lease terms in excess of one year as of December 31, 1996.
YEAR ENDING DECEMBER 31: (IN THOUSANDS) - ------------------------ 1997 .......................... ATS 2,742 1998 .......................... 1,475 1999 .......................... 809 2000 .......................... 270 2001 .......................... 40 Later years ................... 16 --------- Total minimum payments required.................... ATS 5,352 =========
The following is a schedule by years of future minimum rental payments under all operating leases for the following year and the following five years.
AS AT DECEMBER 31, 1996 1995 1994 ---------- ---------- ----------- (IN THOUSANDS) For the following year ............. ATS 6,181 ATS 7,478 ATS 12,485 For the following 5 years .......... 20,612 13,964 19,596
c) Contingent liabilities During 1996, Neutronics recognized in the income statement as income ATS 1.6 million relating to government grants. In the event that Neutronics does not meet the required conditions of the grant, this amount will need to be repaid. d) Guarantees Neutronics has guaranteed an amount of ATS 1.2 million to a member of the supervisory board. Subsequent to the year end, this guarantee has been canceled. 24. INFORMATION ABOUT FINANCIAL INSTRUMENTS The following information is presented in accordance with SFAS No. 105, "Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk," SFAS No. 107, "Disclosure about Fair Value of Financial Instruments," and SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." These statements require the disclosure of off-balance-sheet instruments and estimated fair values for all financial instruments. Neutronics has only limited involvement with derivative financial instruments with off-balance sheet risk in the normal course of business as a means of hedging its Japanese Yen and U.S. dollar currency exposure in relation to trade accounts payable and anticipated purchases for the following 12 months. These instruments are executed with creditworthy financial institutions for periods of between 6 and 12 months. Management does not anticipate any material adverse effect on its financial position resulting from its involvement in these instruments. The following is a summary of contract principal amounts of off-balance sheet financial instruments as at December 31, 1996 and 1995.
CONTRACT PRINCIPAL AMOUNT -------------------------------- 1996 1995 ----------- ----------- (IN THOUSANDS) Forward foreign exchange contracts .... ATS 72,306 ATS 65,081
24 25 The following table presents the carrying amounts and estimated fair values of Neutronics' financial instruments at December 31, 1996 and 1995. FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments", defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
1996 1995 ------------------------------ ------------------------------- CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE --------------- ---------- --------------- ---------- (IN THOUSANDS) FINANCIAL ASSETS Investment securities ATS 13,007 ATS 13,244 ATS 12,743 ATS 12,754 Investment in PMM -- -- 31,500 31,075 Forward foreign exchange contracts.................................... -- -- -- 303 FINANCIAL LIABILITIES Forward foreign exchange contracts.................................... 3,606 3,663 -- -- Financial liabilities 198,615 199,530 224,013 224,723
The carrying values of cash, trade receivables and trade payables approximate fair values because of the short maturity of those instruments. The methods and assumptions used to estimate the fair values of financial instruments are summarized below. Investment securities: The fair values of securities were based on quoted market prices at the reporting dates. Investment in PMM: The fair value of Neutronics' investment in PMM was estimated based on discounting expected cash flows from exercising the put option at the earliest opportunity. Forward foreign exchange contracts: The fair values of forward foreign exchange contracts were estimated based on quoted market prices for contracts of similar terms at the reporting date. Financial liabilities: The fair values of Neutronics' loans were estimated by discounting expected cash flows at the rates currently offered to Neutronics for debt of the same remaining maturities. The carrying values of bank overdrafts were assumed to approximate fair values due to their short maturities. 25. SEGMENT REPORTING Neutronics operates in 2 industry segments. A description of the products and services from which each segment derives its revenue follows: - Contract electronic manufacturing ("CEM") -- This involves development, engineering and production of all kinds of electronic products (half-finished products, modules and finished products mainly in the fields of: consumer electronics, business electronics and computers, telecommunications, personal care, medical appliances and automotive electronics). - Plastic key component manufacturing ("plastics") -- This involves moulding, lacquering, printing and subassembly of all kinds of plastic parts, supplied mainly to the electronics industry. Sales and revenues related to transactions between segments are recorded at values that approximate commercial selling prices.
ADJUSTMENTS CEM PLASTICS CORPORATE AND ELIMINATIONS CONSOLIDATED ------------- ----------- ----------- ---------------- ------------ (IN THOUSANDS) 1996 Revenues ........... ATS 1,375,021 ATS 208,733 ATS -- ATS -- ATS 1,583,754 ============= =========== ======= ====== ======== Operating profit ... 55,540 7,103 10,864 -- 73,507 ============= =========== ======= ====== ======== Identifiable assets 718,451 196,320 10,295 -- 925,066 ============= =========== ======= ====== ======== Depreciation and amortization ..... (35,048) (12,824) (272) -- (48,144) ============= =========== ======= ====== ======== Capital expenditures(2) .. 105,380 53,600 234 1,376 160,590 ============= =========== ======= ====== ========
25 26
ADJUSTMENTS CEM PLASTICS CORPORATE AND ELIMINATIONS CONSOLIDATED ------------- ----------- ----------- ---------------- -------------- (IN THOUSANDS) 1995 Revenues ........... ATS 1,146,013 ATS 95,434 ATS -- ATS -- ATS 1,241,447 ============= =========== ======= ====== ============= Operating profit (loss) ........... 35,279 (6,174) -- 60 29,165 ============= =========== ======= ====== ============= Identifiable assets 589,970 132,110 47,922 -- 770,002 ============= =========== ======= ====== ============= Depreciation and amortization ..... (23,381) (9,062) (63) -- (32,506) ============= =========== ======= ====== ============= Capital expenditures 60,128 45,966 83 -- 106,177 ============= =========== ======= ====== ============= 1994 Revenues ........... ATS 591,778 ATS 29,181 ATS -- ATS -- ATS 620,959 ============= =========== ======= ====== ============= Operating profit (loss) ........... 6,494 (1,439) -- 29 5,084 ============= =========== ======= ====== ============= Identifiable assets 638,913 72,400 24,011 -- 735,324 ============= =========== ======= ====== ============= Depreciation and amortization ..... (8,927) (2,584) (39) -- (11,550) ============= =========== ======= ====== ============= Capital expenditures 146,110 10,412 157 -- 156,679 ============= =========== ======= ====== =============
- ---------- 1 Represents the profit on disposal of Euroton. 2 Represents the expenditure for property, plant and equipment excluding the costs of fixed assets acquired through business combinations. A reconciliation of operating profit to net income follows:
FOR THE PERIOD FROM JULY 1, 1994 (INCEPTION) YEAR ENDED DECEMBER 31, TO DECEMBER 31, --------------------------- ---------------- 1996 1995 1994 ----------- ----------- ------------ (IN THOUSANDS) Operating profit ..................... ATS 73,507 ATS 29,165 ATS 5,084 Financial result, net ................ (19,236) (11,538) (34) Corporate overhead and other items not allocable to segments .............. (9,390) (8,541) (7,487) ------- ------- --------- Net income (loss) .................... 44,881 9,086 (2,437) ======= ======= =========
Geographic information with respect to Neutronics' revenues, net income and identifiable assets by operation follows:
AUSTRIA HUNGARY CONSOLIDATED ----------- ------------- -------------- (IN THOUSANDS) 1996 Revenues .......... ATS 556,533 ATS 1,027,221 ATS 1,583,754 =========== ============= ============= Net income ........ 1,087 43,794 44,881 ============= Identifiable assets ATS 390,504 ATS 534,562 ATS 925,066 =========== ============= ============= 1995 Revenues .......... ATS 513,249 ATS 728,198 ATS 1,241,447 =========== ============= ============= Net income (loss) . (3,295) 12,381 9,086 =========== ============= ============= Identifiable assets ATS 392,677 ATS 377,325 ATS 770,002 =========== ============= ============= 1994 Revenues .......... ATS 205,940 ATS 415,019 ATS 620,959 =========== ============= ============= Net income (loss) . (18,375) 15,938 (2,437) =========== ============= ============= Identifiable assets ATS 409,590 ATS 325,734 ATS 735,324 =========== ============= =============
Geographic information with respect to revenues from the domestic operation's export sales follows:
FOR THE PERIOD FROM JULY 1, 1994 (INCEPTION) YEAR ENDED DECEMBER 31, TO DECEMBER 31, ------------------------------------------- 1996 1995 1994 ----------- -------------- ----------- (IN THOUSANDS) Europe ................................... ATS 210,276 ATS 289,546 ATS 54,732 Rest of the World ........................ 190,409 46,821 36,009 ----------- ----------- ------ ATS 400,685 ATS 336,367 ATS 90,741 =========== =========== ======
26 27 Geographic information with respect to revenues by destination follows:
FOR THE PERIOD FROM JULY 1, 1994 (INCEPTION) YEAR ENDED DECEMBER 31, TO DECEMBER 31, ----------------------------- ------------- 1996 1995 1994 -------- -------- -------- Domestic sales .... 35.13% 40.06% 4.19% Export Sales ...... 64.87% 59.94% 95.81% ------- -------- ------- 100% 100% 100% ======= ======== ========
26. MAJOR CUSTOMERS Net sales to companies in the Philips Group amounted to ATS 1,265.0 million and ATS 1,024.0 million in 1996 and 1995, respectively, and ATS 514.9 million for the six months ended December 31, 1994. This group of companies, however, consists of more than 10 independently operating companies in different industry segments which have individual contracts with Neutronics. The Philips Group contributed 80%, 83% and 83% of revenues in 1996, 1995 and 1994, respectively. An unplanned significant reduction in sales to the biggest independent company within the Philips Group, which accounts for 18% of total sales, could have a material adverse effect on the results of operations. As a result of this level of sales, a considerable proportion of receivables relates to the Philips Group, and, as such, represents a concentration of credit risk. 27. RELATED PARTY TRANSACTIONS During the periods covered, Neutronics made in the ordinary course of business, sales to and purchases from companies in the Philips Group which has a significant ownership interest in Neutronics. Amounts owed to and by these related companies are disclosed in Notes 16 and 21 and details of sales made to these related companies are disclosed in Note 26. Purchases from these companies amounted to ATS 317.7 million and ATS 188.9 million in 1996 and 1995, respectively, and ATS 74.3 million for the six months ended December 31, 1994. All such transactions with related parties are conducted at arm's length. In addition, as disclosed in Note 21, Neutronics received interest-free financing from the Philips Group in 1994 of ATS 119.2 million which was repaid in full by December 31, 1996. 60% of Neutronics is owned by Sandaplast B.V., a Dutch corporation which is ultimately controlled by Mr. S. L. Hui, a resident of Malaysia. On August 1, 1997, the four members of the Management Board exercised their options to purchase Shares in the Company from existing shareholders pursuant to a share option agreement between the Management Board and the existing shareholders, dated March 13, 1995 and Sandaplast B.V.'s holding was reduced to 54%. On October 9, 1997, Sandaplast B.V. transferred its 54% interest in the Company to Mr. S.L. Hui. During the periods covered, Neutronics made, in the ordinary course of business, sales to Hotman totalling ATS 1.2 million for the year ended December 31, 1996. Amounts owed by Hotman are disclosed in Note 16. Humphrey Porter, Chairman of the Company's Management Board, has been granted an option by the Company to purchase the house he lives in Althofen, Austria. The purchase price will be the lower of the net book value of the house at the time of purchase, or the average of the appraisal values determined by two independent property appraisers. 28. SUBSEQUENT EVENTS During 1997, the plastics facility belonging to Ecoplast in Tab, Hungary was closed as part of a restructuring and integrated with the HTR factory in Tab. Major parts were transferred to the remaining factory belonging to Ecoplast in Sarvar, Hungary. In the future, all plastics manufacturing will be concentrated at this one location. Costs incurred in 1997 relating to this restructuring amounted to approximately ATS 9.0 million. The management of the Company is considering introducing a share option scheme for senior executives, however the details of the scheme are still to be finalized. 27 28 The Company has entered into an agreement with ING Barings to have the Company's Shares approved for trading on EASDAQ which is expected to take place in October 1997. As shown in Note 23(a), the Company has entered into a capital lease for a factory extension in Sarvar, Hungary. Production at this factory commenced in October 1997. In addition, in October 1997 the construction of a new factory in Sarvar, Hungary was completed at a cost of ATS 36.5 million. The Company is to enter into a capital lease to finance the purchase of this factory. 29. ADDITIONAL DISCLOSURES REQUIRED UNDER AUSTRIAN GAAP a) Emoluments to members of the management board
FOR THE PERIOD FROM JULY 1, 1994 (INCEPTION) YEAR ENDED DECEMBER 31, TO DECEMBER 31, - ---------------------------- ---------------- 1996 1995 1994 - ----------- -------------- ------------ (IN THOUSANDS) ATS 7,861 ATS 7,172 ATS 3,977 ========= ========= =========
b) Expenses for severance and pension obligations
FOR THE PERIOD FROM JULY 1, 1994 (INCEPTION) YEAR ENDED DECEMBER 31, TO DECEMBER 31, ------------------------------ -------------------- 1996 1995 1994 --------- ---------- ---------- (IN THOUSANDS) Members of management board and senior management as defined by ss.80 subsec. 1 Austrian Stock Corporation Act .................. ATS 1,128 ATS 1,033 ATS 487 Other employees ................................... ATS 6,094 ATS 7,779 ATS 1,284 --------- --------- --------- ATS 7,222 ATS 8,812 ATS 1,771 ========= ========= =========
c) Number of employees The average number of employees during the periods presented was:
1996 1995 1994 ----------- -------------- --------------- Salaried employees ............ 528 575 470 Workers......................... 1,388 2,046 1,430 ----------- -------------- -------------- 1,916 2,621 1,900 =========== ============== ==============
The average for 1994 has been calculated for the period July 1 to December 31, 1994. The effect of the disposal of Euroton at the beginning of 1996 was to reduce the number of employees by 1,100. 28 29 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, ----------------------------------------- NOTE 1997 1997 1996 ---- -------- ------------ ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues.................................. $ 70,978 ATS 873,809 ATS 701,709 Increase in inventories of finished goods and work in process..................... 411 5,059 20,271 Other capitalized costs................... 1,239 15,251 3,807 Other operating income.................... 3 1,305 16,065 19,464 Cost of materials......................... (46,196) (568,728) (473,807) Personnel expenses........................ (14,691) (180,860) (139,555) Amortization of intangible assets and depreciation of non-current assets...... (3,062) (37,691) (18,601) Other operating expenses.................. (8,885) (109,380) (89,129) Financial result, net..................... (906) (11,152) (8,935) -------- ------------ ----------- NET INCOME................................ $ 193 ATS 2,373 ATS 15,224 ======== ============ =========== Income applicable to Neutronics........... 236 2,901 15,185 (Loss) income applicable to minority interests............................... (43) (528) 39 -------- ------------ ----------- NET INCOME................................ $ 193 ATS 2,373 ATS 15,224 ======== ============ =========== EARNINGS PER SHARE........................ $ 0.15 ATS 1.81 ATS 9.49 ======== ============ ===========
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements 29 30 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
AT JUNE 30, ----------------------------------------- NOTE 1997 1997 1996 ---- ------- ------------- ----------- (IN THOUSANDS) ASSETS NON-CURRENT ASSETS Initial contract costs.................... $ 1,784 ATS 21,963 ATS -- Intangible assets......................... 1,923 23,676 23,340 Property, plant and equipment............. 41,180 506,961 321,544 Financial assets.......................... 1,056 13,006 44,336 --------- ----------- ---- 45,943 565,606 389,220 --------- ----------- ---- CURRENT ASSETS Inventories............................... 5 16,854 207,489 143,022 Receivables and other assets.............. 6 23,934 294,657 300,930 Cash and cash equivalents................. 1,826 22,472 6,700 --------- ----------- ---- 42,614 524,618 450,652 --------- ----------- ---- Prepaid expenses.......................... 710 8,738 1,720 --------- ----------- ---- TOTAL ASSETS.............................. $89,267 ATS 1,098,962 ATS 841,592 ============= =========== SHAREHOLDERS' EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY 7 Share capital............................. $12,997 ATS 160,000 ATS 80,000 Capital reserves.......................... -- -- 40,000 Retained earnings......................... 1,080 13,298 21,051 Minority interest......................... 172 2,117 2,334 --------- ----------- ---- 14,249 175,415 143,385 --------- ----------- ---- PROVISIONS Provision for severance costs............. 3,259 40,121 36,256 Other provisions.......................... 5,001 61,571 73,714 --------- ----------- ---- 8,260 101,692 109,970 --------- ----------- ---- LIABILITIES Accounts payable trade.................... 8 20,099 247,436 192,210 Other liabilities......................... 9 42,392 521,888 389,805 --------- ----------- ---- 62,491 769,324 582,015 --------- ----------- ---- Deferred income........................... 4,267 52,531 6,222 --------- ----------- ---- TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES............................. $89,267 ATS 1,098,962 ATS 841,592 ============= ===========
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements 30 31 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, ------------------------------------------ 1997 1997 1996 -------- ------------ ------------ (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................................... $ 193 ATS 2,373 ATS 15,224 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................... 3,062 37,691 18,601 Amortization of employee related provisions...... (325) (4,001) (4,378) Loss on sale of non-current assets............... 8 102 1,160 Gain on sale of subsidiary....................... -- -- (10,864) Capitalization of initial contract costs......... (1,119) (13,775) -- Share of loss in associated company.............. 6 75 783 Changes in assets and liabilities net of effects from purchase and disposal of subsidiaries: Increase in receivables and other assets...... (3,654) (44,986) (90,635) Decrease in prepaid expenses.................. 244 3,001 2,305 Increase in inventories....................... (1,200) (14,776) (10,173) (Decrease) increase in liabilities and provisions.................................. (1,501) (18,479) 48,772 Increase in deferred income................... 2,401 29,563 2,954 Other adjustments................................ 10 120 (138) -------- ------------ ------------ NET CASH USED FOR OPERATING ACTIVITIES............. $ (1,875) ATS (23,092) ATS (26,389) -------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of financial assets....................... -- -- (875) Purchase of property, plant and equipment.......... (4,067) (50,066) (27,381) Purchase of intangible assets...................... (174) (2,143) (156) Proceeds from disposal of non-current assets....... 32 398 842 Proceeds from disposal of subsidiaries, net of cash disposed of................................. -- -- 10,706 -------- ------------ ------------ NET CASH USED FOR INVESTING ACTIVITIES............. $ (4,209) ATS (51,811) ATS (16,864) -------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in borrowings under line of credit agreements....................................... 8,932 109,961 47,850 Proceeds from long term borrowings................. -- -- 10,000 Payments on long term borrowings and capital leases........................................... (1,475) (18,160) (17,653) Payments on related company financing.............. -- -- (11,405) -------- ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES.......... $ 7,457 ATS 91,801 ATS 28,792 -------- ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... 1,373 16,898 (14,461) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... 453 5,574 21,161 -------- ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD......... $ 1,826 ATS 22,472 ATS 6,700 ======= =========== ===========
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements 31 32 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SHARE CAPITAL RETAINED MINORITY CAPITAL RESERVES EARNINGS INTERESTS TOTAL ----------- ---------- ---------- --------- ----------- (IN THOUSANDS) BALANCE AT JANUARY 1, 1996................ ATS 80,000 ATS 40,000 ATS 5,866 ATS 5,860 ATS 131,726 1996 net income to retained earnings... -- -- 15,185 39 15,224 Change in minority interests........... -- -- -- (3,565) (3,565) ----------- ----------- ----------- ----------- ----------- BALANCE AT JUNE 30, 1996................ ATS 80,000 ATS 40,000 ATS 21,051 ATS 2,334 ATS 143,385 =========== =========== =========== =========== =========== BALANCE AT JANUARY 1, 1997................ 80,000 40,000 50,397 2,645 173,042 Increase in share capital............. 80,000 (40,000) (40,000) -- -- 1997 net income to retained earnings... -- -- 2,901 (528) 2,373 ----------- ----------- ----------- ----------- ----------- BALANCE AT JUNE 30, 1997................ ATS 160,000 ATS -- ATS 13,298 ATS 2,117 ATS 175,415 =========== =========== =========== =========== ===========
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements 32 33 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. SUMMARY OF ACCOUNTING POLICIES The accompanying unaudited consolidated condensed financial statements were prepared in accordance with Austrian GAAP. Application of U.S. GAAP would have affected the results of operations for the six months ended June 30, 1997 and 1996, and shareholders' equity as of June 30, 1997 and 1996 to the extent summarized in Note 2 to these consolidated condensed financial statements. The disclosure given in the notes to these consolidated condensed financial statements is in accordance with accounting principles for interim financial statements generally accepted in the United States. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, all adjustments (consisting of normally recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. These consolidated condensed financial statements should be read in conjunction with the Company's audited annual financial statements. All amounts herein are shown in Austrian Schillings ("ATS"), unless otherwise indicated, and for the six months ended June 30, 1997 are also presented in U.S. dollars ("dollars" or "$"), the latter being presented solely for the convenience of the reader at the rate of ATS 12.311 = $1, the Noon Buying Rate of the Federal Reserve Bank of New York on October 15, 1997. 2. SIGNIFICANT DIFFERENCES BETWEEN AUSTRIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The consolidated condensed financial statements of Neutronics comply with Austrian GAAP, which differs in certain significant respects from U.S. GAAP. The Group's accounting policies under Austrian GAAP are disclosed in Note 1 of the audited consolidated financial statements. The significant differences that affect consolidated net income and shareholders' equity of Neutronics are set out below. a. Manufacturing Contracts Under Austrian GAAP, costs and revenues relating to the initial phase of a contract (including design, testing and tooling for products) are deferred. Contract costs deferred are included within non-current assets as initial contract costs and amortized on a straight line basis over the weighted average length of production phases. Any revenues relating to the initial phase of a contract are included in deferred income and released to the income statement over the same period. Revenues relating to the production phase of a manufacturing contract are recognized on shipment of product to customers. Under U.S. GAAP, revenues and costs on manufacturing contracts are recognized using the percentage-of-completion method of accounting. The level of percentage-of-completion on a particular contract is measured using the units-of-delivery method. All costs and revenues relating to the initial phase of a contract are deferred and recognized in the income statement during the production phase of a contract in accordance with the percentage of units delivered to date on a contract. b. Business Combinations Austrian GAAP requires that no deferred tax asset is recognized for differences between the assigned values and the tax bases of assets and liabilities recognized in a business combination accounted for as a purchase as far as such treatment would result in an excess of the fair values of the identifiable assets (including the deferred tax asset) and liabilities acquired over the cost of the acquisition. An excess of identifiable assets acquired less liabilities assumed over the cost of an acquired company may be allocated only against retained earnings and provisions recorded in the balance sheet. U.S. GAAP requires the recognition of a deferred tax liability or asset for differences between the assigned values and the tax bases of assets and liabilities recognized in a business combination accounted for as a purchase. Also, an excess of identifiable assets acquired less liabilities assumed over cost of the acquired company should be allocated to reduce proportionately the values assigned to non-current assets in determining their fair values. When accounting for the acquisition of Althofen Electronics GmbH, a deferred tax asset of ATS 28.6 million was recorded, and non-current assets were reduced by ATS 9.2 million. The remaining excess 33 34 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) of identifiable assets acquired less liabilities assumed totaled ATS 19.4 million and was, under U.S. GAAP, recorded as a deferred credit which is amortized on a straight-line basis over 10 years. c. Financial Instruments Neutronics uses financial instruments to cover certain financial currency risks related to liabilities and anticipated transactions. As stated in Note 1 of the audited consolidated financial statements, according to Austrian GAAP, a reserve is set up for unrealized losses relating to financial instruments, whereas unrealized gains are not recognized until realized. Under U.S. GAAP, at the balance sheet date, financial instruments which are not designated as hedges of specific assets or liabilities are marked to market and any resulting unrealized gains and losses are recognized in the income statement. d. Deferred Taxation Under Austrian GAAP, deferred taxes are recognized at currently enacted tax rates for all temporary differences that are expected to reverse, with the restrictions that deferred taxes on losses carried forward must not be provided for and that deferred tax assets must never exceed effective tax expenses in the past. Deferred tax assets must be netted against deferred tax liabilities. Under U.S. GAAP, deferred taxes are provided for all temporary differences, subject only to specific exceptions, and loss carryforwards at currently enacted tax rates. For deferred tax assets, which shall not be netted against deferred tax liabilities, a valuation allowance is to be established if it is more likely than not that some portion of such assets will not be realized. The deferred tax adjustment included in the following reconciliation to U.S. GAAP also includes the income tax effects of the above U.S. GAAP adjustments where appropriate. e. Minority Interests Under Austrian GAAP, income applicable to minority interests is included as part of net income for the period and minority interests are included as part of shareholders' equity. Under U.S. GAAP, net income excludes income applicable to minority interests, and shareholders' equity excludes minority interests. RECONCILIATION TO U.S. GAAP The following is a summary of the significant adjustments to net income for the six months ended June 30, 1997 and 1996 and to shareholders' equity at June 30, 1997 and 1996 which would be required if U.S. GAAP had been applied instead of Austrian GAAP. The translation of 1997 amounts from ATS into dollars has been made solely for the convenience of the reader at the rate of ATS 12.311 = $1, the Noon Buying Rate of the Federal Reserve Bank of New York on October 15, 1997.
SIX MONTHS ENDED JUNE 30, ---------------------------------- 1997 1997 1996 ----- --------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income as reported in the consolidated income statements under Austrian GAAP........................ $ 193 ATS 2,373 ATS 15,224 Less: Loss (income) applicable to minority interests.... 43 528 (39) ----- --------- ---------- Adjusted net income under Austrian GAAP................. 236 2,901 15,185 Adjustments required to conform with U.S. GAAP: Manufacturing contracts............................... 164 2,022 -- Business combinations................................. 84 1,028 1,028 Financial instruments................................. 24 300 (350) Deferred income taxes................................. (11) (135) (1,332) ----- --------- ---------- 261 3,215 (654) ----- --------- ---------- Net income in accordance with U.S. GAAP................. 497 ATS 6,116 ATS 14,531 ===== ========= ========== Earnings per share in accordance with U.S. GAAP......... 0.31 ATS 3.82 ATS 9.08 ===== ========= ==========
34 35 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
AT JUNE 30, --------------------------------------- 1997 1997 1996 ------- ----------- ----------- (IN THOUSANDS) Shareholders' equity as reported in the consolidated balance sheets under Austrian GAAP............................................. $14,249 ATS 175,415 ATS 143,385 Less: Minority interests........................... (172) (2,117) (2,334) ------- ----------- ----------- Adjusted shareholders' equity under Austrian GAAP............................................. 14,077 173,298 141,051 Adjustments required to conform with U.S. GAAP: Manufacturing contracts Initial contract costs........................ 127 1,565 -- Deferred contract revenues.................... 13 160 -- Business combinations Property, plant and equipment................. (722) (8,884) (9,000) Deferred credit............................... (1,103) (13,584) (15,525) Financial instruments............................ 24 300 -- Deferred income taxes............................ 2,314 28,487 25,329 ------- ----------- ----------- 653 8,044 804 ======= =========== =========== Shareholders' equity in accordance with U.S. GAAP............................................. $14,730 ATS 181,342 ATS 141,855 ======= =========== ===========
3. DISPOSAL OF SUBSIDIARY On January 1, 1996, Neutronics sold its investment in Euroton for ATS 14.1 million cash, which resulted in a gain on disposal of ATS 10.9 million which is included in other operating income for the six months ended June 30, 1996. 4. RESTRUCTURING COSTS During 1997, the plastics facility belonging to Ecoplast in Tab, Hungary was closed as part of a restructuring and integrated with the HTR factory in Tab. Major parts were transferred to the remaining factory belonging to Ecoplast in Sarvar, Hungary. In the future, all plastics manufacturing will be concentrated at this one location. Costs incurred in 1997 relating to this restructuring amounted to approximately ATS 9 million and have been included in the income statement for the six months ended June 30, 1997. 5. INVENTORIES
AT JUNE 30, --------------------------- 1997 1996 ----------- ----------- (IN THOUSANDS) Raw materials and manufacturing supplies...................... ATS 174,621 ATS 95,934 Work in process............................................... 3,880 -- Finished goods, parts and goods purchased for resale.......... 25,640 24,199 Services received but not yet invoiced........................ 2,667 21,110 Advanced payments to suppliers................................ 681 1,779 ----------- ----------- ATS 207,489 ATS 143,022 =========== ===========
6. RECEIVABLES AND OTHER ASSETS
AT JUNE 30, --------------------------- 1997 1996 ----------- ----------- (IN THOUSANDS) Receivables from sales of goods and services.................. ATS 136,042 ATS 89,487 Receivables from associated company........................... 14,430 12,000 Receivables from related companies............................ 119,842 169,775 Other receivables and other assets............................ 24,343 29,668 ----------- ----------- ATS 294,657 ATS 300,930 =========== ===========
35 36 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 7. SHAREHOLDERS' EQUITY With effect from January 1, 1997, the contributed share capital of Neutronics was increased by ATS 80 million to ATS 160 million by a reallocation from reserves and retained earnings. On August 25, 1997, the shareholders of the Company approved a resolution to convert the Company into a joint stock company under Austrian law, and to increase the Company's authorized and issued share capital to ATS 160 million, comprising 1,600,000 ordinary bearer shares with a nominal value of ATS 100 each. The change in legal status was formally approved by the Commercial Court in Austria on September 19, 1997, whilst the increase in the authorized share capital was formally approved by the Commercial Court in Austria on September 10, 1997. On October 15, 1997, the shareholders of the Company approved a resolution to increase the Company's authorized share capital to ATS 240 million, comprising 2,400,000 ordinary bearer shares with a nominal value of ATS 100 each. Management expects the Commercial Court in Austria to approve such increase in the near future. 8. ACCOUNTS PAYABLE TRADE
AT JUNE 30, --------------------------- 1997 1996 ----------- ----------- (IN THOUSANDS) Accounts payable to third parties............................. ATS 175,942 ATS 96,487 Accounts payable to related companies......................... 71,494 95,723 ----------- ----------- ATS 247,436 ATS 192,210 =========== ===========
9. OTHER LIABILITIES
AT JUNE 30, --------------------------- 1997 1996 ----------- ----------- (IN THOUSANDS) Bank overdrafts............................................... ATS 208,440 ATS 134,221 Bank loans.................................................... 82,256 124,949 Liabilities to other financial institutions................... 7,224 7,023 Liabilities due to leasing activities......................... 188,670 36,005 Other liabilities to related companies........................ -- 36,985 Advanced payments from customers.............................. 1,503 -- Other liabilities............................................. 33,795 50,622 ----------- ----------- ATS 521,888 ATS 389,805 =========== ===========
10. COMMITMENTS AND CONTINGENCIES Neutronics entered into a sale and lease back for machinery in 1997. The lease qualifies as a capital lease and the sale and lease back resulted in no profit or loss. The fair value of the machinery is ATS 10.6 million. The first repayment is due in October 1997 and the lease term is five years. 11. FINANCIAL INSTRUMENTS The provision for unrealized losses on Japanese Yen forward exchange contracts made at December 31, 1996 has been released during the six months ended June 30, 1997 due to the change in the Japanese Yen exchange rate in relation to the Austrian Schilling. 12. RELATED PARTY TRANSACTIONS During the periods covered, Neutronics made, in the ordinary course of business, sales to and purchases from companies in the Philips Group which has a significant ownership interest in Neutronics. Amounts owed to and by these related companies are disclosed in Notes 6, 8 and 9. Net sales to companies in the Philips Group amounted to ATS 528.2 million (61% of total revenues) and ATS 620.6 million (88% of total revenues) for the six months ended June 30, 1997 and 1996, respectively. Purchases from these companies amounted to ATS 97.7 million and ATS 135.7 million for the six months ended June 30, 1997, and 1996, respectively. All such transactions with related parties are conducted at arm's length. 36 37 NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) In addition, as disclosed in Note 9, Neutronics had an interest-free outstanding financing creditor balance with the Philips Group at June 30, 1996 which was repaid in full by December 31, 1996. During the periods covered, Neutronics made, in the ordinary course of business, sales to Hotman totalling ATS 5.0 million and ATS 1.2 million for the six months ended June 30, 1997 and 1996, respectively. Amounts owed by Hotman are disclosed in Note 6. Humphrey Porter, Chairman of the Company's Management Board, has been granted an option by the Company to purchase the house he lives in in Althofen, Austria. The purchase price will be the lower of the net book value of the house at the time of purchase, or the average of the appraisal values determined by two independent property appraisers. 15. SUBSEQUENT EVENTS On September 22, 1997, the Company acquired the remaining 4.1% of the issued share capital of Ecoplast for cash ATS 4.1 million. Payment for the shares is not due until December 1998. The management of the Company is considering introducing a share option scheme for senior executives, however, details of the scheme are still to be finalized. The Company has entered into an agreement with ING Barings to have the Company's Shares approved for trading on EASDAQ which is expected to take place in October 1997. The Company has entered into a capital lease for a factory extension in Sarvar, Hungary. Production at this factory commenced in October 1997. In addition, in October 1997 the construction of a new factory in Sarvar, Hungary was completed at a cost of ATS 36.5 million. The Company is to enter into a capital lease to finance the purchase of this factory. 37 38 (b) Pro Forma Financial Information. The following pro forma financial information is being filed herewith: 38 39 UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION OF NEUTRONICS AND FLEXTRONICS On October 30, 1997, Flextronics International Ltd. (the "Company" or "Flextronics") acquired 92% of the outstanding stock of Neutronics Electronics Industries Holding A. G. ("Neutronics") by issuing approximately 2,806,000 shares of Flextronics Ordinary Shares at an exchange ratio of 1.91 shares of Flextronics stock for one share of Neutronics common stock (the "Merger"). The unaudited pro forma combined statements of operations for the three years ended March 31, 1997 and the six months ended September 30, 1997 give effect to the Merger, which will be accounted for as a pooling of interests, as if the Merger was completed at the beginning of the earliest period presented. The unaudited pro forma condensed combined balance sheet has been prepared as if the Merger was completed as of September 30, 1997. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the Merger had been consummated at the beginning of the earliest period presented, nor is it necessarily indicative of future operating results or financial position. The following unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements and accompanying notes for the Company and Neutronics included elsewhere herein and in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997 and the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. 39 40 FLEXTRONICS INTERNATIONAL LTD. AND NEUTRONICS ELECTRONICS INDUSTRIES HOLDING A.G. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS) (UNAUDITED)
Pro Forma Pro Flextronics Neutronics Adjustment Forma September 30, 1997 September 30, 1997 (See notes 1 & 2) Combined ------------------ --------------------- ----------------- -------- CURRENT ASSETS: Cash ............................ $ 17,825 $ 1,417 $ $ 19,242 Accounts receivable ............. 90,270 5,699 95,969 Inventories, net ................ 112,906 17,227 130,133 Receivables from associated companies...................... 0 7,092 7,092 Other current assets ............ 18,055 2,807 20,862 --------- ------- --------- -------- Total current assets ............ 239,056 34,242 273,298 OTHER NON-CURRENT ASSETS: Property and equipment, net ..... 147,607 43,476 191,083 Investments and other non-current assets............. 10,054 4,968 15,022 Intangible assets, net .......... 9,691 743 10,434 Goodwill net of amortization .... 19,892 72 19,964 --------- ------- --------- -------- Total non-current assets ........ 187,244 49,259 236,503 ========= ======= ========= ======== TOTAL ASSETS .................... $ 426,300 $83,502 $ $509,801 ========= ======= ========= ======== CURRENT LIABILITIES: Bank borrowings ................. $ 81,500 $13,378 $ $ 94,848 Current portion of capital lease 5,313 4,005 9,319 Current portion of long term debt 5,414 0 5,414 Accounts payable ................ 96,683 17,598 114,281 Other current liabilities ....... 57,679 3,963 61,642 Income tax payable .............. 5,314 1 5,315 --------- ------- --------- -------- Total current liabilities ....... 251,903 38,946 290,849 NON-CURRENT LIABILITIES: Capital lease, less current portion........................ 7,622 11,323 18,945 Long term debt, less current portion........................ 66,680 9,754 76,434 Notes payable to shareholders ... 115 0 115 Other payables .................. 0 8,456 8,456 Deferred income tax ............. 3,128 0 3,128 --------- ------- --------- -------- Total non-current liabilities ... 77,545 29,533 107,078 Deferred income ................. 0 2,290 2,290 Minority interests .............. 485 171 124 (1) 780 SHAREHOLDERS' EQUITY: Ordinary shares ................. 89 7,337 (7,318)(2) 108 Additional paid-in capital ...... 96,559 3,668 7,318 (2) 107,545 Accumulated profits/(deficit) ... (281) 1,556 (124)(1) 1,151 --------- ------- --------- -------- Total shareholders' equity ...... 96,367 12,561 (124) 108,804 ========= ======= ========= ======== TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $ 426,300 $83,502 $ $509,801 ========= ======= ========= ========
40 41 FLEXTRONICS INTERNATIONAL LIMITED AND NEUTRONICS ELECTRONICS INDUSTRIES HOLDING A.G. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
For the period from (July 1, 1994) Fiscal inception year ended to March December 31, 1995 31, 1994 ------------- ------------ Pro forma Pro forma Flextronics Neutronics adjustment Combined ----------- ---------- --------- --------- Net sales ...................... $ 237,386 $ 54,763 $ $ 292,149 Cost of sales .................. 214,865 50,561 265,426 --------- -------- --------- --------- Gross profit ................... 22,521 4,202 26,723 Selling, general and administrative expenses ........ 11,468 4,303 15,771 Goodwill amortization .......... 510 7 517 Intangible assets amortization . 245 0 245 Reserach and development ....... 91 0 91 --------- -------- --------- --------- Operating income(loss) ......... 10,207 (108) 10,099 Interest expense, net .......... (774) 15 (759) Merger expenses ................ (816) 0 (816) Other expense, net ............. (998) (81) 24(1) (1,055) --------- -------- --------- --------- Income (loss) before income taxes 7,619 (174) 24 7,469 Provision for income taxes ..... 1,463 125 1,588 ========= ======== ========= ========= Net income (loss) .............. $ 6,156 $ (299) $ 24 $ 5,881 ========= ======== ========= ========= Net income (loss) per share .... $ 0.51 $ (0.19) $ 0.39 ========= ========= ========= Weighted average outstanding Ordinary Shares and equivalents. 12,103 1,600 1,206(2) 14,909 ========= ======== ========= =========
41 42 FLEXTRONICS INTERNATIONAL LIMITED AND NEUTRONICS INDUSTRIES HOLDING A.G. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Fiscal Fiscal year ended year ended March 31, December 31, 1996 1995 ------------- ------------ Pro forma Pro forma Flextronics Neutronics adjustment Combined ------------- ------------ ---------- --------- Net sales ...................... $ 448,346 $ 123,699 $ $ 572,045 Cost of sales .................. 407,457 110,275 517,732 --------- --------- --------- --------- Gross profit.................... 40,889 13,424 54,313 Selling, general and administrative expenses......... 18,787 9,351 28,138 Goodwill amortization .......... 739 13 752 Intangible assets amortization . 544 0 544 Provision for plant closings ... 1,254 0 1,254 Acquired in-process research and development..................... 29,000 0 29,000 --------- --------- --------- --------- Operating income(loss) ......... (9,435) 4,060 (5,375) Interest expense, net .......... (2,380) (1,149) (3,529) Merger expense ................. 0 0 0 Other income (expense), net .... 474 (1,783) (86)(1) (1,395) --------- --------- --------- --------- Income (loss) before income taxes (11,341) 1,128 (86) (10,299) Provision for income taxes ..... 3,791 56 3,847 ========= ========= ========= ========= Net income (loss) .............. $ (15,132) $ 1,072 $ (86) $ (14,146) ========= ========= ========= ========= Net income (loss) per share .... $ (1.19) $ 0.67 $ (0.91) ========= ========= ========= Weighted average outstanding Ordinary Shares and equivalents. 12,684 1,600 1,206(2) 15,490 ========= ========= ========= =========
42 43 FLEXTRONICS INTERNATIONAL LIMITED AND NEUTRONICS INDUSTRIES HOLDING A.G. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Fiscal Year ended Year ended December 31, March 31, 1997 1996 ------------ ----------- Pro forma Pro forma Flextronics Neutronics adjustment Combined --------- ---------- ---------- --------- Net sales ...................... $ 490,585 $ 149,422 $ $ 640,007 Cost of sales .................. 440,448 134,694 575,142 --------- --------- --------- --------- Gross profit.................... 50,137 14,728 64,865 Selling, general and administrative expenses....... 26,765 9,512 36,277 Goodwill amortization .......... 989 13 1,002 Intangible assets amortization . 1,646 0 1,646 Provision for plant closings ... 5,868 0 5,868 --------- --------- --------- --------- Operating income(loss) ......... 14,869 5,203 20,072 Interest expense, net .......... (3,885) (1,835) (5,720) Merger expense ................. 0 0 0 Other income (expense), net .... (1,309) 965 (361)(1) (705) --------- --------- --------- --------- Income(loss) before income taxes 9,675 4,333 (361) 13,647 Provision for income taxes ..... 2,212 (185) 2,027 ========= ========= ========= ========= Net income (loss) .............. $ 7,463 $ 4,518 $ (361) $ 11,620 ========= ========= ========= ========= Net income (loss) per share .... $ 0.50 $ 2.82 $ 0.66 ========= ========= ========= Weighted average outstanding Ordinary Shares and equivalents .. 14,877 1,600 1,206(2) 17,683 ========= ========= ========= =========
43 44 FLEXTRONICS INTERNATIONAL LIMITED AND NEUTRONICS INDUSTRIES HOLDING A.G. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Six months ended Six months ended September 30, September 30, 1997 1997 ---------------- ------------------ Pro forma Pro forma Flextronics Neutronics adjustment Combined ---------------- ------------------- ---------- --------- Net sales ........................ $ 406,970 $ 80,045 $ $487,015 Cost of sales .................... 366,018 73,286 439,303 --------- -------- --------- -------- Gross profit ..................... 40,952 6,759 47,711 Selling, general and administrative expenses......... 20,016 4,354 24,369 Goodwill amortization ............ 970 5 975 Intangible assets amortization ... 778 0 778 --------- -------- --------- -------- Operating income(loss) ........... 19,188 2,400 21,588 Interest expense and other, net... (7,116) (1,140) (8,256) Merger expenses .................. 0 0 0 Other income (expense), net ...... 1,418 193 (116)(1) 1,495 --------- -------- --------- -------- Income(loss) before income taxes.. 13,490 1,453 (116) 14,827 Provision for income taxes ....... 1,653 6 1,659 ========= ======== ========= ======== Net income (loss) ................ $ 11,837 $ 1,447 $ (116) $ 13,168 ========= ======== ========= ======== Net income (loss) per share ...... $ 0.78 $ 0.90 $ 0.74 ========= ======== ======== Weighted average outstanding Ordinary Shares and equivalents... 15,107 1,600 1,206(2) 17,913 ========= ======== ========= ========
44 45 NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL Note 1. Basis of Presentation The unaudited pro forma condensed statements of operations combine the historical income statements of Neutronics for the two years ended December 31, 1996 and 1995 and the period from inception (July 1, 1994) to December 31, 1994 with the historical income statements of Flextronics for the three years ended March 31, 1997 to reflect results based on the pooling-of-interests method of accounting. The pro forma condensed interim financial statements combine the historical income statement for the six months ended September 30, 1997 for both companies. In addition, for purposes of the pro forma condensed financial statements, the financial statements of Neutronics have been translated from Austrian Schillings into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation". Accordingly, all of Neutronics' assets and liabilities have been translated at the exchange rates prevailing at the respective balance sheet dates and all income and expense items have been translated at the average rates for each of the periods presented. The following average exchange rates were used to translate income and expenses for the periods ended December 31, 1994, 1995 and 1996, and September 30, 1997 (in Schillings to the U.S. dollar): 10.60, 10.04, 11.34, and 12.38 respectively. The ending exchange rate used to translate the September 30, 1997 condensed pro forma balance sheet was 12.44. These rates were based on the Noon Buy Rates for Austrian Schillings. No adjustments were necessary to conform the accounting policies of the combining companies. Note 2. Pro Forma Net Income Per Share The pro forma combined net income per share is based on the combined weighted average number of common and dilutive equivalent shares of Flextronics and Neutronics based upon the exchange ratio of 1.91 Flextronics Ordinary Shares for each share of Neutronics common stock. Primary and fully diluted pro forma net income per share are not materially different Note 3. Merger Related Expenses of Flextronics and Neutronics Flextronics and Neutronics estimate that they will incur merger-related expenses, consisting primarily of investment banking, legal and accounting fees, financial printing and other related charges, of approximately $4.0 million. This estimate is preliminary and is therefore subject to change. These costs were incurred in the three month period ended December 31, 1997 and will be expensed in that period. As such, no merger-related expenses are included in the pro forma condensed statements of operations. Pro forma adjustments: (1) To accrue 8% minority interest in earnings of Neutronics resulting from certain Neutronics shareholders not participating in the merger. Minority interest was accrued as if it existed as of July 1, 1994. (2) Reflects exchange of 92% of Neutronics outstanding common stock for 2,806,000 shares of Flextronics Ordinary Shares. 45 46 (C) EXHIBITS. (2) Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or Succession. Exhibit 2 Exchange Agreement, dated as of October 19, 1997, by and among Flextronics International Ltd., Neutronics Electronic Industries Holding A.G. and the named Shareholders of Neutronics Electronic Industries Holding A.G. The Company agrees to furnish a copy of any omitted schedule to the Commission upon request.* (10) Material Contracts. Exhibit 10 Loan Agreement, dated as of October 19, 1997, by and among Flextronics International Ltd., Neutronics Electronic Industries Holding A.G. and Althofen Electronics GmbH.* (23) Consents of Experts and Counsel. Exhibit 23 Consent of Independent Public Accountants for Neutronics Electronic Industries Holding A.G. (99) Additional Exhibits. Exhibit 99 Letter from Independent Public Accountants for Neutronics Electronics Industries Holding A.G. regarding audit of Neutronics Electronics Industries Holding A.G. *The asterisked exhibits were included in the registrant's report on Form 8-K as filed by the registrant on November 10, 1997. 46 47 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLEXTRONICS INTERNATIONAL LTD. Date: January 13, 1998 By: /s/ Robert R. B. Dykes -------------------------------------- Robert R. B. Dykes Senior Vice President of Finance and Administration 47 48 EXHIBIT INDEX Exhibit 2 Exchange Agreement, dated as of October 19, 1997, by and among Flextronics International Ltd., Neutronics Electronic Industries Holding A.G. and the named Shareholders of Neutronics Electronic Industries Holding A.G. The Company agrees to furnish a copy of any omitted schedule to the Commission upon request.* Exhibit 10 Loan Agreement, dated as of October 19, 1997, by and among Flextronics International Ltd., Neutronics Electronic Industries Holding A.G. and Althofen Electronics GmbH.* Exhibit 23 Consent of Independent Public Accountants for Neutronics Electronics Industries Holding A.G. Exhibit 99 Letter from Independent Public Accountants for Neutronics Electronics Industries Holding A.G. regarding audit of Neutronics Electronics Industries Holding A.G. *The asterisked exhibits were included in the registrant's report on Form 8-K as filed by the registrant on November 10, 1997. EX-23.1 2 CONSENT OF PUBLIC ACCOUNTANTS 1 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated October 17, 1997 on the consolidated financial statements of Neutronics Electronic Industries Holding A.G. as of December 31, 1996, 1995 and 1994 and for the periods then ended, included in this Form 8-K of Flextronics International Limited. /s/ MOORE STEPHENS ------------------ Moore Stephens Moore Stephens, London January 9, 1998 EX-99 3 LETTER FROM PUBLIC ACCOUNTANTS 1 EXHIBIT 99 [MOORE STEPHENS LETTERHEAD] 13th January 1998 PRIVATE AND CONFIDENTIAL The Directors, Flextronics International Limited, 2241 Lundy Avenue, San Jose, California 95131. Dear Sirs, NEUTRONICS ELECTRONIC INDUSTRIES HOLDING A.G. Our audit report dated October 17, 1997 states that the audit of Neutronics AG for the years ended December 31, 1995 and 1996 were performed in accordance with International Standards on Auditing. Those standards do not materially differ from generally accepted auditing standards in the United States of America. Yours faithfully, /s/ Moore Stephens Moore Stephens -----END PRIVACY-ENHANCED MESSAGE-----