-----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, KVm7CHTpsLWWcinRtUJxH6/bmU9JdoYE41tYT3p8sIzq1u3UCV3/Qkh+/tmqi+26 iWbPGy2stwphFd0zTh/erw== 0000009779-99-000020.txt : 19990628 0000009779-99-000020.hdr.sgml : 19990628 ACCESSION NUMBER: 0000009779-99-000020 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990625 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990625 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD CORP CENTRAL INDEX KEY: 0000009779 STANDARD INDUSTRIAL CLASSIFICATION: BOLTS, NUTS, SCREWS, RIVETS & WASHERS [3452] IRS NUMBER: 340728587 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-06560 FILM NUMBER: 99652005 BUSINESS ADDRESS: STREET 1: 45025 AVIATION DR STREET 2: STE 300 CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034785800 MAIL ADDRESS: STREET 1: 45025 AVIATION DRIVE STREET 2: SUITE 300 CITY: DULLES STATE: VA ZIP: 20166 FORMER COMPANY: FORMER CONFORMED NAME: BANNER INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19901118 8-K 1 2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (date of earliest event reported): June 25, 1999 Commission File Number 1-6560 THE FAIRCHILD CORPORATION (Exact name of Registrant as specified in its charter) Delaware 34-0728587 (State or other jurisdiction of (I.R.S. Employer Identification No.) Incorporation or organization) 45025 Aviation Drive, Suite 400 Dulles, VA 20166 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (703) 478-5800 ITEM 5. OTHER EVENTS We hereby file the Nacanco Paketleme ("Nacanco") financial statements for the years ended December 31, 1998, 1997 and 1996. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits *99.3 Financial statements, related notes thereto and Auditors' Report of Nacanco Paketleme for the fiscal years ended December 31, 1998, 1997 and 1996. (*) filed herewith SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to the signed on its behalf by the undersigned hereunto duly authorized. For THE FAIRCHILD CORPORATION (Registrant) and as its Chief Financial Officer: By: Colin M. Cohen Senior Vice President and Chief Financial Officer Date: June 25, 1999 EX-99 2 NACANCO PAKETLEME SANAYI VE TICARET A.S. AUDITORS' REPORT AND FINANCIAL STATEMENTS AT 31 DECEMBER 1998, 1997 AND 1996 AUDITORS' REPORT To the Board of Directors Nacanco Paketleme Sanayi ve Ticaret A. Manisa 1. We have audited the accompanying US dollar balance sheets of Nacanco Paketleme Sanayi ve Ticaret A.. ("the Company") at 31 December 1998, 1997 and 1996, and the related US dollar statements of income, of changes in shareholders' equity and of cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. In our opinion, the US dollar financial statements audited by us present fairly, in all material respects, the financial position of Nacanco Paketleme Sanayi ve Ticaret A.. at 31 December 1998, 1997 and 1996 and the results of its operations, the changes in its shareholders' equity and its cash flows for the years then ended in conformity with the accounting principles generally accepted in the United States of America. Ba aran Serbest Muhasebeci Mali Mu avirlik Anonim irketi a member of PricewaterhouseCoopers Zeynep Uras, SMMM stanbul, 12 February 1999 NACANCO PAKETLEME SANAY VE T CARET A. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996
1998 1997 1996 US$'000 US$'000 US$'000 (Note 2) (Note 2) ASSETS Current assets:- Cash and cash equivalents (Note 4) 13,812 14,768 17,026 Trade receivables (Note 5) 2,488 4,875 7,585 Due from related companies (Note 16) - 48 - Inventories (Note 6) 17,207 18,813 13,947 Other receivables and prepaid expenses 935 166 118 Deferred tax assets (Note 10) 108 112 247 Total current assets 34,550 38,782 38,923 Long-term trade receivables 116 103 114 Property, plant and equipment net (Note 7) 35,734 35,636 36,230 Other long-term assets (Note 8) 3,822 4,383 1,401 Total assets 74,222 78,904 76,668 The accompanying notes form an integral part of these financial statements.
NACANCO PAKETLEME SANAY VE T CARET A. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996
1998 1997 1996 US$'000 US$'000 US$'000 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:- Trade payables (Note 9) 604 2,546 2,328 Due to related companies (Note 16) 1,223 649 2,029 Current portion of long-term borrowings (Note 12) 35 54 103 Income taxes payable (Note 10) 8,332 11,216 12,582 Accrued expenses and other payables (Note 11) 551 888 1,720 Total current liabilities 10,745 15,353 18,762 Long-term borrowings (Note 12) - 54 206 Reserve for employment termination benefits(Note 13) 591 411 360 Non-current deferred tax liability - net (Note 10) 1,437 1,330 513 Total liabilities 12,773 17,148 19,841 Shareholders' equity:- Share capital (Note 15) 18,267 18,267 18,267 Retained earnings (Note 14) 43,182 43,489 38,560 Total shareholders' equity 61,449 61,756 56,827 Total liabilities and shareholders' equity 74,222 78,904 76,668 Commitments and contingencies (Note 22) The accompanying notes form an integral part of these financial statements.
NACANCO PAKETLEME SANAY VE T CARET A. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996
1998 1997 1996 US$'000 US$'000 US$'000 Net sales (Note 17) 81,620 99,551 105,069 Cost of sales (Note 18) (52,119) (62,419) (66,484) Gross profit 29,501 37,132 38,585 General and administrative expenses (Note 19) (897) (1,206) (1,342) Selling and marketing expenses (601) (481) (356) Royalty expenses (Note 21) (1,389) (1,603) (1,603) Operating profit 26,614 33,842 35,284 Financial income net (Note 20) 1,008 1,074 1,453 Other income/(expense) - net 428 (18) (399) Income before taxes and translation loss 28,050 34,898 36,338 Provision for taxes (Note 10) (14,355) (20,609) (17,789) Translation gain/(loss) 1,718 2,113 (430) Net income 15,413 16,402 18,119 Weighted average number of shares with TL1,000 face value (Note 2) 166,500,000 166,500,000 166,500,000 Earning per share in US dollars (Note 2) 0.093 0.099 0.109 The accompanying notes form an integral part of these financial statements.
NACANCO PAKETLEME SANAY VE T CARET A. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996
Share Retained capital earnings Total US$'000 US$'000 US$'000 1 January 1996 18,267 33,247 51,514 Dividends paid - (12,806) (12,806) Net income for the year - 18,119 18,119 31 December 1996 18,267 38,560 56,827 Dividends paid - (11,473) (11,473) Net income for the year - 16,402 16,402 31 December 1997 18,267 43,489 61,756 Dividends paid - (15,720) (15,720) Net income for the year - 15,413 15,473 31 December 1998 18,267 43,182 61,509 The accompanying notes form an integral part of these financial statements.
NACANCO PAKETLEME SANAY VE T CARET A. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996
1998 1997 1996 US$'000 US$'000 US$'000 (Note 2) (Note 2) Cash flows from operating activities:- Net income 15,413 16,402 18,119 Adjustments to reconcile net income to net cash provided by operating activities :- Depreciation for the year 2,924 2,804 2,413 Reserve for employment termination benefits 180 51 71 Loss/(gain) on sale of property, plant and equipment (428) (11) 25 Decrease/(increase) in trade receivables 2,387 2,710 2,465 Decrease in due from related parties 48 (48) 12 Decrease in other receivables and prepaid expenses (769) (48) 215 Decrease/(increase) in inventories 1,606 (4,866) 1,665 Decrease in long-term assets 561 (2,982) 491 Decrease/(increase) in long term receivables (13) 11 (8) (Decrease)/increase in trade payables (1,942) 218 (1,043) (Decrease)/increase in due to related parties 574 (1,380) (2,052) (Decrease)/increase in accrued expenses (337) (832) (133) Change in taxes (2,773) (414) 624 Total adjustments 2,018 (4,787) 4,745 Net cash provided by operating activities 17,431 11,615 22,864 Cash flows used in investing activities:- Capital expenditure (3,068) (2,210) (6,407) Proceeds from sale of property, plant and equipment 474 22 372 Investment in subsidiaries - - (24) Net cash used in investing activities (2,594) (2,188) (6,059) Cash flows from financing activities:- Dividends paid (15,720) (11,473) (12,806) Payments of bank borrowings (73) (201) (2,436) Net cash used in financing activities (15,793) (11,674) (15,242) Net (decrease)/increase in cash and cash equivalents (956) (2,258) 1,563 Cash and cash equivalents at the beginning of the year 14,768 17,026 15,463 Cash and cash equivalents at the end of the year 13,812 14,768 17,026 Supplemental disclosure of cash flow information:- Cash paid during the year for: Interest 20 45 234 Income taxes 8,143 8,595 18,355 The accompanying notes form an integral part of these financial statements.
NACANCO PAKETLEME SANAY VE T CARET A. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 1998, 1997 AND 1996 NOTE 1 - NATURE OF OPERATIONS Nacanco Paketleme Sanayi ve Ticaret A.. ("the Company") was established on 10 April 1988 and is registered in Manisa, Turkey. Its primary activity is the production and sale of customized steel and aluminum cans for soft drinks and beer. The Company is 65% owned by Pechiney S.A. (Note 15). NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES The Company maintains its books of account and prepares its financial statements both in Turkish lira ("TL") in accordance with the Turkish Commercial Code("TCC"), tax legislation and Turkish Standard Chart of Accounts and in US dollars in accordance with the accounting principles generally accepted in the United States of America (US GAAP) (Note 3). Dividends, when declared, are paid in Turkish lira. There are no exchange restrictions with respect to the Turkish Lira. The following significant accounting policies have been applied in the preparation of these financial statements. Cash and cash equivalents Cash and cash equivalents include cash, due from banks and marketable securities with maturities of less than three months. Inventories Inventories are stated at the lower of actual cost or market value. During the year standard costing method is applied for all inventories. At the year end, cost is determined using the average cost method and price and value differences between standard costs and actual costs are allocated between inventories on hand and the cost of goods sold accordingly. The cost elements included in the inventory are materials, labor and an appropriate amount of overhead (Note 6). NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Property, plant and equipment and related depreciation Property, plant and equipment are stated at cost (Note 7). Gains or losses related to property, plant and equipment disposals are charged to statement of income. The depreciation for property, plant and equipment is provided for on a straight-line basis that approximates the estimated useful lives of such assets as follows: - % Buildings 2 Machinery and equipment 5.8 Furniture and fixtures 33 Motor vehicles 33 Related companies For the purpose of the financial statements, shareholders, the investee company and the companies and parties identified by the Company as being controlled by/affiliated with them are considered and referred to as related companies (Note 16). Income taxation Income taxes are recorded using the liability method. Deferred tax assets and liabilities are recorded with respect to differences between the basis of assets and liabilities for tax purposes and financial reporting purposes. Valuation allowances in respect of deferred tax assets are recorded when it is considered more likely than not that such deferred tax assets will not be realized (Note 10). Forward contracts Forward contracts represent US dollar hedges against firm raw material purchase commitments denominated in Deutschemarks. Gains or losses on such forward contracts are treated as elements of the cost of raw materials purchased. Employment termination benefits Employment termination benefits, as required by Turkish Labor Law, are recognised in the financial statements as they are earned. The total provision represents the vested benefit obligation assuming the termination of the employment of all employees eligible for such termination benefits at the balance sheet date (Note 13). Revenue recognition Revenue is recognised on the shipment of goods. Disclosure about fair value of financial instruments The fair values of certain financial instruments carried at cost, including cash and cash equivalents and short- term borrowings are considered to approximate their respective carrying values due to their short-term nature. The carrying value of trade receivables is estimated to be their fair values. Balances denominated in foreign currencies are translated at year-end exchange rates. Fair value of derivatives and foreign exchange instruments (Note 22) are based on the values of the underlying currencies. Earnings per share Earnings per share disclosed in the accompanying statement of income are determined by dividing net income by the average number of shares in existence during the year concerned. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Additional information for the preparation of financial statements The figures for the years 1997 and 1996 are reclassified for comparative purposes. NOTE 3 - FOREIGN CURRENCY TRANSLATION The functional currency of the Company is the Turkish lira. Primarily all revenues are denominated in Turkish lira generally with purchase prices tied to the US dollar exchange rates. A significant portion of purchases are denominated in other currencies, primarily the US dollar and the Deutschmark. The Turkish lira has experienced significant inflation since prior to the inception of the Company. Annual inflation in Turkey for the year ended 31 December 1998 was 54.3% (1997: 91.0%, 1996: 84.9%) based on the nationwide wholesale price index (WPI) announced by the state institute of statistics of the Republic of Turkey. Because the economy of Turkey has been highly inflationary, the Company has selected the US dollar as its reporting currency for international reporting purposes. The translation of the financial statements has been done in accordance with Financial Accounting Standards Board Statement Number 52 "Foreign Currency Translation" for entities in highly inflationary economies by translating transactions denominated in other than the US dollar at the exchange rate on the transaction date. Gains and losses on foreign currency translations are recorded to the statement of income in the period that they occur. Monetary assets and liabilities denominated in other than the US dollar are translated into the US dollar at period end exchange rates at the date of transaction. NOTE 4 - CASH AND DUE FROM BANKS
1998 1997 1996 US$'000 US$'000 US$'000 Cash on hand - 1 2 Due from banks: - Demand deposits-US$ 189 - 174 - TL 10 92 136 - other currency 36 - 90 Time deposits-US$ 11,960 14,283 14,680 - TL - - 27 - other currency 1,192 - 1,523 Repurchase agreements with banks 425 392 394 13,812 14,768 17,026
NOTE 5 - TRADE RECEIVABLES
1998 1997 1996 US$'000 US$'000 US$'000 Maksan Me rubat ve Kutulama San. A.. 648 1,920 1,975 Ege Birac l k ve Malt San. A. 488 550 611 Fruko Tamek Meyva Sular San. A. 302 755 1,747 Erbak Uluda Me rubat ve G da Sanayi A.. 187 21 45 Ektam K br s Ltd. 162 244 - T Tuborg Bira ve Malt San. A.. 129 255 797 Guney Birac l k ve Malt San. A.. 50 740 738 Erciyes Birac l k ve Malt San.A.. - 56 - Post-dated cheques - - 219 Other 522 334 1,453 2,488 4,875 7,585
NOTE 6 - INVENTORIES
1998 1997 1996 US$'000 US$'000 US$'000 Raw materials 7,323 2,377 2,025 Finished goods 5,912 6,399 4,743 Ends 1,812 2,007 1,093 Goods in transit 1,258 7,172 5,003 Spare parts 901 849 1,083 In process 1 9 - 17,207 18,813 13,947
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
1 January 1998 Additions Disposals Transfers31 December 1998 US$'000 US$'000 US$'000 US$'000 US$'000 Land 294 - - - 294 Buildings 4,751 - - - 4,751 Machinery and equipment 41,148 460 (50) 3,424 44,982 Motor vehicles 304 21 (55) - 270 Furniture and fixtures 706 - (14) 60 752 47,203 481 (119) 3,484 51,049 Construction in progress 1,083 2,587 - (3,484) 186 48,286 3,068 (119) - 51,235 Less : Accumulated depreciation (12,650) (2,924) 73 - (15,501) Net book value 35,636 35,734 1 January 1997 Additions Disposals Transfers31 December 1997 US$'000 US$'000 US$'000 US$'000 US$'000 Land 294 - - - 294 Buildings 4,751 - - - 4,751 Machinery and equipment 38,889 773 - 1,486 41,148 Motor vehicles 284 8 (36) 48 304 Furniture and fixtures 477 - - 229 706 44,695 781 (36) 1,763 47,203 Construction in progress 1,417 1,429 - (1,763) 1,083 46,112 2,210 (36) - 48,286 Less : Accumulated depreciation (9,882) (2,804) 36 - (12,650) Net book value 36,230 35,636 1 January 1996 Additions Disposals Transfers31 December 1996 US$'000 US$'000 US$'000 US$'000 US$'000 Land 294 - - - 294 Buildings 4,751 - - - 4,751 Machinery and equipment 31,131 - (442) 8,200 38,889 Motor vehicles 239 - (12) 57 284 Furniture and fixtures 463 - - 14 477 36,878 - (454) 8,271 44,695 Construction in progress 3,281 6,407 - (8,271) 1,417 40,159 6,407 (454) - 46,112 Less : Accumulated depreciation (7,526) (2,413) 57 - (9,882) Net book value 32,633 36,230
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT (Continued) The gross carrying amounts of fully depreciated property, plant and equipment still in use were as follows:
1998 1997 1996 US$'000 US$'000 US$'000 Furniture and fixtures 461 447 437 Motor vehicles 202 135 110 663 582 547
The mortgage on real estate, amounting to approximately US$281(1997: US$430, 1996: US$821) has been given to the Manisa Chamber of Commerce. In 1995, the Company gave a sequestration right on its building and machinery to the customs authorities as collateral against its import commitments (Note 21). The limit of the global sequestration right on the Company's building and machinery amounts to TL265.5 million (US$849,000). The usage amounted to US$176,000 at 31 December 1998 (1997: US$1,292,000, 1996: US$1,162,000). NOTE 8- OTHER LONG-TERM ASSETS
1998 1997 1996 US$'000 US$'000 US$'000 Up-front payment for volume discount - net of amortization 4,063 4,383 1,294 Accrual for potential future losses (241) - - 3,822 4,383 1,294 Other - - 107 3,822 4,383 1,401
The Company made a special sales agreement with Fruko- Tamek Meyva Sulari Sanayi A.. ("Fruko")(bottler of Pepsi Cola in Turkey) in 1994. According to the agreement, the Company paid US$2,000,000 to Fruko as a prepayment for volume discount on future sales of a specified number of units. Effective from 1 January 1995, the prepaid discounts have been subject to amortisation based on the quantity of goods sold to Fruko. At April 1997, this agreement was renewed for eight years concluding at year-end 2004. The Company made the new agreement with Fruko and Ektam K br s Limited. According to the agreement, the Company paid an additional DM6,000,000 (US$3,481,863) as a prepayment for volume discount on future sales of a specified number of units in addition to the remaining US$1,294,159 from the first sale agreement. Effective from 1 January 1997, the prepaid discounts have been subject to amortization with the new amortization rate calculated by using the total quantity of goods to be sold. The sales made to Fruko and Ektam were below the budgeted amounts and therefore in addition to the calculated volume discount, Company made an accrual for any potential future losses at 31 December 1998. NOTE 9 - TRADE PAYABLES
1998 1997 1996 US$'000 US$'000 US$'000 Mc Kinsey&Company 208 - - Impact Environmental Engineering Ltd. 32 - - Alcan Deutschland GmbH - 1,332 - Rasselstein AG - - 1,263 Other 364 1,214 1,065 604 2,546 2,328
Alcan Deutschland GmbH and Pechiney Rhenalu SA are the Company's main aluminium suppliers while Rasselstein AG and Hoogovens S-AAL BV are the Company's main coil suppliers. Other payables comprise of trade payables to miscellaneous foreign and domestic suppliers for purchases of raw and auxiliary materials. NOTE 10 - TAXATION The corporation tax rate (including fund premiums) is 27.5%, whereas the minimum effective rate on the total income of a company before exemptions, if any, is 22%. Investment incentive allowance and income from participations are not subject to corporate tax, however investment incentive allowance is subject to a withholding tax of 16.5%. Income after corporation tax (including fund premiums), adjusted for certain exemptions and deductions, is subject to withholding tax at 11% for quoted companies (companies with a minimum of 15% of their nominal share capital held by the public) and 22% for other companies. Thus, the standard total effective rate is 44% for the Company at 31 December 1998. However, in the event of profit distribution, the withholding may be reduced to 15% due to the tax treaties between Turkey and France/USA. In this way the effective tax rate may be subject to further discussion. On July 1998, certain amendments were made in the local tax legislation (Law No 4369) which changes the effective tax rate for the Company to 33% beginning from 1 January 1999. Effective from 1 January 1999, the Advance Corporation Tax system has been changed substantially. Under the newly introduced system, corporations are required to declare quarterly tax return and pay advance corporation tax at the rate of 25%. Interest income on Turkish government bonds and Treasury bills is subject to corporation tax, but is partially exempt from the withholding tax. The partial exemption is determined according to the proportion of the interest income to total income. NOTE 10 - TAXATION (Continued) The total provision for taxes reflected in the accompanying financial statements differs from the amounts computed by applying the above mentioned standard effective rates as follows:
1998 1997 1996 US$'000 US$'000 US$'000 Provision for tax with effective tax rate of 44% 12,342 15,355 15,989 Effect of remeasurement in US$ 2,013 5,254 1,800 Provision for taxes in the accompanyingfinancial statements 14,355 20,609 17,789
Taxes payable calculated by the Company at 31 December 1998, 1997 and 1996 in Turkish lira and converted into US dollars at the exchange rate prevailing at that date are as follows:-
1998 1997 1996 US$'000 US$'000 US$'000 Statutory taxation 11,395 13,756 14,702 Advance corporation taxes (3,063) (2,540) (2,120) Statutory income taxes payable - net 8,332 11,216 12,582
Deferred taxes:- The breakdowns of cumulative timing differences and resulting deferred tax assets/liabilities provided at 31 December 1998, 1997 and 1996 using the prevailing/expected future tax rates, were as follows:-
1998 Cumulative timing differences Deferred tax (income)/expense assets/(liabilities) TL million TL million US$'000 Current timing differences: - Accrual for export discounts to be given 7,818 3,127 10 Accrual for professional fees 938 375 1 Accrual for customer claims - - - Accrual for free cans to be given - - - Accrual for bonuses to be given 38,091 15,236 48 Accrual for potential future losses related to sales agreement with Fruko and Ektam 30,005 12,002 38 Accrual for other expenses 7,878 3,151 11 33,891 108 Non-current timing differences: - Adjustment for depreciation of fixed assets according to their useful lives (1,308,649) (523,460) (1,673) Reserve for employment termination benefits 184,749 73,900 236 (449,560) (1,437)
NOTE 10 - TAXATION (Continued)
1997 Cumulative timing differences Deferred tax (income)/expense assets/(liabilities) TL million TL million US$'000 Current timing differences:- Accrual for export discounts to be given 3,403 1,497 7 Accrual for professional fees 6,132 2,698 13 Accrual for customer claims - - - Accrual for free cans to be given 14,869 6,542 32 Accrual for bonuses to be given 27,185 11,962 58 Accrual for potential future losses related to sales agreement with Fruko and Ektam - - - Accrual for other expenses 367 161 2 22,860 112 Non-current timing differences: - Adjustment for depreciation of fixed assets according to their useful lives (702,755) (309,212) (1,511) Reserve for employment termination benefits 84,187 37,042 181 (272,170) (1,330)
1996 Cumulative timing differences Deferred tax (income)/expense assets/(liabilities) TL million TL million US$'000 Current timing differences: - Accrual for export discounts to be given 41,891 18,432 171 Accrual for professional fees 9,783 4,304 40 Accrual for customer claims 6,672 2,936 27 Accrual for free cans to be given - - - Accrual for bonuses to be given - - - Accrual for potential future losses related to sales agreement with Fruko and Ektam - - - Accrual for other expenses 1,906 839 9 26,511 247 Non-current timing differences:- Adjustment for depreciation of fixed assets according to their useful lives (160,350) (70,554) (656) Reserve for employment termination benefits 35,074 15,432 143 (55,122) (513)
NOTE 10 - TAXATION (Continued) Tax charges in the accompanying statements of income amounted to US$14,355,000 in total at 31 December 1998 (1997: US$20,609,000, 1996: US$17,789,000), including the effects of deferred tax debits of US$641,000 (1997: credits of US$1,422,000, 1996: credits of US$633,000). In Turkey, there is no procedure for the final agreement of tax assessments. Tax returns are filed within four months of the end of the year to which they relate. The tax authorities may, however, examine the accounting records and/or revise assessments within five years. NOTE 11 - ACCRUED EXPENSES AND OTHER PAYABLES
1998 1997 1996 US$'000 US$'000 US$'000 Payroll and withholdings 375 594 571 Value added tax payable - - 658 Other 176 294 491 551 888 1,720
NOTE 12 - BORROWINGS
1998 1997 1996 Interest rate % Maturity US$'000 US$'000 US$'000 Long-term borrowings: - S nai Yat r m ve Kredi Bankas A.O. 25 31 August 1999 35 108 309 Less: Current portion of long-term borrowings (35) (54) (103) Long-term borrowings - 54 206 At 31 December 1998, the letters of guarantee provided to S nai Yat r mve Kredi Bankas A.O. for the above borrowing amounted to US$93,000 (1997: US$211,000, 1996: US$402,000). NOTE 13 - RESERVE FOR EMPLOYMENT TERMINATION BENEFITS There are no agreements for pension commitments other than the legal requirement as explained below. Under Turkish labor law, as supplemented by union agreements, the Company is required to pay termination benefits to each employee who has completed one year of service and whose employment is terminated without due cause, who retires, completes 25 years of service (20 years for women), is called up for military service or dies. The amount payable consists of one month's salary, limited to TL200,625,000 (US$642) (1997:TL104,734,375 ( US$511),1996:TL53,312,500 (US$496)) for each year of service. The Company has calculated the reserve in accordance with these limits.
1998 1997 1996 US$'000 US$'000 US$'000 1 January 411 360 289 Increase in provision 182 85 71 Indemnitite paid (2) (34) - 31 December 591 411 360
With effect from 1 January 1999 the limit has been increased to US$916 for each year of service. NOTE 14 - RETAINED EARNINGS AND LEGAL RESERVES Retained earnings, as per the statutory financial statements, other than legal reserves are available for distribution, subject to the legal reserve requirements referred to below. The legal reserves consist of first and second legal reserves, appropriated in accordance with the Turkish Commercial Code (TCC). The TCC stipulates that the first legal reserve is appropriated out of statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the issued and fully paid-in share capital. The second legal reserve is appropriated at the rate of 10% per annum of all cash distributions in excess of 5% of the paid-in share capital. Under the TCC, the legal reserves are not available for distribution unless they exceed 50% of the paid-in share capital but may be used to offset losses in the event that the general reserve is exhausted. Dividend distribution is made by the Company in Turkish lira in accordance with the Turkish Commercial Code (TCC) after deducting taxes and setting aside the legal reserves as discussed above. In the accompanying financial statements, legal reserves are not presented separately, but included in 'Retained Earnings'. At 31 December 1998, 1997 and 1996, the legal reserves per the statutory financial statements amounted to TL701,913 million (US$2,245,000) and TL340,748 million (US$1,664,000 at the exchange rate prevailing at 31 December 1997) and TL171,750 million (US$1,598,000 at the exchange rate prevailing at 31 December 1996), respectively. At 31 December 1998, 1997 and 1996, unappropriated profits other than legal reserves per the statutory financial statements amounted to TL218,583 million ( US$699,000) and TL218,583 million (US$1,067,000 at the exchange rate prevailing at 31 December 1997) and TL11,104 million (US$103,000 at the exchange rate prevailing at 31 December 1996), respectively. NOTE 15 - SHARE CAPITAL The Company's authorized capital consists of 166,500,000 shares of TL1,000 each, which are fully paid up. The Company's paid-in share capital and shareholding structure in terms of Turkish lira at 31 December 1998,1997 and 1996 were as follows:-
1998 1997 1996 TL million Share(%) TL million Share(%) TL million Share(%) Pechiney S.A 108,219 65.00 108,219 65.00 - - Pechiney International S.A. - - - - 108,219 65.00 RHI Holdings Incorporated 53,055 31.87 53,055 31.87 53,055 31.87 Jeffrey Steiner 5,220 3.13 5,220 3.13 5,220 3.13 National Can Puerto Rico 3 - 3 - 3 - American National Can Company 3 - 3 - 3 - 166,500 100.00 166,500 100.00 166,500 100.00 Capital at historical US dollar value (US$'000) 18,267 18,267 18,267
NOTE 16 - RELATED COMPANY TRANSACTIONS
1998 1997 1996 US$'000 US$'000 US$'000 Due from related companies:- Pechiney Rhenalu - 23 - American National Can Company - 24 - Nacanco China - - - Nacanco France S.A. - 1 - - 48 - Due to related companies:- Pechiney Rhenalu 948 - 1,417 Nacanco France S.A. 201 591 453 American National Can Company 11 30 106 Nacanco UK 53 18 53 Nacanco Spain 5 - - Nacanco Dunkerque 2 3 - Nacanco Limited 3 7 - 1,223 649 2,029
NOTE 16 - RELATED COMPANY TRANSACTIONS (Continued)
1998 1997 1996 US$'000 US$'000 US$'000 Sales to related companies:- Pechiney Rhenalu - scrap aluminium 1,695 1,682 1,497 Nacanco Spain - cans 2,214 - - 3,909 1,682 1,497 Purchases from related companies:- Pechiney Rhenalu - aluminium coils 15,066 14,929 12,329 Nacanco France S.A. - ends 3,467 8,816 11,114 Nacanco Pianella(Sitac) ends/cans 5,382 4,231 4,662 Nogara - ends/cans - - 857 American National Can Company spare parts - 460 633 Nacanco Ireland - ends/cans 1,922 5,052 241 Nacanco UK - ends - 381 - 25,837 33,869 29,836 Property, plant and equipment purchases:- American National Can Company - 192 3,054 Nacanco UK - 87 106 Nacanco Germany - - 3 Nacanco Spain - - 1 Nacanco Italy - - - - 279 3,164 Other charges to the Company:- Royalty expenses 1,250 1,250 1,250
NOTE 17 - NET SALES
1998 1997 1996 US$'000 US$'000 US$'000 Maksan Me rubat ve Kutulama San. A.. 28,733 29,281 26,941 Ege Birac l k ve Malt San. A. . 11,850 16,878 15,882 Fruko Tamek Meyva Sular San. A. . 13,947 20,673 22,043 T Tuborg Bira ve Malt San. A 10,726 15,678 17,224 Guney Birac l k ve Malt San. A.. 8,061 10,994 9,714 Other 8,303 6,047 13,265 81,620 99,551 105,069
NOTE 18 - COST OF SALES Cost of sales comprises the following:-
1998 1997 1996 US$'000 US$'000 US$'000 Direct material costs 40,225 50,173 52,353 Labor 3,657 5,960 7,601 Depreciation 2,895 2,656 2,602 Other overheads 5,342 3,630 3,928 52,119 62,419 66,484
NOTE 19 - GENERAL AND ADMINISTRATIVE EXPENSES
1998 1997 1996 US$'000 US$'000 US$'000 Salaries 361 531 652 Fringe benefits 17 97 70 Travel expenses 34 92 102 Communication expenses 83 89 93 Audit and legal fees 58 59 88 Other 344 338 337 897 1,206 1,342
NOTE 20 - FINANCIAL INCOME
1998 1997 1996 US$'000 US$'000 US$'000 Financial income:- Interest income on bank deposits 619 869 928 Interest income on marketable securities 208 185 303 Other 200 74 384 1,027 1,128 1,615 Financial expenses:- Interest expense on borrowings 19 54 162 Financial income - net 1,008 1,074 1,453
NOTE 21 - ROYALTY The Company had a technical assistance and trademark license agreement with the American National Can Company for a period of five years from 4 April 1988. The agreement included a clause stating that the agreement would be automatically renewed for the subsequent years unless 12 months' written notice was given by either party. The parties drew up an amendment to the existing contract effective from 1 January 1994, changing the annual royalty amounting to US$1,250,000. The amendment was approved by the Foreign Investment Department of Treasury and of the Republic of Turkey. As of 1 January 1998, the withholding tax rate for royalty was reduced from 22% to 11% including fund premiums, which the Company is also liable to pay. At 31 December 1998, royalty expenses including withholding tax amounted to US$1,389,000 (1997: US$1,603,000, 1996: US$1,603,000). NOTE 22 - COMMITMENTS AND CONTINGENCIES The commitments and contingent liabilities of the Company are summarised as follows:-
1998 1997 1996 US$'000 US$'000 US$'000 Letters of guarantee 417 874 1,686 Sequestration rights (Note 7) 176 1,292 1,162 Mortgage given (Note 7) - - 1 593 2,166 2,849
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