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Merloni Elettrodomestici spaFinancial Statements of the Group Parent Company
Report of the Board of Directorson trends in operations for the first six months of 1999
Prepared pursuant to art. 2428 of the Italian Civil Codeand in accordance with Consob (National Commission for Listed Companies andthe Stock Exchange) resolutions No. 8195 dated 30 June 1994 and No. 9389dated 2 August 1995
Merloni Elettrodomestici SpaRegistered officeViale Aristide Merloni, 47 - 60044 Fabriano (Ancona)Share capital Lit. 112,547,936,000 full paid upRegistered with the previous Register of Companies at Ancona Court, Reg. No. 9677Registered with Ancona C.C.I.A.A. (Chamber of Commerce for Industry,Agriculture and Handicraft) Reg. No. 85729
Internet - http://www.merloni.com
Economic background
Projections for 1999 indicated a difficult six-month period for Europeaneconomy and a recovery in the second part of the year. The projection wasconfirmed by results achieved in the first six months of the year, while inthe second half, a lower growth than projected is expected.
Recovery projections have been confirmed by stronger pressure on pricesof raw materials, which could be only partly offset by a strengthening of theEuro on the Dollar. Inflation in Euro countries has remained steady con-firming the corresponding expected steadiness in the Euro exchange rates;the projection for a possible recovery in the autumn in the Euro area willdepend upon the subsequent actions of the American Federal Reserveexpected next October.
Russia, which in previous years had contributed to the development andprofitability of Merloni Elettrodomestici, interrupted the negative econo-mic trend caused by the August 1998 crisis. Our commercial and trade-mark position should enable to catch growth opportunities as soon as therecovery in internal consumption consolidates.
Operating performance
The financial statements for the first six months of 1999 shows a profit forthe period of Lit. 6,997 million compared with the loss of Lit. 12,153 mil-lion in the corresponding six-month period in 1998; revenues are equal toLit. 953,627 million compared with Lit. 1,057,487 million the previousyear.
The mere comparison of figures for the six months does not highlight theintense work carried out by Merloni Elettrodomestici along the followingdirectives:1. a conversion in pressure from Eastern markets towards Western markets2. a decrease in structure costs3. the pursuit of a development policy4. growing attention to service the customers
The significant recovery realized in Mature markets resulted in their inci-dence on total revenues passing from 68.3% to 78.4% with an increase inthe comparison for the period equal to over 10 points.
To encourage the conversion, the Commercial Management of Matureand of Developing markets was created in Paris and in Lugano respectively,with the objective of higher commercial efficiency, operating rationaliza-tion and semplification of structures.
The result achieved in mature markets is particularly significant as com-petition dynamics in these markets deepened. Therefore, the recoveryrepresents not only a reaction to the Russian crisis but also the constantconsolidation of all specific strategic marketing interventions and program-mes, tended to renew and strengthen our competitive, products, trade-marks and services position.
GFK/Nielsen data confirm an increase in market share in the first fourmonths of 1999 on all mature markets (except for Germany) and in all pro-ducts lines with a particular progress registered in the dish washers segment.
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The performance achieved at operating level, strongly influenced by thelack of demand in the Russian market, shows a margin which, despitedecreasing in absolute terms from 44 to 38 billion compared with the firstsix months of 1998, is substantially on the same level of incidence compa-red with sales (4.03 % compared with 4.20 in the first six months of 1998)thus proving the improvement in margins and in efficiency on costs.
As far as the structure of company’s costs is concerned, on the one handthe number of personnel decreased through a reorganization plan (wherebytotal cost by 10.6%), and, on the other hand, production at plants wasrationalised, particularly in the Refrigeration segment. In this connection,appropriate accruals have been included in the financial statements for thesix months, while benefits, in terms of decrease in costs and recovery of pro-ductivity will show their effect in the financial statements for the next year.
As far as net short term indebtedness is concerned, it decreased compa-red with the end of the previous year (201 billion compared with 292.7 bil-lion at 1998). The financial structure in the six-month period absorbed thepurchase of own shares for Lit. 9.7 billion, within the plan approved at sha-reholders’ meeting level.
Net financial charges decreased by 4 billion approximately (8 billion inthe first six months of 1999 compared with 12 in the period of compari-son); the difference is mainly connected with the decrease in the averagecost of financial sources (50% approximately compared with the corre-sponding cost in previous period).
The development process of Merloni Elettrodomestici has not sloweddown: investments amount to over Lit. 39 billion (Lit. 27 billion at 30 June1998), largely for property, plant and equipment (over Lit. 25 billion).While operations connected with the launch of the digital line have conti-nued (the first sales are expected by the end of the year, upon completionof the Milan call-center) and with the 2000 Dishwasher Platform.
The willingness for higher focus on service to customers resulted in thecreation of the Business Unit Consumer Care, which will guarantee theconstant optimization of guarantee costs and of the level of service to con-sumers, besides developing new sources of income from innovative servi-ces (Digital).
Furthermore, the search for further areas for improvement resulted in thelaunch of an additional project for the restructure of administrative servi-ces of Merloni Elettrodomestici , with the realization of a single paneuro-pean Administrative Services Centre at the Fabriano head office.
Project of conformity to the year 2000
The project for the conformity to the year 2000 is in progress as requiredby the plan formulated by the control group, whose objective is to preparean emergency plan operating for the duration of the project.
Computer procedures and commercial, distribution, administrative, pro-duction and planning systems have been updated, while post-sale technicalassistance is being completed. Next October, a test campaign will be carriedout at the company’s production plants to check and test industrial plantswith built-in microprocessors.
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In August, Information Technology Systems have been upgraded also bycarrying out specific testing activities in “Year 2000” IT environment. Theapplicative software worked properly without causing any problems. At thesame time, a monitoring system has been set up by which all new informa-tion processes will be tested while being implemented, so as to assure theirYear 2000 compliance since the beginning of their use.
The suppliers segment was classified on the basis of the potential risk andof the impact that the non-supply might have on the company’s productionprocesses and targeted actions are in progress with high-impact and high-risk suppliers to solve the problem.
In the first six months of 1999, the costs concerning the project ofconformity to the year 2000 accounted in the statement of income are Lit.404 million and the amount included in the fixed assets is Lit. 353 million.
Significant events occurred after 30 June 199 and year-endprojections
Within this simplification and strategic rationalization process of MerloniElettrodomestici, at the end of July, the residual minority shareholding inPhilco Spa was acquired, thus acquiring the total direct control of the com-pany. At the same time as the above mentioned transaction, “Elettrodomestici”sold part of own shares for a value of twenty billion approximately to theGroup which previously held a minority interest in Philco, which becomesqualified shareholder (shareholding exceeding 2%) of the Group parentcompany.
The dramatic events of the earthquake in Turkey determined the deci-sion for humanitarian intervention, to enable Merloni Elettrodomestici tocontribute to assuage the suffering of the population. This sign of sharingand solidarity also means the maximum consideration assigned to MerloniElettrodomestici presence in the country, within the internazionalizationthe company intends to pursue and develop with regard to its operations.
The earthquake did not involve the production plant of the companyand the warehouse; also with regard to local suppliers, significant problemshave not been identified. With regard to the economic perspectives of thecountry, it will undoubtedly take the time to recover lost wealth, but theinterventions scheduled by the International Monetary Union Fundtogether with solidarity expressed but other European countries, enable toforesee actual opportunities of recovery. Our year-end sales projections arein line with those registered in the first part of the year.
As to mature markets, results achieved in July and in August suggest eventhough with prudence, a confirmation of positive projections for futuremonths.
Taking into account the seasonality of the business, macro-economic andmarket reference indicators, actions started long ago and constantly beingrealised, the company considers to be able to show generally improvingresults also for the second half of the year, particularly compared with thecorresponding period of the previous year, but also with the annual opera-ting result for 1998.
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■ Merloni Elettrodomestici Spa– Balance sheet in millions of Italian lira – Income statement in millions of Italian lira– Balance sheet in thousand of Euro– Income statement in thousand of Euro– Statement of cash flow– Notes to the financial statements– List of the shareholdings higher than 10%– Report of the independent Auditors
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Appendices to the report of the board of directors
Assets 30 June 31 December 30 June 1999 1998 1998
Share capital issued and not yet paid – – –Fixed assetsIntangible fixed assets:Installation and expansion costs – – 21 Research, development and advertising costs 2,451 1,341 44 Industrial patent rights and utilization of know-how 15,143 16,353 15,532 Concessions, licences, trademarks and similar rights 13,278 12,833 12,202 Other 1,509 1,715 476
32,381 32,242 28,275 Tangible fixed assets:Land and buildings 109,169 109,981 108,433 Plant and machinery 119,534 125,913 112,030 Industrial and commercial equipment 43,766 48,298 42,082 Others 12,290 14,376 14,238 Assets under construction and advances 21,560 16,835 11,570
306,319 315,403 288,353 Financial assets:Investments in:– subsidiaries 195,702 198,327 204,748 – associated companies 26,290 26,290 26,290 – other companies 10,732 10,760 8,221 Payments on future share capital increase:– subsidiaries 17,124 – –Receivables:– from others: (amount falling due within one year Lit. 251) 2,014 2,062 1,959
Other securities 3,719 3,719 3,719 Own shares (nominal value Lit. 10,629) 59,390 49,643 33,383
314,971 290,801 278,320 Total fixed assets 653,671 638,446 594,948 Current assetsStocks:Raw materials, auxiliary materials and spare parts 38,679 47,045 46,701 Work in progress 11,211 12,681 9,654 Finished products and goods for resale 158,488 126,278 184,796 Advances 504 586 362
208,882 186,590 241,513 Receivables:Trade receivables (amount falling due beyond one year Lit. 57) 254,232 291,913 261,944 From subsidiaries 290,550 396,600 333,484 From associated companies 58,626 75,089 61,734 From parent companies – – 24 Others (amount falling due beyond one year Lit. 10,003) 42,709 37,888 53,631
646,117 801,490 710,817 Short term investments:Other shareholdings 1,891 1,489 3,190 Financial receivables – – –
1,891 1,489 3,190 Cash:Bank and postal deposits 25,551 26,379 25,285 Cash on hand 625 243 286
26,176 26,622 25,571 Total current assets 883,066 1,016,191 981,091 Accrued income and prepayments 147 74 87 Total assets 1,536,884 1,654,711 1,576,126
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Balance sheet(in million of Italian lira)
Merloni Elettrodomestici spa
Liabilities and shareholders’ equity 30 June 31 December 30 June 1999 1998 1998
Shareholders’ equityShare capital 112,548 112,548 112,548 Share premiums reserve – 4,596 20,856 Legal reserve 3,072 2,408 2,408 Reserve for own shares 59,390 49,643 33,383 Other reserves, detailed in the notes on the accounts 96,823 101,303 101,303 Profit (loss) for the period 6,997 13,283 (12,153)
278,830 283,781 258,345Reserves for contingencies and obligationsProvision for taxes 7,853 7,853 11,572Others 44,516 18,782 30,012
52,369 26,635 41,584Staff leaving indemnity 90,514 88,638 92,477PayablesBanks loans and overdrafts
(falling due beyond one year Lit. 55,679) 306,670 411,980 219,088Other financing payables (falling due beyond one year Lit. 27,953) 36,143 51,275 77,246Advances 3,438 14,441 2,927 Trade payables 317,338 272,781 356,773 Notes payables – – –Payables to subsidiaries 53,593 55,881 73,036 Payables to associated companies 273,769 333,058 325,681 Payables to parent companies – 31 1,800 Taxation payable 27,398 35,628 27,914 Social security payables 49,739 52,421 51,632 Other payables 44,659 25,450 43,933
1,112,747 1,252,946 1,180,030 Accrued liabilities and deferred charges 2,424 2,711 3,690 Total liabilities 1,536,884 1,654,711 1,576,126
Memorandum accounts 30 June 31 December 30 June 1999 1998 1998
List of direct and indirect guaranteesGuarantees:
– for the benefit of third parties 5,400 8,400 8,250 – for the benefit of associated companies 949 450 –Collaterals:– for the benefit of third parties 65,022 78,199 105,878 Other memorandum accounts 179,956 149,242 255,644
251,327 236,291 369,772
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Balance sheet(in million of Italian lira)
Merloni Elettrodomestici spa
30 June 30 June 31 December 1999 1998 1998
Value of productionRevenues from sales and services 953,627 1,057,487 2,114,781 Variations in work in progress, and finished goods 30,740 95,231 39,740 Variations in internal construction capitalised 172 – 501 Other income (of which grants for the year Lit. 650) 5,677 5,543 15,527
990,216 1,158,261 2,170,549Costs of productionRaw materials, auxiliary materials, spare parts and goods 608,286 737,974 1,353,428Cost for services 127,943 153,591 307,904Utilization of third parties’ assets 6,460 8,570 16,089Personnel costs:– salaries and wages 102,765 114,403 213,415– social contributions 35,385 40,562 78,172– staff leaving indemnity 6,973 7,244 13,222– other costs 3,989 4,610 9,614Depreciation and writedowns– depreciation of intangible fixed assets 4,125 5,888 11,321– depreciation of tangible fixed assets 33,316 32,513 61,249– writedown of receivables recorded as
current assets and cash 1,097 4,293 8,668Variation in inventory of raw materials, auxiliary materials, spare parts and goods 8,366 (5,285) (5,629)Accruals for contingencies 5,700 – –Other operating charges 7,358 9,480 14,824
951,763 1,113,843 2,082,277Difference between value and cost of production 38,453 44,418 88,272Financial income and chargesIncome from investments(from subsidiaries Lit. 517) 688 1,018 33,186Other financial income:– receivables recorded as fixed assets – – –– securities recorded as fixed assets 81 118 224– other financial income (from subsidiaries Lit. 212) (from associated companies Lit. 571) 6,291 8,951 18,539Interest and other financial charges(from subsidiaries Lit. 1,411) (from associated companies Lit. 80) 14,670 21,919 41,500
(7,610) (11,832) 10,449Adjustment to the value of financial operations:Revaluations:– investments 402 – –Writedowns:– investments 3,089 32,625 18,893
(2,687) (32,625) (18,893) Extraordinary income and expenses:Income – 2 5 Expenses 21,159 12,116 43,013
(21,159) (12,114) (43,008) Result before taxes 6,997 (12,153) 36,820 Income taxes for the year – – 23,537 Profit (loss) for the year 6,997 (12,153) 13,283
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Income statement(in million of Italian lira)
Merloni Elettrodomestici spa
Assets 30 June 31 December 30 June 1999 1998 1998
Share capital issued and not yet paid – – –Fixed assetsIntangible fixed assets:Installation and expansion costs – – 11 Research, development and advertising costs 1,266 693 23 Industrial patent rights and utilization of know-how 7,821 8,446 8,022 Concessions, licences, trademarks and similar rights 6,858 6,628 6,302 Other 779 886 246
16,723 16,652 14,603 Tangible fixed assets:Land and buildings 56,381 56,800 56,001 Plant and machinery 61,734 65,029 57,859 Industrial and commercial equipment 22,603 24,944 21,734 Others 6,347 7,425 7,353 Assets under construction and advances 11,135 8,695 5,975
158,201 162,892 148,922 Financial assets:Investments in:– subsidiaries 101,072 102,427 105,744 – associated companies 13,578 13,578 13,578 – other companies 5,543 5,557 4,246 Payments on future share capital increase:– subsidiaries 8,844 – –Receivables:– from others:
(amount falling due within one year Euro 130) 1,040 1,065 1,012 Other securities 1,921 1,921 1,921 Own shares (nominal value Euro 5,489) 30,672 25,638 17,241
162,669 150,186 143,740 Total fixed assets 337,593 329,730 307,265 Current assetsStocks:Raw materials, auxiliary materials and spare parts 19,976 24,297 24,119 Work in progress 5,790 6,549 4,986 Finished products and goods for resale 81,852 65,217 95,439 Advances 260 303 187
107,879 96,366 124,731 Receivables:Trade receivables (amount falling due beyond one year Euro 29) 131,300 150,760 135,283 From subsidiaries 150,057 204,827 172,230 From associated companies 30,278 38,780 31,883 From parent companies – – 12 Others (amount falling due beyond one year Euro 5,166) 22,057 19,568 27,698
333,692 413,935 367,106 Short term investments:Other shareholdings 977 769 1,647 Financial receivables – – –
977 769 1,647 Cash:Bank and postal deposits 13,196 13,624 13,059 Cash on hand 323 125 148
13,519 13,749 13,206 Total current assets 456,066 524,819 506,691 Accrued income and prepayments 76 38 45 Total assets 793,734 854,587 814,001
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Balance sheet(in thousand of Euro)
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Balance sheet(in thousand of Euro)
Liabilities and shareholders’ equity 30 June 31 December 30 June 1999 1998 1998
Shareholders’ equityShare capital 58,126 58,126 58,126 Share premiums reserve – 2,374 10,771 Legal reserve 1,587 1,244 1,244 Reserve for own shares 30,672 25,638 17,241 Other reserves, detailed in the notes on the accounts 50,005 52,319 52,319 Profit (loss) for the period 3,614 6,860 (6,277)
144,004 146,561 133,424Reserves for contingencies and obligationsProvision for taxes 4,056 4,056 5,976Others 22,991 9,700 15,500
27,046 13,756 21,476 Staff leaving indemnity 46,747 45,778 47,760PayablesBanks loans and overdrafts
(falling due beyond one year Euro 28,756) 158,382 212,770 113,150Other financing payables (falling due beyond one year Euro 14,437) 18,666 26,481 39,894Advances 1,776 7,458 1,512Trade payables 163,891 140,880 184,258Notes payables – – –Payables to subsidiaries 27,678 28,860 37,720Payables to associated companies 141,390 172,010 168,200Payables to parent companies – 16 930Taxation payable 14,150 18,400 14,416Social security payables 25,688 27,073 26,666Other payables 23,064 13,144 22,690
574,686 647,093 609,435Accrued liabilities and deferred charges 1,252 1,400 1,906Total liabilities 793,734 854,587 814,001
Memorandum accounts 30 June 31 December 30 June 1999 1998 1998
List of direct and indirect guaranteesGuarantees:
– for the benefit of third parties 2,789 4,338 4,261– for the benefit of associated companies 490 232 –Collaterals:– for the benefit of third parties 33,581 40,386 54,681Other memorandum accounts 92,940 77,077 132,029
129,800 122,034 190,971
30 June 30 June 31 December 1999 1998 1998
Value of productionRevenues from sales and services 492,507 546,146 1,092,193 Variations in work in progress, and finished goods 15,876 49,183 20,524 Variations in internal construction capitalised 89 – 259 Other income(of which grants for the year Euro 336) 2,932 2,863 8,019
511,404 598,192 1,120,995Costs of productionRaw materials, auxiliary materials, spare parts and goods 314,154 381,132 698,987Cost for services 66,077 79,323 159,019Utilization of third parties’ assets 3,336 4,426 8,309Personnel costs:– salaries and wages 53,074 59,084 110,220– social contributions 18,275 20,949 40,372– staff leaving indemnity 3,601 3,741 6,829– other costs 2,060 2,381 4,965Depreciation and writedowns– depreciation of intangible fixed assets 2,130 3,041 5,847– depreciation of tangible fixed assets 17,206 16,792 31,632– writedown of receivables recorded as
current assets and cash 567 2,217 4,477Variation in inventory of raw materials, auxiliary materials, spare parts and goods 4,321 (2,729) (2,907)Accruals for contingencies 2,944 – –Other operating charges 3,800 4,896 7,656
491,545 575,252 1,075,406Difference between value and cost of production 19,859 22,940 45,589Financial income and chargesIncome from investments (from subsidiaries Euro 267) 355 526 17,139Other financial income:– receivables recorded as fixed assets – – –– securities recorded as fixed assets 42 61 116– other financial income(from subsidiaries Euro 109)(from associated companies Euro 295) 3,249 4,623 9,575 Interest and other financial charges(from subsidiaries Euro 729)(from associated companies Euro 41) 7,576 11,320 21,433
(3,930) (6,111) 5,396 Adjustment to the value of financial operations:Revaluations:– investments 208 – –Writedowns:– investments 1,595 16,849 9,757
(1,388) (16,849) (9,757) Extraordinary income and expenses:Income – 1 3 Expenses 10,928 6,257 22,214
(10,928) (6,256) (22,212) Result before taxes 3,614 (6,277) 19,016 Income taxes for the year – – 12,156 Profit (loss) for the year 3,614 (6,277) 6,860
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Income statement(in thousand of Euro)
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30 June 1999 31 December 1998
A. Net opening cash (1) (292,700) (81,376)
B. Cash flow from (for) operations for the year
Profit (loss) for the period 6,997 13,283
Ordinary depreciation 37,441 72,570
(Revaluations) or writedowns of shareholdings 2,687 18,893
Variation in the staff leaving indemnity provision 1,876 (2,228)
Provision for taxes – (3,718)
Other reserves 25,734 (2,160)
Profit (loss) of operations for the year
before variations in working capital 74,735 96,640
(Increase) Decrease in stocks on hand (22,292) (45,661)
(Increase) Decrease in receivables recorded as current assets 153,249 (30,802)
(Increase) Decrease in short term financial assets – (6,250)
Increase (Decrease) in trade payables and in other payables (19,757) (50,213)
(Increase) Decrease in other items included in working capital (360) 282
110,840 (132,644)
185,575 (36,004)
C. Cash flow from (for) investment operations
(Investments)/Disinvestments in fixed assets:
– intangible fixed assets (4,264) (11,430)
– tangible fixed assets (24,232) (75,355)
– investments (25,135) (3,935)
(53,631) (90,720)
D. Cash flow from (for) financial operations
Variations in reserves – (1,228)
Distribution of profits (11,948) (11,863)
New loans – 5,865
Reimbursement of loans (28,380) (77,374)
(40,328) (84,600)
E. Cash flow for the period (B+C+D) 91,616 (211,324)
F. Net closing cash (1) (A+E) (201,084) (292,700)
(1) That is net short-term financial indebtedness.
Statement of cash flow(in million of Italian lira)
Merloni Elettrodomestici spa
Structure and content of the financial statementsInterim financial statements for the period ended 30 June 1999 agree withthe accounting records, regularly kept and integrated by appropriate adjust-ments, and are consistently compliant with the “principles for the preparationof the financial statements” established by articles 2423, 2423 bis, 2423 ter,2424, 2424 bis, 2425, 2425 bis and to valuation criteria set forth by article2426 of the Italian Civil Code, integrated, where applicable, by the accoun-ting principles stated by Italian Chartered Accountants Committee and, intheir absence, by those established by the International Accounting StandardsCommittee (I.A.S.C.)
The Company has considered it appropriate to avail itself of the possibilitygranted by paragraph 5 of article 3 of Consob (National Commission forListed Companies and the Stock Exchange) regulations, for the preparation ofthe half year report, approved with resolution No.8195 dated 30 June 1994,and presents the result for the period gross of taxes as well as of adjustmentsand accruals exclusively arising from the application of fiscal legislation.
Variations occurred in assets and liabilities are commented when significant.Risks and losses for the period were taken into account on accrual basis.With regard to Consob recommendation dated 02.03.1998, and with refe-
rence to I.A.S. 24, it should be noted that relationships with affiliated andassociated companies are detailed in the consolidated financial statements inan appropriate paragraph.
With reference to Consob recommendation dated 27 October 1998 andto IAS 14, regarding information to be supplied on the various categories ofoperations and geographic areas where the company operates, refer to theappropriate paragraph in the notes on the consolidated financial statements.
Last, with reference to Consob recommendation dated 26 October 1998,regarding information to be supplied in the financial statements, following theintroduction of the single European currency, and the recommendation dated9 October 1998 on the “Year 2000” issue, the relevant information is attachedin the notes on the accounts and in the Director’s report on operations.
ACCOUNTING PRINCIPLESThe valuation criteria adopted for the preparation of these financial state-ments are consistent with both those utilized for the preparation of theannual financial statements and those recommended by Consob.
OTHER INFORMATIONAs required by article 2423 ter of the Italian Civil Code, to improve the repre-sentation of items in the financial statements, a new item was included among“Investments” denominated “Payments on future share capital increase” (ItemB-III-1BIS). The item includes the sub-item “subsidiaries” (item B-III-1BIS-a) where receivables from Merloni Elettrodomestici Beyaz Esya Pazarlama Asequal to Lit. 2,124 million were reclassified as future share capital increase. Inthe financial statements as of 31 December 1998 the amount was recorded as“Receivables from subsidiaries” among Current assets (item C-II-2).
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Notes to the financial statements at 30 June 1999
Merloni Elettrodomestici spa
ASSETS
Fixed assetsIntangible fixed assets
The composition and summary movements in intangible fixed assets aredetailed as follows:Description Installation Research, Industrial Concessions, Other Total
and development patent rights and licences, expansion and utilization of trademarks and
costs advertising costs know-how similar rights
Opening valuesHistorical cost 208 1,369 40,225 22,422 2,508 66,732
Accumulated deprec. (208) (28) (23,872) (9,589) (793) (34,490)
Total – 1,341 16,353 12,833 1,715 32,242
VariationsAcquisitions – 1,174 2,281 800 8 4,263
Write offs (208) – (6,723) (1,990) (49) (8,970)
Utilization of funds 208 – 6,724 1,990 49 8,971
Deprec. for the year – (64) (3,492) (355) (214) (4,125)
Total – 1,110 (1,210) 445 (206) 139
Closing values
Historical cost – 2,543 35,783 21,233 2,467 62,026
Accumulated deprec. – (92) (20,640) (7,955) (958) (29,645)
Total – 2,451 15,143 13,278 1,509 32,381
The break-down of installation and expansion costs, research, developmentand advertising costs at historical cost is set out below:
Description Historical cost at Historical cost at 30/06/1999 31/12/1998
Share capital increase – 208
Total – 208
Industrial patent rights and utilization of know-how include Lit. 35,535 mil-lion of purchases of software and Lit.247 million of patents. In the first sixmonths of 1999, acquisitions are entirely attributable to costs incurred for thedevelopment and improving of software programs. Depreciation of softwareaccounted for Lit. 3,477 million.
Trademarks are composed of the value of the new Indesit trademark of Lit.1,819 million, depreciated over ten years, and of Indesit Elettronica trade-mark, acquired by the indirect subsidiary Merloni Financial Services Sa forLit. 2,200 million, depreciated over 13 years on a straight line basis.
Ariston trademark’s right of use, exiping in 2050, has to be taken into con-sideration.
In the first six months of 1999, licences were depreciated by Lit. 175 mil-lion amount.Other intangible fixed assets mainly include:• expenses relating to None plant in leasing for a residual amount of Lit.
1,283 million depreciated by Lit. 143 million;60
Comment to the main balance sheet figures(Except otherwise indicated, values included in these explanatory notes are expres-sed in million of Italian lira)
• expenses incurred for offices in the CIS for a residual amount of Lit. 217million, depreciated by Lit. 67 million;
• costs to get loans with a residual book value of Lit. 8 million, depreciatedby Lit. 4 million.Furthermore, it should be noted that intangible fixed assets do not inclu-
de revaluations/writedowns for previous years and for the present period.
Tangible fixed assets
Set out below a breakdown of movements in tangible fixed assets:
Land Plant Industrial and Other Assets under Totaland and commercial goods construction
buildings machinery equipment and advances
Opening values
Historical cost 127,764 347,907 248,798 50,487 16,835 791,791
Revaluations 22,587 1,791 202 – – 24,580
Accumulated deprec. (40,370) (223,785) (200,702) (36,111) – (500,968)
Total 109,981 125,913 48,298 14,376 16,835 315,403
Variations
Acquisitions 1,577 8,769 8,672 1,222 4,725 24,965
Disposals (1) (2,769) (1,724) (1,135) – (5,629)
Utilization of funds – 2,210 1,696 990 – 4,896
Deprec.for the year (2,388) (14,552) (13,176) (3,200) – (33,316)
Reclassification
from other goods – – – 37 – 37
Reclassification
to other goods – (37) – – – (37)
Total (812) (6,379) (4,532) (2,086) 4,725 (9,084)
Closing values
Historical cost 129,340 353,907 255,746 50,574 21,560 811,127
Revaluations 22,587 1,791 202 – – 24,580
Accumulated deprec. (42,758) (236,164) (212,182) (38,284) – (529,388)
Total 109,169 119,534 43,766 12,290 21,560 306,319
Investments carried out in the period are oriented to the renewal and wide-ning of the products’ range and to the reorganization and automatisation ofprocesses.
Disposals, summarized in the schedule above, are due to ordinary renewalrequirements of fixed assets.
As indicated below in the comment to memorandum accounts, some fixedassets are subject to restrictions and guarantees against loans received in themedium and long term.
The net book value of tangible fixed assets recorded in the financial state-ments is net of accumulated accelerated depreciation accrued pursuant toDPR 917/86 in years prior to 1993, to take advantage of fiscal benefits.Accumulated accelerated depreciation accrued in 1993 and in 1997 is recor-ded among “Other reserves” in shareholders’ equity.
61
Investments
The value recorded in the financial statements is equal to Lit. 314,971 mil-lion, with a Lit. 24,170 million increase compared with the balance at 31December 1998. Lit. 2,124 million of the increase are due to the reclassifica-tion of payments on future share capital increase for the benefit of MerloniElettrodomestici Beyaz Esya Pazarlama As from “Receivables from subsidia-ries” in Current assets to “Payments on future share capital increase to subsi-diaries” as pointed out in the paragraph “Other information”.
ShareholdingsThe detailed summary of movements in shareholdings are as follows:
Description Subsidiaries Associated Other Totalcompanies companies
Opening valuesHistorical cost 272,346 26,290 10,760 309,396Writedowns (74,019) – – (74,019)Total 198,327 26,290 10,760 235,377VariationsAcquisitions 464 – – 464Writedowns (3,089) – – (3,089)Reimbursements – – (28) (28)Total (2,625) – (28) (2,653)Closing valuesHistorical cost 272,810 26,290 10,732 309,832Writedowns (77,108) – – (77,108)Total 195,702 26,290 10,732 232,724
The analytical breakdown of the financial statements balance is as follows:
Company’s name % 30/06/99 31/12/98Subsidiaries:Merloni Ariston International Sa 99.99 106,007 106,007Merloni Domestic Appliances Ltd (53.49% held by Merloni Ariston International Sa) 46.51 7,278 7,278Merloni Electrodomésticos Sa (Spain) 78.95 16,515 16,515Merloni Elettrodomestici Beyaz Esya Pazarlama As 100.00 313 313Merloni Elettrodomestici Beyaz Esya Sanayi Ve T. As 85.88 – –Merloni Elettrodomestici Ceska Rep. 100.00 51 51Merloni Elettrodomestici Poland Spzoo 100.00 22,582 22,582Merloni Financial Services Sa 99.99 10,000 10,000Merloni Indesit Bulgaria Srlu 100.00 40 40Merloni Indesit Domaci Elektrospotrebice Sro. 100.00 60 60Merloni Indesit Haztartastechnikai Kft. 99.00 – –Merloni Indesit Polska Spzoo 100.00 – 2,625Merloni Investment Ltd 95.00 4,737 4,737Philco Italia Spa 51.67 17,671 17,671Star Spa 70.00 10,448 10,448Total subsidiaries 195,702 198,327
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Company’s name % 30/06/99 31/12/98
Associated companies:
Faber Factor Spa 30.00 4,800 4,800
M&B Marchi e Brevetti Srl 50.00 10 10
Merloni Progetti Spa 33.00 20,856 20,856
Co.Pro. Spa 24.00 624 624
Total associated companies 26,290 26,290
Other enterprises:
Centro Energia Operator Teverola Srl 5.00 5 5
Centro Energia Teverola Spa 5.00 1,500 1,500
Consorzio delle Dennie 14.28 1 1
Haier Merloni Ltd 12.50 4,860 4,860
Haier Merloni Electrical Appliance Co. Ltd 15.00 3,091 3,091
Istituto Mobiliare Italiano Spa 0.02 1,204 1,204
Spa Education Srl 2.00 2 30
Spa Ricerche ed Education Srl 2.00 60 60
Consorzio CONAI 0.07 5 5
Unifabriano Scarl 14.29 4 4
Total other enterprises 10,732 10,760
Changes for the period are due to the following:
Subscriptions/acquisitions of subsidiaries Amount
Merloni Indesit Polska Spzoo 464
Total 464
Writedowns of subsidiaries
Merloni Indesit Polska Spzoo (3,089)
Total (3,089)
Reimbursement of capital of other enterprises
Spa Education Srl (28)
Total (28)
Investment in Merloni Indesit Polska Spzoo has increased by Lit. 464 mil-lion, equals to 882,600 zloty, for the subscription of the share capital increa-se resolved by the Polish subsidiary. As Merloni Indesit Polska at the end ofthe six months showed an equity deficit, the investment was entirely writtendown by Lit. 3,089 million.
Spa Education Srl resolved its winding up and partially reimbursed thecapital subscribed by Merloni Elettrodomestici Spa equal to Lit. 28 million.
Taking into account the relevance of majority shareholdings, as required byLaw Decree 127/91, the Company prepared the consolidated financial state-ments at the same date.
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Payments on future share capital increase
SubsidiariesThe item includes:• The receivable of Lit. 2,124 million from Merloni Elettrodomestici Beyaz
Esya Pazarlama As already previously commented;• The receivable of Lit. 15,000 million from Merloni Elettrodomestici
Poland Spzoo, following the 32,160,000 zloty “doplata” resolved inFebruary by the Board of Directors of the subsidiary.
Receivables
OthersOther receivables are composed of long-term loans granted to employees whosuffered damages to estate following the earthquake occurred on 26September 1997 in the Marches and Umbria regions. The loans, which bearinterest at subsidized rates (treated in compliance with fiscal legislation on thesubject) last ten years and are reimbursed monthly with constant instalments.The portion expiring within one year is equal to Lit. 251 million.
Other securitiesOther securities are composed of government treasury bonds (CCT) withnominal value of Lit. 3,755 million, with maturity in year 2000, recorded atpurchase cost, which are not expected to be sold within the next twelvemonths. The balance sheet value is lower than market value.
Own shares
The Lit. 9,747 million increase is due to the purchase in the first six monthsof 1999 of No. 1,521,000 ordinary shares and subsequent sale of No.339,000 ordinary shares.
Taking into account that at 31 December 1998 the portfolio already inclu-ded No. 9,447,500 ordinary shares, at the end of the period, the Companyhad No. 10,629,500 own ordinary shares.
Current assets
Stocks
Item shows a balance of Lit. 208,882 million (Lit. 186,590 million the pre-vious period) and it can be detailed as follows:
Description Opening Movements Closing balance for the year balance
Raw materials, auxiliary materials and spare parts 47,045 (8,366) 38,679
Work in progress 12,681 (1,470) 11,211
Finished products and goods for resale 126,278 32,210 158,488
Advances 586 (82) 504
Total 186,590 22,292 208,882
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The decrease in raw materials compared with the previous period is mainlydue to exceptional supplies in inventory at 31 December 1998, following thecrisis in the previous Soviet Union, gradually utilized in the first six monthsof 1999. The increase in finished products is connected with the seasonalityof sales.
Closing inventory is net of the obsolescence provision of Lit. 4,050 million(Lit. 3,000 million at 31 December 1998) which takes into account foreseenrealizable value of products and materials either slow moving or difficult tomarket.
Receivables
Item shows a balance of Lit. 646,117 million (Lit. 801,490 million the pre-vious period) and it can be detailed as follows:
Description Opening Bad debts provision Other Closing balance Accruals (-) Utilization + movemts +/(-) balance
Trade receivables 291,913 (1,097) 982 (37,566) 254,232
Receivables
from subsidiaries 396,600 (106,050) 290,550
Receivables from
associated companies 75,089 (16,463) 58,626
Others 37,888 4,821 42,709
Total 801,490 (1,097) 982 (155,258) 646,117
Trade receivablesTrade receivables include Lit. 171,710 million of bills and banks receipts ofwhich Lit. 57 million expiring beyond twelve months.
They relate to commercial transactions and services rendered.The balance of trade receivables is net of the bad debts provision of
Lit. 15,305 million; the provision is considered adequate against estimatedlosses on receivables.
Losses recorded to the income statement are equal to Lit. 1,743 million,including the accrual to the bad debts provision of Lit. 1,097 million.
With regard to the Group receivables from customers in the CIS, wehave increased the portion of bad debts provision allotted to CSI custo-mers in order to get it lined-up to actual analysis of callectibility. Suchaccrual is not relevant and relates to the credit ordinary management. Infact, it should be noted that the situation of collections has come back nor-mal in spite of a lower sales level and selected customers, which howeverassure the Company a potential growth in more positive economic-finan-cial market conditions.
Receivables from subsidiaries and associated companiesItem represents the Company’s receivables from subsidiaries and associatedcompanies for commercial transactions and services rendered except for Lit.44,189 million which represent loans listed below:
65
• Lit. 5,081 million, as loan to Merloni Ariston International Sa(Luxembourg);
• Lit. 9,795 million from Merloni Ariston International Sa (Lugano branch)as balance of current account relationships between the Company and itssubsidiary which manages the Group centralized treasury;
• Lit. 305 million, as loan to Merloni Elettrodomestici Beyaz Esya Sanayi VeTicaret As;
• Lit. 27,422 million as balance of short-term loans to Faber Factor Spa;• Lit. 304 million to Merloni Indesit Bulgaria Ltd, Lit. 1,058 million to
Merloni Indesit Domaci Sro, Lit. 146 million to Merloni Indesit H.Haztartastechnikai Kft and Lit. 78 million to Merloni Indesit Polska asadvances on services.
Balance sheet figure is as follows:
Subsidiaries 30/06/99 31/12/98
Fabrica Portugal Sa 2,562 2,502
Merloni Ariston International Sa (Lugano Branch) 9,881 23,867
Merloni Ariston International Sa (Luxembourg) 5,081 66,193
Merloni Domestic Appliances Ltd 34,673 45,377
Merloni Electrodomésticos (Portugal) Sa 25,302 26,689
Merloni Electrodomésticos (Spain) Sa 21,835 20,872
Merloni Electroménager Sa 81,005 84,634
Merloni Elettrodomestici Beyaz Esya Pazarlama As – 2,124
Merloni Elettrodomestici Beyaz Esya Sanayi Ve Ticaret As 3,278 7,007
Merloni Hausgerate Gmbh 14,072 23,043
Merloni Huishoudapparaten BV 15,144 24,690
Merloni Indesit H.Haztartastechnikai Kft 146 147
Merloni Indesit Bulgaria Ltd 304 273
Merloni Indesit Domaci Elektrospotrebice Sro 1,061 564
Merloni Indesit Polska Spzoo 21,928 26,636
Merloni International Trading Bv (Lugano branch) 23,265 14,795
Merloni South America Investment Ltd 23,164 23,165
Star Spa 622 1,353
Philco Italia Spa 7,227 2,668
Total 290,550 396,599
Associated companies
Faber Factor Spa 48,487 56,181
Co. Pro. Spa – 6
Argentron Sa 6,468 11,192
M&B - Marchi e Brevetti Srl 182 293
Merloni Progetti Spa 3,486 6,623
Protecno Sa – 789
Sofarem 3 6
Total 58,626 75,090
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Other receivablesBalance sheet figure is as follows:
Description 30/06/99 31/12/98Social security institutions 4,654 1,010
Advances to employees 532 794
Tax authorities 25,230 26,473
Guarantee deposits 1,027 1,022
Suppliers, advances account 3,863 2,822
Affiliated companies – –
Other 7,403 5,767
Total 42,709 37,888
The receivable from the tax authorities includes Lit. 8,271 million of exportreimbursements for iron and steel industry, Lit. 2,335 million of VAT creditand Lit. 14,537 million of IRPEG/IRAP taxes (corporation taxes and tax onproduction activity). Lit. 8,975 million of such receivables are expected to becollected beyond one year.
Suppliers, advances account, include advances on services and on purcha-ses of raw materials.
Others include a receivable with nominal value of Lit. 7,710 million fromminority shareholders of Merloni Elettrodomestici Beyaz Esya Sanayi VeTicaret As. Such receivable was written down in the previous period by Lit.4,087 million.
Among other receivables, deposits of Lit. 1,027 million should be mentio-ned, expected to be collected beyond twelve months.
Short term investments
Other shareholdingsThe shareholding in Stoves Group Plc, a company listed on London Stock ofExchange operating in the domestic appliances segment, is not considered assignificant as to require a commitment in the medium and long term. On thebasis of average listings registered by the shares of the company in June 1999,the company was revalued by Lit. 402 million.
Cash
Cash is equal to Lit. 26,176 million, representing the balance at the end ofthe period of bank and postal deposits and cash on hand. Compared with 31December 1998, the decrease amounts to Lit. 446 million.
Accrued income and prepaymentsThe value recorded in the financial statements is equal to Lit. 147 million
and compared with the end of 1998, it shows an increase of Lit. 73 million.Figure is detailed as follows:
• Prepayment of charges for future years of Lit. 112 million;• Accrual of Lit. 35 million for interest on government treasury bonds
(CCT) recorded in financial statements.67
LIABILITIES
Shareholders’ equityItem shows a balance of Lit. 278,830 million, detailed as follows:
Share Share Legal Reserve Other Profit/ Total share-capital premiums reserve for own reserves (loss) for holders’
reserve shares the period equity
Balances at 31/12/98 112,548 4,596 2,408 49,643 101,303 13,283 283,781
Allocation of profit:
- Reserves 664 671 (1,335) –
- Dividends (11,948) (11,948)
Movements in reserves (4,596) 9,747 (5,151) –
Profit for the period 6,997 6,997
Balances at 30/06/99 112,548 – 3,072 59,390 96,823 6,997 278,830
At 30 June 1999, Share capital was fully subscribed and paid up.
No variations have occurred compared with 31 December 1998.
Description Shares at 30/06/1999 Shares subscribed during the yearNumber Value Number Value
Ordinary shares 91,508,268 91,508,268,000 – –
Savings shares 21,039,668 21,039,668,000 – –
Legal reserve has increased following the transfer of 5 per cent of profit for1998 as resolved by the Shareholders’ Meeting held on 30 April 1999.
Share premiums reserve was utilized to increase the Reserve for own sha-res, recorded in the financial statements in compliance with art.2357-ter ofthe Italian Civil Code.
Other reserves
Other reserves are detailed as follows:
Description 30/06/99 31/12/98
Extraordinary reserve 671 –
Reserve pursuant to art. 14 Law 64/86 4,798 4,798
Reserves from accelerated depreciation 40,184 40,184
Grant, Regional Law 29/82 36 36
Grant, Law 29/05/82 No. 308 185 185
Adjustment to the cost of plants (Casmez) - Law 218/78 1,674 1,674
Reserve pursuant to art. 21 L. 219 dated 14/5/81 42,647 47,798
Lump sums granted, Regional Law 19/84 85 85
Lump sums granted, Law 448/92 6,543 6,543
Total 96,823 101,303
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The extraordinary reserve was created allocating profit for the period of Lit.671 million. The reserve for depreciation arises from accruals recorded in 1993 and in1997, calculated to take advantage of fiscal benefits which, for statutory pur-poses, represent accruals of profits (against such reserve the related deferredtaxes have been accrued).
An available amount of Lit. 5,151 million were withdrawn from theReserve pursuant to art. 21 Law 219/81 to increase the Reserve for own sha-res in portfolio, recorded in the financial statements in accordance with art.2357-ter of the Italian Civil Code.
Reserves for contingencies and obligationsThe item shows a balance of Lit. 52,369 million, (Lit. 26,635 million at 31December 1998). It can be detailed as follows:
Description Opening Income Utilization Other Closing balance statement movements balance
accruals
Taxation 7,853 – – – 7,853
Other provisions:
- provision for products’ warranty 12,570 700 (1,300) 2,947 14,917
- Exchange fluctuations provision – 300 – – 300
- Provision for future risks 5,150 23,577 (500) – 28,227
- Provision for agents’
leaving indemnity 1,062 208 (198) – 1,072
Total other provisions 18,782 24,785 (1,998) 2,947 44,516
Total provision for contingencies
and obligation 26,635 24,785 (1,998) 2,947 52,369
Taxation
The provision was accrued against both accruals calculated in the past exclu-sively pursuant to fiscal legislation, and other income whose fiscal charge wasdeferred over several years (mainly grants received on capital account).
The item includes Lit.1,660 million relating to the reclassification ofgrants on capital account for the portion of taxes written down from theabove mentioned reserves.
As far as deferred taxes accrued against accelerated depreciation calculatedin 1993 and in 1997 are concerned, a recalculation was made in the light ofthe new accounting principle adopted (IAS 12 revised). At present, besidesdeferred tax liabilities, deferred tax assets are also taken into account, arisingmainly whenever costs not allowed on accrual basis are recorded to the inco-me statement (mainly cash allowed accruals/expenses); the explained abovematter relates to an average period when analyses can be based on reliablevaluations. At 30 June 1999, the provision was equal to Lit. 6,193 million.In the course of the six months, the deferred tax provision was not subjectedto variations.
69
Provision for fiscal risksThe provision of Lit 89 million relates to a VAT litigation born in 1989.The Company settled fiscal years from 1985 through 1990 for effect of theapplication of Law 413/91. The Company, supported by its fiscal consul-tants, considers that the settlement of financial years still subject to potentialtax assessment will not lead to make further accruals in order to face fiscalrisks also for litigation at present still to be settled and that arose during thementioned years.
Other
Provision for products’ warrantyThe provision represents the estimate of costs to be incurred for assistan-ce on products sold covered by warranty. The provision amounts to Lit. 14,917 million and it is considered adequate to cover the specific riskto which it refers. In the course of the first six months of the year, a furtheraccrual of Lit. 700 million was made to the provision for one-year war-ranty on products.
Besides ordinary one-year warranty, granted on all products sold in Italy,the Company gives customers the opportunity of obtaining wider war-ranty valid up to five years on specific products, paying a pre-determinedprice. Such voluntary warranty provision during the period increased byLit. 2,947 million for subscriptions of customers, while Lit. 1,300 millionwere utilized.
Exchange fluctuations provisionReceivables and payables translated at exchange rates running at the end ofthe period, taking into account forward contracts signed as hedge, determi-ned an accrual equals to Lit. 300 million.
Provision for future risks The provision amounts to Lit. 28,227 million, and it is detailed as follows:• Lit. 15,377 million of costs expected to be incurred with regard to future
extraordinary interventions on the company’s organization structure;• Lit. 5,400 million represent accruals calculated to cover the commitment
to buy the shareholding in Merloni Elettrodomestici Beyaz Esya Sanayi VeTicaret As back from Simest Spa. In 1996, the Company renegotiated buyback terms, postponing them to 30 September 1999. The accrual for theperiod amounts to Lit. 1,400 million;
• Lit. 5,250 million represent the provision created for planned technicalmaintenaces not yet carried out, on particular products sold in the previousyears, mainly on British and Dutch market;
• Lit. 400 million represent the residual provision accrued for the reconstruc-tion of an important architectural complex with historical, cultural and reli-gious relevance situated in Fabriano, denominated “Collegio Gentile”,seriously damaged by 1997 earthquake. Lit. 500 million of the original pro-vision of Lit. 900 million were utilized in the course of the six months;
70
• Lit. 1,800 million represent the accrual in order to build a village for thepopulation who suffered damages following the earthquake in Turkey.
Provision for agents’ leaving indemnityIn the first six months of 1999, Lit. 198 million of the provision ( Lit. 1,072million) were utilized. The accrual amounts to Lit. 208 million.
Staff leaving indemnityThe amount is computed in accordance with laws and labour contracts. Atthe termination of employment each employee of any category, from workerto manager, excluding independent workers, is entitled to receive a deferredsalary computed on a formula basis which takes into consideration the grossannual salary and the seniority of the employee. For each year of service, theemployee matures a portion of “TFR” which is equal to the annual grosssalary divided by 13.5 (approximately one month’s salary). The portion isrevalued every year taking into consideration 0.75% of the rate inflation.Accordingly, since the computation is based solely on actual payroll data, noactuarial involvement is necessary.
The item shows a balance of Lit. 90,514 million (Lit. 88,638 million at 31December 1998) and it is detailed as follows:
Opening balance 88,638
Income statement accruals 6,973
Utilization for reimbursements and advances (4,775)
Cometa fund (322)
Closing balance 90,514
We set out below a breakdown of workforce divided per category:
Qualification Employees at Employees at 1999 six months 30/06/99 31/12/98 monthly
full time fixed contract full time fixed contract average
Executives, Managers 73 – 74 – 70
Middle management 122 – 118 – 123
Employees 689 37 710 39 846
Workers 3,319 566 3,285 444 3,813
Total 4,203 603 4,187 483 4,852
At 30 June 1999, the number of employees includes 33 individuals secondedabroad.
PayablesItem shows a balance of Lit. 1,112,747 million (Lit. 1,252,946 million at 31December 1998) and it is detailed as follows:
71
Description 30/06/99 31/12/98 Variation
Banks loans and overdrafts 306,670 411,980 (105,310)
Other financing payables 36,143 51,275 (15,132)
Advances 3,438 14,441 (11,003)
Trade payables 317,338 272,781 44,557
Payables to subsidiaries 53,593 55,881 (2,288)
Payables to associated companies 273,769 333,058 (59,289)
Payables to parent company – 31 (31)
Taxes payable 27,398 35,628 (8,230)
Social security payables 49,739 52,421 (2,682)
Other payables 44,659 25,450 19,209
Total 1,112,747 1,252,946 (140,199)
Banks loans and overdraftsDetails and variations can be summarized as follows:
Description 30/06/99 31/12/98 Variation
Banks overdrafts 227,260 319,322 (92,062)
Long-term banks loans 79,410 92,658 (13,248)
Total 306,670 411,980 (105,310)
Export advances amount to Lit. 139,822 million and current account over-drafts to Lit. 87,438 million.
Banks credit lines are normally not secured by guarantees.In the course of the first six months of 1999, the Company has not bor-
rowed any loans.Current portions of loans and advanced reimbursements were made for a
total amount of Lit. 13,248 million.Loans are generally re-paid with six-monthly instalments.Lit. 34,072 million are guaranteed with first rank mortgages and Lit.
6,702 million with second rank mortgages on property, plant and equip-ment.
The portion of banks loans expiring within one year amounts to Lit.23,732 million, while no reimbursements are due beyond five years.
Other financing payablesAt 30 June 1999, loans amounted to Lit. 36,143 million. In the course of thefirst six months of 1999, the Company has not borrowed new loans.
Expiring instalments were paid for by Lit. 15,132 million.Instalments are generally six-monthly..Loans are covered by first rank mortgages for Lit. 15,247 million, and by
second rank mortgages for Lit. 9,000 million.The portion expiring within the next twelve months is equal to Lit. 8,189
million, while reimbursements to be paid beyond five years are equal to Lit.1,791 million.
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Trade payablesThe balance of the item amounts to Lit. 317,338 million, with an increase ofLit. 44,557 million compared with 31 December 1998 due to a growth inpurchases and better payment terms allowed by suppliers.
Payables to subsidiariesThe detail is as follows:
Description 30/06/99 31/12/98
Fabrica Portugal Sa 4,361 3,209
Merloni Domestic Appliances Ltd 1,571 1,559
Merloni Electrodomésticos Sa (Portugal) 5,659 2,426
Merloni Electrodomésticos Sa (Spain) – 118
Merloni Electroménager Sa 9,925 7,726
Merloni Elettrodomestici Beyaz Esya Sanayi Ve Ticaret As 2,350 2,789
Merloni Elettrodomestici Beyaz Esya Pazarlama As – 4,839
Merloni Indesit Polska 1,090 –
Merloni Hausgerate Gmbh 98 156
Merloni Huishoudapparaten BV – 1,311
Merloni International Trading 32 –
Merloni Indesit Domaci. Sro – 303
Merloni Investment Ltd 4,737 4,737
Philco Italia Spa 17,475 21,669
Star Spa 6,295 5,039
Total 53,593 55,881
Lit. 48,856 million of payables arise from commercial transactions and servi-ces rendered and Lit. 4,737 million represent tenths of share capital to bepaid with regard to the subscription of the share capital of the subsidiaryMerloni Investment Ltd.
Payables to associated companiesThe detail is set out below:
Description 30/06/99 31/12/98
Faber Factor Spa 273,554 329,021
Argentron Sa 5 65
M&B Marchi e Brevetti Srl – 338
Co. Pro. Spa – 1
Merloni Progetti Spa 210 3,633
Total 273,769 333,058
Payables arise from commercial transactions and services rendered. Payablesto Faber Factor Spa are composed of the transfer from suppliers of their recei-vables from Merloni Elettrodomestici Spa. The decrease over the previousperiod is mainly attributable to the decrease in purchases of raw materials andservices connected with the decline in sales.
73
Taxes payableThe item includes the following:• Lit. 1,505 million of withholdings tax on fees to professionals and self
employed (of which Lit. 1,137 million not paid for effect of the suspensionallowed to residents in Municipalities damaged by the earthquake);
• Lit. 20,079 million of IRPEF (personal income tax) withholdings tax toemployees wages (of which Lit. 15,926 million not yet paid for the suspen-sion described above and Lit. 2,751 million as second payment of IRPEFadvance on the staff leaving indemnity not paid for the same reason);
• Lit. 874 million of substitute tax, Law Decree 467/97; • Lit. 4,433 million of Vat debit;• Lit. 507 million as second advance payment of the 1997 tax on equity not
paid last November due to the suspension connected with the earthquake.
Social Security payablesThe amount recorded in the financial statements is detailed as follows:• Lit. 45,529 million to INPS (National Social Security Entity) for contri-
butions to be paid, including contributions of employees and fixed-termemployees (of which Lit. 35,033 million not paid due to the suspensiongranted to companies located in areas damaged by the earthquake);
• Lit. 4,210 million to other National Social Security Institutions (Inpdai,Previndai, Enasarco, Inail, foreign social security institutions), of which Lit.2,104 million not paid due to the above mentioned suspension.
Other payablesThe balance is as follows:
Description 30/06/99 31/12/98
Payables to employees 39,892 20,407Payables to affiliated companies 373 453Others 4,394 4,590Total 44,659 25,450
The most significant items are commented below:• Payables to employees: item mainly represents the payable for wages and holi-
days matured by employees at the financial statements’ date• Payables to affiliated companies: item is composed by Lit. 373 million paya-
ble to Aermarche Spa for services received.• Others: the most significant amounts are detailed below:• Lit. 1,554 million of payables to shareholders for dividends;• Lit. 556 million payable to various municipalities for the final payment of
the ICI tax (real estate tax) due in 1997, not paid by virtue of the suspen-sion for residents in Municipalities damaged by the earthquake.
Accrued liabilities and deferred chargesThe item shows a balance of Lit. 2,424 million (Lit. 2,711 million the pre-vious period) and it is mainly composed as follows:• Lit. 1,109 million of accruals of interest on loans at 30 June 1999;• Lit. 1,313 million of grants on capital account pertaining to future years.
74
Memorandum accountsThe following guarantees have been issued:• Lit. 5,000 million to the affiliated company Centro Energia Teverola Spa
(CET Spa) as guarantee of contractual commitments undertaken. MerloniElettrodomestici received the pro-rata counterguarantee of CET Spa othershareholders (Lit. 1,250 million from Merloni Progetti Spa, Lit. 2,500 mil-lion from Foster Wheeler Italiana Spa, Lit. 250 million from MP&S Srl andLit. 750 million from Merloni Termosanitari Spa respectively), includedamong guarantees received.
• Lit. 250 million to Foster Wheeler Italiana Spa (FWI Spa) as guarantee of5 per cent (pro-rata) of additional contractual commitments undertaken byCET Spa with regard to FWI Spa;
• Lit. 450 million to Banca Nazionale del Lavoro di Napoli as partial gua-rantee of a loan granted to Co.Pro Spa;
• Lit. 499 million to Itainvest as guarantee of a debenture loan granted toCo.Pro Spa;
• Lit. 150 million to the affiliated company CET Spa as guarantee of con-tractual commitments undertaken by the affiliated company CentroEnergia Operator Teverola Srl (CEOT Srl). No commissions mature on guarantees.Collaterals, equal to Lit. 65,022 million, consisting of mortgages issued to
third parties, regard loans received from the institutions listed below:
Institution Amount
Banca Nazionale del Lavoro 9,046
Efibanca 25,734
Istituto Mobiliare Italiano 20,087
Istituto Bancario S. Paolo di Torino 5,994
Isveimer 4,161
Total 65,022
Other memorandum accounts, totalling Lit. 179,956 million, are composedas follows:
Description Amount
Receivables transferred to Faber Factor 299
Commitments for leasing instalments 7,125
Guarantees received from third parties 85,006
Guarantees received from associated companies 1,250
Guarantees received from affiliated companies 1,000
Guarantees received from parent company 9,850
Purchase commitments of raw materials 11,741
Purchase commitments of fixed assets 63,685
Total 179,956
Purchase commitments of fixed assets, besides commitments for the purcha-se of property, plant and equipment, include Lit. 27,500 million of optionsfor the purchase of shareholdings realised at the end of July 1999. Such lat-
75
ter purchase is remarked in the paragraph concerning the significant eventsoccurred after 30 June 1999 and perspectives for the end of the year, inclu-ded in the report of the Boards of Directors.
At 30 June 1999, the Company had some forward transactions in progressto hedge a portion of sales in foreign currency, expiring in the second half of1999, composed of put and call options and foreign currency forward con-tracts. The options are of the American type at zero cost with expiry rangingfrom July to December 1999, signed with the subsidiary Merloni AristonInternational, Lugano branch, whose total value (in million of Italian lira)can be summarised as follows:
Currency Option Total value Total premium
US dollars USD Put purchase 131,899 – Liability
US dollars USD Call sale 129,500 – Asset
English pounds GBP Put purchase 198,590 – Liability
English pounds GBP Call sale 197,750 – Asset
Taking into account the precise matching of the expiry of the individual tran-sactions and the non existence of premiums, the items have not been reflec-ted in the balance sheet. Last, no gains or losses were recorded in connectionwith trends in rates of exchange in the period between the signing of the tran-sactions and the year end, in compliance with the principle of coherence inthe registration of items forming income arising from hedging transactionsand from hedged transactions, as they both pertain to the subsequent finan-cial year.
Forward contracts relate to the sale of English pounds, as summarized below:
Transaction Currency Amount Amount in in foreign currency Italian lira
Forward sale GBP 40,000,000 113,522 million
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Value of productionIncome statement item shows a closing balance of Lit. 990,216 million, witha decrease compared to 30 June 1998 by Lit. 168,045 million, equals to 14.5per cent.Revenues from sales of goods and services are composed as follows:
Revenues from sales 30/06/99 30/06/98
Revenues from sales of finished products 922,780 1,012,969Revenues from sales of raw materials 12,970 21,953Others 1,342 2,201Total 937,092 1,037,123Revenues from servicesRecovery of transport costs and other services 13,496 12,282Others 3,040 8,082Total 16,536 20,364Total revenues from sales and services 953,627 1,057,487
Details of revenues from sales and services per geographic area is set out below:
Area 30/06/99 % 30/06/98 %Italy 355,174 37.3 332,022 31.4European Union 392,402 41.1 390,596 36.9Other Countries 206,051 21.6 334,869 31.7Total 953,627 100.0 1,057,487 100.0
The decrease in sales is substantially due to the decrease in the volume of salesin CIS market and in East European markets.
Revenues from sales to subsidiaries and associated companies are detailedas follows:
Company’s name 30/06/99
SubsidiariesMerloni Domestic Appliances Ltd 81,612Merloni International Trading Bv 97,267Merloni Electrodomésticos Sa (Spain) 23,076Merloni Electrodomésticos Sa (Portugal) 24,639Fabrica Portugal Sa 1,052Merloni Huishoudapparaten 23,427Merloni Elettrodomestici Beyaz Esya Sanay As 29,038Merloni Indesit Polska Spzoo 22,345Merloni Electroménager Sa 134,196Merloni Hausgerate Gmbh 50,767Philco Italia Spa 6,183Star Spa 1,080Total 494,682Associated companyArgentron Sa 4,921Merloni Progetti Spa 6Total 4,927Grand total 499,609
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Comment to the main income statement figures(Except otherwise indicated, values included in these explanatory notes are expres-sed in million of Italian lira)
Revenues from services include the following services rendered to subsidiariesand associated companies:
Company’s name 30/06/99
Subsidiaries
Merloni Domestic Aappliances Ltd 1
Merloni International Trading Bv 4,152
Merloni Electrodomésticos Sa (Portugal) 10
Merloni Hausgerate Gmbh 1,842
Merloni Elettrodomestici Beyaz Esya Sanay As 12
Merloni Electroménager Sa 2,832
Total 8,849
Associated companies
Faber Factor Spa 314
Merloni Progetti Spa 421
Total 735
Grand total 9,584
Lit. 172 million have been capitalised for developing of new applicativesoftwareOther income includes:
Item 30/06/99 30/06/98
Grants for the year 650 75
Gains on disposals 384 55
Exceptional income 1,908 2,905
Other 2,735 2,508
Total 5,677 5,543
Gains on disposals relate to fixed assets sold for ordinary renewal require-ments of tangible fixed assets.
Exceptional income includes amounts credited from suppliers for returnsof raw materials and auxiliary materials purchased in 1998 and returned inthe first six months of 1999, and differences on valuations of 1998 costs andrevenues of Lit. 1,908 million.
The most significant items among other income refers to the utilization ofLit. 1,300 million of the provision for product warranty over one year, andthe reimbursement of customs duties on export of finished products of Lit. 725 million.
Costs of productionIncome statement item shows a balance of Lit. 951,763 million, with adecrease compared with the first six months of 1998 of Lit. 162,080 million,equal to 14.6 per cent.
Costs of raw materials, auxiliary materials, spare parts and goods decreasedmainly due to the decrease in sales and in inventory.
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Costs of raw materials and services include the following purchases from sub-sidiaries and associated companies:
Company’s name 30/06/99
Subsidiaries
Merloni Electrodomésticos Sa (Portugal) 13,401
Fabrica Portugal Sa 13,094
Merloni Huishoudapparaten 312
Merloni Elettrodomestici Beyaz Esya Sanay As 7,415
Star Spa 8,431
Philco Italia Spa 19,967
Merloni Indesit Polska Spzoo 2,461
Merloni Indesit Domaci 891
Merloni International Trading Bv 3
Merloni Indesit Bulgaria Srlu 494
Merloni Electroménager Sa 32,011
Total 98,480
Associated companies
Faber Factor Spa 499
Merloni Progetti Spa 120
Total 619
Grand total 99,099
Costs for services include:
Description 30/06/99 30/06/98
Maintenance 5,411 5,520
Distribution costs of finished products 40,346 53,182
Advertising 24,541 38,120
Other services from third parties 19,459 7,951
Fees to directors 2,681 4,492
Fees to statutory auditors 68 60
Reimbursement of expenses to employees 4,105 6,366
Services received from subsidiaries and associated companies 3,649 4,781
Technical assistance 7,150 6,352
General expenses 20,533 26,767
Total 127,943 153,591
Costs for services include Lit. 487 million of charges concerning the transi-tion process to the Euro currency, met in the first six months of 1999.
Accruals for risks equal to Lit. 5,700 million were made Lit. 5,000 millionrelate to the estimate of costs connected with interventions to be carried outon defective products sold in the British and Dutch markets and Lit. 700 mil-lion relate to the adjustment of the provision for products’ warranty.
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Other operating charges include:
Description 30/06/99 30/06/98
Losses on disposals 338 75
Losses on receivables 645 3,396
Insurance 1,923 2,303
Royalties 121 145
Exceptional expenditure 1,604 1,107
Other 2,727 2,454
Total 7,358 9,480
Losses on disposals include losses on sales of property, plant and equipment,part of the ordinary replacement cycle.
Among Other, Lit. 650 million relate to taxes (ICI tax - tax on real estate- and other taxes).
Financial income and chargesThe total balance of financial income is of Lit. 7,060 million, composed asfollows:
Description 30/06/99 30/06/98
Income from shareholdings 688 1,018
Interest receivable on fixed securities 81 118
Interest receivable from banks 271 184
Interest receivable from subsidiaries and associated companies 783 2,295
Interest receivable from customers 129 322
Other interest receivable 62 308
Other income 68 25
Exchange gains 4,978 5,817
Total 7,060 10,087
Financial charges are equal to Lit. 14,670 million, detailed as follows:
Description 30/06/99 30/06/98
Banks charges 6,755 8,666
Interest payable to other financing institutions 1,149 2,594
Financial charges to subsidiaries and associated companies 1,491 3,072
Interest payable to suppliers – 13
Other financial charges 363 1,095
Exchange losses 4,912 6,479
Total 14,670 21,919
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Adjustment to the value of financial operationsThe income statement item shows a closing balance of Lit. 2,687 million ofcharges, of which Lit. 3,089 million relate to the writedown of the sharehol-ding in the Polish subsidiary Merloni Indesit Polska Spzoo which at 30 June1999 showed negative shareholders’ equity, while Lit. 402 million relate tothe revaluation of the shareholding in Stoves Group Plc., classified as shortterm financial assets.
Extraordinary income and expensesExtraordinary expenses equal to Lit. 21,159 are mainly attributable to the fol-lowing:• Accrual of Lit. 17,745 million for the new reorganization plan;• Accrual of Lit. 1,800 million in order to build a village for the population
who suffered damages following the earthquake in Turkey;• A further accrual of Lit. 1,400 million to the provision for future risks crea-
ted in prior years to buy back 4.12 per cent of Merloni ElettrodomesticiBeyaz Esya Sanayi Ve Ticaret As from Simest, scheduled in September1999.Litigations are in progress with INPS (National Social Security Entity)
and with the VAT department in whose connection the Company, sup-ported by the opinion of its legal consultants, does not consider to makeany accrual.
With regard to the merger of FINVIT Srl into ICE Srl carried out in1991 and the subsequent merger of ICE Srl into Merloni ElettrodomesticiSpa made in 1992, three notices of assessment were notified during theyear. The Company appealed with the relevant authorities against suchnotices.
In January 1999, Tax Department, within its power of self-protection,annulled one of such notices. In the opinion of Company’s management andof its fiscal consultants such contestations and related reasons are unfounded,and therefore the Company does not consider to make any accrual for suchcontingent tax liabilities.
The board of directorsThe Chairman Vittorio Merloni
Fabriano, 15 September 1999
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List of the shareholdings Registered office Share capital Grouphigher than 10%. share(CONSOB resolution No. 11715 dated 24th November 1998) (value) direct indirect
Merloni Ariston International Sa Luxembourg USD 94,169,000 99.99 –
Merloni Electrodomésticos Sa Spain ESP 1,900,000,000 78.95 21.05
Merloni Domestic Appliances Ltd Great Britain GBP 38,001,000 46.51 53.49
Merloni Electrodomésticos Sa Portugal PTE 3,365,000,000 – 99.44
Merloni International Trading Bv The Netherlands NLG 600,000 – 100
Merloni Huishoudapparaten Bv The Netherlands NLG 1,000,000 – 100
Indesit Pts Ltd Great Britain GBP 1,000 – 100
Merloni Electroménager Sa France FRF 110,000,000 – 99.99
Merloni Electroménager Suisse Sa Switzerland CIIF 280,000 – 100
Scholtès Nederland Bv The Netherlands NLG, 175,000 – 100
Scholtès Warenhandelsgesmbh Austria ATS 250,000 – 100
Fabrica Portugal Sa Portugal PTE 2,250,000,000 – 96.4
Merloni Elettrodomestici Beyaz Esya Sanayi Ve Ticaret As Turkey TUL 3,154,342,398,000 – 85.88
Merloni Elettrodomestici Beyaz Esya Pazarlama As Turkey TUL 17,000,000,000 100 –
Belimovel Construcoes Lda Portugal PTE 2,400,000 – 100
Merloni Financial Services Sa Luxembourg ITL 10,000,000,000 100 –
Merloni Hausgerate Gmbh Germany DEM 1,000,000 – 99.75
Merloni Investment Ltd Cayman Island USD 3,000,000 95 5
Merloni South America Investment Ltd Cayman Island USD 3,000,000 – 100
Merloni Reinsurallce Company Ltd Ireland USD 750,000 – 100
Philco Italia Spa Italy ITL 15,000,000,000 51.67 –
Star Spa Italy ITL 6,500,000,000 70 –
Merloni Indesit Polska Spzoo Poland PLN 117,800 100 –
Merloni Elettrodomestici Poland Spzoo Poland PLN 43,270,000 100 –
Faber Factor Spa Italy ITL 16,000,000,000 30 20
Merloni Progetti Spa Italy ITL 15,000,000,000 33 –
Argentron Sa Argentine U S D 22,000,000 – 31.18
M&B Marchi e Brevetti Srl Italy ITL 20,000,000 50 –
Sofarem Sarl La Rèunion FRF 2,500,000 – 20
Merloni Appl. Asia Pacific Pte Ltd Singapore Rep. SGD 100,000 – 100
Merloni Indesit Haztartastechnikai Kft Hungary HUF 10,000,000 99 –
Merloni Indesit Bulgaria Srlu Bulgary BGL 7,805,000 100 –
Merloni Elettrodomestici Ceska Czechoslowak Rep. CZK 1,000,000 100 –Republika Sro
Merloni Indesit Domaci Czechoslowak Rep. CZK 1,200,000 100 –Elektrospotrebice Sro
Co.Pro. Spa Italy ITL 2,600,000,000 24 –
Unifrabriano Scarl Italy ITL 28,000,000 14.28 –
Haier Merloni Ltd China RMB 199,200,000 12.50 –
Haier Merloni Electrical ApplianceCo.Ltd China USD 12,000,000 15.00 –
RTC International Ltd Great Britain GBP 50,000 – 100
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List of the shareholdings higher than 10%(Consob resolution No. 11715 dated 24th November 1998)
Report of the independent Auditors
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