Independent Auditors' Report and Consolidated Financial Statements of Prestolite Indiel Argentina S.A. (2000, 1999, 1998)

Summary

This document is an independent auditors' report by Deloitte & Co. S.R.L. for Prestolite Indiel Argentina S.A. and its subsidiaries. It covers the consolidated financial statements for the years ending December 31, 2000, 1999, and 1998. The auditors confirm that the financial statements fairly present the company's financial position and results in accordance with U.S. accounting standards. The report includes balance sheets, statements of operations, stockholders' equity, and cash flows, along with notes to the financial statements. The audit also verifies the proper translation of Argentine peso amounts into U.S. dollars for consolidation with the parent company.

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EX-10.7 8 k61326ex10-7.txt ARGENTINA FINANCIAL STATEMENTS AND NOTES 1 [DELOITTE & TOUCHE LETTERHEAD] EXHIBIT 10.7 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Prestolite Indiel Argentina S.A. Buenos Aires, Argentina We have audited the accompanying consolidated balance sheets of Prestolite Indiel Argentina S.A. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with 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 audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Our audits also comprehended the translation of the Argentine peso amounts into U.S. dollar amounts for the purpose of consolidation with the financial statements of the parent company, Prestolite Electric Incorporated. In our opinion, such translation has been made in conformity with accounting principles generally accepted in the United States of America, as set forth in Statement of Financial Accounting Standards No. 52, applicable to foreign currency financial statements incorporated in financial statements of an enterprise by consolidation. Buenos Aires, Argentina. January 31, 2001 Deloitte & Co. S.R.L. 2 PRESTOLITE INDIEL ARGENTINA S.A. CONSOLIDATED BALANCE SHEETS (in thousands of U.S. dollars) - --------------------------------------------------------------------------------
December December 31, 2000 31, 1999 -------- -------- ASSETS CURRENT ASSETS Cash $ 645 $ 280 Accounts receivable, net 8,337 8,883 Inventories 10,760 14,227 Other current assets 2,140 1,379 -------- -------- Total current assets 21,882 24,769 PROPERTY, PLANT AND EQUIPMENT, NET 11,590 12,869 OTHER NON-CURRENT ASSETS 8,570 8,391 -------- -------- Total assets $ 42,042 $ 46,029 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt and current portion of long-term debt $ 1,540 $ 3,366 Accounts payable 6,611 5,702 Accrued liabilities 2,202 3,003 -------- -------- Total current liabilities 10,353 12,071 LONG-TERM LIABILITIES Loans due to parent company 4,157 6,336 Long-term debt 339 Other non-current liabilities 1,970 1,991 -------- -------- Total liabilities 16,819 20,398 -------- -------- COMMITMENTS AND CONTINGENCIES -------- -------- MINORITY INTEREST 2 -------- -------- STOCKHOLDERS' EQUITY Common stock, par value $1 per share; 14,786,176 shares authorized, issued and outstanding 14,786 14,786 Additional paid-in capital 41,665 38,165 Legal reserve 1,012 1,012 Accumulated deficit (32,240) (28,334) -------- -------- Total stockholders' equity 25,223 25,629 -------- -------- Total liabilities and stockholders' equity $ 42,042 $ 46,029 ======== ========
See notes to consolidated financial statements. 3 PRESTOLITE INDIEL ARGENTINA S.A. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands of U.S. dollars) - --------------------------------------------------------------------------------
Year ended --------------------------------------------- December December December 31, 2000 31, 1999 31, 1998 ----------- ----------- ----------- NET SALES $ 40,785 $ 39,366 $ 56,711 -------- -------- -------- COSTS AND EXPENSES: Cost of goods sold 37,733 36,671 51,866 Selling, general and administrative expenses 7,041 7,672 9,496 Severance 499 5,474 -------- -------- -------- 45,273 44,343 66,836 -------- -------- -------- OPERATING LOSS (4,488) (4,977) (10,125) -------- -------- -------- INTEREST EXPENSE 2,011 1,642 1,251 -------- -------- -------- OTHER INCOME (EXPENSE) Revenues under tax regimes for promoted activities 2,707 1,884 2,792 Other income, net 407 1,212 224 -------- -------- -------- 3,114 3,096 3,016 -------- -------- -------- LOSS BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST (3,385) (3,523) (8,360) PROVISION FOR INCOME TAXES 522 512 480 -------- -------- -------- LOSS BEFORE MINORITY INTEREST (3,907) (4,035) (8,840) MINORITY INTEREST 1 (1) 2 -------- -------- -------- NET LOSS $ (3,906) $ (4,036) $ (8,838) ======== ======== ========
See notes to consolidated financial statements. 4 PRESTOLITE INDIEL ARGENTINA S.A. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands of U.S. dollars) - --------------------------------------------------------------------------------
Additional Common paid-in Legal Accumulated stock capital reserve deficit Total Balances, December 31, 1997 $ 14,786 $ 29,665 $ 1,012 $ (15,460) $ 30,003 Net loss (8,838) (8,838) --------- --------- --------- --------- --------- Balances, December 31, 1998 $ 14,786 $ 29,665 $ 1,012 $ (24,298) $ 21,165 Conversion of loans due to parent company into equity 8,500 8,500 Net loss (4,036) (4,036) --------- --------- --------- --------- --------- Balances, December 31, 1999 $ 14,786 $ 38,165 $ 1,012 $ (28,334) $ 25,629 Conversion of loans due to parent company into equity 3,500 3,500 Net loss (3,906) (3,906) --------- --------- --------- --------- --------- Balances, December 31, 2000 $ 14,786 $ 41,665 $ 1,012 $ (32,240) $ 25,223 ========= ========= ========= ========= =========
See notes to consolidated financial statements 5 PRESTOLITE INDIEL ARGENTINA S.A. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of U.S. dollars) - --------------------------------------------------------------------------------
Year ended ------------------------------------------------------------ December 31, December 31, December 31, 2000 1999 1998 -------------- --------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(3,906) $(4,036) $(8,838) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation of property, plant and equipment 2,905 3,530 3,398 Gain on sale of property, plant and equipment (43) (7) Minority interest (2) 1 (2) Changes in assets and liabilities: Accounts receivable 546 137 180 Inventories 3,467 (291) 4,160 Other current and non-current assets (940) 383 1,524 Accounts payable 909 (827) (3,010) Accrued liabilities (502) (1,617) 1,206 Other non-current liabilities (320) (535) 23 ------- ------- ------- Net cash provided by (used in) operating activities 2,114 (3,262) (1,359) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment (1,146) (1,449) (1,547) Proceeds from sale of property, plant, and equipment 58 47 ------- ------- ------- Net cash used in investing activities (1,088) (1,402) (1,547) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Financing obtained from the parent company 1,321 3,542 6,294 (Decrease) increase in bank arrangements, net (1,804) 1,040 (4,500) Repayment of capital leases (178) (42) ------- ------- ------- Net cash (used in) provided by financing activities (661) 4,540 1,794 ------- ------- ------- INCREASE (DECREASE) IN CASH 365 (124) (1,112) CASH AT BEGINNING OF YEAR 280 404 1,516 ------- ------- ------- CASH AT END OF YEAR $ 645 $ 280 $ 404 ======= ======= ======= SUPPLEMENTAL DISCLOSURES Cash flow information: $ 1,848 $ 1,447 $ 958 ======= ======= ======= Cash paid for interest $ 22 $ 8 $ - ======= ======= ======= Cash paid for income taxes Non-cash investing activities: Capital lease obligations incurred for the purchase of new equipment $ 495 $ 248 $ - Non-cash financing activities: ======= ======= ======= Conversion of loans due to parent company into equity $ 3,500 $ 8,500 $ - ======= ======= =======
See notes to consolidated financial statements. 6 PRESTOLITE INDIEL ARGENTINA S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands of U.S. dollars) - -------------------------------------------------------------------------------- 1. GENERAL INFORMATION - NATURE OF BUSINESS PRESTOLITE INDIEL ARGENTINA S.A., A WHOLLY OWNED SUBSIDIARY OF PRESTOLITE ELECTRIC INCORPORATED, A U.S. CORPORATION, INCLUDES THE WHOLLY OWNED SUBSIDIARIES EQUIPOS ORIGINALES S.A. AND JOVSA S.A. OPERATIONS ARE GENERALLY CONDUCTED AS PRESTOLITE INDIEL ARGENTINA S.A. (PRESTOLITE INDIEL ARGENTINA S.A., EQUIPOS ORIGINALES S.A. AND JOVSA S.A., HEREINAFTER COLLECTIVELY REFERRED TO AS THE "COMPANY"). THE COMPANY MANUFACTURES AND DISTRIBUTES MOTOR STARTERS, ALTERNATORS, DISTRIBUTORS AND STEERING COLUMNS FOR AFTERMARKET AND ORIGINAL EQUIPMENT APPLICATIONS IN THE AUTOMOTIVE INDUSTRY. THE COMPANY'S THREE MANUFACTURING FACILITIES ARE LOCATED IN ARGENTINA. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Prestolite Indiel Argentina S.A. and its subsidiaries, Equipos Originales S.A. and Jovsa S.A. All significant intercompany balances and transactions have been eliminated. PRESENTATION OF FINANCIAL STATEMENTS IN U.S. DOLLARS - The accompanying consolidated financial statements have been translated into U.S. dollars in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 52, Foreign Currency Translation. Management has determined that the Argentine peso is the functional currency. Certain assets and liabilities are denominated in currencies other than the functional currency; transaction gains and losses on those assets and liabilities are included in the determination of income for the relevant periods. The translation of all items of these financial statements has been made using the exchange rate of one Argentine peso to one U.S. dollar. This exchange rate reflects the free market exchange rate prevailing at December 31, 2000 and in the preceding years since the Convertibility Law was enacted in April, 1991. Consequently, no adjustments resulted from the translation of the financial statements from their functional currency to U.S. dollars. USE OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amount of revenues and expenses during the reporting period. Actual results may differ from the estimates and assumptions used in preparing the financial statements. REVENUE RECOGNITION - Revenues are recognized upon shipment of products, with appropriate provision for doubtful accounts. The Company believes that its revenue recognition policies conform to Staff Accounting Bulleting No. 101, Revenue Recognition in Financial Statements. 7 Revenues exceeding 10% attributable to any one customer amounted to $7,383 or 18%, and $7,700 or 14% (in both cases representing 1 customer), for the years ended December 31, 2000 and 1998, respectively. There were no revenues exceeding 10% attributable to any one customer in 1999. FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts of cash, accounts receivable and payable, accrued expenses, debt and other liabilities approximates their fair value at December 31, 2000 and 1999. Fair values have been determined based on management estimates and information from market sources. The fair value of financial instruments is based on a number of factors and assumptions and may not necessarily be representative of the actual gains or losses that may be realized upon settlement. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE - The Company carries accounts receivable at the amount it deems to be collectible. Accordingly, it provides allowances for accounts receivable deemed to be uncollectible based on management's best estimates. Recoveries are recognized in the period they are received. The ultimate amount of accounts receivable that become uncollectible could differ from the estimated amount. The activity for the allowance for doubtful accounts receivable is as follows:
Year ended -------------------------------------------------- December December December 31, 2000 31, 1999 31, 1998 -------------------------------------------------- Beginning balance $ 762 $ 857 $ 540 Provision 496 268 317 Write-offs, net (410) (363) ------- ------- ------- Ending balance $ 848 $ 762 $ 857 ======= ======= =======
INVENTORIES - Inventories are stated at the lower of cost or market, with cost being established by the first-in first-out method. PROPERTY, PLANT AND EQUIPMENT - Property plant and equipment is stated at cost and depreciated using the straight-line method over the expected life of the related asset. Buildings are depreciated over 50 years; machinery, installations, tooling, furniture and fittings over 10 years; vehicles, over 5 years; and software over 3 years. INCOME TAX AND ALTERNATIVE MINIMUM INCOME TAX - The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires an asset and liability approach for differences in financial accounting and income tax purposes. Under this method, a deferred tax asset or liability is recognized with respect to all temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, and the benefit from utilizing tax loss carryforwards and asset tax credits is recognized in the year in which the loss or credit arises (subject to a valuation allowance with respect to any tax benefits not expected to be realized). Alternative minimum income tax ("AMIT") is determined as 1% of total assets as of year-end. The amount determined in respect of AMIT is considered as a payment on account of the current income tax obligation. Tax payers must pay in aggregate an amount that cannot be lesser than the 8 AMIT. The AMIT can be used to reduce the income tax obligation within 10 years after the year of payment. Management has estimated that the Company will not be able to utilize the AMIT in future years. Therefore, AMIT has been charged to results of operations and is presented together with the provision for income taxes in the consolidated statement of operations. RECLASSIFICATIONS - Certain reclassifications have been made to conform prior years' data to the current presentation. These reclassifications had no impact on previously reported results of operations or shareholders' equity. 3. INVENTORIES Inventories consisted of the following:
December December 31, 2000 31, 1999 --------------- -------------- Finished goods $ 4,842 $ 3,732 Work in process 1,692 3,985 Raw materials and other supplies 2,303 2,890 Goods in transit 301 1,068 Resale merchandises 1,622 2,552 ---------- ---------- $ 10,760 $ 14,227 ========== ==========
4. OTHER CURRENT ASSETS Other current assets consisted of the following:
December December 31, 2000 31, 1999 --------------- -------------- Tax credits $ 941 $ 674 Restricted deposits 430 Others 769 705 ---------- ---------- $ 2,140 $ 1,379 ========== ==========
5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following:
December December 31, 2000 31, 1999 --------------- -------------- Land $ 803 $ 803 Buildings 9,875 9,530 Machinery 23,375 22,875 Tooling 8,406 7,741 Installations 3,317 3,297 Furniture and fittings 2,341 2,341 Vehicles 1,094 1,044 Software 979 932 Others 103 132 ---------- ---------- Total 50,293 48,695 Less: Accumulated depreciation (38,703) (35,826) ---------- ---------- Property, plant and equipment, net $ 11,590 $ 12,869 ========== ==========
9 6. OTHER NON-CURRENT ASSETS Other non-current assets consisted of the following:
December December 31, 2000 31, 1999 --------------- -------------- Tax credits arising from the suspension of tax benefits $ 4,922 $ 4,922 Other tax credits 3,648 3,469 ---------- ---------- $ 8,570 $ 8,391 ========== ==========
7. DEBT Debt consisted of following:
December December 31, 2000 31, 1999 --------------- --------------- Bank arrangements $ 1,356 $ 3,160 Capital lease obligations 523 206 ---------- ---------- Total debt $ 1,879 $ 3,366 Less: short-term debt and current portion of long-term debt. 1,540 3,366 ---------- ---------- Long-term debt, less current portion $ 339 $ - ========== ==========
The Company has arrangements with several banks to discount or borrow against accounts receivable. The approximate average annual interest rate was 19% and 17%, for 2000 and 1999, respectively. 8. OTHER NON-CURRENT LIABILITIES Other non-current liabilities consisted of the following:
December December 31, 2000 31, 1999 ------------- ------------- Retirement benefit liabilities $ 1,529 $ 1,631 Accrued claims and other litigation expenses 372 360 Others 69 ---------- ---------- $ 1,970 $ 1,991 ========== ==========
10 9. LEASES The Company leases certain machinery and vehicles under long-term capital lease arrangements. Scheduled payments on capital leases as of December 31, 2000 are as follows: 2001 $ 236 2002 179 2003 130 2004 124 2005 17 ----------- Total minimum lease payments 686 Less: Imputed interest 163 ----------- Present value of net minimum lease payments $ 523 ===========
10. RELATED PARTY TRANSACTIONS Prestolite Indiel Argentina S.A. is a wholly-owned subsidiary of Prestolite Electric Incorporated (the "Parent Company"). For the years ended December 31, 2000, 1999, and 1998, sales to the Parent Company and its affiliates totaled $3,312, $1,740 and $955, respectively, and purchases from the Parent company and its affiliates totaled $203, $168 and $88, respectively. Included in accounts receivable as of December 31, 2000 and 1999 is $191 and $801 due from the Parent Company and its affiliates, respectively. Included in accounts payable as of December 31, 2000 and 1999 is $98 and $24, due to the parent company and its affiliates. The Company has obtained financing from the Parent Company of $1,321, $3,542 and $6,524, in 2000, 1999 and 1998, respectively. Loans due to the Parent Company at December 31, 2000 and 1999 amounted to $4,157 and $6,336, respectively. 11. BENEFITS UNDER TAX REGIME FOR PROMOTED ACTIVITIES The Company was granted the tax exemptions established by Law No. 22,021 (amended by Law No. 22,702), which include, among others, the following benefits: (a) Exemption from payment of Income Tax and Capital/Assets Tax for a period of fifteen years from the start-up date of the industrial plant, ranging from 100% for the first five years up to 12.6% for the last year; and (b) Exemption from payment of value added tax ("VAT") on domestic market sales for a period of fifteen years from the start-up date of the industrial plant, applying the same sliding scale. The Economic Emergency Law No. 23,697 suspended 50% of the tax benefits for promoted activities for a period of six months from September 25, 1989. Decree No. 435/90 of the National Executive Power extended for another six months the suspension of the tax benefits and, also, repealed the VAT exemption on purchases to suppliers of raw materials and semi-processed goods. This benefit was afterwards reinstated by delivering tax credit certificates. Effective December 1, 1992, Decree No. 2,054/92 established that the tax benefits would be credited to a current account with the Tax Authority, based on the theoretical tax costs for the National Government. 11 The Company recorded a tax credit of $4,922 at December 31, 2000 and 1999, corresponding to the estimate of the Company's rights resulting from the suspension of the tax benefits, under Law No. 23,697, and the exemption from customs duties repealed by article 45 of Decree No. 435/90 credited to income when recorded. On June 28 and November 18, 1994, the Tax Authority issued General Resolutions No. 3,838/94 and 3,905/94, which regulated the granting of Tax Credit Certificates resulting from the suspension of the tax benefits under Law No. 23,697 and the exemption from customs duties repealed by article 45 of Decree No. 435/90. In June 1995, the Company submitted all the elements established by these General Resolutions to the corresponding control authority, who may request additional information in order to establish whether the granting of the aforementioned Tax Credit Certificates is applicable. Upon satisfactory completion of this review process, the Company will receive Debt Consolidation Bonds created by Law No. 23,982 in connection with the claims predating April 1, 1991, and the rest will be credited to a computerized current account provided by the Tax Authority. 12. INCOME TAXES THE PROVISION FOR INCOME TAXES SHOWN IN THE CONSOLIDATED STATEMENT OF OPERATIONS SOLELY CONSISTS OF ALTERNATIVE MINIMUM INCOME TAX CHARGES OF $522, $512 AND $480 AT DECEMBER 31, 2000, 1999 AND 1998, RESPECTIVELY. The provision for income taxes differs from the amount computed by applying the statutory tax rate to net loss before provision for income taxes. The sources and tax effects of the differences are as follows:
Year ended -------------------------------------------------------- December December December 31, 2000 31, 1999 31, 1998 ----------------- --------------- ---------------- Income tax benefit at the statutory rate (35%) $ (1,185) $ (1,233) $ (2,926) Revenues under tax regimes for promoted activities (1,122) (659) (977) Other 647 8 (340) Increase in valuation allowance 1,660 1,884 4,243 ---------- ---------- ---------- Subtotal - Income tax - - - Alternative minimum income tax 522 512 480 ---------- ---------- ---------- Total provision for income taxes $ 522 $ 512 $ 480 ========== ========== ==========
THE SIGNIFICANT COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES ARE THE FOLLOWING:
December December 31, 2000 31, 1999 --------------- ---------------- Tax loss carryforwards $ 12,318 $ 11,167 Other 1,419 1,511 ---------- ---------- 13,737 12,678 Valuation allowance (13,737) (12,678) ---------- ---------- $ 0 $ 0 ========== ==========
12 The Company has established a valuation allowance against the net deferred tax asset position at December 31, 2000 and 1999, as management believes that realization of these benefits is not probable. Realization of the future tax benefits related to the net deferred tax assets is dependent on many factors, including the Company's ability to generate taxable income within the net operating loss carryforward period. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes. The tax loss carryforwards expire as follows:
Tax effect (statutory rate of 35%) -------------------------------- Tax-loss December December Expiration date carryforwards 31, 2000 31, 1999 - ------------------------------------------------ ------------- -------------- ------------ December 2000 $ 1,718 $ 601 December 2001 3,485 $ 1,220 1,220 December 2002 10,950 3,832 3,832 December 2003 7,460 2,611 2,611 December 2004 8,293 2,903 2,903 December 2005 5,006 1,752 --------- ---------- --------- $ 36,912 $ 12,318 $ 11,167 ========= ========== =========
13. TAX LOSS CARRYFORWARDS UNDER LAW NO. 24,073 In accordance with the provisions of Law No. 24,073, tax loss carryforwards originated before March 31, 1991 will be converted, upon approval by the Tax Authority, into tax credits to be repaid by the Federal Government with Debt Consolidation Bonds under Law No. 23,982. On April 27, 1993, the Company made the corresponding filing with the Tax Authority for $728. The Tax Authority rejected the Company's request. The Company accounted for a valuation allowance to cover the rejected tax credit. The Company has appealed the decision before the Tax Authority. 14. RETIREMENT BENEFIT LIABILITIES The Company has a noncontributory unfunded pension plan which provides retirement benefits for 9 former employees. The plan was established in June, 1987 and terminated in June, 1995. Consequently, no pension increases, other than interest, have arisen since then or will arise in the future. The following table sets forth the components of the changes in pension liabilities during the years ended December 31, 2000 and 1999: December December 31, 2000 31, 1999 ------------- ------------- Benefit obligation at beginning of year $ 1,631 $ 1,780 Interest cost 164 150 Benefits paid (266) (299) --------- -------- Benefit obligation at end of year $ 1,529 $ 1,631 ========= ========
13 15. SEVERANCE During 2000 and 1998 the Company announced and implemented restructuring plans involving employee cutbacks. All costs related to the plans are for employee severance. The following is a summary of the redundancy charges and outlays:
December December 31, 2000 31, 1999 ------------- ------------ Balance at beginning of year $ 1,085 $ 2,157 Severance cost 499 Write-offs - Payments (1,129) (1,072) --------- --------- Balance at end of year $ 455 $ 1,085 ========= =========
16. CONTINGENCIES - ACCRUED CLAIMS AND OTHER LITIGATION EXPENSES The Company is involved in various claims and legal proceedings of a nature considered normal to its business. At December 31, 2000 and 1999 the Company recorded a liability related to these claims of $372 and $360, respectively. The precise final outcome of such claims and proceedings is uncertain. Management believes that no significant negative impact will result from known outstanding issues. 17. RESTRICTIONS ON THE DISTRIBUTION OF PROFITS Under Argentine Corporation Law N(degree) 19,550, Companies must appropriate 5% of each year's income to a legal reserve, until the reserve is equivalent to 20% of the carrying value of common stock, determined by applying accounting principles generally accepted in Argentina. Dividend distributions must be approved by a vote of the stockholders. Dividends are allowed only to the extent of retained earnings, based upon financial statements prepared in accordance with accounting principles generally accepted in Argentina.