To the extent of some DM 1,37 million the provision is destined to cover eventual liabilities for refund resulting from the erroneous sale of privately owned goods. However, it is still impracticable to estimate the actual amount of these obligations. From experiences gained until now it appears that probable claims for refund against STEG will not be up to the amount set aside. An amount of DM 116.500,-- has been set aside for covering eventual further obligations of refund arising out of trade transactions as well as in connection. with sales contracts not fulfilled at all or only for one portion. The provision against claims for damages which was prudently figured at DM 864.000,-- originates from blasting damages to woodlands and buildings. Up to now, however, STEG successfully refused any responsibility in connection with these damages. 84. From the item provisions for contingencies the vested rights of employees to lay-off boni of people who left their job under the ammunition program unvoluntarily the item of DM 995.800,-- represents the major one. The counterpart shown for the time being under the caption of these provisions which has been set up against the business amounts granted to STEG under the regulations of the then impending currency reform (DM 521.470,--) will be wound up at a later date in favour of the various programs. Provisions of about DM 516.000,-have been set up against legal fees, as well as against audit fees and costs of expert advice, while some DM 502.400,-- are destined to coved rentals and some DM 167.100,-- claims in respect of sales taxes. The remaining provisions of about DM 339.200,-- are based on several other risks. 85. Prepayments collected amounting to DM 6.207.052,28, which have been. cleared for their major portion, related mainly to purchase transactions of Branch Office Bavaria. Liabilities arising out of deliveries of goods and services to the extent of DM 543.415,31 relate mainly to the settlement of services rendered by contractual firms which have been carried through in the meantime for at least their major portion. The rather insignificant debt against banks (DM 158,29) dates from a shortterm banking overdraft. 86. Liabilities on account of deposited outside funds in the amount of DM 860.763,98 result to the extent of DM 470.800,- from the sale of dispersal goods. According to experience got until now, it may not be expected that it will be practicable to determine the authentic holders of claims hitherto unknown,. at least to a considerable extent. On the other hand, some DM 182.600,-- resulting from the winding up of public property-belonging to the former Reich-have been carried on formal rights; although legally recognized, they are not liable to conversion because creditors in question belong to that group of persons whose funds of old currency have been wiped out. The remaining funds of outside parties (some DM 207.300,--). have flowed to STEG under various headings. 87. Out of other liabilities including accrued liabilities of together DM 2.089.065,58, some DM 1,5 million alone relate to wages and salaries due for the month of June 1948 and matured after currency reform which have been segregated accordingly. Besides that some DM 248.900,-- of liabilities on account of tobacco excises are carried, the remainder being represented by insurance premiums still due, sales taxes, social-security contributions, and the like. Subject to the clearing of the trust obligation against the results of the conversion account and the revaluation, we are of the opinion that the trust obligations shown on the liabilities side correspond to the capitalized but as yet unrealized trust property. Liabilities on account of claims arising out of sales prior to the foundation of STEG and outside of STEG form the counterpart of the respective claims appearing on the assets side of the balance sheet. IV. THE DEFINITE REDETERMINATION OF THE CAPITALIZATION 89. The management of STEG proposes to definitely fixing anew the nominal capital of RM 20,000,-- in the same amount i. e. DM 20,000,--. There are no other own capital funds of the corporation, such as for instance surplus. Inasmuch as STEG does not carry on transactions on its own account but acts only by order and for the account of its givers of orders (mandators), assets and liabilities shown on the balance sheet, with the exception of the small own capital and its counterparts, represent only assets and liabilities out of trust operations. Although there is no direct tie between the nominal capital and an item on the assets side as counterpart of such nominal capital, it may be concluded from the 94756-52-70 very character of the transactions carried through by STEG in its capacity as trustee, that the direct influences of the currency reform did only affect the trust property, as well as the claims and obligations arising in connection with the carrying through of trust orders confined to it; consequently direct and indirect influences of the currency reform did not at all affect in any way the nominal capital of STEG. It may be taken for granted that the own capital funds of STEG are being invested in trade goods. The proposition to definitely fixing the nominal capital to DM 20,000,-- is, in our opinion, in accordance with the peculiar conditions existing with STEG. V. COMMENTS ON THE REPORT OF THE MANAGEMENT 90. In an explanatory report commenting on the DM opening balance sheet, the management of STEG did submit information as to the definite results of the conversion and revaluation accounts, while at the same time the segregation of the loss sustained of about RM/DM 9.2 million by underlying programs too has been shown. The report deals grosso modo with the valuation of the various individual items, while the proposition of the management as to the definite fixation of the new capitalization too has been outlined in detail. Mention is being made of the reasons why eventual obligations resulting from the equalization of charges resulting from the war and the after effects of the war have not been capitalized. In fact, STEG was not called upon to contribute to the payment of direct aid, at least for the time being. Because it does not dispose of any capital of its own besides its nominal capital of RM 20.000,--, but administers only trust property, it is, in our opinion, unlikely that it will be requested to furnish any contribution to this fund. The explanatory report contains the more essential determinations in connection with the opening balance sheet in DM as well as with the fixation of the new capitalization and covers thus to an appropriate extent all facts required for judging of the opening balance sheet in DM. VI. SUMMARY OF THE MOST ESSENTIAL RESULTS OF OUR EXAMINATION 91. The DM opening balance sheet audited by us which is being attached to this report as Exhibit No. I presents the fairly peculiar conditions existing with STEG as well as the situation of business transactions carried through by it in its capacity as trustee, while deficiencies and gaps which emerged at the occasion of the examination of the RM closing balance sheet had been offset on an extensive scale through additional adjustments to the RM accounts. 92. Readjustments carried through in this conenction required on the one side a flow of postings involving some RM 83 million wherein, of course, cancellations, retransfers, consolidation of accounts and the like are comprised to a considerable extent, as well as other transactions not influencing the results. There are, however, rather substantial factual changes involving increases in actual proceeds in the tune of DM 5,8 million, reductions in proceeds to the extent of DM 0,9 million, as well as increasing expenditures of DM 1,1 million, and decreasing expenditures of some DM 0,6 million. These corrections did ultimately result in an increase of the surplus liable to remittance of about DM 4,4 million. These improvements of results show the following breakdown: 93. Thanks to the corrections applied to the RM closing balance sheet a sufficiently save basis for drawing up the opening balance sheet in Deutsche Mark (briefly referred to as DMEB) has been available.. This balance sheet has been decisively influenced by the currency reform and the impending conversion, while the possibilities of revaluating inherent in the laws regulating the DM opening balance sheet, which were of decisive influence with other economic undertakings, did affect only moderately conditions existing with STEG. The effects were rsulting in: Conversion losses of- Conversions gains of_-- Approximately RM/DM 426. 907. 000, . 415, 931. 000, Taking into account the capitalization of claims for release of bank deposits in RM in favour of third parties___ a loss on conversion of resulted, while the revaluation of assets and liabilities involved losses of approximately- as well as gains of___ representing an aggregate loss on conversion of___. 10. 976. 000, 2. 017. 000, 8. 959. 000, RM/DM 575. 000, . 233.000, 9, 192. 000, Leaving losses on the conversion and revaluation aggregating 94. Inasmuch as all transactions are being conducted by STEG in its capacity as trustee and for the account of third parties and while all assets and liabilities except the small own capital of RM 20.000,-- are resulting from trust operations it appears clear that the losses sustained by STEG in connection with the currency reform and the ensuing accounting in DM fully affect its mandator and/or programs. Broken down by programs losses and profits are being segregated as follows: Owing to the wiping out of its bank deposits in accordance with § 9 of Military Government Law No. 63 in their capacity as old money funds of group III or according to § 1 of Military Government Law No. 63, STEG suffered the total loss of its surplus liable to remittance which appeared on the liabilities side of its balance sheet. It could only cover the above-stated losses by a reduction of the not yet realized trust property. The latter item appears in the opening balance sheet in DM in an amount which does not coincide with the caption "as yet unrealized trust property goods." As a matter of fact, it must be stated that eventual conversion losses can only be covered by proceeds realized within the DM-era. Valuation of assets and liabilities in the opening balance sheet in DM is in concordance with the principles of an orderly accounting and with legal regulations. Eventual risks involving further losses under the various claims, have been duly considered by creating sufficient valuation reserves which have been offset from relating assets. Provisions too have been prudently created. By far the most important item on the side of the DM opening balance sheet, the trust property of approximately DM 124 million, which still awaits realization, has been valued on the basis of sales experiences gained during the DM-era so that the amount with which this item is being carried on the balance sheet gives an approximate idea as to the size of proceeds which may be looked forward to from a realization of the inventories of goods. In our opinion, there is no objection to the definite fixation of the new nominal capital in the amount of LM 20,000,-- i. e., in the ratio 1:1, as it is proposed by the management. Our opinion is based upon the consideration that all transactions of STEG are being conducted by it only in its capacity as trustee and on behalf of third parties, so that all losses incurred by it in connection with conversion and revaluation, as well as profits resulting from these operations can only concern the trust property and liabilities arising out of the development of trust transactions. The explanatory report of the management contains the more essential determinations and comments on the DM opening balance sheet and on the recapitalization. 98. A liability certificate in writing emanating from the management confirms us that in their opinion all assets and liabilities which are liable to accounting and which originate in transactions in trust and in orders carried out by STEG are properly disclosed in the DM opening balance sheet. They certified furthermore that, in their opinion, the actual amount of eventually undisclosed property items and liabilities resulting from the trust property can only be of relatively insignificant importance, so that the ultimate result on total conditions will not be influenced to a substantial degree. We are also told that there are no other guarantees and contingencies which remained undisclosed on the balance sheet, save those which have been mentioned in the explanatory report (contingencies eventually arising under the equalization of charges resulting from the war and the after effects of the war). 99. In consequence the DM opening balance sheet of STEG has received the following certificate: "We report to the stockholders of German Public Corporation for the Collection of War Surplus Material briefly referred to as "STEG" that we have examined the above Balance Sheet with the books of the company and have obtained all the informations and explanations we have required, including a copy of the explanatory report of the management. We are of opinion that the opening balance sheet in Deutschemark as well as the propositions of the management for definitely fixing the capitalization of the corporation are in consonance with existing legal regulations." Frankfurt/Main March 20, 1951 DEUTSCHE REVISIONS- UND TREUHAND-AKTIENGESELLSCHAFT, ppa. WISSEL, Wirtschaftsprüfer. Dr. PECKOLT, Wirtschaftsprüfer. EXCERPT I DM opening balance sheet as of June 21, 1948, showing assets and liabilities arising out of the transaction in trust, including own nominal capital and its counterparts III. Claims for the release of RM banking deposits in favor of third parties. IV. Prepaid expenses... V. Trust property goods still awaiting realization: 1. United States surplus programs: (b) Bulk deal.. (c) United States casual transfers. 21.824. 624, 21 19. 744. 091, 48 132.828, 32 335.936, 99 11. 394. 889, 71 2,00 1,00 36. 389. 632, 38 124. 356. 557, 56 VI. Claims arising out of sales prior to the foundation of STEG and outside 1. Captured enemy material (CEM). 2. United States surplus casual transfers. 1. Nominal capital. II. Provisions for contingencies: LIABILITIES 310. 678, 23 1. 293. 701, 26 131. 571. 224, 05 20.000,00 1. For claims for damages and eventual obligations for refunds.. V. Trust obligations arising out of trust property still awaiting realization (including results arising out of the conversion accounts and revaluation): VI. Liabilities on account of claims arising out of sales prior to the foundation of STEG and outside STEG (so-called old proceeds): 1. Captured enemy material (CEM).. 2. United States surplus program, casual transfers. 2. 350. 846, 10 6. 207.052, 28 860.763, 98 1. 120. 197, 48 80.588.310,86 5. 392. 864, 04 8.731. 587, 34 968. 868, 10 115.164. 203, 31 310. 678, 23 Total. 1. 293. 701, 26 131.571. 224, 05 |