annual report 1999 - de.marketscreener.com ag...2 annual report nual 1999 +++ annual accounts +++...

A N N U A L R E P O R T 1 9 9 9

+ annual report 1999 +++ annual report 1999 +++ annual r

2 A N N U A L R E P O R T

nual 1999 +++ aannnnuuaall aaccccoouunnttss +++ annual report 1999 +++

K e y F i g u r e s o f t h e L e n z i n g G r o u p a c c o r d i n g t o U S - G A A P

Business Results

in EUR million 1997* 1998 1999

Sales 522 547 550

EBITDA 63 76 65

EBIT -21 18 12

Net result -48 6 4

Balance sheet profit or loss -54 131 133

Key Data on Cash-Flow


Gross cash-flow 55 70 61

Operative cash-flow 49 50 61

Net cash-flow -7 -9 15

Closing balance of cash 125 16 31

Stock Exchange Key Data


Equity 27 27 27

Market capitalization 200 195 199

Enterprise value 458 481 459

in EUR

Share price as at 31 December 54 53 54

Profit/share -8.2 1.5 1.2

Lenzing AG – Beta (BARRA) 0.56 0.61 0.52

Financing Structure


+ Cash in hand 26 16 31

+ Inventories 76 68 62

+ Receivables 134 112 118

- Liabilities -152 -161 -157

Net debts -258 -128 -116

Key Data on Investments


Investments Lenzing AG 29 30 34

South Pacific Viscose 9 ** **

Lenzing Fibers Corp. 2 3 3

Lenzing Lyocell 47 6 2

Total for Group 87 39 39

Group depreciations 61 48 52

Key Data on Operations

in tonnes 1997 1998 1999

Total fiber production 274,700 299,773 294,654

Paper production 68,781 69,106 66,861

Film production 12,800 12,528 12,634

Fiber Market Share

in % 1997 1998 1999

Western Europe 36 40 42

USA 36 40 38

Asia 10 12 14

World market share 16 19 20

Lenzing AG share for special products 47 53 54

Capital Structure / Profitability


Borrowed money 536 362 358

Social capital 118 131 131

Equity capital 186 230 232

ROCE in % -4.8 2.6 2.2

ROE in % -21.7 2.5 1.9

* 1997 according to Austrian commercial law, incl. SPV

** SPV – 1998: EUR 3 million 1999: EUR 4 million

A N N U A L R E P O R T 3

Note from the Chairman

of the Supervisory Board 4

Corporate Management 7

Note from the Board of Management 8

Organization Chart of the Lenzing Group 11

Status Report of the Lenzing Group 12

The Market Environment 14

The Development of the Lenzing Group 15

Value-Oriented Corporate Management 18

Evolution of the Business Sectors 21

Fibers 21

Lenzing AG 22

Lenzing Lyocell 24

Lenzing Fibers Corporation 25

South Pacific Viscose 25

Bacell 26

Lenzing Technik 27

Films 30

Paper 32

Research and Development 34

Procurement 37

Pollution Control 39

Human Resources 42

Corporate Communication 45

The Lenzing Group in the Year 2000 51

Update 52

Outlook 52

Financial Statement 54

Report of the Supervisory Board 108

Addresses of the Lenzing Group 109

Long-Term Comparison of Key Data 110

TABLE OF CONTENTS


4 N O T E S


NOTE FROM THE CHAIRMANOF THE SUPERVISORY BOARD

D K F M . H E R B E R T W. L I A U N I G

C h a i r m a n o f t h e S u p e r v i s o r y B o a r d s i n c e 1 9 9 7

“ W h a t m a k e s t h e L e n z i n g G r o u p

a n a t t r a c t i v e p a r t n e r o n c a p i t a l

m a r k e t s ? “„„

On account of structural improvements, Lenzing has a very solid foundation

today, which will ensure a satisfactory result even when the market goes

through a cyclical low. With this stability, you can expect excellent results

during a cyclical high, although the growth potential still has not been fully

exploited.

N O T E F R O M T H E C H A I R M A N O F T H ES U P E R V I S O R Y B O A R D

Ladies and Gentlemen,

In the last three years, Lenzing AG has gone through

dramatic transitions. By appointing a young and

dynamic managing team to cope with the challenges

of a fast-paced and difficult market, we have set the

stage for good future prospects.

By pursuing aims to create more profitability, quali-

tative growth and by expanding our leading position

in Europe, we were able to create the necessary

stability, in spite of the unfavorable economic

cycles.

Lenzing AG had to cope with major problems from

the past and reduce some of its burdens. Between

1997 and 1999, write-downs and negative results

of holdings decreased by EUR 32.7 million, while

the operative Group result improved by

EUR 29.1 million during the same period. Parallel

to that, we succeeded in drastically reducing our

liabilities with banks. After loan repayments of

approximately EUR 83 million in 1998, Lenzing

repaid further bank loans of EUR 11 million in

1999.

These measures have helped to expand the credit

rating of the company. Visible international interest

indicates that foreign investors have not failed to

see this development.

1999 was a major challenge to the Lenzing Group.

We were able to end a difficult business year suc-

cessfully. 1999 started with an anticipated low,

which allowed cautious forecasts of an improvement

towards summer and which actually continued up to

the fourth quarter. It is therefore all the more en-

couraging that the Lenzing Group was able to obtain

an operating result of EUR 7.3 million – although

fiber prices declined by up to 12% and although the

losses of Lenzing Lyocell GmbH continue to be a

strain on the business result.

In consequence, 1999 was also a yardstick for the

company's stability.

Our site at Lenzing is the supporting pillar for the

entire Group. By having our own primary-material

supplies, we avoid fluctuations in pulp prices on in-

ternational markets, and a thorough recycling of our

spinoff products creates further cost efficiency. Over

the past years, the innovative activity in the viscose

segment has shown that this traditional technology

has a potential for the future, while exploiting the

synergies for the sites in Indonesia and the USA are

a major component of our management strategy.

With the reorganization into two different units, the

management team has done an excellent job

in creating transparency and flexibility. By giving

greater independence to the business sectors and

divesting them into separate entities, they can act

closer to markets and be more open to cooperations

and partnerships.

N O T E S 5


In fair and factual negotiations with the staff re-

presentatives, we succeeded in settling an issue

that had been pending for years; we introduced a

success-related income component and agreed on

measures to modernize our social benefits.

Our task for the years ahead is to further expand

and reinforce our market leadership position as well

as to solve other outstanding relevant issues.

We not only want to generate growth through the

markets and by developing new products but also

want to generate additional impulses trough a policy

of active participation.

Dkfm. Herbert W. Liaunig

Chairman of the Supervisory Board

6 N O T E S


C O R P O R AT E M A N A G E M E N T

M e m b e r s o f t h e S u p e r v i s o r y B o a r d

Dkfm. Herbert W. Liaunig, Vienna

Chairman

Mag. Ewald Nageler, Vienna

Deputy Chairman

Dkfm. Dr. Hermann Bell, Linz

Member

Dipl. Ing. Othmar Puehringer, Linz

Member

Mag. Wolfgang Peter, Vienna

Member

Dr. Gerhard Scharitzer, Vienna

Member (until 16 June 1999)

W o r k s C o u n c i l R e p r e s e n t a t i v e s

Franz Huber

Chairman of the Company's Works Council

Chairman of the White-Collar Workers' Council

Rudolf Baldinger

Chairman of the Blue-Collar Workers' Council

Richard Lehner (until 31 January 2000)

Deputy Chairman of the Blue-Collar Workers' Council

Helmut Maderthaner (as of 01 February 2000)

Deputy Chairman of the Blue-Collar Workers' Council

M e m b e r s o f t h e B o a r d o f M a n a g e m e n t

Dipl. Kfm. Christian Jochen Werz

(Spokesman of the Board)

Mag. Dr. Peter Untersperger

Dr. Franz Raninger

Dipl. Ing. Dr. Christian Reisinger

C O R P O R AT E M A N A G E M E N T 7


8 N O T E S


NOTE FROM THE BOARDOF MANAGEMENT

D I P L . K F M . C H R I S T I A N J O C H E N W E R Z

M A G . D R . P E T E R U N T E R S P E R G E R

D R . F R A N Z R A N I N G E R

D I P L . I N G . D R . C H R I S T I A N R E I S I N G E R

T h e B o a r d o f M a n a g e m e n t

“ To d a y t h e L e n z i n g G r o u p i s

c o n s i d e r e d t o b e t h e l e a d i n g

e n t e r p r i s e i n t h e i n t e r n a t i o n a l

f i b e r b u s i n e s s . W h a t i s t h e

G r o u p ' s m a i n a d v a n t a g e o v e r i t s

c o m p e t i t o r s ? “„„We are the only international supplier of a whole range of man-made

cellulose fibers, i.e. Viscose, Modal and Lyocell. With its innovation potential,

Lenzing is increasingly becoming a supplier of technologically-intensive

specialities.

Christian Reisinger, Jochen Werz, Franz Raninger, Peter Untersperger

N O T E F R O M T H E B O A R DO F M A N A G E M E N T

Ladies and Gentlemen,

For the Lenzing Group, 1999 was clearly a success-

ful year. Although the period was marked by a

cyclical low, the Group was able to end the year

with a clear profit. We think that only very few com-

panies in our industry succeeded in reaching this

goal. Also, when looking at previous fiber cycles,

there is hardly a year in which the Lenzing Group

was affected by a comparably weak fiber activity,

while achieving a clearly positive result in spite of

it. Lenzing also scored success on markets; in the

textile and especially in the non-woven segments we

were able to firmly gain additional market shares.

These encouraging results, against a backdrop of a

cyclical downward trend, prove the company is able

to largely compensate a cyclical downswing because

of the Group’s successful structural improvements.

For the Board of Management of the Lenzing Group

this clearly confirms the course taken, which aims

at a continuous increase of the earning potential

and the long-term upward development of the com-

pany.

For the Group's core business – the cellulose fiber

business – this means that an improvement of the

product portfolio is still being pursued by strongly

emphasizing the high-quality special fibers. Since

the Lenzing Group is the worldwide technology

leader regarding cellulose fibers, the company delib-

erately focusses on technologically sophisticated

products. Our intention is to use this potential more

specifically in the future in order to generate a sus-

tainable competitive advantage. In this connection,

special significance is attached to research and

technology, as well as application methods in the

downstream markets. The Lenzing Group holds a

leading position in both these areas.

An essential competitive advantage lies in the

integration of the pulp and fiber production at the

Lenzing site. This plant – which is by far the

biggest viscose fiber plant in the world – has been

achieving a number of advantages through integra-

tion for many years, such as, for example, cost

advantages by economies of scale, advantages in

logistics and quality advantages. Since Lenzing is

not exposed to price fluctuations from having to buy

outside pulp, it can be a particularly reliable long-

term partner, especially on the non-woven market.

1999 was a year of special importance for Lenzing,

since ProViscose and ProModal, which are two fiber

brands that are a combination of Lyocell and Vis-

cose or Modal fibers, were launched successfully.

These products, which are protected trademarks,

can be processed on conventional textile lines and

therefore remove an essential barrier to the intro-

duction of innovative fibers. The multiple applica-

tion and especially the economic advantages for

customers using such innovative fibers have given

N O T E S 9


these new fiber products a promising start on di-

verse markets.In keeping with the strategy pursued

by Lenzing, one of the profitable business sectors of

Lenzing AG, which is not part of the fiber core

business, was divested and set up as a separate

company in 1999. Lenzing Technik, the engineering

and systems manufacturing company, became an

independent entity in 1999. With this step we want

to make sure that markets become even more aware

of our technological products and services. For the

same reasons, the similarly very successful film

business sector (“Lenzing Plastics“) will also be

converted into an independent company in the

course of 2000.

With an upswing on the fiber market, the year 2000

is off to a very good start for the Group. We will

dynamically pursue the implementation of our

chosen strategy and expect to achieve a further

positive impact on the development of our result.

We would like to thank our customers, suppliers and

shareholders who – with their confidence in Lenzing

AG's stability and potential – are the supporting

pillars of our success strategy. The Lenzing team, in

turn, is the foundation on which we are able to

build. Especially during the year under review, all

team members performed extremely well, for which

they deserve our very special thanks. We are proud

and highly confident that we will be able to commu-

nicate this gratitude to them also in future years.

On account of the positive development of our

business results in the course of the year under

review, the Board of Management would like to

propose that a dividend, in the same amount as last

year, be paid for 1999, which is also in line with

our long-term dividend policy.

Lenzing, April 2000

Dipl.Kfm. Christian Jochen Werz

Dr. Peter Untersperger

Dr. Franz Raninger

Dr. Christian Reisinger

1 0 N O T E S


O R G A N I Z AT I O N C H A R T 1 1


Gemeinnue t z igeS ied lungsgese l l scha f t

RVL ReststoffverwertungLenzing

B a c e l lH a n d e l s g e s e l l s c h a f t

L e n z i n g Te c h n i k

▲

▲

L e n z i n g P l a s t i c s( a s o f 1 A p r i l 2 0 0 0 )

L e n z i n g Ly o c e l l 1 0 0 % 1 0 0 %

1 0 0 %

L E N Z I N GG R O U P

R & D

F i b e r s

B O A R D M E M B E R S

P. U n t e r s p e r g e r

C . R e i s i n g e r ( D e p . )

F i l m s

P a p e r

F i n a n c e s

I n v e s t o r & P u b l i c R e l a t i o n s A d m i n i s t r a t i o n

B a c e l l

B O A R D M E M B E R S

J . We r z

F. R a n i n g e r ( D e p . )

L E N Z I N G A G

BildungszentrumLenzing

4 . 5 %

1 0 0 %

5 0 %

7 5 %

9 9 . 9 %

L e n z i n g F i b e r s C o r p . 1 0 0 %

Sou th Pac i f i c V i scose 4 1 . 9 %

L e n z i n g D e u t s c h l a n d 1 0 0 %S y n c e l l

L e n z i n g F r a n c e 1 0 0 %

1 4 M A R K E T

nual 1999 +++ mmaarrkkeett +++ annual report 1999 +++ annual r

THE MARKETENV IRONMENT

D I P L . K F M . C H R I S T I A N J O C H E N W E R Z

S p o k e s m a n o f t h e B o a r d ,

w i t h L e n z i n g s i n c e 1 9 9 7

“ T h e c o r e b u s i n e s s , f i b e r s ,

i s e x p o s e d t o c y c l i c a l

m a r k e t f l u c t u a t i o n s .

H o w d o y o u r e d u c e t h e i r

i n f l u e n c e o n t h e b u s i n e s s r e s u l t ? “„„We anticipate these fluctuations by expanding our business with special

products. At the same time, we are constantly working on an optimization of

our cost structure. In 1999, these structural improvements have already shown

a clear effect.

T H E M A R K E T E N V I R O N M E N T

In the course of 1999, the increasingly shorter

cycles of the fiber business were clearly apparent.

Since the fall of 1998, a decline in demand and

prices became noticeable – a weakness that was

beginning to be felt on all markets as early as the

beginning of the year. The first quarter marked the

trough in this development. Towards the middle of

the year, the situation began to stabilize in western

Europe. As major customers closed their plants for

the holidays, the textile stocks were sold off and

demand picked up. Extremely low prices for cotton

and polyester made it difficult to carry out the

necessary price hike for yarns and therefore also for

fibers. This was also due to the continuing strong

import pressure from Asia. While the markets in

Asia were characterized by a good development in

quantity terms, the cheap cotton and polyester

fibers hardly allowed any price increases for viscose.

During the fourth quarter, the business situation

clearly began to improve – we were able to obtain

the first price increases, the low point had been left

behind.

In the USA, the textile market continues to be diffi-

cult and stagnant, especially since semi-finished

and finished products from countries in Asia make

it increasingly difficult to sell fibers.

World Fiber Production

in mill. tonnes 1998 1999 variation

in %

Cotton 18.65 19.30 + 3

Wool 1.39 1.37 - 1

Man-made fibers 27.82 28.10 + 1

Total 47.86 48.77 + 2

Break-down of man-made fibers:

Viscose staple, Modal

and Lyocell fibers 1.62 1.52 - 6

Viscose and

Acetate filaments,

Acetate cable 1.17 1.00 - 15

Source: ICAC, Wool Secretariat, JCFA, Acordis, Lenzing AG

T H E D E V E L O P M E N T O F T H E L E N Z I N G G R O U P

In spite of the low level of fiber prices, the Lenzing

Group sales for 1999, amounting to EUR 550.2

million, were slighly above the figure achieved for

1998 (EUR 547.4 million). This is mainly due to

the records in production and deliveries of Lenzing

AG and the high-quality mix of varieties. In 1999,

South Pacific Viscose, our associated company in

Indonesia, was consolidated at equity (42 %), which

means that the sales and the values of balance

sheet items are not contained in the Group figures

for 1999 and the comparable figures for 1998.

M A R K E T 1 5

report 1999 +++ annual report 1999 +++ annual report 199

The total production of the Lenzing sites went down

by 1.7 %, from 300,000 tonnes for the year in

1998 to 295,000 tonnes, which was due to the cut-

back in production in the US plant at Lowland,

Tennessee, and at South Pacific Viscose, during the

first quarter of 1999.

The Lenzing Group was, however, able to further

strengthen and expand its market position in the

international fiber business:

Lenzing Market Shares in %

Position 1999 1998

Europe No. 1 42 40

Asia No. 3 14 12

USA No. 2 38 40

Worldwide No. 2 20 19

In 1999, the Lenzing Group was able to generate a

clearly positive result, in spite of the cyclical low.

We were able to largely compensate the cyclical

effects by structural improvements:

● expanding the cost leadership in Europe

● an offensive innovation policy

● a qualitative and quantitative growth through a

strategy focussing on special products

These measures helped to contain the effects of the

weak markets on the profit situation of the Lenzing

Group at a relatively low level. The operative result

for 1999 (according to US-GAAP) amounted to EUR

7.3 million (EUR 13.1 million for the year before).

The result before taxes and minority interests de-

creased from EUR 8.3 million for the first and

second quarter of 1999 to EUR 3.9, on account of

the declining prices for fibers. In consequence, the

profit per share also went down from EUR 2 to

EUR 1. The gross cash-flow amounted to EUR 61

million or 11 % of sales (1998: EUR 70 million,

13 % of sales).

Since liabilities were reduced, there was a consider-

able decline in the net debt. This key figure sank by

10 %, from EUR 128 million in 1998 to EUR 116

million at present.

Throughout the Group, EUR 38.9 million were in-

vested in fixed assets (1998: EUR 38.6 million). Of

these, EUR 34.2 million were spent at the Lenzing

site – primarily a new steam turbine and further ex-

pansion of the pulp production, as well as a

laminating and pasting line for the films sector. At

the associated companies, the investments were

mainly for replacement purposes.

1 6 M A R K E T

nual 1999 +++ mmaarrkkeett +++ annual report 1999 +++ annual r

M A R K E T 1 7


D i s t r i b u t i o n o f S a l e s b y M a r k e t s100 % = EUR 550.2 million

D i s t r i b u t i o n o f S a l e s b y S e c t o r s

Paper 9.1 %

Films 9.5 %

Lenzing Technik 3.3 %

Trading productsand services 9.1 %

Pulp and fibers 69.0 %

Lenzing AG (incl.Lenzing Lyocell KG) 74.8 %

Bacell HG 9.0 %

Lenzing Technik 3.1 %

Lenzing USA Corp. 12.1 %

Others 1.0 %

100 % = EUR 550.2 million

D i s t r i b u t i o n o f S a l e s b y C o m p a n i e s100 % = EUR 550.2 million

EFTA 5.9 %

Asia 16.2 %

America 12.9 %

Others 6.4 %

Austria 18.1 %

EU (excl. Austria) 40.5 %

1 8 VA L U E O R I E N TAT I O N

nual 1999 +++ vvaalluuee oorriieennttaattiioonn +++ annual report 1999 +

VALUE-ORIENTEDCORPORATE MANAGEMENT

M A G . D R . P E T E R U N T E R S P E R G E R

M e m b e r o f t h e B o a r d o f M a n a g e m e n t ,


“ L e n z i n g s h a r e s a r e c u r r e n t l y

q u o t e d i n t h e B s e g m e n t

o f t h e V i e n n a S t o c k E x c h a n g e .

D o y o u s e e a n y c h a n c e s f o r

r e t u r n i n g t o t h e AT X i n d e x ? “„„I am convinced that Lenzing shares are an extremely attractive title for

investors, on account of the company's marked stuctural improvements and

the sustainable positive business development. They will therefore soon be

re-admitted to the ATX index.

VA L U E - O R I E N T E DC O R P O R AT E M A N A G E M E N T

The Lenzing management's goal is to achieve a

steady growth in corporate value for shareholders.

The first step in this direction was to re-position the

site at Lenzing, which has already shown visible

success in the course of the last two years.

On account of this re-structuring process, Lenzing

AG was able to noticeably improve its balance-sheet

relations, its financing structure and its financial

strength.

After repaying bank loans of approximately

EUR 83 million in 1998, another EUR 11 million

were repaid in 1999.

We were able to improve the output-capital ratio of

the individual sites on a medium-term basis by

means of a hands-on financial management.

E v o l u t i o n o f L e n z i n g S h a r e s

On account of a decision, taken by the Vienna Stock

Exchange, Lenzing shares were taken from the ATX

index and transferred to the specialist market. This

was due to the unsatisfactory liquidity and the low

volume of share trading. The measure led to a tem-

porary pressure on sales, especially on the part of

investment companies, which reflect the ATX, and

the values quoted in the ATX, in their index funds.

In January, prices dropped briefly to EUR 43.0, but

rose again to EUR 56.9 by the end of February,

which is a recovery by 32 %. The biggest trading

volume for Lenzing shares was obtained on

29 September 1999 with 31,300 traded shares.

The highest quotation was achieved on 7 December

1999 (price: EUR 57.2). As at 31 December 1999,

Lenzing shares were quoted at EUR 54.0. While this

value corresponds to a performance of +2 %, as

compared to the year before (EUR 53.05), the re-

sult continues to be unsatisfactory. In the future,

the encouraging results for fiscal 1999 should also

be reflected in rising share prices.

VA L U E O R I E N TAT I O N 1 9

+++ annual report 1999 +++ annual report 1999 +++ annual

Deve lopment o f t he ATX Index and Lenz ing Shares

Average monthly values

ATS Index

Lenzing shares

Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.

100 euro

EUR

90 euro

80 euro

70 euro

60 euro

50 euro

40 euro

B a l a n c e - S h e e t R e p o r t i n g B a s e d o n U S - G A A P

As of 31 December 1999, the Lenzing Group - for

the first time - prepared its accounts based on the

guidelines of the US accounting regulations (US-

GAAP). This facilitates a better comparison and a

higher transparency of Group results, especially for

international investors. The new reporting principles

according to US-GAAP were retro-actively also

applied to the Group accounts as at 31 December

1998, in order to facilitate a clearer comparison

with previous years. Reporting based on US-GAAP

does not only produce more informative balance-

sheet key data, but also a marked improvement in

capital structure and financing relations, especially

since some of the fixed assets, which had already

been written off, were re-capitalized, and since the

service life of plants and equipment was increased

to up to 15 years, which was applied effectively at

Lenzing AG. The slight increase in depreciations has

only a minor impact on the operating result. In the

years to come, it will again be returned to normal

dimensions. As far as Lenzing AG is concerned, the

conversion to US-GAAP results in an increase in

equity. In the opening balance sheet as at 1 January

1998 it amounts to EUR 251.9 million according to

US-GAAP, as compared to EUR 163.2 million

according to the Austrian law on the rendering of

accounts (+54.4 %). The share of equity as at 31

December 1999 amounts to 32.2 % (according to

US-GAAP) for the Group, as compared to 26.2 %

(according to Austrian statutory requirements) as at

31 December 1998.

On the basis of US-GAAP principles, liquid funds

went up from the previous value of EUR 16 million

to EUR 31 million by the end of 1999. When

including investments held as current assets, the

Group ended up with a disposable liquidity position

of EUR 84 million at the end of 1999 (1998: EUR

74 million).

C o n v e r t i n g f r o m AT S t o E U R

As of 1 January 1999, the Lenzing Group changed

its accounting and internal reporting system for its

two Austrian sites to the euro. At the same time, the

share capital of previously ATS 367.5 million was

converted into euros, in keeping with a decision

taken at the shareholders' meeting in 1999, and in

compliance with statutory regulations for conversion

to the euro. It now amounts to EUR 26,717,250.00.

The differential of EUR 9,983.44, resulting from

the conversion, was met from non-committed

revenue reserves.

After converting the share capital to the new

European currency, the shareholders decided at its

meeting on 21 April 1999 to convert the par-value

shares into 3,675,000 individual share certificates.

In the course of converting to the euro, the share-

holders adapted all necessary decisions relating to

the convertible bonds and the conditional increase

of capital stock (up to EUR 6,688,400.00).

With the introduction of the euro, the Lenzing Group

also finds it easier to handle its treasury and cash

management, since this has led to a significant

reduction in the foreign currency holdings that the

company was obliged to hold in the past.

2 0 VA L U E O R I E N TAT I O N

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F I B E R S 2 1

F I BERS

D R . F R A N Z R A N I N G E R



“ V i s c o s e , M o d a l o r L y o c e l l f i b e r s :

W h e r e d o y o u s e e t h e g r e a t e s t

g r o w t h p o t e n t i a l f o r t h e c o m i n g

t h r e e y e a r s ? “„„Lyocell offers good growth opportunities. However, the traditional technology,

based on viscose, still contains further potential for innovation.

The numerous product developments at Lenzing in recent years are a clear

proof of this point.

+++ annual report 1999 +++ ffiibbeerrss +++ annual report 1999

T H E F I B E R S E C T O R

The fiber sector comprises the pulp and fiber

business of Lenzing AG and Lenzing Lyocell

(Austria), Lenzing Fibers Corporation (USA) and

South Pacific Viscose (Indonesia).

T h e F i b e r D i v i s i o n o f L e n z i n g A G

The fiber division of Lenzing AG, which also manu-

factures pulp, the primary material, succeeded in

generating excellent results, which equaled the

level of the good previous year, in spite of a difficult

market environment. This is further proof of the

performance capacity of the site at Lenzing, which

is considered to be the world's most competitive

viscose plant. After the market decline at the

beginning of the year, the net proceeds for the first

quarter fell – from an already low level - by more

than 10 % during a very short time. In the course of

the year the situation stabilized, but slight price

hikes were possible only during the fourth quarter,

when business picked up worldwide. The output of

the entire industry in western Europe went down by

5 % in 1999, while Lenzing was able to maintain

its sales, amounting to EUR 267.8 million, slightly

above the level of the previous year (1998: EUR

266.2 million), and this despite the low level of

fiber prices.

Inventories dropped to a minimum, while fiber

deliveries in 1999 rose by 13 %, as compared to

1998. A high-quality product mix, ranging from

standard to special fibers, as well as less input

required for maintenance, energy, staff and primary

materials compensated the lower proceeds.

The direction, embarked upon since the middle of

the '90s, namely to put more emphasis on special

fibers, is beginning to bear fruit. In 1999, already

55 % of the sold quantities were in special-fiber

segments, which helped to earn profit contributions

of 70 %. The non-woven business experienced an

especially strong growth in 1999, and we were able

to nearly double the sale of Micro Modal fibers.

2 2 F I B E R S

nual 1999 +++ ffiibbeerrss +++ annual report 1999 +++ annual r

Viscose, white, textiles 46 %

Non-wovens 26 %

Modal 17 %

Flame-retardant fibersand others 1 %

Viscose, colored, textiles 10 %

D i s t r i b u t i o n o f S a l e s a c c o r d i n g t o F i b e r sLenzing AG

F I B E R S 2 3


E v o l u t i o n o f S p e c i a l F i b e r sLenzing AG

% special fibers

standard fibers

Number 1 in Japan

After introducing Modal and Lyocell fibers to the

Japanese market, Lenzing AG has also been supply-

ing spun-dyed special fibers to the Japanese market

since fall. These are used for medical applications,

decorative applications and for tablewear, as well as

for garments. Lenzing took over this line of business

from Kohjin, the Japanese manufacturer. As a result,

the company is becoming the leading supplier of

spun-dyed viscose fibers in Japan. In Europe too,

Lenzing AG is already the market leader for this

segment.

ProViscose and ProModal

In 1999, Lenzing took another important step in the

direction of focussing on high-quality special

fibers by developing new fiber blends, consisting of

Modal/Lyocell and Viscose/Lyocell that can be used

for textile applications. With this combination of

three generations of cellulose fibers, all the positive

attributes of the individual product can be exploit-

ed, while the product and care features are thus

clearly improved for the end consumer. With the

introduction of “ProViscose“ and “ProModal“,

Lenzing is also moving in a new direction with its

branding strategy. The fiber blends are launched on

the market as separate trademarks, complete with

quality seal, and in close cooperation with our

customers.

At the beginning of the year, the marketing organi-

zation for Lyocell fibers became part of the fiber

sector. Our aim is to market Lyocell faster and more

dynamically, within the overall marketing effort for

all Lenzing fibers. We have also made major invest-

ments to expand our pulp production capacity to

155,000 tonnes.

We expect a very favorable development for the first

semester and a clear improvement of the result for

the entire year. The upward trend, which set in last

fall, is continuing. Production at Lenzing is at a

record level; still, demand cannot be fully satisfied

at present. This applies both to the textile segment

and the non-woven fibers. The high level of orders

for special fibers is particularly gratifying. In the

first quarter 2000, we were able to increase prices

by some 5 %, a similar rise has already been

announced for the second quarter. It should thus be

possible to gradually begin to increase the price

level, which continues to be low after the price

drops of the previous year.

L e n z i n g L y o c e l l

In 1999, Lenzing Lyocell increased its sales by

more than 50 %, as compared to the previous year.

Here, the recovery of the market, especially during

the second semester, was clearly noticeable. On the

one hand, this was due to the slightly more favor-

able economic climate in Europe and the Far East,

while on the other hand, this can also be attributed

to the integration of its marketing efforts into the

overall Lenzing fiber activities. In addition, the

introduction of more intensive marketing activities

is now bearing fruit.

We were clearly able to improve the quality of our

fibers. However, the result of Lenzing Lyocell

Ges.m.b.H. & Co KG continues to be negative. A

growing number of opinion-leaders and trend

setters of the textile industry – such as, for exam-

ple, Armani, Triumph, Schiesser, Banana Republic,

DKNY, etc. – are now beginning to include Lenzing

Lyocell fibers in their collections. Nevertheless, a

few still open questions regarding dyeing and finish-

ing are obstacles to a quicker expansion. The main

activities in 1999 therefore focussed on developing

finishing steps that are easier to implement, as well

as further developing non-fibrillating fibers. The use

of Lyocell in fiber blends was extremely well receiv-

ed by customers. Especially the blending of Lyocell

to create “ProModal“ and “ProViscose“ attracted

attention. A better persistance of shape and less

pilling (very fine hair detaches from the textile

surface) help to maintain the shape and visual

appearance of garments also after frequent washing.

The range of commercially available fibers was

enlarged by “Micro-Lyocell“ and a non-woven type.

This is to create the basis for a continuous expan-

sion of sales.

We can certainly see opportunities for expansion in

the leisure-wear sector, especially denim items.

Another focus of our activities in 2000 will be the

sensitive sector of non-woven products for the use

of Lyocell fibers for hygiene applications.

Encouraged by initial successes regarding bed linen

and terry-cloth items, we will also explore further

possible applications for the home textile industry.

A review by the European Union regarding agree-

ments on grants to build the large-scale plant at

2 4 F I B E R S


Heiligenkreuz in Burgenland, Austria, is still in pro-

cess. The decision by the EU authorities on com-

petition issues is expected for spring 2000. From

the ongoing procedure, we can be confident as to

receiving a confirmation on the correct flow of

funds.

L e n z i n g F i b e r s C o r p o r a t i o n ( L F C )

1999 was another difficult year for Lenzing Fibers

Corporation (LFC), our US subsidiary in Lowland,

Tennessee. Growing volumes of imports of finished

textiles from countries in Asia are creating a grow-

ing pressure on the domestic market. The big US

retail chains continue to increasingly shift their

purchases from local manufacturers to imported

products from Asia.

After the very weak demand for viscose fibers during

the first quarter, there was a slight recovery in the

course of the year under review. However, the pres-

sure on prices persisted. While the US textile

manufacturing market is constantly shrinking, we

are pleased to see that the non-woven segment is

experiencing a constant increase. In keeping with

this trend, Lenzing Fibers Corp. continues to focus

on hygiene applications, for which a new fiber was

developed in 1999. Further special fibers will have

a positive influence on LFC's earning situation,

especially since these products are not immediately

involved in the general price drop for fibers and

meet with great demand.

On account of the structural weakness of the US

textile industry, production was cut back temporarily

in the course of the year. Additional measures to

enhance the efficiency of consumption factors helped

the Lenzing subsidiary achieve a positive cash-flow

also for this difficult year, in spite of reduced pro-

duction and sales. However, the result of Lenzing

Fibers Corp. was negative nonetheless.

Negotiations with Acordis, our competitor, are under

way to set up a joint venture. The goal is to bundle

viscose fiber activities in the US, to further reduce

costs and thus to jointly form a strong counter-

balance to the textile imports and competing fibers.

S o u t h P a c i f i c V i s c o s e ( S P V * )

1999 marked a turning point in the history of

Indonesia, from a state with autocratic rule to a

young democracy. During the first semester, the sale

of viscose fibers was influenced by the bad eco-

nomic situation prior to the elections in Indonesia.

Business picked up, after the first democratic elec-

tions had taken place. Thanks to a strong fourth

quarter, South Pacific Viscose, a Lenzing subsidiary,

succeeded in increasing its deliveries over 1998. It

was possible to increase the market share in

Indonesia from 38 % to almost 45 %. The market

position with the big spinning mills in Indonesia

could also be markedly improved on account of the

reliable quality of SPV's products. On account of the

strong price competition in the traditional export

markets in Asia, new markets outside of Asia had to

be built up. The plant achieved a new record pro-

duction output.

* associated company

F I B E R S 2 5


It was possible to further decrease production costs

in comparison to the year before, while cost leader-

ship was maintained. The internal and external

benchmarking process, as well as intensive training

measures have already had a very positive effect.

In spite of the difficult business situation, due to

market conditions and country-specific factors, es-

pecially during the first two quarters of the year

under review, 1999 ended with a positive result for

the year, on the basis of US-GAAP reporting.

From our present perspective, the encouraging

development of the fourth quarter will continue in

2000, provided that pulp costs will not experience

any major upward development.

A further increase in production is planned.

Being able to pass on the drastic price hikes for

pulp is the biggest challenge for the current busi-

ness year.

The costs for primary materials also made it neces-

sary to further reduce costs and to raise prices.

B a c e l l

The pulp plant, Bacell, in the Brazilian state of

Bahia, went through a process of debt restructuring

as well as an increase in capital, in which Lenzing

did not take part, so that the Lenzing share went

down from an original 37.4 % to a current 4.5 %.

However, the Lenzing Group continues to be the

largest single customer, buying from Bacell primary

material for the associated company in Indonesia as

well as high-quality special pulp for the Lyocell pro-

duction in Burgenland, Austria. Since we reduced

the share we hold in Bacell and already made provi-

sions in previous years, Bacell's result is no longer

included in the annual accounts of the Lenzing

Group.

B a c e l l H a n d e l s g e s e l l s c h a f t

Bacell Handelsgesellschaft distributes the total

volume of pulp that Bacell S.A. produces and

exports. With customers throughout the world, sales

of EUR 52.5 million were obtained (1998: EUR

52.7 million). The major customers can be found in

Indonesia, Japan, Taiwan, Germany, England and

Austria.

M a r k e t i n g S u b s i d i a r i e s

Lenzing Deutschland

Syncell Ges.m.b.H.

Ditzingen, Germany

Lenzing France S.A.R.L.

Paris, France

These two wholly-owned marketing subsidiaries are

mainly engaged in marketing our fibers and syn-

thetic films.

2 6 F I B E R S

nual 1999 +++ ffiibbeerrss +++ annual report 1999 +++ annual r

L E N Z I N G T E C H N I K 2 7

LENZ ING TECHN IK

D I P L . I N G . D R . C H R I S T I A N R E I S I N G E R



“ L e n z i n g Te c h n i k b e c a m e a n

i n d e p e n d e n t s u b s i d i a r y i n

1 9 9 9 . W h e r e w i l l t h a t l i n e o f

b u s i n e s s b e i n t h r e e y e a r s '

t i m e ? “„ „There will certainly be a vigorous expansion of sales in the new technological

segments. These will hold an important position in the key markets.

report 1999 +++ lenzing technik +++ annual report 1999 +

L E N Z I N G T E C H N I K

Lenzing Technik is a technology-oriented company

with a staff of 480 and sales of EUR 45.2 million

(1999).

As far as the organizational structure of Lenzing

Technik is concerned, the company became an in-

dependent subsidiary of Lenzing AG (share: 100 %)

during fiscal 1999. The purpose of divesting the

sector as of 1 October was to create more awareness

that Lenzing Technik is an engineering company, as

well as to allow it to act with more flexibility on the

market. Lenzing Technik has activities in three areas

and offers its services through a worldwide distribu-

tion network. These include fiber and pulp techno-

logy, services in the construction of systems and

equipments, industrial services and automation, as

well as measuring instruments and special machines

(Lenzing Instruments, poly-extinguishing plants,

labelling systems).

The market offered a good order intake and ex-

perienced only few fluctuations in the course of the

year. As far as production is concerned, there was a

shift in services offered to a broader customer base,

following the completion of major projects during

the past two years.

Lenzing Technik spent its biggest development

budget to date in 1999, which is a provision for the

future. The resulting products were well received

worldwide.

The very good level of orders at hand regarding the

construction of systems and equipments as well as

industrial services can be explained by a larger

volume of sales in Austria, with a focus on the site

at Lenzing.

In the area of automation, we were able to complete

a number of interesting key projects, such as auto-

mating the purification plant Siggerwiesen in

Salzburg.

Separation technology experienced a slight increase

by venturing into new markets with alternative

areas of application. On account of the worldwide

textile crisis, the development of the market for

viscose technology is on the decline.

The business result of the Lenzing Instruments busi-

ness sector suffered from the crisis of the textile

industry, which has not yet been fully overcome.

In the area pulp and pollution-control technology, it

was possible to implement several major projects for

the pulp industry in Europe.

During fiscal 2000, we will focus on the tertiary

sector and industrial services, step up product inno-

vation regarding measuring instruments and special

equipment. Lenzing Technik has set itself, as a

priority goal, to continue alliances and partnerships

for development and marketing.

We will develop, with consistency, the construction

of systems and equipments and the area of indus-

trial services by stepping up our marketing activities

on regional markets. Innovations regarding viscose

2 8 L E N Z I N G T E C H N I K

nual 1999 +++ lleennzziinngg tteecchhnniikk +++ annual report 1999 +++

L E N Z I N G T E C H N I K 2 9


Viscose technology 17.8 %

Pulp and pollution-controltechnology 10.1 %

Automation 17.0 %

Lenzing Instruments 8.9 %

Systems and equipments &industrial services 41.7 %

Separation technology 4.5 %

D i s t r i b u t i o n o f S a l e s b y L e n z i n g T e c h n i k100% = EUR 45.2 million

technology, filtration technology and special

machines help to open up new markets and to

generate additional sales.

For 2000, Lenzing Technik has already received

major orders from Europe and Asia. We are therefore

confident that we will be able to exceed the good

result of 1999.

T H E F I L M S S E C T O R

At the Lenzing site, the films sector manufactures

plastic films, woven products and tapes, as well as

PTFE (polytetrafluoroethylene) products. 1999 was

a highly successful year for the films sector, gener-

ating a record result once more. The return on sales

(more than 10 %) and a ROCE of 16.0 % are incen-

tives for further improvements in 2000.

Total production amounted to 13,070 tonnes (1998:

13,200 tonnes), the sales for the year amounted to

EUR 52.2 million (1998: EUR 50.3 million).

On the hard-fought markets of the building-material

trade and industry, we were able to more than com-

pensate the weaknesses, due to the slump in build-

ing activities, by further innovations regarding

3 0 F I L M S

nual 1999 +++ ffiillmmss +++ annual report 1999 +++ annual re

F I LMSD I P L . I N G . W O L F G A N G P L A S S E R

M a n a g i n g D i r e c t o r - P r o d u c t i o n ,


D I P L . I N G . J O H A N N H U B E R

M a n a g i n g D i r e c t o r - S a l e s ,


“ H o w d o y o u e x p l a i n t h e

e v o l u t i o n o f t h e f i l m s s e c t o r ,

w h i c h i s f a r a b o v e t h e a v e r a g e

f o r t h e p l a s t i c s i n d u s t r y ? “„„We were able to gain a leading position on some niche markets by consistently developing markets

and expanding our range of products. This spares us the price pressure and drop in margins

experienced with mass products. As we are about to become an independent company, we will have

additional opportunities to enter into further cooperations.

F I L M S 3 1

eport 1999 +++ annual report 1999 +++ annual report 1999

technical compounds 23.7 %

weaving and Raschel filmsand Raschel tapes 8.1 %

woven products 15 %

PTFE (polytetrafluoro-ethylene) products 33.2 %

decorative and cable films,cable tapes,technical films 15.3 %

D i s t r i b u t i o n o f S a l e s a c c o r d i n g t o P r o d u c t G r o u p s100% = EUR 52.2 million

compounds. Our position has clearly improved in

comparison to competitors. We succeeded in gaining

additional market shares. In order to continue this

trend, we invested in a new laminating technology,

which went into operation in March 2000.

The still relatively new segment of hot-gas filtration

doubled the quantities sold, which has secured an

outstanding market position for the films sector. We

are investing into and expanding our capacities as

well as manufacturing still better qualities in order

to take account of this development.

Demand for the classical film segments has become

weaker, especially for decorative and Raschel films.

Appropriate measures were therefore taken regarding

costs, and these will be implemented in 2000.

Their goal is to enable this sector to achieve a posi-

tive result once again.

Problems were caused by the evolution of primary

material prices. The prices for the main primary

materials (polyolefins, aluminum), for example, went

up by more than 100 % in the course of six months.

However, we must also expect further price hikes for

the first semester of 2000.

The films business began fiscal 2000 with great

optimism.

During the first quarter capacities are being exploit-

ed at a level that is unusually high for the season.

In some segments, not all customer requests have

been fully met.

With the new laminating line, we will be able to

eliminate bottlenecks in the area of lamination

(barrier sheet compounds and roofing sheets).

The films business will become independent as a

wholly-owned subsidiary of Lenzing AG as of the

second quarter of the year. It will operate on

markets under the new name “Lenzing Plastics

GmbH & Co KG“.

This step is intended to create a further incentive to

act with entrepreneurship, to increase the motiva-

tion of every individual staff member and thus the

prerequisites for increasing the business result.

T H E P A P E R S E C T O R

The paper sector covers the production of woodfree

natural paper varieties on the basis of waste paper,

poster paper varieties and woodfree envelope paper

varieties at the Lenzing site. Lenzing's special paper

varieties enjoy an excellent reputation on the major

paper markets in Europe.

With an amount of EUR 50 million, sales are approx-

imately 5 % below the value for 1998 (EUR 52.6

million). Production sank from 69,106 tonnes

(1998) to 66,861 tonnes for the year.

The paper sector, in 1999 was characterized by a

relatively weak market development during the first

semester, as well as a swift increase in pulp prices

during the second semester. This trend could be

3 2 P A P E R

nual 1999 +++ ppaappeerr +++ annual report 1999 +++ annual re

PAPERD R . G E R H A R D D A N N I N G E R

H e a d o f B u s i n e s s D i v i s i o n – S a l e s ,


D I P L . I N G . H E L M U T P R O K O P

H e a d o f B u s i n e s s D i v i s i o n – P r o d u c t i o n ,


“ E n v i r o n m e n t a l p r o t e c t i o n /

p o l l u t i o n c o n t r o l m a y n o l o n g e r

h o l d t h e s a m e p o s i t i o n a s s o m e

y e a r s a g o ; y e t , y o u w a n t t o

c o n s i d e r a b l y i n c r e a s e y o u r

r e c y c l i n g q u a n t i t i e s . H o w d o

y o u r e c o n c i l e t h e s e t w o g o a l s ? “„ „Today, there is less scope for compromises based on ecological reasons. This offers us an opportunity,

since we are able to produce top-quality products from 100 % waste paper. And we will make further

efforts to increase our quality edge.

recycling paper 38 %

poster paper 15 %

envelope paper 47 %

D i s t r i b u t i o n o f S a l e s a c c o r d i n g t o V a r i e t i e s100% = EUR 50.0 million

compensated only partially by expanding sales.

Nevertheless, the result at year-end was positive.

However, we did not succeed in matching the

excellent result of the year before, where the profit

margin had been 10 %.

The papermill uses large quantities of waste paper

as its primary material. With this step, Lenzing AG

is making a major contribution to improving the

ecological situation.

The waste-paper processing plant is in compliance

with the most modern principles, and the paper

makers at Lenzing have excellent experience in

using a wide range of waste paper varieties.

The paper line was retrofitted during the year under

review in order to be able to further expand our

leading market position with regard to Top Recycling

paper varieties.

In spite of a slight decline in the supply of woodfree

recycling paper varieties (-2.5 %), this segment suc-

ceeded in keeping the level of its profit contri-

bution. This was made possible by maintaining the

high price level. 35 % of sales and nearly 50 % of

the profit contributions of the Lenzing papermill

come from recycling products. The market share of

the recycling segment amounted to approximately

30 % in Europe in 1999. It should go up to more

than 35 % in the next three years. During the year

under review, we succeeded in launching a new

recycling paper variety with one German paper

wholesale dealer - an expansion of great strategic

significance.

The prodution volume for poster paper varieties was

more or less on the same level as during the pre-

vious year. We were able to increase the sale of

woodfree envelope papers by more than 10 % to

almost 35,000 tonnes. However, the profit contri-

butions, especially for paper rolls, are not satisfac-

tory.

The continuing rise in pulp prices led to a consider-

able increase in costs, which has to be passed on to

the market in the form of higher prices. This con-

cerns primarily the envelope and poster paper vari-

eties. The market recovery, which has been notice-

able since the fourth quarter of 1999, should

persist during the current year and support efforts

to raise prices.

During the current year, investment activities will

focus on reinforcing the logistics performance of the

paper sector. They will mainly serve to secure

format finishing and deliveries to wholesale dealers.

On the basis of the improved productivity and the

good cost structure, 2000 will again be a successful

year for the paper sector.

P A P E R 3 3

eport 1999 +++ annual report 1999 +++ annual report 1999

3 4 R & D

nual 1999 +++ rreesseeaarrcchh && ddeevveellooppmmeenntt +++ annual report 1

RESEARCH & DEVELOPMENT

D D R . H A I O H A R M S

H e a d o f R e s e a r c h a n d D e v e l o p m e n t ,


“ T h e p r i m a r y - m a t e r i a l i n d u s t r y h a s v e r y l o n g a n d t h e r e f o r e

c o s t - i n t e n s i v e c y c l e s r e g a r d i n g p r o d u c t i n n o v a t i o n s a n d

n e w t e c h n o l o g i e s . F o r a c o m p a n y i n t h e f i b e r i n d u s t r y ,

L e n z i n g a l l o c a t e s c o m p a r a t i v e l y h i g h a m o u n t s t o R & D .

D o t h e s e i n v e s t m e n t s p a y o f f i n v i e w o f t h i s l o n g - t e r m

p e r s p e c t i v e ? “„„

It is part of our strategy for success to invest a certain amount of our

resources into medium and long-term targets. Lenzing's research made a

decisive contribution to the company's competitiveness, while competitors

who lacked that farsightedness had to give in to crowding-out competition.

The broad product range, the value-added by spinoff products of the pulp

production, the solutions to pollution-control issues and the ongoing

improvements in efficiency would be impossible without constant efforts.

This also applies to innovations that pay off in the longer run.

C E N T E R O F C O M P E T E N C E L E N Z I N G

The investments into research and development

amounted to EUR 9.0 million (1998: EUR 11.4

million)*. In the course of 1999, we were able to

enter into several cooperation projects with external

partners. When cooperating with experts from

science or related industrial areas, we work on

medium and long-term subjects, while short-term

market and application-specific development work is

done at our own laboratories and plants, in coopera-

tion with our on-site production. Furthermore,

Lenzing's center of competence also sells research

services on the external market.

In 1999, the focus was on viscose-based innova-

tions, process optimizations for the pulp sector,

as well as developing and optimizing new Lyocell

fibers.

V i s c o s e a n d P u l p

The core business also had top priority among our

activities in 1999. In connection with viscose

fibers, we were able to get a number of products for

special applications ready to be launched on the

market. Work on the new “Viscostar“, a viscose fiber

with enhanced absorbency, especially for hygiene

applications, led to successful tests with key

customers.

Anti-bacterial fibers, designated as “Viscofresh“

were presented to the public. Regarding wiping

cloths, the lasting anti-bacterial effect could be

confirmed. Also regarding “Modalfresh“, the newly

developed Modal fiber, the anti-bacterial effect is

affected neither by the textile finishing processes

nor by repeated washing cycles during use.

The ongoing optimization of processes (e.g. the

magnesium bisulfite process) allowed quality

improvements regarding fiber and pulp production.

This is also linked to a higher yield regarding the

spinoff products, for which Lenzing finds additional

applications and which provide a valuable profit

contribution.

L y o c e l l

Again this year, the top priority regarding Lyocell

developments was on optimizing the Lyocell techno-

logy. In this connection, we were able to achieve

major progress in broadening the primary-material

base, in making more efficient use of our plants and

in making the quality level more even.

On account of efforts to expand the range of types

and to make processing and finishing methods

easier, we were able to expand our market base. The

spectre now ranges from a Lyocell micro fiber to

coarse-titer wool types and matted fibers. Special

scope was given to further developing the techno-

logy used to produce Lyocell fibers with a reduced

fibrillation tendency.

*) expenses calculated in keeping with the

Frascati manual

R & D 3 5

1999 +++ annual report 1999 +++ annual report 1999 +++ a

The development activities regarding flat films

based on the Lyocell technology (NMMO: N-methyl-

morpholinoxide technology) were continued. In

December 1998, we were able to sign a cooperation

agreement with UCB, the Belgian market leader in

cellophane films.

C o o p e r a t i o n s

Together with the “Oesterreichische Bundesforste

AG“ (Austrian Federal Forest Administration)

Lenzing embarked on a research cooperation project

at the University for Agriculture and Forestry in

Vienna in 1999. The newly founded “Christian

Doppler-Labor fuer Zellstoffreaktivitaet“ (Christian

Doppler Laboratory for Pulp Reactivity) is the inter-

face between universities and the industry. It has

set itself the goal of applying basic findings in the

field of chemical pulp production and processing.

The Lenzing researchers were also invited to partici-

pate as partners in a “center of competence for

wood compound materials and wood chemistry“. In

this connection, it will be possible to work on

Lenzing's long-term research projects in an environ-

ment favorable in terms of content and cost.

F o c a l P o i n t s f o r 2 0 0 0

The research projects of the Lenzing Group are

heading in three main directions: developing new

fibers, optimizing processes in order to reduce

costs, and developing new types of Lyocell fibers

and areas of alternative applications for the Lyocell

technology.

3 6 R & D

nual 1999 +++ rreesseeaarrcchh && ddeevveellooppmmeenntt +++ annual report 1

P R O C U R E M E N T 3 7

1999 +++ pprrooccuurreemmeenntt +++ annual report 1999 +++ annual r

PROCUREMENT

I N G . R U D O L F R E I F S C H N E I D E R

H e a d o f C e n t r a l P r o c u r e m e n t ,


D I P L . I N G . H E R B E R T G R I L L

H e a d o f W o o d P r o c u r e m e n t ,


“ C o m m u n i c a t i o n i s p l a y i n g a n

i n c r e a s i n g l y i m p o r t a n t r o l e i n

p u r c h a s i n g a n d m a t e r i a l

m a n a g e m e n t . W h a t c h a n g e s d o

y o u f o r e s e e o n t h e p r o c u r e m e n t

m a r k e t s o f t h e f u t u r e ? “„„

As a rule, swift access to information creates a competitive edge.

Using the new communication technologies, such as e-commerce and

e-procurement, for a further reduction of process and unit costs will therefore

become a cogent requirement for a modern procurement organization.

LFC Lyocell

SPV

Bacell

Lenzing AG

P u l p S u p p l i e s o f t h e L e n z i n g G r o u p

W o o d P u r c h a s e s a c c o r d i n g t o R e g i o n s100% = 730,000 m3 beech and spruce

Austria 55 %

Czech Republic,Slovak Republic,Hungary, Ukraine 35 %

Germany, France 10 %

P R O C U R E M E N T

Up to mid-year 1999, the market for primary mate-

rials was characterized by low prices. This trend

reversed as of the second semester, and prices went

up, on account of prospering economies in Europe

and the USA.

However, the price for sodium hydroxide solution, an

important primary material for fiber production,

went down during the second semester, which was

contrary to general market trends, while the prices

for carbon bisulphide remained stable at a low level.

In the course of the year, paper pulp prices rose by

up to 30 %. Viscose pulp followed a similar trend.

During the first semester 2000, the high price level

on pulp markets will continue, a trend reversal is

likely only towards the end of the year.

The primary goal of the Lenzing Group's procure-

ment policy in 2000 continues to be a reduction of

process costs. For the procurement sector this

means more emphasis on strategic partnerships,

while reducing the number of suppliers. Moreover,

using the potential of the internet (e-commerce)

plays an important role.

W o o d – P r i m a r y M a t e r i a l f o r F i b e r s

The site at Lenzing has one of the largest viscose

pulp plants in Europe. Having its own supply of

primary materials means that Lenzing is not exposed

to price and quality fluctuations on international

pulp markets. This was a major advantage for

Lenzing AG's fiber business in 1999 and will also

have a positive effect in 2000, especially since

other plants are in the process of coping with the

currently high pulp prices.

The main factory in Upper Austria recorded the high-

est wood consumption in the company's history in

1999. Some 700,000 m3 of beech fiber wood were

used to process pulp. Since Lenzing is the world's

largest consumer of beech, it offers forest operators

the opportunity to market the industrial wood that

accumulates during thinning and clearing cam-

paigns. This helps to secure a sustainable manage-

ment for beech, which is a type of wood of high

ecological value.

3 8 P R O C U R E M E N T

nual 1999 +++ pprrooccuurreemmeenntt +++ annual report 1999 +++ ann

P O L L U T I O N C O N T R O L 3 9

nual report 1999 +++ ppoolllluuttiioonn ccoonnttrrooll +++ annual report

POLLUTION CONTROL

D I P L . I N G . J O S E F K R O I S S

H e a d o f P o l l u t i o n C o n t r o l ,


“ T h e m a n u f a c t u r e o f p u l p ,

p a p e r a n d v i s c o s e f i b e r h a s a

h i g h e c o l o g i c a l r e l e v a n c e .

W h a t i s L e n z i n g ' s a p p r o a c h t o

t h i s r e s p o n s i b i l i t y ? “„„

Lenzing AG became aware of this problem already two decades ago and has

therefore implemented appropriate production technologies that reduce the

impact on the environment and has also built extensive pollution-control

facilities. In our industry we hold a model role concerning pollution-control

achievements, and we can also point to the lowest specific emissions. For

Lenzing, an EU harmonization and stricter application of existing directives,

for the sake of improving the ecological standards of the entire víscose

industry throughout Europe, would therefore be the right approach.

P O L L U T I O N C O N T R O L

With its high ecological standard at its main factory

at Lenzing, Lenzing AG is a worldwide leader in the

pulp and viscose fiber industry. The considerable in-

vestments into pollution control are a major cost

element, especially for the fiber business.

Again in 1999, Lenzing invested into pollution con-

trol. A cooling-tower plant for effluents, which

reduces the heat input into the receiving water

(Ager River), was put into operation.

In addition, Lenzing also offers external services.

The testing station “Umweltanalytik Lenzing (UAL)“,

which has been accredited since December 1996

succeeded in becoming well established on the mar-

ket and expanding its sales by activities in the field

of water, waste water, sedimentation sludge and

waste-material analyses.

In addition to its accreditation for chemical analy-

ses, the testing station has also been accredited for

a number of eco-toxicological as well as micro-bio-

logical investigations.

R e s p o n s i b l e C a r e

Since 1996, Lenzing AG has been participating in

the voluntary pollution-control program “Respons-

ible Care“ of the European Association of the

Chemical Industry, as well as of the Professional

Association of the Chemical Industry of the Austrian

Federal Economic Chamber. The strict requirements

of this program sometimes go far beyond the statu-

tory regulations.

W a s t e - M a n a g e m e n t M e a s u r e s

The waste-management measures of Lenzing AG

help to meet pollution-control requirements and to

comply with statutory regulations – moreover, they

help to save costs.

4 0 P O L L U T I O N C O N T R O L

nual 1999 +++ ppoolllluuttiioonn ccoonnttrrooll +++ annual report 1999 +

W a s t e - W a t e r P o p u l a t i o n E q u i v a l e n t s o f L e n z i n g A Gaverage / month

Care is taken when purchasing goods that they

create a minimum of waste, which can either be

recycled or disposed of in an environmentally

friendly manner. Whenever it makes ecological

sense, the recycling of materials takes priority over

their thermal processing.

Several thermal processing facilities at Lenzing

ensure that there is reliable disposal and a

maximum effectiveness in terms of energy while

complying with the strictest pollution-control

standards.

R e s t s t o f f v e r w e r t u n g ( R V L )

Within a period of 18 months, the “RVL Invest

GmbH & Co KG“ built a plant at the Lenzing site for

the thermal recycling of residual materials (RVL

plant). This plant facilitates an ecologically

meaningful recycling of the sorted and prepared

waste materials.

The trial-operation, which is scheduled to run for

three years, is conducted with continuous moni-

toring from the authorities and independent experts.

All key data for the months of RVL operation are

clearly below the comparable data for the time

before the startup of the facility. Especially peak

loads have become noticeably lower.

P O L L U T I O N C O N T R O L 4 1

+++ annual report 1999 +++ annual report 1999 +++ annual

A s h D i s p o s a l f r o m E n e r g y P l a n t s

dumping of the ashes

recycling of the ash components

tonnes

4 2 H U M A N R E S O U R C E S

nual 1999 +++ hhuummaann rreessoouurrcceess +++ annual report 1999 +++

HUMAN RESOURCES

D I P L . I N G . E R N S T L A C K E R B A U E R

H e a d o f H u m a n R e s o u r c e s ,


“ F o r s t a f f m e m b e r s t o b e

f l e x i b l e a s w e l l a s e f f i c i e n t

a n d c o o p e r a t i v e i n a t e a m

p r e s u p p o s e s t h a t t h e l e v e l o f

t r a i n i n g a n d k n o w l e d g e i s

c o n t i n u o u s l y u p d a t e d . H o w d o

y o u m o t i v a t e y o u r h u m a n

r e s o u r c e s ? “„„

The basic principles for managing our human resources are responsibility and

autonomy. In this connection, Lenzing managers are requested to play a model

role as well as to promote staff members' initiatives by helping and coaching

them. Verbal communication is a top priority among staff members, external

reflection and mutual understanding generate many more initiatives and ideas

than imposed regulations.

H U M A N R E S O U R C E S

W e c o u n t o n o u r h u m a n r e s o u r c e s

As per the balance-sheet date (31 December), the

Lenzing Group had a total staff of 3,166, of which

2,159 were blue-collar workers and 1,007 white-

collar workers. The average length of employment of

Lenzing staff members is 15.9 years (Source: the

Lenzing Group).

In 1999, Lenzing AG had 76 apprentices. The dual

vocational training takes place both in the com-

pany's workshops and at Lenzing AG's own training

center.

The company offers young staff members training

facilities for the following skilled trades: chemical

worker, machine-tool maker, industrial fitter, process

control engineer, industrial electrician, plastics

processing engineer, paper maker, textile engineer,

office clerk and system assembly technician.

Lenzing AG invests some EUR 1.5 million into

training and further training. It attaches particular

value to promoting the younger staff generation.

Currently, we are embarking on new initiatives in

order to guide young staff members into becoming

successful managers in a rapidly changing environ-

ment.

W e w o r k w i t h a v i e w t o p r o f i t s

From the beginning of the year 2000, the new regu-

lations of a success-dependent payment scheme

went into force for all Lenzing staff members. In its

framework, the previously fixed 15th monthly pay-

ment was converted into a small base amount plus a

result-oriented component. The fixed component

will be decreased to 10 % of the current 15th

remuneration. At the same time, negotiations with

the staff representatives have led to a Lenzing pay-

ment scheme with modernized social benefits.

W e m i n i m i z e h e a l t h a n d s a f e t y r i s k s

For Lenzing, the continuous improvement of safety

and health standards for our staff members is a cor-

porate goal that ranks as high as productivity,

quality, cost efficiency and pollution control.

The basis for all measures in this respect is a com-

prehensive training and monitoring program, which

has shown initial success with a decline in accident

figures. Supported by further training measures and

the continuous improvement of all safety-related

aspects of all work sequences, we aim to reduce

accidents by a further 30 % in 2000.

H U M A N R E S O U R C E S 4 3

+ annual report 1999 +++ annual report 1999 +++ annual

N u m b e r o f A c c i d e n t s / 1 0 0 0 S t a f f M e m b e r

W e p r o v i d e r o o m f o r c r e a t i v i t y

In the framework of Lenzing's “Ideas Exchange“ –

an internal clearing house of creative suggestions to

improve production and work processes – a total of

610 suggestions were submitted in 1999. Of these,

269 ideas of Lenzing staff members have already

been put into practice, resulting in annual savings

of EUR 1.17 million. The maximum saving obtained

thanks to one single suggestion was EUR 270,000,

the maximum premium paid for a suggestion was

EUR 15,200.

W e t a k e o u r s o c i a l r e s p o n s i b i l i t y s e r i o u s

During the particularly critical economic situation in

Indonesia, SPV began, in 1998, to launch a social

project for the surrounding villages and communi-

ties. A total of USD 100,000 were spent by the end

of 1999. The main goal was to supply food and

medicine, to support well drillings and assist local

schools. With these efforts, SPV strengthened the

loyalty and motivation of its staff members in a

tense political and economic situation.

4 4 H U M A N R E S O U R C E S

nual 1999 +++ hhuummaann rreessoouurrcceess +++ annual report 1999 +++

A n n u a l S a v i n g s d u e t o R e a l i z e d S u g g e s t i o n s

in EUR

N u m b e r o f S u g g e s t i o n s / Y e a r

C O M M U N I C AT I O N 4 5

+ annual report 1999 +++ ccoommmmuunniiccaattiioonn +++ annual report

CORPORATE COMMUN ICAT ION

D R . R O S E M A R I E S C H U L L E R

H e a d o f I n v e s t o r & P u b l i c R e l a t i o n s ,


“ A c o m p a n y o f t h e c h e m i c a l

i n d u s t r y , w i t h a c y c l i c a l

c o u r s e o f b u s i n e s s , i s o f t e n

e x p o s e d t o c o n t r o v e r s i a l

t o p i c s i n p u b l i c . H o w d o y o u

h a n d l e t h e s e ? “„„

We initiate contact with all discussion partners and appreciate opportunities

for discussion. We welcome constructive criticism. Eliminating misunder-

standings by - time and again - presenting convincing arguments, is the basis

of our communications philosophy. This frankness and honesty has proved to

be the best approach to interest groups of all kinds. Today, we are a company

of regional, national and international recognition and renown.

I M P O R T A N T E V E N T S I N 1 9 9 9

January Press Conference at Heiligenkreuz,

Austria

Lenzing presents the Lyocell 2000

concept to the public.

Investors' Meeting at Kitzbuehel,

Austria

Lenzing presents strategies, etc. and

meets an international audience.

Pollution-Control Award for Lyocell

Lenzing Lyocell receives the

pollution-control award for “clean

technologies“ from the Industrial

Forum Pollution-Control of the

Economic Chamber.

February Lenzing AG takes to the railways

OEBB (Austrian Federal Railways)

and Lenzing cooperate closely by

opening a joint control center on the

Lenzing AG premises.

March Threat of punitive customs duties

In the hormone battle between the

USA and the EU, the USA threatens

to impose punitive customs on

imported goods. The list of products

includes viscose fibers. Through

massive interventions – also in

cooperation with US customers –

Lenzing succeeds in having its

products dropped from the list.

Annual Report Press Conference

Lenzing presents its record business

result for 1998 at the annual-report

press conference in Vienna. This is

followed by a roadshow in the UK.

April Fashion Show in Istanbul

Ottoman Collection

Fall/Winter 1999/2000

Star designer Atil Kutoglu uses

Lenzing Modal for his designs.

Shareholders' Meeting of Lenzing AG

The payment of a 10% dividend for

1998 is confirmed (following 2 years

without dividends).

May First Quarter Results 1999

Fiber market slumps. Telephone

conferences with journalists and

analysts.

A Renaissance for Pulp Research

The Christian Doppler Laboratory,

founded together with the University

for Agriculture and Forestry in Vienna,

is an interface between universities

and the business community.

June US Joint Venture

Lenzing confirms talks with Acordis to

set up a US joint venture for viscose

fibers (joint action against low-price

imports from Asia).

4 6 C O M M U N I C AT I O N

nual 1999 +++ ccoommmmuunniiccaattiioonn +++ annual report 1999 +++ a

New Fibers

The new fiber blends made of

Lyocell + Viscose (ProViscose) and

Lyocell + Modal (ProModal) are

presented.

First Electronic In-House TV in Austria

Lenzing cooperates with a local TV

station and produces its own

magazine for staff members /

neighbours / the region,

at two-week intervals.

September First Semester Results 1999

Things are progressing!

Press conference in Vienna, followed

by a roadshow in England and

Scotland (analysts, investors)

Lenzing Reinforces its Position on the

Japanese Market

No. 1 for spun-dyed fibers; Lenzing

takes over customer base from a

Japanese manufacturer who

discontinues his operation.

Civic Protection – Safety Week at

Lenzing

Crisis drills for possible emergencies

with authorities, the fire brigade, the

Red Cross, etc.

38th International Chemical Fiber

Conference at Dornbirn, Austria

The world's largest congress of its

type and international meeting place

of the industry.

October Reorganization

Lenzing Technik is transformed from a

business sector into an independent

company.

“Gewinn Messe“ , Vienna, Austria

Lenzing AG has its own stand at

Austria's biggest investors' exhibition.

Technology Congress at Wolfgangsee,

Austria

Symposium lasting several days with

more than 200 viscose experts.

Lenzing Technik presents its latest

developments to key customers.

Open House

More than 1000 visitors flock to

Lenzing for an open house with the

motto “Off we go into the new

millenium“.


annual report 1999 +++ annual report 1999 +++ annual

November “Tag der Aktie“, Linz, Austria

Lenzing AG presents itself to the

public at the investors' day in Linz.

Third Quarter Results 1999

Things continue to progress!

Telephone conferences with

journalists and analysts.

w w w. l e n z i n g . c o m

Since 1996, Lenzing has set up its own homepage

on the internet, which is being continuously

expanded and updated. The Lenzing homepage can

be found with all major international search engines.

This presence is being constantly expanded, just as

we advance the registration of products, trademarks

and sub-trademarks as separate domains (e.g.

ProModal.com). The sites are visited by an average

5,500 visitors every month.

Press Conference, Vienna, Austria

The Lenzing Group changes its

structure and corporate culture.

Burdens and liabilities from

previous periods are eliminated.

Jacquard Workshop with ProFibers

Designers Carol Westfall (USA) and

Isebill Wohrabe from Germany create

new designs on computer-controlled

jacquard looms, together with students

of the textile college. The yarns used

were made exclusively of ProModal.



I n t e r n e t a c c e s saverage / month

TRADE FAIRS IN 1999

FIBERS

Interfilière, Paris February

Intimare, Milan February

Trendmasche, Haigerloch February

Première Vision, Paris March

FDIC, Indianapolis March

Fenatec-Interstoff, Sao Paulo March

Interstoff Asia, Hong Kong March

Techtextil, Frankfurt April

Index, Geneva April

Itma, Paris June

Exprofil, Paris June

Interfilière, Lyon September

Int. Chemiefasertagung, Dornbirn September

Since 99, Shanghai September

Purchasers' Day, Paris September

NSC, New Orleans October

Première Vision, Paris October

Interstoff Asia, Hong Kong October

Intertextile China, Shanghai October

A+A, Duesseldorf November

Expofil, Paris December

FILMS

Advancing Filtration & Separation Solutions

for the Millenium, Boston April

Techtextil 99, Frankfurt April

Atlanta Interwire 99, Atlanta May

Interpack 99, Duesseldorf May

Dach + Wand 99, Stuttgart May

Pollutec 99, Paris June

Wire Singapore 99, Singapore October

Filtration, Chicago November

LENZING TECHNIK

Fire Fighting and

Rescue Systems 99, Amsterdam May

SPCI, Stockholm June

Gemeinde 99, Bern June

ITMA, Paris June

Notruf 99, Mondsee September

Retter 99, St. Poelten September

Austroschutz, Graz October

Viscose Technology, St. Wolfgang October

Protection 99, Kranj October


annual report 1999 +++ annual report 1999 +++ annual

TRADE FAIRS IN 2000

FIBERS

Heimtex, Frankfurt January

Interfilière, Paris January

Fenatec Sao Paulo, Sao Paulo February/March

Première Vision, Paris March

Indonesian Apparel & Textile Exhibition,

Jakarta March

FDIC, Indianapolis March

Techtextil, Atlanta March

Intertextile, Cite, Beijing March

Interstoff Asia, Hong Kong April

Cinte Beijing, Beijing May

Expofil, Paris June

Interschutz, Augsburg June

Interfilière, Lyon September

Int. Chemiefasertagung, Dornbirn September

NSC, New Orleans October

Première Vision, Paris October

Interstoff Asia, Hong Kong October

CLY Symposium, Gmunden November

Expofil, Paris December

FILMS

5th Symposium “Textile Filter“, Dresden March

Ipack-Ima 2000, Milan March

Filtration & Sep. Technologies, Myrtle Beach March

Techtextil 2000, Atlanta March

Wire 2000, Duesseldorf April

Filtration Congress/Exhibition, Brighton April

Techtextil, Osaka November

Inda Filtration 2000, Philadelphia November

Pollutec 2000, Lyon November

PAPER

Drupa, Duesseldorf May

LENZING TECHNIK

Interschutz 2000, Augsburg June

Zellcheming, Baden-Baden June

Congrès des Sapeurs-Pompiers, Strasbourg October

Smart Automation Austria, Linz October

ATME, Greenville October

CITME, Shanghai November

ITME, Bombay December



T H E Y E A R 2 0 0 0 5 1

annual report 1999 +++ tthhee yyeeaarr 22000000 +++ annual report 1

THE L ENZ ING GROUP IN THE YEAR 2000

T H E B O A R D O F M A N A G E M E N T

“ T h e y e a r 2 0 0 0 b e g a n

w i t h a c y c l i c a l h i g h .

H o w w i l l i t e n d ? “„„

We expect 2000 to be a successful year. The Lenzing Group has reduced its

debts, inherited burdens have been largely eliminated, our financial clout

has been strengthened, and with a high-quality product mix it has aquired a

very good position on international markets. We face the future with optimism.

T H E L E N Z I N G G R O U P I N T H E Y E A R 2 0 0 0

U p d a t e

The Lenzing Group embarks upon the new millenium

with optimism.

Based on the results for January and February,

which are clearly above plan, we can expect very

good business for the first semester 2000. After a

negative result for the corresponding quarter of the

previous year of EUR –3.1 million, Lenzing AG is

counting on a clearly positive result for the first

quarter. The Lenzing Group also expects a

drastically improved result compared to the negative

result of EUR –1.7 million for the corresponding

quarter of the previous year. We are confident that

this positive trend will continue in the course of the

year 2000.

In February 2000, Lenzing Technik GmbH & Co KG

was able to obtain the assets of Beloit Austria

GmbH – bankruptcy proceedings had been initiated

against the company's estate in November 1999.

The projects, begun by Beloit, will be continued. In

addition, the know-how regarding a new pulp boiling

method enables Lenzing Technik to take a dynamic

step forward.

Dipl. Kfm. Jochen Werz was appointed Spokesman

of the Board at the end of February.

O u t l o o k

The environment of our fiber business has improved,

the upward trend that began in the fall of the pre-

vious year continues. The demand for viscose fibers

is strong, the prices for synthetic fibers and – in

recent times also for cotton – are moving upwards,

retailers report about better sales, and business

activities are expanding worldwide. The dollar is

strong, which also reinforces the competitiveness of

the European industry. The economic growth in Asia

will also provide a positive impetus and resuscitate

local consumption. The over-capacities in this

region will, however, continue to exist and therefore

curb the necessary rise in prices.

Both, in the textile sector and with regard to non-

woven products (fleeces / hygiene applications), we

can feel a vigorous expansion of quantities. Modal

and Modal Micro fibers from Lenzing are in great

demand as special fibers. Inventories are low, so

that supplies can hardly meet the demand – as a

result there are delays in deliveries, despite of pro-

ducing to full capacity. Lyocell is becoming increas-

ingly established. Lenzing AG is using the encourag-

ing market recovery to gradually adjust prices in the

upward direction, starting from a still low price

level. We were able to increase prices already during

the first three months, further hikes have been an-

nounced for the second quarter. The successful

strategy for expanding our range of technologically-

intensive fibers is being pursued further.

“ProFibers“ from Lenzing are at the center of the

new branding strategy, which will be presented at

the major textile fairs in 2000. Further product

5 2 T H E Y E A R 2 0 0 0

nual 1999 +++ tthhee yyeeaarr 22000000 +++ annual report 1999 +++ a

developments with Lyocell fibers as components in

blends with Viscose and Modal are one of the pri-

orities in 2000. We see scope for expansion with

regard to leisure-wear items, and especially denim

wear. This also opens up opportunities to penetrate

new markets. Another priority for our activities will

be the segment of non-woven products where we

want to use Lyocell fibers for hygiene applications.

Encouraged by the first successes with bed linen

and terry cloth products, we will also expand appli-

cations for the home textile industry. “Micro-

Lyocell“ and a non-woven fiber type have been

added to the range of commercially available fibers.

This creates the basis for a continuous increase

in sales.

To support the growth in special products, we will

launch new fibers on the market and step up our

marketing activities by, for example, opening a

distribution office in Hong Kong.

The situation on primary-materials markets con-

tinues to be tense. The higher prices for viscose

pulp – a primary material for fibers – are a strain for

the non-integrated production sites in Indonesia and

the USA. The main factory at Lenzing clearly has a

sustainable competitive edge with its own pulp

manufacture.

The integrated pulp plant constitutes a provision

against risks and helps to balance cyclical fluc-

tuations. Prices for paper pulp and waste paper –

the primary materials for the papermill – are clearly

moving in an upward direction, polyolefins, alumi-

num and PTFE for plastic products will continue to

become more expensive. The corresponding price

increases for paper and film products are difficult to

realize and can be put into effect only with some

delay.

We will continue to transform the non-fiber-specific

business sectors into independent companies. As of

1 April, the synthetic films sector operates as an

independent subsidiary company with the name of

“Lenzing Plastics“. This change will become effec-

tive retro-actively as of 1 January 2000. It should

be an additional boost to already good business

perspectives.

We will also pursue our investment projects for

2000 with expediency. The biggest single projects

relate to the pulp area, where the drying line will be

renewed, among other things. With this step, the

primary-material supply for fiber production at

Lenzing and Heiligenkreuz will be excellently equip-

ped for the future. Another focal point of our activi-

ties will be to reduce downtimes and to improve our

safety performance.

Altogether, we expect a clear increase in the result

for 2000, as compared to 1999, although the

negative result of Lyocell Ges.m.b.H. & Co KG will

continue to be a burden for Lenzing AG.

The structural improvements in the earning capacity

of the Lenzing Group will have a positive impact on

the upswing of the fiber cycle.

T H E Y E A R 2 0 0 0 5 3

annual report 1999 +++ annual report 1999 +++ annual rep

5 4 A N N U A L A C C O U N T S


A N N U A L A C C O U N T S 5 5


TABLE OF CONTENTS

Balance-sheet as at December 31, 1999 56

Income statement 58

Cash-flow statement 59

Statement of shareholder’s equity 60

Notes 61

Subsidiaries of the Lenzing Group (Note 28) 99

Development of the long-term assets 102

Long-term debt 104



Note Dec. 31, 1999 Dec. 31, 1998

EUR EUR 1,000

Current Assets

Cash 30,676,454 15,673.9

Investments 3 53,275,697 58,128.7

Accounts receivable

Trade 4 89,052,237 83,238.9

Other 28,742,107 28,766.0

Deferred taxation 16 91,959 94.0

Inventories 5

Raw materials and consumables 31,663,092 25,239.3

Work in progress, finished goods and services 30,115,649 42,587.7

Total Current Assets 263,617,195 253,728.5

Investments and Loans

Investment in unconsolidated subsidiary 6 1,148,231 1,148.2

Investments in subsidiaries consolidated

under the equity method 6 2,761,618 3,009.4

Loans to subsidiaries consolidated

under the equity method 20 15,162,639 14,157.1

Investments held to maturity 7 33,436,477 30,561.8

Other loans 2,943,581 2,846.7

Total Investments and Loans 55,452,546 51,723.2

Property, Plant and Equipment 8

Land 2,513,830 2,349.7

Buildings 69,554,822 72,689.4

Plants, machinery and equipment 292,518,065 303,599.1

Total Property, Plant and Equipment 364,586,717 378,638.2

Other Long-term Assets

Intangible pension assets 13 0 651.4

Intangible assets 9 4,129,185 4,684.1

Deferred taxation 16 33,148,918 33,351.7

Total Other Long-term Assets 37,278,103 38,687.2

TOTAL ASSETS 720,934,561 722,777.1

A S S E T S

B A L A N C E - S H E E T A S AT D E C E M B E R 3 1 , 1 9 9 9



Note Dec. 31, 1999 Dec. 31, 1998

EUR EUR 1,000

Short-term Liabilities

Current portion of long-term debt 12 11,546,323 16,536.9

Accounts payable and accrued expenses

Trade 10 41,050,017 52,687.0

Other 45,826,243 36,317.9

Deferred taxation 16 454,396 794.7

Total Short-term Liabilities 98,876,979 106,336.5

Long-term Liabilities

Convertible bond 11 53,414,533 53,414.5

Long term debt

Bank 12 59,084,922 56,215.0

Other 12 68,414,032 68,397.6

Other long-term liabilities 14 27,276,292 27,423.1

Accrued pension and post-retirement benefits 13,14 131,158,463 130,684.9

Deferred taxation 16 43,119,954 43,667.5

Total Long-term Liabilities 382,468,196 379,802.6

Contribution by Dormant Partners 7,504,795 7,080.7

Minority Interests 52,158 22.6

Shareholders’ Equity 17

Common stock 26,717,250 26,707.3

Additional paid-in capital 63,599,592 63,599.6

Accumulated comprehensive income

Cumulative translation adjustment 9,117,222 9,928.3

Minimum pension liability adjustment 0 -1,448.5

Total accumulated comprehensive income 9,117,222 8,479.8

Retained earnings 132,598,369 130,748.0

Total Shareholders’ Equity 232,032,433 229,534.7

TOTAL LIABILITES AND SHAREHOLDERS’ EQUITY 720,934,561 722,777.1

L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y



Note 1999 1998

EUR EUR 1,000

Sales 550,224,890 547,462.0

Cost of goods sold -446,899,454 -433,507.6

Gross Profit 103,325,436 113,954.4

Operating Expenses

Freight -17,220,443 -17,465.6

Commissions -4,875,369 -6,309.6

Other selling expenses -27,466,400 -27,287.2

Research and development expenses -11,977,393 -14,393.2

General and administrative expenses -33,825,113 -35,272.7

Other expenses -614,555 -112.2

Total Operating Expenses -95,979,273 -100,840.5

INCOME FROM OPERATIONS 7,346,163 13,113.9

Financial Activities

Income/loss from investments in subsidiaries 1,151,697 -7,865.0

Interest expense -9,589,093 -11,237.2

Interest income 1,766,268 1,394.8

Other financial income and expense 1,357,610 8,922.1

Total Result from Financial Activities -5,313,518 -8,785.3

Other income 4,079,655 4,688.3

Gains and losses on the sale of assets -2,257,054 -712.1

Net Income before Taxes and Minority Interests 3,855,246 8,304.8

Income taxes 15, 16 461,314 -2,682.0

NET INCOME BEFORE MINORITY INTERESTS 4,316,560 5,622.8

Minority interests -29,522 -12.5

NET INCOME 4,287,038 5,610.3

Comprehensive income/loss

Foreign currency translation adjustments -811,054 -1,491.0

Minimum pension liability 1,692,469 -1,338.7

Total Other Comprehensive Income/Loss 21 881,415 -2,829.7

COMPREHENSIVE NET INCOME 5,168,453 2,780.6

Earnings per share

Basic 1.17 1.53

Diluted 0.60 0.73

I N C O M E S T AT E M E N T



1999 1998

EUR 1,000 EUR 1,000

+ Net income 4,287.0 5,610.3

Adjustments to reconcile net income to net cash provided by

operating activities

+ Depreciation and amortization of intangible and fixed assets 52,103.7 48,481.1

+ Depreciation of investments and loans 901.6 8,893.0

- Write-up of investments and loans -106.3 -541.9

+ Release (- transfer) of long-term provisions 1,742.4 4,197.5

- Profit (+ losses) on the sale of fixed assets 2,257.1 712.1

- Deferred tax charge -738.0 2,568.9

- Other 483.4 215.1

GROSS CASH-FLOW 60,930.9 70,136.1

Changes in inventory 8,142.8 -5,422.9

Changes in accounts receivable -4,688.4 2,356.8

Changes in accounts payable -3,417.4 -16,698.6

CASH-FLOW FROM OPERATING ACTIVITIES 60,967.9 50,371.4

- Expenditure

on current investment -15,476.0 -21,141.2

on investments and loans -11,893.2 -21,161.6

on intangible and fixed assets -38,950.8 -38,636.6

+ Proceeds

from current investment 20,329.0 63,544.5

from sale of investments and loans 7,120.8 13,449.0

from sale of intangible and fixed assets 346.6 1,342.8

CASH-FLOW FROM INVESTMENT ACTIVITIES -38,523.6 -2,603.1

- Dividends paid -2,670.7 0.0

+ Proceeds from long-term borrowings 2,830.6 18,916.7

- Repayment of long-term borrowings -11,455.8 -83,159.5

- Receipt of non-repayable investment grants 0.0 5,450.5

- Decrease/increase of short-term borrowings 3,779.9 2,045.0

CASH-FLOW FROM FINANCING ACTIVITIES -7,516.0 -56,747.3

NET INCREASE (DECREASE) IN CASH 14,928.3 -8,979.0

Cash, beginning of the year 15,673.9 24,744.9

Currency differences 74.3 -92.0

CLOSING BALANCE OF CASH 30,676.5 15,673.9

Supplemental Disclosures of Cash-flow

interest paid 8,673.3 10,793.7

income taxes paid 94.1 98.8

C A S H - F L O W S T AT E M E N T 1 9 9 9



EUR 1,000 Common Additional Comprehensive Accumulated Retained Total

stock paid-in income comprehensive earnings equity

capital 1999 income

Balance as at January 1, 1998 26,707.3 63,599.6 11,309.5 125,148.1 226,764.5

Comprehensive income

Net income 5,610.3 5,610.3 5,610.3

Other comprehensive income

Foreign currency translation adjustments -1,491.0

Minimum pension liability adjustment -1,338.7 -10.4 -10.4

Other comprehensive income -2,829.7 -2,829.7 -2,829.7

Comprehensive income 2,780.6

Balance as at December 31,1998 26,707.3 63,599.6 8,479.8 130,748.0 229,534.7

Comprehensive income

Net income 4,287.0 4,287.0 4,287.0

Other comprehensive income

Foreign currency translation adjustments -811.1

Minimum pension liability adjustment 1,692.5 -244.0 244.0

Other comprehensive income 881.4 881.4 881.4

Comprehensive income 5,168.4

Change in common stock 10.0 -10.0 -

Dividends paid -2,670.7 -2,670.7

Balance as at December 31,1999 26,717.3 63,599.6 9,117.2 132,598.3 232,032.4

S T AT E M E N T O F S H A R E H O L D E R S ’ E Q U I T Y

N O T E S O N T H E C O N S O L I D AT E DF I N A N C I A L S T AT E M E N T S

T h e a c c o m p a n y i n g n o t e s a r e a n i n t e g r a l p a r t

o f t h e f i n a n c i a l s t a t e m e n t s

N O T E 1

T H E C O M P A N Y A N D S U M M A R Y O F S I G N I F I C A N T

A C C O U N T I N G P O L I C I E S

D e s c r i p t i o n o f b u s i n e s s

The Lenzing group of companies (the “Group”),

comprising Lenzing Aktiengesellschaft (Lenzing AG)

and its subsidiaries, is a group organized under

Austrian law. The Group presently operates mainly

in the fibers and pulp but also in the plant con-

struction and engineering, films and paper industry.

The Group is the only viscose fiber company with a

distribution network and product portfolio that

spans the globe. Having operating sites in

Indonesia/Asia and North America means that it is

also the only global viscose fiber manufacturer.

Marketing companies are situated in Germany and

France.

P r e s e n t a t i o n o f f i n a n c i a l s t a t e m e n t s

The Group financial statements were prepared for

the first time in accordance with accounting

principles generally accepted in the United States

of America (US-GAAP) for the years ending

December 31, 1999 and 1998.

As of January 1, 1999 the accounting records have

been maintained in euro. Prior years‘ consolidated

financial statements were translated using a fixed

exchange rate of EUR 1 equals ATS 13.7603.

The amounts in the notes are stated in euro and

have been rounded to the nearest thousand with one

decimal fraction representing hundreds (“TEur“) ex-

cept as otherwise stated.

B a s i s a n d p r i n c i p l e s o f c o n s o l i d a t i o n

The consolidated financial statements of the Group

are based on the audited financial statements of

both Lenzing AG and its wholly owned subsidiaries,

all of which were prepared for the years ended

December 31, 1999 and 1998. With respect to the

individual companies consolidated, we refer to Note

28. There was no significant change in the

subsidiaries fully consolidated during the current

financial year as Lenzing Technik GmbH & Co KG,

a company newly set up in 1999, was created from

the “spin off” of the former “Technik“ division within

Lenzing AG.

Any goodwill derived from past acquisitions was

already fully written off on January 1, 1998.

Significant inter-company accounts and transactions

of continuing operations were eliminated upon con-

solidation.

Differences in foreign currencies resulting from con-

solidation of debts or expenditures were carried as

“other operating income or expense“.



F o r e i g n c u r r e n c y t r a n s l a t i o n

Assets and liabilities of foreign subsidiaries are

translated at year-end exchange rates. The resulting

translation adjustments are reported as a separate

component of shareholders‘ equity. All foreign cur-

rency transaction gains or losses are included in net

earnings.

The exchange rate announced by the European

Council on December 31, 1998, was used as the

current rate to translate the currencies of the

countries participating in the euro system. The aver-

age rates noted on the Vienna Stock Exchange on

December 31, 1998 and the average rates fixed by

Oberbank AG, Linz, published on December 31,

1999, were used in translating all other currencies.

C a s h

Cash balances denoted in foreign currencies are

translated at the exchange rate as at December 31,

1999 and 1998. Hedged foreign currency balances

were translated at the forward rates. Balances

denoted in currencies participating in the euro

system are translated at the exchange rates fixed

by the European Council on December 31, 1998.

I n v e s t m e n t s

Current investments are classified as available for

sale and are recorded at market value. Market value

approximated cost at December 31, 1999 and

1998, respectively.

A c c o u n t s r e c e i v a b l e

Amounts receivable in foreign currencies other than

the euro were translated using the forward rate

when applicable or otherwise the lower of the

historical or current rate on the balance sheet date.

The difference between the historical rate and the

date of balance sheet rate had an insignificant

impact on the amounts receivable as at December

31, 1999 and 1998. Specific provisions have been

made for amounts believed to be uncollectable.

I n v e n t o r i e s

Raw materials and consumables are stated at the

lower of cost or market. Cost corresponds to

weighted average cost.

Work in progress and finished goods are stated at

the lower of cost or market. Cost of production in-

cludes direct costs and overhead expenses.

I n v e s t m e n t a n d l o a n s

Investments in unconsolidated subsidiaries are

comprised of the shares in a non-profit company.

Due to the non-profit nature of the subsidiary and

the fact that this investment is not material to the

Group, the subsidiary was not consolidated.

Other investments are shown at the lower of cost or

fair value.

The Group has applied the equity method of ac-

counting for investments in common stock of three

companies because the Group has the ability to

exercise significant influence over the operating and

financial policies of the companies but does not

hold a majority of the voting stocks. The three



investments consolidated under the equity method

are P.T. South Pacific Viscose (41.98 % ownership),

WWE - Wohn- und Wirtschaftspark Entwicklungs-

gesellschaft m.b.H. (25 % ownership) and RVL-

Reststoffverwertung Lenzing GmbH (50 % owner-

ship). In accordance with the equity method of ac-

counting, the Group recognizes earnings or losses on

the investments based on its proportionate share of

the earnings or losses of the companies.

In addition, the Group recorded its 37.42 % invest-

ment in Bacell S.A, Brazil (Bacell) under the equity

method of accounting for the year ended December

31, 1998. The Group did not participate with other

shareholders in providing capital contributions to

Bacell during 1999. Accordingly, the Group’s invest-

ment in Bacell decreased to 4.5 % as at December

31, 1999 and the Group changed its accounting for

the entity to the cost method. Under the cost

method of accounting, dividends are the basis for

recognition of earnings from Bacell.

Loans are shown at the lower of the face value,

lower present value or amount considered

recoverable.

Investments are held as partial funding of the sev-

erance and pension liabilities as required by Sec.

14 of the Austrian Income Tax Act. Pursuant to

Statement of Financial Accounting Standards

(SFAS) No. 115 “Accounting for Certain

Investments in Debt and Equity Securities“, the

Group has classified these investments as held to

maturity and reported the balances at amortized

cost. On December 31, 1999 and 1998, the market

value of these investments approximated cost.

P r o p e r t y, p l a n t a n d e q u i p m e n t

Property, plant and equipment is carried at cost.

Depreciation is based on the estimated useful lives

of the assets and computed using the straight-line

method. The estimate useful lives for the assets are

as follows:

years

- Residential buildings 25 to 50

- Office and factory buildings 25 to 50

- Other buildings 20

- Plant and machinery 7 to 15

- Boilers, transformer stations, turbines 25

- Vehicles 4 to 8

- Furniture and fixtures 4 to 10

- Computer hardware 4

Major improvements are capitalized. Maintenance,

repairs and minor improvements are expensed as

incurred.

L o n g - l i v e d a s s e t s

As at January 1, 1998, Lenzing U.S.A. Corporation,

a wholly owned subsidiary of Lenzing AG, has

applied Statement of Financial Accounting

Standards (SFAS) No. 121 “Accounting for the

Impairment of Long-Lived Assets and for Long-Lived

Assets to be Disposed of”. The Statement

establishes accounting standards for the impairment

of long-lived assets, certain identifiable intangibles

and goodwill. Under the provisions of the State-

ment, impairment losses are recognized if the sum

of expected future cash flows is less than the net

book value of the underlying assets. See Note 8 for



the related write-down of property and equipment in

1998 and 1999.

I n t a n g i b l e a s s e t s

Intangible assets are carried at cost. Depreciation of

intangible assets is based on the estimated useful

lives of the assets and is computed using the

straight-line method.

The estimated useful lives for the intangible assets

are as follows:

years

- License fees, trade marks and

similar rights 12 to 20

- Software 4

A c c o u n t s p a y a b l e

Accounts payable in foreign currencies are valued at

the exchange rate applicable at the balance sheet

date. Hedged amounts payable in foreign currencies

were valued at the forward rates. Amounts payable

in currencies participating in the euro system were

translated at the exchange rate fixed by the

European Council on December 31, 1998.

D e f e r r e d t a x a t i o n

Deferred tax assets and liabilities are determined by

the difference between the amounts reported in the

consolidated financial statements and the tax basis

of assets and liabilities using enacted tax rates in

effect in the years in which the differences are ex-

pected to reverse.

C o n t r i b u t i o n b y d o r m a n t p a r t n e r

The contribution from the dormant partner has been

attributed to borrowed money as it bears a fixed

effective interest rate and does not constitute an

investment in the goodwill or the fair value of the

Group or any of its subsidiaries.

P e n s i o n s p r o v i s i o n

A non-contributory defined-benefit pension plan

covers nearly all employees. Benefits are based

primarily on the final average salary and years of

service. Lenzing U.S.A. Corporation’s funding policy

requires that payments to a pension trust shall be at

least equal to the minimum funding required by

applicable regulation. The intangible pension assets

as at December 31, 1998 represent intangible

pension costs attributable to the Lenzing U.S.A.

Corporation pension plan.

No assets have been specifically segregated to fund

the Lenzing AG pension plan.

L o n g - t e r m e m p l o y e e b e n e f i t s

a ) S e v e r a n c e l i a b i l i t y

Under Austrian law, Lenzing AG and its Austrian

subsidiaries are required to make severance pay-

ments under certain conditions if the employees

have served for a specified minimum number of

years. Such payments are based on years of service

and expected salary levels at retirement or

termination date. No assets have been specifically

segregated to fund this liability.



b ) A n n i v e r s a r y p a y m e n t s l i a b i l i t y

In accordance with a trade-union agreement,

Lenzing AG and its Austrian subsidiaries are re-

quired to make anniversary payments if the em-

ployee has served for a specified number of years.

Such payments are based on years of service and

expected salary levels at the date of payment. No

assets have been segregated to fund this liability.

R e v e n u e r e c o g n i t i o n

Revenue from product sales is recognized at the

time ownership of the product transfers to the

customer according to the agreed upon shipping

terms.

U s e o f e s t i m a t e s

The preparation of financial statements in confor-

mity with US-GAAP requires management to make

estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of

contingent assets and liabilities at the date of the

financial statements and the reported amounts of

revenues and expenses during the reporting period.

Actual results could differ from those estimates.

E a r n i n g p e r s h a r e

In accordance with Statement of Financial

Accounting Standards No. 128 “Earnings Per

Share“ (SFAS No. 128), basic and diluted earnings

per share are presented. Basic earnings per share

are computed by dividing income available to com-

mon shareholders by the weighted average number

of common shares outstanding in the period.

Diluted earnings per share takes into consideration

common shares outstanding (computed under basic

earnings per share) and potentially dilutive common

shares.

D e r i v a t i v e i n s t r u m e n t s

Lenzing AG is party to a variety of foreign exchange

contracts and options entered into in order to man-

age its exposure to foreign exchange rates. The man-

agement of Lenzing AG established the criteria that

must be adhered to with respect to derivative instru-

ments. The chief financial officer on a regular basis

reviews the compliance. Management must also

approve any new contracts entered into by the

Company.

The Company’s policy for hedge transactions re-

quires that each specific risk be identified together

with the derivative transactions designated to mini-

mize the risk. Lenzing AG does not enter into

derivative transactions that do not have a high

correlation to hedge the underlying financial risk.

The hedge position as well as the correlation

between the transaction risk and the hedging instru-

ment are reviewed by management on a regular

basis.

Foreign exchange contracts and option contracts are

accounted for as hedges to the extent that they are

designated, and are effective, as hedges of firm

foreign currency commitments. Additionally, certain

foreign exchange option contracts receive hedge

accounting treatment to the extent that such



contracts hedge certain anticipated foreign ex-

change contracts. Losses are recognized when con-

sidered probable, whereas gains are only recognized

upon termination of the contract.

The Group, in general, does not enter into derivative

instruments transactions for speculative purposes.

E m p l o y e e c o l l e c t i v e b a r g a i n i n g a g r e e m e n t s

The majority of the Group’s employees are repre-

sented by collective bargaining organizations.

N O T E 2N E W A C C O U N T I N G P R O N O U N C E M E N T S

In fiscal 1998, the Group implemented Statement

of Financial Accounting Standards (SFAS) No. 128

“Earnings per Share”, which is effective for interim

and annual periods beginning after December 15,

1997. This Statement establishes standards for

computing and presenting earnings per share (EPS).

This Statement simplifies the standards for comput-

ing earnings per share previously found in APB

Opinion No. 15 “Earnings per Share“, and makes

them comparable to international EPS standards. It

requires dual presentation of basic and diluted EPS

on the face of the income statement for all entities

with complex capital structures and requires a

reconciliation of the numerator and denominator of

the basic EPS computation to the numerator and

denominator of the diluted EPS computation. This

accounting pronouncement impacts the presentation

and disclosure of EPS, but has no impact on

earnings.

In fiscal 1998, the Group implemented SFAS No.

130 “Reporting Comprehensive Income”, which is

effective for fiscal years beginning after December

15, 1997. This Statement establishes standards for

reporting and display of comprehensive income and

its components (revenues, expenses, gains and

losses) in a full set of general-purpose financial

statements. Implementation of SFAS No. 130 by the

Group primarily effected the manner in which

changes in shareholders’ equity are presented.

In fiscal 1998, the Group implemented SFAS No.

131 “Disclosures about Segments of an Enterprise

and Related Information”, which is effective for

fiscal years beginning after December 15, 1997.

This Statement establishes standards for the way

that public business enterprises report information

about operating segments in annual financial state-

ments and requires that those enterprises report

selected information about operating segments in

interim financial reports to shareholders. It also

establishes standards for related disclosures about

products and services, geographic areas and major

customers. This accounting pronouncement requires

additional disclosures, but has no impact on

earnings.

In fiscal 1998, the Group adopted SFAS No. 132

“Employer’s Disclosures about Pensions and Other

Post-retirement Benefits”. SFAS No. 132 revises

employers’ disclosures about pension and other

post-retirement benefit plans. This accounting



pronouncement requires additional disclosures, but

has no impact on earnings.

In March 1998, the Accounting Standards Executive

Committee of the American Institute of Certified

Public Accountants issued SOP 98-1 “Accounting

for the Costs of Computer Software Developed or

Obtained for Internal Use”. SOP 98-1 provides

guidance for an enterprise on accounting for the

costs of computer software developed or obtained

for internal use. SOP 98-1 is effective for the Group

in fiscal 2000. The Group anticipates that account-

ing for transactions under SOP 98-1 will not have a

material impact on its financial position or results

of operations.

SFAS No. 133 “Accounting for Derivative

Instruments and Hedging Activities” was issued on

June 15, 1998 and, due to the subsequent issuance

of SFAS No. 137, becomes effective for fiscal years

beginning after June 15, 2000. The Standard de-

fines derivatives, requires that all derivatives be car-

ried at fair value and provides for hedge accounting

when certain conditions are met. The Group has not

completed its evaluation of the impact that adoption

of SFAS No. 133 will have on the Group. The Group

will analyse the future impact that adopting this

Statement will have on its financial position and

results of operations.



N O T E 3I N V E S T M E N T S

Available-for-sale investments are stated at market value.

Investments Market value At cost Average effective

1999 EUR 1,000 EUR 1,000 interest rate

Debt securities issued by the Austrian Treasury

and Austrian government corporations 12,687.0 12,687.0 4.4%

Corporate debt securities 40,588.7 40,588.7 4.4%

53,275.7 53,275.7

Market value At cost Average effective

1998 EUR 1,000 EUR 1,000 interest rate


and Austrian government corporations 22,378.8 22,378.8 3.1%

Corporate debt securities 35,749.9 35,749.9 3.1%

58,128.7 58,128.7

Proceeds from sales in 1999 and 1998 amounted to “TEur“ 20,329.0 and “TEur“ 63,544.5, respectively.

The resultant realized gains and losses were insignificant. The specific identification method was used as the

cost basis in computing realized gains and losses.



The contractual maturities of debt securities issued by the Austrian Treasury and Austrian government corpora-

tions and corporate debt securities are as follows:

Austrian Treasury and Corporate debt

Austrian government securities

corporations

EUR 1,000 EUR 1,000

2000 3,795.2 14,631.4

2001 - -

2002 8,150.2 8,804.5

2003 - 2,180.2

2004 741.6 4,591.4

Thereafter - 10,381.2

Total 12,687.0 40,588.7

N O T E 4A C C O U N T S R E C E I VA B L E

As at December 31, the Group’s net amounts receivable consist of the following:

1999 1998

EUR 1,000 EUR 1,000

Amounts receivable from sales and services 76,901.6 67,019.9

Amounts receivable from unconsolidated subsidiaries 17.7 23.3

Amounts receivable from companies consolidated

under the equity method 12,132.9 16,195.7

89,052.2 83,238.9

The allowance for bad debts as at December 31, 1999 and 1998 amounted to “TEur“ 2,469.1 and

“TEur“ 2,576.3, respectively.



N O T E 5I N V E N T O R I E S

The basis for the valuation of inventories is stated under Note 1 and is comprised of the following:

1999 1998

EUR 1,000 EUR 1,000

Raw materials and consumables 31,663.1 25,239.3

Work in progress and finished goods 30,115.6 42,587.7

61,778.7 67,827.0

Raw materials and consumables consist essentially of the beech wood supplies for pulp production, pulp,

chemicals and sundry supplies and spare parts.

N O T E 6I N V E S T M E N T S I N S U B S I D I A R I E S C O N S O L I D AT E D U N D E R T H E E Q U I T Y M E T H O D

Regarding the development of other investments consolidated under the equity method, we refer to

Appendix 1. The recognition of the Group’s proportionate share in the subsidiaries net income or loss is

included in Appendix 1 as increases or decreases to the investment balance.

The following companies are consolidated under the equity method:

P.T. South Pacific Viscose, Indonesia (SPV)

WWE – Wohn- und Wirtschaftspark Entwicklungsgesellschaft m.b.H., Austria (WWE)

RVL – Reststoffverwertung Lenzing GmbH, Austria (RVL)



Summarized subsidiary financial information: SPV WWE RVL

1999 EUR 1,000 EUR 1,000 EUR 1,000

Current assets 62,040.8 11,000.5 713.5

Fixed assets 53,658.1 0.2 -

Liabilities 146,255.9 35.0 672.3

Net income for the year 2,251.5 959.3 3.4

Share in investment 41.98% 25.00% 50.00%

Investment at book value - 2,741.0 20.6

Summarized subsidiary financial information: Bacell SPV WWE RVL

1998 EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000

Current assets 13.6 47,897.5 12,046.1 300.1

Fixed assets 240.4 48,330.6 0.8 -

Liabilities 199.9 124,306.4 78.3 262.3

Net income for the year -45.4 3,684.9 -55.3 22.7

Share in investment 37.42% 41.98% 25.00% 50.00%

Investment at book value - - 2,990.5 18.9

Previous losses in SPV have resulted in a zero carrying value of the investment as at January 1, 1998. The

Group is not required to cover any losses beyond the Group’s investment in the subsidiary. Therefore, the

Group´s share in the net result of SPV in 1999 and 1998, restated for US-GAAP as applicable, does not

impact the Group´s financial positions or results of operations.

As discussed in Note 1, the Group’s ownership share of Bacell decreased from 37.42 % as at December 31,

1998 to 4.5 % as at December 31, 1999. Accordingly, the Group recorded Bacell under the cost method of

accounting for the year ended December 31, 1999.



N O T E 7I N V E S T M E N T S H E L D T O M AT U R I T Y

Regarding the development of investments held to maturity, we refer to Appendix 1.

Market value Amortized cost Unrealized gains Average

effective

interest rate

1999 EUR 1,000 EUR 1,000 EUR 1,000 in %

Equity securities 48.4 48.4


and Austrian government corporations 14,999.7 14,959.5 40.2 4.5%

Corporate debt securities 18,484.1 18,428.6 55.5 4.5%

33,532.2 33,436.5 95.7

Market value Amortized cost Unrealized gains Average

effective

interest rate

1998 EUR 1,000 EUR 1,000 EUR 1,000 in %

Equity securities 48.4 48.4


and Austrian government corporations 17,538.1 17,260.1 278.0 3.2%

Corporate debt securities 13,731.0 13,253.3 477.7 3.2%

31,317.5 30,561.8 755.7

Proceeds from sales in 1999 and 1998 amounted to “TEur“ 7,120.8 and “TEur“ 13,449.0, respectively. The

resultant realized gains and losses were insignificant. The specific identification method was used as the cost

basis in computing realized gain and losses.



The contractual maturities of debt securities issued

by the Austrian Treasury and Austrian government

corporations and corporate debt securities are as

follows:

Austrian Treasury and Equity and

Austrian government corporate debt

corporations securities

EUR 1,000 EUR 1,000

2000 3,671.8 9.1

2001 2,506.1 947.0

2002 3,107.5 6,171.8

2003 3,588.8 5,750.0

2004 2,775.0

Thereafter 2,085.3 2,824.1

Total 14,959.5 18,477.0

N O T E 8P R O P E R T Y, P L A N T A N D E Q U I P M E N T

Regarding the development of property, plant and

equipment, we refer to Appendix No. 1.

During 1999 and 1998 the management of Lenzing

U.S.A. Corporation determined that, as a result of

continuing losses and the depressed state of the

American fiber industry, the Company’s manufac-

turing facility and substantially all production

equipment were impaired. As a result of the impair-

ment of the carrying value of these assets, the

Group recorded an impairment charge of

“TEur“ 1,396.5 and “TEur“ 2,390.3 to write-down

the assets to the estimated fair market value for

1999 and 1998, respectively. The impairment loss

is recorded under the caption “cost of goods sold“

in the income statement. The fair value of equip-

ment was determined by using an independent ap-

praisal. The fair value of buildings and land was de-

termined by using property tax valuations reduced

by estimated costs to prepare such assets for sale.

N O T E 9I N T A N G I B L E A S S E T S

Regarding the development of intangible assets,

we refer to Appendix No. 1.



N O T E 1 0A C C O U N T S P AYA B L E T R A D E

As at December 31, the Group’s accounts payable

consist of the following:

1999 1998

EUR 1,000 EUR 1,000

Accounts payable for

purchases, services and

other expenses 40,694.2 31,774.1

Accounts payable to

unconsolidated subsidiaries 31.1 197.0

Accounts payable to

subsidiaries consolidated

under the equity method 324.7 20,716.0

41,050.0 52,687.0

N O T E 1 1C O N V E R T I B L E B O N D S

The convertible bond 1994 to 2001, due

December 31, 2001, of Lenzing AG has a nominal

value of “TEur“ 53,414.5. Upon expiration of the

bond, the holder has the right to convert the bond

into ordinary shares of Lenzing AG at a nominal

conversion price of EUR 107.7 for each ordinary

share. The interest rate on the convertible bond is

5.25 % per annum and becomes due on

December 31 of each calendar year.

N O T E 1 2L O N G - T E R M D E B T

Long-term debt as at December 31, 1999 and 1998

consist of the following:

1999 1998

EUR 1,000 EUR 1,000

Bank debt

Revolving credit

agreements 25,108.6 20,344.9

Fixed-term loans 44,186.3 50,889.1

Other 69,750.4 69,915.5

139,045.3 141,149.5

Less current portion -11,546.3 -16,536.9

127,499.0 124,612.6

thereof: Bank 59,084.9 56,215.0

Other 68,414.1 68,397.6

R e v o l v i n g c r e d i t a g r e e m e n t s

These loans are continually renewed with the bor-

rowing bank at negotiated interest rates. For details

regarding the amount of the loans, interest rates

and the split between current and long-term portion,

we refer to Appendix 2.

F i x e d - t e r m l o a n s

These loans run for a specific period of time and

cannot be renegotiated at the end of the period. For

details regarding the amount of each loan, interest

rates and the split between current and long-term

portion, we refer to Appendix 2.



O t h e r l o a n s

These loans primarily relate to obligations to the “Forschungsfoerderungsfonds der gewerblichen Wirtschaft”,

to the ERP Fund and to the former owner of Lenzing U.S.A. Corporation.

The maturities of long-term debt as at December 31, 1999 are:

EUR 1,000

2000 11,546.3

2001 31,748.2

2002 25,089.4

2003 18,978.2

2004 19,856.9

Thereafter 31,826.3

Total 139,045.3

The following table is a summary of all collateral for bank and other loans as at December 31.

1999 1998

EUR 1,000 EUR 1,000

Mortgages 43,370.1 46,177.7

Investment securities 19,355.0 18,170.1

Pledge of certain assets of Lenzing Fibers Corporation 15,261.8 13,659.0

Assignment of receivables of Lenzing Lyocell GmbH & Co KG 1,520.4 1,074.9



N O T E 1 3P R O V I S I O N F O R P E N S I O N S

a ) L e n z i n g A G

Lenzing AG has established a non-contributory defined-benefit pension plan for all employees of Lenzing AG,

Lenzing Technik GmbH & Co KG and certain employees of Lenzing Lyocell GmbH & Co KG. The plan provides

retirement benefits based on years of service and compensation during the last year of employment. The

assumed retirement age of eligible employees ranges from 55 to 65 depending upon gender and position.

Mortality was based on the table “AVOE – P 99 gemischter Bestand“. In line with Austrian fiscal require-

ments, marketable securities are required to be held in order for the pension provision to be tax-deductible.

However, the provision is considered as unfunded as these securities are not required by law and can be

readily sold subject to certain tax penalties.

The following table sets forth the plan’s status as at December 31, 1999 and 1998:

Change in benefit obligation: 1999 1998

EUR 1,000 EUR 1,000

Benefit obligation at beginning of year 90,938.3 85,467.6

Service cost 2,106.6 6,092.1

Interest cost 5,365.8 5,275.0

Benefits paid -6,708.9 -5,896.4

Benefit obligation at end of year 91,701.8 90,938.3

Unrecognized net actuarial gain - -

Unrecognized prior service cost - -

Accrued benefit costs 91,701.8 90,938.3

Principal actuarial assumptions as at December 31: 1999 1998

Discount rate 6.00% 6.00%

Rate of compensation increase 2.00 to 2.50% 2.00%

Components of net periodic benefit cost: 1999 1998

Service cost 2,106.6 6,092.1

Interest cost 5,365.8 5,275.0

Net periodic benefit cost 7,472.4 11,367.1



b ) L e n z i n g U . S . A . C o r p o r a t i o n

Substantially all eligible employees of the Lenzing U.S.A. Corporation are covered by a non-contributory

defined-benefit pension plan. Under the plan, retirement benefits are primarily a function of either length

of service or both the length of service and average level of compensation.

Contributions to the plan are intended to provide not only for benefits attributed to service to date, but also

for those expected to be earned in the future. The plan’s assets consist primarily of units of a balanced mutual

fund managed by a bank.

The following table sets forth the plan’s funded status as at December 31, 1999 and 1998:

1999 1998

EUR 1,000 EUR 1,000

Total projected benefit obligation as at December 31 21,085.9 19,081.1

Fair value of plan assets as at December 31 20,002.9 15,443.4

Funded status 1,083.0 3,637.7

Prepaid benefit cost 512.6 -

Accrued pension costs recognized 2,472.9 3,556.3

Net periodic pension cost 716.2 627.8

Company contributions 531.6 1,450.8

Benefits paid 878.6 752.6

Pursuant to SFAS No. 87 “Employees’ Accounting for Pensions”, the financial statements reflect a liability

in the amount of Lenzing U.S.A. Corporation’s unfunded accumulated benefit obligation. Accordingly,

Lenzing U.S.A. Corporation recorded an additional liability of “TEur“ 2,099.9 in 1998. The liability

recorded was offset by an intangible pension asset of “TEur“ 651.4, and an equity deduction of

“TEur“ 1,448.5 in 1998.



In determining the projected benefit obligation, the

principal actuarial assumptions as at December 31,

1999 and 1998 were as follows:

1999 1998


Expected long-term rate

of return on plan’s assets 9.00% 9.00%

Rate of

compensation increase 4.00% 3.50%

Lenzing U.S.A. Corporation also sponsors a defined-

contribution plan which covers substantially all

salaried employees. Company contributions are

made based upon participant contributions. The

defined-contribution plan expense was

“TEur“ 205.5 and “TEur“ 179.3 for the years

ended December 31, 1999 and 1998, respectively.

N O T E 1 4P O S T- R E T I R E M E N T B E N E F I T SO T H E R T H A N P E N S I O N S A N D O T H E R E M P L O Y E E B E N E F I T S

A ) S e v e r a n c e p a y m e n t l i a b i l i t y

The liability for severance payments, due to

employees of Lenzing AG and its Austrian

subsidiaries, have pursuant to SFAS No. 87 been

measured and recorded according to SFAS No. 87

“Employees’ Accounting for Pensions” for the year

ended December 31, 1999. For the year ended

December 31, 1998, the liability was measured and

recorded based on Austrian commercial-law valuation

methods. The calculated liability as at December

31, 1998 is not estimated to be materially different

from that which would have resulted pursuant to

SFAS No. 87.



The following table sets forth the plan’s funded status, reconciled with amounts recognized in the balance

sheets as at December 31, 1999 and 1998:

Change in benefit obligation: 1999 1998

EUR 1,000 EUR 1,000

Benefit obligation at beginning of year 32,137.4 31,254.7

Service costs 1,152.5 2,865.9

Interest costs 1,928.2 1,875.3

Benefits paid -3,257.1 -3,858.5

Benefit obligation at end of year 31,961.1 32,137.4

Principal actuarial assumptions as at December 31: 1999 1998


Rate of compensation increase 2.00% 2.00%

Components of net periodic benefit costs: 1999 1998

EUR 1,000 EUR 1,000

Service costs 1,152.5 2,865.9

Interest costs 1,928.2 1,875.3

3,080.8 4,741.2

B ) P o s t - r e t i r e m e n t h e a l t h c a r e a n d l i f e i n s u r a n c e c o v e r a g e

Lenzing U.S.A. Corporation provides post-retirement health care and life insurance coverage to salaried and

hourly employees. Salaried employees reaching age 55 and 10 years of service will receive three fourths of

prior service credits for time worked prior to the acquisition of the Company by Lenzing AG. Hourly employees

who have reached age 62 with 10 years of service will be eligible for benefits through age 65. Lenzing U.S.A.

Corporation funds benefit costs on a pay-as-you-go basis.



The following table sets forth the plan’s funded sta-

tus, reconciled with amounts recognized in the bal-

ance sheets as at December 31, 1999 and 1998:

1999 1998

( amounts in EUR 1,000)

Post-retirement benefit

obligation as at December 31 5,232.6 5,122.1

Fair value of the plan’s assets

as at December 31 - -

Funded status 5,232.6 5,122.1

Accrued post-retirement

cost recognized 5,022.7 4,052.9

Net periodic post-retirement

benefit cost 634.3 541.6

Benefits paid 347.4 280.9

There were no employer or plan participant contri-

butions during the years ended December 31, 1999

and 1998.

The assumed health-care cost trend-rate, used in

measuring the accumulated post-retirement benefit

obligation, was 6 % in 1999, gradually declining to

5 % in the year 2001 and remaining at that level

thereafter. The weighted average discount rate used

in determining the accumulated post-retirement

benefit obligation was 8 % for 1999 and 6.75 %

for 1998.

C ) A n n i v e r s a r y p a y m e n t s l i a b i l i t y

In accordance with a trade-union agreement,

Lenzing AG and its Austrian subsidiaries are

required to make anniversary payments if the em-

ployee has served for a specified number of years.

Such payments are based on years of service and

expected salary levels at the date of payment. No

assets have been segregated to fund this liability.

The anniversary payments liability has been

measured and recorded according to SFAS No. 87

“Employees’ Accounting for Pensions” for the year

ended December 31, 1999. For the year ended

December 31, 1998, the liability was measured and

recorded based on Austrian commercial-law

valuation methods. The calculated liability as at

December 31, 1998 is estimated not to be

materially different from that which would have

resulted pursuant to SFAS No. 87.



The following table sets forth the plan’s status as at

December 31, 1999 and 1998:

1999 1998

( amounts in EUR 1,000)

Benefit obligation at

beginning of year 7,595.1 7,660.2

Net periodic

anniversary costs 692.1 566.8

Benefits paid -526.4 -631.9

Benefit obligation

at end of year 7,760.8 7,595.1

In determining the projected benefit obligation, the

principal actuarial assumptions as at December 31,

were as follows:

1999 1998


Average assumed rate of

compensation increase 2.0% 2.0%

N O T E 1 5I N C O M E T A X E S

The provision for income taxes and corresponding

balance sheet accounts are determined in accor-

dance with SFAS No. 109 “Accounting for Income

Taxes“. Under SFAS No. 109, the deferred tax lia-

bilities and assets are determined based upon

temporary differences between the basis of certain

assets and liabilities for income tax and financial

reporting purposes.

The current tax expense for the year ended

December 31, 1999 and 1998 was “TEur“ 276.7

and “TEur“ 113.1, respectively. The deferred tax

expense (+)/deferred tax benefit (-) for the year

ended December 31, 1999 and 1998 was

“TEur“ -738.0 and “TEur“ 2,568.9, respectively.

The Group receives tax benefits for investments in

certain fixed assets subject to the requirement that

the assets must be held for a minimum of four years

(investment tax allowance). The tax benefit recog-

nized for investments in fixed assets in 1999 and

1998 was “TEur“ 1,142.0 and “TEur“ 1,005.9,

respectively.

A reconciliation of income taxes, determined using

the statutory Austrian and U.S. rate of 34 % and

35 %, respectively, to actual income taxes provided

was as follows:



1999 1998

EUR 1,000 EUR 1,000

Net income before taxes and minority interests 3,855.2 8,304.8

Tax at Austrian and US statutory rate 1,310.8 2,823.6

Tax benefit for investments in intangible and fixed assets -1,142.0 -1,005.9

Tax benefit for research expenses -509.7 -776.0

Tax for non-temporary differences and withholding taxes -1,286.2 687.8

Net change in valuation allowance 1,165.8 952.5

Effective income tax -461.3 2,682.0

Net tax loss carry-forwards are available for the following companies as at December 31, 1999:

L e n z i n g A G

The Company has net operating loss carry-forwards of approximately “TEur“ 42,000 available to offset

future taxable income. These carry-forwards can be carried forward indefinitely.

B a c e l l H a n d e l s g e s e l l s c h a f t m b H

The Company has net operating loss carry-forwards of approximately “TEur“ 8,400 available to offset

future taxable income. Of these carry-forwards, “TEur“ 808.3 expire in 2001 through 2004. The remainder

can be carried forward indefinitely.

L e n z i n g U . S . A . C o r p o r a t i o n

The U.S. Group of companies has U.S. federal net operating loss carry-forwards of approximately

“TEur“ 54,900 available to offset future taxable income. These carry-forwards expire in 2009

through 2019.



N O T E 1 6D E F E R R E D T A X AT I O N

Deferred tax assets and liabilities are comprised of the following as at December 31, 1999 and 1998:

1999 1998

EUR 1,000 EUR 1,000

Deferred income tax assets:

Pension, post-retirement benefits, vacation and insurance accruals 13,187.9 14,031.4

Tax over book basis of fixed assets 5,189.4 744.6

Amortization of investments 8,254.2 10,895.0

Net tax loss carry-forwards 38,522.7 31,629.4

Other 540.7 945.4

65,694.9 58,245.8

Less valuation allowance -32,454.0 -24,800.1

Total deferred tax assets 33,240.9 33,445.7

Thereof: short-term 92.0 94.0

long-term 33,148.9 33,351.7

33,240.9 33,445.7

Deferred income tax liabilities:

Book over tax basis of fixed assets 36,507.4 36,177.4

Untaxed reserves according to Sec. 12 of the Austrian Income Tax Act 6,612.6 7,480.1

Other 454.4 804.7

Total deferred tax liabilities 43,574.4 44,462.2

Thereof: short-term 454.4 794.7

long-term 43,120.0 43,667.5

43,574.4 44,462.2

In the opinion of management, it is more likely than not that the deferred tax assets for certain subsidiaries

will not be realized and therefore a valuation allowance of 100 % has been recorded for the amount of the net

deferred tax asset for such subsidiaries.



N O T E 1 7S H A R E H O L D E R S ' E Q U I T Y

a ) C o m m o n s t o c k

In accordance with Article 1 Sec. 8 Para (1) of the

relevant Austrian statutory regulations, Lenzing AG,

the holding company, changed its nominal capital

from Austrian schilling to euro, whereby the im-

material translation difference was debited to

retained earnings. At the same time, Lenzing AG

changed their issued common stock to 3,675,000

shares, all with the same par value of EUR 7.27.

Subject to the approval of the Supervisory Board,

management is permitted to issue a further

917,500 shares at a par value of EUR 7.27 at their

discretion at any time through April 30, 2004, with

the stipulation that existing shareholders have the

first right to purchase any of the 917,500 shares, if

and when issued. In order to convert the convertible

bond 1994 – 2001 into common stock, manage-

ment is authorized to increase the common stock by

920,000 shares at a par value of EUR 7.27. The

conditions required for conversion are discussed in

Note 11. As at December 31, 1999 and 1998,

there were 3,675,000 shares of the Group out-

standing. Bank Austria AG (33.4 %) and

Creditanstalt AG (16.7 %), two major Austrian

banks belonging to the same group, together own

50.1 % of the share capital of Lenzing AG.

b ) R e t a i n e d e a r n i n g s

Under Austrian law, dividends may only be paid

based on the distributable profit of the holding

company. As as at December 31, 1999 and 1998,

this amounted to “TEur“ 2,704.0 and


EUR 1,000

The business year of Lenzing AG

ends with a profit for the year of 2,676.2

After adding the amount carried

forward from the profit of 1998 of 27.8

the new distributable profit

for the year is 2,704.0

The Board of Management proposes to distribute the

net profit as follows:

Payment of a dividend of

EUR 0.73 per share “TEur“ 2,682.8

Amount carried forward

to the next year “TEur“ 21.2

Subject to a decision by the shareholders’

meeting, the payment per share will be EUR 0.73.

The dividend, after deducting a 25 % withholding

tax, can be cashed by presenting the dividend

coupon No. 33 at the following banks from

May 10, 2000:



Bank Austria AG Vordere Zollamtstraße 13 1030 Vienna

Am Hof 2 1011 Vienna

Creditanstalt AG Schottengasse 6 1010 Vienna

Oberbank AG Hauptplatz 11 4020 Linz

and their branches.

The shares will be traded at the Vienna Stock Exchange, ex-dividend, as of May 8, 2000.

N O T E 1 8E A R N I N G S P E R S H A R E

The earnings per share data required under FAS 128 for the year ended December 31 is summarized

as follows:

December 31, 1999

Income Shares Income per share

EUR EUR

Basic earnings per share

Income available to common stockholders 4,287,038 3,675,000 1.17

Effect of dilutive securities convertible bond 2,004,415 6,824,434

Diluted earnings per share

Income available to common stockholders and

assumed conversions 6,291,453 10,499,434 0.60

December 31, 1998

Income Shares Income per share

EUR EUR

Basic earnings per share

Income available to common stockholders 5,610,255 3,675,000 1.53

Effect of dilutive securities convertible bond 2,004,415 6,824,434

Diluted earnings per share

Income available to common stockholders and

assumed conversions 7,614,670 10,499,434 0.73



N O T E 1 9C O M M I T M E N T S A N D C O N T I N G E N C I E S

The following table summarizes contingencies of the

Group as at December 31:

1999 1998

EUR 1,000 EUR 1,000

Guarantees given to

the Lenzing Water

Conservation Fund

in connection with the

loans granted by the

Ecology Fund to build

the second and third

stage of the

water treatment plant 28,983.5 30,574.4

Discounted cheques

and bills of exchange 814.5 820.7

Regarding potential claims in addition to the above

contingencies, including the compensation for

forced laborers, management believes that they will

not have a material effect on the financial position

or future results of operations of the Group.

O p e r a t i n g l e a s e c o m m i t m e n t s

The Group leases certain property and equipment,

including warehouses, transportation equipment,

office space and company vehicles, under operating

leases which almost completely expire over the next

five years. The majority of leases are subject to re-

newal at the Group’s discretion.

1999

EUR 1,000

2000 423.4

2001 270.1

2002 191.3

2003 125.5

2004 95.5

Thereafter 91.1

Total 1,196.9

Total rental expense, including rent associated

with leases that expired during the year or were

converted to month-to-month leases, was

“TEur“ 1,963.4 and “TEur“ 2,095.3 for

1999 and 1998, respectively.

L i t i g a t i o n

The Group is party to various legal actions and

claims arising in the ordinary course of business.

Management believes that the disposition of these

matters will not have a material adverse effect upon

the financial position or future results of operations

of the Group.



H e a l t h i n s u r a n c e p l a n

Lenzing USA Corporation maintains a self-insurance

program for that portion of the health care not cov-

ered by insurance. The Company is liable to claims

up to USD 100,000 per employee or retiree an-

nually and aggregate claims up to USD 2,565,000

annually for fiscal 1999 and USD 2,163,658 for

fiscal 2000. Self-insurance costs are accrued based

on the aggregate of the liability for the reported

claims and an estimated liability for claims incurred

but not reported.

R i s k

The Group is exposed to market risk in foreign cur-

rency exchange rates, principally fluctuations in the

US dollar rate, interest rates and commodities. In

order to manage the risk arising from foreign

exchange fluctuations, the Group has entered into a

variety of foreign exchange forward contracts.

Lenzing AG maintains a risk management control

system to monitor foreign exchange and related

hedge positions.

F o r e i g n c u r r e n c y e x p o s u r e r i s k

Lenzing AG has foreign currency exposure to buying,

selling and financing in currencies other than the

currency in which they operate, whereby the most

significant exposure is to the US dollar. As at

December 31, 1999 and 1998, the net fair value of

financial instruments with exposure to foreign

currencies was a liability of approximately

“TEur“ 210.3 and “TEur“ 0.0, respectively.

I n t e r e s t r a t e r i s k

Lenzing AG is subject to exposure from changes in

interest rates affecting its financing, investing and

cash management activities. In this connection, the

Group has not entered into any specific financial

instruments transaction program. Lenzing AG has

entered into a future trading program, with a volume

that is considered immaterial for the Group.

N O T E 2 0R E L AT E D P A R T Y T R A N S A C T I O N S

Included in cash in 1999 and 1998, are deposits

with Bank Austria AG and its subsidiaries of

“TEur“ 7,251.1 and “TEur“ 8,411.8, respectively.

The interest received thereon amounted to

“TEur“ 870.3 and “TEur“ 285.7, in 1999 and

1998, respectively.

Included in investments and investments held to

maturity, are debt securities issued by Bank Austria

AG and its subsidiaries amounting to

“TEur“ 13,379.3 and “TEur“ 11,017.4, in 1999

and 1998, respectively. The interest received there-

on amounted to “TEur“ 541.4 and “TEur“ 514.1,

in 1999 and 1998, respectively.

Included in long-term debt in 1999 and 1998,

are “TEur“ 39,405.1 and “TEur“ 41,823.7,

respectively, of loans made to the Group from Bank

Austria AG and its subsidiaries. Interest incurred

in relation to such debt in 1999 and 1998 was

approximately “TEur“ 1,541.3 and “TEur“ 2,073.1,

respectively.



Included in loans receivable at December 1999 and 1998 are “TEur“ 15,162.6 and “TEur“ 14,157.1,

respectively, due from companies consolidated under the equity method. Interest to be received under such

loans amounts to approximately “TEur“ 1,096.0 as at December 31, 1999 and “TEur“ 405.2 as at

December 31, 1998.

Significant transactions with companies consolidated under the equity method include:

Bacell SPV RVL

1998 1999 1998 1999 1998

EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000

Sales 859.3 44,876.3 37,760.6 5,677.6 1,667.6

Cost of goods sold -43,136.0 -285.4 -1,318.5 -5,032.5 -1,534.2

Interest income - 1,135.3 470.4 - -

N O T E 2 1O T H E R C O M P R E H E N S I V E I N C O M E

Other comprehensive income consists of foreign currency translation adjustments from subsidiaries with a

functional currency other than the euro and additional minimum pension liability adjustments. For the years

ended December 31, 1999 and 1998, the foreign currency translation adjustments arose primarily from the

translation of the financial statements of Lenzing U.S.A. Corporation, which is denominated in US dollar.

As discussed in Note 13, Lenzing U.S.A. Corporation recorded an additional minimum pension liability as at

December 31, 1998. As at December 31, 1999, the additional minimum liability adjustment was no longer

required. No tax impact arises from the components of other comprehensive income for the years ended

December 31, 1999 and 1998, respectively.



N O T E 2 2S E G M E N T R E P O R T I N G

The Lenzing Group reports by the following divisions internally for management review purposes:

Fibers Paper Films Lenzing Pulp trading Other trading Total

Technik Training products &

services

1999 EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000

Sales external customers 340,858.4 49,948.8 52,185.2 18,266.7 50,098.6 38,867.2 550,224.9

Inter-segment sales 29,560.8 86.6 970.8 28,129.2 3,772.9 - 62,520.3

Income from operations 6,839.5 1,061.0 5,964.8 1,564.0 927.7 -9,010.8 7,346.2

Intangible and fixed assets 332,556.8 14,691.6 17,633.2 3,271.2 70.8 492.3 368,715.9

Expenditures for intangible

and fixed assets 31,025.9 2,659.8 4,223.2 560.2 26.3 455.4 38,950.8

Due to restructuring that has occurred within the Group, division information cannot be provided for 1998 on

a comparable basis.

B r e a k d o w n b y g e o g r a p h i c r e g i o n s

The following illustrates the geographic information as at December 31:

Sales Fixed assets

1999 1998 1999 1998

EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000

Austria 99,680.8 106,174.0 358,207.9 371,762.5

EU (without Austria) 222,795.9 221,165.3 35.4 48.6

EFTA 32,567.9 33,803.0 - -

Asia 89,057.0 77,736.6 - -

United States of America 70,787.9 77,917.8 6,343.4 6,827.1

Others 35,335.4 30,665.3 - -

550,224.9 547,462.0 364,586.7 378,638.2



N O T E 2 3F I N A N C I A L I N S T R U M E N T S

A . FA I R VA L U E O F F I N A N C I A L I N S T R U M E N T S

The fair value of financial instruments as at December 31 is presented as follows:

1999 1998

EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000

Carrying Fair value Carrying Fair value

amount amount

Assets

Cash 30,676.5 30,676.5 15,673.9 15,673.9

Investments available for sale 53,275.7 53,275.7 58,128.7 58,128.7

Loans receivable 18,106.2 18,106.2 17,003.8 17,003.8

Investments held to maturity 33,436.5 33,532.2 30,561.8 31,317.5

Liabilities

Convertible bond 53,414.5 53,948.6 53,414.5 53,948.6

Short-term debt 11,546.3 11,546.3 16,536.9 16,536.9

Long-term debt 127,499.0 127,499.0 124,612.6 124,612.6

The market value of cash and investments available for sale approximate cost. The market value of the loans

receivable was determined to equal the face amount due to the loans’ terms. The market values of investments

held to maturity are quoted on the Vienna Stock Exchange. The market value of the convertible bond was

determined based on the price quoted on the Vienna Stock Exchange on December 31, 1999 and 1998,

respectively. The fair value of both short and long-term debt equals the carrying amount because the debt

bears interest at the current market rates.

B . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S

The Group is party to financial instruments with off-balance-sheet risk. These financial instruments are used

in the normal course of business to manage exposure to fluctuations in foreign exchange rates. The primary

classes of derivatives used by the Group are foreign exchange forward contracts and options.



F o r e i g n e x c h a n g e f o r w a r d c o n t r a c t s

a n d o p t i o n s

The Group has foreign currency exposures principal-

ly in US dollars. The magnitude of the exposure sig-

nificantly varies over time depending upon short-

term dealings in these currencies.

Lenzing AG enters into agreements by which it

seeks to manage certain foreign exposure in accor-

dance with established policy guidelines primarily

through foreign exchange forward contracts and for-

eign exchange options. These agreements primarily

hedge cash flows resulting from firm and antici-

pated transactions. The Group does not hedge the

foreign exchange exposure to either the translation

of foreign earnings to euro or the translation of

foreign equity back to the euro. As at December 31,

1999 and 1998, the Group held foreign exchange

forward contracts of “TEur“ 19,521.5 and


As at December 31, 1999 and 1998, Lenzing AG

had foreign currency exchange options of

“TEur“ 22,546.5 and “TEur“ 7,471.5,

respectively.

C r e d i t r i s k

The forward contracts and options previously dis-

cussed contain an element of risk in that the

counterparties may be unable to meet the terms of

the agreements. However, Lenzing AG minimizes

such risk exposure in connection with forward

contracts and options by limiting counterparts to

major international banks or financial institutions.

N O T E 2 4F O R E I G N C U R R E N C Y T R A N S A C T I O N S

The aggregate foreign currency transaction gains/

losses included in determining net income for the

years ended December 1999 and 1998 amounted to

“TEur“ 6,163.5 and “TEur“ -886.3, respectively.

N O T E 2 5M A J O R VA R I A N C E S B E T W E E N A M O U N T S R E C O R D E D U N D E R U SG A A P A N D A C C O U N T I N G P O L I C I E SG E N E R A L LY A C C E P T E D I N A U S T R I A

The consolidated financial statements of the Group

are prepared in accordance with accounting prin-

ciples generally accepted in the United States of

America. Accordingly, the financial statements in-

clude certain valuation, presentation and consoli-

dation methods which differ from those used in

preparing financial statements under accounting

principles generally accepted in Austria.



The major differences as at January 1, 1998

relate to:

a ) C h a n g e s i n v a l u a t i o n

● Discounting of loan by dormant partner

The loan from the dormant partner carries an

interest rate of 1 % per annum, a rate

considerably better than that which would be

paid for a similar loan on the open market.

Hence, in the financial statements, the loan

principal was discounted by such an amount that

the effective interest expense now represents an

interest rate payable on the open market. Under

Austrian accounting principles, the loan principal

would not be discounted.

● Valuation methods of investments

Investments available for sale:

In the consolidated financial statements these

investments are recorded at market value

whereas, under Austrian accounting principles,

such amounts would be accounted for at the

lower of cost or market.

● Amortization of fixed assets

The consolidated financial statements reflect

asset lives that are consistent with those used by

similar companies in the industry that issue

US-GAAP financial statements. Such asset

lives may differ from those typically used by

companies reporting under Austrian statutory

accounting guidelines.

For depreciation rates applied, we refer to Note 1.

● Deferred taxation

In the consolidated financial statements, the

Group includes tax losses carried forward in

determining the deferred tax assets. Under

Austrian accounting policies, tax losses may only

be utilized to reduce a deferred tax liability but

not to create or increase a deferred tax asset.

● Provisions for severance payments and

anniversary bonuses

In the consolidated financial statements, these

liabilities have been determined in accordance

with SFAS No. 87 for the year ended

December 31, 1999. The calculation includes an

assumed average annual rate of compensation

increase. For Austrian accounting purposes,

these liabilities would have been calculated

using the guidelines issued by the Austrian

Institute of Chartered Accountants.

● Provisions for pensions

In the consolidated financial statements, these

liabilities have been calculated in accordance

with SFAS No. 87 for the year ended

December 31, 1999. The calculation includes an

assumed average annual compensation increase.

For Austrian accounting purposes these liabilities

would have been calculated on an actuarial basis

complying with section 211 (2) of the Austrian

Commercial Code.



b ) C h a n g e s i n p r e s e n t a t i o n

● Construction cost of boiler

These costs represent expenditures related to

replacement of an existing boiler with a new

boiler. In the Austrian financial statements,

these costs would be classified as deferred

expenses whereas, for Group purposes, they

were considered as part of the construction cost

and included under fixed assets.

● Treatment of investment grants

Investment grants have been deducted from the

cost of the asset. Under Austrian accounting

principles such amounts would have been

presented separately as a liability in the

consolidated financial statements.

● Untaxed reserves

Under Austrian accounting policies, untaxed

reserves are classified as a separate caption on

the balance sheet. In the Group financial state-

ments, these amounts have been included within

retained earnings (net of deferred taxes if

applicable).

c ) C h a n g e s i n c o n s o l i d a t i o n

The Group records its 41.98 % investment in

P.T. South Pacific Viscose under the equity method

in accordance with the control concept of APB 18.

Under Austrian accounting principles, the subsidiary

would have been fully consolidated into the Group

financial statements due to the Group´s influence

on P.T. South Pacific Viscose´s management.



d ) R e c o n c i l i a t i o n o f A u s t r i a n s t a t u t o r y r e q u i r e m e n t s t o U S - G A A P c o n c e r n i n g c o n s o l i d a t e d

e q u i t y a s a t J a n u a r y 1 , 1 9 9 8 :

Balance sheet item Changes from Austrian January 1, 1998

statutory requirements EUR 1,000

Assets

Investments for sale Valued to market 1,336.8

Investments in subsidiaries consolidated

under the equity method Changes in consolidation -13,594.0

Plants, machinery and equipment Changes in asset lives 114,894.8

Plants, machinery and equipment Impairment -24,549.1

Public sector investment grants Reduction of fixed assets -45,255.6

Assets SPV Changes in consolidation -112,345.4

Deferred tax asset Added 35,336.4

-44,176.1

Liabilities

Deferred tax liability Added 43,456.9

Provision for pensions Changes in valuation 5,238.1

Contribution by dormant partners Discounted by open market interest rate -15,499.4

Liabilities SPV Changes in consolidation -119,326.5

-86,130.9

Equity

Public sector investment grants Reduction of fixed assets -40,254.2

Untaxed reserves Shown within retained earnings -45,573.9

Revenue reserves Shown within retained earnings -28,490.1

Retained earnings 156,273.0

Change in equity 41,954.8

Equity as per Austrian consolidated accounts January 1, 1998 184,809.7

Equity as per US-GAAP consolidated accounts January 1, 1998 226,764.5



N O T E 2 6A D D I T I O N A L I N F O R M AT I O N R E Q U I R E D B Y A U S T R I A N L AW

● Accounts receivable

Amounts receivable as at December 31, 1999 include “TEur“ 2,739.0 due after one year. The corre-

sponding amount for 1998 was “TEur“ 2,778.5. Amounts receivables from sales and services include

bills of exchange in 1999 and 1998 amounting to “TEur“ 2,370.8 and “TEur“ 2,814.7, respectively.

● Accounts payable and accrued expenses

As at December 31 accounts payable and accrued expenses are comprised of:

Maturities

Dec. 31 Total Up to 1 Year 1 to 5 More than 5

Years Years

EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000

Accounts payable for purchases, 1999 40,694.2 40,428.9 265.3 -

services and other expenses 1998 31,774.1 31,774.1 - -

Accounts payable to unconsolidated 1999 31.1 31.1 - -

subsidiaries 1998 197.0 197.0 - -

Accounts payable to subsidiaries 1999 324.7 324.7 - -

under the equity method 1998 20,716.0 20,716.0 - -

Other short-term payables 1999 45,826.2 45,826.2 - -

1998 36,317.9 36,317.9 - -

Other long-term payables 1999 27,276.3 - 339.4 26,936.9

1998 27,423.1 - 598.4 26,824.7



● Expenses for raw material and other supplies and services received and personnel expenses

The expenses for raw material and other supplies and services received and personnel expenses were:

1999 1998

EUR 1,000 EUR 1,000

Expenditures for raw material 245,127.9 258,579.8

Expenditures for other supplies and services received 31,809.1 27,782.0

276,937.0 286,361.8

Personnel expenses

Wages 65,664.3 65,903.6

Salaries 49,193.2 51,729.0

Expenses for severance payments 4,612.3 3,135.8

Expenses for pensions 7,880.5 12,308.8

Expenses for statutory social taxes on wages and salaries 30,293.8 31,090.2

Other personnel expenses 5,776.2 4,738.5

163,420.3 168,905.9

● Employee information

The number of staff members employed by the Group were:

1999 1998

Average number of staff members for the year ended December 31:

white-collar workers 966 1,030

blue-collar workers 2,119 2,187

3,085 3,217

Number of staff members on December 31:

white-collar workers 1,007 1,035

blue-collar workers 2,159 2,191

3,166 3,226



Expenses for severance benefits and pensions, including changes to or releases from provisions, can be broken

down as follows:

Severance expenses Pensions expenses

Expenses for 1999 1998 1999 1998

EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000

Board of Management

- active directors 600.9 3.2 148.0 443.5

- former directors and surviving dependents - - 2,615.7 2,133.3

Other employees 4,011.4 3,132.7 5,116.8 9,732.0

4,612.3 3,135.9 7,880.5 12,308.8

1999 1998

EUR 1,000 EUR 1,000

Directors’ and Members’ of Supervisory

Board compensations were:

- active directors 1,111.9 1,315.4

- former directors and surviving dependents 1,663.6 1,453.5

- members of the Supervisory Board 43.0 65.4



N o t e 2 7T H E G R O U PS U P P L E M E N T A R Y F I N A N C I A L I N F O R M AT I O N

Quarterly financial data unaudited Quarter ended

1999 March 31 June 30 September 30 December 31

EUR mill. EUR mill. EUR mill. EUR mill.

Net sales 122.5 136.3 127.5 163.9

Gross profit 25.9 28.7 28.0 20.7

Income from operations -0.7 4.1 3.2 0.7

Result from financial activities -1.5 -0.9 -0.3 -2.6

Net income before taxes

and minority interests -1.3 4.0 3.3 -2.1

Net income -1.7 4.1 3.1 -1.2

Earnings per share EUR EUR EUR EUR

Basic -0.46 1.12 0.83 -0.32

Diluted -0.12 0.44 0.34 -0.06

Due to the first-time application of US-GAAP, interim information cannot be provided for 1998 on a

comparable basis. Previously published 1999 interim data was, amongst other, restated to exclude

P.T. South Pacific Viscose, Indonesia, now presented as an equity subsidiary.



N O T E 2 8S U B S I D I A R I E S O F T H E G R O U P

Name of subsidiary Currency Contribution to Share

equity in %

Fully consolidated companies:

Lenzing Deutschland Syncell GmbH, Ditzingen, Germany DEM 250,000 100.00

Lenzing Fibers Corporation, Lowland, USA USD 1 100.00

Lenzing France S.a.r.l., Paris, France FRF 300,000 100.00

Lenzing Lyocell GmbH & Co KG, Heiligenkreuz, Austria ATS 148,000,000 100.00

Lenzing Technik GmbH & Co KG, Lenzing, Austria EUR 1,000,000 100.00

Lenzing USA Corporation, Lowland, USA USD 15,000 100.00

Lenzing Performance, Incorporation,Lowland, USA USD 10 100.00

Teifi Limited, Dublin, Ireland ATS 10,000,000 100.00

Tabuk Unlimited, Dublin, Ireland ATS 9,000,038 100.00

Bacell Handelsgesellschaft mbH, Lenzing, Austria ATS 500,000 100.00

Lenzing Lyocell GmbH, Heiligenkreuz, Austria ATS 5,000,000 100.00

Lenzing Technik GmbH, Lenzing, Austria EUR 35,000 100.00

Kilo Holding GmbH, Vienna, Austria ATS 1,000,000 100.00

BZL Bildungszentrum Lenzing GmbH, Lenzing, Austria ATS 600,000 75.00

Others ATS 1,000,000 100.00

Companies consolidated under the equity method:

P.T. South Pacific Viscose, Purwakarta, Indonesia IDR 72,500,000,000 41.98

WWE Wohn- und Wirtschaftspark Entwicklungs-

gesellschaft m.b.H., St. Poelten, Austria ATS 500,000 25.00

RVL Reststoffverwertung Lenzing GmbH, Lenzing, Austria ATS 500,000 50.00

Non-consolidated companies:

Gemeinnuetzige Siedlungsgesellschaft mbH fuer den

Bezirk Voecklabruck, Lenzing, Austria ATS 15,870,000 99.90



N O T E 2 9C O R P O R AT E M A N A G E M E N T

S u p e r v i s o r y B o a r d

Dkfm. Herbert W. Liaunig, Vienna

Chairman

Mag. Ewald Nageler, Vienna

Deputy Chairman

Dkfm. Dr. Hermann Bell, Linz

Member

Dipl.Ing. Othmar Pühringer, Linz

Member

Mag. Wolfgang Peter, Vienna

Member

Dr. Gerhard Scharitzer, Vienna

(until June 16,1999)

Member

W o r k e r s ’ C o u n c i l R e p r e s e n t a t i v e s

Franz Huber,

Chairman of the Company’s Workers’ Council and

Chairman of the White-Collar Workers’ Council

Rudolf Baldinger

Chairman of the Blue-Collar Workers’ Council

Richard Lehner (until January 31, 2000)

Deputy Chairman of the Blue-Collar

Workers’ Council

B o a r d o f M a n a g e m e n t



Dr. Franz Raninger

Dipl.Ing. Dr. Christian Reisinger

Lenzing, February 15, 2000

T h e B o a r d o f M a n a g e m e n t :



Dr. Franz Raninger

Dipl.Ing. Dr. Christian Reisinger

1 0 0 A N N U A L A C C O U N T S


I N D E P E N D E N T A U D I T O R ' S R E P O R T

To the Members of the Supervisory Board and

Shareholders of Lenzing Aktiengesellschaft,

Lenzing, Austria

We have audited the accompanying balance sheets

of Lenzing Aktiengesellschaft and its subsidiaries

(the Group) as at December 31, 1999 and 1998,

and the related statements of income, shareholders’

equity, and cash-flows for the years then ended.

These financial statements are the responsibility of

the Group’s management. Our responsibility is to

express an opinion on these financial statements

based on our audits.

We conducted our audits in accordance with gen-

erally accepted auditing standards in Austria. Those

standards require that we plan and perform the

audit to obtain reasonable assurance about whether

the financial statements are free of material mis-

statement. An audit includes examining, on a test

basis, evidence supporting the amounts and dis-

closures 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 financial statements present

fairly, in all material respects, the financial position

of the Group as at December 31, 1999 and 1998,

and the results of its operations and its cash-flows

for the years then ended in conformity with

generally accepted accounting principles in the

United States.

Under Austrian Law (Sec. 245 a of the Austrian

Commercial Code), an audit of the group status

report has to be conducted and it has to be certified

whether the legal requirements for the exemption

from the preparation of consolidated accounts

according to Austrian law are met.

We confirm that the group status report for Lenzing

Aktiengesellschaft is in accordance with the Group

financial statements and we further certify that the

legal requirements for the exemption from the

preparation of consolidated accounts according to

Austrian Law are met.

Vienna, February 16, 2000

Oesterreichische Wirtschaftsberatung GmbH

Wirtschaftspruefungs- und

Steuerberatungsgesellschaft

Mag. Erich Kandler, Chartered Accountant, CPA

Dr. Leopold Fischl, Chartered Accountant

A N N U A L A C C O U N T S 1 0 1




Balance Currency Status Additions or

Jan. 1, 1999 difference Jan. 1, 1999 increases

= CD (incl. CD) 1999

DEVELOPMENT OF INVESTMENTS AND LOANS EUR EUR EUR EUR

1. Investment in unconsolidated subsidiary 1,148,231 0 1,148,231 0

2. Investments in subsidiaries consolidated

under the equity method 47,960,038 47,960,038 242,758

3. Loans to subsidiaries consolidated

under the equity method 14,324,514 0 14,324,514 1,005,494

4. Investments held to maturity 30,569,670 0 30,569,670 10,882,772

5. Other loans 3,484,573 0 3,484,573 4,948

Total Investments and Loans 97,487,026 0 97,487,026 12,135,972

DEVELOPMENT OF PROPERTY, PLANT AND EQUIPMENT

1. Land 2,349,739 32,359 2,382,098 131,835

2. Buildings 135,918,901 130,393 136,049,294 1,294,181

3. Plants, machinery and equipment 700,972,149 996,615 701,968,764 37,325,616

Total Property, Plant and Equipment 839,240,789 1,159,367 840,400,156 38,751,632

DEVELOPMENT OF INTANGIBLE ASSETS

Intangible Assets 10,663,811 0 10,663,811 199,154

D E V E L O P M E N T O F L O N G - T E R M A S S E T S



Disposals or Transfers Gross value Accumulated Book value Book value Depreciation

decreases 1999 Dec. 31, 1999 depreciation Dec. 31, 1999 Dec. 31, 1998 write-ups = W

1999 1999

EUR EUR EUR EUR EUR EUR EUR

0 0 1,148,231 0 1,148,231 1,148,231 0

490,542 -29,238,023 18,474,231 15,712,613 2,761,618 3,009,402 0

0 0 15,330,008 167,369 15,162,639 14,157,145 0

2 W

7,109,765 29,238,023 63,580,700 30,144,223 33,436,477 30,561,749 901,624

14,378 0 3,475,143 531,562 2,943,581 2,846,719 106,292 W

7,614,685 0 102,008,313 46,555,767 55,452,546 51,723,246 795,330

103 0 2,513,830 0 2,513,830 2,349,739 0

14,078 37,463 137,366,860 67,812,038 69,554,822 72,689,381 4,575,567

32,592,516 -37,463 706,664,401 414,146,336 292,518,065 303,599,060 46,774,045

32,606,697 0 846,545,091 481,958,374 364,586,717 378,638,180 51,349,612

63,337 0 10,799,628 6,670,443 4,129,185 4,684,099 754,068

A p p e n d i x 1



Effective

Lender Balance as at December 31, interest rate

1999 1998 1999

EUR EUR %

Bank Loans

1. Revolving Credit Agreements

RZB Finance New York 18,421,861.20 13,659,004.53 7.49

refinanced to Oberbank AG, Linz

Bank Austria AG 3,924,333.05 3,924,333.05 4.47

Bank Austria AG 2,761,567.70 2,761,567.70 2.7

Bank Austria AG 785.00 21.00

25,108,546.95 20,344,926.28

less current portion -5,922,368.70 -2,761,588.70

19,186,178.25 17,583,337.58

2. Fixed-Term Loans

Bank Austria AG 845,584.76 2,536,725.22 4.16

Bank Austria AG 127,940.52 204,479.55 4.16

Creditanstalt AG 3.028,034.76 3,633,641.71 4.16

Creditanstalt AG 2,034,839.36 0.00 2.54

Creditanstalt AG 436,037.01 0.00 2.54

Creditanstalt AG 113,854.11 227,708.21 3.31

Oberbank AG 363,364.17 605,606.95 4.16

Oesterreichische Investitionskredit AG 508,709.84 508,709.84 2.54

Oesterreichische Investitionskredit AG 3,197,604.70 3,197,604.70 2.54

Oberbank AG 3,600,000.00 3,626,452.33 2.54

Bank Austria AG 1,744,155.29 2,230,721.71 2.54

Bank Austria AG 3,394,925.98 4,261,898.36 4.16

Bank Austria AG 1,790,694.98 1,821,854.17 4.16

Sparkasse Voecklabruck 0.00 3,633,641.71 4.16

Creditanstalt AG 4,152,310.89 4,654,286.20 4.16

Oesterreichische Investitionskredit AG 0.00 249,158.81 2.54

Bank Austria AG 4,149,982.19 4,665,595.95 4.16

Erste Bank AG 0.00 81,396.21

Bausparkasse Wuestenrot AG 57,567.79 66,526.62 6

EB und Hypo - Bank Burgenland AG 14,534,566.83 14,534,566.83 3.5

Landeshypothekenbank Steiermark AG 106,102.34 148,543.27 6.2

44,186,275.52 50,889,118.35


39,898,743.96 38,631,710.69

Total bank loans 69,294,822.47 71,234,044.63


59,084,922.21 56,215,048.27

L O N G - T E R M D E B T



Collateral Payment terms

Pledge of certain assets of Lenzing Fibers Corporation payable in total upon maturity (29.02.00)

Pledge of current assets of Lenzing Fibers Corporation thereof “TEur“ 15,261.8 payable upon

maturity (28. 02. 01)

Assignment of receivables of Lenzing Lyocell GmbH & Co KG payable in total upon maturity (30.11.02)

Assignment of receivables of Lenzing Lyocell GmbH & Co KG part of export trade credit terminable at call

“TEur“ 31,400 pledge for property no. EZ 167, Lenzing final instalment on 31.3.00

Property mortgage of “TEur“ 6,500 on property no. EZ 167, Lenzing semi-annual

(serves also as collateral for the investment loan of “TEur“ 4,400)

Blank acceptances including dedication statement and semi-annual

guarantee of the Research Fund for Austrian Business in accordance

with Sect. 1357 of the Austrian Civil Code.

The Research Fund for Austrian Business assumes a guarantee 1st instalment on 30.6.02; semi-annual

in accordance with Sect. 1357 of the Austrian Civil Code.

The Research Fund for Austrian Business assumes a guarantee 1st instalment on 30.6.02; semi-annual


The Research Fund for Austrian Business assumes a guarantee semi-annual


The Research Fund for Austrian Business assumes a guarantee semi-annual

in accordance with Sect. 1357 of the Austrian Civil Code

Bill of Exchange (“B/E“) given as security including dedication 1st instalment on 01.06.00; semi-annual

statement and guarantee of the Research Fund for Austrian Business.

B/E given as security including dedication statement and guarantee of 1st instalment on 31.03.01; semi-annual

the Research Fund for Austrian Business.

payable in total upon maturity (30.9.04)

Mortgage of “TEur“ 4,400 on property no. EZ 167, Lenzing semi-annual

Pledged securities with a nominal value of “TEur“ 5,700 semi-annual

Guarantee provided by “Ost-West-Fonds“ semi-annual

Property mortgage of “TEur“ 6,500 on property no. EZ 167, Lenzing payable in total upon maturity (31.12.05)

Pledged securities with a nominal value of “TEur“ 900

Guarantee provided by “Ost-West-Fonds“ semi-annual

Guarantee provided by Bank Austria

Mortgage on residential buildings monthly

Mortgage of “TEur“ 14,534.6 on property no. EZ 958, Heiligenkreuz i.L. 1st instalment on 31.12.00; semi-annual

Mortgage of “TEur“ 3,370 on property no. EZ 791, Rudersdorf semi-annual



Lender Balance as at December 31, Effective interest rate

1999 1998 1999

Other Loans EUR EUR %

Fixed-Term Loans

Research fund for Austrian Business, Vienna

Several loans 2,271,026.43 1,776,850.80 3.31

Bank Austria, Vienna

ERP Loan KZE no. 1901.0024/92 3,391,495.82 3,391,495.82 4.16

ERP Loan KZE no. 6901.0067/93 3,028,204.32 4,239,369.78 4.16

ERP Loan KZE no. 6001.0176/96 6,831,246.41 6,831,246.41 2.54

Oberbank AG, Linz

ERP Loan KZE no. 6001.0198/97 7,267,283.42 7,267,283.42 2.54

ERP Loan KZE no. 6001.0230/98 7,267,283.42 7,267,283.42 2.54

EB und Hypo - Bank Burgenland

ERP Loan no. 910-258-026/65 14,534,566.83 14,534,566.83 2.5

ERP Loan no. 910-158-026/66 21,801,850.25 21,801,850.25 2.5

Obligations to former owner of LFC 3,357,499.01 2,611,430.93 6

Current accounts 194,076.59

Obligation to others 69,750,455.91 69,915,454.25


other long-term obligations 68,414,032.87 68,397,569.05

Total bank and other debt 139,045,278.38 141,149,498.88


Total long-term debt 127,498,955.08 124,612,617.32

L O N G - T E R M D E B T



Collateral Payment terms

payable in total upon maturity

Guarantee provided by “Finanzierungsgesellschaft Ost West Fonds“ 1st instalment on 1.7.01; semi-annual

Guarantee provided by “Finanzierungsgesellschaft Ost West Fonds“ 1st instalment on 1.1.04; semi-annual

Mortgages, guaranteed by Bank Austria AG 1st instalment on 31.12.00; semi-annual

Guarantee provided by Oberbank AG 1st instalment on 1.7.01; semi-annual

Guarantee provided by Oberbank AG 1st instalment on 1.1.02; semi-annual

Guarantee provided by federal province of Burgenland 1st instalment on 1.1.2001; semi-annual

Mortgage of “TEur“ 21,801.9 on property no. EZ 958 Heiligenkreuz i.L. 1st instalment on 1.07.2001; semi-annual

Mortgage 1st instalment on Aug. 2000; monthly

R E P O R T O F T H E S U P E R V I S O R YB O A R D O N F I S C A L 1 9 9 9

T O T H E 5 6 T H R E G U L A R

S H A R E H O L D E R S ' M E E T I N G :

Dear Shareholders,

At several meetings held in 1999 and by way of in-

formation received on an ongoing basis, the Super-

visory Board was informed by the Board of Manage-

ment of the Company's activities, as well as of the

decisions taken by Lenzing AG and its subsidiary

companies. Whenever required, the Supervisory

Board approved important business transactions. In

addition, the members of the Supervisory Board and

of its Working Committee had regular personal

exchanges with the Board of Management, in the

course of which they approved the measures taken

by the Board of Management.

The Supervisory Board received the financial state-

ments for the year and the Group's accounts as at

December 31, 1999. Both, the financial statements

for the year and the Group's accounts were audited

by Deloitte & Touche, Oesterreichische Wirtschafts-

beratung GmbH, Chartered Accountants and Tax

Consultants, Vienna, who certified that the financial

statements for the year and the Group's accounts

comply with the statutory requirements in all

respects.

Following the meeting of the Financial Audit Com-

mittee, the Supervisory Board discussed the finan-

cial statements for the year which met with the

Board's approval. In keeping with Section 127 of

the Austrian Stock Corporations Act, the Supervisory

Board stated that it accepted the status report and

approved the accounts for 1999. The financial

statements have thus been established in keeping

with Paragraph 2 of Section 125 of the Austrian

Stock Corporations Act. Moreover, the Supervisory

Board also acted in keeping with Section 244 of the

Austrian Commercial Law Code, in connection with

Section 245 a of the Austrian Commercial Law

Code, and approved the Group's accounts and the

report on the Group's status.

Furthermore, the Supervisory Board agreed to the

proposal of the Board of Management for the

distribution of the profit. EUR 2,682,750.00

of the balance-sheet profit, amounting to

EUR 2,704,009.72, are therefore paid as dividend.

The remaining profit, amounting to EUR 21,259.72

is carried forward to the new accounts.

The Supervisory Board proposes to the 56th Regular

Shareholders' Meeting to appoint Deloitte & Touche,

Oesterreichische Wirtschaftsberatung GmbH,

Chartered Accountants and Tax Consultants, Vienna,

for the 2000 accounts.

By way of conclusion, the Supervisory Board thanks

the Board of Management and all staff members of

the Company for their constructive cooperation

during the business year under review.

Vienna, March 2000

Dkfm. Herbert W. Liaunig

Chairman of the Supervisory Board

1 0 8 S U P E R V I S O R Y B O A R D


A D D R E S S E S 1 0 9

EUROPE:

Lenzing Aktiengesellschaft

A-4860 Lenzing

Phone: +(43)7672-701-0

Fax: +(43)7672-701-3880

[email protected]

Lenzing Technik GmbH & Co KG

A-4860 Lenzing

Phone: +(43)7672-701-0

Fax: +(43)7672-96858

[email protected]

Lenzing Plastics GmbH & Co KG

A-4860 Lenzing

Phone: +(43)7672-701-2851

Fax: +(43)7672-918-2851

[email protected]

Lenzing Lyocell

Ges.m.b.H. & CO KG

Industriegelaende 1

A-7561 Heiligenkreuz

Phone: +(43)3325-4100

Fax: +(43)3325-4100-400

[email protected]

Lenzing Deutschland

Syncell Ges.m.b.H.

Stuttgarter Strasse 23

D-71254 Ditzingen

Phone: +(49)7156-1615-0

Fax: +(49)7156-1615-55

[email protected]

Lenzing France S.a.r.l.

64, rue Tiquetonne

F-75002 Paris

Phone: +(33)1-44 88 22 46

Fax: +(33)1-44 88 22 50

[email protected]

Bildungszentrum

Lenzing GmbH

A-4860 Lenzing AG

Phone: +(43)7672-701-3531

Fax: +(43)7672-96866

[email protected]

RVL Reststoffverwertung

Lenzing GmbH

A-4860 Lenzing

Phone: +(43)7672-701-3361

Fax: +(43)7672-94061

[email protected]

Gemeinnuetzige

Siedlungsgesellschaft m.b.H.

fuer den Bezirk Voecklabruck

A-4860 Lenzing

Phone: +(43)7672-701-3300

Fax: +(43)7672-96861

[email protected]

Teifi Limited

41-45 St. Stephen’s Garden

IR-Dublin 2

Phone: +(353)1-740777

Fax: +(353)1-743050

Tabuk Unlimited

41-45 St.Stephen’s Garden

IR-Dublin 2

Phone: +(353)1-740777

Fax: +(353)1-743050

WWE Wohn- und Wirtschaftspark

Entwicklungsgesellschaft.m.b.H.

Julius Raab-Promenade 27/30

A-3100 St. Poelten

Phone: +(43)2742-361686

Fax: +(43)2742-361686-14

BACELL

Handelsgesellschaft m.b.H.

A-4860 Lenzing AG

Phone: +(43)7672-701-3710

Fax: +(32)7672-701-3856

[email protected]

USA :

Lenzing Fibers Corp.

Head Office/Production

Highway 160

P.O.Box 2000

Lowland, TN 37778

Phone: +1(423)585 4802

Fax: +1(423)585 4801

[email protected]

Marketing & Sales

6060 J.A. Jones Drive,

Suite 600

Charlotte, NC 28287

Phone: +1(704)551 1401

Fax: +1(704)554 0577

SOUTH AMERICA :

Bacell S.A.

Rua Alfa 1033 – AIN - COPEC

42810-000 Camaçari, BA

Brazil

Phone: +(55)71-834 0400

Fax: +(55)71-834 5459

[email protected]

ASIA :

P.T. South Pacific Viscose

Ds. Cicadas, Purwakarta,

41101 West Java

P.O.Box 11 Pwk

Purwakarta, Indonesia

Phone: +(62)264 200 636

Fax: +(62)264 206 432

[email protected]

Office Jakarta:

Phone: +(62)21 577 1630

Fax: +(62)21 577 1640

T H E L E N Z I N G G R O U P

I M P O R T A N T A D D R E S S E S A T A G L A N C E


under US-GAAP under Austrian statutory requirements (SPV - fully consolidated)

1999 1998 1997 1996 1995 1994 1993 1992

SALES AND RESULT

Sales EUR mill. 550 547 522 566 632 612 635 580

Sales outside of Austria % 81.9 80.6 81.8 83.0 83.2 84.1 84.3 79.0

Income from operations/ Operating result EUR mill. 7 13 -21 -3 28 32 19 8

Result from financial activities/ Financial result EUR mill. -5 -9 -26 0 -5 -9 -7 -5

Result from ordinary business activities EUR mill. -47 -2 23 22 12 3

Net income before taxes and minority interest EUR mill. 4 8

Extraordinary result EUR mill. 0 0 0 -9 0 8 -23 -4

Income taxes EUR mill. 0 -3 0 0 -4 -8 -4 -2

Profit/ loss for the year EUR mill. -48 -11 18 22 -15 -4

Net income EUR mill. 4 6

Cash-flow

Gross cash-flow EUR mill. 61 70 55 33 72 61 54 54

Gross cash-flow as percentage of sales % 11.1 12.8 10.5 5.8 11.3 10.0 8.6 9.4

Cash-flow from operating activities EUR mill. 61 50 49 67 73 71 91 11

Cash-flow after investment activities EUR mill. 22 48 -38 -104 22 41 18 -85

Expenditure on intangible and fixed assets EUR mill. 39 39 87 154 56 39 73 106

Assets and liability structure

Long-term assets/ Fixed assets

and plant startup costs % 63.4 64.9 60.1 58.2 47.2 49.2 54.1 55.1

Current assets % 36.6 35.1 39.9 41.8 52.8 50.8 45.9 44.9

Total assets EUR mill. 721 723 840 850 775 749 728 717

Financial structure

Equity % 32.2 31.8 22.1 29.6 32.5 33.3 32.8 36.6

Social capital % 18.2 18.1 14.1 13.5 14.3 14.6 15.3 14.8

Liabilities % 49.6 50.2 63.8 56.9 53.2 52.1 51.9 48.6

Key data

ROS (return on sales) 1) % 2.2 2.8 -6.4 2.0 5.4 4.8 3.9 2.4

ROCE (return on capital employed) 2) % 2.2 2.6 -4.8 1.7 5.3 4.6 4.1 2.4

ROE (return on equity) % 1.9 2.5 -21.7 -0.9 9.1 9.1 5.0 1.0

EBIT 3) EUR mill. 12 18 -21 -3 28 32 19 8

EBITDA 4) EUR mill. 65 76 63 50 81 85 92 57

OEVFA profit / deficiency per share EUR -8.2 -4.8 3.0 1.6 1.5 -1.0

Earnings per share (basic) EUR 1.2 1.5

Number of staff members at year-end 3,166 3,226 4,781 4,936 4,906 4,994 5,543 6,135

1) = (Net income before minority interest and net interest balance)/ Sales 1) = (Profit / loss for the year before extraordinary result and net interest balance)/Sales

2) = (Net income before minority interest and net interest balance) / 2) = (Profit / loss for the year before extraordinary result + net interest balance) /(The average of total liabilities and shareholders’ equity after deducting: (The average of total liabilities and shareholders’ equity after deducting:- Accounts payable-trade - Other provisions- Accounts payable-other - Payments received on account of orders- Deferred taxation - Trade creditors- Other long-term liabilities) - Accounts payable to unconsolidated subsidiaries

- Accounts payable to subsidiaries consolidated unter the equity method3) = Net income before taxes, minority interests and net interest balance - Other payables

- Accruals and deferred income)4) = EBIT plus depreciation and amortization

3) = Result of the ordinary business acitivities plus interest balance

4) = EBIT plus depreciation and amortization


L O N G - T E R M C O M P A R I S O N O F K E Y D AT A


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Investor Relations

A-4860 Lenzing / Austria

Phone: +(43) 7672-701-2713

Fax: +(43) 7672-96301

Homepage: www.lenzing.com

E-mail: [email protected]

and you will receive all available publications.


World Leader in Cel lu loseF iber Technology


A-4860 Lenzing, Austria

Tel.: + (43) 7672-701-0

Fax: + (43) 7672-701-3880

e-mail: [email protected]

www.lenzing.com

Copyright and published by


A-4860 Lenzing, Austria

www.lenzing.com

Edited by


Corporate Communication

Dr. Rosemarie Schuller

Phone: + (43) 7672 – 701 – 2713

Fax: + (43) 7672 – 96301

[email protected]

Designed by

pastl, lang communication, Linz

Printed by

Friedrich VDV, Linz, Austria

Translated into English by

Dipl. Dolm. Liese Katschinka,

Vienna, Austria

Photography by

Thran the Long / Vietnam

Ramon Serras / Spain

Karl Eissner / Germany

Rudi Eckhardt / Germany

John Law / UK

Fotostudio Wohlschlager / Austria

port 1999 +++ aannnnuuaall rreeppoorrtt 11999999 +++ annual report 1999

annual report 1999 - de.marketscreener.com ag...2 annual report nual 1999 +++ annual accounts +++...

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