QUARTERLY REPORT FOR THE THREE MONTHS ENDED 31 MARCH 2012

Transcription

1 QUARTERLY REPORT FOR THE THREE MONTHS ENDED 31 MARCH 2012 Registered office in Via della Valle dei Fontanili 29/ Rome, Italy Share capital: 1,084, fully paid-in Rome Companies Register Tax Code and VAT number:

2 CONTENTS CONTENTS... 1 CORPORATE OFFICERS... 2 THE GROUP... 4 BASIS OF PRESENTATION... 4 BASIS OF CONSOLIDATION... 5 SIGNIFICANT EVENTS DURING THE PERIOD... 7 RESULTS OF OPERATIONS FINANCIAL POSITION AND CASH FLOW DECLARATION BY THE MANAGER RESPONSIBLE FOR FINANCIAL REPORTING page 1

3 CORPORATE OFFICERS Board of Directors Claudio Carnevale Chairman and CEO Francesco Ago Director Margherita Argenziano Director Raffaele Cappiello Director Cristian Carnevale Director Luca De Rita Director Giovanni Galoppi Director Giuseppe Guizzi Director Giovanni La Croce Director Board of Statutory Auditors Antonio Mastrangelo Chairman Umberto Previti Flesca Auditor Maurizio Salimei Auditor Independent auditors Reconta Ernst & Young S.p.A. page 2

4 Acotel Group S.p.A. s Board of Directors and Board of Statutory Auditors were elected by the Annual General Meeting of 24 April 2012, which also elected Claudio Carnevale as Chairman. The same meeting of 24 April 2012 voted to engage Reconta Ernst & Young S.p.A. to audit the financial statements for the financial years The Board of Directors meeting that approved this elected Claudio Carnevale as the Company s Chief Executive Officer, granting him the powers necessary to ensure effective and timely management of the Company. page 3

5 THE GROUP The following chart shows the structure of the Group at : The parent company of Acotel Group S.p.A. is Clama S.r.l., which at holds 1,727,915 ordinary shares, representing 41.4% of the share capital. Clama S.r.l. does not carry out management and coordination activities pursuant to art of the Italian Civil Code. BASIS OF PRESENTATION The Acotel Group s quarterly report for the three months ended has been prepared in compliance with art. 154-ter (Financial reporting) of Legislative Decree 58/1998 (the Consolidated Finance Act) and subsequent amendments and additions, and the CONSOB s Regulations for Issuers. The quarterly report has been prepared under the international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the European Union. page 4

6 The accounting standards applied are consistent with those adopted for preparation of the Group s consolidated financial statements for the year ended 31 December 2011, integrated where necessary by the application of standards to take account of aspects not present at that date. The consolidated financial statements for the three months ended have been prepared on the basis of the underlying accounting records at that date, as adjusted in accordance with the matching principle. Preparation of this report required management to make estimates and assumptions which, based primarily on internal records, essentially have an effect on revenues and costs that have yet to be confirmed by customers and suppliers, any impairments of goodwill and provisions for bad debts and taxation. Above all, a portion of the turnover generated by Acotel Interactive Inc. and its subsidiaries, in addition to certain related cost items, include preliminary figures, is derived primarily from internal reporting systems, and estimates that have yet to be confirmed by mobile transaction network providers and/or operators. Estimates and assumptions are also used in order to account for any refunds that may be payable to B2C customers, and for the portion of revenues deriving from subscriptions for B2C services billed in March 2012 and carried forward to the following accounting period. Finally, certain measurement processes, above all those of a complex nature relating to the estimate of potential impairments of fixed assets, are generally only fully carried out during preparation of the annual financial statements, unless events or changes in circumstances indicate that there may be an impairment requiring an immediate measurement of any loss. This quarterly report is unaudited. BASIS OF CONSOLIDATION The following table provides key information on consolidated companies held, directly or indirectly, by Acotel Group SpA, the Parent Company. Companies consolidated on a line-by-line basis Company Date of acquisition Group s % interest Registered office Share capital Acotel S.p.A. 28 April % (3) Rome EURO 13,000,000 AEM Advanced Electronic Microsystems S.p.A. 28 April % Rome EURO 858,000 Acotel Participations SA 28 April % Luxembourg EURO 6,200,000 Acotel Chile SA 28 April % (4) Santiago, Chile USD 17,330 Acotel Espana SL 28 April % (4) Madrid EURO 3,006 Acotel Do Brasil Ltda 8 August 2000 (1) 100% (4) Rio de Janeiro BRL 1,868,250 Jinny Software Ltd. 9 April % (4) Dublin EURO 3,201 Millennium Software SAL 9 April % (5) Beirut LPD 30,000,000 page 5

7 Info2cell.com FZ-LLC 29 January 2003 (2) 100% (4) Dubai USD 5,000,000 Emirates for Information Technology Co. 29 January % (6) Amman JD 710,000 Acotel Interactive Inc. 28 June 2003 (1) 100% (4) Wilmington USD 10,000 Flycell Telekomunikasyon Hizmetleri A.S. 2 July 2005 (1) 99.9% (7) Istanbul TRY 50,000 Flycell Latin America Conteúdo Para Telefonia Móvel LTDA 6 June 2006 (1) 100% (7) Rio de Janeiro BRL 250,000 Jinny Software Romania SRL 26 June 2007 (1) 100% (5) Bucharest RON 200 Yabox LLC 24 October 2007 (1) 100% (7) Wilmington USD 1 Jinny Software Latin America Importaçāo e Exportaçāo Ltda 11 February 2008 (1) 100% (5) Sao Paolo BRL 3,714,816 Rawafed Information Company LLC 24 February 2008 (1) 51% (6) Riyadh SAR 500,000 Jinny Software Panama Inc. 1 July 2008 (1) 100% (5) Panama City USD 10,000 Flycell Italia S.r.l. 10 July 2008 (1) 100% (7) Rome EURO 90,000 Flycell Argentina SA 26 October % (8) La Plata ARS 12,000 Acotel Serviços De Telemedicina Ltda 28 March % (9) Rio de Janeiro BRL 400,000 Acotel Teleçomunicaçāo Ltda 28 March % (9) Rio de Janeiro BRL 400,000 Bucksense Inc. 28 June % Nevada USD 10,000 Urbe Roma S.S.D. a r.l. 2 February % (10) Rome EURO 10,000 (1) The date of the company s entry into the Group coincides with its incorporation. (2) Prior to such date the Group held 33% of the company s share capital, posted to investments in associates. (3) AEM S.p.A. owns 1.92% of the share capital. (4) Controlled via Acotel Participations SA (5) Controlled via Jinny Software Ltd. (6) Controlled via Info2cell.com FZ-LLC. (7) Controlled via Acotel Interactive Inc. (8) Controlled via Acotel Interactive Inc. and Yabox LLC. (9) Controlled via Acotel do Brasil Ltda. (10) Controlled via Acotel S.p.A. The basis of consolidation was modified during the period following the acquisition, by Acotel S.p.A., of a 100% interest in Urbe Roma S.S.D. a r.l.. In addition, the subsidiary, Flycell Inc., changed its name to Acotel Interactive, Inc.. Jointly controlled entities (joint ventures) consolidated using the proportionate method Company Date of acquisition Group s %interest Registered office Share capital Noverca S.r.l. 10 July 2002 (1) 90% Rome EURO Noverca S.r.l. Noverca Italia S.r.l. 9 May 2008 (2) 59.4% (3) Rome EURO Noverca Italia S.r.l. (1) Prior to this date the Group held a 50% interest in the company, posted to investments in associates. As of 9 May 2008 the Group holds a 90% interest in the company. page 6

8 (2) The date of the company s entry into the Group coincides with its incorporation. (3) Investment held through Noverca S.r.l.. SIGNIFICANT EVENTS DURING THE PERIOD The first quarter of 2012 signals the start of a new strategic positioning of the Group in certain areas of its commercial offering, accompanied by a restructuring of the various areas of business, which from four (Services, Mobile VAS Technology, Mobile Communications and Security Systems) have been reduced to three, as shown in the following diagram: The Acotel Interactive business inherits the activities of the previous Services business and has been created with the aim of developing a valued added interactive service offering aimed at both consumers and business customers, above all mobile operators and advertisers. This segment, headed by the company of the same name, Acotel Interactive Inc., based in New York, operates in around 30 markets and has operating units in 9 countries: USA, Brazil, Mexico, Italy, Spain, Turkey, United Arab Emirates, Saudi Arabia and Jordan. The consumer offering is represented by digital entertainment services for example online games, mobile content downloads and prize lotteries promoted on the web under proprietary brands. The offering for business customers, on the other hand, consists of the Group s well-established mobile services where the Group is the acknowledged leader in Italy and Brazil, with the companies, Acotel page 7

9 S.p.A. and Acotel do Brasil Ltda, and in the Middle East, with Info2cell LLC. These services are provided on a white label basis to mobile operators. This offering also includes interactive advertising, managed by the US company, Bucksense Inc., an agency that produces performance-based advertising campaigns. In addition to inheriting the activities carried out by the previous Mobile VAS Technology business, headed by Jinny Software Ltd., and the Mobile Communications business, headed by Noverca Italia Sr.l., the second business area, named Acotel TLC, marks the start-up of the Group s operations as a Mobile Virtual Network Enabler (MVNE) and Mobile Virtual Network Aggregator (MVNA). page 8

10 This has been made possible by the expertise and infrastructures developed as part of the Nòverca project. The third area of business, named Acotel Net, has acquired the business previously included in the Security Systems segment headed by AEM S.p.A.. This business also brings to market the Group s developments in energy management, remote medical and remote reading systems (e.g. electricity, water and gas). The new offering, marketed under the Acotel Engineering brand, is aimed primarily at medium-sized and large companies, utilities and hospitals. In terms of operations, the following events took place during the first quarter of The Acotel Interactive business launched Giocanews (Italy) and Palpitamos (Brazil), web-based services accessible from personal computers that enable users to keep up to date with the main news, sport, politics, entertainment and much more and win prizes by answering questions to predict the outcome of the various events. Versions of the same services were also developed during the period for use on smartphones. These are due to be launched in the second quarter of the year. During the Mobile World Congress in Barcelona, Jinny Software Ltd. presented its 4GMC (4G Messaging Center) product, a messaging platform that allows mobile operators to offer next generation services thanks to its native integration with the IMS (IP Multimedia Subsystem) and LTE (Long Term Evolution) networks. The company also boosted its market standing with the acquisition of two new customers, one in Asia and one in Latin America, and increased the value of orders acquired during the period by around 11% compared with the same period of page 9

11 Noverca Italia S.r.l. and the Intesa Sanpaolo banking group have intensified their marketing of SIM cards under the Superflash brand, used to sell banking services and products to the young.the partners have launched a promotion specifically designed to meet the needs of this key market segment in terms of prices and services. A new commercial and marketing plan for the distribution of SIM cards via the bank s branch network was also agreed with Intesa Sanpaolo. page 10

12 RESULTS OF OPERATIONS RECLASSIFIED CONSOLIDATED INCOME STATEMENT ( 000) Note Q Q Inc./(Dec.) % inc./(dec.) Revenues 1 25,165 28,837 (3,672) (13%) Other income % Total 25,261 28,918 (3,657) (13%) Movements in work in progress, semi-finished and finished goods (74) - (74) - Raw materials 2 (477) (536) 59 11% External services 3 (17,703) (20,626) 2,923 14% Rentals and leases 4 (490) (463) (27) (6%) Staff costs 5 (6,043) (5,527) (516) (9%) Internal capitalised costs (154) (63%) Other costs 7 (408) (626) % Gross operating profit/(loss) 155 1,383 (1,228) (89%) Amortisation and depreciation 8 (1,076) (905) (171) (19%) Impairment charges/reversal of impairment charges on non-current assets (34) (2) (32) (1,600%) Operating profit/(loss) (955) 476 (1,431) (301%) Net finance income/(costs) % PROFIT/(LOSS) BEFORE TAX (361) 663 (1,024) (154%) Taxation 10 (885) (774) (111) (14%) PROFIT/(LOSS) BEFORE NON-CONTROLLING INTERESTS (1,246) (111) (1,135) (1,023%) Profit/(Loss) attributable to non-controlling interests (31) (47%) ATTRIBUTABLE TO OWNERS OF THE PARENT (1,281) (177) (1,104) (624%) Earnings per share 11 (0.31) (0.04) Diluted earnings per share 11 (0.31) (0.04) page 11

13 Compared with the results for the same period of the previous year, the Group s results for the first quarter of 2012 show a reduction in revenue and earnings. Revenue of 25,165 thousand euros for the quarter is down 13% on the first quarter of 2011, essentially due to a reduction in Digital Entertainment revenue in the Acotel Interactive segment. Gross operating profit is down from the 1,383 thousand euros of the first quarter of 2011 to 155 thousand euros in the quarter just ended. The reduction is largely due to a deterioration in the results of the Brazilian subsidiary, Acotel do Brasil Ltda. After amortisation and depreciation, amounting to 1,076 thousand euros, and impairments of noncurrent assets, totalling 34 thousand euros, the Group reports an operating loss of 955 thousand euros. After net finance income of 594 thousand euros, estimated taxation for the period of 885 thousand euros, and profit attributable to non-controlling interests of 35 thousand euros, the loss attributable to owners of the Parent for the first quarter of 2012 amounts to 1,281 thousand euros. Note 1 - Revenue As noted in the section Significant events during the period, which provides more detailed information, the Group has undertaken a complex process of restructuring that has resulted in, among other things, a redefinition of its areas of business., which now are the following: Acotel Interactive; Acotel TLC; Acotel Net. Revenue in the first quarter of 2012 amounts to 25,165 thousand euros, representing a reduction on the 28,837 thousand euros of the same period of the previous year. As shown in the table below, the reduction in revenue reflects the performance of the Acotel Interactive segment, which saw a decline of 14% compared with the first quarter of ( 000) Q % Q % ACOTEL INTERACTIVE 20, % 24, % ACOTEL TLC 4, % 4, % ACOTEL NET % % Total 25, % 28, % ACOTEL INTERACTIVE The Acotel Interactive segment includes the services provided directly to consumers (Digital Entertainment), and those supplied to telephone companies and telephone and commercial companies, page 12

14 and has the primary purpose of supplying value added content and services over mobile phones and the web. A breakdown of revenues in this segment is given in the following table: ( 000) Q Q Inc./(Dec.) Digital Entertainment 14,641 17,635 (2,994) Mobile Services 6,057 6,562 (505) Total 20,698 24,197 (3,499) In the first quarter of 2012 Digital Entertainment services generated revenues of 14,641 thousand euros, down 17% on the same period of These services were supplied almost exclusively by Acotel Interactive Inc., and its direct subsidiaries. Mobile Services, amounting to 6,057 thousand euros, registered a reduction of 8% compared with the first quarter of These include the revenues generated by Info2cell LLC from the services it provides to the leading mobile operators in the Middle East, amounting to 2,935 thousand euros, the revenues generated by the services provided to Telecom Italia by the subsidiary, Acotel S.p.A., totaling 1,946 thousand euros, and revenues from services rendered by the subsidiary, Acotel do Brasil Ltda, to the Brazilian operator, TIM Celular, amounting to 1,176 thousand euros. The reduction essentially reflects the performance of the Brazilian subsidiary. ACOTEL TLC The revenues generated by the Acotel TLC business amount to 4,120 thousand euros, slightly down (4%) on the same period of 2011, as shown in the following table: ( 000) Q Q Inc./(Dec.) Mobile VAS Technology 2,625 2,972 (347) Mobile Communications 1,495 1, Total 4,120 4,312 (192) Turnover generated by the Mobile VAS Technology segment is generated by Jinny Software from the supply of new equipment and the provision of maintenance to mobile operators in Africa, the Middle East, Latin America, Asia, Europe and North America. Mobile Communications revenues, totalling 980 thousand euros, regard the turnover generated in Italy by Acotel S.p.A., primarily from service provided to leading banks. A further 515 thousand euros is represented by MVNO revenues generated by Noverca Italia S.r.l., recognized, in accordance with the proportionate method of consolidation, on the basis of Acotel Group S.p.A. s 59.4% direct and indirect interest in Noverca Italia S.r.l.. page 13

15 ACOTEL NET Revenues generated by the Acotel Net business regard the design, production and maintenance of electronic security systems in Italy by the subsidiary, AEM SpA. A geographical breakdown of the Group s revenue is as follows: ( 000) Q % Q % ITALY 8, % 5, % LATIN AMERICA 6, % 8, % NORTH AMERICA 3, % 7, % MIDDLE OTHER EUROPEAN EAST 3, % 3, % COUNTRIES 1, % 2, % AFRICA % 1, % ASIA % % 25, % 28, % If compared with the first quarter of 2011, revenues generated in Italy during the first quarter of 2012 continued to grow, as in the previous year, thanks to both the Digital Entertainment services supplied by Flycell Italia S.r.l., and the Mobile Services and Mobile Communications services provided by Acotel S.p.A.. Note 2 - Raw materials The cost of raw materials during the quarter, amounting to 477 thousand euros, refers principally to the purchase of materials for the construction of telecommunications systems by Jinny Software Ltd (328 thousand euros). Note 3 External services The cost of external services totals 17,703 thousand euros for the quarter, representing a reduction of 14% on the first quarter of A breakdown of the service costs is shown below: page 14

16 ( 000) Q Q Inc./(Dec.) Interconnection and billing services 7,255 9,056 (1,801) Advertising 3,166 4,810 (1,644) Content providers 2,729 3,042 (313) Professional consultants Purchase of SMS packages Connectivity and sundry utilities Travel expenses (21) Telecommunications services (54) Remuneration of corporate officers (1) Customer acquisitions Call centres Outsourcing Auditors' fees Other minor expenses Total 17,703 20,626 (2,923) The reduction in the cost of external services primarily reflects the decision of Acotel Interactive Inc. to reduce advertising expenditure and a decrease in the cost of interconnection and billing services incurred by this company and its direct subsidiaries due to the reduction in turnover. Note 4 Rentals and leases Rentals and leases amount to 490 thousand euros and mainly include rentals on offices occupied by Group companies. Note 5 Staff costs Staff costs include: ( 000) Q Q Inc./(Dec.) Salaries and wages 4,685 4, Social security contributions (24) Staff termination benefits Finance costs (24) (20) (4) Other costs Total 6,043 5, Other staff costs include charges incurred in relation to professional training and refresher courses, prevention and health care expenses, and contributions for defined-contribution pension plans for the staff of foreign subsidiaries. page 15

17 The number of staff by category at and a comparison of the average numbers for the first quarters of 2012 and 2011 are reported in the following table: At 31 Mar 2012 Average Q Average Q Managers Supervisors White- and blue-collar staff Total The geographical distribution of the Group s staff is shown in the table below: At 31 Mar 2012 At 31 Mar 2011 Italy Lebanon Brazil Jordan USA Ireland Romania United Arab Emirates Spain 10 4 Kenya 8 10 Saudi Arabia 7 10 Malaysia 7 8 Turkey 2 5 Sudan 1 - Indonesia 1 1 South Africa - 1 Panama - 1 Egypt - 1 Total Note 6 Capitalised internal costs Capitalised internal costs, totalling 89 thousand euros, primarily regard staff employed in the development of software and new applications used in supplying services under the Nòverca brand. page 16

18 Note 7 Other costs Other costs amount to 408 thousand euros in the first quarter of 2012, including 194 thousand euros for indirect taxes payable by Acotel do Brasil, Flycell Latin America and Jinny Latin America in compliance with local legislation. The balance includes other general expenses and charges incurred by Group companies in connection with their ordinary activities. Note 8 - Amortisation and depreciation Details of the amortisation and depreciation of assets are given below: ( 000) Q Q Inc./(Dec.) Amortisation of non-current intangible assets (44) Depreciation of property, plant and equipment Total 1, Amortisation of intangible assets mainly refers to amortisation of the software and licences utilised by various Group companies, and the expenses paid to Telecom Italia in return for preparation and configuration of the technology infrastructure used in delivering the services provided by the MVNO, Nòverca. Depreciation of property, plant and equipment essentially refers to depreciation of the telecommunications equipment and infrastructures used by Group companies. Note 9 - Finance income and costs Net finance income of 594 thousand euros for the first quarter of 2012 breaks down as follows: ( 000) Q Q Inc./(Dec.) Income from investments Foreign exchange gains Interest income on bank deposits 4 5 (1) Total finance income 1, Interest expense and bank charges (125) (51) (74) Foreign exchange losses (370) (450) 80 Other interest expense (30) (35) 5 Total finance costs (525) (536) 11 Net finance income/(costs) page 17

19 Interest income from investments includes gains on investment of the Group s liquidity in short-term instruments. The balance of foreign exchange gains and losses reflects the impact of closing exchange rates on the value of outstanding intercompany loans originally denominated in dollars. Note 10 - Taxation Taxation for the period, amounting to 885 thousand euros, reflects estimated income tax expense and deferred tax income and expense recognised by Group companies, net of the related reversals. Note 11 Earnings per share The calculation of basic and diluted earnings per share is based on the following data: ( 000) Q Q Profit/(loss) for the period ( 000) (1,281) (177) Number of shares (000) Shares in circulation at the start of the period* 4,114 * 4,114 * Weighted average of treasury shares acquired/sold in the period - - Weighted average of ordinary shares in circulation 4,114 4,114 Basic and diluted earnings per share ** (0.31) (0.04) * : net of treasury shares held at the same date. **: basic earnings for the first quarters of 2012 and 2011 coincide with diluted earnings per share as the conditions provided for by IAS 33 do not exist. page 18

20 FINANCIAL POSITION AND CASH FLOW RECLASSIFIED CONSOLIDATED STATEMENT OF FINANCIAL POSITION ( 000) 31 December 2011 Inc./(Dec.) % inc./(dec.) Non-current assets: Property, plant and equipment 9,485 9,661 (176) (2%) Intangible assets 14,025 14,266 (241) (2%) Other assets 4,662 4,755 (93) (2%) TOTAL NON-CURRENT ASSETS 28,172 28,682 (510) (2%) Net current assets: Inventories (91) (17%) Trade receivables 28,397 29,616 (1,219) (4%) Other current assets 6,732 5, % Trade payables (19,111) (20,878) 1,767 8% Other current liabilites (8,737) (8,242) (495) (6%) TOTAL NET CURRENT ASSETS 7,723 6, % PROVISIONS FOR STAFF TERMINATION AND OTHER EMPLOYEE BENEFITS (2,006) (1,950) (56) (3%) NON-CURRENT PROVISIONS (384) (365) (19) (5%) NET INVESTED CAPITAL 33,505 33, % Equity: Share capital 1,084 1, Reserves and retained earnings/(accumulated losses) 67,006 65,765 1,241 2% Profit/(Loss) for the period (1,281) 1,860 (3,141) (169%) Non-controlling interests % TOTAL EQUITY 67,563 69,428 (1,865) (3%) Net cash and cash equivalents: Current financial assets (19,049) (21,913) 2,864 13% Cash and cash equivalents (15,057) (14,215) (842) (6%) Current financial liabilities % (34,058) (36,093) 2,035 6% NET FUNDS RECEIVABLE FROM OTHERS (34,058) (36,093) 2,035 6% TOTAL EQUITY AND NET FUNDS RECEIVABLE FROM OTHERS 33,505 33, % The Acotel Group s net invested capital at amounts to 33,505 thousand euros, made up of non-current assets of 28,172 thousand euros, net current assets of 7,723 thousand euros, provisions page 19

21 for staff termination benefits of 2,006 thousand euros and other non-current provisions of 384 thousand euros. Net invested capital is financed by consolidated equity of 67,563 thousand euros and net funds of 34,058 thousand euros. A detailed analysis of changes in the principal components of the financial position shows that: there have been no material changes in non-current assets during the period; changes in net current assets reflect the performance of the Group s business volumes; net funds receivable from others at amount to 34,058 thousand euros, marking a decrease of 2,035 thousand euros on 31 December 2011, as shown in the following table. NET FUNDS ( 000) 31 December 2011 Inc./(Dec.) A. Cash and cash equivalents 15,057 14, B. Assets held for trading 16,920 19,326 (2,406) C. Liquidity (A + B) 31,977 33,541 (1,564) D. Loans and receivables due from related parties 1,394 1, E. Other current financial assets 2,129 2,587 (458) F. Current financial assets (D + E) 3,523 3,687 (164) G. Current financial liabilities (48) (35) (13) L. Net funds (C + F + G) 35,452 37,193 (1,741) - receivable from related parties 1,394 1, receivable from others 34,058 36,093 (2,035) DECLARATION BY THE MANAGER RESPONSIBLE FOR FINANCIAL reporting The manager responsible for the Group s financial reporting, Luca De Rita, hereby declares, pursuant to article 154 bis, paragraph 2 of the Consolidated Finance Act, that this consolidated quarterly report is consistent with the underlying accounting records. page 20