Notes to the Consolidated Financial Statements

as at December 31, 2016

BUSINESS PERFORMANCE

Feintool International Holding AG, Industriering 8, 3250 Lyss, is a public limited company under Swiss law with headquarters in Lyss, Switzerland ("Company"). The consolidated financial statements for the period from January 1 to December 31, 2016, include the Company and its subsidiaries ("Feintool"). Feintool is the world's leading technology group specializing in the development of fineblanking systems and the production of ready-to-install fineblanking and forming components, notably for the automobile industry. The Group maintains close partnerships with its customers across the entire fineblanking and forming process – from component design, tool design and system construction through to large-scale series parts production. In addition to fineblanking, the Feintool Group also deploys other key processes such as precision forming and orbital technology, and is the world's only supplier of all-round solutions for the cost-effective manufacture of complex precision components.

With locations in Europe, Japan, China and the US, the Feintool Group is represented in the world's major automotive markets. Headquartered in Lyss, Switzerland, the Group has a headcount of 2 239. At its various locations, Feintool provides training for 68 young people in a number of skills (polymechanics, constructing engineers and commercial trades).

GENERAL INFORMATION

The consolidated financial statements for the financial year are based on the financial statements of the Group companies as at December 31, 2016, which were prepared in accordance with consistent accounting policies.

The consolidated financial statements are prepared in accordance with Swiss law and the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The accounting principles of the SIX Swiss Exchange Listing Regulations have also been observed. In the management's opinion, the consolidated financial statements give a true and fair view of the Group's financial position, results of operations and cash flows.

The consolidated financial statements are prepared on a going-concern basis under the historical cost convention, with the exception of derivative financial instruments (measured at fair value) and net liability or assets from defined benefit plans (measured at present value of defined benefit obligations less fair value of plan assets).

The consolidated financial statements are prepared in Swiss francs (CHF), with amounts rounded to the nearest thousand (1 000). They are available in German and English. The German version is authoritative.

DISCONTINUED OPERATIONS

On July 31, 2014, Feintool sold IMA Automation Amberg GmbH, Amberg and its operating premises to the German-Chinese automotive group Preh GmbH, Bad Neustadt a.d. Saale. All Automation segment activities and related operations that are being sold or discontinued in connection with the sale are presented in a separate "Discontinued operations" line item in the statement of comprehensive income.

FINANCIAL COVENANTS

On July 15, 2016, a promissory note was issued in the amount of EUR 65 million. The issuer, with a guarantee from Feintool International Holding AG, is Feintool Holding GmbH based in Germany. The loan is divided into three tranches with different maturities.

  • EUR 25 million, term of 5 years, fixed interest rate of 0.90 %;
  • EUR 25 million, term of 7 years, fixed interest rate of 1.10 %;
  • EUR 15 million, term of 10 years, fixed interest rate of 1.66 %.

Standard covenants are defined in the loan agreement. The only material covenant to be complied with is:

  • Equity ratio > 25 %

Simultaneous to the issue of the promissory note, the syndicated loan concluded with eight banks for a total of CHF 80 million for cash loans was reduced to CHF 25 million. The performance and advanced payment guarantees of CHF 10 million remain unchanged. Standard covenants are defined in the syndicated loan. The most important covenants to be observed in relation to this agreement are as follows:

  • Equity ratio > 30 %
  • Net Senior Debt / EBITDA < 3.0 x

The syndicated loan runs until June 30, 2017. At the present time, talks are being held with various banks on the creation of a new facility.

Credit agreements concluded on a bilateral basis with various banks also contain standard covenants. If the Group were unable to meet these covenants, the banks would have the right to terminate the loans at short notice.

As at December 31, 2016, all covenants had been met.

KEY ESTIMATES

The consolidated financial statements contain assumptions and estimated amounts which affect the amounts reported. Should these estimates and assumptions prove incorrect or incomplete, this may substantially affect the amounts reported and therefore Feintool's financial position, results of operations and cash flows.

Property, plant and equipment

Items of property, plant and equipment are carried at cost less accumulated depreciation. Feintool regularly reviews whether the depreciation period chosen at the time matches the actual useful life, or capacity utilization rate, of the item of property, plant and equipment. If significant differences between the depreciation period and useful life are identified, the depreciation period is adjusted accordingly. If the expected cash flows on the item of property, plant and equipment no longer cover future depreciation, impairment losses are recognized.

Intangible assets/goodwill

The fair value of intangible assets is estimated at the date of acquisition. The residual value (difference between the purchase price and fair value of net assets acquired) represents goodwill. Most intangible assets acquired have a finite life and are therefore amortized. Goodwill has an indefinite life and is not amortized, but is instead tested annually for impairment. The allocation to intangible assets and goodwill on the acquisition date therefore has an effect on amortization in subsequent periods.

When testing goodwill for impairment, various estimates are made which require medium and long-term (terminal value) estimates. This relates to both internally projected data (cash flow, growth rates, etc.) and external parameters (discount rate). Should these estimates prove incorrect, significant changes in value might result. Further information is given in Note 19.2.

Current tax receivables and deferred tax assets

Feintool is liable to taxation in various jurisdictions. Provisions for income taxes incurred worldwide are based on estimates. For many transactions and calculations in its ordinary business, the tax charge is uncertain. If actual tax charges differ from the estimated charges, the corresponding adjustment is recognized in the financial year in which the definitive assessment is made. Management considers the corresponding estimates to be realistic and the corresponding provisions to be appropriate. Deferred tax assets are formed from temporary differences, and from tax loss carryforwards, but only if realization is deemed probable. The recoverable amount of capitalized tax assets recognized for loss carryforwards is therefore based on future forecasts for the relevant taxable entity over a period of several years. Should these future forecasts prove incorrect, significant changes in value might result. Further information is given in Notes 11 and 12.

Research & development

On its balance sheet, Feintool carries purchased as well as its own research and development work if the following conditions are met cumulatively:

  • Technical feasibility of completion of the intangible asset, so that it will be available for sale directly or indirectly
  • Intention to complete and sell the asset directly or indirectly
  • Ability to sell the asset directly or indirectly,
  • Evidence of the future benefit to the products of the intangible asset,
  • Availability of adequate financial, technical and other resources for conclusion of the development,
  • Reliable measurability of the production costs.

All the above points are based on assumptions. Should these assumptions prove incorrect or incomplete, this may substantially affect valuation of the corresponding intangible asset. Further information is given in Note 19.1.

Provisions

Provisions are recognized if (a) a present obligation to a third party has arisen as a result of a past event, (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and (c) the amount of the obligation can be reliably estimated. Provisions are recognized for a number of possible events and are explained in detail in Note 24. By definition, however, they involve a higher degree of estimation than other items in the balance sheet, since the estimated obligations may result in a higher or lower outflow of funds depending on the outcome of the situation.

Employee benefit plans

Feintool operates defined benefit plans for its employees in three countries. Their accounting status is in part based on long-term actuarial assumptions, which may differ from reality. Reassessments arising from changes in assumptions regarding life expectancy, developments in the capital market and changes in discount rates can amount to considerable sums. These are recognized directly in equity (other comprehensive income). Calculation of the respective underlying percentages involves estimated amounts that may substantially affect the financial position and results of operations. Further information is given in Note 27.

The Board of Directors and management believe the basis of planning and the assumptions to be realistic.

SIGNIFICANT CHANGES IN ACCOUNTING POLICIES

With the exception of newly issued or revised Standards and Interpretations that became effective in the financial year, Feintool essentially applies the same accounting policies as those applied in the previous year. On January 1, 2016, Feintool adopted the following new Standards and Interpretations:

  • Annual Improvements IFRS – 2012 to 2014 Cycle
  • Amendments to IFRS 11 – Accounting for Acquisitions of Interest in Joint Operations
  • Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation
  • Amendments to IFRS 10, 12 and IAS 28 – Investment Entities: Applying the Consolidation Exception
  • Amendments to IAS 27 – Equity Method in Separate Financial Statements
  • Amendments to IAS 1 – Disclosure Initiative

Feintool is either unaffected by these changes, or the changes have no effect or no material effect on its financial position, results of operations or cash flows.

NEW ACCOUNTING REQUIREMENTS

At the end of the reporting period, various new IFRS requirements had been issued but were not yet effective. Feintool decided against early adoption of the following Standards, revised Standards and Interpretations. Feintool plans to adopt the changes from the financial years beginning on or after the date indicated:

  • IFRS 9 – Financial Instruments (January 1, 2018)
  • IFRIC 22 – Foreign Currency Transactions and Advance Consideration (January 1, 2018)

The new requirements are being analyzed at the present time. Feintool anticipates that these changes will have no impact or no significant impact on the financial position, results of operations and cash flows.

  • IFRS 15 – Revenue from Contracts with Customers (January 1, 2018)

The effects of this standard were analyzed extensively. Today, Feintool assumes that the new Standard will only have an insignificant impact on the Group's financial position, results of operations and cash flows. Individual – relatively rarely occurring – business transactions may cause an increase in the volatility of business results, however. There were no such business transactions in the year under review. Today, Feintool assumes that the preceding period will be adjusted accordingly when the standard is introduced.

  • IFRS 16 – Leases (January 1, 2019)

Feintool anticipates that this new Standard will have significant impacts on the Group's financial position, results of operations and cash flows. In particular, the new standard will lead to an increase of total assets. The new rule is currently being analyzed and preparations made for its implementation. At the current point in time, however, it is not possible to gauge their impact definitively.

  • Annual Improvements IFRS – 2014 to 2016 Cycle (January 1, 2017)
  • Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses (January 1, 2017)
  • Amendments to IAS 7 – Disclosure Initiative (January 1, 2017)
  • Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions (January 1, 2018)
  • Amendments to IFRS 4 – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (January 1, 2018)
  • Amendments to IAS 40 – Transfers of Investment Property (January 1, 2018)

Feintool is assessing the impacts of the revised Standards and Interpretations. Based on its initial findings, Feintool does not foresee any significant impacts on its financial position, results of operations or cash flows.

BASIS OF CONSOLIDATION

The consolidated financial statements in principle encompass the annual financial statements of Feintool International Holding AG, Lyss (Switzerland), in addition to the financial statements of all Group companies in which Feintool International Holding AG directly or indirectly owns more than 50 % of the voting rights or that it controls in any other way. A list of all equity investments is provided on page 86.

On October 12, 2016, Feintool International Holding AG, Lyss founded the subsidiary Feintool System Parts Most s.r.o. in the Czech Republic. It is part of the Feintool System Parts segment and its purpose is the production and sale of fineblanked and formed parts.

Feintool Intellectual Property AG in Lyss was placed in liquidation with the resolution of the General Meeting of March 21, 2016.

Retroactive as of January 1, 2016, HL Immobilien AG, Lyss, merged with Feintool System Parts Lyss AG.

The company Feintool International Management AG in Lyss was liquidated on May 27, 2014, and removed from the commercial register on June 3, 2015.

Effective on March 30, 2015, Feintool Holding GmbH, Amberg DE, acquired 100 % of Gabler Feinschneidtechnik GmbH in Oelsnitz, Germany. The acquired company was renamed Feintool System Parts Oelsnitz GmbH. Since then, there have not been any changes to the purchase price allocation.

The Chinese company Feintool (Chongquing) Technology Co. Ltd. was set in liquidation on January 1, 2015.

Retroactive as of January 1, 2015, Feintool Teile und Komponenten AG, Lyss, merged with Feintool System Parts AG. To make Feintool's Group structure consistent, Feintool Teile und Komponenten AG, Lyss, was renamed Feintool System Parts Lyss AG.

METHOD OF CONSOLIDATION

All companies that Feintool controls are included in the consolidated financial statements according to the full consolidation method. Assets and liabilities as well as income and expenses are therefore included in full in the consolidated financial statements. Minority interests in equity and income are disclosed separately in the consolidated balance sheet and the statement of comprehensive income. Intercompany liabilities, credits, expenses and income are offset. Unrealized temporary gains on inventories or assets are eliminated on consolidation.

ACQUISITIONS AND GOODWILL

Newly acquired companies are consolidated using the acquisition method. The balance sheet and income statement are consolidated at the date on which control is obtained. The difference between the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiring party, on the one hand, and the purchase price, on the other, is recognized as goodwill. Acquisition costs are charged immediately to the statement of comprehensive income. After initial measurement, goodwill is reported at cost less any impairments. Goodwill is tested for impairment annually by calculating the recoverable amount (higher of fair value minus disposal costs and value in use) of the relevant cash generating units or group of cash generating units. Where the recoverable amount is less than the carrying amount, an impairment is recognized in the income statement.

In the past, the cash-generating unit was set to the level of the manufacturing plant. As the Group has grown over the past few years, the internal organization and leadership structure of Feintool was adjusted to the new circumstances. Decisions are often made on the level of the business units. Sales are centralized within the business units; orders are distributed across them on the basis of the specific skills of individual plants (machinery, employee experience). This optimizes cash flows for the business units, although the cash flows of the individual production locations change randomly. For this reason, Feintool has also introduced impairments on the level of the business units starting with financial year 2016.

When a Group company is sold or control over a Group company is lost, the difference between the selling price and the net assets sold, including goodwill and cumulative foreign exchange gains, is recognized in the income statement under either "Other operating income" or "Other operating expenses". The company is deconsolidated on the date on which control over it is lost.

CURRENCY TRANSLATION

The functional currency of the consolidated entities is the currency of their local economic environment. Transactions in foreign currencies are translated at the respective daily rate. Monetary assets and liabilities in foreign currency are converted into the functional currency at the rate of exchange prevailing on the balance sheet date. In principle, the exchange translation differences are reported in net financial income/finance costs. Non-monetary assets and liabilities at historical cost are translated at the exchange rate applicable at the time of the transaction.

On consolidation, the balance sheet amounts of foreign subsidiaries are translated at closing rates, equity at historical rates and the amounts in the statements of income and cash flows at average rates for the year. Exchange differences arising from translation differences in balance sheets and income statements are directly recognized in other comprehensive income and reported under shareholders' equity. When a Group company is sold or liquidated, or when control over the company is lost, the cumulative translation differences are reclassified to net income as part of the gain or loss on disposal.

Foreign currency gains on certain equity-type loans that form part of the net investment in a company are recognized in the statement of comprehensive income (other comprehensive income), provided settlement of these loans is neither planned nor likely to occur in the near future.

The Feintool Group used the following exchange rates in financial years:

    2016 2015
    Closing rate Average rate Closing rate Average rate
Eurozone EUR 1 1.0739 1.0905 1.0835 1.0646
USA USD 1 1.0188 0.9882 0.9952 0.9648
Czech Republic CZK 100 3.9743 4.0328 4.0236 3.9097
Japan JPY 100 0.8703 0.8928 0.8267 0.7992
China CNY 100 14.6226 14.7479 15.2970 15.2921

FINANCIAL ASSETS AND LIABILITIES

Feintool distinguishes between the following categories of financial assets and financial liabilities:

  • Financial assets or financial liabilities at fair value through profit or loss: These are financial instruments acquired with a view to active management. All derivatives are classified under this heading. These assets are stated at fair value, and all fluctuations in their value are presented in net financial income/finance costs. The fair values of the derivative financial instruments are calculated by the banks.
  • Loans and receivables: These primarily comprise trade receivables and loans granted to third parties. They are measured at their nominal amount, or stated at amortized cost using the effective interest method.
  • Financial assets available for sale: Financial instruments in this category are stated as assets at fair value, with fluctuations in value - whilst taking account of any deferred taxes - being recognized in other comprehensive income. They are only reclassified to net income on disposal of the financial instrument or in the event of impairment.

Financial assets are initially measured at cost, including transaction costs, with the exception of financial assets at fair value through profit or loss, which are capitalized excluding transaction costs. All purchases and sales of financial assets are recognized on the trade date.

Financial liabilities mainly include debt and trade payables, which are measured at amortized cost. Financial liabilities designated at fair value through profit or loss (derivatives) are stated at fair value. Non-current financial liabilities are measured using the effective interest method. In addition to the actual interest payments, interest expenses therefore also include the amounts of annual interest cost and pro rata transaction costs.

Financial assets are de-recognized when Feintool cedes control, i.e. when the related rights are sold or expire. Financial liabilities are de-recognized when repaid.

Currently, Feintool does not apply hedge accounting.

BALANCE SHEET

Cash and cash equivalents

Cash and cash equivalents comprise cash holdings, balances on postal and bank accounts as well as fixed-term deposits with a maturity not exceeding 90 days.

Trade receivables/other receivables

This item contains accounts receivable from ordinary business activities. Bad debt provisions on trade receivables are calculated and recognized based on the actual risk of loss. This includes specific valuation allowances for receivables at risk and a global valuation allowance for the assumed credit risk. Other receivables are stated at their nominal amount less writedowns.

Inventories

Raw materials and purchased goods are stated at weighted average cost. Finished and semi-finished goods are stated at cost of conversion including manufacturing overheads, but at no more than their net realizable values. Inventories with low turnover and obsolete items are written down by an appropriate amount.

Net assets of construction contracts/work in progress

This item includes all construction contracts and work in progress less prepayments received and necessary allowances for identifiable risks. Construction contracts are accounted for using the percentage of completion (POC) method, provided the following conditions are met:

  • The contract value is greater than CHF 500 000 or the equivalent in foreign currency.
  • Revenues from the contract can be reliably calculated.
  • It is likely that the economic benefit linked to the construction contract will accrue to the company.
  • Contract costs and the stage of completion of the construction contract can be reliably measured.

If these conditions are not met, the income is recognized when the risks and rewards are transferred. If it is expected that the costs from a construction contract will exceed the contractually agreed income, the expected overall loss from the order is charged immediately and in full to the statement of comprehensive income.

The stage of completion of construction contracts is obtained from the ratio between the contract costs incurred and the total cost of the contract (cost-to-cost method), or based pro rata on the time spent (effort-expended method), provided the project can be assumed to proceed on a straight-line basis.

Work in progress is stated at the cost of conversion.

Property, plant and equipment

Items of property, plant and equipment are carried at cost less accumulated depreciation. Cost includes any costs attributable to bringing the asset to the condition necessary for it to operate in the intended manner. Borrowing costs are a component of cost if they are directly attributable to the asset. Subsequent maintenance costs are recognized in the carrying amount if the operational life is extended as a result or production capacity can be increased. Non-value-enhancing maintenance work and repairs are recognized in the income statement. Components of property, plant and equipment with different useful lives are recognized individually and depreciated separately. Depreciation is recognized on a straight-line basis over the estimated useful life. As a rule, land is not written down. Impairments (see separate section) are recognized when the carrying amount no longer appears to be recoverable. Such impairments are presented separately.

As a rule, the following depreciation periods are applied:

Buildings: 20 to 40 years

Plant and equipment: 5 to 15 years

Vehicles: 3 to 5 years

IT hardware: 2 to 5 years

Capitalized costs that are closely linked to leased premises are depreciated over a maximum of the contractually agreed lease term.

Government contributions (funding received) for assets (mostly fixed assets) are deducted from the cost of acquisition or manufacture of the asset in question. As the funding usually comes with certain conditions attached that, if not complied with, would result in the funding having to be repaid, the funding received is also declared as a contingent liability.

Intangible assets

Intangible assets primarily include goodwill, patents, software and certain development costs. The latter are only capitalized if the technical feasibility of completing an asset that is ready for market can be demonstrated, the costs can be measured reliably and the costs appear to be feasible based on the marketplace. Intangible assets are capitalized at cost and amortized over their estimated useful life on a straight-line basis. Any impairments are recognized when the carrying amount no longer appears to be recoverable. Such impairments are presented separately.

Intangible assets (with the exception of goodwill) have a finite life and are amortized as follows:

Patents, brands: max. 10 years

Capitalized development costs: 3 to 5 years, max. 10 years

Software: 2 to 5 years

Impairment

The recoverable amount of assets (property, plant and equipment, intangible assets) is reviewed when events or changes in circumstances indicate that the assets may be overvalued. In addition, the recoverable amount of goodwill is reviewed at least annually. If the carrying amount exceeds the recoverable amount (higher of fair value less disposal costs and value in use), it is immediately written down to the net realizable value. When calculating value in use, future cash flows are discounted using a pre-tax discount rate. This discount rate reflects current market assessments and risks specific to the assets in question.

Leases (finance leases)

Finance lease arrangements where the risks and rewards of ownership are transferred to the buyer are recognized in the same way as normal purchases of property, plant and equipment or intangible assets. The asset and the corresponding lease liability are stated at the lower of fair value and the net present value of the lease payments owed. The leased asset is depreciated over its useful life or the shorter term of the lease if there is no reasonable certainty that the lessee will obtain ownership of the leased asset at the end of the lease. Operating leases are not recognized in the balance sheet but are disclosed in the Notes. Lease payments are recognized in the statement of comprehensive income, with any extraordinary elements (e.g. incentives at the beginning of the lease term) taken into account accordingly.

Financial assets

Financial assets include loans granted to third parties and rental deposits. Depending on their nature (see "Financial assets and liabilities"), financial assets are stated at fair value or measured at amortized cost using the effective interest method. Gains and losses on these financial assets are recognized in net financial income/finance costs.

Current liabilities

Current liabilities are those with a remaining term to maturity of less than one year. The current portion of non-current liabilities is also included.

Accrued expenses and deferred income

Expenditures incurred in the period at the end of the reporting year, for which no receipts are yet available, are recognized under accrued expenses and deferred income. On the other hand, revenues received in advance in the period at the end of the reporting year for which no work has yet been performed are also recognized here. In the Feintool Fineblanking Tech-nology segment in particular, it is often the case that clients are billed for fineblanking presses without all supplier invoices having been received as yet or all contractually agreed work on the press having been performed.

Provisions

Provisions are recognized if (a) a present obligation to a third party has arisen as a result of a past event, (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and (c) the amount of the obligation can be reliably estimated. No provisions are recognized for future operating losses. Provisions are recognized for restructuring efforts when the Group company has a constructive obligation to implement restructuring as a result of communicating the plan to the individuals affected by it, and provided the costs can be reliably determined on the basis of a detailed plan. Reversals of provisions no longer required are recognized when the item for which the provision was originally recognized no longer exists or it is no longer probable that this item will occur.

Deferred taxes

Deferred taxes are accounted for using the balance sheet liability method. Under this method, the tax implications of temporary differences between carrying amounts in the consolidated financial statements and the tax base are recognized as a non-current liability or asset. They are generally calculated on the basis of actual or expected local rates of tax. Deferred tax liabilities are calculated for all taxable temporary differences. Deferred tax assets, including those for tax loss carryforwards and expected tax credits, are only recognized if it is probable that profits will be available for realizing the loss carryforwards and tax credits.

Changes in deferred taxes are recognized in the income statement except for deferred taxes on amounts recognized directly in other comprehensive income, which are also recognized in other comprehensive income.

Share-based payments

Shares are issued to Group management as part of their bonus at a contractually predefined amount. Individual members of the Board of Directors receive a contractually predefined number of shares as a bonus.

Employee benefit plans

The Group operates various employee benefit plans, which differ depending on the circumstances of the individual com-pany. The benefit plans are financed through contributions made by the employer and/or the employee to state pension systems, separate legal entities (trusts, insurance companies) or through the accumulation of corresponding provisions in the balance sheet of the company itself.

In the case of defined contribution plans, the accrued expenses correspond to the agreed contributions by the Group companies. In the case of defined benefit plans, the costs are calculated by independent experts in the form of an actuarial report using the projected unit credit method. The calculations are updated periodically. Benefit plans operated by external providers are funded plans, while the agreed commitments of the Group companies themselves are unfunded plans. The liability carried consists of the defined benefit obligation as defined by the actuary, less any assets recognized at fair value.

The expense recorded in the statement of comprehensive income is an actuarial calculation of the cost less contributions from employees. This comprises:

  • Current service cost
  • Interest on the net defined benefit liability
  • Reassessments of defined benefit obligations

The current past service cost is recognized in personnel expense. The impact of changes in pension plan benefits is also reported in personnel expenses. The interest on the net defined benefit liability is recognized in financial expense. The expense or income from reassessments is recognized as other comprehensive income in the statement of comprehensive income.

Other long-term obligations to employees, such as anniver- saries or sabbatical leave programs are recognized using the same methodology, with the exception that any actuarial changes are recognized in personnel expense.

Equity

Equity represents the residual value (assets less liabilities). Capital reserves result from premium payments made by shareholders, transactions involving treasury shares, employee options and the fair value of conversion rights at the time of issue. Retained earnings comprise the income earned and retained by the Group as well as the reassessment of the net defined benefit liability (asset). Acquisitions of treasury stock are deducted from equity at cost. Other payments from equity instruments (derivatives classified as equity) are also taken directly as equity.

REVENUE RECOGNITION

Net sales

Net sales from the sale of goods and services are the sales revenues after taxes, credits and discounts. With the exception of construction contracts accounted for using the percentage of completion (POC) method, sales are recognized when the risks and rewards of ownership are transferred (see "Net assets of construction contracts/work in progress" on page 41 of this report).

Sales of goods include sales of machinery, including peripherals, tools, automation systems, fineblanked and formed parts, as well as spare parts. Service income comprises income from services performed on plant and machinery.

Other operating income/expenses

Other operating income includes gains on the disposal of property, plant and equipment, investments and various smaller items of income, such as revenue from staff restaurants, IT costs charged to third parties and letting income.

Other operating expenses include operating costs with the exception of material cost and personnel expenses as well as depreciation.

Gains/losses on the disposal of property, plant and equipment are recognized when ownership and the incidental risks and rewards are transferred.

Research & development

Order-related development costs are capitalized as work in progress. Research & development costs are charged in full to the statement of comprehensive income in the year in which they are incurred, provided they are not capitalized. Development costs for new products are capitalized only if there is a likely prospect of realization in technical and market terms, the cost can be measured reliably and it is probable that the expected future economic benefit attributable to the asset will accrue to Feintool.

Interest

Interest is recognized using the effective interest method. Interest not yet received is reported at the end of the reporting period in deferred income. Interest is reported on the statement of comprehensive income under financial income.

1 Segment information

1 Segment information
1.1 Products and services 2016 in CHF 1 000 Fineblanking Technology System Parts Total segments Finance/Other Eliminations Total Group
Net sales 92 718 479 298 572 016 -19 779 552 237
- Intersegment income -19 766 -13 -19 779 19 779
Total net sales – Group 72 952 479 285 552 237 552 237
             
Gross margin 1) 36 881 190 462 227 343 -4 802 222 541
Effect of plan amendment in the financial year 2) 1 940 1 264 3 204   3 204
Gross margin 1) 38 821 191 726 230 547 -4 802 225 745
             
EBITDA before effect of plan amendment 7 105 75 895 83 000 -4 929 -2 086 75 985
Effect of plan amendment in the financial year 2) 3 880 2 528 6 408 675   7 083
EBITDA after effect of plan amendment 10 985 78 423 89 408 -4 254 -2 086 83 068
             
Depreciation and amortization -2 790 -31 538 -34 328 -1 990 1 672 -34 646
             
Operating profit (EBIT) 4 315 44 357 48 672 -6 919 -414 41 339
Effect of plan amendment in the financial year 2) 3 880 2 528 6 408 675   7 083
Operating profit (EBIT) 8 195 46 885 55 080 -6 244 -414 48 422
             
Financial expenses           -11 716
Financial income           8 527
Income taxes           -13 171
             
Net income attributable to Feintool Holding shareholders           32 062
             
Assets 68 108 383 285 451 393 215 299 -135 952 530 740
Net working capital 3) 13 207 60 993 74 200 -3 638 -130 70 432
Investments in property, plant and equipment/intangible assets (incl. leases) 2 872 71 680 74 552 2 540 -2 238 74 854
Number of employees 242 1 962 2 204 35 2 239
1.2 Geographical areas 2016 Switzerland Europe excl. Switzerland America Asia Total
Total net sales – Group 4)       11 130 276 476 168 751 95 880 552 237
thereof Germany         203 741      
thereof Japan             41 291  
thereof China             35 298  
Fixed and intangible assets       39 604 106 417 85 511 24 326 255 858
1.3 Products and services 2015 in CHF 1 000 Fineblanking Technology System Parts Total segments Finance/Other Eliminations Total Group
Net sales 87 779 438 018 525 797 -16 861 508 936
- Intersegment income -16 854 -7 -16 861 16 861
Total net sales – Group 70 925 438 011 508 936 508 936
             
Gross margin 1) 34 449 165 896 200 345 -63 -4 451 195 831
             
EBITDA 6 174 61 832 68 006 -4 668 -1 916 61 422
Depreciation and amortization -1 601 -26 045 -27 646 -2 348 1 473 -28 521
Operating profit (EBIT) 4 573 35 787 40 360 -7 016 -443 32 901
             
Financial expenses           -17 755
Financial income           14 068
Income taxes           -9 139
             
Net income attributable to Feintool Holding shareholders           20 075
             
Assets 66 099 332 757 398 856 121 552 -93 515 426 893
Net working capital 3) 11 216 60 651 71 867 -1 543 -70 70 254
Investments in property, plant and equipment/intangible assets (incl. leases) 854 31 290 32 144 870 -1 217 31 797
Number of employees 237 1 780 2 017 32 2 049
1.4 Geographical areas 2015 Switzerland Europe excl. Switzerland America Asia Total
Total net sales – Group 3)       4 907 253 989 163 026 87 014 508 936
thereof Germany         187 885      
thereof Japan             39 302  
thereof China             33 080  
Fixed and intangible assets       34 187 79 684 75 644 25 344 214 859

The following footnotes are applicable to the 2016 and 2015 financial years.

1) The gross margin is calculated as net sales less material costs, the change in finished and semi-finished goods and work in progress, and direct personnel costs.

2) In financial year 2016, the Swiss pension fund adopted an amendment to its regulation, which had a positive one-off effect of kCHF 7 083 on the statement of comprehensive income in accordance with IAS 19. Reference is also made to Note 6 in these Notes to the financial statements.

3) Net working capital comprises trade receivables, inventories, net assets of construction contracts/work in progress and prepaid expenses and accrued income less trade payables, advance payments received from customers and accrued expenses and deferred income.

4) Net sales is allocated to countries based on the customer's domicile.

The Fineblanking Technology segment develops, manufactures and sells presses, tools, peripheral systems and all related services.

The System Parts segment develops, produces and sells high-precision system components and assemblies using fineblanking and forming technology.

Finances/Other essentially comprises the figures for Feintool International Holding AG, the German sub-holding company Feintool Holding GmbH and the sub-holding company HL Holding AG and its real estate companies.

The operating profit/loss comprises all operating income and expenses directly attributable to the individual segments. This includes all cross-segment expenses, which are charged directly on an arm's-length basis. Feintool's financing is undertaken at the Group level. Financial expenses and income, as well as taxes, are therefore reported only at the Group level and do not appear in the segment reports.

Feintool generates 17.1% (previous year 16.4%) of consolidated sales with one customer. Income is generated in all segments.

There is no reconciliation of data in management reports and data contained in the financial reports, as internal and external reporting are subject to the same valuation principles.

2 ACQUISITION OF INVESTMENTS

On March 30, 2015, Feintool Holding GmbH, Amberg, a 100 % subsidiary of Feintool International Holding AG, acquired 100 % of Gabler Feinschneidtechnik GmbH, Oelsnitz. The company was renamed Feintool System Parts Oelsnitz GmbH on April 15, 2015.

  01/01 - 12/31/2016 04/01 - 12/31/2015
2.1 Net operating income of the interests acquired in CHF 1 000 in CHF 1 000
Net Sales 9 196 3 244
EBIT -3 764 -1 036
2.2 Consideration for the interests acquired in CHF 1 000
Cash and cash equivalents 6 751
Total consideration 6 751
2.3 Identifiable assets and liabilities in CHF 1 000
Cash and cash equivalents 460
Trade and other receivables 1 447
Inventories 155
Work in progress 205
Property, plant and equipment 6 329
Intangible assets 1) 1 090
Financial liabilities -3 658
Trade and other payables -654
Provisions -546
Deferred tax liabilities -435
Net identifiable assets 4 393

1)In intangible assets is mainly the value of customer contracts and relationships, as well as technical know-how contained.

2.4 Goodwill at the acquisition date in CHF 1 000
Total consideration 6 751
Net identifiable assets -4 393
Goodwill 1) 2 358

1)Goodwill at historical rates on the acquisition date.

3 discontinued operations

Discontinued operations include IMA Automation Amberg GmbH, Amberg, and its operating property, which were sold on July 31, 2014.

During the 2015 financial year, Feintool was able to successfully reverse provisions that were formed for future work in connection with IMA Automation Amberg GmbH's departure from the Group. The effect from discontinued operations was kCHF 720. In the course of the financial year, there was no effect from discontinued operations.

4 Net sales

4 Net sales
  2016 2015
  in CHF 1 000 in CHF 1 000
Gross sales 1) 560 062 514 006
Sales deductions -7 825 -5 070
Total net sales 552 237 508 936

1)kCHF 37 896 (previous year kCHF 36 106) of the gross sales were calculated using the percentage-of-completion (POC) method.

5 capitalized Self-generated assets

5 capitalized Self-generated assets
  2016 2015
  in CHF 1 000 in CHF 1 000
Self-generated presses 1 091 1 472
Self-generated tools 2 799
Capitalized development costs 1 631 683
Other capitalized self-generated assets 82 238
Capitalized self-generated assets 5 603 2 393

6 Personnel expenses

6 Personnel expenses
  2016 2015
  in CHF 1 000 in CHF 1 000
Salaries and wages 1) 130 954 122 715
Employee welfare expenses 23 491 22 534
Other personnel expenses 4 596 4 027
Total personnel expenses 159 041 149 276
of which direct personnel expenses 2) 80 550 74 288
of which indirect personnel expenses 78 491 74 988

1)In financial year 2016, the Swiss pension fund approved an amendment to the regulations, which will result in a gradual reduction of the conversion rate from 6.2 % to 5.2 %. This amendment had a positive one-time effect of kCHF 7 083 on the statement of comprehensive income in the financial year. The one-time effect applies to wages and salaries. See also Sections 1 and 27 in the Notes.

2)Direct personnel expenses are personnel expenses that can be directly assigned to the production process. The effect due to the regulation amendment of the Swiss pension fund to the direct personnel expenses amounts to kCHF 3 542.

The Group employed 2 239 staff at the end of the year under review (previous year 2 049) and 68 trainees (previous year 75).

7 Other operating expenses

7 Other operating expenses
  2016 2015
  in CHF 1 000 in CHF 1 000
Repair and maintenance 49 838 44 768
Rental and leasing expenses 5 052 4 721
Sales and marketing expenses 2 698 1 797
Administration and distribution expenses 10 263 10 308
Loss on the disposal of property, plant and equipment 106 83
Taxes and duties (not including taxes on income) 1 244 748
Other expenses 2 568 1 518
Total other operating expenses 71 769 63 943

8 Other operating income

8 Other operating income
  2016 2015
  in CHF 1 000 in CHF 1 000
Gain on the disposal of property, plant and equipment 310 291
Other income 1) 1 670 1 838
Total other operating income 1 980 2 129

1)"Other income" includes income from staff restaurants, sub-letting, as well as income from insurance compensation.

9 Financial expenses

9 Financial expenses
  2016 2015
  in CHF 1 000 in CHF 1 000
Interest expense 2 829 2 675
Other finance costs (1) 937 1 275
Foreign exchange losses 7 950 13 805
Total financial expenses 11 716 17 755

1)Besides bank charges, other financial expenses include annual amortization of establishing cost for the promissory note loan/syndicated loan, market making costs, valuation expenses from swap transactions and interest expenses on the provision of employee benefit obligations.

10 Financial income

10 Financial income
  2016 2015
  in CHF 1 000 in CHF 1 000
Interest income 124 193
Other financial income 1) 1 14
Foreign exchange gains 8 402 13 861
Total financial income 8 527 14 068

1)Other financial income comprises valuation income from swap transactions and income from interest on a rental guarantee deposit.

11 Income taxes

11 Income taxes
  2016 2015
11.1 Analysis of income taxes in CHF 1 000 in CHF 1 000
Tax credits/charges for the reporting period 9 498 5 347
Tax credits/charges from previous years -1 161 -343
Deferred income taxes 4 834 4 135
Total income taxes 13 171 9 139
  2016 2015
11.2 Analysis of tax charge in CHF 1 000 in CHF 1 000
Earnings before taxes 1) 45 233 29 934
     
Weighted tax rate as % 2) 29.3 % 35.5 %
Expected overall tax expense 13 267 10 617
     
Non tax-deductible expense 95 68
Non-taxable income -209 -38
Unrecognized tax loss carryforwards from the current year 3) 2 779 971
Use of unrecognized loss carryforwards from previous years -189 -777
Recognition of previously unrecognized loss carryforwards 4) -1 380 -3 948
Reassessment of deferred tax assets/liabilities 60 2 019
Use of unrecognized deductible temporary differences -221 -175
Tax credits/charges from previous years 5) -1 161 -343
Effect of changes in tax rates 137 250
Other effects -7 495
Effective income tax expense 13 171 9 139
Effective income tax expense as % 29.1 % 30.5 %

1)The earnings before taxes in prior year include discounting operations.

2)The weighted tax rate is calculated from the income tax rates likely to apply to the income of the individual Group companies in the respective tax jurisdiction, which naturally varies according to the actual earnings figures. The reduction in the expected tax rate is attributable to companies in Switzerland, Germany and Japan.

3)Unrecognized tax loss carryforwards from the current year refer to companies in Switzerland, China and Germany.

4)The recognition of previously unrecognized loss carryforwards refers in particular to companies in Switzerland and in Germany.

5)The tax credits/charges from previous years refer to companies in the US.

12 Deferred taxes

12 Deferred taxes
    12/31/2016 12/31/2015
12.1 Carrying amounts in CHF 1 000 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities
Deferred taxes for temporary differences        
Current assets 2 707 1 574 2 335 1 241
Non-current assets 6 112 30 472 9 610 29 255
Provisions and other liabilities 2 899 982 3 072 1 009
Employee benefit plans 13 279 191 12 641
Loss carryforwards 14 120 12 905
Other temporary differences 2 2 129 2
Total gross values 39 118 33 222 40 692 31 507
Netting -21 780 -21 780 -22 581 -22 581
Total carrying amounts 17 338 11 442 18 111 8 926
of which recognized in the balance sheet as deferred tax assets 17 338   18 111  
of which recognized in the balance sheet as deferred tax liabilities   11 442   8 926
Net deferred tax assets 5 896   9 185  
    12/31/2016 12/31/2015
12.2 Statement of deferred taxes in CHF 1 000 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities
Start of period 9 185   12 855  
Recognition and reversal of temporary differences -4 834   -4 135  
Temporary differences arising on acquisition/sale of entities   -435  
Temporary differences recognized directly in equity 1 632   1 096  
Translation differences -87   -196  
End of period 5 896   9 185  

The temporary differences arising on the acquisition/sale of entities in the previous year relate to the purchase of Feintool System Parts Oelsnitz GmbH.

12.3 Unrecognized tax assets

Deferred tax assets, including those for tax loss carryforwards and expected tax credits, are only recognized if it is probable that profits will be available against which the loss carryforwards and tax credits can be utilized.

  12/31/2016 12/31/2015
12.4 Tax loss carryforwards in CHF 1 000 in CHF 1 000
Total tax loss carryforwards 56 352 62 552
of which recognized loss carryforwards 41 903 42 222
Total unrecognized tax loss carryforwards 14 449 20 330
of which expiring within 1 year 4 254 5 474
of which expiring in one to five years 7 285 11 973
of which expiring in more than five years 2 911 2 883
Tax effects of unrecognized tax loss carryforwards 3 692 4 746

Income taxes and information regarding the tax charge are shown in Note 11.

13 Consolidated earnings per share

13 Consolidated earnings per share
  2016 2015
13.1 Average number of shares outstanding Number Number
Average number of shares outstanding 4 462 971 4 462 971
Less number of treasury shares (weighted) -7 534 -13 998
Average number of shares outstanding – basic 4 455 437 4 448 973
Average number of shares outstanding – diluted 4 455 437 4 448 973
  2016 2015
13.2 Net income Feintool Group in CHF 1 000 in CHF 1 000
Net income of the Feintool Group – basic 32 062 20 795
Net income of the Feintool Group – diluted 32 062 20 795

No dilution effects were recognized in the financial year.

  2016 2015
13.3 Earnings per share – incl. discontinued operations in CHF in CHF
Basic earnings per share 7.20 4.67
Diluted earnings per share 7.20 4.67

Earnings per share are calculated on the basis of the consolidated net income for the financial year divided by the average number of shares in circulation. No dilution effects were recognized in the financial year.

  2016 2015
13.4 Earnings per share – continuing operations in CHF in CHF
Basic earnings per share 7.20 4.51
Diluted earnings per share 7.20 4.51

Earnings per share are calculated on the basis of the consolidated net income for the financial year divided by the average number of shares in circulation. No dilution effects were recognized in the financial year.

14 Receivables

14 Receivables
  12/31/2016 12/31/2015
14.1 Trade and other receivables in CHF 1 000 in CHF 1 000
Trade receivables 73 253 72 464
Valuation allowances -2 004 -2 727
Total trade receivables (net) 71 249 69 737
Bills receivable 140 303
Outstanding VAT credits 4 325 5 435
Advanced payments to suppliers 8 217 6 415
Other receivables 1 750 1 639
Total trade and other receivables 85 681 83 529

Feintool has various factoring programs not required to be included on the balance sheet. Receivables of kCHF 10 494 had been sold under this program as at December 31, 2016 (previous year kCHF 8 238).

14.2 Maturity profile of receivables in CHF 1 000 Carrying amount Not yet due Overdue up to 30 days Overdue for 31-90 days Overdue for 91-180 days Overdue for more than 180 days
12/31/2016            
Trade receivables 73 253 60 316 5 340 1 510 3 597 2 490
Valuation allowances -2 004          
Total receivables (net) 71 249          
             
12/31/2015            
Trade receivables 72 464 56 564 8 447 2 881 2 192 2 380
Valuation allowances -2 727          
Total receivables (net) 69 737          
  2016 2015
14.3 Valuation allowance on receivables in CHF 1 000 in CHF 1 000
Start of period -2 727 -2 569
Translation differences -4 69
Recognized -155 -805
Reversed 753 550
Used 129 28
End of period -2 004 -2 727

15 Inventories

15 Inventories
  12/31/2016 12/31/2015
  in CHF 1 000 in CHF 1 000
Raw material 25 880 23 418
Finished and semi-finished goods 36 643 32 519
Valuation allowances on inventories -17 441 -14 897
Total inventories 45 082 41 040

16 Net assets of construction contracts and work in progress

16 Net assets of construction contracts and work in progress
  12/31/2016 12/31/2015
  in CHF 1 000 in CHF 1 000
Construction contracts in progress (POC) 15 658 16 954
Work in progress 20 765 22 312
Prepayments received -8 453 -5 125
Valuation allowances on construction contracts and work in progress -926 -2 711
Total net assets of construction contracts and work in progress 27 044 31 430

The gross margin recorded under "Construction contracts in progress (POC)" as at the closing date amounted to 38.9 % (previous year 33.5 %).

17 Prepaid expenses and accrued income

17 Prepaid expenses and accrued income
  12/31/2016 12/31/2015
  in CHF 1 000 in CHF 1 000
Prepaid expenses for customer orders 1) 1 323 1 751
Issue costs of promissory note loan 449
Issue costs of syndicated loan 90
Rental agreement 2) 872 1 003
Other prepaid expenses and accrued income 464 664
Total prepaid expenses and accrued income 3 108 3 508

1)Prepaid expenses for customer orders includes expenses for constructions that are assigned to a specific order. These prepaid expenses are released on a straight-line basis over the course of the order.

2)The "rental agreement" shows the difference between a reduced rent owing to site contamination originally amounting to kEUR 1 500, which is charged to rent on the property for 10 years (until May 31, 2022) and the standard market-level rent on the property.

18 Property, plant and equipment

18 Property, plant and equipment
18.1 Summary of property, plant and equipment   in CHF 1 000 Real estate Machinery Other property, plant and equipment Total
Cost of acquisition as at 01/01/2015   89 378 244 673 17 072 351 123
           
Additions   1 206 13 917 15 439 30 562
Disposals and Reclassifications   198 2 133 -9 091 -6 760
Change in scope of consolidation 1)   1 866 4 410 53 6 329
Translation differences   -2 788 -8 079 -895 -11 762
As at 12/31/2015   89 860 257 054 22 578 369 492
           
Additions   5 899 48 808 16 799 71 506
Disposals   -46 -8 284 -564 -8 894
Reclassifications 2)     5 157 9 813 -14 829 141
Translation differences   724 2 478 19 3 221
As at 12/31/2016   101 594 309 869 24 003 435 466
           
Accumulated depreciation as at 01/01/2015   -27 501 -120 768 -7 818 -156 087
           
Additions   -3 237 -21 775 -1 640 -26 652
Disposals and Reclassifications   166 5 610 351 6 127
Translation differences   927 3 940 375 5 242
As at 12/31/2015   -29 645 -132 993 -8 732 -171 370
           
Additions   -4 859 -26 151 -1 822 -32 832
Disposals   29 7 714 516 8 259
Translation differences   -366 -1 604 -79 -2 049
As at 12/31/2016   -34 841 -153 034 -10 117 -197 992
           
Net carrying amounts          
As at 12/31/2015   60 215 124 061 13 846 198 122
Of which leased assets   26 851 26 851
As at 12/31/2016   66 753 156 835 13 886 237 474
Of which leased assets   34 009 34 009

1)The change in the scope of consolidation results from, in previous year, the purchase of Feintool System Parts Oelsnitz GmbH.

2)Reclassifications include positions of immaterial assets amounting to kCHF -219 as well as financial assets amount to kCHF 360.

Other property, plant and equipment includes installations, vehicles and assets under construction. Assets under construction amounted to kCHF 8 380 in the year under review (previous year kCHF 8 981). Gains on asset disposals are recognized as other operating income (Note 8). A gain of kCHF 310 (previous year kCHF 291) was generated in the reporting year. Losses on asset disposals are stated as other operating expenses (Note 7). In the year under review, this loss totaled kCHF 106 (previous year kCHF 83). As at December 31, 2016, the Feintool Group had entered into purchase commitments for the purchase of property, plant and equipment totalling approx. CHF 19.4 million (previous year CHF 26.3 million).

19 Intangible assets

19 Intangible assets
19.1 Summary of intangible assets in CHF 1 000 Goodwill Capitalized development costs 1) Software Other intangible assets 2) Total
Cost of acquisition as at 01/01/2015 8 635 2 807 4 303 9 428 25 173
           
Additions 746 488 1 1 235
Disposals and Reclassifications -5 -1 801 -1 806
Change in scope of consolidation 3) 2 358 5 1 085 3 448
Translation differences -779 -143 -427 -1 349
As at 12/31/2015 10 214 3 553 4 648 8 286 26 701
           
Additions 2 099 1 102 147 3 348
Disposals -432 -1 041 -1 473
Reclassifications   219 219
Translation differences -91 23 -33 -101
As at 12/31/2016 10 123 5 652 5 560 7 359 28 694
           
Accumulated depreciation as at 01/01/2015 -1 045 -3 482 -5 655 -10 182
           
Additions -564 -395 -910 -1 869
Translation differences 140 149 289
As at 12/31/2015 -1 609 -3 737 -4 617 -9 963
           
Additions -642 -580 -590 -1 812
Disposals 432 1 030 1 462
Translation differences -18 21 3
As at 12/31/2016 -2 251 -3 903 -4 156 -10 310
           
Net carrying amounts          
As at 12/31/2015 10 214 1 944 911 3 669 16 738
As at 12/31/2016 10 123 3 401 1 657 3 203 18 384

1)Research and development expenses amounting to kCHF 4 107 (previous year kCHF 3 346) were charged to the consolidated statement of comprehensive income.

2)Other intangible assets primarily comprise patents and licenses.

3)The change in the scope of consolidation applies to Feintool System Parts Oelsnitz GmbH, which was acquired in the previous year.

  Carrying amount
19.2 Other information in CHF 1 000
Goodwill 12/31/2016  
Cash-generating unit System Parts Europe 3 256
Cash-generating unit System Parts Forming Europe 6 867
Total carrying amounts 10 123
   
Goodwill 12/31/2015  
Feintool System Parts Jena GmbH, Jena (Germany) 853
Feintool System Parts Obertshausen and Ohrdruf (Germany) 6 929
Feintool System Parts Oelsnitz GmbH, Oelsnitz (Germany) 2 432
Total carrying amounts 10 214

In the past, the cash-generating unit was set to the level of the producing plant. As the Group has grown over the past few years, the internal organization and leadership structure of Feintool was adjusted to the new circumstances. Decisions are made on the level of System Parts Europe and System Parts Forming Europe. Sales are centralized within the two segments; orders are distributed across them on the basis of the specific skills of individual plants (machinery, employee experience). This optimizes cash flows for System Parts Europe and System Parts Forming Europe, although the cash flows of the individual production locations change randomly. For this reason Feintool has also been considering impairments on the level of System Parts Europe and System Parts Forming Europe as of financial year 2016. The recoverable amounts for the cash-generating units are calculated on the basis of the value in use. The impairment test for goodwill was calculated by using the DCF method (discounted cash flow method). The cash flows were discounted with the WACCs by 8.1% (previous year 8.5%). After deducting liabilities, the goodwill was calculated accordingly as a net amount. The future cash flows are based on a budget approved by the management for a period of three years and an extended extrapolation over two years plus the residual value. The following values were used for the parameters to determine the WACCs:

Financial year:

2016

 

2015

Risk-free interest rate:

1.6%

 

1.6%

Market returns:

7.6%

 

7.6%

Risk premium:

2.0%

 

2.0%

Beta:

1.12

 

1.12

Growth rate:

1.1%

 

0.0%

Sensitivity analysis:
If the discount rate were to increase by 1% (after taxes), the value in use for all cash-generating units would still be above the value of the net assets plus goodwill.

20 Financial assets

20 Financial assets
  12/31/2016 12/31/2015
  in CHF 1 000 in CHF 1 000
Loans to third parties 114 138
Receivables from the financing of customer tools 1 027 2 248
Rental deposit accounts 451 473
Financial assets 1 592 2 859

The weighted average interest rate in the reporting period was 2.4 % (previous year 2.5 %). Loans to third parties consist of marketable securities and loans to staff. Receivables from the financing of customer tools refers to tools the customer has ordered but not yet or only partially paid for. Amortization is based on either the parts produced or an agreed payment plan. Ownership is normally transferred upon acceptance of the tool.

21 Financial liabilities

21 Financial liabilities
  12/31/2016 12/31/2015
21.1 Current financial liabilities in CHF 1 000 in CHF 1 000
Current liabilities to banks 5 853 15 660
Current portion of lease liabilities 7 696 7 415
Current portion of non-current liabilities to banks 2 370 3 141
Total current financial liabilities 15 919 26 216

The weighted average interest rate in the reporting period was 2.5 % (previous year 4.0 %).

Feintool has a CHF 35 million syndicated loan agreement with eight banks (CHF 25 million in cash loans and CHF 10 million in performance and advance payment guarantees); the agreement runs until June 30, 2017. The standard covenants have been agreed for the syndicated loan. The main covenants are:

- equity ratio > 30 %

- net senior debt/EBITDA < 3.0x

On December 31, 2016, the syndicated loan had not been used and all the covenants had been met. Should these covenants not be met, the banks would have the right to terminate the loans at short notice. Feintool has kCHF 25 000 (previous year kCHF 80 000) in unused, confirmed credit lines at the bank. Feintool is currently negotiating an increase/extension of the syndicated loan with various banks.

In the reporting year, Feintool Precision System Parts in Taicang, China, had a loan of kCNY 60 000 from a subsidiary of the Franke/Artemis Group, received indirectly via Deutsche Bank China. It bore interest at a rate of 6.6%. The loan was repaid during the course of financial year 2016.

  12/31/2016 12/31/2015
21.2 Non-current financial liabilities in CHF 1 000 in CHF 1 000
Non-current lease liabilities 18 749 12 361
Non-current promissory note 69 804
Non-current liabilities to banks 4 452 4 029
Total non-current financial liabilities 93 005 16 390

The weighted average interest rate in the reporting period was 1.5 % (previous year 3.6 %).

On July 15, 2016, a promissory note was issued in the amount of EUR 65 million. The issuer, with a guarantee from Feintool International Holding AG, is Feintool Holding GmbH based in Germany. The loan is divided into three tranches with different maturities:

- EUR 25 million, term of 5 years, fixed interest rate of 0.90 % 

- EUR 25 million, term of 7 years, fixed interest rate of 1.10 % 

- EUR 15 million, term of 10 years, fixed interest rate of 1.66 %

An equity ratio of at least 25% must be maintained as a material covenant to be complied with.

22 Trade and other payables

22 Trade and other payables
  12/31/2016 12/31/2015
  in CHF 1 000 in CHF 1 000
Trade payables 55 447 44 437
Prepayments from third parties 2 362 6 357
Notes payable 5 859 7 040
Customer payments from factoring 1) 1 084 1 576
Social security liabilities 3 333 2 884
Outstanding VAT liabilities 1 113 783
Other liabilities 1 476 1 190
Total trade and other payables 70 674 64 267

1)Customer payments from factoring include all customer payments not yet forwarded to the factoring company.

23 Accrued expenses and deferred income

23 Accrued expenses and deferred income
  12/31/2016 12/31/2015
  in CHF 1 000 in CHF 1 000
Accruals for salary, bonus, overtime, additional hours 11 997 10 630
Outstanding accounts payable 9 526 6 142
Outstanding installations and other work to be fulfilled in relation to customer orders 10 002 9 565
Accruals for environmental risks 1) 1 043 1 125
Other accrued expenses and deferred income 854 2 240
Total accrued expenses and deferred income 33 422 29 702

1)Feintool is renting property contaminated with trichloroethylene (PER) in Obertshausen (Germany). In principle, the proprietor is obliged to clean up the property. In certain circumstances, however, state authorities can also force the lessee to take responsibility for the cleanup operation. Feintool has committed itself to meeting half of the costs of cleanup, up to a value of kEUR 1 500. This amount is entered in full as a liability, less cleanup contributions made to the cleanup. According to the information currently available, the contamination of the leased property in Obertshausen will have no further effect on the Group's financial position, operating results or cash flows.

24 Provisions

24 Provisions
in CHF 1 000 Onerous contracts Warranties Other provisions Total
Current provisions 54 1 198 4 613 5 865
Non-current provisions 1 518 1 518
Total provisions as at 12/31/2015 54 2 716 4 613 7 383
         
Recognized 326 2 680 3 006
Used -54 -7 -1 075 -1 136
Reversed -468 -415 -883
Translation differences -3 -46 -49
Total provisions as at 12/31/2016 2 564 5 757 8 321
of which current provisions 1 159 5 740 6 899
of which non-current provisions 1 405 17 1 422

Provisions were created for onerous contracts with a view to meeting expected losses on existing orders. They will be released in accordance with the degree of order processing. As a rule, orders are completed 12 months after they are received.

Provisions for actual warranty events cover the estimated cost arising from warranty services provided by the Group companies, which the company must cover for contractual reasons or due to its conduct. The outflow of funds occurs as and when the warranties are taken up, over a maximum of three years.

"Other provisions" include provisions for restructuring, scrap rebates, customer complaints, price reductions that were not passed on and various small items. The expected duration of the outflow of funds is 1 to 2 years.

In the 2013 financial year, Feintool sold a property in White Plains (USA). This is contaminated with tetrachloroethylene (PER). Feintool remains responsible for the cleanup, and has therefore joined the state-controlled Brownfield Cleanup Program. Under this program, the land is to be cleaned up to the extent that it can be put to a new use. At present, Feintool has allowed provisions totaling kCHF 398 (previous year kCHF 482) in its balance sheet for this remediation work. According to the current assessment, provisions for the cleanup at White Plains are sufficient.

25 Lease liabilities

25 Lease liabilities
  Operating leases Finance leases
  in CHF 1 000 in CHF 1 000
Lease liabilities as at 12/31/2016 due    
within 1 year 2 175 8 007
in one to five years 2 287 19 012
in more than five years 109
Total liabilities 4 571 27 019
     
Less interest   -574
Total lease liabilities as at 12/31/2016   26 445
     
Lease liabilities as at 12/31/2015 due    
within 1 year 916 7 742
in one to five years 2 478 12 688
in more than five years 1
Total liabilities 3 395 20 430
     
Less interest   -654
Total lease liabilities as at 12/31/2015   19 776

In the financial year, kCHF 15 519 (previous year kCHF 3 236) of new financial leasing agreements were concluded.

26 Commitments under long-term rental agreements

26 Commitments under long-term rental agreements
  12/31/2016 12/31/2015
  in CHF 1 000 in CHF 1 000
Rental payments due    
within 1 year 1 811 1 931
in one to five years 8 249 7 185
in more than five years 4 053 2 908
Total payments 14 113 12 024

27 Employee benefit plans

27 Employee benefit plans
  12/31/2016 12/31/2015
27.1 Overview of net employee benefit liabilities (assets) in CHF 1 000 in CHF 1 000
Net defined benefit liability (asset) 61 115 60 585
Anniversary benefits 1 898 1 869
Other benefit obligations 87 113
Total net employee benefit liabilities (assets) 63 100 62 567

The assets of the employee benefit plans do not include treasury shares (previous year kCHF 0). The Group uses assets (tangible assets) belonging to the retirement fund with a value of kCHF 6 847 (previous year kCHF 6 936). The "Net defined benefit liability (asset)" item contains various benefit plans in Switzerland, Germany and Japan. The net liability from the Swiss plan amounts to kCHF 51 836 (previous year kCHF 52 324), the German plan to kCHF 8 501 (previous year kCHF 7 609) and the Japanese plan to kCHF 778 (previous year kCHF 652). On account of the materiality of the figures, only the Swiss and German plans are shown in Note 27.3 onwards.

Swiss plan

The majority of Feintool employees in Switzerland are insured against the risks of death, old age and disability through the semi-autonomous Feintool Group pension fund. The benefits provided by the Feintool Group's pension fund exceed the minimum level prescribed by the Federal Occupational Old Age, Survivors' and Disability Pension Act (BVG). The ordinary employer contributions comprise risk contributions of 2.2 % and age-related contributions of 4.5 %-11.0 % of the insured salary for credits to individual retirement assets. The typical retirement age is 65 for men and 64 for women. Employees have a right to early retirement from age 58, in which case the conversion rate is reduced in accordance with the longer expected pension payment period and the absence of contribution payments prior to retirement. Furthermore, employees can withdraw their retirement pension in full or in part as a lump sum. The amount of pension paid out is arrived at from the conversion rate, which is applied to the insured individual's accumulated retirement savings at the time of retirement. In the case of retirement at age 65/64, the conversion rate is 6.2 %. Afterwards, it will fall by 0.2 % each year until it reaches 5.2 % in financial year 2021. The accumulated retirement assets are arrived at from the employee and employer contributions paid into the individual savings account of each insured member, together with the interest credited to the retirement assets, vested benefits brought in and any voluntary payments made by the insured person. The interest rate paid on the retirement assets is set by the Board of Trustees each year.

The legal form of the Feintool Group's pension fund is that of a foundation. The Board of Trustees, which comprises an equal number of employee and employer representatives, is responsible for managing the foundation. The duties of the pension fund Board of Trustees are laid down in the BVG and in the rules of the pension fund. A temporary shortfall is permitted under the BVG. The Board of Trustees is required to take measures to rectify any underfunding within a reasonable period. Under the BVG, additional employer and employee contributions may be incurred if the pension fund exhibits a significant shortfall (shortfall < 90 % = considerable shortfall; in this instance, contributions to rectify the situation are essential). In these cases, the contributions to rectify the situation are split between the employer and the employee; the law does not require the employer to assume more than 50 % of the additional contributions. The BVG funding ratio of the Feintool Group pension fund was around 91.0 % as at December 31, 2016 (previous year 91.3 %). The Board of Trustees is the central coordination and monitoring body for the management of the assets. The pension assets are administered by a mandated, independent financial services provider. The Board of Trustees determines the investment strategy and tactical bandwidths in accordance with the statutory provisions. In accordance with its guidelines, the financial services provider is able to decide on the asset allocation subject to the statutory requirements concerning asset classes and bandwidths. In the year under review, the company that established the pension fund committed to the addition of another CHF 1.2 million annually for the restructuring of the pension fund for the Feintool Group – along with the standard contributions – until a 100 % degree of coverage is achieved.

German plans

The German plans comprise:

  • A "Works Agreement on the Introduction of an Occupational Pension Plan" concluded on June 25, 1998 that was terminated effective December 31, 2005 with the announcement that new employees would no longer be able to join the pension scheme from January 1, 2006, and that any entitlements already accrued would be frozen effective December 31, 2005.
  • Individual commitments to certain managers

This essentially includes the right to a lifetime pension payable upon retirement, disability and/or death. The level of monthly pension entitlement on reaching the retirement age of 65, and on reaching age 63 at the earliest, amounts to 50 % of the annual pensionable income broken down into a monthly amount; the annual pensionable income is deemed to be the fixed annual income at the time the pension becomes due for payment.

Japanese plan

The Japanese plan includes all employees who have worked at the company for three or more years. Employees are entitled to a pension from age 60.

  Defined benefit obligation Plan assets Net defined benefit liability (asset)
  2016 2015 2016 2015 2016 2015
27.2 Change in defined benefit liability (asset) in CHF 1 000 in CHF 1 000 in CHF 1 000 in CHF 1 000 in CHF 1 000 in CHF 1 000
As at January 1 181 288 179 710 -120 703 -125 161 60 585 54 549
Recognized in income statement            
Current service cost 4 367 4 273 4 367 4 273
Interest cost (income) 1 868 2 077 -1 202 -1 426 666 651
General and administrative expenses 228 209 228 209
Impact of plan amendment in Financial Year 1) -7 083 -7 083
Total -848 6 350 -974 -1 217 -1 822 5 133
             
Recognized in other comprehensive income            
Expense/(income) from remeasurement of            
Actuarial loss/(gain) due to:            
Change in demographic assumptions -166 -166
Change in financial assumptions 10 285 808 10 285 808
Experience adjustment 962 962
Return on plan assets (excluding interest income) -4 044 4 266 -4 044 4 266
Translation differences 29 -947 -79 66 -50 -881
Total 11 110 -138 -4 123 4 332 6 987 4 194
             
Other            
Contributions from employer 2) -1 512 -350 -3 122 -2 941 -4 634 -3 292
Contributions from employees 2 586 2 510 -2 586 -2 510
Benefits paid out -6 861 -6 794 6 860 6 794 -1
Total -5 787 -4 634 1 152 1 343 -4 635 -3 292
As at December 31 185 763 181 288 -124 648 -120 703 61 115 60 585
of which Swiss plans 173 511 170 356 -121 675 -118 033 51 836 52 323
of which German plans 9 484 8 526 -983 -917 8 501 7 609
of which Japanese plans 2 767 2 406 -1 989 -1 754 778 652

1)In financial year 2016, the Swiss pension fund approved an amendment to the regulations, which will result in a gradual reduction of the conversion rate from 6.2 % to 5.2 %. This amendment had a positive one-time effect of kCHF 7 083 on the statement of comprehensive income in the financial year.

2)In the reporting period, the foundation undertook to contribute an additional kCHF 1 200 annually to the Feintool Group's pension fund in addition to the regular contributions, until a funding ratio of 100 % is achieved.

The expected contributions made to the employee benefit plans for the following financial year amount to CHF 3.1 million in the case of employer contributions and CHF 2.2 million in the case of employee contributions.

  2016 2015
27.3 Plan assets of defined benefit plans in % in %
Equities 8.4 8.7
Bonds 65.8 65.4
Real estate (including real estate funds) 14.6 14.6
Other 1.0 0.8
Cash 10.2 10.5
Total 100.0 100.0

Swiss plan

The plan assets are invested by an AAA-rated bank in line with the predefined strategy. The following limits apply to investment:

  • Equities < 50 %
  • Bonds < 70 %
  • Real estate < 30 %
  • Alternative investments 0 %

Currencies other than the CHF are hedged. With the exception of directly held real estate, all investments are traded on a public exchange.

German plan

The German plan includes a reinsurance policy to cover pension liabilities. Assets from the insurance policy are included in plan assets.

  2016 2015
27.4 Defined benefit plan obligations – actuarial assumptions in % in %
Swiss plan    
Discount rate 0.6 1.0
Future increase in wages and salaries 1.3 1.3
     
German plans    
Discount rate 1.6 2.2
Future increase in wages and salaries 0.0 - 1.8 0.0 - 2.0
Future increase in pensions 1.8 - 2.0 1.8 - 2.0
  2016 2015
27.5 Defined benefit plan obligations – actuarial assumptions in years in years
Swiss plan    
Life expectancy at age 65 for newly retired persons    
Men 22.3 21.5
Women 24.3 24.0
     
Life expectancy at age 65 for employees currently aged 45    
Men 24.2 23.2
Women 26.2 25.7
     
German plans    
Life expectancy at age 65 for newly retired persons    
Men 19.1 19.0
Women 23.2 23.1
     
Life expectancy at age 65 for employees currently aged 45    
Men 21.8 21.6
Women 25.7 25.6

As at December 31, 2015, the weighted-average duration of pension benefit obligations was 14.8 years for the Swiss plan (previous year 16.1 years) and 11.6 - 15.0 years for the German plans (previous year 15.7 - 19.0 years). Feintool uses the GT 2015 mortality table in Switzerland and Heubeck in Germany for the hypothetical life expectancy.

  2016 2015
27.6 Defined benefit plan obligations – sensitivity analysis in CHF 1 000 in CHF 1 000
Swiss plan    
Change in discount rate -0.25 % 6 370 6 176
Change in discount rate +0.25 % -5 953 -5 785
Change in wages and salaries -0.25 % -532 -328
Change in wages and salaries +0.25 % 531 334
     
German plans    
Change in discount rate -0.25 % 476 408
Change in discount rate +0.25 % -446 -374
Change in wages and salaries -0.25 % -62 -54
Change in wages and salaries +0.25 % 64 55

28 Equity

28 Equity
  12/31/2016 12/31/2015
28.1 Share capital Number/CHF Number/CHF
Number of shares 4 462 971 4 462 971
Nominal value 10 10
Share capital 44 629 710 44 629 710
  12/31/2016 12/31/2015
28.2 Conditional capital – employee stock option plan in CHF 1 000 in CHF 1 000
Start of period 558 558
Used
End of period 558 558

This conditional capital of 55 750 registered shares with a par value of CHF 10 each was created following the resolution of the Extraordinary General Meeting of July 2, 1998 for the payment of rights conferred under the employee stock option plan.

  31.12.2016 31.12.2015
28.3 Authorized capital in CHF 1 000 in CHF 1 000
Start of period
Created1) 6 000
Used
Expired
End of period 6 000

1)According to the decision of the Annual General Meeting of April 19, 2016, the Board of Directors is authorized to create capital up to a maximum amount of kCHF 6 000 as required through the issue of up to 600 000 new shares, each having a nominal value of CHF 10. The new shares are to be paid up in full. The Board of Directors is authorized to restrict or exclude subscription rights under certain circumstances. The new shares can be issued in one or more stages. The approval is limited to a period of two years. The authorized capital will expire on April 19, 2018.

  12/31/2016 12/31/2015
28.4 Treasury shares – changes Number in CHF 1 000 Number in CHF 1 000
Start of period 10 558 905 14 282 1 225
Bought 4 520   5  
Sale/transfer -8 336   -3 729  
End of period 6 742 660 10 558 905
of which trading portfolio 6 742   10 558  

In the 2015 financial year, 4 520 shares were purchased at an average price of CHF 112.92 (previous year 5 shares at an average price of CHF 98.80) and 8 336 shares sold at an average price of CHF 97.82 (previous year 3 729 shares at an average price of CHF 87.02) for the share-based management remuneration. Treasury shares are reserved primarily for management remuneration.

29 Capital participation plans

As a component of the bonus, 8 336 shares (previous year 8 729) were allocated to the Board of Directors, the Group Management and other managers in the financial year at a transaction value of kCHF 951 (previous year kCHF 753). Of this amount, 5 000 shares relate to financial year 2015 and 3 336 shares to financial year 2016. All shares were transferred from treasury shares and were transferred directly to the ownership of the recipient.

30 Off-balance sheet transactions, contingent liabilities

30 Off-balance sheet transactions, contingent liabilities
  12/31/2016 12/31/2015
  in CHF 1 000 in CHF 1 000
Guarantees in favor of third parties 126
Other contingent obligations 2 664 3 216
Contingent liabilities 2 664 3 342

Guarantees in favor of third parties are primarily repurchase guarantees given to leasing companies for fineblanking presses sold. Other contingent obligations comprise funding that has been received and is subject to certain conditions. In the event of a breach of these conditions, there is a risk that these funds or a portion of them will have to be repaid.

In White Plains, NY (USA), a Feintool company owned a property that is contaminated with tetrachloroethylene (PERC). Feintool has joined the state-controlled Brownfield Cleanup Program. This program is intended to ensure the property is cleaned up. At present, Feintool has allowed provisions totaling roughly kCHF 398 (previous year kCHF 482) in its balance sheet for this remediation work. According to the information currently available, the White Plains cleanup will have no significant effect on the Group's financial position, operating results or cash flows.

In Germany, the works councils of a number of Feintool companies have established a Group works council. Feintool disputes the basis for establishing this body. The Weiden (Germany) labor court agreed with Feintool's position in full in the first and second instance. The Works Council of one company appealed the ruling in federal court. Feintool believes, however, that these proceedings will not have a significant effect on the Group's financial position, operating results or cash flows.

In the US, Feintool delivered defective parts to a customer. The customer is currently demanding compensation from Feintool for costs incurred, which have not yet been substantiated. Feintool is of the opinion, however, that it is not or is only partially responsible for the cause of the defect. Furthermore, any damage to third parties would also be covered by insurance. On the basis of the information available today, this case will not have a significant effect on the Group's financial position, results of operations and cash flows.

At the end of the reporting period, Feintool was not involved in any other court proceedings. However, disputes relating to product liability, promotional activities, labor law and unfair dismissals, anti-trust law, securities trading, sales and marketing practices, health and safety, environmental and tax-related claims, state investigations and copyright law are always a possibility. Such proceedings could result in substantial claims being brought against Feintool that may not be covered by insurance policies. Feintool believes, however, that any such proceedings would not have a significant effect on the Group's financial position, operating results or cash flows.

31 Assets pledged as security for own liabilities

31 Assets pledged as security for own liabilities
  12/31/2016 12/31/2015
  in CHF 1 000 in CHF 1 000
Real estate 6 613 6 662
Machinery and equipment 34 009 26 851
Assets pledged as security for own liabilities 40 622 33 513

The pledging of the shares of key subsidiaries as collateral for the syndicate agreement means that most of the Group's assets are indirectly pledged.

32 Economic risks

For the global economy going forward, we see risks primarily in changes in energy and commodity prices, growing protectionism and persistently large trade imbalances. The aforementioned factors could result in relatively sharp changes in exchange rates, in particular continuing weakness of the euro, and a further slowdown in global economic growth. The scenarios described could give rise to severe adverse effects for Feintool.

Management of financial risks

Financial risk management is based on the directives approved by the Board of Directors and Group Management. The principles of risk management and the processes applied are reviewed on a regular basis in order to address changes in the market environment and in Feintool's activities.

Besides standards for general financial risk management, these directives include standards for specific aspects of liquidity, interest rate, exchange rate and default risk management, the use of derivative financial instruments, capital procurement and the policy on investing surplus liquidity. Capital procurement within the Group is mostly undertaken on a centralized basis.

Liquidity risk

Liquidity risk denotes the risk that the Feintool Group may at some point in the future be unable to meet its regular payment obligations on time and in full. Feintool must ensure that the Group is able to meet its payment obligations at all times. This will be the case if sufficient funds can be generated by the cash flow from operating activities or if the necessary financial resources can be raised on the financial markets or from banking institutions. Feintool Group's management considers an operating liquidity reserve equivalent to one month's costs of the Group (approx. CHF 25 million) to be adequate. This liquidity reserve can also be secured through unused credit lines. Management receives regular reports on the Group's present and anticipated liquidity status, giving it an overview of the liquidity situation.

Feintool has a promissory note in the amount of EUR 65 million (previous year EUR 0). The loan is divided into three tranches with different maturities:

EUR 25 million, term of 5 years, fixed interest rate of 0.90 % 

EUR 25 million, term of 7 years, fixed interest rate of 1.10 % 

EUR 15 million, term of 10 years, fixed interest rate of 1.66 %

An equity ratio of at least 25% must be maintained as a material covenant to be complied with.

Feintool has loan agreements with various banks. These contain standard covenants, particularly

  • equity ratio > 30 %
  • net senior debt / EBITDA < 3.0 x

As at December 31, 2011, Feintool had CHF 25 Mio.(previous year CHF 80 Mio.) in unused, confirmed credit lines at the bank. Were the Group unable to meet these covenants, the banks would have the right to terminate the loans at short notice. As at December 31, 2016, all covenants had been met. Feintool is currently negotiating an increase/extension of the syndicate credit with various banks.

Financial liabilities – carrying amounts and cash outflows in CHF 1 000 Carrying amounts Total incl. interest Due within 1 year Due within 3 years Due within 5 years Due in more than 5 years Total
12/31/2016              
Liabilities 1) 63 866 63 866 63 866       63 866
Accrued expenses and deferred income 2) 21 425 21 425 21 425       21 425
Current liabilities to banks 5 853 5 853 5 853       5 853
Lease liabilities 26 445 27 019 7 696 13 460 5 863 27 019
Other liabilities to banks 76 626 81 552 2 370 3 413 31 167 44 602 81 552
Total 194 215 199 715 101 210 16 873 37 030 44 602 199 715
               
Foreign exchange futures 3)              
Cash inflows 135 135 135 135
Cash outflows 105 105 105 105
               
12/31/2015              
Liabilities 54 243 54 243 54 243       54 243
Accrued expenses and deferred income 19 072 19 072 19 072       19 072
Current liabilities to banks 15 660 15 660 15 660       15 660
Lease liabilities 19 776 20 430 7 415 10 070 2 945 20 430
Other liabilities to banks/bonds 7 170 7 508 3 143 3 188 599 578 7 508
Total 115 921 116 913 99 533 13 258 3 544 578 116 913
               
Foreign exchange futures 3)              
Cash inflows 36 36 36 36
Cash outflows 141 141 141 141
               
Interest rate swap 4)              
Cash inflows
Cash outflows 38 38 38 38

1)Excluding social security obligations, advance payments from third parties and outstanding VAT obligations.

2)Excluding accruals for salary, bonus and overtime.

3)As at December 31, 2016, the contractual values of the forward exchange deals amounted to kCHF 19 563 (previous year kCHF 16 171).

4)The contractual values of the interest rate swaps amounted to kCHF 554 in the previous year.

Interest rate risk

Interest rate risk can have a negative impact on the Group's earnings as a result of higher interest rates on borrowings or lower interest rates on assets. Furthermore, changes in interest rates can affect the fair value of underlying financial instruments. Depending on the expected trend in interest rates, Feintool obtains financing at either fixed or variable rates. There are currently financial liabilities from the promissory note loan due to fixed interest payments, from bank loans where half have fixed rates and half adjustable rates, and from lease liabilities with fixed rates, fixed terms and running amortization. Interest rate management is mostly undertaken on a centralized basis so as to limit the impact of interest rate changes on net financial income/finance costs.

A 0.5 % increase in the interest rate would adversely affect pretax profits by kCHF 63.

Exchange rate risk

Owing to its geographical diversification, Feintool is exposed to exchange rate risk particularly in relation to the euro, US dollar and Japanese yen. The Chinese currency – the yuan – is increasingly important. Changes in exchange rates can affect the fair value of existing financial instruments and in particular the expected future cash flows. As far as possible, the Group uses natural hedges in order to offset the impact of exchange rate fluctuations. It seeks to ensure that costs are incurred in the same currency as the resulting income. The resulting surpluses (euro in particular) and requirements (Swiss franc in particular) at Group level are coordinated centrally in the various currencies. The net position of the most important foreign currencies is hedged over a period of usually six to twelve months, as required.

The Feintool Group's exchange rate risk is calculated by way of the following sensitivity analysis. The table shows the impact on total earnings and equity if foreign currencies were to appreciate by 5 % versus the Swiss franc and simultaneously all other variables were to remain the same.

  2016 2015
Sensitivity analysis exchange rate risk in CHF 1 000 in CHF 1 000
EUR – Comprehensive Incom -1 462 -1 053
USD – Comprehensive Income -473 -189
Equity -553 -1 100

Other market risks

The fair value of financial instruments may change as a result of exchange rates, interest rates or changes in credit ratings, and may therefore affect the Group's financial position and earnings. Feintool seeks to minimize the net effect of market risks through a balanced financing and asset structure.

Derivative financial instruments

Derivative financial instruments are used to minimize existing interest rate or exchange rate risks. The positive and negative fair values in the Notes show current market values. The contract volumes also shown indicate the extent of the exposure to derivatives.

Capital structure

In terms of capital management, the Group's objective is to ensure that the business has the financial means necessary to continue as a going concern, and to provide the resources required to achieve the Group's objectives so that added value can be generated for shareholders and other stakeholders and a cost-effective, low-risk capital structure can be maintained. Among the criteria used by the Group to monitor its capital structure are the equity ratio and net financial liabilities. In addition, it monitors the main covenants (equity, senior net debt/EBITDA) under the syndicated loan agreement.

The equity ratio is calculated as the ratio of equity to total assets. Net financial liabilities consist of current and non-current interest-bearing liabilities less cash and cash equivalents.

The Group's aims for an equity ratio of at least 40 % and for a net-debt/EBITDA ratio of less than 1. Comments on the aforementioned ratios are provided in the Financial Review. In terms of dividends policy, Feintool aims to pay shareholders approximately 30 % of annual profit in the form of a dividend.

Credit risk

Feintool's credit risk is the fair value of the recognized financial assets with the exception of financial guarantee contracts. In some instances, Feintool has provided guarantees to financial institutions in relation to press sales; these amounted to kCHF 0 as at December 31, 2016 (previous year kCHF 126). In this case, the guaranteed amount represents the credit risk, with Feintool retaining the press sold at the time in the event of a warranty being taken up.

Default risk

Default risk is the risk that a counterparty will be unable to meet its liabilities to the Group companies. By avoiding cluster risk and concentrating financial investments among first-class counterparties, it should be possible to avoid extensive credit default risk. The automobile sector is the focal point of Feintool's operations. By definition, this market segment involves a certain risk for Feintool's operations. As far as normal customer credit balances are concerned, outstanding receivables are constantly monitored as part of the process of regular reporting by the Group companies to Head Office. As at December 31, 2016, the overall default risk amounts to kCHF 169 634 (previous year kCHF 108 373). Feintool generates more than 17.1 % (previous year 16.4%) of consolidated sales from one customer. Income is generated in all segments. With the other customers, the share is less than 11.5 % (previous year 8.0 %) in each case.

The Feintool Group banks exclusively with renowned national and international institutions that have a minimum rating of BBB. It specifies the type of transactions that the subsidiary companies may conduct with the banks.

33 Financial instruments

33 Financial instruments
33.1 Financial assets in CHF 1 000 Cash and cash equivalents Prepaid expenses and accrued income 1) Receivables Financial assets Total
Cash and cash equivalents 92 752 92 752
Financial assets at fair value through profit and loss held for trading 135 135
Loans and receivables 2 016 73 139 1 592 76 747
Carrying amounts as at 12/31/2016 92 752 2 151 73 139 1 592 169 634
           
Cash and cash equivalents 31 550 31 550
Financial assets at fair value through profit and loss held for trading 36 36
Loans and receivables 2 249 71 679 2 859 76 787
Carrying amounts as at 12/31/2015 31 550 2 285 71 679 2 859 108 373
33.2 Financial liabilities in CHF 1 000 Trade payables Accrued expenses and deferred income 2) Current financial liabilities Non-current financial liabilities Total
Financial liabilities held for trading
Other financial liabilities 63 866 21 425 15 919 93 005 194 215
Carrying amounts as at 12/31/2016 63 866 21 425 15 919 93 005 194 215
           
Financial liabilities held for trading 179 179
Other financial liabilities 54 243 18 893 26 216 16 390 115 742
Carrying amounts as at 12/31/2015 54 243 19 072 26 216 16 390 115 921

The carrying amounts do not differ significantly from the fair values.

1)Excluding accruals for commitment fees, rental agreements and prepaid insurance premiums

2)Excluding accruals for salary, bonus and overtime

33.3 Fair value hierarchy

Feintool has measured financial instruments at fair value and uses the following hierarchy to determine fair value.

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices)

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Feintool holds only financial instruments in Level 2 amounting to kCHF 30 net (previous year kCHF -143).

33.4 Classification of financial income/financial expenses in CHF 1 000 Cash and cash equivalents Held for trading Loans and receivables Other financial liabilities Total
Carrying amounts as at 12/31/2016 92 752 30 76 747 194 215  
Interest income/expenses 124 -2 829 -2 705
Other financial income/finance expenses -696 -428 188 -936
Change in valuation allowances on customer receivables and bad debt losses -539 -539
Total net gain/loss 2016 -696 -843 -2 641 -4 180
           
Carrying amounts as at 12/31/2015 31 550 -143 76 787 115 742  
Interest income/expenses 193 -2 675 -2 482
Other financial income/finance expenses -34 -1 227 -1 261
Change in valuation allowances on customer receivables and bad debt losses 372 372
Total net gain/loss 2015 -34 -662 -2 675 -3 371
    Fair values  
33.5 Derivative financial instruments outstanding in CHF 1 000 positive negative Contract volumes
Futures contracts 135 105 19 563
Currency instruments 135 105 19 563
       
Total derivative financial instruments as at 12/31/2016 135 105 19 563
       
Futures contracts 36 141 16 171
Currency instruments 36 141 16 171
       
Interest rate swaps 38 554
Interest rate instruments 38 554
Total derivative financial instruments as at 12/31/2015 36 179 16 725

Currency instruments primarily relate to the hedging of foreign-currency risks in euros. The life of the foreign exchange futures is a few months.

34 Related parties

34.1 Compensation paid to members of the Board of Directors and Group Management

Levels of compensation paid to the Board of Directors and Group Management are defined by the Nomination and Compensation Committee and approved by the full Board of Directors. Total compensation (excluding tax-allowable expenses), specifically fees, salaries, credits, bonuses and benefits in kind agreed during the financial year and paid directly or indirectly to the members of the Board of Directors and Group Management, amounted to kCHF 2 976 (previous year kCHF 2 829).

  2016 2015
  in CHF 1 000 in CHF 1 000
Pay (including cash bonuses), fees 1) 1 865 1 837
Contributions to pension plans 391 408
Share-based payment 2) 720 584
Total 2 976 2 829

1)Incl. benefits in kind

2)For the Chairman of the Board of Directors, allocation of a predefined number of shares. The shares are locked in for five years. The valuation corresponds to the price at the time of allocation. For the 2016 financial year, the shares were transferred on January 3, 2017. Group Management is entitled to a predefined amount in Swiss francs. Remuneration is in the form of shares. The number of shares depends on the average price in October/November. The shares have a staggered lock-in period of 1-4 years. Disbursement took place in December.

  2016 2015
34.2 Other related parties in CHF 1 000 in CHF 1 000
Balance Sheet    
Trade receivables 1) 59 58
Current liabilities 2) 65
Passive loan 2) 9 178
     
Income Statement    
Net sales 1) 511 413
Personnel expenses 2) 65
Interest expense 2) 113 606

1)Transactions with Muhr und Bender KG or its subsidiaries

2)Transactions with Franke Artemis Group

35 Major shareholders

35 Major shareholders
    12/31/2016 12/31/2015
  Date of notification Number Share of capital Number Share of capital
Artemis Beteiligungen I AG and Michael Pieper 09/30/2014 2 245 949 50.32 % 2 245 949 50.32 %
Muhr und Bender KG and Dr. Thomas Muhr 1) 11/18/2014 616 500 13.81 % 616 500 13.81 %
Geocent AG 07/15/2013 400 285 8.97 % 400 285 8.97 %

1)Held by a subsidiary of Muhr und Bender KG and Dr. Thomas Muhr Beteiligungs AG.

36 Events after the balance sheet date

Feintool signed an agreement for the acquisition of the Chinese forming plant "Schuler (Tianjin) Metal Forming Technology Center Co., Ltd." from the German Schuler Group on February 10, 2017. It should be completed at the end of March 2017.

37 Proposal by the Board of Directors

The Board of Directors will propose to the Annual General Meeting that a dividend of CHF 2.00 per registered share be paid (previous year CHF 1.50 per share) from the capital reserves in respect of the 2016 financial year. This corresponds to a maximum total dividend distribution of kCHF 8 926 (previous year kCHF 6 694). The amount of the dividend distribution depends on the amount of the dividend-eligible shares at the time of the distribution. No dividends will be distributed on treasury shares.

38 Approval of the consolidated financial statements

The consolidated financial statements were authorized for issue by the Board of Directors on March 6, 2017 and will be submitted to the Annual General Meeting for approval on April 25, 2017.