ELETTRONICA SICULA
14 March 1989.
1have the honour Io transmit to Your Excellency herewith a copy of a letter
dated 13 March 1989 from the Deputy-Agent of the United States in the case
concerning Elettronica Sicula S.P.A. (ELSI), setting out the comments of the
United States on the written replies of Italy to questions put by Members of the
Chamber during the oral proceedings in that case.
14April 1989.
1have the honour to refer Io the request made by the President of the Chamber
formed Io deal with the case concerning ElertronicaSiculaS.P.A. (ELSI), at the
close of the las1 hearing in that case (2 March 1989, p. 383, supra), that the
Agents of the Parties should "remain at the disposal of the Charnber for any
further assistance it may require". Pursuant to this request, and with reference
to Article 49 of the Statute of the Court, President Ruda, in his individual
capacity as a member of the Chamher, wishes to put the following question to
the Agent of the United States:
"The minutes of the meeting of shareholders of ELSI held on 28 March
1968,filedin English translation as Annex 32 Io the United States Memonal,
refer to a numher of documents as being 'enclosed hereto' under identifying
letters, but those documents do not fom part of the Annex.
1. Are the 'financial statements (Balance Sheet and Revenue Statement)'
referred to uuder identifying letter C identical with tbose attached to the Co-
Agent's letter to the Registrar of 17 Fehruary 1989?If not, can a copy and
(if appropriate) translation of these be supplied, please?
2. Can copies and translations of the other documents (identifying letters
A, B, D and E) be supplied, please?"
1am transmittinga copy of this letter to the Agent of Italy for his information.
92. m~ DEPUTY-AGENT OF THE UNITED STA~ OF AMERICA
TO THE REGISTRAR
19 May 1989
In response to your letter of 14 April 1989, enclosed are twenty copies of
Attachments A through EL Io Annen 32 to the United States Mernorial in the
case concerning ElertronicaSicula S.P.A. (ELSI) and an original and nineteen
copies of certified English translations. 1 certify that the enclosed documents
'In ItalianNot reproduced. CORRESPONDENCE 479
constitute true copies of documents adduced in support of the contentions con-
tained in the United States pleadings.
In response to President ~uda's questions:
1. The financial statements referred to under identifying letter C to Annex 32
are enclosed. They are not identical in form with those attached to the United
States letter of 17February 1989.However, thecontent of the financialstatements
referred to under identifying letter C is in agreement with and is the source of
the balances per books reRected in the Coopers & Lybrand Report on the
Financial Statements of Raytheon-ELSI, S.P.A. for the period ended 30 Septem-
ber 1967that was attached to the 17 February letter.
2. Copies and translations of Attachments A, B,D and E are enclosed. 1note
that reference to "trimestre" in ltalian (translated literally as "trimester") at
Attachment D, p. 2' is synonymous with "quarter" for accounting purposes.
Reference to "legge del terzo" in the ltalian (translated literally as "law of the
third party") al Attachment D, p. 3' appears to be a reference to the so-called
"30% law" which required 30 per cent of government agency supply and job
contracts to bemade from companies located in the Mezzogiorno region.
The documents requested by the Court were not in United States Government
files. Accordingly, upon receipt of your letter, the United States fonvarded the
request 10the Raytheon Company which requested a searchof the filesof Studio
Legale Bisconti, Raytheon's counselin Rome. As soon as the documents were
identified. thev were sent bv courier to the United States and certified Enelish
translaiions mire madc. I hope tliat ihc unavoidable dclay in locating and irins-
Iaiing the requesied documents hÿr noi caused the Court any unnecesur) incon-
venience.
Enclosures: As stated.
(Translation)
ENCLOSURE [AI
Reportof theBoardof Directorsio ihe Regularand Special StockholderM s'eeting
Dear Stockholders:
We wish first of al1 to inform you that within a few days after the Board's
drafting of this report and hefore the current meeting, at which this report is
submitted 10 you, the increase in stock capital from 1,500,000,000 lire to
4,000,000,000 lire, decidedon by the Special Meeting of March 31, 1967,will be
eiïectuated on the formal levelaswell,bymeans of suhscription and total payment
for 2.500.000 ncwlv issued shares: namelv. 1.250.000 common shares marked
~ ~, ~ - - ~~~ ~ ~ ~
with ihe ietter "A" and 1,250,000preferr<d share; marked with the letter "B.
The defacto eiïectuation willhe wrformed by means of payment of 2.5 thousand
million-lire on the oart of the ~avtheon Comoanv oarlner before the aoorova..
of the fiscal year whch ended on September 36, 156?.
Before explaining to you the economic and asset-related results of the balance
'P. 483, injro.
'See 1C.J Reporrs 1989,p. 15.480 ELETTRONICA SICULA
sheet made out on September 30, 1967,we wish to briefly tell about the main
events that marked OUI operations.
During the fiscalyear, the executive organs decided:
- to carry out new corporate policieswith a view to reorganizing the company's
structure more effectivelyand increasing the efficiencyof its means of pro-
duction;
- to study the introduction of new products to augment sales;
- to put in effecta cost-reduction program, particularly in the area of overhead
COStS.
The benefitsof the programs described above, which were realized only in part
in the past fiscal year, should produce their effectsin future operations.
The fiscal year ended with an operating loss of 1.410 thousand million lire,
owing in large part to the heavy impact of financial charges (926.5 million
lire), to the cornpetition's continuous pressure on selling prices, and ta the
sagging of sales. This operating loss includes writedowns of 573.4 million lire
[Lmil. 573.41.
The total loss for the fiscal year is 2,683,460,080 lire, which includes the
following non-operating items: 1. Shrinkage of inventory (Lmil. 478),
2. Depreciation of inventory (Lmil. 242), 3. Provisions for obsolescence of in-
ventory (Lmil. 192), 4. Returns inwards (Lmil. 214), 5. Inventory clearance
(Lmil. 32), 6. Set-asidesfor accmed liability (Lmil. 84), 7.Other items (Lmil. 32).
Pursuant to Art. 2446 of the Civil Code, it is necessary to convene the Special
Meeting to take the appropriate measures. In this Meeting, and in the relevant
Report of the Board of Directors, the events and causes will be explained which
defined the cunent statement of assets and liabilities.
The enclosed statement of assets and liabilities shows total assets on 9-30-1967
of 22,041,757,580lire.
The most significant changes were recorded:
in Assets
- from a decrease in plant by Lmil. 507.9,
pnmarily owing to the wnteoff of fully depreciated items;
- from au increase in the inventory on hand and the products in
process, by Lmil. 490;
- from a decrease in debt by Lmil. 489.1.
in Liabililies
- from a decrease in writedown reserve by Lmil. 668.9
(see note regarding decrease in plant, above);
- from an increase in various reserves hy Lmil. 972.1. ;
- from a decrease in notes payable hy Lmil. 733.1 ;
- from a decrease in mortgage loans hy Lmil. 439.4;
- from an increase in debts owed to banks, suppliers, and
accrued liability by Lmil. 550.6.
For the Board of Directors.
(Signed)John D. CLARE. CORRESPONDENCE
(Translation)
Report of the BoardofAudifors on theBalanceSheerMade Out on
September30,1967
Dear Stockholders:
Weconfirm to you, first of all, that the increase in stock capital decided on hy
the Special Meeting of March 31, 1967,has been effectuated. On February 24,
1968, in fact, 2,500,000 newly issued shares were subscribed and paid for at a
total facevalue of L. 2,500,000,000 [lire].
The balance sheet made out on Septemher 30, 1967,which the Board of Direc-
tors submits for your examination and deliheration, can he summarized in the
followingfigures:
- Assets
- Liabilities
- Loss for the fiscalyear
- The suspense accounts are balanced by
The above result findsconfirmation in the economic account, which shows:
- Costs and opening inventory L. 15,870,584,079
- Revenue and finalinventory L. 13,187,123,999
- Net loss L. 2,683,460,080
We attest that the values recorded in the balance sheet are in conformity with
the results of the reeularlv maintained account books. The valuations used in the
balancc shrei u,erc<;hi~i&dinconformity uith ihe lega:rrgulations, in p~rticular.
ue cdn inforni )ou thai the xccrued items and ihe dudils u.cre idlculatcd in
complidnceu,ith ihs provisions conmincd in Art. 2426 <ifthe CivilCode
The depr~i3iions ucre pcrformed pur\uant i(1the legal rcgulations, an<:the
pcr,unncl oIJ-rgc pension fond co\crs ihc ioial owed hy the Company undcr ihis
heading.
Your Board of Directors has explained to you the changes that occurred in the
Company's assets in connection with activity performed in the past fiscal year,
and therefore, in accordance with Art. 2432,par. 2 of the Civil Code, we express
an opinion favorable to the approval of the present balance sheet,as il ispresented
to you.
The Board of Auditors,
[Signature,illegible.]
[Signature,illegible.]
(Translation)
BalanceSheetas of9/30/1967
Statement of AssersandLiabilities
Assets
Land and buildings
Plant, machinery, and equipment Furniture, fixtures,and motor vehicles
Construction in progress
Studies in progres -
Items to be amortized
Materials and work in progress
Materials in testing
Cash, banks, and postal checkingaccount
Notes in hand
lnvestments and holdings
Credits
Accrued assets and deferred charges
Loss for the fiscalyear
Total
Order accounts
Liabiliries
Stock capital:
- Shares of group A
- Shares of group B
Partners/capital increase account
Ordinarv reserve
~c\cri,c.for dcprr.sixti<)n
Kcscrvcfor cmpli)ycesc\,er3n:e pay
Rcservefor uriiedo\rn of crcdit~
Taxed reserve
Notes payable
Mortgage loans
Miscellaneous debts
Dcbts oued IO the parent Company
Accrurd li;ibilitics
Total
Order accounts
Cosrs
Opening inventory
Purchases
Personnel costs
Miscellaneouscosts
Consumption
Amount of depreciation
Set-asides or costs made good
Salesexpenses
Finance charges
Miscellaneouscharges
Direct taxes
Total
[Total costs: CORRESPONDENCE 483
Revenue
Sales
Self-oroduced olant and studies
~inàncin~recApts
Miscellaneousreceipts
Final inventory
Loss for the fiscal year
Total
We declare that the above balance sheet isin conformity with the facts.
The President,
(Signed)John D. CLARE. The Managing Director,
(Signed) Ing. A. PROFUMO.
The Board of Auditors,
Fhree signatures, illegible.]
[Dl
March 18, 1968.
Reportof theBoardof Directorsto theRegularand Special StockholderM s'eeting
of March 28, 1968
Special Section
Dear Stockholders:
Wehave convened you in a specialmeetingto deliberate on the following
AGENDA
1. Losses of the fiscal year whicli ended on September 30, 1967,and relevant
measures taken.
2. Any other business.
The fiscal year ended with an operating loss of 1.410 thousand million lire,
owing in large part to the impact of financial charges (926.5 million lire), to the
competition's continuous pressure on selling prices, and to the sagging of sales.
The total loss for the fiscalyear is 2,683,460,080lire, which includes the follow-
ing non-operating items: 1. Shrinkage of inventory (Lmil. 478 [million lire]),
2. Depreciation of inventory (Lmil. 242), 3. Provisions for obsolescence of in-
ventory (Lmil. 192), 4. Returns inwards (Lmil. 214), 5. Inventory clearance
(Lmil. 32), 6. Set-asidesfor accrued liability (Lmil. 84), 7. Other items (Lmil. 32).
Pursuant to Art. 2446 of the Civil Code, it was necessary to convene the Special
Meeting to take the appropriate measures.
The rate of loss for the first quarter of the 1967-68fiscalyear, which closed on
December 31, 1967,continued to he higb despite some signs of improvement in
the company's trading position, owing mainly to the seasonal demand for televi-
sion tubes. The losses for the first trimester of the current fiscal vear amount to
ahout 41 1millionlire Ilùue\cr. ihcrc is jolid reiisùnfor hclicvingih;it ihc raie of
Iosi since Dcccmber 31, 1967,hecarnc cvcn grcaicr hecïusc of inicrrupiions iif
corporate activitiesowing to earthquakes and intermittent strikes484 ELETTRONICA SICULA
Before reviewingthe causes of the worsening in the company's situation since
the end of the fiscalvear which closed on Seplember 30. 1967.it is im~ortant to
rccapitulatc the corp~r~tc policies and the keasures taken by the ~oÜrddunng
the pas1fisc31)car in conformity with the interpretation given hy the Board itsell
to the wishesof the stockholders. In carlv 1967.the Board'scorporate riolicy waj
initiated along the linesof the followingmeasuris taken hy the siockhokiers about
a year ago:
1. Acquisition from La Centrale Finanziaria Generale of the remaining 20 per
cent of the ELSI block of stock for 300 million lire. This gave the Board the
control necessary for the purpose of instituting appropriatë programs for irn-
proving the situation of Raytheon-ELSI and for seeking a strong Italian
partner.
2. Addition of a further 2.5 thousand million lire to the company'scapital.
3. Contribution of a further 1.5 thousand million lire in bank sureties necessary
to provide the company with the means with which to continue operating.
4. Deferral of collection by the Raytheon Company of sums owed hy Raytheon-
ELSI for previous salesand servicesrendered to il, whichstillamount to about
1.l thousand millionlire.
After these measures taken by the stockholders, the Board inaugurated a
recoveryprogram whichcan k summarized as follows:
(a) strengthening of ELSI's management witha skilledgroup of persons chosen
from among the staff for the Raytheon Company;
(6) a search for new products for ELSI, particularly via attempts Io have the
Government apply the so-called "law of the third party" in ELSI's favor,
and also via obtainine new oroducts from Ravtheon in Amenca:
(c) a search for an influential italian partner, preferahly among the companies
with governmental participation, in a position not only to make a financial
contribution to ELSI, hutalso to introduce new ~roducts in10the Company
from Italian sources, to help it obtain the knefits that are due to companiei
of the Mezzogiorno [Southern Italy, including Sicily],and finally to ensure
ELSI'sfuture within the framework of the national five-yearplan.
The last twelve months have seen a significant operating advance, but il has
not ken possible to achieve the inclusion of a suitahle Italian partner in the
company, just as it has not been possible to obtain new products and markets
from public-sector sources. All the activity performed to obtain the aforesaid
advance and the aforesaid oroducts and markets has ken documented in detail
elsewhere.Three reports wèrepresented to the Ente Siciliano per la Prodnzione
Industriale [Sicilian Agency for Industrial Production]; documented proposals
were made to the Central Government, emphasizing the need to obtain new
oroducts and identifvine these nroducts: substantial imorovements were also oh-
iained in the operatiig ;csults. 'rhe encrietic ncgoti3tini uork sonducted with sll
the kc) minibtersand niinistricsconsemed uith the question, on buth the central
and the regional government levels,has not producedany result up to now. It has
ken constanllv emnhasized in al1our reoorts and durine al1Ourneeotiations that
a strong and s;iisbic Itûliün partner is i~dispensûblcfo;an n.onorkcally hc~lth)
long-lem future for Rayrhcon-FISI. In the currcnt circumsiancrs. an electronics
company entirely owned by foreigners cannot easily compete in a market al1but
dominated hy orders andjobs that come from the public sector.
During the first months of this year, some events took place which caused a
rapid deterioration in the company's position. The earthquakes in Sicily last
January caused disruptions in production and negatively influencedno1only the
loss position but also the company's liquidity.These were followed hy strikes of CORRESPONDENCE 485
an intermittent nature in the cathode-ray tube division, which produced negative
eiïects laraer than what the loss of workine hours would suerest. This was inevi-
tahlc ongone consider\ ihc completcl) auComatcdmanu~~c&ng proccss for this
Iincof pri)ducis Iiu,a\ neccisary Io closc ihccathodc-ray tube production dcpart-
ment in order to negotiate conditions more in keeping with industrial and Com-
mercial needs with the unions. It also became necessarv to announce the olan to ~ ~
reduce the surf hy ahoui 175.Thcse c\ents re,ulicd in a lot31strike of the factory
hcginningon .March4 of thi~ye:ir, which has coniinued uithoui inicrrupiion and
shows no signs of king resolved in the immediate future. These evënts have
seriouslyand perhaps irrevocahly damaged the company'smarket position. There
have heen other events of a critical nature. Wewere informed hy the President of
the Sicilian Region that we did no1 succeed in ohtaining the approval of the
Central Govemment for an electronics olan in Sicilv. and that it was also not~ ~~~~.
possihlc to ohidin the pariicipation of {RI [l,~ituio'~er la Kicosirurione Indu-
siriale .- Instiiuic for ihc Rcconsiruction of Indusiry] in Rligtheon-ELSI. At ihc
same time, the stockholders, once informed of the losses of the oast fiscal vear.
and ihcrefore of the need for a rcc.ipit~liwiion or wriicdown,'have fo&ally
somrnunicdicd their iirm iiitcni noi IO coninhuic further financidlinvcstmenis to
Raytheon-ELSI.
Without a restructurine. "f comoanv. .tivities in coniunction with a suitahle ~~
partner, as war coniinuall) cmpliasi~ed dunng ilic Iiisi iwelsc rnonihr, wiih a
normal rate oi opcraiing losses of about 120 million Iirc per rnonih. with ihe
present strike situation and the resulting harm to the company's market position,
the Board of Directors is of the ooinion that no1onlv is il no1nossihle to recover
the losses in the course of the cirrent fiscal year, but it woAd not be prudent
to continue corporate activities hy means of a simple writedown of corporate
capital.
These circumstances, therefore, constrained the Board to adopt unanimously
the followingresolution al the Board meetingof March 16, 1968:
"After extensive discussion, the Board unanimously resolves upon the
cessation of corporate activities, 10he carried out in the followingways:
1. the cessation of nroduction willbe effectuatedimmediatelv:
2. the cessation ofCommercial activities and the dismissal if kmployeeswill
be effectuated on March 29, 1968.
The Partners' Meeting called for March 28, 1968,will formally make the
resolutions needed.
The Board directs the Maniiging Dircctors io cxplain ihe company's siiua-
[ion and the c\*cniswhich have Icd to the Board's reroluiions io the unions
and the representatives of the employees and to al1 the competent au-
thorities."
Therefore, the Board suhmits this resolution to theattention of thestockholders
for their ratification, and to receive any other directive which the stockholders
may consider suitahle to the circnmstances of the case.
The Board of Directors,486 ELETTRONICASlCULA
(Translorion)
[El
Report ofrhe Board of Auditors to the SpecialMeeting of Morch 28. 1968
[Translator's note: "Fehruary" is typewritten and crossed out; "March" is
written in hy hand.]
Dear Stockholders:
As c.in hcscenliom the balance jheci ofSeptcmher 30, 1967,which UAS alrc~dy
prcrentcd for your 3ppro!aI, the tissal )e3r closcd with3 loss of ?.683.460,0b0
lire. which cxccedi one third of the corporatc capital. and thcrcfore. in accordancc
with Art. 2446 of the Civil Code. vou havebeen c~ ~ ~ed in a soecial meetinu to
..
take the appropnate mcasurcs.
The Board of Dircciors has erplained to you ihc cau5esivhich broughi about
the aforcaid loss.and has 3150informed \ou thai \vithout neu iinancisl contrihu-
tions and withoui an expansion of markets, the loss itsclf not only cannot bc
recovcrcd dunng the currciir fiscal yerir, hut is dcstinrJ tu inîn-JR-.
Moreovrr, sincc the conditions indicarrd for sutvine ihe Companv's crisis ha\c
no1come about, the Board of Directors has decidedGpon the cessaiion of corpo-
rate activities, and submits this decision for your approval.
The Board of Auditors
93. THEDEPUTY-REGISTRA TRTHEDEPUN-AGENT OFTHE UNITED STATES
OF AMERlCA
26 May 1989
1have the honour to acknowledee recei~t of the letter which vou addressed10
the Reustrar on 19May 1989iogeiher wiih tucnty copier of yo;r Covrrnment's
responsr Io thc questions pui by ihc Presidcnt of the Chamher ai the closeof the
heann~ in the caseconccrnine t:lelrronicu SiculS.D..~ .ELSI)
CooTesof the letter and ik enclosure have heei trahsmitted to the Aeent of
1taly,'uho hasfurthcr ken informed, uith referenccio Article 72of the fulcs of
Court. th~t any commcnts he may wish to mdkc should bc rc~ei\,cdin the Rcgistry
not later than 9 June 1989.
94. THEREGISTRAR m me AGENT OF THE UNITED STATESOF AMERICA
3 July 1989.
1 have the honour to infom Your Excellencv that the Chamber of the Court
constituted in the case concerning Eletironico iicuio S.P.A. (ELSI) will hold a
public sitting al the PeacePalaceat 10.00am. on Thursday, 20 July 1989,for the
purpose of delivering ils Judgment
Documents présentés par les Etats-Unis d'Amérique en réponse à une question posée par le Président, M. Ruda