Intertek Group
Annual Report 1998

Plain-text annual report

SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Intertek Testing Services Ltd · 20-F · For 12/31/98 Filed On 3/26/99 · SEC File 33-06200-01 · Accession Number 1047469-99-11592 As Of Filer Filing On/For/As Docs:Pgs Issuer Agent 3/26/99 Intertek Testing Services Ltd 20-F 12/31/98 1:123 Merrill Corp/New/- FA Annual Report of a Foreign Private Issuer · Form 20-F Filing Table of Contents Document/Exhibit Description Pages Size 1: 20-F Annual Report of a Foreign Private Issuer 123 712K Page (sequential) (alphabetic) Top Document Table of Contents Item 17 / /. Item 18 /X/ 1 1st Page " 2 Item 7 5 Item 1: Description of Business 7 Caleb Brett 11 Item 2: Description of Property 12 Item 3: Legal Proceedings 14 Item 4: Control of Registrants " Ordinary Shares 15 Warrants " Shareholders' Agreement 16 Item 5: Nature of Trading Market " Item 6: Exchange Controls and Other Limitations Affecting Security Holders 17 Item 7:. Taxation " Market Discount 21 Item 8: Selected Financial Data 22 Item 8:. Selected Financial Data (Continued) 25 Item 9: Management's Discussion and Analysis of Financial Conditions and Results of Operations 42 Item 9A: Quantitative and Qualitative Disclosures about | Market Risk 46 Item 10: Directors and Officers of Registrant 48 Item 11: Compensation of Directors and Officers 49 Item 12: Options to Purchase Securities from Registrant or Subsidiaries 50 Item 13: Interest of Management in Certain Transactions 51 Item 14: Description of Securities to be Registered " Item 15: Defaults upon Senior Securities Alternative Formats (RTF, XML, et al.) Caleb Brett Changes in Securities and Changes in Security for Registered Securities Compensation of Directors and Officers Control of Registrants Defaults upon Senior Securities Description of Business Description of Property Description of Securities to be Registered Directors and Officers of Registrant Exchange Controls and Other Limitations Affecting Security Holders Financial Statements Financial Statements and Exhibits Interest of Management in Certain Transactions Item 18 /X/ Item 7 Legal Proceedings Management's Discussion and Analysis of Financial Conditions and Results of Operations Market Discount Nature of Trading Market Options to Purchase Securities from Registrant or Subsidiaries Ordinary Shares Predecessor Company Quantitative and Qualitative Disclosures about SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 " Item 16: Changes in Securities and Changes in Security for Registered Securities Item 17: Financial Statements Item 19: Financial Statements and Exhibits " " 57 Predecessor Company " Successor Company Market Risk Selected Financial Data Selected Financial Data (Continued) Shareholders' Agreement Successor Company Taxation Warrants 20-F 1st Page of 123 TOC Top Previous Next Bottom Just 1st As filed with the Securities and Exchange Commission on March 26, 1999 -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------------------------------------------------- FORM 20-F ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission file number 333-6200 INTERTEK TESTING SERVICES LIMITED (Exact name of Registrant as specified in its charter) ENGLAND (Jurisdiction of incorporation or organisation) 25 SAVILE ROW, LONDON, W1X 1AA, ENGLAND (011) 44-171-396-3400 (Address of principal executive office) Securities registered or to be registered pursuant to Section 12(b) of the Act. TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED None N/A -------------------------------------------------------------------------------- Securities registered or to be registered pursuant to Section 12(g) of the Act. None -------------------------------------------------------------------------------- Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. THE REGISTRANT'S GUARANTEES OF $203 MILLION AGGREGATE PRINCIPAL AMOUNT OF 10 1/4% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B ISSUED BY INTERTEK FINANCE PLC ("THE ISSUER"), A SUBSIDIARY OF THE REGISTRANT -------------------------------------------------------------------------------- Indicate the number of outstanding shares of each of the Registrant's classes of capital or common stock as of the close of the period covered by the annual report. 28,434,688 Ordinary `A' Shares of 1p each 5,194,014 Ordinary `B' Shares of 1p each 86,656,531 Zero Coupon Redeemable Preference Shares of Pounds1 each Indicate by check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark which financial statement item the registrant has elected to follow: SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 20-F 2nd Page of 123 TOC 1st Previous Next Bottom Just 2nd Item 17 / / Item 18 /X/ TABLE OF CONTENTS · Enlarge/Download Table Page GENERAL INFORMATION 1 FORWARD-LOOKING STATEMENTS 2 PART I Item 1: Description of Business 3 Item 2: Description of Property 9 Item 3: Legal Proceedings 10 Item 4: Control of Registrants 12 Item 5: Nature of Trading Market 14 Item 6: Exchange Controls and Other Limitations Affecting Security Holders 14 Item 7: Taxation 15 Item 8: Selected Financial Data 19 Item 9: Management's Discussion and Analysis of Financial Conditions and Results of Operations 23 Item 9A: Quantitative and Qualitative Disclosures about Market Risk 40 Item 10: Directors and Officers of Registrant 44 Item 11: Compensation of Directors and Officers 46 Item 12: Options to Purchase Securities from Registrant or Subsidiaries 47 Item 13: Interest of Management in Certain Transactions 48 PART II Item 14: Description of Securities to be Registered 49 PART III Item 15: Defaults upon Senior Securities 49 Item 16: Changes in Securities and Changes in Security for Registered Securities 49 PART IV Item 17: Financial Statements 49 Item 18: Financial Statements 49 Item 19: Financial Statements and Exhibits 49 20-F 3rd Page of 123 TOC 1st Previous Next Bottom Just 3rd GENERAL INFORMATION As used herein, except if the context otherwise requires, the term "Company" refers to Intertek Testing Services Limited and the terms "ITS" or "Group" refer to Intertek Testing Services Limited and its subsidiaries. Unless otherwise specified or unless the context otherwise requires: (1) all references to "pounds sterling" and "pounds" are to the lawful currency of the United Kingdom of Great Britain and Northern Ireland (the "United Kingdom" or the "U.K.") and (2) all references to "dollars" or "$" are to the lawful currency of the United States. The consolidated financial statements have been prepared in pounds sterling. Unless otherwise indicated, financial information has been prepared in conformity with generally accepted accounting principles in the United Kingdom ("U.K. GAAP"), which differs in certain significant respects from generally accepted accounting principles in the United States ("U.S. GAAP"). For a discussion of the most significant relevant differences between U.K. GAAP and U.S. GAAP, see Note 35 to the consolidated financial statements of ITS and its predecessor included elsewhere herein. The following table sets forth, at the periods indicated, certain information regarding the noon buying rate in New York City for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York ("the Noon Buying Rate"), for pounds sterling expressed in U.S. dollars for SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 pounds sterling. On March 12, 1999, the Noon Buying Rate per pound sterling was 1.63. The table below sets forth, for the periods and dates indicated, certain information concerning the Noon Buying Rates for pounds sterling expressed in U.S. dollars per pounds sterling. · Enlarge/Download Table Year ended December 31, High Low Period Average (1) Period End ------------------ ------------------ ------------------- ------------------ 1994 1.64 1.46 1.54 1.57 1995 1.64 1.53 1.58 1.55 1996 1.71 1.49 1.56 1.71 1997 1.71 1.58 1.64 1.65 1998 1.70 1.63 1.66 1.66 1999 (through March 12, 1999) 1.65 1.60 1.63 1.63 (1) The rate was calculated from the average of the Noon Buying Rate for pounds sterling on the last business day of each full month during the period and where the period is less than one full month, the last day of the period. -1- 20-F 4th Page of 123 TOC 1st Previous Next Bottom Just 4th FORWARD-LOOKING STATEMENTS This Report contains forward-looking statements within the meaning of U.S. securities laws. These statements are subject to a number of risks and uncertainties and actual results and events could differ materially from those currently anticipated as reflected in such forward-looking statements. The terms "expect", "should", "will", "may", "anticipate" and similar expressions identify forward-looking statements. Factors which may cause future outcomes to differ from those foreseen in forward-looking statements include, but are not limited to, general economic conditions and business conditions in ITS's markets, customers' acceptance of its services and the actions of competitors. -2- 20-F 5th Page of 123 TOC 1st Previous Next Bottom Just 5th PART I ITEM 1: DESCRIPTION OF BUSINESS GENERAL Intertek Testing Services ("ITS") is a leading international group engaged in the testing, inspection and certification of manufactured goods and commodities. At December 31, 1998, ITS had 223 testing laboratories and 486 inspection offices in 83 countries. ITS is comprised of five divisions, each focusing on the testing, inspection and certification of different manufactured goods and commodities. The five divisions are organised as follows: (1) Consumer Goods: which tests and inspects textiles, fabrics, footwear, toys and consumer products; (2) Conformity Assessment: which tests and certifies electrical and electronic products, building products, heating and ventilation and air conditioning equipment and which also certifies management systems to standards such as ISO 9000; (3) Caleb Brett: which tests and inspects petroleum, chemical and agricultural products; (4) Foreign Trade Supervision ("FTS"): which focuses on inspection work for governments and (5) Minerals: which carries out metals analysis. The Environmental Testing Division ("Environmental"), which is now discontinued, previously focused on the analysis of water, soil and air samples for toxic substances. Overhead costs for the central head office and non-operating holding companies ("Central Costs") are allocated to operating divisions in proportion to their share of revenues. Prior to January 1, 1998, the Quality Systems Division was sub-divided into Consumer Goods and Conformity Assessment. Prior period figures for Quality Systems have been reanalysed to show the approximate allocation between Consumer Goods and Conformity Assessment. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 In a press release dated July 17, 1998, ITS announced its decision to close its Environmental Testing Division. This decision was taken because the returns from this division have been unsatisfactory. In August 1998, ITS Environmental sold its operations in Burlington, Vermont and St. Helens, U.K. and stopped commercial operations at the laboratory in Dallas, U.S. These actions resulted in the discontinuation of business at ITS Environmental. Previously, FTS, Minerals and Environmental Testing were included within Other Divisions. Environmental Testing is now shown as Discontinued Operations, and FTS and Minerals are shown separately. The divisional analyses for prior periods have been restated to allow a meaningful comparison. The following table shows the number of laboratories and offices in each division at December 31, 1998 together with the revenues for each division and their percentage share of total revenues for the year ended December 31, 1998. · Enlarge/Download Table Number of Number of Revenues Sales Revenue laboratories offices Pounds in millions % -- - - -- - - -- ---- - ---- - ---- -- --- --- -- --- --- -- --- --- -- --- --- -- --- - Consumer Goods 29 50 65 18 Conformity Assessment 27 41 85 24 Caleb Brett 143 299 123 34 Foreign Trade Supervision - 63 65 18 Minerals 23 31 16 4 Central - 1 - - -- - - -- - - -- ---- - ---- - ---- -- --- --- -- --- --- -- --- --- -- --- --- -- --- - Total Continuing operations 222 485 354 98 Discontinued operation 1 1 6 2 -- - - -- - - -- ---- - ---- - ---- -- --- --- -- --- --- -- --- --- -- --- --- -- --- - Total 223 486 360 100 -- - - -- - - -- ---- - ---- - ---- -- --- --- -- --- --- -- --- --- -- --- --- -- --- - -3- 20-F 6th Page of 123 TOC 1st Previous Next Bottom Just 6th HISTORY Most of the ITS activities have a long history. For example, Conformity Assessment's U.S. business can trace its origins back to Thomas Edison and the Caleb Brett business was founded in 1885. The Company and certain of its subsidiaries were formed in 1996 in connection with the acquisition (the "Acquisition") of the testing and inspection business of Inchcape plc which was completed in November 1996. The purchase was funded by a combination of debt and equity, with the equity investment made by funds managed by an affiliate of Charterhouse Development Capital Holdings Limited ("Charterhouse"), by other co-investors and by members of management. CONSUMER GOODS ("CG") CG, which trades under the brand name Labtest, is one of the largest international providers of testing and inspection services of textiles, toys and other consumer products. BUSINESS OVERVIEW. The CG division works for clothing retailers in North America and Europe and manufacturers worldwide, testing textiles to ensure that they meet the retailers' specifications regarding sizing, colour retention, resistance to flammability and other standards. Management believes that it is the clear leader in textile testing in Asia. Similarly, CG tests and inspects toys and giftware produced in Asia and other areas. Manufacturers operating in developing countries routinely seek such testing and inspection of consumer goods to assist them in selling their products to developed markets, such as North America and Europe. CG provides value-added consultancy and risk management services. For example, a specialised business unit works closely with McDonald's toy manufacturers and the medical community to improve design and production methods of McDonald's "Happy Meal Toys" to reduce the risk of injury to children. CUSTOMERS. CG's customers are retailers, mainly in North America and Europe and manufacturers mainly in Asia. Customers include retailers such as JC Penney, the GAP and Marks & Spencer. SALES AND MARKETING. CG provides a full range of testing services near the SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 points of manufacture and retailers' buying offices. CG is able to ensure that the goods tested may be sold in all the major markets in the world because it has the safety labels, accreditations and testing capabilities to meet the requirements of the different markets. With its global sales force and network of testing centres, CG benefits from the migration of manufacturing centres from North America and Europe to Asia and other parts of the developing world. For example, ITS's testing laboratory in Turkey offers American and European textile and garment importers a local testing service in the country of production. COMPETITION. CG competitors include ACTS Testing Labs, Inc. (part of Bureau Veritas) - mainly in toys, Merchandise Testing Laboratories (" MTL") - mainly in textiles, and Societe Generale de Surveillance ("SGS") - mainly in inspection. CONFORMITY ASSESSMENT ("CA") CA tests and certifies electrical and electronic products, building products, heating and ventilation and air conditioning equipment. CA also certifies the quality of management systems to standards such as ISO 9000. BUSINESS OVERVIEW. Safety marks owned and issued by this division include: "ETL" (U.S.), "cETL" (Canada), "S" (Sweden) and "WH" (U.S. and Canada). CA is also authorised to apply the "GS" mark (Germany) and the "NOM" mark (Mexico), it has Notified Body status in the European Union ("EU") and it has electro-magnetic compatibility, telephone and other accreditations required for products it tests and certifies. These safety marks are widely relied upon by manufacturers, retailers and consumers to ensure that products conform with the applicable standards. Even when not required by governmental regulation, many manufacturers, partly in response to consumer demand and partly to ensure that products are safe, continue to use ITS's safety marks. For example, the "S" mark, which has not been mandatory in Sweden since 1990, continues to be widely used throughout that country as evidence that a product has met the applicable safety standards. -4- 20-F 7th Page of 123 TOC 1st Previous Next Bottom Just 7th CA provides testing services demanded by industry associations to guard against products which might damage consumer confidence in a particular industry. For example, CA has been nominated by the Air Conditioning and Refrigeration Institute ("ARI") and the Gas Appliance Manufacturers Association in the United States to verify the accuracy of information provided in the yellow "Energy Guide" labels found on many appliances. CA also tests individual manufacturers' products to provide independent competitive performance data which can then be used for marketing. Testing companies currently conduct safety standard and performance evaluation on a wide variety of manufactured goods, including electrical goods, appliances, lighting fixtures, building materials, toys, and telecommunication, electronic and industrial equipment. Manufacturers are sometimes required by law, mainly in North America, to obtain safety or performance certification from independent testing companies, but even when this is not required, industrial users, retailers and distributors often require testing and certification by an independent testing company. Similar forces are driving the growth of assessment and certification of manufacturing processes and systems, primarily to the ISO 9000 standards. Although manufacturers wishing to sell products in Europe can self-certify their products under the "CE" safety mark, they often outsource the supporting tests in order to demonstrate independent verification and to reduce expenses. Retailers and distributors buying the products will sometimes insist on this, however, there can be no guarantee that companies will not increasingly self-certify their products and governmental authorities may allow manufacturers to self-certify more products in the future. In addition, the Group's revenues could be negatively affected if governmental authorities in different jurisdictions further harmonise their standards which will reduce the overall amount of testing work. CUSTOMERS. CA customers include industrial companies such as General Electric, Ericsson, Electrolux, Matsushita and Samsung. CA also has a number of long standing relationships with various industry organisations, such as the ARI, which has been a customer of ITS since 1956. SALES AND MARKETING. CA provides a wide range of testing services near points of manufacture worldwide, and the goods tested by CA may be sold in all the major markets of the world because it has the safety labels and SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 accreditations needed to meet the requirements of these markets. With its global sales force and its network of testing centres, CA benefits from the migration of manufacturing centres from North America and Europe to Asia and other parts of the developing world. For example, telephones manufactured in China for export to the United States are primarily tested in China to ensure compliance with the U.S. Federal Communications Commission standards. COMPETITION. CA's competitors include Underwriters Laboratories ("UL"), a U.S. not-for-profit company which is engaged primarily in safety mark testing, and the German Technischer Uberwachungs Verein ("TUVs"). They have both started to expand their presence internationally. CA has benefited from being one of the few companies that offers global one stop safety and performance testing of products for markets worldwide, but there can be no assurance that the Group's business, financial condition and results of operations will not suffer from an increase in the global presence of some of its competitors. Management believes that CA will continue to increase its market share because of its range of accreditations, the importance of brand name recognition, its global presence and the high start-up costs and barriers to entry in the product testing and certification market. CALEB BRETT Caleb Brett is a joint leader in the market for testing and inspecting petroleum and chemicals. Caleb Brett's primary business is providing independent verification of the quantity and quality of crude oil, petroleum products and chemicals and, to a lesser extent, agricultural produce. BUSINESS OVERVIEW. Petroleum and chemical companies and traders require independent testing services to verify the quality and quantity of petroleum and chemical cargoes at the point of shipment. Management believes that the market has benefited from more complex and rigorous environmental regulations in North America and Europe, which require a greater amount of testing. Also, multinational oil companies are increasingly outsourcing their testing activities to testing companies, such as Caleb Brett. -5- 20-F 8th Page of 123 TOC 1st Previous Next Bottom Just 8th Caleb Brett's certificates are internationally recognised as evidence of the quality and quantity of commodity shipments. Caleb Brett's activities in petroleum and chemical testing are divided into three sub-divisions: Inspection, Inspection Related Testing and Free Standing Testing. Inspection of cargoes involves the physical checking, sampling and measurements of the quantity of a commodity at points of loading and unloading, such as seaports, storage tanker terminals and the ends of transportation pipelines. Inspection Related Testing is laboratory testing of samples taken to assess their composition and whether they comply with specifications demanded by customers or by legislation. Free Standing Testing involves the analysis of samples unrelated to cargo shipments, including situations where an oil company or trader outsources its laboratory testing work to Caleb Brett. Caleb Brett also performs marine surveying and agricultural inspection. Marine surveying is the evaluation of cargo damage, primarily for insurance purposes. Agricultural inspection and testing is the physical sampling, quantification, inspection and testing of commodities, such as vegetable oils and cotton. CUSTOMERS. Caleb Brett's customers include oil and chemical companies and traders with whom Caleb Brett has well established long-term relationships. The majority of Caleb Brett's oil company customers purchase services from Caleb Brett on a job by job, port by port basis. SALES AND MARKETING. Management believes that Caleb Brett has been able to increase its market share through its strong reputation for service, its extensive network of facilities, its strong international coordination which leads to close contact with customers and its well equipped and quality controlled laboratories. COMPETITION. Multinational oil companies typically split inspection and testing contracts between two or more suppliers to sustain competition. Management believes Caleb Brett and the Redwood division of SGS, are regarded as market leaders in this industry, sharing over 50% of the market in 1998. Management believes that competition in this market will continue to be relatively stable, due primarily to the high start-up and fixed costs, as SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 well as the importance of brand name recognition. FOREIGN TRADE SUPERVISION FTS provides independent pre-shipment inspection ("PSI") services to the governments of developing countries to assist them in the enforcement of customs duties and exchange controls. FTS also provides inspection and testing services to government standards organisations to ensure that imports on specified products meet their safety and other national standards. In providing these services, FTS inspects, tests and reviews at source the quantity, quality and price of goods to be shipped, to check that import duties are correctly calculated and that such goods comply with the laws, standards and relevant customs regulations in the importing country. PSI work is contracted directly with the governments and standards organisations of developing countries. FTS has experienced delays in the past in collecting payment for work performed on behalf of the Nigerian Government but has recently taken action to cap those debts. Furthermore, ITS has been advised that its PSI programmes in Nigeria will end on March 31, 1999. See " Management's Discussion and Analysis of Financial Conditions and Results of Operations". In addition to PSI work, FTS also provides services to companies, inspecting the materials, plant and equipment that they buy. MINERALS The Minerals division is operated under the name Bondar Clegg, which provides a laboratory testing service for samples from exploration and producing mines, principally of gold but also of copper, zinc and other metals. This business is suffering because of the current low level of expenditure in the minerals exploration market and its future in the Group is under review. -6- 20-F 9th Page of 123 TOC 1st Previous Next Bottom Just 9th ENVIRONMENTAL LIABILITIES ITS is subject to worldwide laws and regulations that govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal of solid and hazardous wastes. In many jurisdictions these laws have tended to become more stringent and change frequently. Such laws and regulations may impose obligations to investigate and remediate environmental conditions and to compensate public and private parties for related damages. In jurisdictions such as the United States, such obligations, including those under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund"), may be joint and several and may apply to conditions at properties presently or formerly owned by ITS or to properties where ITS has sent waste or other contamination. ITS has been notified by governmental authorities and others that it is potentially liable for the cleanup of hazardous substances at properties that ITS owns or has owned, or where waste attributable to it has been located. ITS's liability, if any, has not been resolved and is difficult to predict. No assurance can be given that these liabilities will not have a material adverse impact on ITS. In connection with the Acquisition, ITS and certain of its subsidiaries obtained rights to indemnification, in certain circumstances, from Inchcape plc for breaches of Inchcape plc's environmental representations and warranties in the related acquisition agreements. Those rights to recover for breach of warranty are subject to limitations, however, including the necessity that amounts sought from Inchcape plc exceed Pounds 250,000, and the requirement that notice to be given to Inchcape plc prior to the fifth anniversary of the closing of the Acquisition, depending on the issue involved. ITS can give no assurance that any material environmental liability will be covered by such indemnification rights. ORGANISATION ITS has a strong corporate culture worldwide to maximise synergy and ensure that business is developed globally in all divisions. When the Acquisition was completed in 1996, a new Board of Directors was established, which includes non-executive Directors from Charterhouse. In addition to the Board, there is an Executive Committee, which includes the Executive Board Members plus the Vice-Presidents in charge of the operations in the different divisions. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 EMPLOYEES At December 31, 1998, ITS had a total of approximately 9,284 employees in the following divisions: Consumer Goods 1,970 Conformity Assessment 1,299 Caleb Brett 3,658 Foreign Trade Supervision 1,262 Minerals 1,028 Central 28 ------------ Total continuing operations 9,245 Discontinued operation 39 ------------ Total 9,284 ------------ There are 17 U.S. employees of Caleb Brett who are covered by a collective bargaining agreement with Oil, Chemical and Atomic Workers International Union, AFL-CIO which expires on July 14, 2001 and approximately 48 employees in Canada are covered by a collective bargaining agreement with the International Long Shoreman's and Warehouseman's Union. All ITS employees in Ghana, South Africa, Belgium, Germany, the Netherlands, Norway, Singapore and Korea are covered by various union agreements. Management are not aware of any significant union disputes. -7- 20-F 10th Page of 123 TOC 1st Previous Next Bottom Just 10th GEOGRAPHICAL COVERAGE ITS is a global business. The different divisions have geographical profiles that reflect the nature of their operations. The table below shows revenues in thousands of pounds sterling for each major division and analysed into geographic regions. For a more complete discussion of how the Group has performed in various regions, see " Management's Discussion and Analysis of Financial Conditions and Results of Operations". · Download Table Supplemental Year ended Year ended Period December 31, December 31, 1996 1997 1998 ---------------------------------------- Revenues by division: Consumer Goods 44,880 56,768 64,575 Conformity Assessment 82,651 81,816 84,920 Caleb Brett 103,748 108,837 122,972 Foreign Trade Supervision 48,869 55,792 65,299 Minerals 22,212 25,601 16,530 ----------------------------------- Continuing operations 302,360 328,814 354,296 Discontinued operation 21,389 15,169 5,517 =================================== Total 323,749 343,983 359,813 =================================== Revenues by geographical area Americas 147,708 143,531 150,046 Europe, Africa and Middle East 92,309 112,409 124,657 Asia and Far East 62,343 72,874 79,593 ----------------------------------- Continuing operations 302,360 328,814 354,296 Discontinued operation 21,389 15,169 5,517 =================================== Total 323,749 343,983 359,813 =================================== -8- 20-F 11th Page of 123 TOC 1st Previous Next Bottom Just 11th ITEM 2: DESCRIPTION OF PROPERTY SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 REAL PROPERTY AND LEASEHOLDS At December 31, 1998, the Company had approximately 486 offices and 223 laboratories in over 83 countries. Almost all of ITS's properties are leased. The majority of laboratories have approximately 10,000 -- 20,000 square feet of space. Approximately 82% of ITS's leases expire in less than five years. A small number of sites are owned by ITS. In total, ITS's fixed assets include property with a book value of Pounds 8.9 million at December 31, 1998. The Conformity Assessment Semko AB facility in Stockholm, Sweden accounts for Pounds 5.0 million of that total. Other large sites include facilities in Rotterdam, the Netherlands, owned by ITS Caleb Brett Nederland BV and in Cortland, New York, owned by Intertek Testing Services NA, Inc. ITS's principal executive office is located in London, England and is occupied under a lease expiring in 8 years. The other leased premises have remaining terms generally ranging from 1 to 24 years. Many of the leases contain renewal options, pursuant to which ITS may extend the lease terms. ITS does not anticipate any difficulties in renewing its leases as they expire. Management believes that its facilities are suitable for their present and intended purposes and are adequate for ITS's current and expected levels of operations. INTELLECTUAL PROPERTY The Company owns or has the right to use various patents, copyrights, trademarks, service marks and certification marks in the United States and worldwide. ITS uses its well-known and valuable certification marks to signify to consumers that a product bearing such a mark meets various nationally and/or internationally recognised safety standards. Conformity Assessment issues the proprietary "ETL" (U.S.), "cETL" (Canada), "S" (Northern Europe), and "WH" (U.S. and Canada) safety marks, and is accredited to authorise the application of the "GS" mark in Germany and the "NOM" mark in Mexico. ITS also has valuable trade names, registered and unregistered, such as "Caleb Brett", "Bondar Clegg", "Semko", "Intertek", "ITS", "Labtest" and "Warnock Hersey ". Management believes ITS's brand and trade names provide ITS with a significant competitive advantage in marketing its services. Invalidation of several of these marks, through a lawsuit or governmental proceeding, could have a materially adverse effect on the business of ITS. In addition, invalidation of a mark with great commercial importance in a particular country could have a materially adverse effect on ITS's business in that country. ITS believes that its use of intellectual property does not infringe the intellectual property rights of third parties. However, there can be no assurance that competitors or other third parties will not in the future assert infringement or royalty claims against, or otherwise seek to invalidate the intellectual property rights of ITS. ITS knows of third parties in Venezuela, Germany and Former Soviet Union countries that are currently using company names similar to those owned by ITS. It is unclear whether litigation or government proceedings will ensue from this situation. In addition, ITS is currently resolving claims that its subsidiaries have brought against certain third parties for trademark infringement in the United States. Several agreements currently exist under which ITS is either a licensor or licensee of intellectual property. ITS has no reason to anticipate the loss or invalidation of these licenses, and otherwise believes that such a loss would not have a materially adverse effect on the business of ITS. ITS protects its intellectual property by registering its trade marks, patents and trade names with the appropriate governmental authorities and through litigation defends such intellectual property from infringement. -9- 20-F 12th Page of 123 TOC 1st Previous Next Bottom Just 12th ITEM 3: LEGAL PROCEEDINGS ITS is involved from time to time in various claims and lawsuits incidental to the ordinary course of business, including claims for damages, negligence, and commercial disputes regarding inspection and testing. ITS currently is not party to any legal proceedings other than ordinary litigation incidental to the conduct of its business and the investigations described below. On the basis of currently available information, Management considers that the outcome of any claims and lawsuits is unlikely to have a material effect on the financial position of ITS. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 ITS holds a professional indemnity insurance policy which provides coverage for claims from customers. Management deems this policy adequate for normal commercial purposes. INVESTIGATIONS BY THE U.S. ENVIRONMENTAL PROTECTION AGENCY Two of ITS's subsidiary corporations are currently involved in investigations by the U.S. Environmental Protection Agency ("EPA"). Details of each investigation are given below: CALEB BRETT USA, INC. In February 1997, Caleb Brett through its routine quality assurance and quality control procedures, discovered evidence of false testing results at the Caleb Brett laboratory in Linden, New Jersey which involved testing of gasoline to certain standards set by the EPA. Caleb Brett promptly reported its findings to the EPA. This matter has been referred to the U.S. Department of Justice by the EPA, and civil and criminal investigations are underway. Caleb Brett requested inclusion in the EPA's Voluntary Disclosure Program. Under this program it may be possible to foreclose criminal, but not civil penalties. As part of the co-operation with the EPA, Caleb Brett has appointed a Compliance Director and has introduced more stringent compliance protocols which have been presented to the EPA. These compliance procedures are now fully implemented. It is not yet possible to estimate the cost of any civil or criminal penalties arising from this matter, however, on the basis of currently available information, the directors consider that the outcome is unlikely to have a material effect on the financial position of ITS. Possible rights of recovery against Inchcape plc, under the Share Purchase Deed are being pursued. INTERTEK TESTING SERVICES ENVIRONMENTAL LABORATORIES, INC. In December 1997, Intertek Testing Services Environmental Laboratories, Inc. ("ITS Environmental") discovered certain discrepancies in reported testing results at its facility in Richardson, near Dallas, Texas ("Dallas"). A further investigation by the Quality Assurance/Quality Control department of ITS Environmental revealed that technicians at the Dallas facility had at various times manually integrated data and improperly calibrated test equipment in a way that may have skewed the accuracy of the test results that have been reported, but not necessarily the basic data recorded in the testing equipment. ITS Environmental promptly reported these discrepancies to the EPA and to clients. Civil and criminal investigations are under way. A government investigation at the ITS Environmental facility uncovered evidence of false reporting beyond that initially discovered and disclosed by ITS Environmental. ITS Environmental has requested inclusion in the EPA's Voluntary Disclosure Program. Under this program it may be possible to foreclose criminal but not civil penalties. If the actions of ITS Environmental that were disclosed to the EPA are found to qualify for the immunities available under its Voluntary Disclosure Program, the protection of this program may not extend to improper actions subsequently discovered. -10- 20-F 13th Page of 123 TOC 1st Previous Next Bottom Just 13th In August 1998, ITS Environmental sold its laboratory business in Burlington, Vermont U.S.A. and St. Helens, U.K. and stopped commercial operations at the laboratory in Dallas. These actions resulted in the discontinuation of business at ITS Environmental. This sale has not relieved ITS of any liability it may face as a result of these investigations or otherwise. Although commercial operations have been discontinued in Dallas, the facility is being used to reprocess the original data. During the past few months, ITS Environmental has developed an effective data screening and reprocessing method. The reprocessing effort is aimed at providing clients with data of known quality. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 ITS Environmental continues to co-operate fully with the government investigation. To date, no action has been brought against ITS Environmental by the EPA or any other party. At this time, it is not possible to estimate the cost of any civil or criminal penalties arising from this matter. However, on the basis of currently available information, the directors consider that the outcome is unlikely to have a material effect on the financial position of ITS. Possible rights of recovery against Inchcape plc, under the Share Purchase Deed are being pursued. -11- 20-F 14th Page of 123 TOC 1st Previous Next Bottom Just 14th ITEM 4: CONTROL OF REGISTRANTS At March 12, 1999, the share capital of the Company (the "Ordinary Shares") is divided into 69,172,061 Ordinary A Shares of 1 pence each (the "A shares"), 11,578,635 Ordinary B Shares of 1 pence each (the "B Shares"), 2,951,417 Ordinary C Shares of 1 pence each (the "C Shares"), and 7,110,713 Ordinary D Shares of 1 pence each (the "D Shares"). 28,434,688 of the A Shares and 5,194,014 of the B Shares have been allotted, called up, fully paid and outstanding. None of the C Shares nor the D Shares have been issued. In addition, the Company has 105,478,482 Zero Coupon Redeemable Preference Shares of Pounds1 each (the "Preference Shares"), of which 86,656,531 have been allotted, called up, fully paid and outstanding. ORDINARY SHARES The A Shares, B Shares, C Shares and D Shares rank pari passu in all respects except that: (i) the holders of A Shares and D Shares have a right in the event of a winding-up to receive the subscription price of those shares in preference to the holders of B Shares and C Shares, but rank pari passu with the holders of B Shares and C Shares in the event of a distribution of any surplus assets available after repayment to the holders of B Shares and C Shares of the subscription price on those shares; (ii) the C Shares confer no right to receive notice of, attend or vote at general meetings of the Company; and (iii) the D Shares confer on the holders the right to receive notice of and to attend, but not to vote at, general meetings of the Company. Those shareholders who hold more than 10% of the Ordinary Shares in the Company as of March 12, 1999 are shown in the table below: · Enlarge/Download Table Number of Number of % of Total Name and Address A Shares Held B Shares Held Share Capital(a) Charterhouse General Partners Limited (b) 85 Watling Street, London EC4M 9BX United Kingdom 13,459,143 - 40.02 Charter Intertek LLC (b) C/o Charterhouse Group International, Inc. 535 Madison Avenue New York, NY 10022 USA 5,047,578 - 15.01 Directors and Officers as a group 88,653 4,481,111 13.59 - -- ---- - ---- -- --- -- --- --- -- --- --- -- --- --- -- --- --- -- --- --- 18,595,374 4,481,111 68.62 - -- ---- - ---- -- --- -- --- --- -- --- --- -- --- --- -- --- --- -- --- --- (a) This table does not reflect the issuance of C Shares (which are reserved for issue to employees) upon the exercise of options granted to management or the issuance of D Shares upon the exercise of the Warrants issued to certain financial institutions, including BT Investment Partners, Inc., in connection with its purchase of the Parent Subordinated PIK Debentures. Upon the exercise of the Warrants and the share options, directors and officers as a group will own 14.15% and the Warrant holders as a group will own 14.2% of the fully diluted ordinary shares of Parent. See "Warrants" below. In addition, the table does not reflect the issuance of 86,656,531 Preference Shares of the Parent purchased by Charterhouse and other financial institutions as described below. (b) Charterhouse General Partners Limited is a wholly owned subsidiary of Charterhouse Development Capital Holdings Limited, which is the sole owner of Charterhouse Development Capital Limited. Other wholly owned subsidiaries and managed funds of Charterhouse Development Capital Holdings Limited as a group own 48.28% of the total share capital. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 A substantial portion of the membership interests in Charter Intertek LLC are owned by Charterhouse Equity Partners II, L.P. ("CEPII"). The general partner of CEPII is CHUSA Equity Investors II, L.P., whose general partner is Charterhouse Equity II, Inc., a wholly-owned subsidiary of Charterhouse Group International, Inc. ("CHUSA"). -12- 20-F 15th Page of 123 TOC 1st Previous Next Bottom Just 15th ZERO COUPON REDEEMABLE PREFERENCE SHARES The Preference Shares rank senior to the Ordinary Shares of the Company. No dividends will be payable on the Preference Shares. The Preference Shares will be mandatorily redeemed on November 8, 2009. The Company is required upon the written request from holders of 30% or more of the Preference Shares to redeem all of those shares in issue from any source of funds legally available therefor. No redemption, however, may be made to the extent prohibited by the terms of indebtedness under the Credit Agreement, the Notes or the Parent Subordinated PIK Debentures, all of which contain prohibitions or restrictions on redemptions. Holders of Preference Shares are entitled to receive notice but not attend and vote at general meetings, except that they can attend and vote on any resolution regarding the winding-up of the Company, a reduction in the Company's capital or on modification of the rights and restrictions attached to the Preference Shares. WARRANTS The Warrants acquired in connection with the purchase by certain financial institutions, including BT Investment Partners, Inc., of Parent Subordinated PIK Debentures confer the right to subscribe to 14.2% of the fully diluted ordinary share capital of the Company. The Warrants will be exercisable only upon sale in connection with the acquisition by a person (other than a person who has funds managed by Charterhouse or any other member of Charterhouse's wholly-owned group) of more than 50% of the Ordinary Shares of the Company (calculated excluding Ordinary Shares underlying the Warrants) or the unconditional granting of permission for any of the Ordinary Shares of the Company to be dealt in on any recognised investment exchange. SHAREHOLDERS' AGREEMENT The Company and the holders of A Shares, B Shares and Preference Shares are parties to a subscription and shareholders' agreement (the "Shareholders' Agreement"). The Shareholders' Agreement provides that, among other things, without the consent of a certain number of Institutional Directors, the Company or its subsidiaries may not take certain actions, including: (i) any amendment to the memorandum or articles of association of the Company or its subsidiaries; (ii) any variation in the authorised or issued share capital (or the rights attaching to it or any class of it) of the Company or its subsidiaries or the creation of any options or other rights to subscribe for or to convert into shares in such a company or the purchase (by the Company or its subsidiaries) of any shares in the capital of such a company; (iii) the declaration or distribution of any dividend or other payment out of the distributable profits or reserves of the Company or its subsidiaries or the reduction of any other reserve of the Company or its subsidiaries; (iv) the transfer of any shares in the capital of the Company or its subsidiaries; (v) the sale, transfer, leasing, licensing or disposal by the Company or its subsidiaries (otherwise than in the normal course of business) of all or a substantial part of its business, undertaking or assets whether by a single transaction or series of transactions, related or not; (vi) the entry into negotiations concerning the sale of shares in the Company or its subsidiaries or of any material part of the business or assets of the Company or its subsidiaries, the refinancing of the Company or its subsidiaries, or the making of any application or submission of any business plan to any person with a view to attracting additional or substitute finance for the Company or any part of it; (vii) anything which is of a material nature (in the context of the Company as a whole) and not in the normal course of business; (viii) the entry into any new borrowing facility (other than the Credit Agreement) by the Company or its subsidiaries, the variation of the terms of any borrowing facilities or the issue or redemption of any loan capital and (ix) certain arrangements with affiliates. So far as the Company is aware, the Company is not directly or indirectly owned or controlled by any government. The Company is not aware of any arrangements that might result in a change of control of the Company. -13- SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 20-F 16th Page of 123 TOC 1st Previous Next Bottom Just 16th Interests in Share Capital The directors of the Company and their immediate families and executive officers of the Group who held Shares in the Company as of March 12, 1999 are shown below: · Download Table Number of Number of Ordinary 'A' Preference Shares Shares Simon Drury 37,362 1,288 Stuart Simpson 51,291 1,943 Number of Ordinary 'B' Shares Richard Nelson 1,629,495 William Spencer 445,536 Executive Officers 2,406,080 ITEM 5: NATURE OF TRADING MARKET Not applicable. ITEM 6: EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS There are no limitations under UK law, as currently in effect, on the rights of non-UK resident shareholders, by virtue of their non-resident status, to hold or exercise voting rights attaching to the Ordinary Shares of the Company. There are currently no UK laws, decrees or regulations that would affect the transfer of capital or remittance of dividends, interest or other payments to non-UK resident shareholders, except as set forth in "Item 7 - Taxation". -14- 20-F 17th Page of 123 TOC 1st Previous Next Bottom Just 17th ITEM 7: TAXATION CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following summary describes the material United States federal income tax consequences of the ownership of Notes as of the date hereof. Except where noted, it deals only with Notes held as capital assets by United States Holders and does not deal with special situations, such as those of dealers in securities or currencies, financial institutions, life insurance companies, tax-exempt entities, persons holding Notes as a part of a hedging, integrated, conversion or constructive sale transaction or a straddle or holders of Notes whose "functional currency" is not the United States dollar. Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in United States federal income tax consequences different from those discussed below. Persons considering the purchase, ownership or disposition of Notes should consult their own tax advisors concerning the United States federal income tax consequences in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction. Payments of Interest. Except as set forth below, interest on a Note will generally be taxable to a United States Holder as ordinary income at the time it is paid or accrued in accordance with the United States Holder's method of accounting for tax purposes. As used herein, a "United States Holder" of a Note means a holder that is (i) a citizen or resident of the United States, (ii) a corporation or partnership created or organised in or under the laws of the United States or any political subdivision thereof, (iii) an estate SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 the income of which is subject to United States federal income taxation regardless of its source or (iv) a trust (x) that is subject to the supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30) of the Code or (y) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person. A "Non-United States Holder" is a holder that is not a United States Holder. It is unclear whether the interest income on a Note will constitute foreign and/or United States source income for United States federal income tax purposes. A United States Holder of a Note should consult its own tax advisor with respect to the source of such income. Market Discount. If a United States Holder purchases a Note for an amount that is less than its stated redemption price at maturity, the amount of the difference will be treated as "market discount" for federal income tax purposes, unless such difference is less than a specified de minimis amount. Under the market discount rules, a United States Holder will be required to treat any principal payment on, or any gain on the sale, exchange, retirement or other disposition of a Note as ordinary income to the extent of the market discount which has not previously been included in income and is treated as having accrued on such Note at the time of such payment or disposition. In addition, the United States Holder may be required to defer, until the maturity of the Note or its earlier disposition in a taxable transaction, the deduction of all or a portion of the interest expense on any indebtedness incurred or continued to purchase or carry such Note. Any market discount will be considered to accrue ratably during the period from the date of acquisition to the maturity date of the Note, unless the United States Holder elects to accrue on a constant interest method. A United States Holder of a Note may elect to include market discount in income currently as it accrues (on either a ratable or constant interest method), in which case the rule described above regarding deferral of interest deductions will not apply. This election to include market discount in income currently, once made, applies to all market discount obligations acquired on or after the first taxable year to which the election applies and may not be revoked without the consent of the U.S. Internal Revenue Service. -15- 20-F 18th Page of 123 TOC 1st Previous Next Bottom Just 18th AMORTIZABLE BOND PREMIUM. A United States Holder that purchases a Note for an amount in excess of the sum of all amounts payable on the Note after the purchase date other than qualified stated interest will be considered to have purchased the Note at a "premium". A United States Holder generally may elect to amortize the premium over the remaining term of the Note on a constant yield method as an offset to interest when includible under the United States Holder's regular accounting method. In the case of instruments like the Notes that provide for alternative payment schedules, bond premium is calculated by assuming that (i) the holder will exercise or not exercise options in a manner that maximises the holder's yield and (ii) the issuer will exercise or not exercise options in a manner that minimises the holder's yield, except with respect to call options for which the issuer is assumed to exercise such call options in a manner that maximises the holder's yield. Bond premium on a Note held by a United States Holder that does not make such an election will decrease the gain or increase the loss otherwise recognized on disposition of the Note. The election to amortize premium on a constant yield method once made applies to all debt obligations held or subsequently acquired by the electing United States Holder on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS. SALE, EXCHANGE, RETIREMENT OR OTHER DISPOSITION OF NOTES. A United States Holder's tax basis in a Note will, in general, be the United States Holder's cost therefor, increased by market discount previously included in income by the United States Holder and reduced by any amortized premium and any cash payments on the Note other than qualified stated interest. Upon the sale, exchange, retirement or other disposition of a Note, a United States Holder will recognize gain or loss equal to the difference between the amount realized upon the sale, exchange, retirement or other disposition (less any accrued qualified stated interest, which will be taxable as such) and the adjusted tax basis of the Note. Except as described above with respect to market discount, such gain or loss will be capital gain or loss. Capital gains of individuals derived in respect of capital assets held for more than one year are eligible for reduced rates of taxation. The deductability of capital losses is subject to limitations. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 INFORMATION REPORTING AND BACKUP WITHHOLDING. In general, information reporting requirements will apply to certain payments of principal, interest and premium paid on Notes and to the proceeds of sale of a Note made to United States Holders other than certain exempt recipients (such as corporations). A 31% backup withholding tax will apply to such payments if the United States Holder fails to provide a taxpayer identification number or certification of foreign or other exempt status or fails to report in full dividend and interest income. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against such holder's United States federal income tax liability provided the required information is furnished to the IRS. NON-UNITED STATES HOLDERS. As stated above, it is unclear whether the interest income on a Note will constitute foreign and/or United States source income for United States federal income tax purposes. Consequently, the Issuer will withhold United States federal income tax at a rate of 30% on any interest payment made to a Non-United States Holder unless such interest qualifies as "portfolio interest " under the Code or is otherwise exempt from withholding as described below. In general, interest income received by a Non-United States Holder will qualify as "portfolio interest" if such Non-United States Holder files Internal Revenue Service Form W-8 (or successor form) with the Issuer or its paying agent, as the case may be, and such Non-United States Holder (i) does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Issuer or USCo entitled to vote within the meaning of section 871(h)(3) of the Code and the regulations thereunder, (ii) is not a bank whose receipt of interest on a Note is described in section 881(c)(3)(A) of the Code, and (iii) is not a controlled foreign corporation that is related to the Issuer or USCo through stock ownership. If the interest income received by a Non-United States Holder does not qualify as "portfolio interest," the Issuer will withhold United States federal income tax at a rate of 30% on any interest payment to such Non-United States Holder unless the beneficial owner of the Note provides the Issuer or its paying agent, as the case may be, with a properly executed (1) Internal Revenue Service Form 1001 (or successor form) claiming an exemption or reduced rate from withholding under the benefit of a tax treaty or (2) Internal Revenue Service Form 4224 (or successor form) stating that interest paid on the Note is not subject to withholding tax because it is effectively connected with the beneficial owner's conduct of a trade or business in the United States. -16- 20-F 19th Page of 123 TOC 1st Previous Next Bottom Just 19th If a Non-United States Holder is engaged in a trade or business in the United States and interest on the Note (that is treated as United States source income for United States federal income tax purposes) is effectively connected with the conduct of such trade or business, the Non-United States Holder, although exempt from the withholding tax discussed above, will be subject to United States federal income tax on such interest income on a net income basis in the same manner as if it were a United States Holder. In addition, if such holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits for the taxable year, subject to adjustments. For this purpose, such interest income will be included in such foreign corporation's earnings and profits. Any gain or income realized upon the sale, exchange, retirement or other disposition of a Note generally will not be subject to United States federal income tax unless (i) such gain or income is effectively connected with a trade or business in the United States of the Non-United States Holder, or (ii) in the case of a Non-United States Holder who is an individual, such individual is present in the United States for 183 days or more in the taxable year of such sale, exchange, retirement or other disposition, and certain other conditions are met. CERTAIN UNITED KINGDOM TAX CONSEQUENCES The following summary describes certain U.K. tax consequences of the ownership of the Notes as of the date hereof. Except where noted, it relates only to the position of persons who are the absolute beneficial owners of their Notes and may not apply to special situations, such as those of dealers in securities. Furthermore, the discussion below is generally based upon the provisions of the U.K. tax laws and U.K. Inland Revenue practice as of the date hereof, and such provisions may be repealed, revoked or modified so as SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 to result in U.K. income tax consequences different from those discussed below. Persons considering the purchase, ownership or disposition of Notes should consult their own tax advisers concerning U.K. tax consequences in light of their particular situations as well as any consequences arising under the law of any other relevant tax jurisdiction. No representations with respect to the tax consequences to any particular holder of Book-Entry Interests are made hereby. INTEREST ON THE GLOBAL NOTES The Global Notes will constitute "quoted Eurobonds" within the meaning of section 124 of the Income and Corporation Taxes Act 1988 ("the Act") as long as they continue to be in bearer form and listed on a "recognised stock exchange" within the meaning of section 841 of the Act. The Luxembourg Stock Exchange is currently recognised for these purposes. Accordingly, payments of interest on the Global Notes may be made without withholding on account of U.K. income tax where the Global Notes are held in a recognised clearing system (DTC, Euroclear and Cedel are recognised for these purposes) and, where applicable, any other administrative conditions imposed by regulations made under the Act (as amended by the Finance Act 1996) have been satisfied. In all other cases an amount must be withheld on account of income tax at the lower rate (currently 20%), subject to any direction to the contrary by the Inland Revenue under an applicable double taxation treaty. Where a U.K. collecting agent in the course of a trade carried on by him either (a) acts as custodian of the Global Notes and receives interest on those Notes or directs that interest on the Global Notes be paid to another person or consents to such payment; or (b) collects or accrues payment of or receives interest on the Global Notes for a Noteholder (except by means solely of clearing a check or arranging for the clearing of a check), the collecting agent will be required to withhold on account of income tax at the lower rate unless: (i) the relevant Global Notes are held in a "recognized clearing system" and the collecting agent either: (A) pays or accounts for the interest directly or indirectly to the "recognized clearing system"; or (B) is acting as depository for the "recognized clearing system"; or (ii) the person beneficially entitled to the interest is at the time the interest is paid either not resident in the United Kingdom and beneficially owns the relevant Notes or is specified by regulations; or (iii) the interest arises to trustees not resident in the United Kingdom of certain discretionary or accumulation trusts (where, inter alia, none of the beneficiaries of the trust is resident in the United Kingdom); or (iv) the person beneficially entitled to the interest is eligible for certain reliefs from tax in respect of the interest; or (v) the interest fails to be treated as the income of, or of the government of, a sovereign power or of an international organization. In the case of each of the above exceptions, further administrative conditions imposed by the regulations referred to above may have to be satisfied for the relevant exception to be available. Interest on the Notes constitutes U.K. source income for U.K. tax purposes and, as such, may be subject to income tax by direct assessment even where paid without withholding. However, interest with a U.K. source received without -17- 20-F 20th Page of 123 TOC 1st Previous Next Bottom Just 20th deduction or withholding on account of U.K. tax will not be chargeable to U.K. tax in the hands of a Noteholder who is not resident for tax purposes in the United Kingdom unless that Noteholder carries on a trade, profession or vocation in the United Kingdom through a U.K. branch or agency in connection with which the interest is received or to which the Notes are attributable. There are exemptions for interest received by certain categories of agent (such as some brokers and investment managers). INTEREST ON THE DEFINITIVE NOTES Payments of interest on the Definitive Notes will be made under deduction of U.K. income tax at the lower rate by the Issuer subject to any direction to the contrary by the Inland Revenue under an applicable double taxation treaty. Notwithstanding that interest is received subject to a deduction of income tax, holders of Definitive Notes who are resident in the United Kingdom for tax purposes or holders who are non-resident and carrying on a trade, profession or vocation in the United Kingdom through a U.K. branch or agency, may either be liable to pay further U.K. tax on the interest received or be SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 entitled to a refund of all or part of the tax deducted depending on their individual circumstances. POTENTIAL APPLICATION OF APPLICABLE DOUBLE TAX TREATIES Where interest on the Notes has been paid subject to deduction of income tax, holders of Notes who are not resident in the United Kingdom may be able to recover all or part of the tax deducted if there is an appropriate provision in an applicable double tax treaty. A United States Holder who is entitled to the benefit of the United States/United Kingdom Double Tax Treaty will normally be eligible to recover in full any U.K. tax withheld from payments of interest to which such holder is beneficially entitled by making a claim under the United States/United Kingdom Double Tax Treaty on the appropriate form. Alternatively, in certain circumstances, a claim may be made by a United States Holder in advance of a payment of interest. If the claim is accepted by the U.K. Inland Revenue, it will authorise subsequent payments to that United States Holder to be made without deduction of U.K. withholding tax. Claims for repayment must be made within six years of the end of the U.K. year of assessment (generally April 5 in each year) to which the interest relates and must be accompanied by the original statement provided by the Issuer when the interest payment was made, showing the amount of U.K. income tax deducted. Because a claim is not considered until the U.K. Inland Revenue receives the appropriate form from the Internal Revenue Service, forms should be sent to the Internal Revenue Service, in the case of an advance claim well before the relevant interest payment date or, in the case of a claim for repayment of the tax, well before the end of the appropriate limitation period. UNITED KINGDOM CORPORATION TAX PAYERS In general Noteholders which are within the charge to U.K. corporation tax will be charged to tax on all returns on and fluctuations in value of the Notes (whether attributable to currency fluctuations or otherwise) broadly in accordance with their statutory accounting treatment. Such Noteholders will generally be charged to tax in each accounting period by reference to interest accrued in that period. OTHER UNITED KINGDOM TAX PAYERS Taxation of Chargeable Gains. A disposal of Notes by an individual Noteholder who is resident or ordinarily resident in the United Kingdom or who carries on a trade, profession or vocation in the United Kingdom through a branch or agency to which the Notes are attributable, may give rise to a chargeable gain or allowable loss for the purposes of the U.K. taxation of chargeable gains. Accrued Income Scheme. On a disposal of Notes by a Noteholder, any interest which has accrued since the last interest payment date may be chargeable to tax as income if that Noteholder is resident or ordinarily resident in the United Kingdom or carries on a trade, profession or vocation in the United Kingdom through a U.K. branch or agency to which the Notes are attributable. Based on the Issuer's understanding of the Inland Revenue's practice in this area, it is considered that the Notes will not be treated as constituting "relevant discounted securities" for the purposes of the Finance Act 1996. STAMP DUTY AND SDRT No U.K. stamp duty or stamp duty reserve tax is payable on the issue, transfer or redemption of Exchange Notes (whether Global or Definitive) assuming that the interest rate paid will not exceed a reasonable commercial return. -18- 20-F 21st Page of 123 TOC 1st Previous Next Bottom Just 21st ITEM 8: SELECTED FINANCIAL DATA The following table shows selected historical combined statement of income data and balance sheet data for Inchcape Testing Services Limited (the "Predecessor Company") and selected historical consolidated statement of income data and balance sheet data for the Group. The selected financial data as of and for the years ended December 31, 1994 and 1995 and for the period from January 1 to October 7, 1996 are derived from the combined financial statements of the Predecessor Company. The selected financial data as of December 31, 1996, 1997 and 1998 and for the period from October 8 to December 31, 1996 and for the years ended December 31, 1997 and 1998 are SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 derived from the audited consolidated financial statements of the Group. The Acquisition was accounted for under the acquisition method of accounting, and as a result of the Acquisition, financial data relating to the Predecessor Company generally will not be comparable to that of the Company with respect to interest expense, amortisation of debt issuance costs incurred in connection with the Acquisition and income from other Inchcape plc companies. In order to provide a meaningful five year history, the table includes income data for the year ended December 31, 1996 ("Supplemental Period 1996"). This data is derived from information reported for the Predecessor Company for the period from January 1 to October 7, 1996 and from information reported by the Group for the period from October 8 to December 31, 1996, adjusted to give effect to the Acquisition and the Financing (as defined) and to reflect the accounting policies adopted by the Group. In addition, the results have been retranslated to reflect the cumulative average exchange rates for the year ended December 31, 1996. The selected financial data is prepared in accordance with U.K. GAAP, which differs in certain significant respects from U.S. GAAP as described in Note 35 to the consolidated financial statements included elsewhere herein. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Conditions and Results of Operations" and the Consolidated Financial Statements. -19- 20-F 22nd Page of 123 TOC 1st Previous Next Bottom Just 22nd ITEM 8: SELECTED FINANCIAL DATA (CONTINUED) · Enlarge/Download Table Amounts in Pounds '000 PREDECESSOR COMPANY ITS ------------------------------------- ------------------------------------------------ Year ended Year ended Period Period Supple- Year Year December December from from mental ended ended 31, 1994 31, 1995 January 1 October 8 Period December December to to 1996 31, 1997 31, 1998 October December (unaudited) 7, 1996 31, 1996 --------------------------------------------------------------------------------------- INCOME STATEMENT DATA AMOUNTS IN CONFORMITY WITH U.K. GAAP: REVENUES Continuing operations 229,209 257,724 227,098 75,326 302,360 328,814 354,296 Discontinued operation 26,984 24,011 16,463 5,134 21,389 15,169 5,517 --------------------------------------------------------------------------------------- Total 256,193 281,735 243,561 80,460 323,749 343,983 359,813 --------------------------------------------------------------------------------------- Operating income before exceptional items Continuing operations 21,934 27,691 24,945 11,609 37,054 42,081 44,701 Discontinued operation (820) (1,692) (437) (1,433) (1,832) (1,580) (2,463) --------------------------------------------------------------------------------------- Total 21,114 25,999 24,508 10,176 35,222 40,501 42,238 --------------------------------------------------------------------------------------- OPERATING INCOME AFTER OPERATING EXCEPTIONAL ITEMS Continuing operations 18,651 28,472 22,123 9,231 31,854 38,214 30,650 Discontinued operation (820) (1,692) (437) (3,330) (3,941) (1,580) (7,607) --------------------------------------------------------------------------------------- Total 17,831 26,780 21,686 5,901 27,913 36,634 23,043 --------------------------------------------------------------------------------------- Net interest expense (4,048) (5,016) (3,165) (4,063) (30,680) (29,752) (31,855) Income/(loss) before taxes 14,972 22,556 23,938 77 (4,533) 6,882 (10,207) Net income/(loss) 9,212 14,252 11,608 (1,438) (9,569) (1,598) (20,591) AMOUNTS IN CONFORMITY WITH U.S. GAAP: Operating income/(loss) 17,307 22,356 21,006 (6,499) (a) 11,993 6,065 Income/(loss)from continuing operations 14,445 18,128 23,255 (9,071) (a) (16,162) (6,834) Net income/(loss) 6,317 10,280 3,539 (8,883) (a) (24,457) (40,344) (a) The information is not available for the Supplemental Period 1996. -20- 20-F 23rd Page of 123 TOC 1st Previous Next Bottom Just 23rd SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 ITEM 8: SELECTED FINANCIAL DATA (CONTINUED) · Enlarge/Download Table Amounts in Pounds '000 PREDECESSOR COMPANY ITS --------------------------------------- ------------------------------------------------ December December October December Supplemental December December 31, 1994 31, 1995 7, 1996 31, 1996 Period 31, 1997 31, 1998 1996 --------------------------------------- ------------------------------------------------ BALANCE SHEET DATA AMOUNTS IN CONFORMITY WITH U.K. GAAP: Cash 31,525 37,811 n/a 33,485 (a) 25,153 16,772 Total assets 152,857 176,948 n/a 152,786 (a) 145,279 163,795 Total debt 94,092 91,512 n/a 268,875 (a) 277,304 295,773 Shareholders' equity/(deficit) 18,175 32,890 n/a (198,881) (a) (206,766) (221,408) AMOUNTS IN CONFORMITY WITH U.S. GAAP: Cash (b) 31,525 (b) 37,811 n/a 33,413 (a) 24,664 17,397 Total assets (b)217,595 (b)239,870 n/a 444,932 (a) 397,188 389,451 Total debt 94,092 91,512 n/a 283,525 (a) 290,140 306,604 Shareholders' equity/(deficit) 79,014 88,845 n/a (5,263) (a) (46,465) (94,334) (a) The information is not available for the Supplemental period 1996. (b) December 31, 1994 and December 31, 1995 continuing and discontinued operations have been reported as a combined total, as separate information for the discontinued operation is not available. -21- 20-F 24th Page of 123 TOC 1st Previous Next Bottom Just 24th ITEM 8: SELECTED FINANCIAL DATA (CONTINUED) · Enlarge/Download Table Amounts in Pounds '000 PREDECESSOR COMPANY ITS -------------------------------- ----------------------------------------------------- Year Year Period Period Supple- Year ended Year ended ended ended from from mental December December 31, December December January October 8 Period 31, 1997 1998 31, 1994 31, 1995 1 to to 1996 October December (unaudited) 7, 1996 31, 1996 -------------------------------- ----------------------------------------------------- OTHER FINANCIAL DATA AMOUNTS DERIVED FROM U.K. GAAP FINANCIAL INFORMATION: Cash inflow from operating activities (b) 36,113 28,332 11,334 (a) 45,646 32,445 Returns on investments and servicing of finance (b) (3,984) 1,337 (1,341) (a) (21,889) (25,070) Taxation (b) (5,002) (8,177) (3,292) (a) (6,145) (5,960) Capital expenditure and (b) (12,142) (12,277) (5,605) (a) (12,995) (13,959) financial investment Acquisitions and disposals (b) (995) 6,712 (336,737) (a) (9,392) (11,675) Equity dividends paid (b) - (28,329) - (a) - - Cash inflow/(outflow) before financing (b) 13,990 (12,402) (335,641) (a) (4,775) (24,219) Financing (b) (8,040) 3,227 370,357 (a) (1,948) 16,014 Increase/(decrease) in cash (b) 5,950 (9,175) 34,716 (a) (6,723) (8,205) in the period AMOUNTS DERIVED FROM U.S. GAAP FINANCIAL INFORMATION: Depreciation and amortisation (c) 14,310 13,176 10,936 9,284 (a) 35,509 35,190 Capital expenditure (c) 11,414 11,078 10,133 5,330 (a) 12,939 13,945 Continuing operations Net cash provided from operating activities (c) 10,845 (c) 26,095 14,707 8,659 (a) 24,662 7,027 Net cash used in investing activities (c)(23,276) (c)(13,137) (3,275) (342,009) (a) (22,089) (25,212) Net cash provided by/(used in) (c) 27,396 (c) (7,008) (20,636) 367,994 (a) (9,713) (11,094) SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 (a) The information is not available for the Supplemental Period 1996. (b) Cash flows for the year ended December 31, 1994 have not been restated for FRS1 (Revised 1996). (c) Cash flows for the years ended December 31,1994 and 1995 have not been adjusted for continued and discontinued operations, as separate information for the discontinued operation is not available. -22- 20-F 25th Page of 123 TOC 1st Previous Next Bottom Just 25th ITEM 9: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS The following paragraphs set out an overview of the Group's results, the impact of exchange rates and the format of financial information. A detailed discussion of the performance of the Group and of each of the divisions for 1998 compared to 1997, and 1997 compared to 1996, is given in the Operating and Financial Review on pages 28 to 34. OVERVIEW ITS derives its revenues principally from the testing, inspection and certification of products and commodities. Prior to 1998, ITS was organised into the following five global divisions - Quality Systems, Caleb Brett, Foreign Trade Supervision ("FTS"), Minerals and Environmental. At the start of 1998, the two sub divisions of Quality Systems, Consumer Goods and Conformity Assessment, became separate divisions to reflect the different products tested, inspected and certified in each. Figures reported for Quality Systems in prior periods have been reanalysed to show the allocation between Consumer Goods and Conformity Assessment. The Environmental Testing Division was closed in August 1998 and its revenues and operating income for the eight months to August 31, 1998 and for all prior periods are disclosed separately as a discontinued operation. Previously, FTS, Minerals and Environmental Testing were included within Other Divisions. FTS and Minerals are now shown separately and the divisional analyses for prior periods have been restated. Approximately 42% of ITS's continuing revenues are generated by operations in the Americas, 35% in Europe, Africa and the Middle East and the remaining 23% from Asia and the Far East. ITS's revenue growth in the last three years has been predominantly organic. In addition, the Caleb Brett division made eight acquisitions in 1998 costing a total of Pounds14.9 million, principally in Europe and Asia, which will have a positive impact on revenue growth in future. REVENUES. Revenues from continuing operations grew by 8.7% in 1997 over 1996 and by 7.7% in 1998 over 1997. Management believes that ITS's revenue growth has benefited from the globalisation of its markets, the expanding trade of developing economies, the increasing trend towards the outsourcing of testing, inspection and certification services by ITS's customers and from acquisitions. Growth has been restricted in some ITS divisions, mainly due to the low price of gold (Minerals) and oil (Caleb Brett) but also due to the trend towards harmonisation of standards and self-certification (Conformity Assessment). Despite the general economic volatility in Asia and the Far East, ITS's revenues from this region continued to grow in 1997 over 1996 and in 1998 over 1997. A large proportion of the Group's business is performed for customers on a job by job basis rather than under term contracts. OPERATING COSTS. Approximately 50% of the Group's operating costs in 1997 and 1998 were attributable to employment costs but this varies between laboratories and offices. Costs are measured against revenues for each laboratory and office around the world, and the operating income to revenues margin is closely monitored through monthly performance, annual budgets and forecasts. Operating costs in 1998 included Pounds 0.4 million relating to the amortisation of goodwill on acquisitions due to a change in U.K. GAAP. Before 1998, goodwill on acquisitions was charged directly to reserves. OPERATING INCOME BEFORE EXCEPTIONAL COSTS. Operating income for continuing SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 operations grew in 1997, increasing 13.6% over 1996 from Pounds 37.1 million to Pounds 42.1 million. Operating income for continuing operations increased 6.2% over 1997 from Pounds 42.1 million to Pounds 44.7 million in 1998. The operating margin for continuing operations declined slightly in 1998 to 12.6% from 12.8% in 1997, but it was 12.2% in 1996. This decline was primarily due to poor performance in the Minerals division which became loss making in 1998. The Minerals division was restructured in the latter part of 1998 to reduce the cost base in line with reduced revenues. Excluding Minerals, the operating margin for the other continuing businesses increased to 13.3% in 1998 from 12.3% in 1997, and 12.2% in 1996. Management attributes this improvement to targeting growth in businesses with higher operating margins. The change in U.K. GAAP in 1998 requiring the amortisation of goodwill also reduced operating margins in 1998. -23- 20-F 26th Page of 123 TOC 1st Previous Next Bottom Just 26th EXCEPTIONAL COSTS: CONTINUING OPERATIONS. Due to the irregular nature of the payments received from the Nigerian Government for the PSI programmes in the FTS division, in April 1997 ITS adopted a policy of making full provision against all unpaid invoices relating to this client, and income is only recognised once invoices are paid. During 1998, invoices amounting to approximately Pounds 20.2 million (1997: Pounds 3.9 million and 1996: Pounds 7.7 million) were issued to this client and payments of Pounds 7.9 million (1997: Pounds 2.3 million and 1996: Pounds 11.6 million) were received in settlement of prior year invoices, therefore a net amount of Pounds 12.3 million was charged to operating exceptional costs in 1998 (1997: Pounds 5.4 million and 1996: Pounds 3.9 million). At December 31, 1998, invoices totalling Pounds 23.7 million were unpaid. Further payments totalling Pounds 9.1 million have been received to date in 1999 which reduced the December 31, 1998 outstanding amount to Pounds 14.6 million. Discussions are continuing with representatives of the Nigerian Government regarding the payment of the remaining debt. In January 1999, FTS adopted a policy of only carrying out pre-shipment inspection work for the Nigerian Government if ITS was first paid by the exporter of the goods, on the understanding that ITS would refund the money to the exporter when it is paid for the pre shipment inspection cost by the Nigerian Government. The cash flow exposure to ITS has therefore effectively been capped due to cash receipts from exporters. Caleb Brett also carries out inspections for the Nigerian Government which are related to oil exports. The debt due to Caleb Brett was Pounds 1.8 million at the December 31, 1998 and this is not offset by payments from exporters. The Nigerian Government has paid Pounds 0.4 million to date in 1999. Discussions are continuing with representatives of the Nigerian Government regarding the payment of the remaining debt. EXCEPTIONAL COSTS: DISCONTINUED OPERATION. An exceptional operating charge of Pounds 5.1 million was made in 1998 for legal and reprocessing costs relating to the ongoing investigation by the Environmental Protection Agency ("EPA"), into the data manipulation problems at the Dallas, Texas laboratory. Non-operating exceptional costs totalling Pounds 1.4 million were incurred in 1998 due to the closure of the Environmental division. These costs include staff redundancies, disposals of assets and property expenses. Due to continuing operating losses, in 1996 the Environmental Testing division was restructured, incurring operating exceptional costs of L 1.9 million and non operating exceptional costs of Pounds 1.8 million. INCOME ON ORDINARY ACTIVITIES BEFORE INTEREST. Due to exceptional costs in 1998, the income on ordinary activities before interest has decreased by Pounds 15.0 million, from Pounds 36.6 million in 1997 to Pounds 21.6 million in 1998. NET INTEREST EXPENSE. Net interest expense was Pounds 31.9 million in 1998 compared with Pounds 29.8 million in 1997, principally due to the additional Parent Subordinated PIK Debentures issued during 1998 and increased usage of the Revolving Credit Facility. TAXATION. The 1998 tax charge on income before exceptional items was 68.9% (1997: 56.7%). This is due largely to the inability of the Group to obtain full potential tax relief on its interest expense in the U.K. and the U.S. and on operating losses in other territories. The location of taxable profits and deductible expenses has a significant impact on the tax charge year by year and accounts for the tax increase in the tax charge in 1998 compared to 1997. Without the unrelieved interest expense, the effective tax rate of the Group on operating income before exceptional items for 1998 would have been 36.8% (1997: 35.6%) which more closely reflects the underlying tax rate of the territories in which the Group operates. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 IMPACT OF EXCHANGE RATES The financial statements of ITS's operating subsidiaries are prepared mainly in local currencies. Owing to the international nature of ITS's business, a large proportion of invoicing is to international clients in U.S. dollars. In contrast, most operating costs are denominated in local currencies. Therefore, even if operating revenues stay constant, operating income may improve due to exchange rate gains if local currencies devalue against the U.S. dollar. However, some of this benefit may be lost due to increased local inflation rates. Conversely, there is a risk of exchange rate losses where local currencies appreciate against the U.S. dollar. Over 50% of ITS's revenues are in U.S. dollars or currencies linked to the U.S. dollar. The majority of ITS's borrowings are in U.S. dollars and Hong Kong dollars. ITS's financial statements are prepared in pounds sterling. Because of the global nature of ITS's -24- 20-F 27th Page of 123 TOC 1st Previous Next Bottom Just 27th business, exchange rate movements can have a significant effect on the reported results of the Company which is unrelated to the Company's underlying operational performance. Approximately 23% of 1998 revenues from continuing operations (1997: 22% and 1996: 21%) were derived from Asia and the Far East. Almost half of these revenues were generated in Hong Kong and the other half were mainly from operations in Australia, China, Indonesia, Japan, Korea, Malaysia, Singapore, Taiwan and Thailand. The ITS business in Asia and the Far East mainly represents the testing, inspection and certification of textiles, toys and electrical products bound for Western markets, as well as the testing and inspection of oil cargoes and the testing of mineral exploration samples. ITS expects some benefit from regional currency weakness because approximately one third of its invoicing to international clients is in U.S. dollars. Some of this benefit may be lost due to high inflation rates in parts of the region. ITS is exposed to the Hong Kong dollar because most of its revenues in Hong Kong are invoiced in the local currency, but the costs are also denominated in Hong Kong dollars so that the currency exposure is limited to the translation of operating incomes into pounds sterling. ITS could potentially have increased exposure to currency fluctuations if the Hong Kong dollar ceases to be linked to the U.S. dollar. Refer to page 27 for a summary of the Results of Operations at comparable exchange rates. FORMAT OF FINANCIAL INFORMATION The results of operations are being presented on a combined basis for the period from January 1, 1996 to October 7, 1996, during which the acquired business was owned by Inchcape plc (the "Predecessor Period"); on a consolidated basis for the period from October 8, 1996 to December 31, 1996 and for the years ended December 31, 1997 and December 31, 1998 (the "Successor Period"); and also on a Supplemental basis for the year ended December 31, 1996 (the "Supplemental 1996 Period" or "1996 Period"). The Supplemental information for the 1996 Period consists of amounts for the Predecessor Period, adjusted to give effect to the Acquisition and the Financing (as defined) and to reflect the accounting policies adopted by ITS, and amounts for the Successor Period. -25- 20-F 28th Page of 123 TOC 1st Previous Next Bottom Just 28th RESULTS BY OPERATION The following table shows, for the periods indicated, revenues and operating income by ITS's major divisions, as well as revenues by geographic area, expressed in thousands of pounds sterling, except for percentages. The geographical area relates to the area where the operation is located, not the location of the clients. Overhead costs for the central head office and non-operating holding companies ("Central Costs") are allocated to divisions in proportion to their share of total revenues. · Enlarge/Download Table SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Supplemental Year ended Year ended Period 1996 December 31, December 31, (unaudited) 1997 1998 REVENUES BY DIVISION: Consumer Goods 48,580 56,768 64,575 Conformity Assessment 78,951 81,816 84,920 Caleb Brett 103,748 108,837 122,972 Foreign Trade Supervision 48,869 55,792 65,299 Minerals 22,212 25,601 16,530 ---------------------------------------------------- Continuing operations 302,360 328,814 354,296 Discontinued operation 21,389 15,169 5,517 ==================================================== Total 323,749 343,983 359,813 ==================================================== OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS: Consumer Goods 9,925 13,903 16,079 Conformity Assessment 12,298 7,860 9,796 Caleb Brett 9,199 10,891 11,881 Foreign Trade Supervision 1,920 5,056 7,223 Minerals 3,712 4,371 (278) ---------------------------------------------------- Continuing operations 37,054 42,081 44,701 Discontinued operation (1,832) (1,580) (2,463) ==================================================== Total 35,222 40,501 42,238 ==================================================== REVENUES BY GEOGRAPHICAL AREA: Americas 147,708 143,531 146,183 Europe, Africa and Middle East 92,309 112,409 130,448 Asia and Far East 62,343 72,874 77,665 ---------------------------------------------------- Continuing operations 302,360 328,814 354,296 Discontinued operation 21,389 15,169 5,517 ==================================================== Total 323,749 343,983 359,813 ==================================================== Total Group revenues 323,749 343,983 359,813 Operating costs (296,221) (307,427) (336,757) Share of operating income / (loss) in investments 385 78 (13) ---------------------------------------------------- Operating income 27,913 36,634 23,043 ----------------------------------------------------------------------------------------------------------- OPERATING INCOME BEFORE EXCEPTIONAL ITEMS Continuing operations 37,054 42,081 43,949 Acquisitions - - 752 Discontinued operation (1,832) (1,580) (2,463) ---------------------------------------------------- 35,222 40,501 42,238 EXCEPTIONAL ITEMS CHARGED AGAINST OPERATING INCOME Continuing operations (5,200) (3,867) (14,051) Discontinued operation (2,109) - (5,144) ---------------------------------------------------- Operating income 27,913 36,634 23,043 ----------------------------------------------------------------------------------------------------------- -26- 20-F 29th Page of 123 TOC 1st Previous Next Bottom Just 29th RESULTS OF OPERATIONS AT COMPARABLE EXCHANGE RATES Although for the purposes of reporting obligations, the Accounts of the Group are reported in pounds sterling, over 50% of the Group's revenues are denominated in U.S. dollars or currencies linked to the U.S. dollar, such as the Hong Kong dollar. The Group's borrowings, interest payments and debt repayments are also denominated mainly in U.S. dollars and Hong Kong dollars. Each of the Group's 150 subsidiaries worldwide prepares financial statements in the currency most appropriate to its business, usually the currency of the country in which such subsidiary is domiciled. Where material transaction exposure from currency rate movements exists, appropriate forward foreign exchange contracts are undertaken to minimise this exposure. A translation exposure exists to the extent that the consolidated accounts of the Group are shown in pounds sterling. It is not the Group's policy to hedge this exposure. The results of overseas operations are translated into pounds sterling at the cumulative average exchange rates ("CAR") for the period. Therefore, the comparison of ITS's results between Periods can be affected by fluctuations in exchange rates which are unrelated to the underlying operational performance of its businesses. The following table sets forth, for the periods indicated, the growth rates of revenues and operating income of ITS's main business divisions at actual exchange rates for the period and at prior year ("comparable") exchange rates for the period. GROWTH RATES AT ACTUAL AND COMPARABLE EXCHANGE RATES · Enlarge/Download Table SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Supplemental Period 1996 Year ended % change Year ended % change (unaudited) December 31, 1997 96/97 December 31, 1998 97/98 ---------------- ------------------ ----------------- ----------------- ----------------- Compar- Compar- Pounds m % Pounds m % Actual able Pounds m % Actual able ---------- ----- ---------- ------- -------- -------- ---------- ------ -------- -------- REVENUES: Consumer Goods 48.5 15 56.7 17 16.9 27.1 64.6 18 13.8 18.8 Conformity Assessment 79.0 24 81.8 24 3.6 12.7 84.9 24 3.8 6.6 Caleb Brett 103.7 32 108.9 32 4.9 13.0 123.0 34 13.0 20.0 Foreign Trade Supervision 48.9 15 55.8 16 14.2 17.4 65.3 18 17.0 19.2 Minerals 22.2 7 25.6 7 15.3 34.0 16.5 4 (35.4) (29.9) -------- ----- -------- ------ ------- ------- -------- ----- ------- ------- Continuing operations 302.3 93 328.8 96 8.7 17.4 354.3 98 7.7 12.4 Discontinued operation 21.4 7 15.2 4 (29.1) (26.4) 5.5 2 (63.6) (63.3) -------- ----- -------- ------ ------- ------- -------- ----- ------- ------- Total 323.7 100 344.0 100 6.2 14.5 359.8 100 4.6 9.1 ======== ===== ======== ====== ======= ======= ======== ===== ======= ======= OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS: Consumer Goods 9.9 28 13.8 34 40.1 58.0 16.1 38 20.6 28.4 Conformity Assessment 12.3 35 7.9 20 (36.1) (33.8) 9.8 23 16.1 21.1 Caleb Brett 9.2 26 10.9 27 18.4 29.7 11.9 28 9.1 25.0 Foreign Trade Supervision 1.9 5 5.1 12 163.4 183.7 7.2 17 42.9 52.1 Minerals 3.7 11 4.4 11 17.8 47.7 (0.3) - (106.4) (110.5) -------- ----- -------- ------ ------- ------- -------- ----- ------- ------- Continuing operations 37.0 105 42.1 104 13.8 26.0 44.7 106 6.2 14.5 Discontinued operation (1.8) (5) (1.6) (4) (13.8) (8.9) (2.5) (6) (55.9) (65.1) -------- ----- -------- ------ ------- ------- -------- ----- ------- ------- Total 35.2 100 40.5 100 15.0 27.8 42.2 100 4.3 12.5 ======== ===== ======== ====== ======= ======= ======== ===== ======= ======= The Actual % change represents the percentage increase or decrease of one year over the prior year where each year is translated into pounds sterling at the CAR applicable to each of those years. The Comparable % change represents the percentage increase or decrease of one year over the prior year where both years are translated into pounds sterling at the CAR applicable to the earlier of the two years. -27- 20-F 30th Page of 123 TOC 1st Previous Next Bottom Just 30th OPERATING AND FINANCIAL REVIEW A discussion of the performance of the Group for 1998 compared to 1997, and 1997 compared to 1996, is given below, followed by a detailed review of the performance of each division. REVENUES GROUP Year to December 31 ------------------------------------------------- Pounds in millions 1996 1997 1998 Continuing operations 302.3 328.8 354.3 Actual growth % 8.7 7.7 Comparable growth % 17.4 12.4 Revenues from continuing operations increased by Pounds 26.5 million in 1997 over 1996 and by Pounds 25.5 million in 1998 over 1997. All continuing divisions, apart from Minerals increased revenues in 1997 and 1998 at both actual and comparable rates. Minerals revenues, which represented 5% of the total continuing revenues of the Group in 1998 (1997: 8% and 1996: 7%), increased by 15.3% in 1997 over 1996 but declined by 35.4% in 1998 over 1997. At comparable rates, the deterioration was from growth of 34% in 1997 over 1996 to decline of 29.9% in 1998 over 1997. Minerals had a poor year in 1998 due to the reduction in exploration activity resulting from the low gold and copper price. Growth in revenues in Conformity Assessment was just under 4% in 1997 over 1996 and also in 1998 over 1997. Growth in all other divisions was substantial in 1997 over 1996 and in 1998 over 1997. The Environmental Testing division ceased trading in August 1998 and its revenues for the eight months of 1998 and prior years are shown as a discontinued operation. % REVENUES BY LOCATION Year to December 31 ---------------------------------------------- Continuing operations 1996 1997 1998 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Americas 47.7 43.6 42.3 Europe, Africa and Middle East 31.8 34.2 35.2 Asia and Far East 20.5 22.2 22.5 ----- ----- ----- 100.0 100.0 100.0 ----- ----- ----- The decline in revenue share in the Americas was attributable to the FTS and Conformity Assessment divisions. Revenues in FTS decreased in the United States in 1997 over 1996 and increased in the United Kingdom. This trend continued in 1998. Over 65% of Conformity Assessment's revenues were generated in North America and since growth in this division was slower than the other divisions this caused a shift in the geographical mix. Operating Costs before exceptional costs Group Year to December 31 -------------------------------------------- Pounds in millions 1996 1997 1998 Continuing operations 265.3 286.7 309.6 Actual growth % 8.1 8.0 Comparable growth % 16.2 12.1 Operating costs in continuing operations increased by Pounds 21.4 million in 1997 over 1996 and by Pounds 22.9 million in 1998 over 1997. -28- 20-F 31st Page of 123 TOC 1st Previous Next Bottom Just 31st Operating costs before exceptionals grew at a lower rate than revenues in 1997 over 1996, due to improvements in operating margins caused by the relatively fast growth of the high operating margin businesses such as Consumer Goods. Costs grew at a slightly higher rate than revenues in 1998 over 1997. This was due to the operating margin in minerals declining because costs fell at a lower rate then revenues, partly due to restructuring costs in 1998. As set out in the Financial Statements, from January 1, 1998, ITS adopted Financial Reporting Standard 10 in relation to goodwill arising on acquisitions. This has resulted in an increase in operating costs of Pounds 0.4 million in 1998 for goodwill amortisation which was wholly attributable to Caleb Brett. OPERATING INCOME BEFORE EXCEPTIONAL COSTS Year to December 31 ---------------------------------------------- Pounds in millions 1996 1997 1998 Continuing operations 37.0 42.1 44.7 Actual growth % 13.8 6.2 Comparable growth % 16.2 12.1 Operating margin % 12.2 12.8 12.6 Operating income from continuing operations increased by Pounds 5.1 million in 1997 over 1996 and by Pounds 2.6 million in 1998 over 1997. Operating income in 1997 increased over 1996 in all divisions apart from Conformity Assessment. The apparent decline in Conformity Assessment in 1997 was due to an unusually high operating income in 1996 because of increased demand for electro-magnetic compatibility ("EMC") testing caused by the introduction of a European Union directive which became effective on January 1, 1996. This surge in activity was not sustained throughout 1997 and the cost base was reduced late in the year. Operating income in 1998 increased over 1997 in all divisions other than Minerals where the decline in revenues and the action taken to reduce costs resulted in an operating loss for 1998 of Pounds(0.3) million. The operating margin for continuing businesses suffered in 1998 due to the loss sustained by Minerals. Excluding Minerals, the operating margin was 11.9%, 12.4% and 13.3% in 1996, 1997 and 1998, respectively. The Environmental Testing division generated operating losses in 1996, 1997 and 1998 and these are shown as a discontinued operation. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 EXCEPTIONAL COSTS Year to December 31 ---------------------------------------------- Pounds in millions 1996 1997 1998 Continuing operations FTS invoices 7.7 15.5 20.2 FTS payments (2.3) (11.6) (7.9) ---------------------------------------------- FTS total 5.4 3.9 12.3 Caleb Brett invoices - - 1.8 ---------------------------------------------- Total 5.4 3.9 14.1 ---------------------------------------------- Discontinued operation Operating 1.9 - 5.1 Non operating 1.8 - 1.4 -29- 20-F 32nd Page of 123 TOC 1st Previous Next Bottom Just 32nd CONTINUING OPERATIONS. Due to the irregular nature of the payments received from the Nigerian Government for the PSI programmes in the FTS division, in April 1997 ITS adopted a policy of making full provision against all unpaid invoices relating to this client, and income is only recognised once invoices are paid. During 1998, invoices amounting to approximately Pounds 20.2 million (1997: Pounds 3.9 million and 1996: Pounds 7.7 million) were issued to this client and payments of Pounds 7.9 million (1997: L 2.3 million and 1996: Pounds 11.6 million) were received in settlement of prior year invoices, therefore a net amount of Pounds 12.3 million was charged to operating exceptional costs in 1998 (1997: Pounds 5.4 million and 1996: Pounds 3.9 million). At December 31, 1998, invoices totalling Pounds 23.7 million were unpaid. Further payments totalling Pounds 9.1 million have been received to date in 1999 which reduced the December 31, 1998 outstanding amount to Pounds 14.6 million. Discussions are continuing with representatives of the Nigerian Government regarding the payment of the remaining debt. In January 1999, FTS adopted a policy of only carrying out pre-shipment inspection work for the Nigerian Government if ITS was first paid by the exporter of the goods, on the understanding that ITS would refund the money to the exporter when it is paid for the pre shipment inspection cost by the Nigerian Government. The cash flow exposure to ITS has therefore effectively been capped due to cash receipts from exporters. Caleb Brett also carries out inspections for the Nigerian Government which are related to oil exports. The debt due to Caleb Brett was Pounds 1.8 million at the December 31, 1998 and this is not offset by payments from exporters. The Nigerian Government has paid Pounds 0.4 million to date in 1999. Discussions are continuing with representatives of the Nigerian Government regarding the payment of the remaining debt. DISCONTINUED OPERATION. An exceptional operating charge of Pounds 5.1 million was made in 1998 for legal and reprocessing costs relating to the ongoing investigation by the Environmental Protection Agency ("EPA"), into the data manipulation problems at the Dallas, Texas laboratory. Non-operating exceptional costs totalling Pounds 1.4 million were incurred in 1998 due to the closure of the Environmental division. These costs include staff redundancies, disposals of assets, and property expenses. Due to continuing operating losses, in 1996 the Environmental Testing division was restructured, incurring operating exceptional costs of Pounds 1.9 million and non operating exceptional costs of Pounds 1.8 million. NET INTEREST EXPENSE Year to December 31 ---------------------------------------------- Pounds in millions 1996 1997 1998 Net interest expense 30.7 29.8 31.9 Net interest expense decreased by Pounds 0.9 million in 1997 over 1996 due to the translation effect of converting interest on foreign currency borrowings into pounds sterling rather than a decrease in the underlying interest charge. The majority of ITS's borrowings are in U.S. Dollars. Net interest expense increased by Pounds 2.1 million in 1998 over 1997, principally due to the additional Parent Subordinated PIK Debentures issued during 1998 and SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 increased usage of the Revolving Credit Facility. INCOME TAXES Year to December 31 ---------------------------------------------- Pounds in millions 1996 1997 1998 Income tax charge 3.5 4.9 7.2 The 1998 tax charge on income before exceptional items was 68.9% (1997: 56.7%). This is due largely to the inability of the Group to obtain full potential tax relief on its interest expense in the U.K. and the U.S. and on operating losses in other territories. The location of taxable profits and deductible expenses has a significant impact on the tax charge year by year and accounts for the tax increase in the tax charge in 1998 compared to 1997. Without the unrelieved interest expense, the effective tax rate of the Group on operating income before exceptional items for 1998 would have been 36.8% (1997: 35.6%) which more closely reflects the underlying tax rate of the territories in which the Group operates. -30- 20-F 33rd Page of 123 TOC 1st Previous Next Bottom Just 33rd OPERATING AND FINANCIAL REVIEW BY DIVISION CONSUMER GOODS OPERATING RESULTS Year to December 31 ---------------------------------------------- Pounds in millions 1996 1997 1998 REVENUES 48.5 56.7 64.6 Actual growth % 16.9 13.8 Comparable growth % 27.1 18.8 OPERATING INCOME 9.9 13.8 16.1 Actual growth % 40.1 20.6 Comparable growth % 58.0 28.4 Operating margin % 20.4 24.4 24.9 At actual rates, revenues from Consumer Goods increased by Pounds 8.2 million in 1997 over 1996 and by Pounds 7.9 million in 1998 over 1997. Operating income increased by Pounds 3.9 million in 1997 over 1996 and by Pounds 2.3 million in 1998 over 1997. Management believes that the increased revenues were due to growth in the market caused by the increased demand from American and European retailers for consumer goods testing and inspection, especially textiles and the continued expansion of manufacturing markets in China and other Asian and developing countries where consumer goods has been expanding its presence. The growth in operating margins in 1998 was assisted by improvements in productivity following the introduction of a shift system to operate the Hong Kong laboratory for 24 hours per day. Although over 65% of Consumer Goods revenues are generated by businesses located in Asia and the Far East, the Asian crisis has not had an adverse impact on the business because the division primarily tests and inspects exports from Asian manufacturers to Western retailers, and these have continued to increase. CONFORMITY ASSESSMENT OPERATING RESULTS Year to December 31 ---------------------------------------------- Pounds in millions 1996 1997 1998 REVENUES 79.0 81.8 84.9 Actual growth % 3.6 3.8 Comparable growth % 12.7 6.6 OPERATING INCOME 12.3 7.9 9.8 Actual growth % (36.1) 16.1 Comparable growth % (33.8) 21.1 Operating margin % 15.6 9.7 11.5 At actual rates, revenues from Conformity Assessment increased by Pounds 2.8 million in 1997 over 1996 and by Pounds 3.1 million in 1998 over 1997. Operating income decreased by Pounds 4.4 million in 1997 over 1996 and SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 increased by Pounds 1.9 million in 1998 over 1997. Operating income and margins were unusually high in 1996 due to an increase in demand for EMC testing caused by the introduction of a European Union directive which became effective on January 1, 1996. This surge in activity was not sustained throughout 1997 but EMC testing appears to have stabilised in 1998. In 1998, there was growth in the electrical safety, telecom and building materials testing sectors, partly due to the strong economy in the United States, but this growth was negatively impacted by increased harmonisation of standards globally and by a further move towards self-certification in place of third party testing, -31- 20-F 34th Page of 123 TOC 1st Previous Next Bottom Just 34th especially in Europe. In Europe, there was growth in ISO 9000 registration which has expanded well in Germany and Sweden. The increase in operating margin in 1998 over 1997 followed cost reductions implemented at the end of 1997 in response to the reduced volume of EMC testing work. CALEB BRETT OPERATING RESULTS Year to December 31 ---------------------------------------------- Pounds in millions 1996 1997 1998 REVENUES 103.7 108.9 123.0 Actual growth % 4.9 13.0 Comparable growth % 13.0 20.0 OPERATING INCOME 9.2 10.9 11.9 Actual growth % 18.4 9.1 Comparable growth % 29.7 25.0 Operating margin % 8.9 10.0 9.7 At actual rates, revenues from Caleb Brett increased by Pounds 5.2 million in 1997 over 1996 and by Pounds 14.1 million in 1998 over 1997. Operating income increased by Pounds 1.7 million in 1997 over 1996 and Pounds 1.0 million in 1998 over 1997. Approximately 50% of Caleb Brett's revenues are generated by businesses located in the Americas, principally the United States. Revenues in the Americas grew by 10.7% in 1997 over 1996 and by 11.8% in 1998 over 1997. Market conditions in petroleum inspection and testing benefited from oil companies increasing their inventories because of the low oil price, and Caleb Brett gained market share. Operating income in the Americas grew by 34.1% in 1997 over 1996 and by 23.5% in 1998 over 1997, assisted by improved results in Latin America where American and European oil traders are increasingly demanding professional and independent inspection and testing services, which has resulted in higher revenues and improved operating margins. Revenues from the Asia Pacific region grew by 9.3% in 1997 over 1996 and declined by 10.9% in 1998 over 1997. Operating income grew by 150.1% in 1997 over 1996 and declined by 34.6% in 1998 over 1997. Management believes that the decline in 1998 was due to the Asian crisis which resulted in an overall contraction in petroleum consumption and lower refining activity in Asia. There was also less work in Hong Kong where most transhipment activity to China stopped. Despite the volatility in this region, operations in Australia performed well benefiting from two small acquisitions during 1998 and from new outsourcing contracts, where oil companies have handed over the management of their laboratories or subcontracted oil sample testing to Caleb Brett. In the Europe, Africa and Middle East region, revenues fell by 5.3% in 1997 over 1996 and grew by 28.6% in 1998 over 1997. Operating income fell by 43.4% in 1997 over 1996 and grew by 60.4% in 1998 over 1997. The decline in 1997 over 1996 was caused by competitive pressures in Continental Europe. The growth in this region in 1998 was attributable to acquisitions made during the year, to gaining market share and also to new outsourcing contracts. Caleb Brett completed eight acquisitions during 1998 for a total consideration of approximately Pounds 14.9 million. These acquisitions contributed Pounds 6.8 million to revenues and Pounds 0.8 million to operating income in 1998. These businesses were acquired to establish Caleb Brett in new territories, which expanded the global network and increased market share. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 ACQUISITIONS Pounds in millions Americas Europe Asia Pacific Revenues 0.2 6.2 0.4 Operating income 0.1 0.6 0.1 -32- 20-F 35th Page of 123 TOC 1st Previous Next Bottom Just 35th Operating costs in Caleb Brett included Pounds 0.4 million in 1998 for goodwill amortisation which was mostly attributable to Europe. FOREIGN TRADE SUPERVISION OPERATING RESULTS Year to December 31 ---------------------------------------------- Pounds in millions 1996 1997 1998 REVENUES 48.9 55.8 65.3 Actual growth % 14.2 17.0 Comparable growth % 17.4 19.2 OPERATING INCOME 1.9 5.1 7.2 Actual growth % 163.4 42.9 Comparable growth % 183.7 52.1 Operating margin % 3.9 9.1 11.0 At actual rates, revenues from FTS increased by Pounds 6.9 million in 1997 over 1996 and by Pounds 9.5 million in 1998 over 1997. Operating income increased by Pounds 2.1 million in 1997 over 1996 and by Pounds 3.1 million in 1998 over 1997. The increases in revenues and operating margins in 1997 over 1996 and in 1998 over 1997, were due to the expansion of existing operations in Nigeria and the impact of new business in Mozambique and Saudi Arabia, which commenced during 1996. On January 4, 1999 the President of Nigeria announced that the Government of Nigeria would terminate all pre-shipment inspection programmes on March 31, 1999. If these programmes are terminated, ITS will lose annual revenues of approximately Pounds 21.5 million and the FTS division will be restructured in 1999 at an estimated cost of Pounds 2.3 million. MINERALS OPERATING RESULTS Year to December 31 ---------------------------------------------- Pounds in millions 1996 1997 1998 REVENUES 22.2 25.6 16.5 Actual growth % 15.3 (35.4) Comparable growth % 34.0 (29.9) OPERATING INCOME/(LOSS) 3.7 4.4 (0.3) Actual growth % 17.8 (106.4) Comparable growth % 47.7 (110.5) Operating margin % 16.7 17.2 (1.8) At actual rates, revenues from Minerals increased by Pounds 3.4 million in 1997 over 1996 and decreased by Pounds 9.1 million in 1998 over 1997. Operating income increased by Pounds 0.7 million in 1997 over 1996 and decreased by Pounds 4.7 million in 1998 over 1997. -33- 20-F 36th Page of 123 TOC 1st Previous Next Bottom Just 36th The decline in Minerals revenues in 1998 over 1997 was due to reduced exploration activity caused mainly by the gold price which was at a 17 year low and the reduced investment in mining stocks which has been attributed to the discovery of alleged fraudulent practices by Bre-X. Restructuring costs of approximately Pounds 1.0 million were incurred in 1998 which have resulted in a net loss for the year. The cost base has been reduced. DISCONTINUED OPERATION SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 OPERATING RESULTS Year to December 31 ---------------------------------------------- Pounds in millions 1996 1997 1998 (8 months) Revenues 21.4 15.2 5.5 Operating loss (1.8) (1.6) (2.5) The Environmental Testing division ceased trading in August 1998 following the sale of the laboratory businesses in Burlington, Vermont and St. Helens, U.K. and the cessation of commercial operations in other locations. The facility in Dallas, Texas remains open to assist in the EPA investigation. Costs associated with the closure of the division and the ongoing EPA investigation are included within exceptional costs. EFFECTS OF U.S. GAAP ADJUSTMENTS ON OPERATING INCOME As described in Note 35 to the consolidated financial statements, ITS's results of operations would be different under U.S. GAAP. The primary U.S. GAAP adjustments affecting the results of operations relate to goodwill amortisation, a covenant not to compete amortisation and the change in accounting policy in respect of the FTS division. Operating income would be (reduced)/increased for such items, as follows: · Enlarge/Download Table Pounds in millions Predecessor ITS Company - -- - - -- - --- - ---- - --- --- --- -- --- -- --- --- --- -- --- -- --- --- --- ------ Period from Period from Year ended Year ended January 1, to October 8, to December 31, December 31, October 7, 1996 December 1997 1998 31,1996 - -- - - -- - --- - ---- - --- --- --- -- --- -- --- --- --- -- --- -- --- --- --- ------ Consumer Goods (0.8) (0.5) (2.2) (2.2) Conformity Assessment (0.4) (3.2) (10.1) (10.1) Caleb Brett (0.5) (2.4) (9.4) (9.6) Foreign Trade Supervision 1.4 (6.5) (2.5) (1.5) Minerals (0.2) (0.2) (0.8) (0.6) - -- - - -- - --- - ---- - --- --- --- -- --- -- --- --- --- -- --- -- --- --- --- ------ Total continuing operating income (0.5) (12.8) (25.0) (24.0) ================ ================================================ -34- 20-F 37th Page of 123 TOC 1st Previous Next Bottom Just 37th FINANCIAL CONDITION AND LIQUIDITY The statements of cash flow are presented for the periods from January 1, 1996 to October 7, 1996 and October 8,1996 to December 31, 1996, for the year ended December 31, 1997 ("1997") and for the year ended December 31, 1998 ("1998".) For the purposes of the following discussion on financial condition and liquidity, the period "1996" refers to the sum total of the periods from January 1, 1996 to October 7, 1996 and October 8, 1996 to December 31, 1996. The net cash inflow from operating activities is normally more than adequate to cover ITS's requirements to finance working capital and investments in tangible fixed assets. At December 31, 1998, ITS had cash and cash equivalents of Pounds 16.8 million and net borrowings of Pounds 295.8 million compared to cash and cash equivalents of Pounds 25.2 million and net borrowings of Pounds 277.3 million at December 31, 1997. ITS reported net cash inflow from operating activities of Pounds 32.4 million, Pounds 45.6 million and Pounds 39.7 million for 1998, 1997 and 1996 respectively. In each of these periods, ITS's net cash inflow from operating activities exceeded operating income. Net cash inflow from operating activities includes operating income after operating exceptionals, before depreciation and other non-cash items, as well as working capital movements. The decline in operating cash flow in 1998 over 1997 is caused principally by the high exceptional costs - Pounds 19.2 million in 1998 compared to Pounds 3.9 million and Pounds 7.1 million in 1997 and 1996. Expenditure on tangible fixed assets amounted to Pounds 14.0 million, Pounds 13.7 million and Pounds 18.1 million for 1998, 1997, and 1996 respectively. ITS's investment in tangible fixed assets was primarily in laboratory equipment and information technology. ITS incurred losses on the disposal of plant and equipment of Pounds 0.2 million in 1998, Pounds 1.7 million in 1997 and Pounds 1.7 million in 1996 mainly due to the restructuring of Environmental which resulted in the disposal of six laboratories in the US SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 and the UK in the period 1996 to 1998. During 1998, ITS incurred expenditure of Pounds 0.6 million for professional fees connected to the Acquisition. In 1997 fees of L 4.9 million were paid together with a payment of Pounds 4.5 million to Inchcape plc to reimburse a temporary loan and to repay cash owed by ITS to the Inchcape cash pooling scheme in Hong Kong. During 1998, the cash outflow on acquisitions was Pounds 10.8 million, including professional fees of Pounds 0.5 million. An additional Pounds 3.5 million of consideration is deferred until certain financial targets are achieved. The majority of the deferred consideration was paid in early 1999. In August 1998, ITS received Pounds 2.1 million for the sale of part of Environmental Testing. Costs of Pounds 2.5 million were incurred in 1998 in connection with the closure of the remainder of this division. At December 31, 1998, ITS had total borrowings of Pounds 306.6 million (1997: Pounds 290.1 million) less unamortised debt issuance costs of Pounds 10.8 million (1997: Pounds 12.8 million). An analysis of borrowings is given in the table below. BORROWINGS December 31, December 31, 1997 1998 Pounds in millions Senior Subordinated Notes 121.5 120.9 Senior Term Loan A 79.5 73.7 Senior Term Loan B 35.7 35.1 Senior Revolving Credit Facility -- 16.3 Parent Subordinated PIK Debentures 52.5 59.2 Other Borrowings 0.9 1.4 ------------------------- TOTAL BORROWINGS 290.1 306.6 Debt Issuance costs (12.8) (10.8) ------------------------- NET BORROWINGS 277.3 295.8 ------------------------- -35- 20-F 38th Page of 123 TOC 1st Previous Next Bottom Just 38th Apart from a small amount of the Revolving Credit Facility, all the borrowings are denominated in currencies other than pounds sterling so the outstanding amount in pounds sterling is affected by exchange rate fluctuations. There were no movements in either the Senior Subordinated Notes or the Senior Term B loans in 1998. ITS made repayments totalling Pounds 5.3 million in 1998 (1997: Pounds 2.9 million) in accordance with the terms of the Senior Term A Loans. ITS drew down Pounds 16.3 million on its Revolving Credit Facility to finance acquisitions and working capital in 1998, leaving Pounds 5.7 million of facility available at December 31, 1998. The increase in Other Borrowings arose as a result of the companies acquired during 1998, some of which had external loans. Additional Parent Subordinated PIK Debentures totalling Pounds 7.1 million were issued in lieu of cash for interest due on the Parent Subordinated PIK Debentures for the periods set out below. ISSUE OF PARENT SUBORDINATED PIK DEBENTURES PERIODS OF INTEREST Pounds IN MILLIONS November 2, 1997 to February 1, 1998 1.7 February 2, 1998 to May 1, 1998 1.7 May 2, 1998 to August 1, 1998 1.8 August 2, 1998 to November 1, 1998 1.9 -------- Total 7.1 -------- A detailed description of the borrowings is given below. In 1998, ITS paid interest of Pounds 23.4 million (1997: Pounds 21.7 million) on these borrowings and received interest of Pounds 0.8 million (1997: Pounds 1.5 million) on bank balances. These figures exclude interest relating to the Parent Subordinated PIK Debentures which was funded by further issues of such securities debentures on the interest due dates as shown above. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 ITS paid dividends of Pounds 2.4 million to minority shareholders in 1998 and received Pounds 0.03 million (1997: Pounds 0.4 million) for cash subscribed by minority investors. In 1997 and 1996, ITS paid dividends of Pounds 1.7 and Pounds 0.8 million respectively to minority shareholders. At December 31, 1998, ITS was owed Pounds 25.5 million for inspection work carried out for the Nigerian Government. The non payment of this debt, together with the cost of the acquisitions undertaken in 1998, put a strain on the operating cash flow of the Group. The Group is presently at an advanced stage of refinancing its operations through the amendment of banking arrangements and plans to raise an additional Pounds 20.0 million of new equity to finance working capital and prospective acquisitions. Management expects that the above refinancing and equity issue will be completed and effective before the end of April 1999. It is currently expected that Management will take up the shares offered to them and a major shareholder has agreed to purchase shares offered to but not taken up by the other shareholders and warrantholders. The proposed amended banking arrangements principally provide for delayed repayment of the Senior Term A Loans, but some of the repayments from the Nigerian Government and some of the proceeds from future disposals will result in earlier repayments. In addition to the cash generated by this refinancing, ITS has received Pounds 9.5 million from the Nigerian Government in the first quarter 1999, reducing the Pounds 25.5 million debt to Pounds 16.0 million. Discussions are continuing with representatives of the Nigerian Government regarding the payment of the remaining debt. Management believes the Group will have sufficient funds to meet the Group's cash requirements for the foreseeable future (the period to December 31, 1999). ITS's ability to meet its debt targets in the longer term will depend upon the achievement of its business plan. There can be no assurance that ITS will generate sufficient cash flow from operations or that future working capital will be available in an amount sufficient to enable ITS to service its indebtedness, or make necessary capital expenditures. Subject to the provisions of the agreement under which the Loans (as defined) to finance the acquisition of the business were made, and subject to certain exceptions and applicable law, there are no restrictions on the ability of: (a) the Company or any of its direct and indirect subsidiaries from paying dividends or making any other distributions or loans or advances to Intertek Finance plc (the "Issuer") or (b) the direct and indirect subsidiaries of the Company from paying dividends or making any other -36- 20-F 39th Page of 123 TOC 1st Previous Next Bottom Just 39th distributions or loans or advances to the Company. DESCRIPTION OF BORROWINGS (a) LOANS To finance a portion of the costs of the Acquisition, in November 1996, the Company entered into a credit agreement (the "Credit Agreement") comprising a Pounds 125.0 million Term Loan Facility (the "Term Loan Facility"), split into a Pounds 85.0 million multicurrency Term A Facility (the "Term A Facility") and a Pounds 40.0 million multicurrency Term B Facility (the "Term B Facility"), and a $48.8 million multicurrency revolving credit facility (the "Revolving Credit Facility"). The Term A Facility amortises over seven years with the final repayment on December 15, 2003 and the Term B Facility is repayable in two equal instalments in June and December 2004. The commitments under the Revolving Credit Facility terminate on December 15, 2003. Borrowings under the Credit Agreement are secured on substantially all the tangible and intangible assets of the Company. Term A Loans and advances under the Revolving Credit Facility initially bear interest at a rate equal to LIBOR (as adjusted) plus 2.00%. The margin over LIBOR may be reduced, initially to 1.75%, following satisfaction of certain financial performance tests. Term B Loans bear interest at a rate equal to LIBOR (as adjusted) plus 2.75%. Overdue amounts on either the Term A Loans, the Term B Loans or Revolving Credit Facility will bear interest at the applicable interest rate plus 1.00% per annum. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 At December 31, 1998, Pounds 5.7 million (1997: Pounds 18.8 million) was available under the Revolving Credit Facility. (b) NOTES In November 1996, the Company issued US $203 million principal amount of Senior Subordinated Notes (the "Notes"). The cash consideration received at the date of issue was Pounds 123,547,000. The Notes mature at par on November 1, 2006. Interest on the Notes accrues at the rate of 10.25% per annum and is payable semi annually in cash on each May 1, and November 1. The Notes are redeemable, in whole, or in part, at the Company's option at any time on or after November 1, 2001 at the redemption price of 105.125% of the principal amount, during the year commencing November 1, 2001, 103.417% of the principal amount, during the year commencing November 1, 2002, 101.708% of the principal amount during the year commencing November 1, 2003 and, thereafter, at 100% of the principal amount plus accrued and unpaid interest. (c) PIK DEBENTURES As part of the financing of the Acquisition, the Company issued Pounds 50.0 million of units (the "Units") consisting of 12.0% Subordinated Debentures due November 1, 2007 (the "Parent Subordinated PIK Debentures") and warrants to purchase 14.2% of the fully diluted share capital of the Company ("Warrants") pursuant to a securities purchase agreement (the "Securities Purchase Agreement"). The Warrants will be exercisable only upon sale in connection with the acquisition by a person (other than a person who has funds managed by Charterhouse or any other member of Charterhouse's wholly-owned group) of more that 50% of the Ordinary Shares of the Company (calculated excluding the ordinary Shares underlying the Warrant) or the unconditional granting of permission for any of the ordinary Shares of the Company to be dealt on any recognised investment exchange. Interest on the Parent Subordinated PIK Debentures is accrued quarterly at a rate of 12.0% per annum, subject, upon, and during the continuation of certain events of default, to an increase to the lesser of (i) 24.0% per annum or (ii) the highest rate of interest then allowed under applicable law. In lieu of cash, interest on the Parent Subordinated PIK Debentures may, at the option of the Company, be paid by issuing additional Parent Subordinated PIK Debentures on any interest payment date (i) on or prior to February 1, 2002, (ii) after February 1, 2002, to the extent the Company's pro-forma total fixed charge coverage ratio would be less than 1.10 to 1.00 or (iii) if (a) at the time of any such payment, there exists a payment default in respect of certain senior indebtedness (including the Notes and indebtedness incurred under the Credit Agreement noted above) or (b) after giving effect to any such payment an event of default pursuant to which such indebtedness under the indenture governing the Notes (the "Indenture") or Credit Agreement may be accelerated shall occur and be continuing and the Company is prevented by the holders under the Indenture or the creditors under the Credit Agreement from paying such cash interest. The Parent Subordinated PIK Debentures may be redeemed at any time at the option of the Company in whole or in part (provided that, at any such time, the Company redeems a minimum of US $5.0 million in aggregate principal -37- 20-F 40th Page of 123 TOC 1st Previous Next Bottom Just 40th amount of the Parent Subordinated PIK Debentures) at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the redemption date. The Parent Subordinated PIK Debentures are unsecured liabilities of the Company. EURO On January 1, 1999, eleven of the European Union member states, including seven countries where ITS operations are located, established fixed conversion rates between their existing countries and adopted one common currency, the Euro. The conversion to the Euro eliminates currency exchange rate risk among the eleven member countries. The currencies of the eleven member states remain legal tender in the participating countries during a three year transition period from January 1, 1999 through January 1, 2002. Effective January 1, 1999 the Euro is traded on currency exchanges and is available for non cash transactions during the three year transitional period. Beginning on January 1, 2002, the European SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Central Bank will issue Euro-denominated bills and coins for use in cash transactions. On or before July 1, 2002 the participating countries will withdraw all bills and coins and use the Euro as their legal currency. ITS's operating units affected by the Euro have established plans to address the issues raised by the conversion. These issues, amongst others, include such matters as pricing, continuity of contracts, accounting and financial reporting, taxation, treasury activities and computer systems. ITS anticipates that the operating units will convert their local records to the Euro during the three year transition period. At this time, although no immediate problems have been identified, there can be no assurance that the harmonisation of currencies in Europe will not have a material adverse impact on the results of operations, financial position or liquidity of its European businesses. INFORMATION TECHNOLOGY Each division of ITS is responsible for the information technology needed to serve its clients including laboratory information management systems, inspection reporting systems, and order processing and ledger accounting systems. Other systems requiring global co-ordination, such as accounting consolidation and E-mail, are managed through ITS's head office. STATE OF READINESS. The date change from 1999 to 2000 may impair the function of the Group's internal computer network and related systems, its testing equipment and any other system or device in which the year is represented by two digits rather than by four. A full review has been undertaken for all major IT systems to ensure they will operate effectively in the Year 2000. It is expected that the modifications identified in that review will have been completed by September 1999. ITS has established a Year 2000 team made up of the members of ITS's IT Steering Committee to cover (i) internal systems, (ii) test equipment and facilities, (iii) suppliers and (iv) legal issues. ITS's IT Steering Committee reports regularly to the ITS Board. To date, ITS has sent Year 2000 information to approximately 3,000 of its customers. All key subcontractors and suppliers are being audited under ITS's Year 2000 program. ITS has also implemented procedures to access the Year 2000 readiness of its key suppliers. These procedures include testing of critical components and obtaining confirmation from key suppliers. ITS currently expects its key subcontractors and suppliers will be Year 2000 compliant in all material respects by mid-year 1999. COSTS. The total cost (both revenue and capital) of remedial and replacement work for both IT systems and non-IT systems was Pounds 1.4 million in 1998 and is currently estimated at Pounds 2.8 million in 1999. These estimates have been calculated in accordance with SEC Guidelines, which require the full cost of projects to be disclosed as estimated Year 2000 costs, where the replacement of a non-compliant system has been accelerated. RISKS. There can be no assurance that the Group's efforts (or the efforts of its customers and suppliers) will be successful in limiting the vulnerability of the Group's systems and equipment to the problems associated with the transition to the Year 2000, or that, if such problems occur, they will not have a material adverse effect on the Group before they can be resolved. However, management presently believes that it is unlikely that the failure of any -38- 20-F 41st Page of 123 TOC 1st Previous Next Bottom Just 41st individual system will have a material effect on the operation of the ITS group. In the event of a systems breakdown at a particular site, work can usually be transferred to another site in ITS. CONTINGENCY PLANS. ITS currently believes that the most reasonably likely worst case scenario is that there will be some localised disruptions of systems that will affect individual business processes, facilities or supplies for a short time rather than systemic or long-term problems affecting its business operations as a whole. Through its contingency planning, ITS will continue to identify systems, or other aspects of its business or that of its suppliers, that it believes would be most likely to experience Year 2000 problems, as well as those business operations in which a localised disruption could have the potential for causing a wider problem by interrupting the flow of products, materials or data to other operations. ITS's contingency planning will focus on minimising the scope and duration of SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 any disruptions by having sufficient personnel, inventory and other resources in place to permit a flexible, real-time response to specific problems as they may arise at individual locations around the world. -39- 20-F 42nd Page of 123 TOC 1st Previous Next Bottom Just 42nd ITEM 9A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DISCLOSURES ABOUT MARKET RISKS The Company's primary market risk exposures are interest rate risk and foreign currency risk. The Company's exposure to market risk for changes in interest rates relates primarily to its Senior debt obligations (Senior secured long-term debt and revolving credit facility) upon which interest is paid at variable rates. The Company uses interest rate swap and interest rate cap agreements to hedge fluctuations in these variable rates. The Company is also exposed to changes in foreign currency as all of its long-term debt is denominated in foreign currencies, most significantly the U.S. dollar. The Company has sales denominated in various foreign currencies, also predominantly the U.S. dollar. These foreign currency income streams are matched with the foreign currency debt and interest repayments to minimize the foreign currency exposure. The Company has entered into foreign exchange contracts to hedge (into U.K. pounds) firmly committed foreign currency purchases and forein currency receipts. In certain circumstances, hedges are in other currencies where, for example, a subsidiary that earns revenue in U.S. dollars has to buy its supplies in Australian dollars. This is reflective of the geographical diversity of the Company. The purpose of the foreign currency exchange contracts is to lock in the exchange rates. Increases or decreases in the Company's foreign currency firm commitments are partially offset by gains and losses on the hedging instrument. The Company does not use foreign exchange contracts for trading purposes. -40- 20-F 43rd Page of 123 TOC 1st Previous Next Bottom Just 43rd INTEREST RATE SENSITIVITY The table below provides information about the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps, interest rate cap agreements and debt obligations. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps and caps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. The information is presented in Sterling equivalents, which is the Company's reporting currency. The instrument's actual cash flows are denominated in US dollar (USD), Swedish Kroner (SEK), German Marks (DEM) and Hong Kong Dollars (HKD) as indicated in parentheses. · Enlarge/Download Table Expected Maturity Date ---------------------- Fair Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Thereafter Total Value ------ ------ ------ ------ ------ ------ ---------- ----- ----- (Pounds Equivalent in Thousands) LIABILITIES REVOLVING ADVANCES SHORT -TERM Floating Rate (GBP) 2,200 - - - - - - 2,200 2,200 Average Interest Rate (2) 8.97% - - - - - - Floating Rate (USD) 6,845 - - - - - - 6,845 6,845 Average Interest Rate (2) 7.20% - - - - - - Floating Rate (DEM) 3,823 - - - - - - 3,823 3,823 Average Interest Rate (2) 5.31% - - - - - - Floating Rate (NOK) 3,308 - - - - - - 3,308 3,308 Average Interest Rate (2) 10.40% - - - - - - Underlying Long Term Debt (1) Fixed Rate (USD) - - - - - - 120,833 120,833 123,746 Average Interest Rate - - - - - - 10.25% SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Fixed Rate (USD) (4) - - - - - - 182,468 182,468 67,962 Average Interest Rate - - - - - - 12.00% Floating Rate (USD) 3,214 3,881 5,215 7,064 8,095 13,693 - 41,162 41,162 Average Interest Rate (2) 7.31% 7.38% 7.51% 7.66% 7.77% 8.12% - Floating Rate (SEK) 683 825 1,108 1,501 1,720 16,107 - 21,945 21,945 Average Interest Rate (2) 6.50% 6.46% 6.59% 6.92% 7.13% 7.33% - Floating Rate (DEM) 472 570 766 1,037 1,189 5,343 - 9,377 9,377 Average Interest Rate (2) 5.74% 5.95% 5.98% 5.93% 6.14% 6.41% - Floating Rate (HKD) 4,247 5,128 6,891 9,335 10,698 - - 36,300 36,300 Average Interest Rate (2) 8.25% 8.35% 8.35% 8.35% 8.35% - - -------- --------- TOTAL 428,261 316,668 ======== ========= -41- 20-F 44th Page of 123 TOC 1st Previous Next Bottom Just 44th · Enlarge/Download Table Expected Maturity Date ---------------------- Fair Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Thereafter Total Value ------ ------ ------ ------ ------ ------ ---------- ----- ----- (Pounds Equivalent in Thousands) INTEREST RATE SWAPS Pay Fixed to Receive - - 13,690 - - - - 13,690 (436) Variable (USD) Average Pay Rate - - 6.25% - - - - Average Receive Rate (3) 5.20% 5.25% 5.33% - - - - - Pay Fixed to Receive - - 8,054 - - - - 8,054 (641) Variable (SEK) Average Pay Rate - - 6.80% - - - - Average Receive Rate (3) 3.95% 3.89% 4.00% - - - - Pay Fixed to Receive - - 5,343 - - - - 5,343 (269) Variable (DEM) Average Pay Rate - - 5.09% - - - - Average Receive Rate (3) 3.31% 3.50% 3.50% - - - - Pay Fixed to Receive 21,499 - - - - - - 21,499 (26) Variable (HKD) Average Pay Rate 6.59% - - - - - - Average Receive Rate (3) 6.25% - - - - - - INTEREST RATE CAPS Notional Amount 26,407 - - - - - - 26,407 - USD Strike (cap) 7.00% - - - - - - Forward Rate 5.20% - - - - - - Notional Amount 10,470 - - - - - - 10,470 - SEK Strike (cap) 7.00% - - - - - - Forward Rate 3.95% - - - - - - Notional Amount 4,886 - - - - - - 4,886 14 HKD Strike (cap) 7.00% - - - - - - Forward Rate 6.25% - - - - - - (1) Including current portion. (2) The interest rate applicable to the relevant currency is determined based on the inter-bank offering rate plus a spread (not in excess of 2.75% nor lower that 0.35% per year) based on the ratio of total net indebtedness of the Group as defined in the Credit Agreement. Rates included in the table represent average rates in effect at December 31, 1998. (3) The receive rates consist of the implied forward borrowing rates in the yield curve at the reporting date. (4) This debt is separately itemised due to the fact that interest is capitalised over the life of the debt. -42- 20-F 45th Page of 123 TOC 1st Previous Next Bottom Just 45th EXCHANGE RATE SENSITIVITY The table below provides information about the Company's derivative financial instruments and other financial instruments by functional currency and presents such information in Sterling pound equivalents. The table summarizes SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 information on instruments and transactions that are sensitive to foreign currency exchange rates, including foreign currency forward exchange agreements and foreign currency denominated debt obligations. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For foreign currency forward exchange agreements, the table presents the notional amounts and weighted average exchange rates by expected (contractual) maturity dates. These notional amounts generally are used to calculate the contractual payments to be exchanged under the contract. · Enlarge/Download Table Expected Maturity Date ---------------------- Fair Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Thereafter Total Value ------ ------ ------ ------ ------ ------ ---------- ----- ----- (Pounds Equivalent in Thousands) LIABILITIES Revolving advances Floating Rate (USD) 6,845 - - - - - - 6,845 6,845 Average Interest Rate 7.20% - - - - - - Floating Rate (DEM) 3,823 - - - - - - 3,823 3,823 Average Interest Rate 5.31% - - - - - - Floating Rate (NOK) 3,308 - - - - - - 3,308 3,308 Average Interest Rate 10.40% - - - - - - Underlying Long Term Debt Fixed Rate (USD) - - - - - 120,833 120,833 123,746 Average Interest Rate - - - - - 10.25% Fixed Rate (USD) 182,468 182,468 67,962 Average Interest Rate 12.00% Floating Rate (USD) 3,214 3,881 5,215 7,064 8,095 13,693 41,162 41,162 Average Interest Rate 7.31% 7.38% 7.51% 7.66% 7.77% 8.12% Floating Rate (SEK) 683 825 1,108 1,501 1,720 16,107 21,945 21,945 Average Interest Rate 6.50% 6.46% 6.59% 6.92% 7.13% 97.33% Floating Rate (DEM) 472 570 766 1,037 1,189 5,343 9,377 9,377 Average Interest Rate 5.74% 5.95% 5.98% 5.93% 6.14% 6.41% Floating Rate (HKD) 4,247 5,128 6,891 9,355 10,698 36,300 36,300 Average Interest Rate 8.25% 8.35% 8.35% 8.35% 8.35% FORWARD EXCHANGE AGREEMENTS (Receive NOK pay GBP) Contract Amount 6,207 6,207 243 Average contract Exchange 12.89 Rate (Receive GBP pay CHF) Contract Amount 4,082 4,082 2 Average Contract Exchange 2.27 Rate (Receive DEM pay USD) Contract Amount 1,636 1,636 - Average Contract Exchange 1.67 Rate (Receive AUD pay USD) Contract Amount 1,546 1,546 (78) Average Contract Exchange 0.64 Rate (Receive CAD pay USD) Contract Amount 1,488 1,488 (7) Average Contract Exchange 1.54 Rate (Receive INR pay USD) Contract Amount 298 298 - Average Contract Exchange 8,400 Rate -43- 20-F 46th Page of 123 TOC 1st Previous Next Bottom Just 46th ITEM 10: DIRECTORS AND OFFICERS OF REGISTRANT DIRECTORS OF THE COMPANY Set out below are the names, ages and positions of the directors of the Company at March 12, 1999. The Articles of Association of the Company ("the Articles") confer on SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Charterhouse the right to appoint two non-executive directors (one as deputy chairman) of the Company, so long as any person who has funds managed by Charterhouse (or any member of Charterhouse's wholly-owned group) holds shares in the Company. If Charterhouse's right lapses it is exercisable by holders of a majority of the A Shares. Charter Intertek LLC also has a right to appoint a non-executive director while it is a shareholder in the Company. If this right lapses it is exercisable by the holders of a majority of the A Shares. The holders of a majority of the A Shares have a right to appoint one non-executive director. Name Age Position ---- --- -------- Richard Nelson 56 Executive Chairman William Spencer 39 Senior Vice President and Chief Financial Officer Stuart Simpson 42 Non-executive Director Simon Drury 41 Non-executive Director Mr. Richard Nelson became a director and executive chairman of the Company in 1996. Prior to the Acquisition, Mr. Nelson had been the President and Chief Executive Officer of Inchcape Testing Services Limited since 1987. Prior to this, he was a director of Transcontinental Services from 1972 and Chief Executive from 1982 to the date of its acquisition by Inchcape in 1984. Mr. Nelson was retained as Chief Executive of Transcontinental by Inchcape and was nominated to the same position in 1987 when Inchcape combined Transcontinental with its consumer goods testing and minerals testing businesses to form ITS. He was educated at Rugby School and Sorbonne University. He qualified as a Chartered Accountant and then attended the London Business School, where he graduated in 1969 with a Master of Science in Economics. Mr. William Spencer became a director of the Company in 1996. Mr. Spencer joined the Group in 1992 and was appointed Finance Director of Inchcape Testing Services Ltd in 1995 after serving as Chief Financial Officer of Caleb Brett Eastern Hemisphere. Prior to joining ITS, he spent four years at Nacanco Ltd. where he was promoted to Company Treasurer, and two years at Olivetti Office U.K. where he was Financial Controller. He was educated at the University of Manchester Institute of Science and Technology, where he graduated with a Bachelor of Science with honors in Management Science. He qualified as a Chartered Management Accountant in 1985 and as a Corporate Treasurer in 1989. Mr. Stuart Simpson became a non-executive director of the Company in 1996. Mr. Simpson earned a Masters in Business from the London Business School and is also a Chartered Engineer. He worked in civil engineering project management for five years before joining 3i, the U.K. venture capital house. He joined Charterhouse in 1985 and became a director in 1988. He has been responsible for many investments in large management buyout and development capital transactions. Mr. Simon Drury became a non-executive director of the Company in 1998. Mr. Drury earned a Masters in Business from Cranfield University. He worked as a senior engineer in the Chemical industry for 7 years before joining CIN Industrial Investments as an Investment Manager. He joined Charterhouse in 1988 and became a director in 1994. -44- 20-F 47th Page of 123 TOC 1st Previous Next Bottom Just 47th OTHER KEY OFFICERS OF THE GROUP Shown below are the names, ages and positions of those who are key officers of the Group at March 12, 1999. Name Age Position ---- --- -------- Raymond Kong 51 Executive Vice President Gary Butts 53 Executive Vice President Gosta Fredriksson 52 Vice President John Hannaway 44 Vice President John Hodson 37 Vice President Albert Lo 46 Vice President Mark Loughead 39 Vice President Jag Sisodia 47 Vice President Henry Yeung 41 Vice President Brian Pitzer 46 Vice President and Human Resources Director Jeremy Coombe 30 Acting Treasurer SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 David Turner 38 Secretary Mr. Raymond Kong became an Executive Vice President of the Group in January 1998 and Chief Operating Officer of Consumer Goods. He has 30 years of work experience in testing services with 25 years at the Group. He was one of the founders of Labtest operations which specialised in consumer goods quality certification services. Mr. Kong was responsible for creating the global Labtest networks and service diversification. He was appointed Regional Director responsible for Quality Systems East in 1991. He also serves in a number of advisory committees for The Government of The Hong Kong Special Administrative Region. Mr. Gary Butts became Vice President of the Group in January 1998, with responsibility for Minerals Testing (Bondar Clegg) and Environmental Testing. He has held various positions with Cyprus Mines, Duval, Hazen Research, Sindor & Pincock, and Allen & Holt. He also spent several years with SCMRI as President and Chief Executive. Mr Butts joined the Group in 1992 as Regional Manager for Mineral Testing. He was promoted to Executive Vice President during 1998. Mr. Gosta Fredriksson became Vice President of the Group in January 1998 with responsibility for Conformity Assessment in Europe and Asia. Mr. Fredriksson was head of Safety Testing in Semko when it was acquired by the Group in 1994. He joined Semko in 1962. He has participated in the development of European certificate schemes such as CCA, Key-mark, LOVAG, IECEE-CCB and CCB-FCS. Mr. John Hannaway became Vice President of the Group in January 1998 with responsibility for Caleb Brett in Asia. He joined ITS in 1992 as Marketing Manager of Caleb Brett Australia and became General Manager in 1993. Prior to joining the Group, Mr. Hannaway spent three years as divisional manager for SGS Redwood Australia. Mr. John Hodson became Vice President of the Group in January 1998 with responsibility for Caleb Brett in the Americas. Mr. Hodson joined the Group in 1986 as Regional Manager in West Africa, and having spent time working in the U.K., Dubai and Singapore, was promoted to Vice President of Caleb Brett Asia in 1995. He moved to Houston to run operations in the Americas in 1998. Prior to joining the Group, Mr. Hodson spent four years with Core Laboratories in West Africa, establishing laboratory testing facilities for the oil exploration sector. -45- 20-F 48th Page of 123 TOC 1st Previous Next Bottom Just 48th Mr. Albert Lo became Vice President of the Group in January 1998 with responsibility for Consumer Goods in South East Asia and Textile Testing in China. Mr. Lo joined the Group in 1988 as head of the Textile Laboratory in Hong Kong. Mr. Lo was educated at the University of Leeds in the U.K. for a Master of Science. Before joining the Group, Mr. Lo had worked in quality assurance for a buying office based in the Asia Pacific region. Mr. Mark Loughead became Vice President of the Group in January 1998 with responsibility for Caleb Brett in Europe, Africa and the Middle East. Mr. Loughead joined the Group in 1988 as Operations Manager of Caleb Brett in Aberdeen. He was promoted to his present position following a period as Scottish Regional Manager. Prior to joining the Group, Mr. Loughead spent 13 years at Inspectorate including six years in the Middle East. Mr. Jag Sisodia became Vice President of the Group in January 1998 with responsibility for Conformity Assessment in the Americas. Mr. Sisodia joined the Group in 1987 as Chief Financial Officer of the FTS division, after which he became Chief Financial Officer of the business he is presently running. Prior to joining the Group, Mr. Sisodia had accounting positions in MCI Communications, Laventhal & Horwath, and Seidman & Seidman. He holds a Bachelor of Arts and a Masters in Business Administration from The American University, Washington DC and is a Maryland Certified Public Accountant. Mr. Henry Yeung became Vice President of the Group in January 1998 with responsibility for Consumer Goods in the Pacific Region. Mr. Yeung joined the Group in 1977 and has worked in Hong Kong, Taiwan and China. Mr. Yeung is a Chartered Colourist, a Fellow of the Society of Dyers and Colourist and a Licentiate of the Textile Institute. He has a Masters in Business Administration from the University of East Asia and a Master of Science from the University of Warwick Mr. Brian Pitzer became Vice President and Human Resources Director of the Group in January 1998. Mr. Pitzer joined the Group in March 1990 and developed the human resources function in the Americas region. He also addressed the human resources issues of acquisitions and organic growth in the region through the SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 mid 1990's. He is responsible for worldwide human resource programs. Prior to joining the Group, he spent 14 years at NCR Corporation in a variety of management positions in both field and corporate settings. Mr. Jeremy Coombe is Acting Group Treasurer of the Group with responsibility for Treasury. Mr Coombe joined the Group in May 1998. Prior to joining the Group, he has been employed in various finance functions, including 4 years in the treasury department at Normandy Mining in Australia. Mr. David Turner is Group Company Secretary with responsibility for company secretarial and legal matters throughout the Group. Mr. Turner joined the Group in September 1997 prior to which he was Assistant Company Secretary of The Mercantile and General Reinsurance Company for 7 years. Mr. Turner graduated from Reading University in 1981 with a Bachelor of Science (Honours) degree and has been a Chartered Secretary since 1991. ITEM 11: COMPENSATION OF DIRECTORS AND OFFICERS SERVICE AGREEMENTS There are no service contracts for directors requiring notice periods from the Company greater than 12 months and no director is therefore entitled to more than 12 months remuneration in lieu of notice. REMUNERATION COMMITTEE The members of the Remuneration Committee are Mr. Stuart Simpson and Mr. Simon Drury. The Committee meets at least twice a year and the Executive Chairman and Vice President and Human Resource Director are invited to attend. The Committee's responsibilities include consideration of service agreements and all aspects of remuneration for all employees and directors earning more than Pounds 60,000 per annum (or local currency equivalent), and the operation of the Company's Share Option Scheme. -46- 20-F 49th Page of 123 TOC 1st Previous Next Bottom Just 49th COMPENSATION OF DIRECTORS The aggregate compensation paid to all directors of the Company (5 persons during the 1998 fiscal year), for services in such capacities for the year ended December 31, 1998 was approximately Pounds 778,500, which included contributions made to the pension plans in respect of such directors of the Company of approximately Pounds 94,000. For the year ended December 31, 1998, the highest paid director received approximately Pounds 373,900 and pension plan contributions of approximately Pounds 85,400. NON-EXECUTIVE DIRECTORS' FEES Each director who is not an employee of the Company received an aggregate annual fee of Pounds 20,900, payable in quarterly instalments to their employer, for the year ended December 31, 1998. Directors who are also employees of the Company receive no remuneration for serving as directors. COMPENSATION OF EXECUTIVE OFFICERS The aggregate compensation paid to all executive officers (other than directors) of the Group (13 persons during the 1998 fiscal year) for services in such capacities for the year ended December 31, 1998 was approximately Pounds 1,914,000 with contributions made to the pension plans in respect of such officers of the Group of approximately Pounds 177,000. Executive officers are also entitled to receive annual bonuses of up to 50% of their base salary if various ITS divisions achieve certain operating profit and cash flow targets and working capital target ratios. ITEM 12: OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES SHARE OPTION SCHEME On March 1, 1997, the Company adopted a Share Option Scheme for senior management to encourage the involvement of employees in the goals and development of the Company. The following table shows options for C Shares in the Company outstanding at March 12, 1999. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 · Enlarge/Download Table NUMBER OF OPTIONS SUBSCRIPTION EXERCISABLE BETWEEN OUTSTANDING PRICE PER SHARE 1,043,271 10p March 1, 2000 March 1, 2004 10,592 10p September 1, 2000 September 1, 2004 172,116 10p December 31, 2000 December 31, 2004 23,831 10p June 1, 2001 June 1, 2005 55,606 10p December 31, 2001 December 31, 2005 At March 12, 1999, none of the directors of the Company held any options to subscribe for Ordinary Shares of the Company. At that date, officers of the Group held 111,211 options to subscribe for Ordinary Shares of the Company. -47- 20-F 50th Page of 123 TOC 1st Previous Next Bottom Just 50th ITEM 13: INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS In connection with the Acquisition, Charterhouse will receive an acquisition advisory fee of Pounds 3.8 million from the Company payable on demand when cash reserves permit. Charterhouse or funds managed by it may, from time to time, provide financial advisory services for which it will receive customary fees and expenses. In addition, each director appointed by Charterhouse will receive a fee of Pounds 20,900 per year, which will be remitted to Charterhouse. Except as discussed above, since January 1, 1997, the Company has not been, and is not now, a party to any material transaction or proposed transaction in which any director, any executive office or any spouse or relative of any of the foregoing or any relative of any such spouse has or was to have a direct or indirect material interest. No loans are outstanding from any member of the Group to any of the directors or officers and there are no guarantees provided by any member of the Group for the benefit of any director or officer. -48- 20-F 51st Page of 123 TOC 1st Previous Next Bottom Just 51st PART II ITEM 14: DESCRIPTION OF SECURITIES TO BE REGISTERED Not applicable. PART III ITEM 15: DEFAULTS UPON SENIOR SECURITIES None. ITEM 16: CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES Not applicable. PART IV ITEM 17: FINANCIAL STATEMENTS Not applicable. ITEM 18: FINANCIAL STATEMENTS Reference is made to Item 19(a) for a full list of consolidated financial statements filed as part of this Annual Report. ITEM 19: FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT The following financial statements and related schedules, together with the report of independent auditors thereon, are filed as part of this Report. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 PAGE Report of Independent Auditors F-1 Consolidated Statements of Operations F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Cash Flows F-4 Consolidated Statements of Total Recognised Gains and Losses F-5 Consolidated Statements of Changes in Shareholders' Equity/(Deficit) F-6 Notes to the Consolidated Financial Statements F-7 (b) EXHIBITS FILED AS PART OF THIS REPORT NONE. The Company agrees to furnish to the Securities and Exchange Commission upon its request a list or diagram of its subsidiaries indicating as to each subsidiary named: (a) its country or other jurisdiction of incorporation or organisation, (b) its relationship to the Company and (c) the percentage of voting securities owned or other basis of control by its immediate parent, if any. -49- 20-F 52nd Page of 123 TOC 1st Previous Next Bottom Just 52nd REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Intertek Testing Services Limited We have audited the accompanying consolidated balance sheets of Intertek Testing Services Limited (the "Company") at December 31, 1997 and 1998 and the related consolidated statements of operations, cash flows, changes in shareholders' deficit and total recognised gains and losses for the period from October 8, 1996 to December 31, 1996 and the years ended December 31, 1997 and 1998 and the related combined statements of income, cash flows, changes in shareholders' equity and total recognised gains and losses for the period from January 1, 1996 to October 7, 1996. These financial statements are set out on pages F- 2 to F-70 and are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with United Kingdom generally accepted auditing standards, which do not differ in any significant respect from United States generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1997 and 1998 and the consolidated results of its operations and its cash flows for the period from October 8, 1996 to December 31, 1996 and the years ended December 31, 1997 and 1998 in conformity with accounting principles generally accepted in the United Kingdom. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined results of operations and cash flows for the period from January 1, 1996 to October 7, 1996 of Inchcape Testing Services Limited in conformity with accounting principles generally accepted in the United Kingdom. As discussed in Note 2 to the consolidated financial statements, effective October 8, 1996, the Company acquired Inchcape Testing Services Limited in a business combination accounted for as a purchase. As a result of this acquisition, the consolidated financial information for the period after the acquisition is presented on a different basis from that for the combined financial information for the periods before the acquisition and, therefore, is not comparable in all respects. Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States. Application of accounting principles generally accepted in the United States would have affected the combined results of operations for the period from January 1, 1996 to October 7, 1996 and the consolidated results of operations for the period from October 8, 1996 to December 31, 1996 and for the years ended December 31, 1997 and 1998 and consolidated SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 shareholders' deficit at December 31, 1997 and 1998 to the extent summarised in Note 35 to the consolidated financial statements. KPMG Chartered Accountants London, England March 26, 1999 F-1 20-F 53rd Page of 123 TOC 1st Previous Next Bottom Just 53rd INTERTEK TESTING SERVICES LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS (Pounds '000) · Enlarge/Download Table Predecessor Successor Company Company -------------- ---------------------------------------- Notes Period Period from Year ended Year ended from October 8, December December January 1, 1996 31, 31, 1996 to 1997 1998 to December 31, October 7, 1996 1996 -------------- ---------------------------------------- Revenue 4 Continuing operations 227,098 75,326 328,814 347,526 Acquisitions - - - 6,770 Discontinued operation 16,463 5,134 15,169 5,517 -------------- ---------------------------------------- Group revenue 243,561 80,460 343,983 359,813 Operating costs 5 (222,249) (74,628) (307,427) (336,757) -------------- ---------------------------------------- Group operating income 21,312 5,832 36,556 23,056 Share of operating profit/(loss) in associates 374 69 78 (13) -------------- ---------------------------------------- Total operating income 7 21,686 5,901 36,634 23,043 ---------------------------------------------------------------------------- ---------------------------------------- Operating income before exceptional items Continuing operations 24,945 11,609 42,081 43,949 Acquisitions - - - 752 Discontinued operation (437) (1,433) (1,580) (2,463) -------------- ---------------------------------------- 4 24,508 10,176 40,501 42,238 Exceptional items charged against operating income 5,6 Continuing operations (2,822) (2,378) (3,867) (14,051) Discontinued operation - (1,897) - (5,144) -------------- ---------------------------------------- Total operating income 21,686 5,901 36,634 23,043 ---------------------------------------------------------------------------- ---------------------------------------- Non-operating exceptional items 6 - (1,761) - (1,395) -------------- ---------------------------------------- Income on ordinary activities before net interest 21,686 4,140 36,634 21,648 Net interest expense 8 (3,165) (4,063) (29,752) (31,855) Income from other Inchcape plc companies 5,417 - - - -------------- ---------------------------------------- Income/(loss) before taxation 23,938 77 6,882 (10,207) Taxation 9 (11,883) (411) (4,876) (7,156) -------------- ---------------------------------------- Income/(loss) after taxation 12,055 (334) 2,006 (17,363) Minority interests (447) (1,104) (3,604) (3,228) -------------- ---------------------------------------- Net income/(loss) for the group and its share of 22 11,608 (1,438) (1,598) (20,591) associates ============== ======================================== The accompanying notes on pages F-7 to F-70 are an integral part of these financial statements. F-2 20-F 54th Page of 123 TOC 1st Previous Next Bottom Just 54th INTERTEK TESTING SERVICES LIMITED CONSOLIDATED BALANCE SHEETS (Pounds '000) · Enlarge/Download Table SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Notes December December 31, 31, 1997 1998 --- -- --- --- --- -- --- -- --- --- --- -- --- -- ASSETS Current assets Cash 25,153 16,772 Trade receivables 13 60,483 67,516 Inventories 15 2,650 3,662 Other current assets 14 12,063 15,241 Deferred taxation asset 19 286 1,348 --- -- --- --- --- -- --- --- ----- Total current assets 100,635 104,539 Goodwill 10 - 13,074 Property, plant and equipment, net 11 44,460 45,951 Investments 12 184 231 --- -- --- --- --- -- --- --- ----- Total assets 145,279 163,795 ============== ============= LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Borrowings (including current portion of long term 16 5,268 22,209 borrowings) Accounts payable, accrued liabilities and deferred 17 60,019 70,952 income Income taxes payable 3,323 5,368 --- -- --- --- --- -- --- --- ----- Total current liabilities 68,610 98,529 Long term borrowings 16 272,036 273,564 Provisions for liabilities and charges 18 7,095 8,518 Minority interests 4,304 4,592 Commitments and contingencies 29, 30 SHAREHOLDERS' DEFICIT Ordinary shares 20 318 336 Redeemable preference shares 20 81,815 86,657 Shares to be issued 20 2,793 2,793 Premium in excess of par value 20 2,857 3,018 Retained deficit 22 (294,549) (314,212) --- -- --- --- --- -- --- --- ----- TOTAL SHAREHOLDERS' DEFICIT 23 (206,766) (221,408) ============== ============= TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT 145,279 163,795 ============== ============= The accompanying notes on pages F-7 to F-70 are an integral part of these financial statements. F-3 20-F 55th Page of 123 TOC 1st Previous Next Bottom Just 55th INTERTEK TESTING SERVICES LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Pounds '000) · Enlarge/Download Table Predecessor Successor Company Company ------------- ------------------------------------- Notes Period Period Year ended Year ended from from December December January 1, October 8, 31, 31, 1996 1996 1997 1998 to to October 7, December 1996 31, 1996 ------------- ------------------------------------- Total operating cash inflow 24 28,332 11,334 45,646 32,445 Returns on investments and servicing of finance 25 1,337 (1,341) (21,889) (25,070) Taxation (8,177) (3,292) (6,145) (5,960) Capital expenditure and financial investment 25 (12,277) (5,605) (12,995) (13,959) Acquisitions and disposals 25 6,712 (336,737) (9,392) (11,675) Equity dividends paid (28,329) - - - ------------- ------------------------------------- Cash outflow before financing (12,402) (335,641) (4,775) (24,219) Financing 25 3,227 370,357 (1,948) 16,014 ------------- ------------------------------------- (Decrease)/ increase in cash in the period (9,175) 34,716 (6,723) (8,205) ------------- ------------------------------------- Reconciliation of net cash flow to movement in net debt 26 (Decrease)/increase in cash in the period (9,175) 34,716 (6,723) (8,205) Cash inflow/(outflow) from increase in debt 310 (269,001) - - Debt issued in lieu of interest payment - - (6,138) (7,088) Acquisitions - - - (356) Change in net debt resulting from cash flows - - 2,378 (10,968) Other non-cash movements - - (2,112) (1,919) Exchange adjustments (499) (1,105) (4,166) 1,686 ------------- ------------------------------------- Movement in net debt in the period (9,364) (235,390) (16,761) (26,850) Net debt at the start of the period (54,139) - (235,390) (252,151) SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 ------------- ------------------------------------- Net debt at the end of the period (63,503) (235,390) (252,151) (279,001) ============= ===================================== The accompanying notes on pages F-7 to F-70 are an integral part of these financial statements. F-4 20-F 56th Page of 123 TOC 1st Previous Next Bottom Just 56th INTERTEK TESTING SERVICES LIMITED CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES (Pounds '000) · Enlarge/Download Table Predecessor Successor Company Company - ---- -- ---- - - -- -- --- --- --- -- --- -- --- --- --- -- --- -- - Period Period Year ended Year ended from from December December January 1, October 8, 31, 31, 1996 1996 1997 1998 to to October 7, December 1996 31, 1996 - ---- -- ---- - - -- -- --- --- --- -- --- -- --- --- --- -- --- -- - Net income/(loss) 11,608 (1,438) (1,598) (20,591) Dividends (28,329) - - - Exchange adjustments (443) 4,093 (7,611) 928 =================================================== Total recognised gains and losses (17,164) 2,655 (9,209) (19,663) =================================================== There is no material difference between income before taxation, and net income for the financial periods, as stated in the statements of operations and their historical cost equivalents. The accompanying notes on pages F-7 to F-70 are an integral part of these financial statements. F-5 20-F 57th Page of 123 TOC 1st Previous Next Bottom Just 57th INTERTEK TESTING SERVICES LIMITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/( DEFICIT) (Pounds '000) · Enlarge/Download Table -------------------------------------------------------------------------------------- Ordinary Redeemable Shares to Premium in Other Retained Total shares preference be issued excess of capital equity/ shares par value (deficit) -------------------------------------------------------------------------------------- PREDECESSOR COMPANY BALANCE AT DECEMBER 31, 1995 34,372 - - - 899 (2,381) 32,890 Net income - - - - 371 11,237 11,608 Dividends - - - - - (28,329) (28,329) Capitalisation of indebtedness to - - - - - 41,542 41,542 other Inchcape plc companies Exchange adjustments - - - - (91) (352) (443) -------------------------------------------------------------------------------------- BALANCE AT OCTOBER 7, 1996 34,372 - - - 1,179 21,717 57,268 ====================================================================================== SUCCESSOR COMPANY BALANCE AT OCTOBER 8, 1996 - - - - - - - Issue of shares 318 81,815 - 2,857 - - 84,990 Issue of warrants - - 2,793 - - - 2,793 Net loss - - - - - (1,438) (1,438) Goodwill written off on acquisitions - - - - - (289,319) (289,319) Exchange adjustments - - - - - 4,093 4,093 -------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 318 81,815 2,793 2,857 - (286,664) (198,881) Goodwill adjustments - - - - - 1,324 1,324 Net loss - - - - - (1,598) (1,598) Exchange adjustments - - - - - (7,611) (7,611) -------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997 318 81,815 2,793 2,857 - (294,549) (206,766) Net loss - - - - - (20,591) (20,591) SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Issue of shares 18 4,842 - 161 - - 5,021 Exchange adjustments - - - - - 928 928 ====================================================================================== BALANCE AT DECEMBER 31, 1998 336 86,657 2,793 3,018 - (314,212) (221,408) ====================================================================================== Included in Retained deficit is Pounds 270.6 million which represents goodwill written off to reserves prior to December 1997 (at December 31, 1996 and 1997: Pounds 284.7 million and Pounds 275.0 million, respectively). The accompanying notes on pages F-7 to F-70 are an integral part of these financial statements. F-6 20-F 58th Page of 123 TOC 1st Previous Next Bottom Just 58th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 1. ACCOUNTING POLICIES The significant accounting policies adopted by both the Successor and Predecessor Companies are as follows: Financial Reporting Standards 9, 10, 11 and 12 have been adopted and no prior year adjustments are required. BASIS OF CONSOLIDATION AND COMBINATION The consolidated financial statements of the Successor Company include the financial statements of the Successor Company and its subsidiaries. The combined financial statements of the Predecessor Company include the financial statements of the Predecessor Company and its subsidiaries plus the combination of other operations. The acquisition method of accounting has been adopted. Under this method, the results of subsidiaries acquired or sold are included in the consolidated statement of income of the Successor Company and the combined statements of income of the Predecessor Company from, or up to, the date control passes. The consolidated and combined statements of income of the Successor and Predecessor Companies include their respective shares of income from associated undertakings. The consolidated balance sheets of the Successor Company includes interests in associates at their respective shares of the net tangible assets. USE OF ESTIMATES Preparation of financial statements in conformity with U.K. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for an accounting period. Such estimates and assumptions could change in the future as more information becomes known or circumstances alter, such that the group's actual results may differ from the amounts reported and disclosed in the financial statements. FOREIGN CURRENCIES The results of operations and cash flows of overseas subsidiaries and associated undertakings are translated into sterling at the average of the month end rates of exchange for the period. Assets and liabilities in foreign currencies are translated into sterling at closing rates of exchange except where rates are fixed under contractual arrangements. The difference between net income/(loss) translated at average and at closing rates of exchange is included in the statement of total recognised gains and losses as a movement in shareholders' equity/(deficit). Exchange differences arising from the retranslation to closing rates of exchange of opening shareholders' equity, long-term foreign currency borrowings used to finance foreign currency investments, and foreign currency borrowings that provide a hedge against shareholders' equity are also reflected as movements in shareholders' equity/(deficit). All other exchange differences are dealt with in operations. PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Property, plant and equipment are stated at cost less depreciation, which is provided, except for freehold land, on a straight line basis over the estimated useful lives of the assets, mainly at the following annual rates: · Enlarge/Download Table Freehold buildings and long leasehold land and buildings....................... 2% Short leasehold land and buildings............................................. term of lease Plant, machinery and equipment................................................. 10% - 33.3% Permanent diminutions in value of individual properties below cost are charged to operations; however deficits which the Directors consider to be temporary in nature, are recognised in the revaluation reserve and may be offset against other surpluses. LEASES Assets held under capital leases are treated as if they had been purchased at the present value of the minimum lease payments. This cost is included in property, plant and equipment, and depreciation is provided over the shorter of the lease term or the estimated useful life. The corresponding obligations under these leases are included within borrowings. The finance charge element of rentals payable is charged to operations to produce a constant rate of interest. Operating lease rentals are charged to operations on a straight line basis over the periods of the leases. F-7 20-F 59th Page of 123 TOC 1st Previous Next Bottom Just 59th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 1. ACCOUNTING POLICIES (CONTINUED) INVENTORIES Inventories are stated at the lower of cost or net realisable value. Cost comprises expenditure incurred in the normal course of business in bringing inventories and work in progress to their present location and condition. REVENUES Revenues represent the total amount receivable for services provided and goods sold, excluding sales-related taxes and intra-group transactions. Revenue is recognised when the relevant service is completed or goods delivered. TAXATION Deferred taxation is provided using the liability method at current taxation rates on timing differences to the extent that the directors consider that it is probable that a liability or asset will crystallise. PENSION BENEFITS Liabilities under defined contribution pension schemes are charged to operations when incurred. ITS has a number of defined benefit pension schemes for which contributions are based on triennial actuarial valuations. Pension charges in operations have been calculated at a substantially level percentage of current and expected future pensionable payroll, with variations from regular cost spread over the expected remaining service lives of employees. Other post-retirement benefits are accounted for on a similar basis to defined benefit pension schemes. GOODWILL Purchased goodwill in respect of acquisitions before January 1, 1998 was written off to reserves in the year of acquisition. When a subsequent disposal occurs any goodwill previously written off to reserves is written back through the profit and loss account. Purchased goodwill in respect of acquisitions since January 1, 1998 is capitalised in accordance with the requirements of FRS 10, Goodwill and intangible assets. Such purchased goodwill is amortised to nil over equal instalments over its estimated useful life, generally not exceeding 20 years. DERIVATIVE FINANCIAL INSTRUMENTS ITS uses various derivative financial instruments to manage its exposure to SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 foreign exchange and interest rate risks. Derivative financial instruments are considered hedges if they meet certain criteria. A forward exchange contract is considered a hedge of an identifiable foreign currency commitment if such contract is designated as, and is effective as, a hedge of a firm foreign currency commitment. An interest rate swap agreement is considered a "synthetic alteration" (and accounted for like a hedge) when the agreement is designated with a specific liability and it alters the interest rate characteristics of such liability. An Interest rate cap agreement must also meet the same criteria as an interest rate swap to be considered hedges of a specific liability. Derivative financial instruments failing to meet the aforementioned criteria are accounted for at fair value with the resulting unrealised gains and losses included in the statement of operations. FORWARD EXCHANGE CONTRACTS Forward exchange contracts are designated as hedges of firm foreign currency commitments. Gains and losses on such contracts are deferred and recognised in income or as an adjustment of the carrying amount when the hedged transaction occurs. INTEREST RATE CAP AGREEMENTS Interest rate cap agreements are accounted for under the accruals basis. Amounts receivable under the agreement are accrued when due as a reduction of interest charges. Premiums paid for purchased interest rate cap agreements are amortised to interest charges over the term of the caps. INTEREST RATE SWAPS Interest rate swap agreements are designated to change the interest rate characteristics of floating-rate borrowings. Accordingly, these agreements are accounted for under the settlement basis. The interest differential between the amounts received and amount paid is recognised as an adjustment to interest charges over the term of the swap. F-8 20-F 60th Page of 123 TOC 1st Previous Next Bottom Just 60th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 2. ACQUISITION OF INCHCAPE TESTING SERVICES Intertek Testing Services Limited (incorporated on July 19, 1996) and its wholly owned subsidiaries, Testing Holdings Sweden AB, ITS Holding Limited, Testing Holdings USA Inc, Torton Limited, Testing Holdings France EURL, Kite Overseas Holdings BV, Testing Holdings Germany GmbH and Intertek Testing Services UK Limited (collectively the "Company", the "Successor Company" or "ITS"), were established for the purpose of acquiring from Inchcape plc the whole of its Inchcape Testing Services division (collectively "Inchcape Testing Services" or "Predecessor Company"). The acquisition ("the Acquisition") was effected on October 8, 1996 when the Company and its wholly owned subsidiaries signed a share purchase agreement and an option agreement with Inchcape plc to acquire Inchcape Testing Services through the separate acquisition of its regional holding companies and the direct acquisition of certain operating companies. Financial details of the Acquisition are set out in Note 27 to these consolidated financial statements. As a result of the Acquisition, the capital structure of and the basis of accounting for the Company differ from those of Inchcape Testing Services prior to the Acquisition. Financial data of the Company in respect of the periods from October 8, 1996 to December 31, 1998 (the "Successor Period") reflect the Acquisition under the acquisition method of accounting. Financial data in respect of Inchcape Testing Services prior to the Acquisition (the "Predecessor Period") generally will not be comparable with that of the Company with respect to the interest expense, amortisation of debt issuance costs incurred in connection with the Acquisition and income from other Inchcape plc companies. The net other effects on the Statement of Operations of purchase accounting in the Successor Period are not significant. 3. BASIS OF PREPARATION (a) SUCCESSOR AND PREDECESSOR COMPANIES The accompanying consolidated financial statements of the Company and its SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 subsidiaries and the combined financial statements of the Predecessor Company and its subsidiaries have been prepared in conformity with accounting principles generally accepted in the United Kingdom ("U.K. GAAP") and are presented under the historical cost convention. These principles differ in certain material respects from generally accepted accounting principles in the United States ("U.S. GAAP") - see Note 35. The accompanying financial statements do not represent the U.K. statutory financial statements of the Company or the Predecessor Company, as certain reclassifications and changes in presentation and disclosure have been made to conform more closely with accounting presentation and disclosure requirements applicable in the United States. (b) PREDECESSOR COMPANY All undertakings over which the Predecessor Company exercised control or a dominant influence, being the right to direct the operating and financial policies, are combined in the accompanying combined financial statements. However the following companies have not been combined. S.S. Acquisition Corporation Atkins Kroll Inc. Microl Corporation The above companies are stated at cost to the Predecessor Company in the combined balance sheet. The combined statements of income include dividends receivable from these companies which are recognised when declared. This treatment represents a departure from the requirement of FRS 2 to combine all entities that are legally owned by the Predecessor Company. The Directors consider that, for the following reasons, compliance with this requirement would fail to present fairly the financial positions, results of operations and cash flows of the Predecessor Company for each of the relevant periods covered in this report. o the above companies, while legally owned by a subsidiary of the Predecessor Company, did not form part of the testing operations of Inchcape plc that were acquired by the Successor Company on October 8, 1996. The above companies were engaged in dissimilar businesses: shipping and brokerage and motor distribution and retail; F-9 20-F 61st Page of 123 TOC 1st Previous Next Bottom Just 61st INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 3. BASIS OF PREPARATION (CONTINUED) o the above companies were historically managed and financed as if they were autonomous from the Predecessor Company. The Predecessor Company had no involvement in and did not control the operating and financial policies of these companies; o the above companies are now operated and financed autonomously from the Predecessor and Successor Companies; o the above companies had no costs or facilities in common with the Predecessor Company; and o the above companies had no financial commitments, guarantees or contingent liabilities related to the Predecessor Company. It is not possible for the Directors to quantify the effects of this departure from the requirements of FRS 2 because there are no publicly filed financial statements for the above companies and management has no access to the financial records of the above companies. The following companies which, although not legally owned by the Predecessor Company formed part of the Testing operations of Inchcape plc, are combined in the financial statements during the periods noted: · Download Table SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Company Period Inchcape Testing Holdings (France) S.A. December 23, 1994 to October 7, 1996 Inchcape Testing Services (France) S.A.R.L. December 23, 1994 to October 7, 1996 Caleb Brett (Peru) S.A. January 1, 1995 to October 7, 1996 Inchcape Testing Services Colombia S.A. January 1, 1995 to October 7, 1996 Gibbs y cia S.A.C. January 1, 1995 to October 7, 1996 Gibbs y cia Ltd January 1, 1995 to October 7, 1996 Prior to December 23, 1994 Inchcape Testing Holdings (France) S.A. and Inchcape Testing Services (France) S.A.R.L. were legally owned by the Predecessor Company. Caleb Brett (Peru) S.A., Inchcape Testing Services Colombia S.A., Gibbs y cia S.A.C. and Gibbs y cia Ltda, while forming part of the Testing operations of Inchcape plc, did not trade in 1993 and Gibbs y cia S.A.C and Gibbs y cia Ltda. did not carry out testing business in 1994. While Caleb Brett (Peru) S.A. and Inchcape Testing Services Colombia S.A. commenced trading in 1994 their operations were minimal and their results were combined from January 1, 1995. This treatment represents a departure from the requirement of FRS 2 to combine only those entities that are legally owned by ITS. The Directors assert that, for the following reasons, compliance with this requirement would fail to present fairly the financial positions, results of operations and cash flows of the Predecessor Company for each of the relevant periods covered by this report. o these companies formed part of the testing operations of Inchcape plc that were acquired by the Successor Company on October 8, 1996; and o these companies have been historically managed and financed as if they were part of the Predecessor Company. The Predecessor Company exercised a dominant influence over these companies such that the operating and financial policies of these companies were controlled directly by the Predecessor Company. The effects of combining total revenues, operating income and shareholders' equity of companies which, while not legally owned by the Predecessor Company, formed part of the Testing operations of Inchcape plc, were: Period from January 1, 1996 to October 7, 1996 ------------------------------ Total operating revenues 6,852 Operating income 511 Shareholders' equity at the end of the period 1,179 ------------------------------ The share capital and reserves of these companies have been separately shown as "Other capital" within total shareholders' equity in the combined financial statements of the Predecessor Company. F-10 20-F 62nd Page of 123 TOC 1st Previous Next Bottom Just 62nd INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 4. SEGMENT INFORMATION ITS comprises five divisions which are organised as follows: (1) Consumer Goods, which tests textiles, fabrics, footwear, toys and consumer products; (2) Conformity Assessment, which tests and certifies electrical and electronic products, building products, heating and ventilation and air conditioning equipment; (3) Caleb Brett, which tests crude oil, petroleum, chemical and agricultural products; (4) Foreign Trade Supervision, which provides preshipment inspection work to governments and (5) Minerals, which analyses metals. The Environmental Testing division which operated principally in the US and UK was closed in August 1998 and is now disclosed as a discontinued operation. The accounting policies of the divisions are the same as those described in the summary of accounting policies. The revenues and operating income for the companies acquired during the year ended December 31, 1998 are included solely in the Caleb Brett division. · Enlarge/Download Table SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 BY DIVISION Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, 1996 December 31, 1996 ----------------- --------------- ---------------- --------------- REVENUES Consumer Goods 36,039 12,528 56,768 64,575 Conformity Assessment 60,422 18,632 81,816 84,920 Caleb Brett 79,043 24,695 108,837 122,972 Foreign Trade Supervision 36,347 12,429 55,792 65,299 Minerals 15,247 7,042 25,601 16,530 ----------------- --------------- ---------------- --------------- Total continuing operations 227,098 75,326 328,814 354,296 Discontinued operation 16,463 5,134 15,169 5,517 ----------------- --------------- ---------------- --------------- Total 243,561 80,460 343,983 359,813 ----------------- --------------- ---------------- --------------- OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS Consumer Goods 7,013 2,386 13,903 16,079 Conformity Assessment 8,795 3,816 7,860 9,796 Caleb Brett 6,370 2,654 10,891 11,881 Foreign Trade Supervision 494 1,347 5,056 7,223 Minerals 2,273 1,406 4,371 (278) ----------------- --------------- ---------------- --------------- Total continuing operations 24,945 11,609 42,081 44,701 Discontinued operation (437) (1,433) (1,580) (2,463) ----------------- --------------- ---------------- --------------- Total 24,508 10,176 40,501 42,238 ----------------- --------------- ---------------- --------------- OPERATING EXCEPTIONAL ITEMS Foreign Trade Supervision 2,822 2,378 3,867 12,267 Caleb Brett - - - 1,784 ----------------- --------------- ---------------- --------------- Total continuing operations 2,822 2,378 3,867 14,051 Discontinued operation - 1,897 - 5,144 ----------------- --------------- ---------------- --------------- Total 2,822 4,275 3,867 19,195 ----------------- --------------- ---------------- --------------- Non - operating exceptional items Discontinued operation - 1,761 - 1,395 ----------------- --------------- ---------------- --------------- UNALLOCATED COSTS Cash, borrowings and income tax are managed centrally and are therefore not allocated to the divisions. Interest expense and income and income tax expense are therefore not allocated to the divisions. F-11 20-F 63rd Page of 123 TOC 1st Previous Next Bottom Just 63rd INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 4. SEGMENT INFORMATION (CONTINUED) · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, December 31, 1996 1996 --------------- --------------- --------------- --------------- DEPRECIATION AND AMORTISATION Consumer Goods 1,040 265 1,543 1,543 Conformity Assessment 2,590 571 3,260 3,127 Caleb Brett 2,582 1,309 3,691 4,118 Foreign Trade Supervision 611 67 902 1,095 Minerals 664 178 1,093 1,150 --------------- --------------- --------------- --------------- Total continuing operations 7,487 2,390 10,489 11,033 Discontinued operation 1,266 290 1,645 497 --------------- --------------- --------------- --------------- Total 8,753 2,680 12,134 11,530 --------------- --------------- --------------- --------------- CAPITAL EXPENDITURE Consumer Goods 1,446 752 1,926 3,945 Conformity Assessment 3,196 1,914 3,853 4,166 Caleb Brett 3,811 1,351 4,200 3,895 Foreign Trade Supervision 741 351 1,445 680 Minerals 939 962 2,010 1,259 --------------- --------------- --------------- --------------- Total continuing operations 10,133 5,330 13,434 13,945 Discontinued operation 2,306 333 298 81 --------------- --------------- --------------- --------------- Total 12,439 5,663 13,732 14,026 --------------- --------------- --------------- --------------- December 31, December 31, SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 1997 1998 --------------- --------------- TOTAL ASSETS Consumer Goods 17,994 25,752 Conformity Assessment 35,269 35,292 Caleb Brett 51,765 73,528 Foreign Trade Supervision 32,221 55,459 Minerals 13,883 15,740 --------------- --------------- Sub total 151,132 205,771 Central 31,329 36,483 Trading balances with other ITS group companies (46,625) (82,259) --------------- --------------- Total continuing operations 135,836 159,995 Discontinued operation 9,443 3,800 --------------- --------------- Total 145,279 163,795 --------------- --------------- The Central division comprises assets not attributable to the trading divisions, principally cash. F-12 20-F 64th Page of 123 TOC 1st Previous Next Bottom Just 64th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 4. SEGMENT INFORMATION (CONTINUED) · Download Table December 31, December 31, 1997 1998 ------------ ------------ CAPITAL EMPLOYED Consumer Goods 6,964 10,672 Conformity Assessment 22,905 19,886 Caleb Brett 19,161 38,941 Foreign Trade Supervision 1,631 1,306 Minerals 6,039 4,243 Central 16,768 12,306 -------- -------- Total continuing operations 73,468 87,354 Discontinued operation 4,697 (3,029) -------- -------- Total 78,165 84,325 -------- -------- RECONCILIATION OF CAPITAL EMPLOYED TO CONSOLIDATED SHAREHOLDERS' DEFICIT Capital employed 78,165 84,325 Taxation (3,323) (5,368) Net borrowings (277,304) (295,773) Minority interest (4,304) (4,592) -------- -------- Consolidated shareholders' deficit (206,766) (221,408) -------- -------- F-13 20-F 65th Page of 123 TOC 1st Previous Next Bottom Just 65th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 4. SEGMENT INFORMATION (CONTINUED) · Download Table BY GEOGRAPHIC AREA December 31, December 31, 1997 1998 ------------ ------------ TOTAL ASSETS SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Americas 73,355 81,565 Europe, Africa and Middle East 70,768 127,036 Asia and Far East 37,849 33,653 Trading balances due from other ITS group companies (46,625) (82,259) -------- -------- Total continuing operations 135,347 159,995 Discontinued operation 9,932 3,800 -------- -------- Total 145,279 163,795 -------- -------- TOTAL ASSETS IN SIGNIFICANT COUNTRIES United States 49,383 64,080 United Kingdom 24,600 51,834 Others (each under 10% of total) 107,989 126,340 Trading balances due from other ITS group companies (46,625) (82,259) -------- -------- Total continuing operations 135,347 159,995 Discontinued operation 9,932 3,800 -------- -------- Total 145,279 163,795 -------- -------- PROPERTY, PLANT AND EQUIPMENT Americas 20,328 20,475 Europe, Africa and Middle East 16,963 18,147 Asia and Far East 5,282 7,329 -------- -------- Total continuing operations 42,573 45,951 Discontinued operation 1,887 -- -------- -------- Total 44,460 45,951 -------- -------- PROPERTY, PLANT AND EQUIPMENT IN SIGNIFICANT COUNTRIES United States 15,887 16,617 United Kingdom 4,854 4,260 Sweden 6,329 5,766 Others (each under 10% of total) 15,503 19,308 -------- -------- Total continuing operations 42,573 45,951 Discontinued operation 1,887 -- -------- -------- Total 44,460 45,951 -------- -------- F-14 20-F 66th Page of 123 TOC 1st Previous Next Bottom Just 66th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 4. SEGMENT INFORMATION (CONTINUED) · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, 1996 December 31, 1996 ----------------- --------------- ---------------- --------------- REVENUES BY GEOGRAPHIC ORIGIN Americas 111,091 36,681 143,531 146,183 Europe, Africa and Middle East 69,395 22,914 112,409 130,448 Asia and Far East 46,612 15,731 72,874 77,665 ----------------- --------------- ---------------- --------------- Total continuing operations 227,098 75,326 328,814 354,296 Discontinued operation 16,463 5,134 15,169 5,517 ----------------- --------------- ---------------- --------------- Total 243,561 80,460 343,983 359,813 ----------------- --------------- ---------------- --------------- REVENUES FROM SIGNIFICANT COUNTRIES OF ORIGIN United States 85,635 27,588 107,790 114,993 United Kingdom 27,878 10,011 47,031 65,229 Hong Kong 21,326 7,109 32,456 39,002 Others (each under 10% of total) 92,259 30,618 141,537 135,072 ----------------- --------------- ---------------- --------------- Total continuing operations 227,098 75,326 328,814 354,296 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Discontinued operation 16,463 5,134 15,169 5,517 ----------------- --------------- ---------------- --------------- Total 243,561 80,460 343,983 359,813 ----------------- --------------- ---------------- --------------- OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS Americas 9,909 6,735 13,249 10,628 Europe, Africa and Middle East 4,724 1,746 8,291 10,643 Asia and Far East 10,312 3,128 20,541 23,430 ----------------- --------------- ---------------- --------------- Total continuing operations 24,945 11,609 42,081 44,701 Discontinued operation (437) (1,433) (1,580) (2,463) ----------------- --------------- ---------------- --------------- Total 24,508 10,176 40,501 42,238 ----------------- --------------- ---------------- --------------- OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS FROM SIGNIFICANT COUNTRIES United States 8,014 6,122 11,585 8,810 Hong Kong 5,588 1,271 8,409 10,687 United Kingdom (1,907) 178 4,452 2,637 Others (each under 10% of total) 13,250 4,038 17,635 22,567 ----------------- --------------- ---------------- --------------- Total continuing operations 24,945 11,609 42,081 44,701 Discontinued operation (437) (1,433) (1,580) (2,463) ----------------- --------------- ---------------- --------------- Total 24,508 10,176 40,501 42,238 ----------------- --------------- ---------------- --------------- F-15 20-F 67th Page of 123 TOC 1st Previous Next Bottom Just 67th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 4. SEGMENT INFORMATION (CONTINUED) · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, 1996 December 31, 1996 ----------------- --------------- ---------------- --------------- REVENUES BY GEOGRAPHIC AREA OF DESTINATION Americas 108,750 35,332 149,536 150,045 Europe, Africa and Middle East 71,736 24,263 106,399 124,658 Asia and Far East 46,612 15,731 72,879 79,593 ----------------- --------------- ---------------- --------------- Total continuing operations 227,098 75,326 328,814 354,296 Discontinued operation 16,463 5,134 15,169 5,517 ----------------- --------------- ---------------- --------------- Total 243,561 80,460 343,983 359,813 ----------------- --------------- ---------------- --------------- REVENUES FROM SIGNIFICANT DESTINATION COUNTRIES United States 77,008 23,990 107,790 112,146 Others (each under 10% of total) 150,090 51,336 221,024 242,150 ----------------- --------------- ---------------- --------------- Total continuing operations 227,098 75,326 328,814 354,296 Discontinued operation 16,463 5,134 15,169 5,517 ----------------- --------------- ---------------- --------------- Total 243,561 80,460 343,983 359,813 ----------------- --------------- ---------------- --------------- F-16 20-F 68th Page of 123 TOC 1st Previous Next Bottom Just 68th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 5. OPERATING COSTS AND GROSS PROFITS · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, December 31, 1996 1996 ---------------- ---------------- --------------- ---------------- Costs of sales 194,727 61,279 268,177 292,059 Net operating expenses 27,522 13,349 39,250 44,698 ---------------- ---------------- --------------- ---------------- SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Total operating costs 222,249 74,628 307,427 336,757 ---------------- ---------------- --------------- ---------------- Gross profit 48,834 19,181 75,806 67,754 ---------------- ---------------- --------------- ---------------- Net operating expenses comprise administrative costs in respect of operations throughout each period and exceptional items charged against operating income as follows: Administrative costs before exceptional items 24,700 9,074 35,383 25,503 Exceptional items (Note 6) 2,822 4,275 3,867 19,195 ---------------- ---------------- -------------- ----------------- Total administrative costs 27,522 13,349 39,250 44,698 ---------------- ---------------- -------------- ----------------- Administrative costs comprise expenses incurred at the head office and divisional regional offices. All other expenses incurred at other trading locations are included in cost of goods sold. F-17 20-F 69th Page of 123 TOC 1st Previous Next Bottom Just 69th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 6. EXCEPTIONAL ITEMS · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, 1996 December 31, 1996 ----------------- --------------- -------------- ----------------- EXCEPTIONAL CHARGES TO OPERATING PROFIT: Continuing operations: Foreign Trade Supervision 2,822 2,378 3,867 12,267 Caleb Brett - - - 1,784 ----------------- --------------- -------------- ----------------- Continuing operations 2,822 2,378 3,867 14,051 Discontinued operation: Environmental - restructuring - 1,897 - - Environmental - legal and reprocessing - - - 5,144 ----------------- --------------- -------------- ----------------- Discontinued operation - 1,897 - 5,144 ----------------- --------------- -------------- ----------------- Total operating exceptional charges 2,822 4,275 3,867 19,195 ----------------- --------------- -------------- ----------------- NON-OPERATING EXCEPTIONAL CHARGES: Discontinued operation: Loss on closure - 1,761 - 1,395 ----------------- --------------- -------------- ----------------- Total non-operating exceptional charges - 1,761 - 1,395 ----------------- --------------- -------------- ----------------- ITS provides foreign trade supervision services to a major client in West Africa. At a meeting of the board of directors held on April 27, 1997, a decision was taken to provide against all unpaid invoices relating to this client. The exceptional charges to operating income in respect of Foreign Trade Supervision relate to this West African client. The tax effect of the exceptional charges to income is a credit of Pounds 1.9 million (1997: Pounds 1.2 million; period from October 8, 1996 to December 31, 1996: Pounds 1.0 million; period from January 1, 1996 to October 7, 1996: Pounds 1.1 million). ITS also provides testing services in its Caleb Brett division to this major client in West Africa. In view of the accounting policy followed for this client in the Foreign Trade Supervision division, all unpaid invoices relating to this client in the Caleb Brett division have also been provided against. The tax effect of this exceptional item to income is nil. The exceptional charges to operating and non-operating income in 1996 in respect of Environmental Testing related to the restructuring and loss on disposals of fixed assets which was implemented by the Company following the Acquisition. The related tax impact in respect of the operating exceptional charge is a tax credit of Pounds 0.8 million. There is no related tax impact in respect of the non-operating exceptional charges in respect of Environmental Testing. The exceptional charge to operating income of Pounds 5.1 million relates to the legal and reprocessing costs which are expected to be incurred by Environmental Testing, as a result of the ongoing investigation by the Environmental Protection Agency. (See note 29) On August 20, 1998 substantially all the business and assets of the SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Environmental operation in the United States and St. Helen's in the United Kingdom were sold at their book value of Pounds 1.9 million. Exceptional costs of Pounds 0.4 million arose on the disposal of fixed assets and a further Pounds 1.0 million includes the cost of staff redundancies, future expected facility costs following the completion of reprocessing, as well as the cost of continuing to store data for clients, making a total non-operating exceptional charge of Pounds 1.4 million. F-18 20-F 70th Page of 123 TOC 1st Previous Next Bottom Just 70th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 7. OPERATING INCOME · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, December 31, 1996 1996 --------------- ---------------- --------------- ---------------- OPERATING INCOME IS STATED AFTER CHARGING: Depreciation of tangible assets 8,753 2,680 12,134 11,153 Amortisation of intangible goodwill - - - 377 Directors' emoluments: Borne by Predecessor/Successor Company 334 85 574 779 Bonus borne by Inchcape plc - 731 - - Staff costs 104,322 33,764 143,678 155,061 Leasing and hire charges 8,962 2,562 14,431 15,856 Auditors' remuneration: Group - as auditors 173 57 392 533 Group - other services 187 236 243 120 Company - as auditors - - 1 1 In addition to the amounts included above for auditors' remuneration for other services, Pounds 1.8 million has been charged to goodwill and Pounds 0.7 million has been charged against the carrying value of borrowings in the three months ended December 31, 1996. F-19 20-F 71st Page of 123 TOC 1st Previous Next Bottom Just 71st INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 8. NET INTEREST EXPENSE · Enlarge/Download Table Period from Period from Year ended Year ended January 1, 1996 October 8, December 31, December 31, to October 1996 to 1997 1998 7, 1996 December 31, 1996 ----------------- --------------- --------------- -------------- INTEREST EXPENSE AND OTHER CHARGES On loans from other Inchcape plc companies 5,007 - - - Senior Subordinated Notes - 1,868 12,719 12,393 Parent Subordinated PIK Debentures - 885 6,469 7,232 Senior Term Loan A - 1,001 6,453 6,681 Senior Term Loan B - 476 3,158 3,108 Senior Revolver - - - 576 Other borrowings 138 75 206 793 Amortisation of debt issuance costs - 255 2,238 1,919 ----------------- --------------- --------------- -------------- Interest expense 5,145 4,560 31,243 32,702 INTEREST INCOME: On loans to other Inchcape plc companies (660) - - - On bank balances (1,320) (497) (1,491) (847) ----------------- --------------- --------------- -------------- 3,165 4,063 29,752 31,855 ----------------- --------------- --------------- -------------- F-20 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 20-F 72nd Page of 123 TOC 1st Previous Next Bottom Just 72nd INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 9. TAXATION · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, 1996 December 31, 1996 ----------------- --------------- --------------- -------------- U.K. Corporation tax on profit on ordinary activities 4,611 - 268 477 Double taxation relief (4,440) - (268) (429) ----------------- --------------- --------------- -------------- 171 - - 48 Overseas taxes 13,356 (1,163) 5,433 8,140 Transfer (from)/to deferred taxation (2,179) 1,480 (1,108) (1,062) Adjustments to prior year liabilities 433 - 537 - ----------------- --------------- --------------- -------------- 11,781 317 4,862 7,126 Associated companies 102 94 14 30 ----------------- --------------- --------------- -------------- 11,883 411 4,876 7,156 ----------------- --------------- --------------- -------------- The following table sets out the reconciliation of the notional tax charge at U.K. standard rate to the actual tax charge. Income/(loss) before taxes 23,938 77 6,882 (10,207) ---------------- ---------------- --------------- -------------- Notional tax charge at U.K. standard rate 31.0% (1997: 31.5% and 1996: 33%) 7,900 25 2,168 (3,164) Differences in overseas tax rates (192) (171) 112 (1,778) U.K. tax on dividends, less FTC's 1,126 - 318 385 Permanent differences - disallowables 415 1,205 713 1,241 Permanent differences - untaxed income (151) (11) (39) (889) Unprovided deferred tax 1,238 (619) 808 10,332 Other 1,547 (18) 796 1,029 ---------------- ---------------- --------------- -------------- 11,883 411 4,876 7,156 ---------------- ---------------- --------------- -------------- F-21 20-F 73rd Page of 123 TOC 1st Previous Next Bottom Just 73rd INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 10. GOODWILL Total Cost At beginning of year -- Additions (Note 27c) 13,655 Exchange adjustments (208) ------- At December 31, 1998 13,447 ------- Amortisation At beginning of year -- Charged in year 377 Exchange adjustments (4) ------- At December 31, 1998 373 ------- Net book value At December 31, 1997 -- ------- At December 31, 1998 13,074 ------- Such purchased goodwill is amortised to nil over equal instalments over its estimated useful life, generally not exceeding 20 years. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 F-22 20-F 74th Page of 123 TOC 1st Previous Next Bottom Just 74th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 11. PROPERTY, PLANT AND EQUIPMENT · Download Table Land and Plant and Total buildings machinery COST At December 31, 1996 10,596 38,649 49,245 Exchange adjustments (648) (1,817) (2,465) Additions 86 13,646 13,732 Disposals (65) (2,104) (2,169) --------------------------------------- At December 31, 1997 9,969 48,374 58,343 --------------------------------------- Exchange adjustments (222) (1,354) (1,576) Acquisitions 722 2,479 3,201 Additions 98 13,928 14,026 Transfers (953) 654 (299) Disposals (79) (6,286) (6,365) --------------------------------------- At December 31, 1998 9,535 57,795 67,330 --------------------------------------- ACCUMULATED DEPRECIATION At December 31, 1996 (144) (2,536) (2,680) Exchange adjustments 22 710 732 Charged for the year (308) (11,826) (12,134) Disposals 1 198 199 --------------------------------------- At December 31, 1997 (429) (13,454) (13,883) --------------------------------------- Exchange adjustments 14 683 697 Charged for the year (264) (10,889) (11,153) Acquisitions -- (1,514) (1,514) Transfers 86 (69) 17 Disposals -- 4,457 4,457 --------------------------------------- At December 31, 1998 (593) (20,786) (21,379) --------------------------------------- NET BOOK VALUE --------------------------------------- At December 31, 1996 10,452 36,113 46,565 --------------------------------------- At December 31, 1997 9,540 34,920 44,460 --------------------------------------- At December 31, 1998 8,942 37,009 45,951 --------------------------------------- F-23 20-F 75th Page of 123 TOC 1st Previous Next Bottom Just 75th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 12. INVESTMENTS SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Investments consist of investments in associated undertakings and comprises the following: Total ------------- At December 31, 1996 1,418 Exchange adjustment (4) Transfer to subsidiaries (1,243) Dividends received (51) Retained profit for the year 64 ------------- At December 31, 1997 184 Exchange adjustment (71) Transfer from Minority Interests 215 Dividends received (84) Retained loss for the year (13) ------------- At December 31, 1998 231 ------------- 13. TRADE RECEIVABLES Trade receivables are shown net of the following allowances for doubtful receivables: · Enlarge/Download Table Balance at Cost and Deductions Balance at beginning expenses end of of period period -------------- --------------- --------------- --------------- Period from January 1, 1996 to October 7, 1996 Allowance for doubtful receivables 5,418 2,999 (382) 8,035 Period from October 8, 1996 to December 31, 1996 Allowance for doubtful receivables 8,035 2,268 (127) 10,176 Year ended December 31, 1997 Allowance for doubtful receivables 10,176 18,363 (14,030) 14,509 Year ended December 31, 1998 Allowance for doubtful receivables 14,509 16,601 (1,016) 30,094 F-24 20-F 76th Page of 123 TOC 1st Previous Next Bottom Just 76th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 14. OTHER CURRENT ASSETS · Download Table December 31, December 31, 1997 1998 --------------- ---------------- Assets held for resale 406 294 Other receivables 4,475 7,005 Prepayments and accrued income 7,182 7,942 --------------- ---------------- 12,063 15,241 --------------- ---------------- Within other receivables is Pounds 1.4 million due in more than one year (1997: Pounds 1.7 million). 15. INVENTORIES · Download Table SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 December 31, December 31, 1997 1998 --------------- ---------------- Raw materials 1,531 1,966 Work in progress 500 951 Finished goods 619 745 --------------- ---------------- 2,650 3,662 --------------- ---------------- 16. BORROWINGS · Download Table December 31, December 31, 1997 1998 --------------- ---------------- Due in less than one year: Senior Term Loan A 4,438 4,821 Senior Revolver - 16,333 Other borrowings 830 1,055 --------------------------------- 5,268 22,209 --------------------------------- Due in more than one year: Senior Subordinated Notes 116,517 116,257 Senior Term Loan A 70,547 65,302 Senior Term Loan B 34,136 34,053 Parent Subordinated PIK Debentures 50,791 57,568 Other borrowings 45 384 --------------------------------- 272,036 273,564 --------------------------------- F-25 20-F 77th Page of 123 TOC 1st Previous Next Bottom Just 77th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 16. BORROWINGS (CONTINUED) MATURITY OF BORROWINGS: · Enlarge/Download Table Senior Senior Senior Senior Parent Other Total Subordinated Term Term Revolver Subordinated borrowings borrowings Notes Loan A Loan B PIK Debentures --------------------------------------------------------------------------------------- Due in less than one year - 5,673 - 16,333 - 1,055 23,061 Due in one to two years - 19,800 - - - 208 20,008 Due in 2 and 5 years - 48,170 - - - 165 48,335 Due in over 5 years 120,833 - 35,142 - 59,214 11 215,200 --------------------------------------------------------------------------------------- 120,833 73,643 35,142 16,333 59,214 1,439 306,604 Debt issuance costs (4,576) (3,520) (1,089) - (1,646) - (10,831) --------------------------------------------------------------------------------------- 116,257 70,123 34,053 16,333 57,568 1,439 295,773 --------------------------------------------------------------------------------------- DESCRIPTION OF BORROWINGS (a) SENIOR SUBORDINATED NOTES In November 1996, the Company issued US $203.0 million principal amount of Senior Subordinated Notes (the "Notes"). The cash consideration received at the date of issue was Pounds 123,547,000. The Notes mature at par on November 1, 2006. Interest on the Notes accrues at the rate of 10.25% per annum and is SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 payable semi annually in cash on each May 1 and November 1. The Notes are redeemable, in whole, or in part, at the Company's option at any time on or after November 1, 2001 at the redemption price of 105.125% of the principal amount, during the year commencing November 1, 2001, 103.417% of the principal amount, during the year commencing November 1, 2002, 101.708% of the principal amount during the year commencing November 1, 2003 and, thereafter, at 100% of the principal amount plus accrued and unpaid interest. The Notes were issued to finance the Acquisition (see Note 27). (b) SENIOR TERM LOANS In November 1996, the Company entered into a credit agreement (the "Credit Agreement") comprising a Pounds 125.0 million Term Loan Facility (the "Term Loan Facility"), split into a Pounds 85.0 million multicurrency Term A Facility (the "Term A Facility") and a Pounds 40.0 million multicurrency Term B Facility (the "Term B Facility"), and a $48.8 million multicurrency Revolving Credit Facility. The Term A Facility amortises over seven years with the final repayment on 15 December 2003 and the Term B Facility is repayable in two equal instalments in June and December 2004. The commitments under the Revolving Credit Facility terminate on December 15, 2003. Borrowings under the Credit Agreement are secured on substantially all the tangible and intangible assets of the Company. Term A Loans and advances under the Revolving Credit Facility initially bear interest at a rate equal to LIBOR (as adjusted) plus 2.00%. The margin over LIBOR may be reduced, initially to 1.75%, following satisfaction of certain financial performance tests. Term B Loans bear interest at a rate equal to LIBOR (as adjusted) plus 2.75%. Overdue amounts on the Term A Loans, the Term B Loans and the Revolving Credit Facility will bear interest at the applicable interest rate plus 1.00% per annum (see Note 34). F-26 20-F 78th Page of 123 TOC 1st Previous Next Bottom Just 78th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 16. BORROWINGS (continued) DESCRIPTION OF BORROWINGS (continued) (c) PARENT SUBORDINATED PIK DEBENTURES In November 1996, the Company issued Pounds 50.0 million of units (the "Units") consisting of 12.0% Subordinated Debentures due November 1, 2007 (the "Parent Subordinated PIK Debentures") and warrants to purchase 14.2% of the fully diluted share capital of the Company ("Warrants") pursuant to a securities purchase agreement (the "Securities Purchase Agreement"). The Warrants will be exercisable only upon sale in connection with the acquisition by a person (other than a person who has funds managed by Charterhouse or any other member of Charterhouse's wholly-owned group) of more that 50% of the Ordinary Shares of the Parent (calculated excluding the Ordinary Shares underlying the Warrant) or the unconditional granting of permission for any of the Ordinary Shares of the Parent to be dealt on any recognised investment exchange. Interest on the Parent Subordinated PIK Debentures is accrued quarterly at a rate of 12.0% per annum, subject, upon, and during the continuation of certain events of default, to an increase to the lesser of (i) 24.0% per annum or (ii) the highest rate of interest then allowed under applicable law. In lieu of cash, interest on the Parent Subordinated PIK Debentures may, at the option of the Company, be paid by issuing additional Parent Subordinated PIK Debentures on any interest payment date (i) on or prior to February 1, 2002, (ii) after February 1, 2002, to the extent the Company's pro-forma total fixed charge coverage ratio would be less than 1.10 to 1.00 or (iii) if (a) at the time of any such payment, there exists a payment default in respect of certain senior indebtedness (including the Notes and indebtedness incurred under the Credit Agreement noted above) or (b) after giving effect to any such payment an event of default pursuant to which such indebtedness under the Indenture or Credit Agreement may be accelerated shall occur and be continuing and the Company is prevented by the holders under the Indenture or the creditors under the Credit Agreement from paying such cash interest. The Parent Subordinated PIK Debentures may be redeemed at any time at the option SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 of the Company in whole or in part (provided that, at any such time, the Company redeems a minimum of US $5.0 million in aggregate principal amount of the Parent Subordinated PIK Debentures) at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the redemption date. The Parent Subordinated PIK Debentures are unsecured liabilities of the Company. F-27 20-F 79th Page of 123 TOC 1st Previous Next Bottom Just 79th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 17. ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND DEFERRED INCOME · Download Table December 31, December 31, 1997 1998 ---------------- ----------------- Trade accounts payable 18,580 20,257 Other taxation and social security 3,690 4,565 Other creditors 4,587 7,309 Accruals and deferred income 33,162 38,821 ---------------- ----------------- 60,019 70,952 ---------------- ----------------- Within accruals and deferred income is Pounds 0.2 million due in more than one year (1997: Pounds 0.6 million). F-28 20-F 80th Page of 123 TOC 1st Previous Next Bottom Just 80th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 18. PROVISIONS FOR LIABILITIES AND CHARGES · Enlarge/Download Table Pension Fair value Other Total benefits -------------------------------------------------------------------- At January 1, 1996 90 1,228 2,498 3,816 Transfers from accruals and deferred income - - 1,026 1,026 Charged to operations 766 - 1,249 2,015 Utilised during the period (823) (99) (418) (1,340) -------------------------------------------------------------------- At October 7, 1996 33 1,129 4,355 5,517 -------------------------------------------------------------------- At October 8, 1996 701 2,703 5,484 8,888 Charged to operations 225 - 2,233 2,458 Utilised during the period (229) (70) (426) (725) -------------------------------------------------------------------- At December 31, 1996 697 2,633 7,291 10,621 -------------------------------------------------------------------- Exchange adjustments (2) 71 (69) -- Charged to operations 22 -- 763 785 Utilised during the year (160) (866) (3,285) (4,311) -------------------------------------------------------------------- At December 31, 1997 557 1,838 4,700 7,095 -------------------------------------------------------------------- Exchange adjustments 10 (17) (5) (12) Charged/(released) to operations 348 (1,497) 4,013 2,864 Utilised during the year (398) (324) (707) (1,429) -------------------------------------------------------------------- At December 31, 1998 517 - 8,001 8,518 -------------------------------------------------------------------- SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Other provisions at December 31, 1998 includes an amount for claims of Pounds 4.0 million (including Pounds 1.1 million of claims in respect of retirement benefits) and closure and reprocessing costs for the Environmental division of Pounds 4.0 million. See note 6. 19. DEFERRED TAXATION · Download Table December 31, December 31, 1997 1998 -------------- ---------------- Total potential deferred taxation: Accelerated capital allowances 1,218 (93) Losses carried forward (3,633) (7,782) Other timing differences (3,441) (9,370) --------------- ---------------- (5,856) (17,245) --------------- ---------------- Asset recorded (286) (1,348) --------------- ---------------- F-29 20-F 81st Page of 123 TOC 1st Previous Next Bottom Just 81st INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 20. SHARE CAPITAL · Enlarge/Download Table December 31, December 31, 1997 1998 -- --- --- -- --- -- --- --- ----- --- -- (a) AUTHORISED SHARE CAPITAL Equity: Ordinary `A' shares of 1p each 269 284 Ordinary `B' shares of 1p each 49 52 Ordinary `C' shares of 1p each 12 13 Ordinary `D' shares of 1p each 55 58 Non equity: Zero coupon redeemable preference shares of Pounds 1 each 81,815 86,657 -- --- --- -- --- -- --- --- ----- --- -- 82,200 87,064 -- --- --- -- --- -- --- --- ----- --- -- (b) ISSUED SHARE CAPITAL EQUITY: Ordinary 'A' shares of 1p each 269 284 Ordinary 'B' shares of 1p each 49 52 Ordinary 'C' shares of 1p each - - Ordinary 'D' shares of 1p each - - Non equity: Zero coupon redeemable preference shares of Pounds 1 each 81,815 86,657 -- --- --- -- --- -- --- --- ----- --- -- 82,133 86,993 -- --- --- -- --- -- --- --- ----- --- -- ORDINARY SHARES The A Shares, B Shares, C Shares and D Shares rank pari passu in all respects except that: (i) the holders of A Shares and D Shares have a right on a winding-up to receive the subscription price of those shares in preference to the holders of B Shares and C Shares, but rank pari passu with the holders of B Shares and C Shares on the distribution of any surplus assets available after repayment to the holders of B Shares and C Shares of the subscription price on those shares; (ii) the C Shares confer no right to receive notice of, attend or vote at general meetings of the Company; and (iii) D Shares confer on the holders the right to receive notice of and to attend, but not to vote at, general meetings of the Company. F-30 20-F 82nd Page of 123 TOC 1st Previous Next Bottom Just 82nd SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 20. SHARE CAPITAL (continued) ZERO COUPON REDEEMABLE PREFERENCE SHARES The Preference Shares rank senior on a return of capital to the Ordinary Shares of the Company on a winding up but not otherwise. No dividends will be payable on the Preference Shares. The Preference Shares will be mandatorily redeemed on November 8, 2009 at par value. The Company is required upon the written request from holders of 30% or more of the Preference Shares to redeem all of those shares in issue from any source of funds legally available therefor. Holders of Preference Shares are entitled to receive notice but not to attend and vote at general meetings, except that they can attend and vote on any resolution regarding the winding-up of the Company, a reduction in the Company's capital or a modification of the rights and restrictions attached to the Preference Shares. · Download Table December 31, December 31, 1997 1998 --------------- ---------------- (c) PREMIUM IN EXCESS OF PAR VALUE - Ordinary 'A' shares of 1p each 2,416 2,552 Ordinary 'B' shares of 1p each 441 466 --------------- ---------------- 2,857 3,018 --------------- ---------------- --------------- ---------------- (d) Shares to be issued 2,793 2,793 --------------- ---------------- During the period ended December 31, 1996 the Company issued warrants to subscribe for ordinary `D' shares of 1p each. The shareholder warrants can only be exercised on November 1, 2007 unless certain events occur beforehand. The shareholder warrants, if exercised in full, would represent 14.2% of the fully diluted share capital of the Company. In accordance with FRS 4, the net proceeds of issue of these warrants (Pounds 2.8 million) have been included within shareholders' funds as shares to be issued. F-31 20-F 83rd Page of 123 TOC 1st Previous Next Bottom Just 83rd INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 21. SHARE OPTION SCHEME The Company established a share option scheme for senior management on March 1, 1997. The board of directors has allocated options to purchase a maximum of 1,305,416 Ordinary `C' shares under the scheme. 90,029 (1997: 1,340,000) options were granted and 106,641 (1997: 90,000) were forfeited during the year. The options may not be exercised before the later of (i) three years from the grant date and (ii) the sale of the entire issued share capital of the Company to a single person or the admission to listing on a securities market of the shares of the Company. The options may not be exercised after seven years from grant date. The board of directors of the Company has set the exercise price at Pounds 0.10 per share, being the director's estimate of the fair value of the underlying shares at the grant date. Accordingly, no compensation cost has been recorded in the accompanying consolidated statement of income. · Enlarge/Download Table Number Exercise price Exercisable between (Pounds) -- - - -- - - -- - - -- - --- -- ---- -- -- --- -- --- --- -- --- --- -- --- --- -- --- --- ----------- The outstanding options are SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 exercisable as follows: 1,043,271 0.10 March 1, 2000 March 1, 2004 10,592 0.10 September 1, 2000 September 1, 2004 172,116 0.10 December 31, 2000 December 31, 2004 23,831 0.10 June 1, 2001 June 1, 2005 55,606 0.10 December 31, 2001 December 31, 2005 -- - - -- - - -- - -- 1,305,416 -- - - -- - - -- - -- No options are exercisable at December 31, 1998 and the weighted average remaining contractual life is 5.0 (1997: 6.3) years. F-32 20-F 84th Page of 123 TOC 1st Previous Next Bottom Just 84th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 22. RETAINED EARNINGS/(DEFICIT) · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, 1996 December 31, 1996 ---------------- ---------------- ---------------- ---------------- At beginning of period (2,381) - (286,664) (294,549) Exchange adjustments (352) 4,093 (7,611) 928 Net income/(loss) 11,237 (1,438) (1,598) (20,591) Goodwill written off on acquisition - (289,319) - - Goodwill adjustments - - 1,324 - Dividends (28,329) - - - Capitalisation of indebtedness to other 41,542 - - - Inchcape plc companies ---------------- ---------------- ---------------- ---------------- At end of period 21,717 (286,664) (294,549) (314,212) ---------------- ---------------- ---------------- ---------------- Included in Retained deficit is Pounds 270.6 million which represents goodwill written off to reserves prior to December 31, 1997 (at December 31, 1996 and 1997: Pounds 284.7 million and Pounds 275.1 million, respectively). F-33 20-F 85th Page of 123 TOC 1st Previous Next Bottom Just 85th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 23. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' EQUITY/(DEFICIT) · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, 1996 December 31, 1996 ---------------- ---------------- ---------------- -------------- Total recognised gains and losses for the period (17,164) 2,655 (9,209) (19,663) Issue of Successor Company ordinary share capital -- 3,175 -- 179 Issue of Successor Company ordinary share warrants -- 2,793 -- -- Issue of Successor Company redeemable preference shares -- 81,815 -- 4,842 Goodwill movements -- (289,319) 1,324 -- Capitalisation of indebtedness to other Inchcape plc companies 41,542 -- -- -- ---------------- ---------------- ---------------- -------------- 24,378 (198,881) (7,885) (14,642) Opening shareholders' equity/(deficit) 32,890 -- (198,881) (206,766) ---------------- ---------------- ---------------- -------------- Closing shareholders' equity/(deficit) 57,268 (198,881) (206,766) (221,408) ---------------- ---------------- ---------------- -------------- December 31, December 31, 1997 1998 ---------------- -------------- Analysis of closing shareholders' deficit SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Equity interests (288,581) (308,065) Non-equity interests 81,815 86,657 ---------------- -------------- (206,766) (221,408) ---------------- -------------- 24. RECONCILIATION OF OPERATING INCOME TO OPERATING CASH FLOWS · Enlarge/Download Table Period from Period from Year ended Year ended January 1, 1996 October 8, 1996 December 31, December 31, to October 7, to December 31, 1997 1998 1996 1996 --------------------------------------------------------------------- Operating income 21,686 5,901 36,634 23,043 Depreciation charge 8,753 2,680 12,134 11,153 Goodwill amortisation - - - 377 Loss on sale of fixed assets 347 1,345 1,697 157 (Increase)/decrease in inventories (651) 120 (725) (1,075) Increase in receivables and prepayments (6,148) (2,746) (7,408) (11,380) Increase in payables 3,018 2,329 6,918 5,720 Discontinued operating exceptional provisions - - - 5,144 Increase/(decrease) in other provisions 1,701 1,733 (3,526) (728) --------------------------------------------------------------------- 28,706 11,362 45,724 32,411 Equity income of associates (374) (69) (78) 13 Less dividends received from associates - 41 - 21 --------------------------------------------------------------------- Total operating cash inflow 28,332 11,334 45,646 32,445 --------------------------------------------------------------------- F-34 20-F 86th Page of 123 TOC 1st Previous Next Bottom Just 86th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 25. ANALYSIS OF CASH FLOWS · Enlarge/Download Table Period from Period from Year ended Year ended January 1, 1996 October 8, 1996 December 31, December 31, to October 7, to December 31, 1997 1998 1996 1996 -------------------------------------------------------------------- RETURNS ON INVESTMENT AND SERVICING OF FINANCE Net interest paid (3,419) (1,196) (20,176) (22,631) Dividends paid to minorities (661) (145) (1,713) (2,439) Dividends received from other Inchcape plc 5,417 - - - companies -------------------------------------------------------------------- 1,337 (1,341) (21,889) (25,070) -------------------------------------------------------------------- CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of property, plant and equipment (12,439) (5,663) (13,732) (14,026) Sale of property, plant and equipment 162 58 737 67 -------------------------------------------------------------------- (12,277) (5,605) (12,995) (13,959) -------------------------------------------------------------------- ACQUISITIONS AND DISPOSALS Purchase of subsidiary undertakings (834) (336,737) - (10,734) Acquisition provision payments - - (9,392) (600) Sale of subsidiary undertakings 7,546 - - (341) -------------------------------------------------------------------- 6,712 (336,737) (9,392) (11,675) -------------------------------------------------------------------- FINANCING Issue of ordinary shares and shares to be - 5,968 - 179 issued Issue of redeemable preference shares - 81,815 - 4,842 Issue of short term debt - - - 16,440 Issue of long term debt - 283,210 - - Increase in net funding from other Inchcape plc companies 3,230 - - - Repayment of other loans (3) (636) (2,378) (5,472) Cash subscribed by minorities - - 430 25 -------------------------------------------------------------------- 3,227 370,357 (1,948) 16,014 -------------------------------------------------------------------- 26. ANALYSIS OF NET DEBT · Enlarge/Download Table At Cash flow Acquisitions Debt issued Other Exchange At SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 December in lieu of non-cash adjustments December 31, 1997 interest changes 31, 1998 payment ------------------------------------------------------------------------------------------- Net cash Cash in hand and at bank 25,153 (8,205) 313 -- -- (489) 16,772 ------------------------------------------------------------------------------------------- Debt Debt due within one year (5,268) (10,968) (669) -- (5,263) (41) (22,209) Debt due after one year (272,036) -- -- (7,088) 3,344 2,216 (273,564) ------------------------------------------------------------------------------------------- (277,304) (10,968) (669) (7,088) (1,919) 2,175 (295,773) ------------------------------------------------------------------------------------------- Total net debt (252,151) (19,173) (356) (7,088) (1,919) 1,686 (279,001) ------------------------------------------------------------------------------------------- F-35 20-F 87th Page of 123 TOC 1st Previous Next Bottom Just 87th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 27. ACQUISITIONS (a) SUCCESSOR COMPANY On October 8, 1996, the Company acquired from Inchcape plc the whole of its Inchcape Testing Services Division. The acquisition method of accounting has been adopted. The analysis of net assets acquired and the fair value to the Company is set out below. The resulting goodwill of Pounds 289.3 million has been eliminated against shareholders' equity. · Enlarge/Download Table Book value Revaluation Accounting Other fair value Total policy ------------------------------------------------------------------------------------ Cash 28,009 - - - 28,009 Receivables 60,094 - - - 60,094 Stock 2,866 - (461) - 2,405 Other current assets 10,092 - (457) 1,900 11,535 Property, plant and equipment 48,910 308 - - 49,218 Associate undertakings 1,660 - - - 1,660 Borrowings (1,397) - - - (1,397) Accounts payable (45,125) - - (389) (45,514) Income tax (9,332) - - - (9,332) Deferred tax 2,963 - - (2,379) 584 Provisions (2,078) - - (3,371) (5,449) Net balance with Inchcape plc (39,394) - - - (39,394) ------------------------------------------------------------------------------------ 57,268 308 (918) (4,239) 52,419 ------------------------------------------------------------------------------------ Minority interests (2,301) ----------------- Fair value of net assets acquired: 50,118 ================= F-36 20-F 88th Page of 123 TOC 1st Previous Next Bottom Just 88th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 27. ACQUISITIONS (continued) · Enlarge/Download Table Provisional Goodwill Final adjustments ------------------------------------------------ FAIR VALUE OF CONSIDERATION: Initial cash consideration (including fees of Pounds 7.5 million) 386,786 (1,324) 385,462 Post closing purchase price adjustments (7,955) - (7,955) ------------------------------------------------ 378,831 (1,324) 377,507 Settlement of net indebtedness of Predecessor Company to (39,394) - (39,394) Inchcape plc SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 ------------------------------------------------ 339,437 (1,324) 338,113 Less fair value of net assets acquired (50,118) - (50,118) ------------------------------------------------ Goodwill arising on acquisition 289,319 (1,324) 287,995 ------------------------------------------------ The goodwill adjustments reflect a reduction in consideration in respect of the Indian operations of Pounds 1.0 million and a reduction in professional fees of Pounds 0.3 million. The revaluation of Pounds 0.3 million comprises an upward adjustment of Pounds 1.2 million in respect of freehold properties and a downward adjustment of Pounds 0.9 million in respect of plant and equipment. The accounting policy adjustments of Pounds 0.9 million comprise the write down of property deposits to landlords to align with the Company's policy of not recognising such assets on the balance sheet and the write down of work in progress to align with the Company's policy on the recognition of work in progress. The other fair value adjustments principally comprise: o Pounds 1.9 million prepayment in respect of surpluses in funded pension schemes assessed on an actuarial basis as at the effective date of acquisition; o Pounds 0.7 million provision in respect of deficits in funded pension schemes assessed on an actuarial basis as at the effective date of acquisition; o Pounds 2.1 million discounted provision in respect of the excess of contracted property rental charges over market rentals at the effective date assessed by an independent valuer; o Pounds 0.6 million provision for the costs of changes to the Company's signage to remove references to Inchcape plc as contractually required by the share purchase agreement; and o Pounds 2.4 million reduction in deferred tax amounts in compliance with the requirements of Statement of Standard Accounting Practice 15 ("Accounting for deferred tax"). F-37 20-F 89th Page of 123 TOC 1st Previous Next Bottom Just 89th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 27. ACQUISITIONS (continued) (b) PREDECESSOR COMPANY Acquisitions during the period ended October 7, 1996 were not material to revenues, operating profit and the net assets, either individually or in aggregate. (c) SUCCESSOR COMPANY During 1998, the Company acquired eight companies in its Caleb Brett division. The provisional analysis of net assets acquired and the fair value to the Company is set out below. The resulting provisional goodwill of Pounds 13.7 million has been capitalised and is being amortised over 20 years. · Enlarge/Download Table Book value Revaluation Accounting Other fair Total policy value adjustments ---------------------------------------------------------------------- Trade receivables 2,091 - (80) - 2,011 Stock 90 - (90) - - Other current assets 528 - - (38) 490 Property, plant and equipment 1,953 (156) (51) - 1,746 Investments 164 (162) - (2) - Accounts payable (2,744) - - (235) (2,979) Taxation 50 - - - 50 Provisions (55) - - - (55) ---------------------------------------------------------------------- 2,077 (318) (221) (275) 1,263 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 ---------------------------------------------------------------------- Minority interests - -------------- Provisional Fair value of net assets acquired: 1,263 ============== FAIR VALUE OF CONSIDERATION: Initial cash consideration (including fees of Pounds 0.5 million) 10,735 Deferred consideration payable 3,490 Overdraft acquired 32 Loans acquired 661 -------------- 14,918 Less fair value of net assets acquired (1,263) -------------- Provisional goodwill arising on acquisition 13,655 -------------- Approximately 75% of the goodwill arose on the purchase of two companies. In April 1998, Caleb Brett acquired the business of Van Sluys and Bayet Group ("VSB") in Belgium for a purchase consideration of approximately Pounds 4.2 million resulting in goodwill of Pounds 3.9 million. In June 1998, Caleb Brett acquired a Norwegian company - West Lab Services AS ("West Lab"), for approximately Pounds 6.9 million resulting in goodwill of Pounds 6.2 million. The other fair value adjustments principally comprise a Pounds 0.2 million provision in respect of unprovided liabilities, namely provisions for a claim and unprovided holiday pay. F-38 20-F 90th Page of 123 TOC 1st Previous Next Bottom Just 90th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 27. ACQUISITIONS (continued) (d) NET CASH OUTFLOW ON PURCHASE OF SUBSIDIARIES AND ASSOCIATES · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, December 31, 1996 1996 --------------- --------------- --------------- --------------- Fair value of consideration 885 378,831 - 14,918 Net deferred consideration payable - - - (3,490) Cash and cash equivalents acquired (51) (28,009) - (32) Loans acquired - - - (661) Contingent consideration recoverable received - (2,850) - - Excess consideration recoverable received - (4,570) - - Fees payable - (6,665) - 599 --------------- --------------- --------------- --------------- Net cash outflow in respect of acquisition made during the period and prior period adjustments 834 336,737 - 11,334 --------------- --------------- --------------- --------------- The results of operations for the period from October 8, 1996 to December 31, 1996 were generated entirely from the acquisition in that period. F-39 20-F 91st Page of 123 TOC 1st Previous Next Bottom Just 91st INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 28. PENSION PLANS The Group operates a number of pension plans throughout the world. In most locations, these are defined contribution arrangements. There are significant defined benefit plans in the U.K., U.S.A., Hong Kong and Taiwan. These are all funded plans, with assets held in separate trustee administered funds. The total pension cost for the group was: · Enlarge/Download Table SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Period from Period from Year ended Year ended January 1, October 8, December 31, December 31, 1996 to 1996 to 1997 1998 October 7, December 31, 1996 1996 - - - -- - -- - - ---- - ---- - ---- -- --- - - --- -- --- --- --- -- -- --- --- -- -- Defined benefit plans 766 225 1,318 1,638 Defined contribution plans 2,916 914 5,648 5,025 - - - -- - -- - - ---- - ---- - ---- -- --- - - --- -- --- --- --- -- -- --- --- -- -- 3,682 1,139 6,966 6,663 - - - -- - -- - - ---- - ---- - ---- -- --- - - --- -- --- --- --- -- -- --- --- -- -- The pension cost for the defined benefit plans was assessed in accordance with the advice of qualified actuaries based on actuarial valuations conducted during the year using appropriate methods and assumptions. The projected unit method was used and the principal assumption was that, on average, annual investment returns would exceed salary increases by 1.9%. The pension cost for the defined contribution plans is the contribution payable by the group during the year. At December 31, 1998 the aggregate market value of the main defined benefit plans was Pounds 23.0 million. The benefits accrued to members of the UK plan (allowing for expected future salary and pension increases) were 131% funded. The accrued benefits in the other plans were between 70% and 90% funded, reflecting differences in local funding practice. Actual contributions to the plans were determined on the basis of separate actuarial advice and were Pounds 1.3 million (1997: Pounds 1.1 million; period from October 8, 1996 to December 31, 1996: Pounds 0.2 million; period from January 1, 1996 to October 7, 1996: Pounds 0.6 million). A prepayment of Pounds 0.4 million (1997: Pounds 0.8 million; at December 31, 1996: Pounds 1.2 million; at October 7, 1996: Pounds 1.3 million) is included in debtors, this being the value of surplus assets in the defined benefit plans as at September 30, 1996, and the accumulated differences between the actual contributions paid and the pension cost since that date. F-40 20-F 92nd Page of 123 TOC 1st Previous Next Bottom Just 92nd INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 29. CONTINGENT LIABILITIES · Download Table December 31, December 31, 1997 1998 --------------- -------------- Performance bonds 1,916 2,086 Other guarantees 3,053 2,551 --------------- -------------- 4,969 4,637 --------------- -------------- The Company is a defendant in various lawsuits and has been named in a number of claims. The Company is defending these matters vigorously and investigations and discovery are in progress. The Company has been fully and partially indemnified by Inchcape plc, the previous owner of Inchcape Testing Services, in respect of specified litigation and claims outstanding at the date of the Acquisition. The ultimate outcome and cost of litigation and claims cannot presently be determined. However, the directors do not consider that the ultimate outcome of these matters will have a material adverse impact on the Company's financial position or results of operations. The Company has been fully indemnified by Inchcape plc in respect of any actual or contingent taxation liabilities of the Predecessor Company that may arise in respect of all previous accounting periods up to September 30, 1996. ENVIRONMENTAL PROTECTION AGENCY In December 1997, Intertek Testing Services Environmental Laboratories, Inc. ("ITS Environmental") discovered certain discrepancies in reported testing SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 results at its facility in Richardson, near Dallas, Texas ("Dallas"). A further investigation by the Quality Assurance/Quality Control department of ITS Environmental revealed that technicians at the Dallas facility had at various times, manually integrated data and improperly calibrated test equipment in a way that may have skewed the accuracy of the test results that have been reported but not necessarily the basic data recorded in the testing equipment. ITS Environmental promptly reported these discrepancies to the EPA and to clients. Civil and criminal investigations are under way. A government investigation at the ITS Environmental facility uncovered evidence of false reporting beyond that initially discovered and disclosed by ITS Environmental. ITS Environmental has requested inclusion in the EPA's Voluntary Disclosure Program. Under this program it may be possible to foreclose criminal but not civil penalties. If the actions of ITS Environmental that were disclosed to the EPA are found to qualify for the immunities available under its Voluntary Disclosure Program, the protection of this program may not extend to improper actions subsequently discovered. In August 1998, ITS Environmental sold its laboratory business in Burlington, Vermont U.S.A. and St. Helens, U.K. and stopped commercial operations at the laboratory in Dallas. These actions effectively resulted in the discontinuation of business at ITS Environmental. Although commercial operations have been discontinued in Dallas, the facility will be used to reprocess the original data. During the past few months, ITS Environmental has developed an effective data screening and reprocessing method. The reprocessing effort is aimed at providing clients with data of known quality. To date the screening and reprocessing, which is at an advanced stage, has shown no evidence of discrepancies in test results which had an impact on health and safety. As of December 31, 1998 Pounds 2.3 million has been spent and a provision of approximately Pounds 2.8 million has been made to cover estimated future reprocessing costs and associated legal costs which are currently expected to continue until July 1999. ITS Environmental continues to co-operate fully with the government investigation. No action has been brought against ITS Environmental to date. At this time, it is not possible to estimate the cost of any civil or criminal penalties arising from this matter. However, on the basis of currently available information, the directors consider that the outcome is unlikely to have a material effect on the financial state of the ITS group. Rights of recovery against Inchcape plc, under the Share Purchase Deed are being pursued. F-41 20-F 93rd Page of 123 TOC 1st Previous Next Bottom Just 93rd INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 30. OTHER COMMITMENTS ITS had annual commitments under non-cancellable operating leases as follows: · Download Table December 31, December 31, 1997 1998 --------------- -------------- Payable in one year: Expiring within one year 3,280 2,638 Expiring within two to five years inclusive 7,795 7,629 Expiring in more than five years 1,655 1,185 --------------- -------------- 12,730 11,452 --------------- -------------- Being in respect of: Land and buildings 10,254 9,124 Other 2,476 2,328 --------------- -------------- 12,730 11,452 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 --------------- -------------- 31. DIVIDENDS Dividends of Pounds 28.3 million were paid out of capital during the period January 1, 1996 to October 7, 1996. There is no related tax effect. 32. RELATED PARTY TRANSACTIONS Inchcape plc provided treasury, tax, and other services and corporate office space to the Predecessor Company for which it charged a management fee. The fee charged for the period from January 1, 1996 to October 7, 1996 was Pounds 0.7 million. Additionally, Inchcape plc arranged for third-party services, including insurance and external audit, on behalf of the Predecessor Company. These costs were paid directly by the Predecessor Company. 33. SUBSEQUENT EVENTS OPERATIONS In a press release dated January 12, 1999, ITS announced that pre-shipment inspection on Nigerian imports and inspection services on petroleum exports in the Foreign Trade Supervision division will terminate. On January 4, 1999, the President of Nigeria announced in a speech concerning the Nigerian budget that the Government of Nigeria will terminate all such contracts on March 31, 1999. If these programmes are terminated, ITS will lose annual revenues of approximately Pounds 21.5 million and the FTS division will be restructuring accordingly in 1999 at an estimated cost of Pounds 2.3 million. As of March 12, 1999, ITS has received from the Government of Nigeria payments totally Pounds 9.5 million in respect of the debt outstanding at December 31, 1998. Discussions are continuing with representatives of the Nigerian Government regarding payment of the remaining debt. FINANCING The Group is presently at an advanced stage of refinancing its operations through the amendment of banking arrangements and plans to raise an additional Pounds 20.0 million of new equity. Management expects that the above refinancing and equity issue will be completed and effective before the end of April 1999. The new equity issue will be fully underwritten. F-42 20-F 94th Page of 123 TOC 1st Previous Next Bottom Just 94th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 34. FINANCIAL INSTRUMENTS DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments to manage interest rate and foreign currency risks. Whilst these hedging instruments are subject to fluctuations in value, such fluctuations are generally offset by the value of the underlying exposures being hedged. The Company is not a party to any leverage derivatives and does not hold derivative financial instruments for trading purposes. The notional amount of derivatives summarised in this footnote does not represent amounts exchanged by parties and, thus, are not a measure of the exposure of the Company through its use of derivatives. The amounts exchanged are calculated on the basis of the notional amount and the other terms of the derivatives, which relate to interest rate or exchange rates. Counterparties to financial instruments expose the Company to credit-related losses in the event of non-performance, but it does not expect any counterparties to fail to meet their obligations given their high credit ratings. The Company does not demand collateral when entering into derivative financial instruments. The credit exposure of interest rate and foreign currency contracts is represented by the fair value of contracts with a positive fair value at the end of each period. FOREIGN EXCHANGE RISK MANAGEMENT A substantial portion of the Company's sales is derived from customers SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 located outside the United Kingdom. In addition the net assets of foreign subsidiaries represent a significant portion of the Company's shareholders' funds. The Company's administrative operations are conducted in several countries outside of the United Kingdom and operating costs are incurred in currencies other than the pound sterling. Because of the high proportion of international activity, the Company's income is exposed to exchange rate fluctuations. Risk of two kinds arise as a result: a "transaction risk," that is, the risk that currency fluctuations will have a negative effect on the value of the Company's commercial cash flows in various currencies, and a "translation risk," that is, the risk of adverse currency fluctuations in the translation of foreign currency operations and foreign assets and liabilities into pound sterling. The Company enters into forward exchange contracts to hedge certain firm commitments denominated in foreign currencies. Some of the contracts involve the exchange of two foreign currencies, according to local needs in foreign subsidiaries. The term of the currency derivatives generally do not exceed one year. The table below summarises by major currency the contractual amounts of the Company's forward exchange contracts in pound sterling. The "buy" amounts represent the pound sterling equivalent of commitments to purchase foreign currency, and the "sell" amounts represent the pound sterling equivalent of commitment to sell foreign currencies. · Enlarge/Download Table December 31, 1997 December 31, 1998 ----- - -- - - -- - - -- ---- - ---- - ---- -- -- - -- --- -- --- --- --- -- --- -- --- --- --- - Buy Sell Buy Sell ----- - -- - - -- - - -- --- -- --- -- ---- -- - - --- -- --- --- -- -- - -- --- -- --- --- --- United States dollar - 2,096 - 4,968 Swiss franc - 4,452 - 4,082 Canadian Dollar 2,054 - 1,488 - Norwegian Kroner - - 6,207 - Indonesian Rupiah - - 298 - Australian Dollar - - 1,546 - German Deutschemark - - 1,636 - 20-F 95th Page of 123 TOC 1st Previous Next Bottom Just 95th F-43 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 34. FINANCIAL INSTRUMENTS (continued) The following table presents information regarding the forward exchange contract amounts in pound sterling equivalent and the estimated fair value of the Company's forward contracts with a positive fair value (assets) and a negative fair value (liabilities): · Download Table December 31, 1997 December 31, 1998 ---------------------------------- ---------------------------------- Contract amount Fair value Contract amount Fair value ---------------- ----------------- ---------------- ----------------- Assets 4,478 26 12,223 245 Liabilities 2,054 (41) 3,034 (85) INTEREST RATE RISK MANAGEMENT The Company has a significant amount of borrowing bearing interest at variable rates. To reduce its expose to interest rate fluctuations, the Company enters into interest rate cap and swap agreements. The Company utilises interest rate cap agreements to limit the impact of increases in interest rates on its floating-rate debt. Interest rate cap agreements require premium payments to counterparties based upon a notional principal amount. Interest rate cap agreements entitle the Company to receive from the counterparties the amount, if any, by which the selected market interest rate exceeds the strike rate stated in the agreements. At December 31, 1998, the notional amount in pound sterling of interest rate cap SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 agreements amounted to Pounds 41.8 million (1997: Pounds 42.4 million) with the interest rate cap set at 7% (1997: 7%). Unamortised premiums included in other current assets amount to Pounds 0.1 million at December 31, 1998 (1997: Pounds 0.2 million). The Company also enters into interest rate swap agreements to convert certain long-term borrowing at floating rates (based on inter-bank borrowing rates in various countries) to fixed rates, that are lower than those available to the Company if the fixed-rate borrowing were made directly. Under the interest rate swap agreements, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount. The following table summarises the Company's interest rate swaps at December 31, 1997 and 1998: · Enlarge/Download Table December 31, 1997 ----------------------- ---------------------- ---------------------- ---------------------- ---------------------- Notional amount Receive rate Pay rate (fixed) Maturity Fair Value (floating) ----------------------- ---------------------- ---------------------- ---------------------- ---------------------- 13,774 5.94% 6.25% Dec-2001 (114) 27,082 11.21% 6.59% Dec-1999 1,732 8,428 5.03% 6.80% Dec-2001 (293) 5,071 3.87% 5.09% Dec-2001 (69) · Enlarge/Download Table December 31, 1998 ----------------------- ---------------------- ---------------------- ---------------------- ---------------------- Notional amount Receive rate Pay rate (fixed) Maturity Fair Value (floating) ----------------------- ---------------------- ---------------------- ---------------------- ---------------------- 13,690 5.04% 6.25% Dec-2001 (436) 21,499 6.19% 6.59% Dec-1999 (26) 8,054 3.64% 6.80% Dec-2001 (641) 5,343 3.26% 5.09% Dec-2001 (269) F-44 20-F 96th Page of 123 TOC 1st Previous Next Bottom Just 96th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 34. FINANCIAL INSTRUMENTS (continued) CONCENTRATION OF CREDIT RISK At December 31, 1998 the Company did not consider there to be any significant concentration of credit risk. Potential concentrations of credit risk to the Company comprise principally cash and cash equivalents and trade receivables. The Company maintains cash deposits with several major banks which at times may exceed insured limits. Management periodically assesses the financial condition of the institutions and believes that any possible credit risk is minimal. Concentration of credit risk with respect to trade receivables is limited due to the large number of customers comprising the Company's customer base and their dispersion across many different geographic locations. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's on-balance sheet financial instruments, with the exception of borrowings, are generally short term in nature. Accordingly, the fair value of such instruments approximates their carrying value. Borrowings include fixed-rate loans for which their fair value differs from their carrying value. The fair value of fixed-rate borrowings was calculated based on discounted cash flows using the current rates offered to the Company for debt of the same maturities. The fair value of variable rate borrowings approximates carrying value because such loans reprice at market rate periodically. The fair value of long-term borrowings, including current portion, was approximately Pounds 300.5 million and Pounds 287.1 million (carrying value Pounds 292.9 million and Pounds 277.3 million) at December 31, 1998 and 1997, respectively. The fair value of off-balance sheet financial instruments are as follows: SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 · Download Table Year ended December Year ended December 31, 1997 31, 1998 --------------------- ---------------------- Forward exchange contracts (15) 159 Interest rate caps 364 14 Interest rate swaps 1,257 (1,372) F-45 20-F 97th Page of 123 TOC 1st Previous Next Bottom Just 97th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 35. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP The consolidated financial statements are prepared in conformity with U.K. GAAP. These accounting principles differ in certain material respects from U.S. GAAP. Described below are the material differences between U.K. GAAP and U.S. GAAP affecting the net income/(loss) and shareholders' equity/(deficit) which are set forth in the tables that follow. GOODWILL AND OTHER INTANGIBLE ASSETS Under U.K. GAAP, purchased goodwill in respect of acquisitions before January 1, 1998 was written off to reserves in the year of acquisition. Purchased goodwill in respect of acquisitions since January 1, 1998 is capitalised in accordance with the requirements of FRS 10, Goodwill and intangible assets. Positive goodwill is amortised to nil over equal instalments over its estimated useful life, generally not exceeding 20 years. Under U.S. GAAP, goodwill and identifiable intangibles are capitalised and are written off over their estimated useful lives, generally not exceeding 40 years. U.S. GAAP goodwill and identifiable intangibles are being written off over periods not exceeding 20 years. The gross cost under U.S. GAAP as of December 31, 1998 of goodwill is Pounds 230.6 million (1997: Pounds 234.7 million) and identifiable intangibles related to the covenants not to compete is Pounds 37.1 million (1997: Pounds 37.3 million). Accumulated amortisation under U.S. GAAP as of December 31, 1998 of goodwill is Pounds 26.5 million (1997: Pounds 15.2 million) and of identifiable intangibles is Pounds 27.9 million (1997: Pounds 15.6 million). REDEEMABLE PREFERENCE SHARES Under U.K. GAAP, preference shares with mandatory redemption features or redeemable at the option of the security holders would be classified as a component of shareholders' equity. U.S. GAAP requires such redeemable preference shares not to be classified as shareholders' equity. CHANGE IN ACCOUNTING POLICY Under U.K. GAAP, the change in accounting policy in 1996 on certain foreign trade supervision business has been accounted for on a retrospective basis by restating financial statements for the prior periods. Under U.S. GAAP, such adjustments would be considered a change in accounting estimate that would result in an expense being recorded in the period of change. PENSION COSTS -- DEFINED BENEFIT PLANS Under U.K. GAAP, the cost of providing pension benefits is expensed over the average expected service lives of eligible employees on the basis of a constant percentage of current and estimated future earnings. Under U.S. GAAP, Statement of Financial Accounting Standards (SFAS) No. 87, "Employers' Accounting for Pensions", requires that pension costs be determined based on a comparison of the projected benefit obligation with the market value of the underlying plan assets and other unrecognised gains and losses assessed on an actuarial basis. As a result of this difference in methodology, the U.S. GAAP pension expense can be significantly different from that determined under U.K. GAAP and tends to be more sensitive to changing economic conditions. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 COMPENSATED ABSENCES Under U.S. GAAP, compensated absences, being an employee's paid holiday entitlements, are accrued as earned. For companies that do not allow employees to carry compensated absences over from one year to the next, no accrual is required. U.K. GAAP does not require provision to be made. FIXED ASSET REVALUATIONS U.S. GAAP requires that fixed assets be recorded at historical cost and depreciated over their estimated useful lives. U.K. GAAP, including the Companies Act, permits regular revaluation of certain assets, primarily land and buildings, at the amount of an independent professional valuation. INVESTMENTS IN OTHER INCHCAPE PLC COMPANIES As discussed in Note 2, certain subsidiaries of the Predecessor Company have not been combined but are stated at cost in the combined balance sheets. As these entities were not acquired by Intertek Testing Services Limited in October 1996 (Note 2), under U.S. GAAP the investment in these entities, and related dividends received, have been retroactively eliminated from the financial statements. F-46 20-F 98th Page of 123 TOC 1st Previous Next Bottom Just 98th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 35. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP (continued) DEFERRED TAXATION Under U.K. GAAP, deferred taxation is accounted for using the liability method to the extent that it is considered probable that a liability or asset will crystallise in the foreseeable future. Under U.S. GAAP, deferred taxation is provided on all temporary differences and carryforwards. Deferred tax assets are recognised to the extent that it is more likely than not that they will be realised. Where doubt exists as to whether a deferred tax asset will be realised, an appropriate valuation allowance is established. In addition, deferred taxes on other U.S. GAAP differences is provided. EFFECT OF MATERIAL DIFFERENCES BETWEEN U.K. AND U.S. GAAP AND ADDITIONAL DISCLOSURES (a) NET INCOME/(LOSS) · Enlarge/Download Table Period from Period from Year ended Year ended January 1, 1996 October 8, December 31, December 31, to October 7, 1996 to 1997 1998 1996 December 31, 1996 ----------------- ---------------- ----------------- ----------------- Net income/(loss) reported under U.K. GAAP 11,608 (1,438) (1,598) (20,591) Goodwill amortisation (2,927) (3,723) (12,337) (11,627) Covenants not to compete amortisation (522) (3,171) (12,683) (12,530) Change in accounting policy 2,822 (5,948) - - Pensions 111 37 (130) (213) Compensated absences (324) 327 526 (278) Fixed asset revaluations (280) - - - Dividends from other Inchcape plc companies (5,417) - - - Deferred taxes (1,239) 620 185 - Tax effect of U.S. GAAP reconciling adjustments (886) 1,976 - - ----------------- ---------------- ----------------- ----------------- Net income/(loss) in conformity with U.S. GAAP 2,946 (11,320) (26,037) (45,239) ----------------- ---------------- ----------------- ----------------- Continuing operations 3,539 (8,883) (24,457) (40,344) Discontinued operation (593) (2,437) (1,580) (4,895) ----------------- ---------------- ----------------- ----------------- Net income/(loss) in conformity with U.S. GAAP 2,946 (11,320) (26,037) (45,239) ----------------- ---------------- ----------------- ----------------- F-47 20-F 99th Page of 123 TOC 1st Previous Next Bottom Just 99th SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 35. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP (continued) (b) SHAREHOLDERS' DEFICIT The approximate effects on shareholders' deficit of material differences between U.K. and U.S. GAAP are as follows: · Enlarge/Download Table Year ended Year ended December 31, December 31, 1997 1998 ----------------- ----------------- Shareholders' deficit reported under U.K. GAAP (206,766) (221,408) Goodwill 219,521 204,136 Covenants not to compete 21,796 9,286 Redeemable preference shares (81,815) (86,656) Pensions 1,207 994 Compensated absences (408) (686) ----------------- ----------------- Shareholders' deficit in conformity with U.S. GAAP (46,465) (94,334) ----------------- ----------------- The following table reconciles shareholders' deficit under U.S. GAAP: Shareholders' deficit at beginning of period (5,263) (46,465) Issue of shares - 179 Net loss for the period (26,037) (45,239) Exchange adjustments (15,165) (2,809) ----------------- ----------------- Shareholders' deficit at end of period (46,465) (94,334) ----------------- ----------------- (c) CASH FLOWS The statements of cash flows prepared in accordance with U.K. GAAP present substantially the same information as that required under U.S. GAAP. Under U.S. GAAP however, there are certain differences from U.K. GAAP with regard to classification of items within the cash flow statement and with regard to the definition of cash. Under U.K. GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation, capital expenditure and financial investment, acquisitions and disposals, equity dividends paid, management of liquid resources and financing. Under U.S. GAAP, three categories of cash flow activity are reported, those being operating activities, investing activities and financing activities. Cash flows from taxation and returns on investments and servicing of finance would, with the exception of dividends paid, be included as operating activities under U.S. GAAP. Capital expenditure and financial investment, acquisitions and disposals and management of liquid resources would be included as investing activities. The payment of dividends would be included under financing activities under U.S. GAAP. F-48 20-F 100th Page of 123 TOC 1st Previous Next Bottom Just 100th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 35. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP (continued) Set out below is a summary of the statements of cash flows under U.S. GAAP. · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, 1996 December 31, December 31, 1996 to to December 31, 1997 1998 October 7, 1996 1996 ---------------- ----------------- ----------------- ---------------- Net cash provided by operating activities 14,707 8,659 24,662 7,027 Net cash used in investing activities (3,275) (342,009) (22,089) (24,899) Net cash (used in)/provided by financing (20,636) 367,994 (9,713) 11,094 activities SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 ---------------- ----------------- ----------------- ---------------- (9,204) 34,644 (7,140) (6,778) Effect of exchange rate changes (499) (1,231) (1,609) (489) ---------------- ----------------- ----------------- ---------------- Net (decrease)/increase in cash by continuing operations (9,703) 33,413 (8,749) (7,267) ---------------- ----------------- ----------------- ---------------- (Decrease)/increase in cash by continuing (9,703) 33,413 (8,749) (7,267) operations Increase/(decrease) in cash by discontinued 29 72 417 (1,114) operation ---------------- ----------------- ----------------- ---------------- Cash at beginning of period 37,811 - 33,485 25,153 Cash at end of period 28,137 33,485 25,153 16,772 ---------------- ----------------- ----------------- ---------------- F-49 20-F 101st Page of 123 TOC 1st Previous Next Bottom Just 101st INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 35. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP (CONTINUED) (d) PENSIONS The disclosures below detail the additional information required by SFAS No. 132 "Employers' Disclosures About Pensions and Other Postretirement Benefits" in respect of the Company's funded defined benefit plans. The Company's principal defined benefits pension plans are located in the U.K., U.S., Taiwan and Hong Kong. The following is a summary of the funded status and the net periodic benefit costs for the defined benefit pension plans: · Enlarge/Download Table December 31, December 31, 1997 1998 --------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year 16,282 19,164 Service cost 1,748 2,151 Interest cost 1,348 1,478 Plan participants' contributions 204 277 Actuarial loss 568 1,286 Benefits paid (1,004) (1,187) Exchange rate effects 18 (53) ------------------------------------------------------------------------------------------------------------------ Benefit obligation at end of year 19,164 23,116 ------------------------------------------------------------------------------------------------------------------ CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 19,061 20,372 Actual return on plan assets 994 2,314 Employer contributions 1,066 1,283 Plan participants' contribution 204 277 Benefits paid (1,004) (1,187) Exchange rate effects 51 (47) ------------------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year 20,372 23,012 ------------------------------------------------------------------------------------------------------------------ Funded status 1,208 (104) Unrecognised actuarial loss 909 1,653 ------------------------------------------------------------------------------------------------------------------ Net amount recognised 2,117 1,549 ------------------------------------------------------------------------------------------------------------------ AMOUNTS RECOGNISED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF: Prepaid benefit cost 2,241 1,824 Accrued benefit liability (258) (537) Shareholders' deficit * 134 262 ------------------------------------------------------------------------------------------------------------------ Net amount recognised 2,117 1,549 ------------------------------------------------------------------------------------------------------------------ * Amount charged directly to Shareholders' deficit to record the additional minimum liability. F-50 20-F 102nd Page of 123 TOC 1st Previous Next Bottom Just 102nd SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Pounds '000) 35. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP (continued) (d) PENSIONS (CONTINUED) The weighted average assumptions as of December 31: · Download Table 1996 1997 1998 ---------------- ---------------- ----------------- Discount Rate 8.7% 7.8% 6.4% Expected return on plan assets 8.7% 8.7% 7.9% Rate of compensation increase 7.7% 6.6% 4.8% · Enlarge/Download Table Period from Period from Year ended Year ended January 1, October 8, 1996 December 31, December 31, 1996 to to December 31, 1997 1998 October 7, 1996 1996 COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost 1,038 332 1,748 2,151 Interest cost 965 324 1,348 1,478 Expected return on plan assets (1,278) (403) (1,647) (1,781) Amortisation of prior service costs - - - - Recognised actuarial loss - - (1) 3 ---------------- ----------------- ----------------- ---------------- Net periodic benefit cost 725 253 1,448 1,851 ---------------- ----------------- ----------------- ---------------- The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were Pounds 1.1 million, Pounds 1.1 million and Pounds 0.7 million, respectively, as of December 31, 1998 and Pounds 1.1 million, Pounds 1.1 million and Pounds 0.8 million respectively, as of December 31, 1997. The U.S. plan has one plan asset, an insurance company fixed income fund. The Taiwan plan covers all full-time employees. There is only one type of asset held, a pension trust fund. This fund is a discretionary trust fund which guarantees the capital amount and a two year deposit rate of return. (e) IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognised is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. F-51 20-F 103rd Page of 123 TOC 1st Previous Next Bottom Just 103rd 35. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP (continued) (f) SHARE OPTION SCHEME The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognise as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net loss disclosures for share options granted as if the fair value-based method defined in SFAS No. 123 had been applied. Management has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 The weighted-average fair value of the share options granted by the Company during 1998 was estimated at Pounds 0.02 (1997: Pounds 0.02) using the minimum value method with the following assumptions: expected dividend yield of 0%, risk free rate of 6.0%, expected volatility of 0% and average expected lives of 3 years. Had compensation cost for the share options granted during the year, for purposes of the U.S. GAAP reconciliation, been determined consistent with the methodology described by SFAS No. 123, the Company's net loss would have not been significantly different than the actual net loss. (g) COMPREHENSIVE INCOME The company has adopted SFAS No. 130, "Reporting Comprehensive Income", which established standards for the reporting and presentation of comprehensive income/(loss) and its components in a full set of financial statements. The Company's comprehensive income/(loss) differs from net income only by the amount of the foreign currency exchange adjustments charged to shareholders' deficit for the period. Comprehensive income for the period from October 8, 1996 to December 31, 1996 and for each of the years ended December 31, 1997 and 1998 is equal to the total recognised gains and losses shown on the consolidated statement of total recognised gains and losses. For the period from January 1, 1996 to October 7, 1996, comprehensive income amounted to Pounds 11.2 million which differs from the total recognised gains and losses by dividends of Pounds 23.3 million. Accumulated other comprehensive income/(loss) was Pounds 4.1 million, Pounds (3.5 million) and Pounds (2.6 million) at December 31, 1996, 1997 and 1998, respectively. (h) NEW ACCOUNTING STANDARDS In June 1998, The Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognise all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Management has not determined the effect of the adoption of SFAS 133. F-52 20-F 104th Page of 123 TOC 1st Previous Next Bottom Just 104th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUNDS)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES Intertek Finance plc ("the Issuer") is a wholly owned direct subsidiary of the Company and the Issuer has issued the Notes which are fully and unconditionally guaranteed on a senior subordinated basis by the Company and certain of its wholly owned direct subsidiaries: Intertek Testing Services UK Limited, Testing Holdings USA Inc., Yickson Enterprises Limited, Kite Overseas Holdings BV, ITS Holding Limited, formerly 3260771 Canada Limited, Testing Holdings Sweden AB, Testing Holdings France EURL, Testing Holdings Germany GmbH (collectively, the "Guarantor subsidiaries" and, together with the Company, the "Guarantors"). In addition, each of the Guarantor's guarantee is itself guaranteed by each other Guarantor, fully and unconditionally, on a senior subordinated basis. Subject to the provisions of the agreement under which the loans to finance the acquisition of the business were made, certain exceptions and applicable law, there are no restrictions on the ability of: (a) the Company or any of its direct and indirect subsidiaries from paying dividends or making any other distributions or loans or advances to the Issuer or (b) the direct and indirect subsidiaries of the Company from paying dividends or making any other distribution or loans or advances to the Company. Separate financial statements and other disclosures concerning the Issuer and the Guarantors are not presented because management has determined that they are not material to the investors. In lieu of the separate guarantor financial statements, management has presented audited consolidating financial information. The audited consolidating financial information presented below has been segregated between (a) the Issuer, (b) the Guarantors and (c) the non-Guarantor subsidiaries. F-53 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 20-F 105th Page of 123 TOC 1st Previous Next Bottom Just 105th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals ---------------------------------------------------------------------------------- TOTAL GROUP REVENUE -- -- 425,388 (65,575) 359,813 Operating income/(costs) 80 (22) (402,390) 65,575 (336,757) Equity loss of associated companies -- -- (13) -- (13) ---------------------------------------------------------------------------------- OPERATING INCOME/(LOSS) 80 (22) 22,985 -- 23,043 Non-operating exceptional items -- -- (1,395) -- (1,395) ---------------------------------------------------------------------------------- INCOME/(LOSS) BEFORE INTEREST 80 (22) 21,590 -- 21,648 Net interest receivable/(payable) 43 (3,393) (28,505) -- (31,855) ---------------------------------------------------------------------------------- INCOME/(LOSS) BEFORE TAXATION 123 (3,415) (6,915) -- (10,207) Taxation 176 1,786 (9,118) -- (7,156) ---------------------------------------------------------------------------------- INCOME/(LOSS) AFTER TAXATION 299 (1,629) (16,033) -- (17,363) Minority interests -- -- (3,228) -- (3,228) Dividends from/(to) group companies -- 2,979 (2,979) -- -- ---------------------------------------------------------------------------------- NET INCOME/(LOSS) 299 1,350 (22,240) -- (20,591) ================================================================================== · Enlarge/Download Table STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals ---------------------------------------------------------------------------------- TOTAL GROUP REVENUE -- -- 343,983 -- 343,983 Operating income/(costs) 3 3,389 (310,819) -- (307,427) Equity income of associated companies -- -- 78 -- 78 ---------------------------------------------------------------------------------- OPERATING INCOME 3 3,389 33,242 -- 36,634 Net interest receivable/(payable) 329 (23,602) (6,479) -- (29,752) ---------------------------------------------------------------------------------- INCOME/(LOSS) BEFORE TAXATION 332 (20,213) 26,763 -- 6,882 Taxation (303) 2,604 (7,177) -- (4,876) ---------------------------------------------------------------------------------- INCOME/(LOSS) AFTER TAXATION 29 (17,609) 19,586 -- 2,006 Minority interests -- -- (3,604) -- (3,604) Dividends from/(to) group companies -- 2,562 (2,562) -- -- ---------------------------------------------------------------------------------- NET INCOME/(LOSS) 29 (15,047) 13,420 -- (1,598) ================================================================================== · Enlarge/Download Table STATEMENTS OF OPERATIONS PERIOD FROM OCTOBER 8, TO DECEMBER 31, 1996 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals ---------------------------------------------------------------------------------- TOTAL GROUP REVENUE -- -- 80,460 -- 80,460 Operating costs -- (256) (74,372) -- (74,628) Equity income of associated companies -- -- 69 -- 69 ---------------------------------------------------------------------------------- OPERATING (LOSS)/INCOME -- (256) 6,157 -- 5,901 Non-operating exceptional items -- -- (1,761) -- (1,761) -------- (LOSS)/INCOME ON ORDINARY ACTIVITIES BEFORE NET INTEREST -- (256) 4,396 -- 4,140 Net interest expense (334) (1,953) (1,776) -- (4,063) ---------------------------------------------------------------------------------- (LOSS)/INCOME BEFORE TAXATION (334) (2,209) 2,620 -- 77 Taxation 61 805 (1,277) -- (411) ---------------------------------------------------------------------------------- (LOSS)/INCOME AFTER TAXATION (273) (1,404) 1,343 -- (334) Minority interests -- -- (1,104) -- (1,104) ---------------------------------------------------------------------------------- NET (LOSS)/INCOME (273) (1,404) 239 -- (1,438) ================================================================================== F-54 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 20-F 106th Page of 123 TOC 1st Previous Next Bottom Just 106th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table BALANCE SHEETS DECEMBER 31, 1998 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals -------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash 6 (6,691) 23,457 -- 16,772 Trade receivables -- -- 67,516 -- 67,516 Inventories -- -- 3,662 -- 3,662 Other current assets 122,087 257,595 216,069 (580,510) 15,241 Deferred taxation asset -- -- 1,348 -- 1,348 -------------------------------------------------------------------------- TOTAL CURRENT ASSETS 122,093 250,904 312,052 (580,510) 104,539 Goodwill -- -- 13,074 -- 13,074 Property, plant and equipment, net -- -- 45,951 -- 45,951 Investments in subsidiary undertakings -- 332,581 71,226 (403,807) -- Other investments -- -- 231 -- 231 -------------------------------------------------------------------------- TOTAL ASSETS 122,093 583,485 442,534 (984,317) 163,795 ========================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) CURRENT LIABILITIES Borrowings (including current portion of long term -- 21,154 1,055 -- 22,209 borrowings) Accounts payable, accrued liabilities and deferred income 5,723 204,430 441,309 (580,510) 70,952 Income taxes payable (83) (3,119) 8,570 -- 5,368 -------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 5,640 222,465 450,934 (580,510) 98,529 Long term borrowings 116,257 159,205 (1,898) -- 273,564 Provisions for liabilities and charges -- -- 8,518 -- 8,518 Minority interests -- -- 4,592 -- 4,592 SHAREHOLDERS' EQUITY/(DEFICIT) Ordinary shares 50 100,944 196,398 (297,074) 318 Redeemable preference shares -- 86,675 -- -- 86,675 Shares to be issued -- 2,793 -- -- 2,793 Premium in excess of par value -- 26,702 761 (24,445) 3,018 Retained earnings/(deficit) 146 (15,299) (216,771) (82,288) (314,212) -------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) 196 201,815 (19,612) (403,807) (221,408) -------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) 122,093 583,485 442,534 (984,317) 163,795 ========================================================================== 20-F 107th Page of 123 TOC 1st Previous Next Bottom Just 107th F-55 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table BALANCE SHEETS DECEMBER 31, 1997 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals ------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash 15 (537) 25,675 -- 25,153 Trade receivables -- -- 60,483 -- 60,483 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Inventories -- -- 2,650 -- 2,650 Other current assets 120,006 228,622 193,466 (530,031) 12,063 Deferred taxation asset -- -- 286 -- 286 ------------------------------------------------------------------------ TOTAL CURRENT ASSETS 120,021 228,085 282,560 (530,031) 100,635 Property, plant and equipment, net -- -- 44,460 -- 44,460 Investments in subsidiary undertakings -- 389,550 311,978 (701,528) -- Other investments -- -- 184 -- 184 ------------------------------------------------------------------------ TOTAL ASSETS 120,021 617,635 639,182 (1,231,559) 145,279 ======================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) CURRENT LIABILITIES Borrowings (including current portion of long term borrowings) -- 4,438 830 -- 5,268 Accounts payable, accrued liabilities and deferred income 3,389 264,755 321,906 (530,031) 60,019 Income taxes payable 242 (3,628) 6,709 -- 3,323 ------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 3,631 265,565 329,445 (530,031) 68,610 Long term borrowings 116,517 155,474 45 -- 272,036 Provisions for liabilities and charges -- -- 7,095 -- 7,095 Minority interests -- -- 4,304 -- 4,304 SHAREHOLDERS' (DEFICIT)/EQUITY Ordinary shares 50 101,739 267,499 (368,970) 318 Redeemable preference shares -- 81,815 -- -- 81,815 Shares to be issued -- 2,793 -- -- 2,793 Premium in excess of par value -- 26,494 8,456 (32,093) 2,857 Retained (deficit)/earnings (177) (16,245) 22,338 (300,465) (294,549) ------------------------------------------------------------------------ TOTAL SHAREHOLDERS' (DEFICIT)/EQUITY (127) 196,596 298,293 (701,528) (206,766) ------------------------------------------------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) 120,021 617,635 639,182 (1,231,559) 145,279 ======================================================================== 20-F 108th Page of 123 TOC 1st Previous Next Bottom Just 108th F-56 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF CASH FLOWS DECEMBER 31, 1998 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals ------------------------------------------------------------------------ Total operating cash inflow 290 2,098 30,057 -- 32,445 Returns on investments and servicing of finance (2,321) (1,261) (18,847) (2,641) (25,070) Taxation (149) 2,270 (8,081) -- (5,960) Capital expenditure and financial investment -- -- (13,959) -- (13,959) Acquisitions and disposals -- 1,908 (13,583) -- (11,675) ------------------------------------------------------------------------ CASH (OUTFLOW)/INFLOW BEFORE FINANCING (2,180) 5,015 (24,413) (2,641) (24,219) Financing 2,171 (11,175) 25,018 -- 16,014 ------------------------------------------------------------------------ (DECREASE)/INCREASE IN CASH IN THE PERIOD (9) (6,160) 605 (2,641) (8,205) ------------------------------------------------------------------------ RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (DECREASE)/INCREASE IN CASH IN THE PERIOD (9) (6,160) 605 (2,641) (8,205) Debt issued in lieu of interest payment -- (7,088) -- -- (7,088) Change in net debt resulting from cash flows -- (16,333) 5,365 -- (10,968) Acquisitions -- -- (356) -- (356) Other non-cash movements (464) 1,464 (2,919) -- (1,919) Exchange movements 724 1,516 (554) -- 1,686 ------------------------------------------------------------------------ MOVEMENT IN NET DEBT IN THE PERIOD 251 (26,601) 2,141 (2,641) (26,850) NET DEBT AT THE START OF THE PERIOD (116,502) (160,449) 24,800 -- (252,151) ------------------------------------------------------------------------ NET DEBT AT THE END OF THE PERIOD (116,251) (187,050) 26,941 (2,641) (279,001) ======================================================================== 20-F 109th Page of 123 TOC 1st Previous Next Bottom Just 109th F-57 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF CASH FLOWS DECEMBER 31, 1997 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals ------------------------------------------------------------------------ Total operating cash inflow/(outflow) 966 (234) 44,914 -- 45,646 Returns on investments and servicing of finance 329 (14,902) (4,754) (2,562) (21,889) Taxation -- -- (6,145) -- (6,145) Capital expenditure and financial investment -- -- (12,995) -- (12,995) Acquisitions and disposals -- (9,186) -- (206) (9,392) ------------------------------------------------------------------------ CASH INFLOW/(OUTFLOW) BEFORE FINANCING 1,295 (24,322) 21,020 (2,768) (4,775) Financing (1,280) 21,413 (22,081) -- (1,948) ------------------------------------------------------------------------ INCREASE/(DECREASE) IN CASH IN THE PERIOD 15 (2,909) (1,061) (2,768) (6,723) ------------------------------------------------------------------------ RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT INCREASE/(DECREASE) IN CASH IN THE PERIOD 15 (2,909) (1,061) (2,768) (6,723) Debt issued in lieu of interest payment -- (6,138) -- -- (6,138) Change in net debt resulting from cash flows -- 2,252 126 -- 2,378 Other non-cash movements (2,217) 4,073 (3,968) -- (2,112) Exchange movements (2,843) (344) (979) -- (4,166) ------------------------------------------------------------------------ MOVEMENT IN NET DEBT IN THE PERIOD (5,045) (3,066) (5,882) (2,768) (16,761) NET DEBT AT THE START OF THE PERIOD (111,457) (157,383) (259,247) 292,697 (235,390) ------------------------------------------------------------------------ NET DEBT AT THE END OF THE PERIOD (116,502) (160,449) (265,129) 289,929 (252,151) ======================================================================== 20-F 110th Page of 123 TOC 1st Previous Next Bottom Just 110th F-58 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals ------------------------------------------------------------------------ RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH INFLOW: Operating profit 80 (22) 22,985 -- 23,043 Depreciation charge -- -- 11,153 -- 11,153 Goodwill amortisation -- -- 377 -- 377 Loss on sale of fixed assets -- -- 157 -- 157 Increase in inventories -- -- (1,075) -- (1,075) Increase in receivables and prepayments -- (321) (11,059) -- (11,380) Increase in payables 210 2,441 3,069 -- 5,720 Discontinued operating exceptional provisions -- -- 5,144 -- 5,144 Decrease in other provisions -- -- (728) -- (728) ------------------------------------------------------------------------ 290 2,098 30,023 -- 32,411 Equity income of associates and joint ventures -- -- 13 -- 13 Less dividends received from associates -- -- 21 -- 21 ------------------------------------------------------------------------ TOTAL OPERATING CASH INFLOW 290 2,098 30,057 -- 32,445 ------------------------------------------------------------------------ RETURNS ON INVESTMENT AND SERVICING OF FINANCE Net interest paid (2,321) (4,240) (16,070) -- (22,631) Dividends paid to minorities -- 2,979 (2,777) (2,641) (2,439) ------------------------------------------------------------------------ SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 (2,321) (1,261) (18,847) (2,641) (25,070) ------------------------------------------------------------------------ CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of property, plant and equipment -- -- (14,026) -- (14,026) Sale of property, plant and equipment -- -- 67 -- 67 ------------------------------------------------------------------------ -- -- (13,959) -- (13,959) ------------------------------------------------------------------------ ACQUISITIONS AND DISPOSALS Purchase of subsidiaries -- 2,508 (13,242) -- (10,734) Acquisition provision payments -- (600) -- -- (600) Sale of subsidiaries -- -- (341) -- (341) ------------------------------------------------------------------------ -- 1,908 (13,583) -- (11,675) ------------------------------------------------------------------------ FINANCING Ordinary shares issued and to be issued -- 179 -- -- 179 Issue of redeemable preference shares -- 4,842 -- -- 4,842 Issue of short term debt -- 16,440 -- -- 16,440 Increase/(decrease) in net funding 2,171 (32,636) 24,993 -- (5,472) Cash subscribed by minorities -- -- 25 -- 25 ------------------------------------------------------------------------ 2,171 (11,175) 25,018 -- 16,014 ------------------------------------------------------------------------ 20-F 111th Page of 123 TOC 1st Previous Next Bottom Just 111th F-59 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals ------------------------------------------------------------------------ RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH INFLOW: Operating profit 3 3,389 33,242 -- 36,634 Depreciation charge -- -- 12,134 -- 12,134 Loss on sale of fixed assets -- -- 1,697 -- 1,697 Increase in inventories -- -- (725) -- (725) Decrease/ (increase) in receivables and prepayments 819 395 (8,622) -- (7,408) Increase/(decrease) in payables 144 (4,018) 10,792 -- 6,918 Decrease in other provisions -- -- (3,526) -- (3,526) ------------------------------------------------------------------------ 966 (234) 44,992 -- 45,724 Equity income of associates -- -- (78) -- (78) ------------------------------------------------------------------------ TOTAL OPERATING CASH INFLOW 966 (234) 44,914 -- 45,646 ------------------------------------------------------------------------ RETURNS ON INVESTMENT AND SERVICING OF FINANCE Net interest paid 329 (17,464) (3,041) -- (20,176) Dividends received -- 2,562 -- (2,562) -- Dividends paid to minorities -- -- (1,713) -- (1,713) ------------------------------------------------------------------------ 329 (14,902) (4,754) (2,562) (21,889) ------------------------------------------------------------------------ CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of property, plant and equipment -- -- (13,732) -- (13,732) Sale of property, plant and equipment -- -- 737 -- 737 ------------------------------------------------------------------------ -- -- (12,995) -- (12,995) ------------------------------------------------------------------------ ACQUISITIONS AND DISPOSALS Purchase of subsidiaries -- 206 -- (206) -- Acquisition provision payments -- (9,392) -- -- (9,392) ------------------------------------------------------------------------ -- (9,186) -- (206) (9,392) ------------------------------------------------------------------------ FINANCING Repayment of other loans (1,280) 21,413 (22,511) -- (2,378) Cash subscribed by minorities -- -- 430 -- 430 ------------------------------------------------------------------------ SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 (1,280) 21,413 (22,081) -- (1,948) ------------------------------------------------------------------------ 20-F 112th Page of 123 TOC 1st Previous Next Bottom Just 112th F-60 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals ------------------------------------------------------------------------ ANALYSIS OF CHANGES IN NET DEBT CASH AT BANK AT DECEMBER 31, 1997 15 (537) 25,675 -- 25,153 Cash flow (9) (6,160) (2,036) -- (8,205) Acquisitions -- -- 313 -- 313 Exchange adjustments -- 6 (495) -- (489) ------------------------------------------------------------------------ CASH AT BANK AT DECEMBER 31, 1998 6 (6,691) 23,457 -- 16,772 ------------------------------------------------------------------------ DEBT DUE WITHIN ONE YEAR AT DECEMBER 31, 1997 -- (4,438) (830) -- (5,268) Cash flow -- (16,333) 5,365 -- (10,968) Other non-cash changes -- (401) (4,862) -- (5,263) Acquisitions -- -- (669) -- (669) Exchange adjustments -- 18 (59) -- (41) ------------------------------------------------------------------------ DEBT DUE WITHIN ONE YEAR AT DECEMBER 31, 1998 -- (21,154) (1,055) -- (22,209) ------------------------------------------------------------------------ DEBT DUE AFTER ONE YEAR AT DECEMBER 31, 1997 (116,517) (155,474) (45) -- (272,036) Debt issued in lieu of interest payment -- (7,088) -- -- (7,088) Other non-cash changes (464) 1,865 1,943 -- 3,344 Exchange adjustments 724 1,492 -- -- 2,216 ------------------------------------------------------------------------ DEBT DUE AFTER ONE YEAR AT DECEMBER 31, 1998 (116,257) (159,205) 1,898 -- (273,564) ------------------------------------------------------------------------ ------------------------------------------------------------------------ TOTAL NET DEBT AT DECEMBER 31, 1998 (116,251) (187,050) 24,300 -- (279,001) ------------------------------------------------------------------------ 20-F 113th Page of 123 TOC 1st Previous Next Bottom Just 113th F-61 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF CASH FLOWS PERIOD FROM OCTOBER 8, TO DECEMBER 31, 1996 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals ------------------------------------------------------------------------ Total operating cash inflow/(outflow) -- 13,934 (2,600) -- 11,334 Returns on investments and servicing of finance 1,462 (1,666) (1,137) -- (1,341) Taxation -- 50 (3,342) -- (3,292) Capital expenditure and financial investment -- -- (5,605) -- (5,605) Acquisitions and disposals -- (395,133) (374,573) 432,969 (336,737) ------------------------------------------------------------------------ CASH INFLOW/(OUTFLOW) BEFORE FINANCING 1,462 (382,815) (387,257) 432,969 (335,641) Financing (1,462) 385,187 126,904 (140,272) 370,357 ------------------------------------------------------------------------ INCREASE/(DECREASE) IN CASH IN THE PERIOD -- 2,372 (260,353) 292,697 34,716 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 ------------------------------------------------------------------------ RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT INCREASE/(DECREASE) IN CASH IN THE PERIOD -- 2,372 (260,353) 292,697 34,716 Cash inflow from increase in debt (116,291) (167,606) 14,896 -- (269,001) Change in net debt resulting from cash flows -- -- -- -- -- Other non-cash movements -- -- -- -- -- Exchange adjustments 4,834 7,851 (13,790) -- (1,105) ------------------------------------------------------------------------ MOVEMENT IN NET DEBT IN THE PERIOD (111,457) (157,383) (259,247) 292,697 (235,390) NET DEBT AT THE START OF THE PERIOD -- -- -- -- -- ------------------------------------------------------------------------ NET DEBT AT THE END OF THE PERIOD (111,457) (157,383) (259,247) 292,697 (235,390) ======================================================================== 20-F 114th Page of 123 TOC 1st Previous Next Bottom Just 114th F-62 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF CASH FLOWS PERIOD FROM OCTOBER 8, TO DECEMBER 31, 1996 Intertek Guarantors Non -Guarantor Consolidation Consolidated Finance plc subsidiaries adjustments totals ------------------------------------------------------------------------ RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH INFLOW: Operating (loss)/profit -- (256) 6,157 -- 5,901 Depreciation of fixed assets -- -- 2,680 -- 2,680 Loss on sale of fixed assets -- -- 1,345 -- 1,345 Decrease in inventories -- -- 120 -- 120 Increase in receivables and prepayments -- (983) (1,763) -- (2,746) Increase/(decrease) in payables -- 15,173 (12,844) -- 2,329 Increase in other provisions -- -- 1,733 -- 1,733 ------------------------------------------------------------------------ -- 13,934 (2,572) -- 11,362 Equity loss of associates -- -- (69) -- (69) Dividends received from associates -- -- 41 -- 41 ------------------------------------------------------------------------ TOTAL OPERATING CASH INFLOW/(OUTFLOW) -- 13,934 (2,600) -- 11,334 ------------------------------------------------------------------------ RETURNS ON INVESTMENT AND SERVICING OF FINANCE Net interest paid/(received) 1,462 (1,666) (992) -- (1,196) Dividends paid to minorities -- -- (145) -- (145) ------------------------------------------------------------------------ 1,462 (1,666) (1,137) -- (1,341) ------------------------------------------------------------------------ CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of property, plant and equipment -- -- (5,663) -- (5,663) Sale of property, plant and equipment -- -- 58 -- 58 ------------------------------------------------------------------------ -- -- (5,605) -- (5,605) ------------------------------------------------------------------------ ACQUISITIONS AND DISPOSALS Purchase of subsidiaries and associates -- (395,133) (374,573) 432,969 (336,737) ------------------------------------------------------------------------ -- (395,133) (374,573) 432,969 (336,737) ------------------------------------------------------------------------ FINANCING Ordinary shares issued and to be issued 50 -- 12,493 (6,575) 5,968 Issue of redeemable preference shares -- 211,026 -- (129,211) 81,815 Issue of long term debt 115,848 164,361 3,001 -- 283,210 (Decrease)/increase in net funding (113,120) 13,751 99,369 -- -- Repayment of other loans -- -- (636) -- (636) Exchange adjustments (4,240) (3,951) 12,677 (4,486) -- ------------------------------------------------------------------------ (1,462) 385,187 126,904 (140,272) 370,357 ======================================================================== F-63 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 20-F 115th Page of 123 TOC 1st Previous Next Bottom Just 115th INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 Intertek Testing Kite ITS Intertek Testing Yickson Testing Holdings Overseas Holding Testing Holdings Enterprises Services USA Holdings Limited Services Sweden AB Limited Ltd Inc BV UK Limited -------------------------------------------------------------------------------------- REVENUES FROM CONTINUING OPERATIONS -- -- -- -- -- -- -- Operating (costs)/income (31) 12 5 (7) 20 (5) (10) -------------------------------------------------------------------------------------- OPERATING (INCOME)/INCOME FROM CONTINUING (31) 12 5 (7) 20 (5) (10) OPERATIONS Net interest (payable)/receivable (7,549) 11,030 (319) (76) (3,631) (2,144) (25) -------------------------------------------------------------------------------------- (LOSS)/INCOME BEFORE TAXATION (7,580) 11,042 (314) (83) (3,611) (2,149) (35) Taxation 527 -- (44) -- 982 -- -- -------------------------------------------------------------------------------------- (LOSS)/INCOME AFTER TAXATION (7,053) 11,042 (358) (83) (2,629) (2,149) (35) Dividends from group companies -- 169 52 -- -- 2,148 -- -------------------------------------------------------------------------------------- NET (LOSS)/INCOME (7,053) 11,211 (306) (83) (2,629) (1) (35) ====================================================================================== STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 Testing Testing Guarantor Holdings Holdings subsidiaries France Germany Total EURL GmbH ---------------------------------- REVENUES FROM CONTINUING OPERATIONS -- -- -- Operating (costs)/income (3) (3) (22) ---------------------------------- OPERATING (INCOME)/INCOME FROM CONTINUING (3) (3) (22) OPERATIONS Net interest (payable)/receivable (145) (534) (3,393) ---------------------------------- (LOSS)/INCOME BEFORE TAXATION (148) (537) (3,415) Taxation 160 161 1,786 ---------------------------------- (LOSS)/INCOME AFTER TAXATION 12 (376) (1,629) Dividends from group companies 610 -- 2,979 ---------------------------------- NET (LOSS)/INCOME 622 (376) 1,350 ================================== · Enlarge/Download Table STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 Intertek Testing Kite ITS Intertek Testing Yickson Testing Holdings Overseas Holding Testing Holdings Enterprises Services USA Holdings Limited Services Sweden AB Limited Ltd Inc BV UK Limited -------------------------------------------------------------------------------------- REVENUES FROM CONTINUING OPERATIONS -- -- -- -- -- -- -- Operating income/(costs) 561 598 (37) -- -- 2,287 (5) -------------------------------------------------------------------------------------- OPERATING INCOME/(LOSS) FROM CONTINUING OPERATIONS 561 598 (37) -- -- 2,287 (5) Net interest (payable)/receivable (5,981) (10,961) (290) (51) (3,813) (1,997) 71 -------------------------------------------------------------------------------------- (LOSS)/INCOME BEFORE TAXATION (5,420) (10,363) (327) (51) (3,813) 290 66 Taxation 1,713 -- -- -- 844 -- (11) -------------------------------------------------------------------------------------- (LOSS)/INCOME AFTER TAXATION (3,707) (10,363) (327) (51) (2,969) 290 55 Dividends from group companies -- -- 2 -- -- 2,560 -- -------------------------------------------------------------------------------------- NET (LOSS)/INCOME (3,707) (10,363) (325) (51) (2,969) 2,850 55 ====================================================================================== STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Testing Testing Guarantor Holdings Holdings subsidiaries France Germany Total EURL GmbH ---------------------------------- REVENUES FROM CONTINUING OPERATIONS -- -- -- Operating income/(costs) (11) (4) 3,389 ---------------------------------- OPERATING INCOME/(LOSS) FROM CONTINUING OPERATIONS (11) (4) 3,389 Net interest (payable)/receivable (86) (494) (23,602) ---------------------------------- (LOSS)/INCOME BEFORE TAXATION (97) (498) (20,213) Taxation 58 -- 2,604 ---------------------------------- (LOSS)/INCOME AFTER TAXATION (39) (498) (17,609) Dividends from group companies -- -- 2,562 ---------------------------------- NET (LOSS)/INCOME (39) (498) (15,047) ================================== · Enlarge/Download Table STATEMENTS OF OPERATIONS PERIOD FROM OCTOBER 8, TO DECEMBER 31, 1996 Intertek Testing Kite ITS Intertek Testing Yickson Testing Holdings Overseas Holding Testing Holdings Enterprises Services USA Holdings Limited Services Sweden AB Limited Ltd Inc BV UK Limited -------------------------------------------------------------------------------------- REVENUES FROM CONTINUING OPERATIONS -- -- -- -- -- -- -- Operating (costs)/income (105) (211) (6) 117 (31) (14) -- -------------------------------------------------------------------------------------- OPERATING (LOSS)/INCOME FROM CONTINUING OPERATIONS (105) (211) (6) 117 (31) (14) -- Net interest receivable/(payable) 54 (1,133) (43) 3 (460) (321) 9 -------------------------------------------------------------------------------------- (LOSS)/INCOME BEFORE TAXATION (51) (1,344) (49) 120 (491) (335) 9 Taxation -- 618 -- (7) 195 -- (1) -------------------------------------------------------------------------------------- NET INCOME/(LOSS) (51) (726) (49) 113 (296) (335) 8 ====================================================================================== STATEMENTS OF OPERATIONS PERIOD FROM OCTOBER 8, TO DECEMBER 31, 1996 Testing Testing Guarantor Holdings Holdings subsidiaries France Germany Total EURL GmbH ---------------------------------- REVENUES FROM CONTINUING OPERATIONS -- -- -- Operating (costs)/income (2) (4) (256) ---------------------------------- OPERATING (LOSS)/INCOME FROM CONTINUING OPERATIONS (2) (4) (256) Net interest receivable/(payable) (2) (60) (1,953) ---------------------------------- (LOSS)/INCOME BEFORE TAXATION (4) (64) (2,209) Taxation -- -- 805 ---------------------------------- NET INCOME/(LOSS) (4) (64) (1,404) ================================== 20-F 116th Page of 123 TOC 1st Previous Next Bottom Just 116th F-64 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table BALANCE SHEETS DECEMBER 31, 1998 -------------------------------------------------------------------------------------- Intertek Testing Kite ITS Intertek Testing Yickson Testing Holdings Overseas Holding Testing Holdings Enterprises Services USA Holdings Limited Services Sweden AB Limited Ltd Inc BV UK Limited -------------------------------------------------------------------------------------- ASSETS SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 CURRENT ASSETS Cash (6,824) -- 123 1 3 1 5 Other current assets 72,775 92,703 1,856 4,042 576 4,342 80,514 -------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 65,951 92,703 1,979 4,043 579 4,343 80,519 Investments in subsidiary undertakings 128,624 95,617 5,983 3,510 64,418 24,466 -- -------------------------------------------------------------------------------------- TOTAL ASSETS 194,575 188,320 7,962 7,553 64,997 28,809 80,519 ====================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Borrowings (including current portion of long term borrowings) 16,333 -- 260 232 1,629 383 2,317 Accounts payable, accrued liabilities and 38,458 96,133 3,295 1,197 13,621 3,423 44,095 deferred income Income taxes (receivable)/payable (1,148) (536) -- 4 (1,283) -- 12 -------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 53,643 95,597 3,555 1,433 13,967 3,806 46,424 Long term borrowings 57,568 -- 3,595 3,174 34,899 20,819 33,983 SHAREHOLDERS' EQUITY Ordinary shares 318 92,913 1,463 3,476 -- 1,812 -- Redeemable preference shares 86,675 -- -- -- -- -- -- Shares to be issued 2,793 -- -- -- -- -- -- Premium in excess of par value 3,018 -- -- -- 22,709 -- 49 Retained (deficit)/earnings (9,440) (190) (651) (530) (6,578) 2,372 63 -------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) 83,364 92,723 812 2,946 16,131 4,184 112 -------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 194,575 188,320 7,962 7,553 64,997 28,809 80,519 ====================================================================================== BALANCE SHEETS December 31, 1998 ---------------------------------- Testing Testing Guarantor Holdings Holdings subsidiaries France Germany Total EURL GmbH ---------------------------------- ASSETS CURRENT ASSETS Cash -- -- (6,691) Other current assets 787 -- 257,595 ---------------------------------- TOTAL CURRENT ASSETS 787 -- 250,904 Investments in subsidiary undertakings 3,652 6,311 332,581 ---------------------------------- TOTAL ASSETS 4,439 6,311 583,485 ================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Borrowings (including current portion of long term borrowings) -- -- 21,154 Accounts payable, accrued liabilities and 2,887 1,321 204,430 deferred income Income taxes (receivable)/payable -- (168) (3,119) ---------------------------------- TOTAL CURRENT LIABILITIES 2,887 1,153 222,465 Long term borrowings -- 5,167 159,205 SHAREHOLDERS' EQUITY Ordinary shares 944 18 100,944 Redeemable preference shares -- -- 86,675 Shares to be issued -- -- 2,793 Premium in excess of par value -- 926 26,702 Retained (deficit)/earnings 608 (953) (15,299) ---------------------------------- TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) 1,552 (9) 201,815 ---------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 4,439 6,311 583,485 ================================== 20-F 117th Page of 123 TOC 1st Previous Next Bottom Just 117th F-65 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table BALANCE SHEETS DECEMBER 31, 1997 -------------------------------------------------------------------------------------- Intertek Testing Kite ITS Intertek Testing Yickson Testing Holdings Overseas Holding Testing Holdings Enterprises Services USA Holdings Limited Services Sweden AB Limited Ltd Inc BV UK Limited SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 -------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash (559) -- -- 1 2 -- -- Other current assets 118,686 28,295 1,883 4,107 33 3,808 71,810 -------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 118,127 28,295 1,883 4,108 35 3,808 71,810 Investments in subsidiary undertakings 130,656 150,069 5,549 3,804 64,418 25,604 -- -------------------------------------------------------------------------------------- TOTAL ASSETS 248,783 178,364 7,432 7,912 64,453 29,412 71,810 ====================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Borrowings (including current portion of long term borrowings) -- -- 218 200 1,494 411 2,115 Accounts payable, accrued liabilities and deferred income 116,335 96,336 2,537 732 7,325 2,661 35,276 Income taxes (receivable)/payable (1,970) (581) -- 6 (1,039) -- 12 -------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 114,365 95,755 2,755 938 7,780 3,072 37,403 Long term borrowings 50,791 -- 3,647 3,410 36,630 21,963 34,282 SHAREHOLDERS' EQUITY Ordinary shares 318 93,469 1,376 3,767 -- 1,896 -- Redeemable preference shares 81,815 -- -- -- -- -- -- Shares to be issued 2,793 -- -- -- -- -- -- Premium in excess of par value 2,857 -- -- -- 22,709 -- 49 Retained (deficit)/earnings (4,156) (10,860) (346) (203) (2,666) 2,481 76 -------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 83,627 82,609 1,030 3,564 20,043 4,377 125 -------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 248,783 178,364 7,432 7,912 64,453 29,412 71,810 ====================================================================================== BALANCE SHEETS December 31, 1997 ---------------------------------- Testing Testing Guarantor Holdings Holdings subsidiaries France Germany Total EURL GmbH ---------------------------------- ASSETS CURRENT ASSETS Cash -- 19 (537) Other current assets -- -- 228,622 ----------------------------------- TOTAL CURRENT ASSETS -- 19 228,085 Investments in subsidiary undertakings 3,459 5,991 389,550 ----------------------------------- TOTAL ASSETS 3,459 6,010 617,635 =================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Borrowings (including current portion of long term borrowings) -- -- 4,438 Accounts payable, accrued liabilities and deferred income 2,660 893 264,755 Income taxes (receivable)/payable (56) -- (3,628) ----------------------------------- TOTAL CURRENT LIABILITIES 2,604 893 265,565 Long term borrowings -- 4,751 155,474 SHAREHOLDERS' EQUITY Ordinary shares 896 17 101,739 Redeemable preference shares -- -- 81,815 Shares to be issued -- -- 2,793 Premium in excess of par value -- 879 26,494 Retained (deficit)/earnings (41) (530) (16,245) ----------------------------------- TOTAL SHAREHOLDERS' EQUITY 855 366 196,596 ----------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,459 6,010 617,635 =================================== 20-F 118th Page of 123 TOC 1st Previous Next Bottom Just 118th F-66 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 -------------------------------------------------------------------------------------- Intertek Testing Kite ITS Intertek Testing Yickson Testing Holdings Overseas Holding Testing Holdings Enterprises Services USA Holdings Limited Services Sweden AB Limited Ltd Inc BV UK Limited -------------------------------------------------------------------------------------- RECONCILIATION OF OPERATING PROFIT TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES: OPERATING PROFIT (31) 12 5 (7) 20 (5) (10) Decrease/(increase) in receivables and prepayments 7 137 71 7 (543) -- -- Increase/(decrease) in payables 2,552 (106) (8) 1 -- 2 (2) -------------------------------------------------------------------------------------- NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 2,528 43 68 1 (523) (3) (12) -------------------------------------------------------------------------------------- CASH FLOW STATEMENT Net cash inflow/(outflow) from operating 2,528 43 68 1 (523) (3) (12) activities Returns on investments and servicing of finance (note a) (7,510) 9,372 (60) (242) (3,271) 301 2 Taxation received/(paid) 1,349 (19) (12) (2) 738 -- -- Acquisitions and disposals (note a) 2,024 -- (111) -- -- -- -- -------------------------------------------------------------------------------------- (1,609) 9,396 (115) (243) (3,056) 298 (10) Financing (note a) (4,656) (9,396) 232 243 3,057 (297) 15 -------------------------------------------------------------------------------------- (DECREASE)/INCREASE IN CASH (NOTE B) (6,265) -- 117 -- 1 1 5 -------------------------------------------------------------------------------------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (Decrease)/increase in cash in the period (6,265) -- 117 -- 1 1 5 Debt issued in lieu of interest payment (7,088) -- -- -- -- -- -- Cash inflow from increase in debt (16,333) -- -- -- -- -- -- Other non-cash movements (210) -- 231 186 1,366 178 (205) Exchange adjustments 521 -- (215) 18 230 994 302 -------------------------------------------------------------------------------------- Movement in net debt in the period (29,375) -- 133 204 1,597 1,173 102 Net debt at start of year (51,350) -- (3,865) (3,609) (38,122) (22,374) (36,397) -------------------------------------------------------------------------------------- NET DEBT AT END OF YEAR (80,725) -- (3,732) (3,405) (36,525) (21,201) (36,295) -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- --- NOTE A RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Net interest paid/(received) (7,510) 9,203 (112) (242) (3,271) (1,847) 2 Dividends received -- 169 52 -- -- 2,148 -- -------------------------------------------------------------------------------------- (7,510) 9,372 (60) (242) (3,271) 301 2 -------------------------------------------------------------------------------------- ACQUISITIONS AND DISPOSALS Purchase of subsidiaries 2,624 -- (111) -- -- -- -- Acquisition provision payments (600) -- -- -- -- -- -- -------------------------------------------------------------------------------------- 2,024 -- (111) -- -- -- -- -------------------------------------------------------------------------------------- FINANCING Issue of ordinary shares 179 -- -- -- -- -- -- Issue of redeemable preference shares 4,842 -- -- -- -- -- -- Issue of short term debt 16,440 -- -- -- -- -- -- (Decrease)/increase in net funding (26,117) (9,396) 232 243 3,057 (297) 15 -------------------------------------------------------------------------------------- (4,656) (9,396) 232 243 3,057 (297) 15 -------------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 ---------------------------------- Testing Testing Guarantor Holdings Holdings subsidiaries France Germany Total EURL GmbH ---------------------------------- RECONCILIATION OF OPERATING PROFIT TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES: OPERATING PROFIT (3) (3) (22) Decrease/(increase) in receivables and prepayments -- -- (321) Increase/(decrease) in payables (2) 4 2,441 SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 ---------------------------------- NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES (5) 1 2,098 ---------------------------------- CASH FLOW STATEMENT Net cash inflow/(outflow) from operating (5) 1 2,098 activities Returns on investments and servicing of finance (note a) 556 (409) (1,261) Taxation received/(paid) 216 -- 2,270 Acquisitions and disposals (note a) (5) -- 1,908 ---------------------------------- 762 (408) 5,015 Financing (note a) (762) 389 (11,175) ---------------------------------- (DECREASE)/INCREASE IN CASH (NOTE B) -- (19) (6,160) ---------------------------------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (Decrease)/increase in cash in the period -- (19) (6,160) Debt issued in lieu of interest payment -- -- (7,088) Cash inflow from increase in debt -- -- (16,333) Other non-cash movements -- (82) 1,464 Exchange adjustments -- (334) 1,516 ---------------------------------- Movement in net debt in the period -- (435) (26,601) Net debt at start of year -- (4,732) (160,449) ---------------------------------- NET DEBT AT END OF YEAR -- (5,167) (187,050) ---------------------------------- -------------------------------------------------------------------------------- NOTE A RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Net interest paid/(received) (54) (409) (4,240) Dividends received 610 -- 2,979 ---------------------------------- 556 (409) (1,261) ---------------------------------- ACQUISITIONS AND DISPOSALS Purchase of subsidiaries (5) -- 2,508 Acquisition provision payments -- -- (600) ---------------------------------- (5) -- 1,908 ---------------------------------- FINANCING Issue of ordinary shares -- -- 179 Issue of redeemable preference shares -- -- 4,842 Issue of short term debt -- -- 16,440 (Decrease)/increase in net funding (762) 389 (32,636) ---------------------------------- (762) 389 (11,175) ---------------------------------- -------------------------------------------------------------------------------- 20-F 119th Page of 123 TOC 1st Previous Next Bottom Just 119th F-67 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 -------------------------------------------------------------------------------------- Intertek Testing Kite ITS Intertek Testing Yickson Testing Holdings Overseas Holding Testing Holdings Enterprises Services USA Holdings Limited Services Sweden AB Limited Ltd Inc BV UK Limited -------------------------------------------------------------------------------------- RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES: SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 OPERATING PROFIT 561 598 (37) -- -- 2,287 (5) Decrease/(increase) in receivables and prepayments 155 129 (8) -- -- 119 -- (Decrease)/increase in payables (4,641) (329) 16 3 331 72 358 -------------------------------------------------------------------------------------- NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (3,925) 398 (29) 3 331 2,478 353 -------------------------------------------------------------------------------------- CASH FLOW STATEMENT Net cash (outflow)/inflow from operating activities (3,925) 398 (29) 3 331 2,478 353 Returns on investments and servicing of finance (note c) 157 (10,961) (288) (51) (3,813) 563 71 ) Taxation received/(paid) -- -- -- -- -- -- -- Acquisitions and disposals (note c) (6,542) (2,850) 206 -- -- -- -- -------------------------------------------------------------------------------------- (10,310) (13,413) (111) (48) (3,482) 3,041 424 ) Financing (note c) 7,446 13,413 108 (11) 3,484 (3,041) (428) (DECREASE)/INCREASE IN CASH (2,864) -- (3) (59) 2 -- (4) -------------------------------------------------------------------------------------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (Decrease)/increase in cash in the period (2,864) -- (3) (59) 2 -- (4) Debt issued in lieu of interest payment (6,138) -- -- -- -- -- -- Cash inflow from increase in debt -- -- 117 94 777 205 1,059 Other non-cash movements 2,862 -- 4 4 (144) (187) 1,568 Exchange adjustments (1,295) -- 491 (124) (1,157) 2,414 (1,266) Net debt at start of year (43,915) -- (4,474) (3,524) (37,600) (24,806) (37,754) -------------------------------------------------------------------------------------- NET DEBT AT END OF YEAR (51,350) -- (3,865) (3,609) (38,122) (22,374) (36,397) -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- --- NOTE C RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Net interest paid/(received) 157 (10,961) (290) (51) (3,813) (1,997) 71) Dividends received -- -- 2 -- -- 2,560 -- -------------------------------------------------------------------------------------- 157 (10,961) (288) (51) (3,813) 563 71) -------------------------------------------------------------------------------------- ACQUISITIONS AND DISPOSALS Purchase of subsidiaries -- -- 206 -- -- -- -- Acquisition provision payments (6,542) (2,850) -- -- -- -- -- -------------------------------------------------------------------------------------- (6,542) (2,850) 206 -- -- -- -- -------------------------------------------------------------------------------------- FINANCING Increase/(decrease) in net funding 7,446 13,413 108 (11) 3,484 (3,041) (428) -------------------------------------------------------------------------------------- 7,446 13,413 108 (11) 3,484 (3,041) (428) -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- ---- STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 ---------------------------------- Testing Testing Guarantor Holdings Holdings subsidiaries France Germany Total EURL GmbH ---------------------------------- RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES: OPERATING PROFIT (11) (4) 3,389 Decrease/(increase) in receivables and prepayments -- -- 395 (Decrease)/increase in payables 87 85 (4,018) ---------------------------------- NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES 76 81 (234) ---------------------------------- CASH FLOW STATEMENT Net cash (outflow)/inflow from operating activities 76 81 (234) Returns on investments and servicing of finance (note c) (86) (494) (14,902) Taxation received/(paid) -- -- -- Acquisitions and disposals (note c) -- -- (9,186) ---------------------------------- (10) (413) (24,322) SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Financing (note c) 10 432 21,413 ------ (DECREASE)/INCREASE IN CASH -- 19 (2,909) ---------------------------------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (Decrease)/increase in cash in the period -- 19 (2,909) Debt issued in lieu of interest payment -- -- (6,138) Cash inflow from increase in debt -- -- 2,252 Other non-cash movements -- (34) 4,073 Exchange adjustments -- 593 (344) Net debt at start of year -- (5,310) (157,383) ---------------------------------- NET DEBT AT END OF YEAR -- (4,732) (160,449) ---------------------------------- -------------------------------------------------------------------------------- NOTE C RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Net interest paid/(received) (86) (494) (17,464) Dividends received -- -- 2,562 ---------------------------------- (86) (494) (14,902) ---------------------------------- ACQUISITIONS AND DISPOSALS Purchase of subsidiaries -- -- 206 Acquisition provision payments -- -- (9,392) ---------------------------------- -- -- (9,186) ---------------------------------- FINANCING Increase/(decrease) in net funding 10 432 21,413 ---------------------------------- 10 432 21,413 ---------------------------------- -------------------------------------------------------------------------------- 20-F 120th Page of 123 TOC 1st Previous Next Bottom Just 120th F-68 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 -------------------------------------------------------------------------------------- Intertek Testing Kite ITS Intertek Testing Yickson Testing Holdings Overseas Holding Testing Holdings Enterprises Services USA Holdings Limited Services Sweden AB Limited Ltd Inc BV UK Limited -------------------------------------------------------------------------------------- NOTE B - ANALYSIS OF CHANGES IN NET DEBT CASH AT BANK AT DECEMBER 31, 1997 (559) -- -- 1 2 -- -- Exchange adjustments -- -- 6 -- -- -- -- Cash flows (6,265) -- 117 -- 1 1 5 -------------------------------------------------------------------------------------- CASH AT BANK AT DECEMBER 31, 1998 (6,824) -- 123 1 3 1 5 -------------------------------------------------------------------------------------- DEBT DUE WITHIN 1 YEAR AT DECEMBER 31, 1997 -- -- (218) (200) (1,494) (411) (2,115) Cash flows (16,333) -- -- -- -- -- -- Other non-cash movements -- -- (29) (33) (142) 8 (205) Exchange adjustments -- -- (13) 1 7 20 3 -------------------------------------------------------------------------------------- DEBT DUE WITHIN 1 YEAR AT DECEMBER 31, 1998 (16,333) -- (260) (232) (1,629) (383) (2,317) -------------------------------------------------------------------------------------- DEBT DUE AFTER 1 YEAR AT DECEMBER 31, 1997 (50,791) -- (3,647) (3,410) (36,630) (21,963) (34,282) Debt issued in lieu of interest payment (7,088) -- -- -- -- -- -- Other non-cash movements (210) -- 260 219 1,508 170 -- Exchange adjustments 521 -- (208) 17 223 974 299 -------------------------------------------------------------------------------------- DEBT DUE AFTER 1 YEAR AT DECEMBER 31, 1998 (57,568) -- (3,595) (3,174) (34,899) (20,819) (33,983) -------------------------------------------------------------------------------------- SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 -------------------------------------------------------------------------------------- TOTAL NET DEBT AT DECEMBER 31, 1998 (80,725) -- (3,732) (3,405) (36,525) (21,201) (36,295) -------------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 ---------------------------------- Testing Testing Guarantor Holdings Holdings subsidiaries France Germany Total EURL GmbH ---------------------------------- NOTE B - ANALYSIS OF CHANGES IN NET DEBT CASH AT BANK AT DECEMBER 31, 1997 -- 19 (537) Exchange adjustments -- -- 6 Cash flows -- (19) (6,160) ---------------------------------- CASH AT BANK AT DECEMBER 31, 1998 -- -- (6,691) ---------------------------------- DEBT DUE WITHIN 1 YEAR AT DECEMBER 31, 1997 -- -- (4,438) Cash flows -- -- (16,333) Other non-cash movements -- -- (401) Exchange adjustments -- -- 18 ---------------------------------- DEBT DUE WITHIN 1 YEAR AT DECEMBER 31, 1998 -- -- (21,154) ---------------------------------- DEBT DUE AFTER 1 YEAR AT DECEMBER 31, 1997 -- (4,751) (155,474) Debt issued in lieu of interest payment -- -- (7,088) Other non-cash movements -- (82) 1,865 Exchange adjustments -- (334) 1,492 ---------------------------------- DEBT DUE AFTER 1 YEAR AT DECEMBER 31, 1998 -- (5,167) (159,205) ---------------------------------- ---------------------------------- TOTAL NET DEBT AT DECEMBER 31, 1998 -- (5,167) (187,050) ---------------------------------- 20-F 121st Page of 123 TOC 1st Previous Next Bottom Just 121st F-69 INTERTEK TESTING SERVICES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ((POUND)'000) 36. ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (continued) · Enlarge/Download Table STATEMENTS OF CASH FLOWS PERIOD FROM OCTOBER 8, TO DECEMBER 31, 1996 -------------------------------------------------------------------------------------- Intertek Testing Kite ITS Intertek Testing Yickson Testing Holdings Overseas Holding Testing Holdings Enterprises Services USA Holdings Limited Services Sweden AB Limited Ltd Inc BV UK Limited -------------------------------------------------------------------------------------- RECONCILIATION OF OPERATING PROFIT TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES: OPERATING (LOSS)/PROFIT (105) (211) (6) 117 (31) (14) -- Decrease in receivables and prepayments (666) (199) -- -- -- (119) -- Increase in payables 12,320 2,850 3 -- -- -- -- -------------------------------------------------------------------------------------- NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 11,549 2,440 (3) 117 (31) (133) -- -------------------------------------------------------------------------------------- CASH FLOW STATEMENT Net cash inflow/(outflow) from operating activities 11,549 2,440 (3) 117 (31) (133) -- Net cash outflow from returns on investments and servicing of finance (note d) 109 (1,133) (43) 3 (460) (321) 241 Taxation received/(paid) -- 51 -- (1) -- -- -- Net cash outflow from capital expenditure (note d) (135,489) (146,559) (5,755) (3,831) (64,709) (28,253) -- -------------------------------------------------------------------------------------- (123,831) (145,201) (5,801) (3,712) (65,200) (28,707) 241 Financing (note d) 126,136 145,201 5,804 3,772 65,200 28,707 (237) SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 -------------------------------------------------------------------------------------- INCREASE IN CASH 2,305 -- 3 60 -- -- 4 -------------------------------------------------------------------------------------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Increase in cash in the period 2,305 -- 3 60 -- -- 4 Cash inflow from increase in debt (48,176) -- (4,755) (3,742) (39,204) (26,786) (39,300 Exchange adjustments 1,956 -- 278 158 1,604 1,980 1,542 Net debt at October 8, 1996 -- -- -- -- -- -- -- -------------------------------------------------------------------------------------- NET DEBT AT DECEMBER 31, 1996 (43,915) -- (4,474) (3,524) (37,600) (24,806) (37,754 -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- --- NOTE D RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Net interest received/(paid) 109 (1,133) (43) 3 (460) (321) 241 -------------------------------------------------------------------------------------- CAPITAL EXPENDITURE Purchase of subsidiaries and associates (135,489) (146,559) (5,755) (3,831) (64,709) (28,253) -- -------------------------------------------------------------------------------------- FINANCING Issue of redeemable preference shares 87,783 91,283 993 3,831 23,000 2,091 48 Issue of long term debt 46,220 -- 4,477 3,584 37,600 24,806 37,758 (Decrease)/increase in net funding (7,867) 53,918 334 (3,643) 4,600 1,810 (38,043) -------------------------------------------------------------------------------------- 126,136 145,201 5,804 3,772 65,200 28,707 (237) -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- ---- STATEMENTS OF CASH FLOWS PERIOD FROM OCTOBER 8, TO DECEMBER 31, 1996 ---------------------------------- Testing Testing Guarantor Holdings Holdings subsidiaries France Germany Total EURL GmbH ---------------------------------- RECONCILIATION OF OPERATING PROFIT TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES: OPERATING (LOSS)/PROFIT (2) (4) (256) Decrease in receivables and prepayments -- 1 (983) Increase in payables -- -- 15,173 ---------------------------------- NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES (2) (3) 13,934 ---------------------------------- CASH FLOW STATEMENT Net cash inflow/(outflow) from operating activities (2) (3) 13,934 Net cash outflow from returns on investments and servicing of finance (note d) (2) (60) (1,666) Taxation received/(paid) -- -- 50 Net cash outflow from capital expenditure (note d) (3,843) (6,694) (395,133) ---------------------------------- (3,847) (6,757) (382,815) Financing (note d) 3,847 6,757 385,187 ---------------------------------- INCREASE IN CASH -- -- 2,372 ---------------------------------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Increase in cash in the period -- -- 2,372 Cash inflow from increase in debt -- (5,643) (167,606) Exchange adjustments -- 333 7,851 Net debt at October 8, 1996 -- -- -- ---------------------------------- NET DEBT AT DECEMBER 31, 1996 -- (5,310) (157,383) ---------------------------------- -------------------------------------------------------------------------------- NOTE D RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Net interest received/(paid) (2) (60) (1,666) ---------------------------------- SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 CAPITAL EXPENDITURE Purchase of subsidiaries and associates (3,843) (6,694) (395,133) ---------------------------------- FINANCING Issue of redeemable preference shares 996 1,001 211,026 Issue of long term debt -- 5,310 159,755 (Decrease)/increase in net funding 2,851 446 14,406 ---------------------------------- 3,847 6,757 385,187 ---------------------------------- -------------------------------------------------------------------------------- 20-F 122nd Page of 123 TOC 1st Previous Next Bottom Just 122nd F-70 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorised. INTERTEK TESTING SERVICES LIMITED (Registrant) By: -------------------------------- Name: Richard Nelson Title: Director Date: March 26, 1999 By: -------------------------------- Name: William Spencer Title: Director Date: March 26, 1999 20-F Last Page of 123 TOC 1st Previous Next Bottom Just 123rd SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorised. INTERTEK TESTING SERVICES LIMITED (Registrant) By: /s/ RICHARD NELSON -------------------------------- Name: Richard Nelson Title: Director Date: March 26, 1999 By: /s/ WILLIAM SPENCER -------------------------------- Name: William Spencer Title: Director Date: March 26, 1999 Dates Referenced Herein and Documents Incorporated By Reference This 20-F Filing Date First Last Other Filings Referenced-On Page SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 12/23/94 12/31/94 1/1/95 12/31/95 1/1/96 7/19/96 9/30/96 10/7/96 10/8/96 12/31/96 1/1/97 3/1/97 4/27/97 11/2/97 12/31/97 1/1/98 2/2/98 5/2/98 7/17/98 8/2/98 8/20/98 8/31/98 For The Period Ended 12/31/98 Filed On / Filed As Of 1/1/99 1/4/99 1/12/99 3/12/99 3/26/99 3/31/99 6/15/99 12/31/99 3/1/0 9/1/0 12/31/0 6/1/1 7/14/1 11/1/1 12/31/1 1/1/2 2/1/2 7/1/2 11/1/2 11/1/3 12/15/3 3/1/4 9/1/4 12/31/4 6/1/5 12/31/5 11/1/6 11/1/7 11/8/9 61 21 61 21 27 60 91 21 27 21 50 49 69 38 21 5 38 38 5 38 69 25 1 40 35 93 3 1 8 103 38 49 49 49 49 9 39 49 40 39 40 39 39 39 49 49 49 49 49 39 39 15 24 23 103 92 103 121 121 83 120 97 120 93 93 123 93 83 83 83 83 77 83 78 77 77 77 83 83 83 83 83 77 82 82 6-K 6-K 20-F 20-F 20-F Top List All Filings SEC Info - Intertek Testing Services Ltd - 20-F - For 12/31/98 Filing Submission - Alternative Formats (Word / Rich Text, HTML, Plain Text, SGML, XML, et al.) 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