As filed with the Securities and Exchange Commission on March 22, 2001
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to ________________
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, W1S 2ES, ENGLAND
(011) 44-20-7396-3400
(Address of principal executive office)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
None
Name of each Exchange on which registered
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 10¼% 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.
69,172,061 Ordinary ‘A’ Shares of 1p each
11,578,635 Ordinary ‘B’ Shares of 1p each
105,478,482 Zero Coupon Redeemable Preference Shares of £1 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:
Item 17 |_| Item 18 |X|
Table of Contents
Page
General information
Information on the Company
PART I
Item 1: Identity of Directors, Senior Management and Advisors
Item 2: Offer Statistics and Expected Timetable
Item 3: Key Information
Item 4:
Item 5: Operating and Financial Review and Prospects
Item 6: Directors, Senior Management and Employees
Item 7: Major Shareholders and Related Party Transactions
Item 8:
Item 9:
Item 10: Additional Information
Item 11: Quantitative and Qualitative Disclosures about Market Risk
Item 12: Description of Securities Other than Equity Securities
Financial Information
The Offer and Listing
1
2
2
2
11
22
40
45
48
50
50
57
63
PART II
Item 13: Defaults, Dividend Arrearages and Delinquencies
63
Item 14: Material Modifications to the Rights of Security Holders and Use of Proceeds 63
PART III
Item 17: Financial Statements
Item 18: Financial Statements
Item 19: Exhibits
63
63
63
General information
Throughout this annual report, the term “Company” refers to Intertek Testing Services Limited and the terms
“we”, “our”, “us”, “ITS” or “Group” refer to Intertek Testing Services Limited and its consolidated
subsidiaries. References to “sterling” and “£” are to Great British pounds and all references to “dollars” or “$”
are to United States dollars. Our historical consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United Kingdom (“U.K. GAAP”) and are presented in sterling.
UK GAAP 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 30 to our consolidated financial statements.
-1-
PART I
Item 1: Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2: Offer Statistics and Expected Timetable
Not applicable.
Item 3: Key Information
Selected financial data
We set out in the following table selected financial data for Inchcape Testing Services (the “Predecessor
Company”) and ITS. The income statement data for the period from January 1 to October 7, 1996 and the
balance sheet data at October 7, 1996 are derived from the combined financial statements of the Predecessor
Company. The income statement data for the period from October 8 to December 31, 1996 and for the years
ended at December 31, 1997, 1998, 1999 and 2000 and the balance sheet data at December 31, 1996, 1997,
1998, 1999 and 2000 are derived from the audited consolidated financial statements of ITS. Our acquisition
from Inchcape plc was accounted for under the purchase 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 ITS
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 for the acquisition and post acquisition financing 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 30 to our Consolidated Financial Statements. This table should
be read in conjunction with our Consolidated Financial Statements and the discussion under “Operating and
Financial Review and Prospects” included elsewhere in this Annual Report.
-2-
Selected Financial Data (continued)
Amounts in £m
Predecessor
Company
ITS
Period from
January 1 to
October 7,
1996
Period from
October 8 to
December
31, 1996
Year ended
December
31, 1997
Year ended
December
31, 1998
Year ended
December
31, 1999
Year e
Dece
31,
Supple-
mental
Period
1996
(unaudited)
Income Statement data
Amounts in conformity with U.K. GAAP:
Revenues
Continuing operations
Discontinued operations
Total
211.9
31.7
243.6
68.3
12.2
280.1
43.6
303.2
40.8
337.8
22.0
351.2
11.3
80.5
323.7
344.0
359.8
362.5
3
3
Operating income/(loss) before exceptional items
Continuing operations
Discontinued operations
22.5
2.0
Total
24.5
10.1
0.1
10.2
Operating income/(loss) after operating exceptional items
Continuing operations
Discontinued operations
19.7
2.0
7.7
(1.8)
Total
Net interest expense
Income/(loss) before taxation
Net income/(loss)
21.7
(3.2)
23.9
11.6
5.9
(4.1)
0.1
(1.4)
Amounts in conformity with U.S. GAAP:
32.9
2.3
35.2
25.6
2.3
27.9
37.3
3.2
40.5
33.4
3.2
36.6
(30.7)
(4.5)
(9.6)
(29.8)
6.9
(1.6)
44.8
(2.6)
42.2
30.8
(7.8)
23.0
(31.8)
(10.2)
(20.6)
48.0
(2.1)
45.9
58.5
(7.1)
51.4
(32.2)
21.6
9.0
Operating income/(loss)
Income/(loss) from continuing
operations before taxation
and minority interest
Net income/(loss)
b) 20.6 b)
(9.8)
a)
8.2
7.1
37.7
b)
b)
22.8
2.9
b)
b)
(15.7)
(11.3)
a)
a)
(21.6)
(28.2)
(24.7)
(35.1)
8.0
(4.6)
a)
Information is not available for the Supplemental Period 1996.
b) Continuing and discontinuing operations have been reported as a combined total because
separate information for discontinued operations is not available for the October 31,
1996 and December 31, 1996 periods.
-3-
Selected Financial Data (continued)
Amounts in £m
Predecessor
Company
ITS
October 7,
1996
December
31, 1996
Balance Sheet data
Amounts in conformity with U.K. GAAP:
December
31, 1997
December
31, 1998
December
31, 1999
Decem
31,
Supple-
mental
Period
1996
(unaudited)
Cash
Total assets
Total debt
Shareholders’ deficit
Amounts in conformity with U.S. GAAP:
Cash
Total assets
Total debt
Shareholders’ equity/(deficit)
n/a
n/a
n/a
n/a
33.5
152.8
268.9
(198.9)
n/a
n/a
n/a
n/a
b)
b)
b)
b)
33.5
424.7
296.8
63.3
a)
a)
a)
a)
a)
a)
a)
a)
25.2
145.3
277.3
(206.8)
23.1
378.6
305.4
20.1
16.8
163.8
295.8
(221.4)
17.3
369.9
325.2
(26.3)
20.2
178.6
293.6
(202.5)
23.5
364.4
329.7
(43.3)
2
3
(2
4
3
(
a)
Information is not available for the Supplemental Period 1996.
b) Continuing and discontinuing operations have been reported as a combined total because
separate information for discontinued operations is not available as at October 31, 1996
and December 31, 1996.
-4-
Selected Financial Data (continued)
Amounts in £m
Predecessor
Company
ITS
Period from
January 1 to
October 7,
1996
Period from
October 8 to
December
31, 1996
Year ended
December
31, 1997
Year ended
December
31, 1998
Year ended
December
31, 1999
Year e
Decem
31,
Supple-
mental
Period
1996
(unaudited)
Other Financial Data
Amounts derived from U.K. GAAP financial information:
Cash inflow from
operating activities
Returns on investments
and servicing of finance
Taxation
Capital expenditure and
financial investment
28.3
1.3
(8.2)
11.3
(1.3)
(3.3)
(12.3)
(5.6)
a)
a)
a)
a)
45.6
(21.9)
(6.1)
32.4
(25.0)
(5.9)
59.8
(23.9)
(6.9)
13.0
(14.0)
(17.5)
(
(
(
Acquisitions and disposals
Equity dividends paid
Cash (outflow)/inflow
before financing
Financing
(Decrease)/increase in
cash in the period
6.7
(28.3)
(12.5)
3.2
(336.7)
—
(335.6)
370.4
(9.3)
34.8
a)
a)
a)
a)
a)
(9.4)
—
(4.8)
(1.9)
(11.7)
—
(24.2)
16.0
(5.0)
—
6.5
(1.6)
(6.7)
(8.2)
4.9
Amounts derived from U.S. GAAP financial information:
Depreciation and
amortisation
b) 12.2 b)
9.6
a)
33.4
33.2
31.7
Capital expenditure
b)
12.4
b)
Net cash provided by
operating activities
Net cash used in
investing activities
Net cash (used in)/
provided by financing
b)
b)
16.7
(5.6)
b)
(20.3)
b)
b)
b)
5.7
6.8
(342.3)
370.2
a)
a)
a)
a)
11.5
12.7
17.5
14.3
(20.0 )
(0.8 )
4.0
(25.2 )
15.9
34.7
(23.9 )
(4.6 )
(
(
a)
Information is not available for the Supplemental Period 1996.
b) Continuing and discontinuing operations have been reported as a combined total because
separate information for discontinued operations is not available for the October 31,
1996 and December 31, 1996 periods.
-5-
Exchange rates
On March 12, 2001, the dollar 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”) was 1.47.
The following table sets out, for the periods indicated, the period average rate calculated from the average of
the Noon Buying Rate 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.
Year ended December 31,
Period Average
1996
1997
1998
1999
2000
1.56
1.64
1.66
1.61
1.51
The following table sets out, for the periods indicated, the high and low exchange rates during the previous six
months.
High
Low
1.48
1.48
1.46
1.50
1.51
1.48
1.40
1.42
1.40
1.42
1.45
1.43
September 2000
October 2000
November 2000
December 2000
January 2001
February 2001
Capitalization and indebtedness
Not applicable.
Reasons for the offer and use of proceeds
Not applicable.
Risk Factors
Significant leverage and ability to service debt could affect our ability to grow and service our debt
obligations
We are highly leveraged. At December 31, 2000 we had £330.9 million in total borrowings on a consolidated
basis and £112.7 million of shareholders’equity. We may incur additional indebtedness in the future, subject to
certain limitations in the instruments governing the Company’s and its subsidiaries’ indebtedness. The degree
to which we are leveraged could have important consequences for holders of our debt and our subsidiaries’debt,
as well as for our operations and financial position, including (i) our ability to obtain additional financing for
working capital, capital expenditures, acquisitions or general corporate purposes may be limited, (ii) we must
dedicate a substantial portion of our cash flow to the payment of interest on our indebtedness, reducing the
funds available to us for other purposes; (iii) some of our indebtedness bears interest at floating rates, which
may make ITS vulnerable to increases in interest rates; (iv) certain loans incurred in connection with our
acquisition are secured and rank in priority to holders of the 10.25% Senior Subordinated Notes Due 2006 (the
“Notes”) issued by our subsidiary, Intertek Finance plc, and will come due prior to the Notes becoming due; (v)
our indebtedness imposes numerous financial and other restrictive covenants that limit our ability to, among
other things, borrow additional funds, dispose of assets or pay cash dividends and the failure to comply with
such restrictions may result in an event of default which, if not cured
-6-
or waived, could have a material adverse effect on our business, and (vi) our substantial leverage may hinder
our ability to adjust rapidly to changing market conditions and could make us more vulnerable in the event of a
downturn in general economic conditions or our business.
Our ability to make scheduled payments of the principal of, or to pay interest on, or to refinance our
indebtedness and to make scheduled payments under our operating and capitalised leases depends on our future
performance, which to a certain extent is subject to economic, financial, competitive and other factors beyond
our control. Based upon the current level of operations and anticipated growth, management believes that
available cash, together with available borrowings under our credit agreements and other sources of liquidity,
will be adequate to meet our anticipated requirements for working capital, capital expenditures, research and
development expenses, interest payments and scheduled principal payments. We can offer no assurance,
however, that our business will continue to generate sufficient cash flow from operations in the future to pay
principal and interest on indebtedness. If unable to do so, we will be unable to repay our existing debt and may
be required to refinance all or a portion thereof (including the Notes), to sell assets or to obtain additional
financing. We can offer no assurance that any such refinancing would be possible or that any such sales of
assets or additional financing could be achieved.
The right of payment of holders of the Notes is subordinate to senior indebtedness
The Notes issued by our subsidiary, Intertek Finance, are subordinated in right of payment to all existing and
future senior indebtedness of Intertek Finance. The Notes are guaranteed on a senior subordinated basis by the
Company and certain of its other subsidiaries. The guarantees of the Notes are subordinated in right of payment
to all existing and future senior indebtedness of the guarantors. As of December 31, 2000, the Company and the
other guarantors of the Notes have £323.9 million of senior indebtedness outstanding. The Notes and the
guarantees will rank at least pari passu with all present and future subordinated indebtedness of Intertek
Finance and the guarantors of the Notes.
Adverse consequences of our company structure
The Company, Intertek Finance and the guarantors of the Notes have no operations of their own. As a result,
they are wholly dependent on the earnings of the operating companies that are their subsidiaries. Generally,
claims of creditors of a subsidiary, including trade creditors, secured creditors and creditors holding
indebtedness and guarantees issued by such subsidiary, and claims of preferred stockholders (if any) of such
subsidiary, will have priority with respect to the assets and earnings of such subsidiary over the claims of the
creditors of its parent company, except to the extent the claims of creditors of the parent company are
guaranteed by such subsidiary. The Notes therefore are effectively subordinated to creditors (including trade
creditors) and preferred stockholders (if any) of the direct and indirect subsidiaries of the Company, Intertek
Finance and each other guarantor of the Notes. As of December 31, 2000, the total liabilities, including
provisions for liabilities and charges of all of the operating subsidiaries was £101.3 million. Although there are
restrictions on us that limit the incurrence of indebtedness and preferred stock of certain subsidiaries, such
limitations are subject to a number of significant qualifications. Moreover, our subsidiaries may incur liabilities
that are not considered indebtedness or preferred stock. In addition, the ability of certain subsidiaries of ITS and
the other guarantors of the Notes to pay dividends may be restricted by, among other things, applicable
corporate and other laws and regulations and by the terms of agreements to which such subsidiaries become
subject. Although there are limits on the ability of such subsidiaries to enter into consensual restrictions on their
ability to pay dividends and make other payments, such limitations are subject to a number of significant
qualifications.
Restrictive covenants in loan agreements and our shareholders’ agreement could hinder our ability to
grow and service our debt
The indenture for the Notes, the Subscription and Shareholders’ Agreement among the Company and the
holders of certain classes of its shares (the “Shareholder’s Agreement”), and ITS’ loan agreements impose
operating and financial restrictions that restrict, among other things, the ability of the Company, Intertek
Finance and the other guarantors of the Notes (i) to incur additional indebtedness; (ii) to incur liens; (iii) to pay
dividends or make certain other restricted payments; (iv) to enter into certain transactions with affiliates; (v) to
incur indebtedness that is subordinate in right of payment to senior indebtedness but senior in right of payment
to the Notes; (vi) to impose restrictions on the ability of a subsidiary to pay dividends or make certain payments
to Intertek Finance, the Company or other guarantors of the Notes; (vii) to merge or consolidate with other
persons; or (viii) to sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of Intertek Finance or a guarantor of the Notes.
-7-
In addition, other agreements, including the credit agreement entered into by the Company in November 1996,
as amended (the “Credit Agreement”), prevent the prepayment of certain indebtedness (including the Notes)
and require that the Company maintain certain financial ratios and meet certain financial condition tests. The
Company’s ability to meet those financial ratios and tests can be affected by events beyond its control, and we
can offer no assurance that the Company will meet these tests. A breach of any of these covenants could result
in default under these agreements, and under other agreements containing cross default provisions, which
would permit lenders to declare outstanding amounts, together with interest, to be immediately due and
payable. If Intertek Finance, the Company and the other guarantors of the Notes were unable to pay those
amounts, the lenders could proceed against the collateral securing that indebtedness, which collateral includes
the capital stock of the guarantors of the Notes. If the amounts outstanding under certain credit agreements
were to be accelerated, holders of the Notes could also accelerate the payment thereof. If some or all of the
indebtedness of Intertek Finance or its affiliates was to be accelerated, we can offer no assurance that the assets
of the Company, Intertek Finance and the other guarantors of the Notes would be sufficient to repay that
indebtedness in full, including the Notes.
Certain insolvency laws and other considerations
Each of Intertek Finance, Intertek Testing Services UK Limited (“UKCo”), which is one of the guarantors of
the Notes, and ITS are limited companies organized under the laws of England. Accordingly, insolvency
proceedings with respect to either Intertek Finance, UKCo or ITS are likely to proceed under, and be governed
by UK insolvency laws.
The procedural and substantive provisions of UK insolvency and administrative laws generally are more
favorable to secured creditors than comparable provisions of the US law and afford other creditors only limited
protection from such secured creditors. Although the Notes are secured by a second priority lien on certain
intercompany notes, the lenders under the Credit Agreement have a first priority lien on the notes evidencing
the intercompany loans, and the capital stock of certain of the Company’s subsidiaries have been pledged to
secure the loans. Under the terms of an intercreditor deed entered into in connection with the offering of the
Notes, after the occurrence of an insolvency event, the security trustee under the Credit Agreement shall have
the right to direct the disposition of any collateral. In connection with a sale of the capital stock of a subsidiary
guarantor pursuant to an enforcement of security, the applicable subsidiary guarantee and second lien on an
Intercompany Note will be released. In addition, under UK insolvency law, the liabilities of Intertek Finance,
UKCo and the Company in respect of the Notes and the guarantees, respectively, will be paid in the event of a
bankruptcy or similar proceeding after certain debts of Intertek Finance, UKCo or the Company, as the case
may be, which are entitled to priority under UK law. Such debts may include (i) amounts owed to the UK
Inland Revenue, (ii) amounts owed to UK Customs and Excise, (iii) amounts owed in respect of UK Social
Security contributions, (iv) amounts owed in respect of occupational pension schemes and (v) amounts owed to
employees.
Litigation can arise from our normal operations
If we perform a test, inspection or certification inaccurately or improperly then a commercial dispute or
litigation may arise for damages. Although we have a well established quality assurance programme to mitigate
such occurrence, from time to time we are involved in various claims and lawsuits incidental to the ordinary
course of our business. We maintain a professional indemnity insurance policy that provides coverage,
appropriate to our operations, for most customer claims arising from errors or omissions in work undertaken,
although claims up to the deductible are self-financed.
In particular, as is set forth in greater detail under Item 8 below, two of our subsidiary corporations are
currently involved in investigations by the US Environmental Protection Agency (“EPA”).
We are unable to predict the outcome of these actions. However, on the basis of currently available
information, we consider that the costs to ITS of any civil and criminal penalties arising from this investigation
that may be legally enforceable are unlikely to have a material adverse effect on the financial position of ITS in
the foreseeable future, although we are not able to quantify the cost of any adverse publicity. We have notified
Inchcape plc of the investigation and are pursuing possible rights of recovery against Inchcape plc under the
agreement pursuant to which Inchcape plc sold our business to us. Our group professional indemnity insurance
policy may respond at least in part, to legal costs, civil damages and third party claims.
-8-
Environmental regulations may affect our business
We are subject to worldwide laws and regulations and ordinances 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 are complex, change frequently, and have tended
to become more stringent over time. There can be no assurance that violations of such laws have not occurred
or will not occur or be identified or that such laws will not change in the future in a manner that could
materially and adversely affect our business. Such laws and regulations also may impose obligations to
investigate and remediate or pay for the investigation and remediation of environmental conditions, and
compensate public and private parties for related damages. In jurisdictions such as the United States, such
obligations, including but not limited to those under the Comprehensive Environmental Response,
Compensation and Liability Act, may be joint and several and may apply to conditions at properties presently
or formerly owned or operated by an entity or its predecessors, as well as to conditions at properties at which
wastes or other contamination attributable to an entity or its predecessors have been sent or otherwise come to
be located. We can give no assurance that we will not incur such liability in connection with facilities we
currently own or operate or other locations, in a manner that could materially adversely affect our business and
financial position. We are aware of contamination at the following two properties which we presently own:
Cortland, New York, U.S.A., is a major ETL SEMKO operating location with a significant heating, ventilation
and air conditioning testing capacity. Site contamination was discovered and clean up efforts were started
several years ago. These clean up operations cost $50,000 in 2000, and we estimate ongoing clean up operation
costs of about $50,000 to $100,000 per annum for 10 years. There is a risk that the regulators may require more
expensive remedial work.
In April 1998, we decided to move our existing Caleb Brett operations in Antwerp to a newly acquired site
following an acquisition in Belgium. After vacating our original site, we became aware of soil contamination
under the building. We estimate that clean up operations will last for about one year and will cost
approximately £90,000. The clean up plan was approved by the Belgian authorities and the clean up operation
has commenced.
In connection with our acquisition from Inchcape plc on November 6, 1996, we obtained rights to
indemnification from Inchcape plc in certain circumstances for breaches of Inchcape plc’s environmental
representations and warranties in the related acquisition agreement. Those rights to recover for breach of
warranty are subject to limitations, however, including the necessity that amounts sought from Inchcape plc
exceed £250,000, and the requirement that we give notice to Inchcape plc prior to the fifth anniversary of the
closing of the acquisition, depending on the issue involved. We have notified Inchcape plc of the contamination
at both of the above sites but we can give no assurance that this or any other material environmental liability
will be covered by such indemnification rights.
ITS’ principal shareholder may have interests different to those holders of the Notes
As of December 31, 2000, approximately 45.18% of the outstanding Ordinary A and B shares of the Company
were held by funds managed by Charterhouse, and ITS owns all of Intertek Finance’s voting stock. As of
December 31, 2000, approximately 55.78% of the outstanding redeemable preference shares of the Company
were held by funds managed by Charterhouse. Circumstances may give rise to perceived or actual conflicts of
interests between Charterhouse as shareholder and the Note holders.
Our revenues are dependent on economic and political conditions
Each of our divisions service a different market, and the revenues of each division are dependent upon the
condition of the market it services. In particular, the revenues of Labtest and ETL SEMKO are dependent on
the market for manufactured goods, and the revenues of Caleb Brett are dependent upon the petroleum and
petrochemical market. Our FTS division works for governments in developing countries where there can be
longer payment cycles for accounts receivable and contracts can be terminated at short notice at the sole
discretion of the government. We believe the diversified nature of our operations can reduce the effect of
various market shocks. However, we can offer no assurance that future changes in underlying markets, or at
ITS, the inherent instability within our markets, will not adversely affect our revenues. In addition, our
subsidiaries are located throughout the world, and we are subject to certain risks inherent in doing business in
international markets, including political instability and change, variations in effective income tax rates,
difficulties in collecting accounts receivable, longer payment cycles and withholding taxes that limit the
repatriation of earnings. One or more of these factors could have an adverse effect on our international
operations.
-9-
For instance, in January 1999, the Nigerian government unexpectedly announced that its pre-shipment
inspection programmes would cease in March 1999. This had a negative effect on our revenues and operating
income in 1999. In September 1999, the new government in Nigeria re-introduced inspection programmes but
awarded us a smaller part of the contract. The new programme has started slowly. Pre-shipment inspection
programmes in Colombia and Ghana also ceased in 2000.
Fluctuations in foreign currency exchange rates may have a material impact on our results of operations
and financial position
Over 80% of our revenues are generated by operations outside the United Kingdom and therefore fluctuations
in exchange rates between the currencies in which these revenues are denominated and sterling may have a
material impact on our results of operations and financial condition. Over 50% of our revenues and the majority
of our borrowings, interest payments and debt repayments are denominated in US dollars or currencies linked
to the US dollar, such as the Hong Kong dollar. Where there is material transaction exposure from currency rate
movements we take out forward foreign exchange contracts to minimise this exposure.
Changes in regulations can adversely affect our revenues
One of the activities of our ETL SEMKO division is the testing of products to determine if such products meet
legally required standards established in North America, individual European country standards and/or
standards established by European Union directives and then issuing safety marks certifying the product’s
compliance with the relevant standard. Our revenues could be adversely affected if government authorities
adopt uniform safety standards or eliminate various safety requirements. In addition, the European Union
currently allows manufacturers to self-certify their products under the CE safety mark. Although many
manufacturers continue to rely on outside testing agencies such as ITS for certification rather than self-
certifying, we can give no guarantee that companies will not self-certify their products in the future.
Furthermore, to the extent other government authorities permit manufacturers to self certify their products,
demand for our services could decline.
Forward-looking statements
The following statement is made pursuant to the safe harbour provisions for forward-looking statements
described in the Private Securities Litigation Reform Act of 1995. Some of the information in this annual report
on Form 20-F contains forward-looking statements that involve substantial risks and uncertainties. You can
identify these statements by forward-looking words such as “expect”, “anticipate”, “believe”, “seek”,
“estimate” and similar words. Statements that we make that are not statements of historical fact also may be
forward-looking statements. Forward-looking statements are not guarantees of our future performance, and
involve risks, uncertainties and assumptions that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. There may be events in the future that we are not
accurately able to predict, or over which we have no control. You should not place undue reliance on forward-
looking statements. We do not promise to notify you if we learn that our assumptions or projections are wrong
for any reason. We disclaim any obligation to update our forward-looking statements.
-10-
Item 4: Information on the Company
History and development of the company
Both our legal and our commercial name is Intertek Testing Services Limited. We are a private company
limited by shares, originally incorporated under the English Companies Act 1985 on July 19, 1996. We are a
holding company and our business is conducted by 148 subsidiaries in 94 countries. Prior to November 1996,
our business operated as a division of Inchcape plc called Inchcape Testing Services. In November 1996, a
management buyout led by Charterhouse Development Capital Limited purchased Inchcape Testing Services
from Inchcape plc, forming the Intertek Testing Services group (“ITS”). Our global business is the testing,
inspection and certification of manufactured goods and commodities to customers throughout the world. Our
registered office is located at 25 Savile Row, London, W1S 2ES and the telephone number at that location is
(44) 20 7396 3400. Our agent for service of process in connection with our Senior Subordinated Notes is CT
Corporation System, 111 Eighth Avenue, New York, New York 10011.
In 1998, we sold our Environmental Testing division as the returns from this division were unsatisfactory.
Despite extensive restructuring in 1999, our minerals testing division, Bondar Clegg, continued to generate
operating losses and we considered that the outlook for minerals testing was poor, so we decided to exit this
market. In the first quarter of 2000, we sold the businesses that comprised this division.
Our total capital expenditures for 1998, 1999 and 2000 were £14.1 million, £17.7 million and £26.4 million
respectively. These expenditures were primarily for laboratory equipment, improvements to laboratories and for
computer equipment. In 2000, we spent £3.6 million establishing a new Caleb Brett testing facility in the
United Kingdom and £2.2 million on two electrical testing chambers in the United States. Principal capital
expenditures currently in progress consist of approximately £1.0 million for setting up new laboratories in
China and France and £2.1 million for a major upgrade to computer equipment in the United States. Our
expenditure on the acquisition of new businesses in 1998, 1999 and 2000 was £11.3 million, £8.5 million and £
2.0 million, respectively. The acquisitions were principally in our Caleb Brett and ETL SEMKO divisions and
acquisitions were made in order to extend our geographical coverage and enhance our market position and
strategic strengths.
Business overview
We are a leading international organisation engaged in the testing, inspection and certification of manufactured
goods and commodities. We are organised into four operating divisions, each focusing on the testing,
inspection and certification of different manufactured goods and commodities. Our customer base is diverse
and different in each division and includes retailers, distributors, manufacturers, petroleum companies, traders
and governments. The majority of our work is on a job by job basis except for the FTS division where over
90% of revenues are from term contracts. Apart from our government clients in the FTS division, no individual
customer contributes more than 2% to the group’s revenues. We currently employ over 9,500 people and
operate 479 inspection offices and 243 testing laboratories in 94 countries.
We believe that the growth of the Internet offers significant opportunities to expand our business. Increasingly,
our customers are demanding closer integration between their systems and ours. We are actively improving our
information technology systems to answer these demands. A new ordering, inquiry and reporting system is now
online in the Caleb Brett division (“myCalebBrett.com”). Similar systems will be available in all our divisions
in the near future. Other Internet based IT initiatives are also underway which will allow our divisions to
provide better and more tailored services to our customers. This is in keeping with our commitment to put
customers first.
An increasing number of commodities and products are being traded via the Internet, mainly on business-to-
business but also business-to-consumer sites. We provide testing, inspection and certification services for many
of the commodities and products traded, ensuring that customers are able to buy products over the Internet
reliably and with confidence. We are working actively with sites to ensure we are integrated into their online
buying and trading processes. Our goal is to be the service partner of choice in online inspection and testing.
Our aim is to ensure that we have a market share in each e-business area equal to or greater than our market
share in traditional business areas.
-11-
The following is a summary of revenues by division.
Revenues by division
Caleb Brett
ETL SEMKO
Labtest
Foreign Trade Standards
Continuing operations
Discontinued operations
Total
1998
£m
123.0
84.9
64.6
65.3
337.8
22.0
359.8
1999
£m
137.2
88.2
78.3
47.5
351.2
11.3
362.5
Revenues were attributable to subsidiaries operating in the following geographic areas.
Revenues by geographic area
Americas
Europe, Africa and Middle East
Asia and Far East
Continuing operations
Discontinued operations
Total
1998
£m
137.0
126.5
74.3
337.8
22.0
359.8
1999
£m
143.3
117.7
90.2
351.2
11.3
362.5
2000
£m
157.5
99.5
94.0
47.4
398.4
0.7
399.1
2000
£m
163.5
120.4
114.5
398.4
0.7
399.1
A detailed discussion of our results is given in the Operating and Financial Review and Prospects, elsewhere in
Item 5 of this Annual Report.
An overview of each operating division is given below.
Caleb Brett
Caleb Brett was founded in 1885 and is a joint leader in the market for testing and inspecting crude oil,
petroleum products and chemicals. We believe that Caleb Brett has strong name recognition coupled with an
international reputation for reliability and confidentiality. Caleb Brett’s primary business is providing
independent verification of the quality and quantity 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. We believe that the market has benefited
from increasingly complex and rigorous environmental regulation in North America and Europe, which has
required increased testing. Also, multinational oil companies and petroleum traders are increasingly
outsourcing their testing activities to companies such as Caleb Brett. Caleb Brett issues certificates that 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 measuring 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.
-12-
Free Standing Testing involves the analysis of samples unrelated to cargo shipments, including situations
where an oil or chemical 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.
Geographic coverage
Caleb Brett has 330 offices and 174 laboratories worldwide. Head offices are located in Singapore for Caleb
Brett Asia, the United Kingdom for Caleb Brett Europe Africa Middle East, and the United States for Caleb
Brett Americas.
Customers
Caleb Brett’s customers include oil and chemical companies and traders with whom we have well established
long-term relationships. The majority of our oil company customers purchase services from Caleb Brett on a
job-by-job, port-by-port basis. Caleb Brett does not have any customers which represent more than 5% of its
revenues.
Sales and marketing
We believe that Caleb Brett has been able to increase its market share through its extensive network of
facilities, its well equipped, quality-controlled and technically proficient laboratories, its reputation for service
and its international co-ordination which leads to close contact with customers. Marketing is carried out on a
global, regional and local level. The Internet is starting to become an important route to market.
Competition
Multinational oil companies typically split inspection and testing contracts between two or more suppliers to
sustain competition. Based on our knowledge of the market for testing and inspecting crude oil, petroleum
products and chemicals, we believe that Caleb Brett and Societe Generale de Surveillance are regarded as
market leaders in this industry, together sharing over 50% of the market in 1999. Other global competitors
include Inspectorate and Saybolt which each hold approximately 10% of the market. We believe that
competition in this market will continue to be relatively stable as a result of high start-up and fixed costs, as
well as the importance of brand name recognition.
Operations
All of Caleb Brett’s offices include staff capable of performing relevant sampling, testing and inspection
operations. Field inspectors attend and superintend vessels during loading or discharge, sample the cargo and
measure the cargo quantity. Laboratory technicians test samples. Caleb Brett uses sophisticated information
systems to allow it to maximise reporting accuracy, minimise operating costs and turnaround times and offer
the highest level of service to its customers.
Growth strategy
We believe that the market for traditional inspection related testing is mature in Europe and the United States,
and we anticipate low growth in these regions. As a result of consolidation in the oil industry, there has been an
increasing number of intercompany movements, which tend not to attract third party inspections. This decline
has been offset by increasing business in Asia and Latin America where markets are developing and the state
oil companies have privatised parts of their business. We intend to concentrate on maintaining our market share
in Europe and the United States and expanding in developing countries, making acquisitions as appropriate.
Free standing testing is the fastest growing sector within Caleb Brett, and we intend to continue investing in our
petroleum and petrochemical laboratories. In addition, we plan to increase further our level of customer service
through improved responsiveness combined with fast and accurate turnaround. This strategy is supported by
tailored information technology solutions, for example a new ordering, inquiry, and reporting system called
“myCalebBrett.com” which came online in 2000. Following the success of our outsourcing agreement with BP
in the United Kingdom in 2000, a number of multinational oil companies and petroleum traders have expressed
an interest in outsourcing their laboratories to Caleb Brett. We believe outsourcing will be a key growth area in
2001 and beyond. Caleb Brett made four small acquisitions in 2000 that expanded our range of services and
geographic
-13-
spread. In 2000, we sold a small loss adjusting business in Chile and a small loss making business in Thailand
in which we had a 49% interest, ceased operating.
Personnel
Caleb Brett employs over 4,500 people in 57 countries. Less than 10% of employees are members of various
unions around the world, with the majority being in continental Europe.
ETL SEMKO
ETL SEMKO tests and certifies electrical and electronic products, telecommunication equipment, building
products and heating, ventilation and air conditioning equipment. ETL SEMKO also certifies the quality of
management systems to standards such as ISO 9000 in North and South America and Europe. ETL is a long
established brand name which traces its origins back to Thomas Edison in the United States. SEMKO is the
name of the former state owned certification body in Sweden that we acquired in 1994. Prior to January 1999,
ETL SEMKO was known as Conformity Assessment and prior to January 1998, this business was part of our
Quality Systems division.
Business overview
ETL SEMKO’s activities are divided into the following three subdivisions: Conformity Assessment,
Performance and Quality Management Systems.
Conformity Assessment primarily involves the testing of electronic, electrical and building products and
telecommunications equipment to allow manufacturers to mark their products with nationally or regionally
recognised safety marks and to have their products certified as complying with a number of nationally
recognised performance standards. These services facilitate the sale of products to markets in any country
around the world.
Safety marks owned and issued by ETL SEMKO include “ETL” (United States), “cETL” (Canada),
“S” (Sweden) and “WH” (United States and Canada). ETL SEMKO is also authorised to apply the “GS” mark
(Germany) and the “NOM” mark (Mexico). ETL SEMKO has Notified Body Status in the European Union and
also has electro-magnetic compatibility, telephone and other accreditations required for products it tests and
certifies. These safety marks and certifications are widely relied upon by manufacturers, retailers and
consumers to ensure that products conform to the applicable standards. In some countries and for some
products, the safety marks and certifications are a legal requirement. Even when not required by governmental
regulation, many manufacturers continue to use our safety marks and testing and certification services to ensure
product quality. 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.
Performance testing is demanded by industry associations to guard against products that might damage
consumer confidence in a particular industry. For example, we have been nominated by the Air Conditioning
and Refrigeration Institute 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. We also test
individual manufacturers’ products to provide independent competitive performance data, which can then be
used for marketing.
Quality Management Systems’ activities involve the certification of the business processes and services of an
organisation to ISO 9000. Certification involves a company defining and documenting its business processes
and standards of service. Companies receiving certifications are subject to regular audits over time as a
condition of continuing certification. ETL SEMKO manages this activity within North and South America. In
Europe, this activity is performed through an associate company, Dekra, in which we have a 49% holding. In
Asia, this activity is carried out within the Labtest division.
Geographic coverage
ETL SEMKO has 35 offices and 36 laboratories worldwide. Head offices are located in Sweden for ETL
SEMKO Europe and Asia, and the United States for ETL SEMKO Americas.
-14-
Customers
ETL SEMKO’s customers include industrial companies such as Adtran, LG Electronics, Ericsson, Matsushita
and Electrolux. We also have a number of long-standing relationships with various industry organisations, such
as the Air Conditioning and Refrigeration Institute, which has been our customer since 1956. ETL SEMKO
does not have any customers which represent more than 3% of its revenues.
Sales and marketing
ETL SEMKO provides a wide range of testing services near points of manufacture worldwide, and the goods
tested by ETL SEMKO may be sold in all the major markets of the world. With its global sales force and its
network of testing centres, ETL SEMKO benefits from the migration of manufacturing 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 US Federal
Communications Commission standards.
New business is obtained through a variety of means, including direct mailing, advertisements, tele-sales,
seminars, trade shows, trade associations and customer visits and referrals. In Europe, ETL SEMKO’s
customers tend to be larger, quality-conscious companies with a wide range of testing requirements. Typically,
new business is obtained by the engineers, who are the primary point of contact for customers, offering new
services to existing customers. In the United States, ETL SEMKO has a centralised marketing team based in its
regional head office. Each member of this team is responsible for the marketing of a defined range of services
(e.g. telecommunications, building products, electrical products, etc). In Asia, marketing is mainly carried out
by marketing and sales executives. We have established an Asian marketing and sales group to co-ordinate
marketing throughout the Asian region.
Competition
Based on our knowledge of the market in which we operate, we believe that ETL SEMKO has no direct global
competitor offering the same range of services. Underwriters Laboratories, a non-profit organisation in the
United States which is primarily engaged in safety mark testing, has the major share of consumer goods testing
in the market in the United States and a small presence in Europe. The German Technischer Uberwachungs are
nonprofit organisations which have the major market share in Germany with operations in America and Asia.
We believe that ETL SEMKO has the potential to increase its market share as a result of its range of safety
labels and accreditations, its brand name recognition, its global presence and the high startup costs and barriers
to entry in the product testing and certification market. However, there is a possible trend towards increasing
global harmonisation of standards and self-certification in lieu of third party testing which may have an adverse
effect on the market for ETL SEMKO’s services.
Operations
ETL SEMKO has the experience to test and certify many types of products for a wide range of performance
and safety features including electromagnetic emission of telecommunications, computers and other electronic
equipment; the energy efficiency of heating, ventilation and air conditioning equipment; thermal and acoustic
insulation properties of fire doors, glass and other building products; and the safety performance of sporting
goods. We use a wide range of laboratory facilities and specialist test engineers.
Growth strategy
Our objective for ETL SEMKO is to increase our market share while maintaining our operating margin. We
aim to achieve this by continuing to develop strong partnerships with our customers so that we can promote and
provide all of our testing and certification services on a “one stop” basis. The continued development of our
interactive websites and Internet marketing is an integral part of this strategy. A new Oracle computer system is
being implemented in the United States that will allow customers on-line access to project status and test
reports. We are increasingly organising ETL SEMKO into customer driven market segments such as
telecommunications equipment, information technology equipment, medical equipment, building products and
heating, ventilation and air conditioning equipment. We believe these segments allow for more focused and
effective marketing. We have outsourcing partnerships with ABB, Electrolux and Ericsson, and we anticipate
that outsourcing contracts will continue to be a growth area. In addition to the above initiatives, we are
continuing to broaden the geographical spread of ETL SEMKO by making strategic acquisitions, particularly in
Europe where the market is mature and organic growth is slower. We also acquire businesses that allow us
entry into niche markets such as explosives-
-15-
related accreditation that we can then market globally. In March 2000 we acquired the assets of a small
laboratory in Italy from Electrolux. This laboratory carries out electro magnetic compatibility testing for
Electrolux and others, providing us with a facility in the fast growing Italian market. Also in March 2000, we
acquired the Radio Communications Testing operation of ERA Technology in the United Kingdom. This
operation was merged into our existing facility in Leatherhead and has enabled us to enter the mobile telephone
handset testing market in the United Kingdom. In December 2000, we acquired a laboratory business in Japan
which has test facilities for EMC, telecommunications and safety testing.
Personnel
ETL SEMKO employs approximately 1,600 people in 13 countries. Less than 12% of employees are members
of various unions around the world, with the majority being in Sweden.
Labtest
Labtest is one of the largest international providers of testing and inspection services for textiles, toys,
footwear, hardlines and other consumer products.
Business overview
Labtest performs testing to ensure that products meet safety standards and the specifications of distributors and
retailers. The purchasers typically specify their own quality and performance standards, but may specify
nationally recognised standards. Manufacturers operating in developing countries routinely seek such testing
and inspection of consumer goods to assist them in selling their products to markets such as North America and
Europe. Labtest divides its activities into the following subdivisions, Textiles, Toys, Inspection, Code of
Conduct, Quality Management Systems and Risk Analysis and Management:
Textiles testing is principally an activity in which large textile and clothing retailers specify standards for the
testing of products at the point of manufacture. Testing is mainly carried out for colour fastness, abrasion
resistance, size conformity, shrinkage resistance and flammability. Based on our knowledge of the textile
testing market and our competitors, we believe that Labtest is the world leader in textile testing.
Toys testing is mainly to ensure products conform to national and international safety standards. Services
include design and packaging evaluation, safety testing, durability testing and performance testing.
Inspection primarily involves visual inspection of finished products at the manufacturer’s factory prior to
shipment to verify the quantity, quality and basic specification of the products to be shipped. Inspection may be
carried out on behalf of the manufacturer or the buyer.
Code of Conduct work has resulted from consumers and pressure groups being increasingly concerned about
the social conditions to which workers in developed and developing countries are subjected. Code of Conduct
audit work includes factory tours, document review and employee interviews. Retailers usually commission the
audits and we work closely with both manufacturers and retailers to obtain the best all-round solution to any
problems identified. The main focus of these audits is the review of child labour conditions, involuntary labour,
coercion and harassment, health and safety, working hours, compensation and environmental protection.
Quality Management Systems involves the certification of the business processes and services of an
organisation to ISO 9000 and similar standards. In China, Hong Kong and Taiwan, Quality Management
Systems work is carried out through a partnership with the British Standards Institute. In addition, Quality
Management Systems’ activities include pharmaceutical product testing. This involves testing equipment,
utilities such as pure gases and air, installations and associated processes to standards issued by national and
legal health authorities such as the Food and Drug Administration in the United States.
Risk Analysis and Management works with world market leaders to minimise the risk associated with toys,
children’s clothes and other consumer products.
Geographic coverage
Labtest has 63 offices and 33 laboratories worldwide. The head office is located in Hong Kong.
-16-
Customers
Labtest’s customers are retailers, mainly in North America and Europe, and manufacturers, mainly in Asia.
Customers include McDonalds and retailers such as Gap Inc, The Home Depot, Tommy Hilfiger (HK) Ltd and
Li & Fung (Trading) Ltd. Labtest’s top ten customers account for approximately 20% of revenues.
Sales and marketing
Labtest provides a full range of testing services for both points of manufacture and retailers’ buying offices.
Labtest is able to ensure that the goods tested may be sold in all the major markets in the world because it has
the accreditations and reputation to meet the requirements of its retail and distribution customers worldwide.
With its network of testing centres in developing countries, Labtest benefits from the migration of
manufacturing from North America and Europe to Asia and other developing world regions. For example, our
testing laboratory in Turkey offers American and European textile and garment importers a local testing service
in the country of production. Labtest’s marketing efforts focus mainly on the major retailers of North America
and Europe. Labtest assigns an account manager to most of these major retailers who is responsible for
marketing to that client and providing a full range of services. The account manager is likely to be a specialist,
for example, in textiles or inspection, and will draw upon the support of other experts within the division, as
and when appropriate, to service the client.
Competition
Based on our knowledge of the markets in which we operate and our competitors’ performance, we believe that
Labtest has 36% of the textile testing market, 20% of the toys testing market and 25% of the inspection market.
Societe Generale de Surveillance competes with us in all these sectors, ACTS Testing Laboratories is a
competitor primarily in the toys testing market and Merchandise Testing Laboratories competes with us
primarily in the textiles testing sector.
Operations
Labtest has the expertise to inspect and test a wide range of consumer products to the specifications required by
retailers and distributors. Labtest testing facilities are usually located near to the point of manufacture of the
product and range from the largest textile testing laboratory in the world in Hong Kong to small startup
operations in new territories such as Morocco. We employ experts in a number of specialist fields such as
textile analysis and toy testing.
Growth strategy
We expect the market for Labtest to continue growing as a result of increasing sourcing of products from
developing countries. In addition, Labtest benefits from the greater consumer desire for product varieties, the
trend towards shorter product life cycles and increasing awareness of consumer protectionism. Labtest aims to
continue its strong revenue growth while maintaining its operating margins. We anticipate an increase in the
volume of consumer products purchased over the Internet which will potentially increase business for Labtest.
We are developing our computer systems to allow our customers on line access to an ordering, reporting and
analysis system. We continue to expand the geographical coverage of Labtest. In 2000 we opened offices in
Bangladesh and Madagascar and laboratories in China and Thailand. Further expansion is planned in China.
Personnel
Labtest employs approximately 2,300 people in 21 countries. Korea is the only country where employees are
members of a union.
-17-
Foreign Trade Standards
Business overview
FTS provides independent pre-shipment inspection 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 of specified products meet 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 of the importing country. This work is
contracted directly with the governments and standards organisations of developing countries. This division
also provides customs training services to customs departments. Pre-shipment inspection contracts fall into one
of four categories:
Single Contracts
A single inspection organisation is successful at securing the contract with the
government and inspects inbound trade shipments.
Shared Contracts
Two or three inspection organisations are selected to inspect imports and typically
have responsibilities divided between them according to the location of the exporter.
For example, one inspection organisation may cover imports from the Americas, a
second, imports from Europe and Africa and a third, imports from Asia.
Competitive Contracts A number of inspection companies are authorised to perform inspection work for the
country concerned. Inspection work is performed by one of these organisations on a
competitive basis. Competitive contracts are common in South America.
Standards Body
Contracts
Independent product testing and certification services provided to a national Standards
Body (e.g. the Saudi Arabian Standards Organisation (“SASO”), to confirm that
products imported into the Kingdom of Saudi Arabia comply with relevant SASO or
international standards).
In addition to pre-shipment inspection work, FTS also provides a wide range of inspection and expediting
activities, usually focused on larger engineering plants and projects. The service covers review of specifications
sent to suppliers, technical inspection activities, including witnessing of tests on finished products and
materials.
Geographic coverage
FTS has 47 offices worldwide and its head office is located in the United Kingdom.
Customers
FTS’ customers include the governments of Argentina, Bangladesh, Ecuador, Georgia, Iran, Mexico,
Mozambique, Nigeria, Uganda and Uzbekistan and the Saudi Arabian Standards Organisation. Some of these
contracts may be cancelled at short notice. For example, in January 1999, the Nigerian government
unexpectedly announced that its pre-shipment inspection programmes would cease in March 1999. This had a
negative effect on our revenues and operating income in 1999. We have in the past, and may also in the future,
experience delays in receiving payment for our services from certain governments. FTS’ largest customer
accounted for 29% of its revenues in 2000.
Sales and marketing
FTS’ marketing efforts for government contracts are managed by a business development team based in
London. Business development efforts require extensive work in the targeted country, including high level
lobbying to encourage the government, usually via the Ministry of Finance or the government Standards Body,
to issue a tender for pre-shipment inspection services. The marketing team also makes regular contact with
major international organisations that advise countries on economic policy, such as the World Bank and the
International Monetary Fund. In competitive contracts such as those in parts of Latin America, there needs to be
a marketing effort to shippers and receivers of products and commodities. Local sales teams are used to
promote FTS’ services to importers, against its competitors.
-18-
Competition
Four companies dominate the pre-shipment inspection market. The high cost of entry caused by the
requirement to have an extensive worldwide inspection network has prevented newcomers from creating a
significant impact. Based on the number of pre-shipment inspection programmes in existence and our
knowledge of our competitors we estimate that we have about 16% of the pre-shipment inspection market,
Societe Generale de Surveillance have approximately 39%, Bureau Veritas have about 26% and Cotecna have
about 12%.
Operations
Inspection requirements typically involve verification of shipment quantity, quality, product specification and
value. The requirement for inspection work is normally first notified in the country of import. FTS logs the job
in its worldwide information system and notifies its regional office located near the exporter. FTS’ information
system automatically generates fax notification to the exporter, informing it of the requirements for inspection.
After the receipt of information from the exporter as to when and where the goods to be shipped may be
inspected, FTS will despatch an inspector to the appropriate location. As well as our own full-time inspectors,
we use the services of sub-contractors around the world, who operate on a pay-per-job basis, minimising fixed
costs. Concurrently, the FTS office in the exporter’s region will check the invoice for consistency with the
appropriate inspection result and for price. At this point, the FTS information system produces customs and
other certificates for official use in the country of import.
Growth strategy
Our strategy for FTS is to focus on increasing our share of the global pre-shipment inspection market whilst
maintaining both a minimum operating margin and a rigorous compliance programme to ensure that all
employees and consultants operate professionally and ethically. Increasingly, governments with existing single
pre-shipment inspection contracts and governments setting up new pre-shipment inspection programmes are
keen to encourage competitive pricing. This trend has eroded the dominance of Societe Generale de
Surveillance in the pre-shipment inspection market and allowed other inspection companies to gain market
share. We are reducing operating costs by developing a web-based computer system that allows importers and
exporters to enter their own information. We are also developing an on-line enquiry system that will allow
clients to query an online database and determine the status of their files. We plan to develop Government
Standards Programmes such as the SASO programme, which utilise the inspection services of our other
divisions, thus maximising income for the group. We anticipate that Customs Reform contracts, such as the
contract in Georgia, will be a growth area, and we are developing information technology systems and training
personnel in customs reform services.
Personnel
FTS employs approximately 750 people in 17 countries.
-19-
Organizational structure
We are organised under the English Companies Act 1985 and, as set forth in our Memorandum and Articles of
Association. Intertek Testing Services Limited is the ultimate parent company for the 148 subsidiary companies
that conduct our business on a worldwide basis. Our significant operating subsidiaries are detailed below. All
these subsidiaries are wholly owned. Intertek Testing Services Hong Kong Limited and Intertek Testing
Services NA Inc. each contributed more than 10% of the operating income from continuing businesses for the
Group in 2000. All other subsidiaries contributed less than 10% each. Intertek Testing Services NA Inc. and
Caleb Brett USA Inc. each contributed more than 10% of the total assets of the Group at December 31, 2000.
All other subsidiaries contributed less than 10% each. Revenues from the operations listed below comprised
66% of continuing group revenues for 2000.
Country of incorporation and company name
Principal activity
France
Intertek Testing Services France SARL
Labtest / FTS
Hong Kong
Intertek Testing Services Hong Kong Limited
Labtest / Caleb Brett / ETL SEMKO
Sweden
SEMKO AB
ETL SEMKO
Taiwan
Intertek Testing Services Taiwan Limited
Labtest / Caleb Brett / ETL SEMKO
United Kingdom
Intertek Testing Services International Limited
ITS Testing Services (UK) Limited
FTS
Caleb Brett
United States and Canada
Caleb Brett USA Inc
Intertek Testing Services NA Inc.
Intertek Testing Services NA LTD
RAM Consulting Inc.
Property, plant and equipment
Caleb Brett
ETL SEMKO
ETL SEMKO
Labtest
At December 31, 2000, we operated from 479 offices and 243 laboratories in 94 countries. The majority of
laboratories have approximately 10,000 to 20,000 square feet of space. Most of our properties are leased and
approximately 76% of our leases expire in less than five years. Our principal executive office is located in
London, England and occupies 6,960 square feet under a lease expiring in June 2006. The other leased premises
have remaining terms generally ranging from 1 to 24 years. Our Labtest operation in Hong Kong currently
occupies 180,800 square feet of a building in Kowloon which it rents under various two year leases. The
majority of the leases expire in 2001 and we currently expect that they will be renewed.
We own a small number of sites that had a net book value of £8.5 million at December 31, 2000. The ETL
SEMKO facility in Stockholm, Sweden occupies 161,400 square feet and accounts for £4.6 million of that total.
The Caleb Brett facility in Rotterdam, the Netherlands, which occupies 34,000 square feet and is owned by ITS
Caleb Brett Nederland BV, has a net book value of £0.9 million. The ETL SEMKO facility in Cortland, New
York, which occupies 150,000 square feet and is owned by Intertek Testing Services NA, Inc., also has a net
book value of £0.9 million. We believe that our facilities are suitable for their present and intended purposes
and are adequate for our current and expected levels of operations.
-20-
We are aware of contamination at the following two properties which we presently own.
Cortland, New York, United States
Cortland is a major ETL SEMKO operating location with a significant heating, ventilation and air conditioning
testing capacity. Site contamination was discovered and clean up efforts were started several years ago. These
clean-up operations cost approximately $50,000 in 2000, and we estimate ongoing clean up operation costs of
about $50,000 to $100,000 per annum. There is a risk that the regulators may require more expensive remedial
work.
Antwerp, Belgium
In April 1998, we decided to move our existing Caleb Brett operations in Antwerp to a newly acquired site
following an acquisition in Belgium. After vacating our original site, we became aware of soil contamination
under the building. We estimate that clean up operations will last for about one year and will cost
approximately £90,000. The clean up plan was approved by the Belgian authorities and the clean up operation
has commenced.
In connection with our acquisition from Inchcape plc on November 6, 1996, we obtained rights to
indemnification from Inchcape plc in certain circumstances for breaches of Inchcape plc’s environmental
representations and warranties in the related acquisition agreement. Those rights to recover for breach of
warranty are subject to limitations, however, including the necessity that amounts sought from Inchcape plc
exceed £250,000, and the requirement that we give notice to Inchcape plc prior to the fifth anniversary of the
closing of the acquisition, depending on the issue involved. We have notified Inchcape plc of the contamination
at both of the above sites but we can give no assurance that this or any other material environmental liability
will be covered by such indemnification rights.
Intellectual property
We own or have the right to use various patents, copyrights, trademarks, service marks and certification marks
in the United States and worldwide. We use our well-known certification marks to signify to consumers that a
product bearing such a mark meets various nationally and/or internationally recognised safety standards. ETL
SEMKO issues the proprietary “ETL” (U.S.), “cETL” (Canada), “S” (Northern Europe), and “WH” (US and
Canada) safety marks, and is accredited to authorise the application of the “GS” mark in Germany and the
“NOM” mark in Mexico. We also use other trade names, registered and unregistered, such as “Caleb Brett”,
“SEMKO”, “Intertek”, “ITS”, “Labtest” and “Warnock Hersey ”. We believe that our brand and trade names
provide us with significant competitive advantage in marketing our services. Invalidation of several of these
marks, through a lawsuit or governmental proceeding, could have a materially adverse effect on our business.
In addition, invalidation of a mark with great commercial importance in a particular country could have a
materially adverse effect on our business in that country.
We believe that our use of intellectual property does not infringe the intellectual property rights of third parties.
However, we cannot be sure that competitors or other third parties will not in the future assert infringement or
royalty claims against, or otherwise seek to invalidate our intellectual property rights.
Several agreements currently exist under which we are either a licensor or licensee of intellectual property. We
have no reason to anticipate the loss or invalidation of these licenses but in any event we do not consider that
such a loss would have a materially adverse effect on our business. We protect our intellectual property by
registering our trademarks, patents and trade names with the appropriate governmental authorities and defend
such intellectual property from infringement through litigation if necessary.
-21-
Item 5: Operating and Financial Review and Prospects
The following discussion of our financial condition and results of operations should be read in conjunction with
our consolidated financial statements and the related notes, and the other financial information included
elsewhere in this document. Our consolidated financial statements are prepared in accordance with U.K. GAAP
and we discuss in note 30 to the financial statements the principal differences between UK and U.S. GAAP as
they relate to us. This discussion contains forward-looking statements based on assumptions about our future
business. Our actual results could materially differ from those contained in the forward-looking statements.
Impact of exchange rates
Our financial statements are reported in pounds sterling (“sterling” or “£”). We have 148 subsidiary companies,
of which 136 report in currencies other than sterling. Subsidiaries report in the currency of the country in which
they are domiciled, apart from those based in countries where there is hyperinflation, which report in their
functional currency which is US dollars. We translate the results of overseas operations into sterling at the
cumulative average exchange rates for the period, and our results can therefore vary from period to period
because of fluctuations in exchange rates which are unrelated to the underlying operational performance.
We set out below a discussion of our operating results and financial condition for the years ended 1998, 1999
and 2000, followed by a detailed review of the performance of each division. The tables below show growth
rates of 1999 over 1998 and 2000 over 1999 at actual exchange rates and at comparable exchange rates. The
actual growth rate is the percentage change of one period over the prior period where each period is translated
into sterling using the exchange rates applicable in that period. The comparable growth rate is the percentage
change of one period over the prior period where both periods are translated into sterling using the prior
period’s exchange rates. This reflects the underlying growth in revenues and operating income without the
fluctuations caused by changes in translation rates. We do not hedge translation exchange rate exposure.
Over 50% of our revenues and the majority of our borrowings, interest payments and debt repayments are
denominated in US dollars or currencies linked to the US dollar, such as the Hong Kong dollar. Where there is
material transaction exposure from currency rate movements we take out forward foreign exchange contracts to
minimise this exposure.
-22-
Summary of results of continuing operations
Revenues
Our revenues are derived from our inspection, testing and certification activities. Our customer base is diverse
and different in each division and includes retailers, distributors, manufacturers, petroleum companies, traders
and governments. Apart from our government clients in the FTS division, no individual customer contributes
more than 2% to the group’s revenues. The majority of our work is on a job by job basis except for the FTS
division where over 90% of revenues are from term contracts.
The table below compares revenues by division for 1998 and 1999 at actual and comparable exchange rates.
Revenues by division
1998
1999
Growth/
(decline)
Actual
Comparable
Caleb Brett
ETL SEMKO
Labtest
Sub total
Foreign Trade Standards
Continuing operations
Discontinued operations
£m
£m
£m
%
123.0 137.2
84.9
64.6
272.5
65.3
337.8
22.0
88.2
78.3
303.7
47.5
351.2
11.3
14.2
3.3
13.7
11.5
3.9
21.2
31.2
(17.8)
13.4
(10.7)
11.5
(27.3)
4.0
(48.6)
Total
359.8
362.5
2.7
0.8
%
11.7
2.4
18.6
10.4
(28.9)
2.8
(45.5)
(0.1)
Revenues from continuing operations grew by £13.4 million or 2.8% at comparable rates in 1999 over 1998.
The growth was 4.0% at actual rates. The higher growth rate at actual rates is due to translation gains arising
from the strength of the US dollar and currencies linked to the US dollar, against sterling. We discuss these
results in more detail in the operating and financial review by division.
Revenues from discontinued operations included Environmental Testing which ceased operating in 1998 and
Bondar Clegg which ceased operating in 2000.
In 1998 and 1999 revenues were generated by operations in the following geographic areas:
Revenues by geographic area
1998
1999
Growth/
(decline)
Actual
Comparable
Americas
Europe, Africa and Middle East
137.0 143.3
126.5
117.7
6.3
(8.8)
4.6
(7.0)
£m
£m
£m
%
%
4.2
(6.3)
Asia and Far East
74.3
90.2
15.9
21.4
Continuing operations
Discontinued operations
337.8
22.0
351.2
11.3
13.4
(10.7)
4.0
(48.6)
Total
359.8
362.5
2.7
0.8
15.7
2.8
(45.5)
(0.1)
In 1999, 41% of revenues from continuing operations were generated in the Americas (1998: 40%), 33% in
Europe, Africa and the Middle East (1998: 37%), and 26% in Asia and the Far East (1998: 23%). In 1999, we
had operations in 85 countries, an increase of 2 over 1998. In 1999, 34% of revenues were generated in the
United States (1998: 34%), 15% in the United Kingdom (1998: 19%) and 13% in Hong Kong (1998: 12%). No
other individual country accounted for more than 10% of revenues in either 1999 or 1998.
-23-
Revenues from the Americas increased by £6.3 million or 4.2% at comparable rates, in 1999 over 1998,
primarily due to strong growth in Caleb Brett and ETL SEMKO in the United States. The growth rate was 4.6%
at actual rates due to currency translation gains caused by the strength of the US dollar against sterling.
Revenues from Europe, Africa and the Middle East decreased by £8.8 million or 6.3% at comparable rates, in
1999 over 1998. This was primarily due to the cancellation of the Nigerian FTS programme which generated
revenues in the United Kingdom and the disposal of our majority share in the Quality Management business in
Sweden.
In Asia and the Far East, revenues increased by £15.9 million or 15.7% at comparable rates, in 1999 over 1998
due to strong growth in textiles and toys testing in Labtest and growth in Caleb Brett and ETL SEMKO. The
growth rate was 21.4% at actual rates due to currency translation gains as the Hong Kong dollar reflected the
strength of the US dollar against sterling.
The table below compares revenues by division for 1999 and 2000 at actual and comparable exchange rates.
Revenues by division
1999
2000
Growth/
(decline)
Actual
Comparable
£m
£m
£m
%
Caleb Brett
ETL SEMKO
Labtest
Foreign Trade Standards
137.2 157.5
88.2
78.3
47.5
99.5
94.0
47.4
20.3
11.3
15.7
(0.1)
14.8
12.8
20.1
(0.2)
Continuing operations
Discontinued operations
351.2
11.3
398.4
0.7
47.2
(10.6)
13.4
(93.8)
Total
362.5
399.1
36.6
10.1
%
11.8
7.8
14.7
(2.1)
9.6
(93.8)
6.3
Revenues from continuing operations grew by £47.2 million or 9.6% at comparable rates in 2000 over 1999.
The growth was 13.4% at actual rates. The higher growth rate at actual rates is due to translation gains arising
from the strength of the US dollar and currencies linked to the US dollar, against sterling. Revenues in all
divisions grew strongly apart from FTS where there was a small decline.
Revenues from discontinued operations in 1999 and 2000 comprised the Bondar Clegg division which ceased
operating in 2000.
-24-
Revenues in 1999 and 2000 were generated by operations in the following geographic areas:
Revenues by geographic area
1999
2000
Growth/
(decline)
Actual
Comparable
£m
£m
£m
%
Americas
Europe, Africa and Middle East
Asia and Far East
143.3 163.5
117.7 120.4
90.2 114.5
20.2
2.7
24.3
14.1
2.3
26.9
Continuing operations
Discontinued operations
351.2
11.3
398.4
0.7
47.2
(10.6)
13.4
(93.8)
Total
362.5
399.1
36.6
10.1
%
7.3
4.8
19.3
9.6
(93.8)
6.3
In 2000, 41% of revenues were generated in the Americas (1999: 41%), 30% in Europe Africa and the Middle
East (1999: 33%), and 29% in Asia and the Far East (1999: 26%). In 2000, we extended our operations into 9
new countries which increased the total number of countries in which we operate to 94 (1999: 85). In 2000,
34% of revenues were generated in the United States (1999: 34%), 14% in the United Kingdom (1999: 15%)
and 14% in Hong Kong (1999: 13%). No other individual country accounted for more than 10% of revenues in
either 2000 or 1999.
Revenues from the Americas increased by £20.2 million or 7.3% at comparable rates, in 2000 over 1999,
primarily due to strong growth in Caleb Brett and ETL SEMKO in the United States. The growth rate was
14.1% at actual rates due to currency translation gains caused by the strength of the US dollar against sterling.
Revenues from Europe, Africa and the Middle East increased by £2.7 million or 4.8% at comparable rates, in
2000 over 1999. Growth in revenues in Europe from outsourcing work and acquisitions was offset by the
termination of the Nigerian inspection programmes in March 1999 and the cessation of a short term food aid
programme which boosted Caleb Brett revenues in 1999. The growth rate was 2.3% at actual rates due to
currency translation losses caused by the strength of sterling against other European currencies.
In Asia and the Far East, revenues increased by £24.3 million or 19.3% at comparable rates, in 2000 over 1999
due to strong growth in textiles and toys testing in Labtest and growth in Caleb Brett and ETL SEMKO. The
growth rate was 26.9% at actual rates due to currency translation gains as the Hong Kong dollar reflected the
strength of the US dollar against sterling.
Operating costs before exceptional items
Our operating costs principally comprise labour costs, property and equipment rental, depreciation and
laboratory consumables. Operating costs for continuing operations increased by £10.3 million or 2.6% at
comparable rates to £303.2 million in 1999 over 1998. Operating costs for continuing operations increased by
£35.2 million or 8.0% at comparable rates to £338.4 million in 2000 over 1999. The costs increased broadly in
line with revenues.
-25-
Operating income before exceptional items
The table below compares operating income before exceptional items, by division for 1998 and 1999 at actual
and comparable exchange rates.
Operating income/(loss) by division
1998
1999
Growth/
(decline)
Actual
Comparable
Caleb Brett
ETL SEMKO
Labtest
Sub total
Foreign Trade Standards
Sub total
Central overheads
Continuing operations
Discontinued operations
Total
£m
£m
£m
%
13.4 14.8
10.9
16.9
41.2
8.1
12.4
21.6
48.8
3.1
49.3
(4.4)
51.9
(3.9)
44.9
(2.7)
48.0
(2.1)
42.2
45.9
1.4 10.4
1.5
4.7
13.8
27.8
7.6
(5.0)
18.4
(61.7)
2.6
0.5
3.1
0.6
3.7
5.3
11.4
6.9
—
8.8
%
9.7
11.9
23.7
16.0
(64.2)
2.9
11.4
4.2
—
6.2
Operating income from continuing operations grew by £3.1 million or 4.2% at comparable rates in 1999 over
1998. The growth was 6.9% at actual rates. Excluding FTS and central overheads, operating income grew by
£7.6 million or 16.0% at comparable rates. Over 60% of this growth came from textiles and toys testing in
Labtest due to the increased demand for quality testing of consumer merchandise sourced from Asia and other
developing countries. The decline in FTS operating income was caused by the cancellation of pre-shipment
inspection programmes in Nigeria from March 31, 1999.
Operating income from discontinued operations included Environmental Testing which ceased operating in
1998 and Bondar Clegg which ceased operating in 2000.
The table below compares operating income before exceptional items, by division for 1999 and 2000 at actual
and comparable exchange rates.
Operating income/(loss) by division
1999
2000
Growth/
(decline)
Actual
Comparable
Caleb Brett
ETL SEMKO
Labtest
Foreign Trade Standards
Sub total
Central overheads
Continuing operations
Discontinued operations
£m
£m
£m
%
14.8 16.6
12.4
21.6
3.1
15.0
27.8
5.8
1.8 12.2
2.6
6.2
2.7
21.0
28.7
87.1
51.9
(3.9)
65.2
(5.2)
13.3
(1.3)
25.6
(33.3)
48.0
(2.1)
60.0
(0.7)
12.0
1.4
25.0
—
%
8.8
16.1
21.3
80.6
20.0
(30.8)
19.2
—
Total
45.9
59.3
13.4
29.2
23.1
Operating income from continuing operations grew by £12.0 million or 19.2% at comparable rates in 2000 over
1999. The growth was 25.0% at actual rates. All operating divisions contributed to this growth, particularly
Labtest
-26-
where the strong growth in textiles and toys testing continued. Caleb Brett benefited from new outsourcing
work, and telecommunications testing grew well in ETL SEMKO. Existing and new FTS programmes
contributed to the growth in operating income.
Operating losses from discontinued operations in 1999 and 2000 comprised Bondar Clegg which was sold in
2000.
Exceptional items
Operating exceptional items
Foreign Trade Standards
Provision against Nigerian invoices
Payments from Nigerian government
Sub total
Restructuring costs
Caleb Brett
Provision against Nigerian invoices
Payments from Nigerian government
EPA fine and costs
Total continuing operations
Discontinued operations
Bondar Clegg restructuring
Environmental Testing EPA costs
Total discontinued operations
Total operating exceptional items
Continuing operations
1998
£m
1999
£m
2000
£m
(20.1)
7.9
(8.0)
19.3
(2.6)
12.2
(12.2)
—
(12.2)
(1.8)
—
—
(1.8)
(14.0)
—
(5.2)
(5.2)
(19.2)
11.3
(2.6)
8.7
(0.5)
2.3
—
1.8
10.5
(2.2)
(2.9)
(5.1)
5.4
9.6
—
9.6
—
—
(2.7)
(2.7)
6.9
—
(7.8)
(7.8)
(0.9)
Foreign Trade Standards
Due to delays in receiving payments from the Nigerian government for our work on the Nigerian pre-shipment
inspection programmes, in 1997, we adopted a policy of making full provision against unpaid invoices. The
provision for each year was charged to our profit and loss account as an exceptional cost and the associated
debt was removed from working capital. When payments were received, they were credited as exceptional
income in the period in which the cash was received.
From March 31, 1999, the Nigerian government cancelled its pre-shipment inspection programmes. Revenues
for these programmes ceased, and the debt owed to us by the government was capped. Due to the significant
size of the outstanding receivables from the Nigerian government, shortly before the cessation of the
programmes we only carried out inspections if we first received payment from exporters or importers. In the
period January to March 1999, we collected £5.4 million advance payments that will be repaid to exporters or
importers when we receive payment for the inspections from the government and on submission of a valid
claim. The advance payments are held as creditors in our balance sheet.
-27-
In September 2000, we received £8.8 million from the Nigerian government, which cleared invoices issued
under the cancelled programmes through January 1999. The unpaid debt under the old programme is £4.7
million and we anticipate this being settled in 2001.
In September 1999, the new government in Nigeria re-introduced a pre-shipment inspection programme. FTS is
participating in this new programme but in a much smaller capacity than the previous programmes. The new
programme generated revenues of approximately £5.2 million in 2000. We received regular payments from the
government during 2000, which totalled £3.4 million and cleared invoices through June 2000. At December 31,
2000, the amount owed by the government was £2.6 million. This was reduced by a further payment of £0.5
million which we received in January 2001. In view of the regular payments received from the government and
the reduced debt exposure, we have stopped making exceptional provisions for unpaid invoices issued in
respect of the new government pre-shipment inspection programme. The debt of £2.6 million was included in
our working capital at December 31, 2000. Any future debt provision will be calculated in accordance with the
ageing policy applicable to FTS government debts and will be charged against operating income for the FTS
division.
Following the termination of the old Nigerian inspection programmes in 1999, we restructured the FTS division
at a cost of £2.6 million. Costs were mostly personnel redundancies and relocation costs.
Caleb Brett
The oil export-monitoring scheme performed by Caleb Brett was also cancelled by the Nigerian government
from March 31, 1999, and we received full payment for the remaining debt in 1999.
As discussed in Item 8 of this Annual Report, one of our Caleb Brett subsidiaries in the United States is being
investigated by the Environmental Protection Agency in Linden, New Jersey and in Puerto Rico. We have
incurred legal costs of £1.0 million in 2000, and we expect to incur further costs of £1.0 million in 2001. In
addition, we have agreed to pay a fine of USD $1.0 million (£0.7 million) to conclude the Linden investigation.
The total exceptional charge in connection with these investigations was £2.7 million in 2000.
Discontinued operations
Bondar Clegg
Bondar Clegg, our minerals testing division, was restructured to streamline its operations and facilitate its
disposal. Termination and closure costs of £2.2 million were incurred in 1999. We sold this division in 2000.
Environmental Testing
As discussed in Item 8 to this Annual Report, although Environmental Testing ceased operating in August
1998, the EPA investigation into the data manipulation problems at the Dallas laboratory is ongoing and we are
continuing to incur legal costs. We have charged exceptional costs of £5.2 million in 1998, £2.9 million in 1999
and £7.8 million in 2000 in connection with this investigation. We are pursuing possible rights of recovery
against our former parent, Inchcape plc, but we have not included a provision for this potential recovery in our
financial statements.
-28-
Non-operating exceptional items
Net (losses)/gains on disposal of operations
Caleb Brett
ETL SEMKO
Foreign Trade Standards
Total continuing businesses
Bondar Clegg
Proceeds from disposals
Less net assets
Less closure costs
Less attributable goodwill
Net loss on disposal and closure of division
Environmental Testing
Closure costs
Total discontinued operations
1998
1999
2000
£m
£m
£m
— —
—
—
—
—
—
—
—
—
(1.4)
(1.4)
2.4
—
2.4
—
—
—
—
—
—
—
(0.5)
—
(2.6)
(3.1)
1.8
(6.0)
(1.0)
(6.9)
(12.1)
—
(12.1)
Total non-operating exceptional items
(1.4)
2.4
(15.2)
Continuing operations
Caleb Brett
In 2000, Caleb Brett sold a small loss adjusting business in Chile for £0.2 million. Goodwill of £0.6 million that
was previously written off to reserves was transferred to the profit and loss account, resulting in an exceptional
charge of £0.4 million. Caleb Brett also incurred a loss of £0.1 million when an investment in a small company
in Thailand in which we had a 49% interest was liquidated.
ETL SEMKO
In 1999, ETL SEMKO sold its Compliance Engineering magazine business in the United States for net
consideration of £3.3 million. Goodwill of £1.1 million that was previously written off to reserves was
transferred to the profit and loss account, resulting in an exceptional credit of £2.2 million. This was a non-core
business which generated revenues of £0.3 million to the date of disposal in 1999 (1998: £2.1 million), and a
small loss in 1999 (1998: £0.3 million income).
In 1999, ETL SEMKO sold its Quality Management business in Sweden to a German company in which we
retain a 49% interest. In order to facilitate the acquisition of an electrical safety testing business from ERA
Technology, we sold 20% of our interest in a testing and certification facility in the United Kingdom to the
British Electrotechnical Approvals Board. These disposals generated net income of £0.2 million.
Foreign Trade Standards
In 2000, FTS sold its Technical Services business in the United States for its net asset value of £1.0 million.
Goodwill of £2.6 million that was previously written off to reserves was transferred to the profit and loss
account, resulting in an exceptional charge of £2.6 million. This was a non-core business which generated
revenues of £0.7 million to the date of disposal in 2000 (1999: £4.3 million and 1998: £6.7 million), and no
profit in 2000 or 1999 (1998: £0.2 million).
-29-
Discontinued operations
Bondar Clegg
Our minerals testing division, Bondar Clegg, ceased operating at the beginning of 2000. The net assets of
businesses in North and South America and Africa were sold for £1.7 million, which generated a net loss of
£4.2 million. In addition, we incurred termination and closure costs of £1.0 million. After deducting goodwill of
£6.9 million that was previously written off to reserves, the total exceptional loss on disposal was £12.1 million.
The division generated revenues of £0.7 million to the date of closure in 2000 (1999: £11.3 million and 1998:
£16.5 million) and an operating loss of £0.7 million to the date of closure in 2000 (1999: £(2.1) million and
1998: £(0.1) million).
Environmental Testing
The majority of Environmental Testing was sold in August 1998 for its net asset value of £1.9 million. The
remainder was closed and we incurred costs of £1.4 million in 1998 relating to personnel redundancies,
disposal of assets and property closures.
Net interest expense
Net interest of £32.2 million was charged in 1999, an increase of £0.3 million over the charge in 1998. The
increase was largely due to the issue of Parent Subordinated PIK Debentures in lieu of interest payments, offset
by a reduction in Senior Term A interest caused by the repayment of capital.
Net interest of £35.8 million was charged in 2000, an increase of £3.6 million over the charge in 1999. The
increase was due to the issue of Parent Subordinated PIK Debentures in lieu of interest payments, increased use
of the Senior Revolver during 2000 and foreign exchange losses caused by translating interest on non sterling
borrowings into sterling.
A detailed breakdown of net interest expense is given in note 7 to our financial statements.
Income taxes
The income tax charge in 1999 was £9.4 million, an increase of £2.2 million over the charge in 1998. This
represented 68.7% of operating income before exceptional items in 1999 and 68.9% in 1998. The tax rate was
higher than the underlying tax rate of the territories in which we operate, largely due to our inability to obtain
full potential tax relief on interest expense in the United Kingdom and the United States 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. Without the unrelieved interest expense, our effective tax rate on operating income before
exceptional items would have been 40.1% in 1999 and 36.8% in 1998 which more closely reflects our
underlying tax rate.
The tax charge in 2000 was £10.9 million, an increase of £1.5 million over the charge in 1999. This represented
46.2% of operating income before exceptional items compared to 68.7% in 1999. The tax rate was lower in
2000 because we were able to obtain tax relief on more of our interest expense. Excluding unrelieved interest
expense, our tax rate was 38.5% in 2000 compared to 40.1% in 1999.
-30-
Operating and financial review by division
We set out below a discussion of the performance of each of our operating divisions for 1999 compared to 1998
and 2000 compared to 1999. The operating income by division given below is before exceptional items.
Caleb Brett
Operating results
Revenues
Actual growth
Comparable growth
Operating income
Actual growth
Comparable growth
Operating margin
1999 compared to 1998
1998
1999
Growth
2000
Growth
£m
£m
£m
£m
£m
123.0
137.2
13.4
14.8
157.5
14.2
11.5%
11.7%
16.6
1.4
10.4%
9.7%
20.3
14.8%
11.8%
1.8
12.2%
8.8%
10.9% 10.8%
10.5%
Revenues in Caleb Brett increased £14.2 million, or 11.7% at comparable rates, in 1999 over 1998. In 1998, our
European revenues benefited from a new oil export-monitoring scheme with the Nigerian government, however
the scheme was cancelled from March 1999 which had a negative impact on revenue growth. Increased
revenues in 1999 came from a short-term European Community food aid programme and from acquisitions
made in 1998 which were fully integrated in 1999. Petroleum consumption and refining activity contracted in
Asia in 1999, and we continued to experience severe price competition in this region. Activity in Hong Kong
was reduced in 1998 and 1999 due to the continuing embargo on transhipment activity to China.
Operating income increased £1.4 million, or 9.7% at comparable rates, in 1999 over 1998. Growth in operating
income generated by the food aid programme was offset by the loss of income from the oil export monitoring
scheme. Goodwill amortisation increased by £0.3 million to £0.7 million in 1999 over 1998. Price competition,
particularly in Asia but also in the United States, caused a small reduction in the operating margin.
2000 compared to 1999
Revenues in Caleb Brett increased £20.3 million, or 11.8% at comparable rates, in 2000 over 1999. Revenues
from the Americas grew strongly in 2000, primarily due to the sustained growth of the economy in the United
States that resulted in increased consumption of petroleum products. We also gained a new coal sampling and
analysis contract in Canada. Revenues in Europe benefited from more outsourcing work, including a new
outsourcing agreement with BP in the United Kingdom which started in March 2000. Under this agreement,
Caleb Brett will provide analytical services, consultancy and problem solving expertise in support of BP’s
global refining, marketing and technology businesses. The expertise of Caleb Brett and BP has been combined
in our new centre for excellence in Sunbury, England which is attracting the attention of oil and chemical
companies with regard to their outsourcing more testing work. The food aid programme that benefited revenues
in 1999 did not continue in 2000 and had a negative impact on growth. Whilst the market in Asia continued to
fluctuate in 2000, some countries such as Singapore and Malaysia performed well, principally due to work from
new customers. The regional head office for Caleb Brett Asia moved from Australia to Singapore in 2000.
Operating income increased £1.8 million, or 8.8% at comparable rates, in 2000 over 1999. Growth was largely
driven by increased margins in the United States and outsourcing work in Europe and the United States, offset
by the cessation of the food aid programme and the oil export monitoring scheme and a provision made in 2000
for a potentially irrecoverable debt.
-31-
Caleb Brett made four small acquisitions in 2000 at a total cost of £1.4 million. These acquisitions have
expanded our range of services and geographic spread. They did not have a significant impact on revenues and
operating income in 2000.
In 2000, Caleb Brett sold a small loss adjusting business in Chile for £0.2 million, and a small loss-making
business in Thailand in which we had a 49% interest, ceased operating.
ETL SEMKO
Operating results
Revenues
Actual growth
Comparable growth
Operating income
Actual growth
Comparable growth
Operating margin
1998
1999
Growth
2000
Growth
£m
£m
£m
£m
£m
84.9
88.2
10.9
12.4
99.5
3.3
3.9%
2.4%
15.0
1.5
13.8%
11.9%
11.3
12.8%
7.8%
2.6
21.0%
16.1%
12.8% 14.1%
15.1%
1999 compared to 1998
Revenues in ETL SEMKO increased £3.3 million, or 2.4% at comparable rates, in 1999 over 1998. Growth was
impacted by a number of acquisitions and disposals in 1999, as outlined below.
In January 1999, we acquired our joint venture partner’s 50% interest in a semi-conductor business in the
United States for £0.6 million. We now own 100% of this venture and it has been integrated into our existing
business in the United States.
In May 1999, we acquired a safety testing laboratory in Germany for £0.5 million.
In July 1999, we bought the electrotechnical safety and electro magnetic compatibility testing business of ERA
Technology Ltd in the United Kingdom for net consideration of £1.4 million. The acquisition was carried out in
conjunction with the British Electrotechnical Approvals Board (“BEAB”), which is a consumer product safety
certification body in the United Kingdom. The new business was merged with our existing ETL SEMKO
business in the United Kingdom to create a major testing and certification facility in the United Kingdom.
BEAB acquired a 20% stake in this business.
In November 1999, we acquired Integral Sciences Inc, an independent analytical testing laboratory specialising
in refrigeration chemistry in the United States, for £2.2 million. As a result of this acquisition, we can now offer
heating, ventilation and air conditioning and refrigeration manufacturers a wider range of product safety and
performance testing and certification services.
In January 1999, we sold our Compliance Engineering magazine business for £3.3 million. This business was a
non-core activity and was not generating acceptable operating margins. In April 1999, we sold our controlling
interests in our Quality Management businesses (primarily ISO 9000 testing) in Sweden and Germany to a
company in Germany in which we retained a 49% share. This change in management control resulted in a
change in the accounting treatment of these businesses. In 1998 and the first quarter of 1999, 100% of the
revenues and operating income from these businesses were included in the operating results for ETL SEMKO.
From April 1999 onwards, revenues are excluded and only 49% of the operating income is included.
-32-
The disposal and change of accounting reduced revenues by £4.3 million in 1999 over 1998. This was partially
offset by new revenues from the acquisitions of about £3.3 million.
The strong economy in the United States led to increased demand for performance testing to client specific
standards, telecommunications testing, and heating, ventilation and air conditioning testing, and building
material testing. The market for safety testing was stable and we reduced costs in this sector in the United
States at the end of 1999. The market in Europe continued to suffer from the trend towards global
harmonisation of standards and self-certification. Revenues in Europe benefited from new outsourcing
agreements with Electrolux and Ericsson gained at the end of 1999. ETL SEMKO is small but growing rapidly
in Asia where revenues increased by 35% in 1999 over 1998. We opened a new electro magnetic compatibility
testing laboratory in Taiwan in 1999.
Operating income increased £1.5 million, or 11.9% at comparable rates, in 1999 over 1998 because of the
revenue increases described above. The acquisitions had minimal impact on operating income in 1999 since
they had less than a full year’s income and we incurred integration costs. The disposal and change of
accounting reduced operating income by £0.9 million in 1999 compared with 1998. We attribute the
improvement in operating margin from 12.8% in 1998 to 14.1% in 1999, to our strategy of concentrating our
business on sectors with higher margins.
2000 compared to 1999
Revenues in ETL SEMKO increased £11.3 million, or 7.8% at comparable rates, in 2000 over 1999. Revenues
in 1999 included £2.5 million from the magazine and Quality Management businesses where controlling
interests were sold in 1999. In June 2000, the Federal Communications Commission (“FCC”) in the United
States designated ETL SEMKO, Americas as a Telecommunications Certification Body. This allows us to test
and certify information technology and telecommunications equipment to FCC requirements. The market for
telecommunications testing in the United States grew strongly for the first nine months of 2000 and then
declined towards the end of the year. We attribute this to the volatility of customers in the technology sector.
The semiconductor market grew strongly in 2000, which benefited revenues in the United States and the United
Kingdom. The strong economy in the United States has resulted in low unemployment, and we experienced
problems in retaining and recruiting skilled technical staff in some operations. Revenues in Asia continued to
show strong growth and we opened new operations in Korea and Shanghai during 2000.
We acquired three businesses in 2000 for total consideration of £0.7 million. In March 2000 we acquired the
assets of a small laboratory in Italy from Electrolux. This laboratory carries out electro magnetic compatibility
testing for Electrolux and others, providing us with a facility in the fast growing Italian market. Also in March
2000, we acquired the Radio Communications Testing operation of ERA Technology in the United Kingdom.
This operation was merged into our existing facility in Leatherhead, England and has enabled us to enter the
mobile telephone handset testing market in the United Kingdom. Capital expenditure of £1.0 million upgraded
the testing facility and equipment to the required standard. In December 2000, we acquired a laboratory
business in Japan which has test facilities for EMC, telecom and safety testing. This will be merged with our
existing operation in Japan and we expect to incur some integration costs early in 2001.
Operating income increased £2.6 million, or 16.1% at comparable rates, in 2000 over 1999. This was
principally due to the acquisitions in 1999 and 2000 and to improved economies of scale in Hong Kong. Our
operating company in Sweden was awarded a refund of pension contributions of approximately £2.8 million. In
September 2000, £0.6 million was received in cash and the balance will be deducted from pension contributions
over the next six years. A credit of £0.5 million was released to operating income in 2000 and the balance will
be credited over the next six years.
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Labtest
Operating results
Revenues
Actual growth
Comparable growth
Operating income
Actual growth
Comparable growth
Operating margin
1999 compared to 1998
1998
1999
Growth
2000
Growth
£m
£m
£m
£m
£m
64.6 78.3
16.9
21.6
94.0
27.8
13.7
21.2%
18.6%
4.7
27.8%
23.7%
15.7
20.1%
14.7%
6.2
28.7%
21.3%
26.2% 27.6%
29.6%
Revenues in Labtest increased £13.7 million, or 18.6% at comparable rates, in 1999 over 1998. The growth in
revenues in Labtest is driven by textile and toy testing in Asia and to a lesser extent in Europe. We attribute this
growth to a number of factors, including the growth in consumer demand, the migration of manufacturing from
the West to Asia and other developing countries, the faster introduction of new products by manufacturers and
the increasing demand by consumers for good quality and safe products.
We opened new textile testing laboratories in France and India in 1999. We opened a new toy testing laboratory
in Los Angeles in 1999. We also opened other new Labtest operations in Spain and South Africa. Although we
incurred some start up costs for these new facilities in 1999, the expansion of the Labtest network increases
business throughout the division and tends to generate improved operating margins. The earthquakes in Turkey
and Taiwan disrupted operations in 1999 but did not have a material impact on revenues.
Operating income in Labtest increased £4.7 million or 23.7% at comparable rates, in 1999 over 1998. This
increase was driven by the revenue growth.
2000 compared to 1999
Revenues in Labtest increased £15.7 million, or 14.7% at comparable rates, in 2000 over 1999. Demand for
textile and toy testing continued to grow in 2000, and there was growth in the inspection of consumer goods in
Asia. Whilst an economic downturn in the United States could lead to reduced imports of consumer goods, this
has not yet started to impact the Labtest business or the order level. We believe that the key business drivers
continued to be safety, quality consciousness of buyers, new fibres and more designs.
Code of Conduct work which is a new sector of inspection in Labtest added £2.9 million to revenues in 2000
and is continuing to expand. This work resulted from consumers and pressure groups being increasingly
concerned about the social and safety conditions of workers in developed and developing countries. Retailers
usually commission the audits and we work closely with both manufacturers and retailers to obtain the best all-
round solution to any problems identified. Code of Conduct audit work includes factory inspections, document
review and employee interviews.
In 2000, we opened new inspection offices in Bangladesh and Madagascar and set up new laboratories in China
and Thailand.
Operating income in Labtest increased £6.2 million or 21.3% at comparable rates, in 2000 over 1999. This
increase was mainly from textiles and toys testing and from Code of Conduct work, as well as other revenue
increases.
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Foreign Trade Standards
Operating results
1998
1999
Decline
2000
(Decline)/
growth
£m
£m
£m
£m
£m
Revenues
Actual decline
Comparable decline
65.3 47.5
47.4
(17.8)
(27.3)%
(28.9)%
Operating income
Actual (decline)/growth
8.1
3.1
(5.0)
(61.7)%
5.8
(0.1)
(0.2)%
(2.1)%
2.7
87.1%
Comparable (decline)/growth
Operating margin
12.4% 6.5%
12.2%
(64.2)%
80.6%
1999 compared to 1998
Revenues in FTS decreased £17.8 million, or 28.9% at comparable rates, in 1999 over 1998. The decrease is
largely attributable to the Nigerian pre-shipment inspection programmes that were cancelled from March 1999.
In September 1999, the new government in Nigeria reintroduced inspection programmes but awarded us a
smaller part of the contract. The new programme started slowly and generated revenues of £0.7 million in 1999.
Operating income in FTS decreased £5.0 million or 64.2% at comparable rates, in 1999 over 1998. The
decrease is largely attributable to the cancelled Nigerian pre-shipment inspection programmes. Following the
cessation of the Nigerian programmes we restructured the FTS division at a cost of £2.6 million. We reported
these costs as exceptional operating costs in our financial statements and they are excluded from operating
income.
2000 compared to 1999
Revenues in FTS decreased £0.1 million, or 2.1% at comparable rates, in 2000 over 1999. New programmes in
Nigeria, Georgia and Bangladesh all contributed to revenues in 2000, and existing programmes in Saudi
Arabia, Ecuador and Mozambique also performed well. The decrease in revenues was attributable to the
disposal of the technical services operation and the cessation of programmes in Ghana and Colombia.
In 2000, FTS sold its technical services operation in the United States for its net asset value of £1.0 million.
This was a non-core business which generated revenues of £0.7 million to the date of disposal in 2000, (1999:
£4.3 million and 1998: £6.7 million) and no profit in 2000 or 1999 (1998: £0.2 million).
Operating income in FTS increased £2.7 million or 80.6% at comparable rates, in 2000 over 1999. New
programmes in Nigeria and Bangladesh performed well. Growth in operating income was reduced by ceased
contracts in Ghana and Colombia.
We were awarded half of a new two-year pre-shipment inspection programme in Kenya in January 2001. The
Ugandan programme, which was expected to end in March 2001, has been extended until after the government
elections in April 2001.
-35-
Central overheads
Central overheads comprise the costs of our corporate head office in London, our tax and human resources
team in the United States and costs associated with non-trading holding companies. Principally these costs
comprise salaries, property rental, travel, and legal and professional fees.
Overheads decreased by £0.5 million or 11.4% at comparable rates, to £3.9 million in 1999 over 1998. In 1998,
we expanded the central management team. In particular, we hired a Chief Operating Officer, who
subsequently left and has not been replaced.
Overheads increased by £1.3 million or 30.8% at comparable rates, to £5.2 million in 2000 over 1999. This was
primarily due to our expansion of our internal audit team and increased expenditure on internal control
compliance and e-commerce.
Discontinued operations
Bondar Clegg
Despite extensive restructuring in 1999, the operating results from our minerals testing division, Bondar Clegg,
continued to be unsatisfactory and operations in this division ceased at the beginning of 2000. The Bondar
Clegg businesses in North and South America, Ghana and Mali were sold for £1.5 million and the operations in
Eritrea, Guinea and Burkina Faso were closed. The disposal of fixed assets and inventory in the African
operations generated proceeds of approximately £0.2 million. The Bondar Clegg head office in Vancouver was
closed in March 2000 and the employment of its personnel was terminated. The operating results for Bondar
Clegg up to the date of cessation are reported as discontinued in our financial statements and prior periods have
been reclassified to show a comparable historic trend.
The division generated revenues of £0.7 million to the date of closure in 2000 (1999: £11.3 million and 1998:
£16.5 million) and an operating loss of £0.7 million to the date of closure in 2000 (1999: £(2.1) million and
1998: £(0.1) million).
Environmental Testing
We sold our Environmental Testing division in August 1998 for £1.9 million. The division generated revenues
of £5.5 million and an operating loss of £2.6 million to the date of sale in 1998.
Effects of U.S. GAAP adjustments on operating income
As described in note 30 to the consolidated financial statements, our operating results would be different under
U.S. GAAP. The primary U.S. GAAP adjustment affecting our operating results was goodwill amortisation.
Under U.S. GAAP the following amounts would be deducted from operating income.
Adjustments to continuing operating income
Caleb Brett
ETL SEMKO
Labtest
Foreign Trade Standards
Central overheads
1998
1999
2000
£m
£m
£m
(9.6)
(10.0)
(2.0)
(1.5)
(0.3)
(7.7)
(9.2)
(1.3)
(1.5)
(0.3)
(4.5)
(5.3)
(1.2)
(0.4)
(0.3)
Total adjustment to continuing operating income
(23.4)
(20.0)
(11.7)
-36-
Financial condition and liquidity
At December 31, 2000 we had cash of £21.3 million compared to £20.2 million at December 31, 1999.
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. Our net cash inflow from
operating activities increased by £12.1 million to £71.9 million in 2000 over 1999. Operating income increased
by £7.0 million in 2000 over 1999 and this resulted in improved cash inflow. We received £12.2 million from
the Nigerian government in 2000 and provided £2.6 million against invoices compared to £21.6 million cash
received in 1999 and £8.5 million provision. Receipts from exporters, which will only be repaid once we
receive cash from the government, cover the remaining debt of £4.8 million. We anticipate the debt being
cleared in 2001.
In 2000, we spent £3.5 million (1999: £5.4 million) on legal costs in connection with an Environmental
Protection Agency investigation in Richardson, Texas. Until this investigation is concluded we will continue to
incur legal costs, and we anticipate spending a further £5.8 million. We also spent £1.0 million on legal fees in
2000 (1999: £0.5 million) in connection with the two Environmental Protection Agency investigations in
Linden, New Jersey and Puerto Rico. Subject to final sentencing by the court, we have agreed to settle the
Linden investigation by paying a fine of £0.7 million. We expect to pay this in 2001. We also anticipate
additional legal costs in connection with the ongoing investigation in Puerto Rico. We have provided £1.0
million in 2000 to be spent in 2001. The outcome of the investigations in Richardson and Puerto Rico is
uncertain, and we are unable to estimate and provide for any potential settlement. The length of time it will take
to conclude these investigations is also uncertain, and we may incur additional legal costs.
We spent £26.4 million on tangible fixed assets in 2000 compared to £17.7 million in 1999. This was mostly
expenditure on laboratory and computer equipment. In order to service the BP outsourcing agreement we spent
£3.6 million on establishing a new Caleb Brett laboratory in the United Kingdom. We also spent £1.0 million
upgrading the testing facilities of the radio communications testing business that we acquired in 2000. We
bought two electrical testing chambers in ETL SEMKO in the United States at a total cost of £2.2 million. We
also started the installation of an Oracle computer system in ETL SEMKO in the United States. This cost £0.8
million in 2000 and is expected to cost £2.1 million in 2001. We plan to open a number of new laboratories in
2001 but none are expected to cost more than £0.7 million. We will also continue to upgrade computer systems
in the group.
We acquired eight small businesses in 2000 for total consideration of £2.4 million. We paid £1.9 million in
2000 with the balance due in future years. We paid £0.1 million in 2000 for acquisitions made in prior years. In
1999 we spent £8.3 million on acquisitions. In 2000, we received net proceeds of £1.5 million for the disposal
of Bondar Clegg and a further £0.3 million is due in 2001. We also spent £1.1 million in termination and
closure costs in connection with the cessation of Bondar Clegg. We received £1.0 million for the disposal of
other non-core businesses in 2000.
At December 31, 2000, our total borrowings were £330.9 million (1999: £303.7 million) less unamortised debt
issuance costs of £8.5 million (1999: £10.0 million). A detailed description of our borrowings is given in note
15 of our consolidated financial statements.
Apart from the Revolving Credit Facility, our borrowings are denominated in currencies other than sterling, and
are therefore affected by exchange rate fluctuations. Our total borrowings increased by £27.2 million in 2000
and £24.6 million of the increase was due to currency translation. Our Parent Subordinated PIK Debentures,
which are denominated in US dollars, increased by £17.4 million in 2000 (1999: £10.9 million). This was due
to the issue of new debentures each quarter, in lieu of total interest payments of £9.9 million (1999: £8.2
million) and currency translation of £7.5 million (1999: £2.7 million). In 2000, we made scheduled repayments
of £6.3 million (1999: £5.5 million) of our Senior Term A Loans and repaid £0.5 million of other loans. At
December 31, 2000 we had drawn £10.0 million of our revolving credit facility leaving £17.4 million available.
We have utilised a further £3.5 million to date in 2001. There were no scheduled repayments of the Senior
Subordinated Notes or Senior Term B Loans in 2000.
In 2000, we paid interest and finance charges of £23.5 million (1999: £22.4 million) on our borrowings and
received interest of £0.5 million (1999: £0.7 million) on bank balances. These figures exclude interest relating
to the Parent Subordinated PIK Debentures, which was funded by further issues of debentures.
-37-
We paid dividends of £3.4 million to minority shareholders in 2000 compared to £2.1 million in 1999.
We anticipate that available cash, cash flows from operations and borrowing availability under our Revolving
Credit Facility will be sufficient to satisfy our working capital and capital expenditure requirements for the
foreseeable future. We are committed to spending £0.8 million in 2001 to complete the setting up of new
laboratories commenced in 2000 and we have sufficient cash available to meet those commitments. To the
extent that we should desire to increase our financial flexibility and capital resources or choose or be required
to fund future capital or other commitments from sources other than operating cash or from borrowings under
our existing credit facility, we may consider raising additional capital by increasing the credit facility or
through the raising of additional equity. There can be no assurance, however, that additional capital will be
available to us on acceptable terms, if at all.
Our ability to meet our debt repayments in the longer term will depend upon the achievement of our business
plan. There can be no assurance that we will generate sufficient cash flow from operations or that future
working capital will be available in an amount sufficient to enable us to service our indebtedness, or make
necessary capital expenditures.
In order to purchase the business from Inchcape plc, we raised finance in the form of Senior Subordinated
Notes, Senior Term Loans and Parent Subordinated PIK Debentures. See note 15 of our financial statements.
Subject to the provisions under which these Loans 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 or (b) the
direct and indirect subsidiaries of the Company from paying dividends or making any other distributions or
loans or advances to the Company.
New Accounting Standards
UK Accounting Standards
Financial Reporting Standard 17: Pensions and Financial Reporting Standard 19: Deferred tax have been issued
but are not effective until accounting periods ending on or after June 22, 2001 and January 23, 2002,
respectively. Management has not yet determined the effect of these new standards.
US Accounting Standards
Statement of Financial Accounting Standards (“SFAS”) 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS 137, Accounting for Derivative Instruments and Hedging Activities
— Deferral of the Effective Date of FASB Statement No. 133, and SFAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, is effective for the Group as of January 1, 2001. SFAS
133 requires that an entity recognize all derivatives as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the use of the derivative. Derivatives that are
not designated as part of a hedging relationship must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, the effective portion of the hedge’s change in fair value is
either (1) offset against the change in fair value of the hedged asset, liability or firm commitment through
income or (2) held in equity until the hedged item is recognized in income. The ineffective portion of a hedge’s
change in fair value is immediately recognized in income. Adoption of these new accounting standards will
result in cumulative after-tax reductions in other comprehensive income on a U.S. GAAP basis of
approximately £0.4 million in the first quarter of fiscal 2001. The adoption will also impact assets and liabilities
recorded on the balance sheet on a U.S. GAAP basis.
European Monetary Union — Euro
On January 1, 1999, eleven of the European Union member states, including seven countries in which we
operate, established fixed conversion rates between their existing currencies 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-
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 Central Bank will issue Euro-denominated bills and coins for use
in cash
-38-
transactions. On or before July 1, 2002, the participating countries will withdraw all bills and coins and use the
Euro as their legal currency.
Our operating units affected by the Euro have established plans to address the issues raised by the conversion.
These issues, among others, include such matters as pricing, continuity of contracts, accounting and financial
reporting, taxation, treasury activities and computer systems. A number of our operating units in France and
Portugal have converted their systems and began reporting in Euros during 2000. We anticipate that the
remaining operating units will convert their local records to the Euro during the three-year transition period.
Although we have not identified any immediate problems, we cannot be certain that the harmonisation of
currencies in Europe will not have a material adverse impact on the operating results, financial position or
liquidity of our European businesses.
-39-
Item 6: Directors, Senior Management and Employees
Directors and senior management
Directors of the Company
We set out below the names, ages and positions of the directors of the Company at March 12, 2001.
The Articles of Association of the Company confer on 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
Richard Nelson
William Spencer
Stuart Simpson
Simon Drury
Vanni Treves
Age Position
58 Executive Chairman
41 Senior Vice President and Chief Financial Officer
44 Non-executive Director
43 Non-executive Director
60 Non-executive Director
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.
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 for Europe and Asia. Prior to joining us, he worked for Olivetti, Rexam and Centrica in various
financial positions. 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.
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 UK 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.
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.
Vanni Treves became a non-executive director of the Company in January 2001. Mr. Treves was educated at
University College, Oxford and the University of Illinois. He has been a partner of Macfarlanes Solicitors since
1970 during which time he also served as Senior Partner. Mr. Treves serves as non-executive director for a
number of other institutions, including Chairman of Equitable Life, London Business School and Channel Four
Television Corporation.
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Other senior management
We set out below the names, ages and positions of our key employees at March 12, 2001.
Name
Age Position
Raymond Kong
Robert Dilworth
Gosta Fredriksson
John Hannaway
John Hodson
Bernard Leroy
Albert Lo
Mark Loughead
Nigel Lucas
Jag Sisodia
Henry Yeung
53 Executive Vice President
39 Vice President
54 Vice President
46 Vice President
39 Vice President
50 Vice President
48 Vice President
41 Vice President
43 Vice President
49 Vice President
43 Vice President
Brian Pitzer
Aston Swift
David Turner
48 Vice President and Human Resources Director
31 Treasurer
40 Secretary
Raymond Kong became an Executive Vice President in January 1998 and is the Chief Operating Officer of
Labtest. He was one of the founders of the Labtest division and has been with us for 25 years. 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 on a number of advisory committees for
The Government of The Hong Kong Special Administrative Region.
Robert Dilworth was promoted to Vice President in January 2000 with responsibility for the FTS division
globally. Mr. Dilworth joined us in 1979 as a chemist with Caleb Brett. He was appointed manager of
Environmental services in the UK in 1988 and further promoted to General Manager, Environmental, Europe,
Africa and Middle East in 1994. After a break of service from September 1997 to September 1998 when he
worked for BSI, he rejoined us as Director of Government Standards Contracts.
Gösta Fredriksson became Vice President in January 1998 with responsibility for ETL SEMKO in Europe and
Asia. Mr. Fredriksson was head of Safety Testing in Semko when we acquired it 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.
John Hannaway became Vice President in January 1998 with responsibility for Caleb Brett in Asia. He joined
us 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.
John Hodson became Vice President 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 us, Mr. Hodson spent four years with Core
Laboratories in West Africa, establishing laboratory testing facilities for the oil exploration sector.
Bernard Leroy became Vice President in January 2000 with responsibility for Labtest in Europe, Middle East
and Africa. He joined us in 1992 as General Manager of ITS Labtest France. Prior to joining us, Mr. Leroy
worked as head of the Physica chemical laboratory then, Quality Assurance manager at Upjohn CO. and
founded Sigma Controle, a French leader in Inspection and Technical services to retailers. We acquired Sigma
Controle in 1992. Mr. Leroy was educated at the University of Paris, where he obtained a Master of Sciences in
Biochemistry and a degree in Applied Statistics.
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Albert Lo became Vice President in January 1998 with responsibility for Labtest in South East Asia and
Textile testing in China. Mr. Lo joined us 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 us, Mr. Lo had worked
in quality assurance for a buying office based in the Asia Pacific region.
Mark Loughead became Vice President in January 1998 with responsibility for Caleb Brett in Europe, Africa
and the Middle East. Mr. Loughead joined us 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 us, Mr.
Loughead spent 13 years at Inspectorate including six years in the Middle East.
Nigel Lucas became Vice President in November 2000 with responsibility for Compliance. Mr. Lucas joined
us in 1980 as a Chemist/Surveyor in the Caleb Brett division. He became head of Quality Assurance in Caleb
Brett in 1986 and became General Manager in charge of its UK upstream and downstream inspection and
testing activities in 1989. From 1997, he was responsible for global inspection and certificate issuance in the
FTS division. Mr. Lucas was educated at Hull University and earned a Masters in Business from Warwick
University. Before joining us, he was a deck officer with Blue Star Ship Management.
Jag Sisodia became Vice President in January 1998 with responsibility for ETL SEMKO in the Americas. Mr.
Sisodia joined us 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 us, 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.
Henry Yeung became Vice President in January 1998 and currently has responsibility for Labtest Americas.
Mr. Yeung joined us 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.
Brian Pitzer became Vice President and Human Resources Director in January 1998. Mr. Pitzer joined us 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 mid 1990‘s. He is responsible for
worldwide human resource programs. Prior to joining us, he spent 14 years at NCR Corporation in a variety of
management positions in both field and corporate settings.
Aston Swift became Treasurer in June 1999 after serving as Chief Financial Officer of the Foreign Trade
Standards division since 1998. Prior to joining us, Mr. Swift worked in internal audit at BSkyB after qualifying
in 1994 as a Chartered Accountant. Mr. Swift holds a degree in Chemistry from Oxford University.
David Turner joined us as Company Secretary in September 1997. He is responsibile for company secretarial
and legal matters. Before joining us, 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.
Compensation
In 2000, we paid approximately £0.8 million to our four directors who held office during the year, which
included contributions made to their pension plans of approximately £0.1 million. For the year ended December
31, 2000, our highest paid director received approximately £0.5 million and pension plan contributions of
approximately £0.1 million. We pay the employers of our non-executive directors for the services of each non-
executive director. We do not pay our executive directors for serving as directors.
We paid approximately £2.2 million to our 14 key officers, excluding our directors, for the year ended
December 31, 2000 which included contributions made to their pension plans of approximately £0.2
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million. Key officers are also entitled to receive annual bonuses of up to 50% of their base salary on achieving
certain financial targets.
Board Practices
Article 106 of the Articles of Association of the Company sets out the rules governing the appointment and
retirement of our directors. Once appointed, a Director remains in office, subject to Companies Act
requirements, until they resign or are removed under the terms of the Articles. There is no provision for
retirement by rotation. None of our directors or key officers have service contracts which require more than
twelve months notice, or are entitled to more than twelve months remuneration in lieu of notice.
Audit Committee
The members of our Audit Committee are Messrs. Simpson, Drury and Treves, all of whom are non-executive
directors. The Committee meets at least three times a year and the Chief Financial Officer, Vice President of
Compliance, Internal Auditors and External Auditors are invited to attend. The main duties of the Audit
Committee are to ensure that the financial performance of the Group is properly monitored and reported on, to
review the financial statements, to monitor internal control systems and to make recommendations to the Board
concerning the appointment and remuneration of the auditors.
Remuneration Committee
The members of our Remuneration Committee are Messrs. Simpson and Drury, both of whom are non–
executive directors. The Committee meets at least twice a year and the Executive Chairman and Human
Resource Director are invited to attend. The Committee’s responsibilities include consideration of service
agreements, approval of remuneration for all employees earning more than £60,000 per annum (or local
currency equivalent), and the operation of our Share Option Scheme.
Employees
The table below shows the number of full-time employees in each division for 1998, 1999 and 2000.
Employees by division
Caleb Brett
ETL SEMKO
Labtest
Foreign Trade Standards
Central
Continuing operations
Discontinued operations
Total
1998
1999
2000
Number
Number
Number
3,683
1,298
1,971
1,262
28
8,242
1,067
9,309
3,999
1,425
2,272
909
29
8,634
809
9,443
4,587
1,594
2,605
749
33
9,568
—
9,568
Following the cancellation of the Nigerian pre-shipment inspection programme in 1999, we restructured the
FTS division and reduced the number of employees. In 2000, we sold the Technical Services division of FTS
which further reduced employee numbers.
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The table below shows the number of full time employees in each geographic area for 1998, 1999 and 2000.
Employees by geographic area
1998
1999
2000
Americas
Europe, Africa and Middle East
Asia and Far East
Continuing operations
Discontinued operations
Total
Number
Number
Number
2,868
2,540
2,834
8,242
1,067
9,309
2,805
2,683
3,146
8,634
809
9,443
2,856
2,816
3,896
9,568
—
9,568
We increased our employee headcount by 392 or 4.8% in 1999 over 1998, principally in Asia due to expansion
in Labtest and ETL SEMKO. In 2000 we increased our headcount by 934 or 10.8% to 9,568. Again, the largest
increase was in Asia, particularly in China where both Labtest and ETL SEMKO extended their operations.
We have to comply with various labour laws throughout the world. To date, compliance with such laws has not
been a material burden for us. A small number of employees are members of trade unions and works councils.
There are a few collective labour agreements, principally in the Netherlands and Belgium, which are
renegotiated from time to time. We consider our relationship with our employees to be good and have never
experienced a significant labour dispute, strike or stoppage.
Share ownership
Our directors and their immediate families and senior management who held Shares in the Company as of
March 12, 2001 are shown below:
Simon Drury
Stuart Simpson
Richard Nelson
William Spencer
Senior Management
Number of
Ordinary ‘A’
Shares
89,072
122,071
Number of
Ordinary ‘B’
Shares
3,632,514
993,201
4,569,136
% of total
shares
outstanding
in that class
0.13%
0.18%
Number of
Preference
Shares
1,621(1)
2,448(1)
31.37%
8.58%
39.46%
(1) Number of Preference shares held is less than 1% of the total Preference Shares
outstanding.
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Share Option Scheme
On March 1, 1997, we adopted a Share Option Scheme for senior management to encourage their participation
in our future growth.
The following table shows options for C Shares in the Company outstanding at March 12, 2001.
Number of options
outstanding
Subscription
price per share
Exercisable between
1,748,883
11,806
276,830
35,418
70,834
100,351
47,224
88,543
407,305
10p
10p
10p
10p
10p
10p
10p
10p
140p
March 1, 2000
September 1, 2000
December 31, 2000
June 1, 2001
December 31, 2001
June 1, 2002
December 31, 2002
March 31, 2003
December 31, 2003
March 1, 2004
September 1, 2004
December 31, 2004
June 1, 2005
December 31, 2005
June 1, 2006
December 31, 2006
March 31, 2007
December 31, 2007
At March 12, 2001, none of our directors held any options to subscribe for Ordinary Shares of the Company. At
that date, key officers held 513,539 options to subscribe for C Shares of the Company representing 0.6% of the
equity on a fully diluted basis.
Item 7: Major Shareholders and Related Party Transactions
Major shareholders
At March 12, 2001, the share capital of the Company (the “Ordinary Shares”) was 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”). 69,172,061 of the A Shares and 11,578,635 of the B Shares have been allotted,
called up, fully paid and outstanding. None of the C Shares and D Shares have been issued. In addition, the
Company has 105,478,482 Zero Coupon Redeemable Preference Shares of £1 each (the “Preference Shares”),
all of which have been allotted, called up, fully paid and outstanding.
Ordinary Shares
The A Shares, B Shares, C Shares and D Shares rank equally 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 equally 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.
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Shareholders who hold more than 5% of the Ordinary Shares in the Company and the holdings of Former
Directors and Officers as of March 12, 2001 are shown in the table below:
Name
Number of
A Shares Held
Number of
B Shares Held
% of Total
Share
Capital (a)
Charterhouse General Partners Limited (b)
30,251,608
—
37.46
Charter Intertek LLC (b)
Abu Dhabi Investment Authority
11,344,281
6,001,169
—
—
14.05
7.43
Directors and Officers as a group
211,143
9,194,851
11.65
Former Directors and Officers as a group
—
2,383,784
2.95
47,808,201
11,578,635
73.54
(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 their purchase of the
Parent Subordinated PIK Debentures. Upon the exercise of the share options, and the Warrants, directors and
officers as a group will own 14.21% and the Warrant holders as a group will own 13.93% of the fully diluted
ordinary shares of the Parent. See “Warrants” below.
In addition, the table does not reflect the issuance of 105,478,482 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 45.18% of the total issued share capital.
A substantial portion of the membership interests in Charter Intertek LLC are owned by Charterhouse Equity
Partners II, L.P. The general partner of Charterhouse Equity Partners II, L.P. is CHUSA Equity Investors II,
L.P., whose general partner is Charterhouse Equity II, Inc., a wholly-owned subsidiary of Charterhouse Group
International, Inc.
Zero Coupon Redeemable Preference Shares
On a return of capital on a winding up, the Preference Shares rank senior to the Ordinary Shares of the
Company, but not otherwise. No dividends are 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 for that purpose. No redemption, however, may be made to the extent prohibited by the terms of
certain credit agreements, bonds and debentures to which we are subject, and which contain prohibitions or
restrictions on redemptions. Holders of Preference Shares are entitled to receive notice of 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.
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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 7.83% 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 Institutional consent, 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 Group 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.
The Company is not directly or indirectly owned or controlled by any government. We are not aware of any
arrangements that might result in a change of control of the Company.
Related party transactions
In connection with our acquisition from Inchcape plc, we are required to pay a one-off acquisition advisory fee
of £3.8 million to Charterhouse. This has not been paid, but is 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.
Except as disclosed above, we have not participated in any material transaction in which any of our associates,
directors, key officers or persons connected with them, had any direct or indirect interest. We have not given
any loans or guarantees to our associates, directors, key officers or persons connected with them.
Interest of experts and counsel
Not applicable.
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Item 8: Financial Information
Consolidated Statements and Other Financial Information
Our Consolidated Financial Statements dated March 22, 2001, are included in Item 19 to this Annual Report.
Legal proceedings
From time to time we are involved in various claims and lawsuits incidental to the ordinary course of our
business, including claims for damages, negligence and commercial disputes regarding inspection and testing
and disputes from former employees. We are not currently party to any legal proceedings other than ordinary
litigation incidental to the conduct of our business and the investigations described below. On the basis of
currently available information, we consider that the cost to ITS of an unfavourable outcome, arising from any
such ordinary litigation is unlikely to have a material adverse effect on the financial position of ITS in the
foreseeable future. We hold a professional indemnity insurance policy that provides coverage for certain claims
from customers. We consider this policy adequate for normal commercial purposes.
Investigations by the U.S. Environmental Protection Agency
Two of our 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. – Linden, New Jersey
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.
In September 1999, the Department of Justice announced that three laboratory supervisors had pleaded guilty to
criminal charges that they participated in a scheme to falsify chemical analyses of gasoline.
In September 2000, Caleb Brett USA, Inc. pleaded guilty in Federal District Court in New Jersey to the crime
of conspiracy to make false statements to governmental investigators and agreed to pay a U.S. $1.0 million fine.
We made a provision of £0.7 million for this fine in 2000. The sentencing is scheduled for April 12, 2001 when
the final sentence and payment terms will be confirmed. The Court may accept the agreement with the
government or impose a fine of a greater or lesser amount. Due to the fact that Caleb Brett employees misled
federal investigators about the falsification of data during the investigation, Caleb Brett as a corporation was
prosecuted. Under applicable law, Caleb Brett is responsible for certain acts of its employees, even though such
acts were not committed with the knowledge or permission of the company.
Caleb Brett USA, Inc. – Puerto Rico
Caleb Brett USA, Inc. has been informed that an investigation is underway by the U.S. Department of Justice
Environmental Crime Section of certain practices at its Puerto Rico facility. The investigation, which relates to
events in 1997 and prior, is on going and we are unable to predict the outcome or estimate the cost of any civil
or criminal penalties that may arise. However, on the basis of currently available information, we consider that
the costs to ITS of any civil and criminal penalties, arising from this investigation, that may be legally
enforceable, are unlikely to have a material adverse effect on the financial position of ITS in the foreseeable
future, although we are not able to quantify the cost of any adverse publicity. We have notified Inchcape plc of
the investigation and are pursuing possible rights of recovery against Inchcape plc under the agreement
pursuant to which Inchcape plc sold our business to us. This event may give rise to a claim under our group
professional indemnity insurance policy and our brokers have been notified.
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Intertek Testing Services Environmental Laboratories, Inc. – Richardson, Texas
In December 1997, Intertek Testing Services Environmental Laboratories, Inc. (“ITS Environmental”)
discovered certain discrepancies in reported testing results at its facility in Richardson, Texas. ITS
Environmental promptly reported this discrepancy to the EPA and to clients. Civil and criminal investigations
are under way. A government investigation at the ITS Environmental facility uncovered further discrepancies
beyond those initially discovered and disclosed by ITS Environmental.
In August 1998, ITS Environmental sold its laboratory business in Burlington, Vermont, United States and St.
Helens, United Kingdom and stopped commercial operations at the laboratory in Richardson. These actions
resulted in the discontinuation of business at ITS Environmental. This sale has not relieved ITS Environmental
of any liability it may face as a result of these investigations or otherwise.
After commercial operations ceased in August 1998, the facility in Richardson, Texas was used to reprocess the
original data used in the reported test results subject to the government investigation. The reprocessing is
complete and the facility is now closed. ITS Environmental developed what it believed to be an effective data
screening and reprocessing method. The reprocessing effort was aimed at providing clients with data of known
quality. The EPA has advised ITS Environmental that the reprocessing is not acceptable to the EPA for clean
up or compliance purposes. Nevertheless, ITS Environmental believes that it can establish the scientific
integrity of the reprocessing work, which ITS believes confirms that the original data was accurate to within
normally accepted limits. This has been confirmed by an independent consultant which specialises in
reprocessing of data.
ITS Environmental continues to co-operate fully with the government investigation.
On December 9, 1999, a complaint was filed by a customer in federal court in Chicago, Illinois against Intertek
Testing Services Environmental Laboratories, Inc. seeking declaratory judgement and damages arising from
analyses performed between 1991 and 1997. On December 17, 1999, a complaint was filed in state court in
Kansas City, Missouri, against Intertek Testing Services Limited seeking damages from improper testing and
analysis. On December 15, 2000, Intertek Testing Services Limited was voluntarily dismissed from this case by
the plaintiff, without prejudice to refile the complaint at a later date. On January 12, 2000, a third complaint
was filed in state court in Los Angeles, California, against Intertek Testing Services Limited and Intertek
Testing Services Environmental Laboratories, Inc. seeking damages arising for improper testing and analysis
and alleging fraud. Intertek Testing Services Limited was voluntarily dismissed from the case without prejudice
to be brought back in as a defendant at a later date. This complaint has been amended to name Intertek Testing
Services NA Inc. and Testing Holdings Inc., as defendants.
On September 21, 2000, the U.S. Department of Justice announced that a federal grand jury in Dallas, Texas
returned an indictment of thirty counts against thirteen persons who were formerly employed at Intertek Testing
Services Environmental Laboratories Inc in Richardson, Texas. Charges against the thirteen persons include
conspiracy to commit mail fraud, conspiracy to present false, fictitious and fraudulent claims against the United
States and wire fraud. The trial date has been set for October 5, 2001. To date, no criminal charges have been
filed against ITS Environmental.
We are unable to predict the outcome of these actions. However, on the basis of currently available
information, we consider that the costs to ITS of any civil and criminal penalties, arising from this
investigation, that may be legally enforceable, are unlikely to have a material adverse effect on the financial
position of ITS in the foreseeable future, although we are not able to quantify the cost of any adverse publicity.
We have notified Inchcape plc of the investigation and are pursuing possible rights of recovery against
Inchcape plc under the agreement pursuant to which Inchcape plc sold our business to us. Our group
professional indemnity insurance policy may respond at least in part, to legal costs, civil damages and third
party claims.
Dividend policy
The Company is restricted from paying dividends to shareholders unless it receives certain consents. The
Shareholder’s Agreement requires that dividends cannot be paid without Institutional Consent. The Credit
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Agreement requires that dividends be approved by a two third majority by value, of the lending banks. To date,
no dividends have been paid by the Company.
Item 9: The Offer and Listing
While the Notes are listed on the Luxembourg Stock Exchange, there is no active trading market on that
exchange for the Notes.
Item 10: Additional Information
Memorandum and articles of association.
Intertek Testing Services Limited is an English company registered with the Registrar of Companies at
Companies House in Cardiff, United Kingdom and has been assigned company number 3227453. Our
registered office is at 25 Savile Row, London W1S 2ES, United Kingdom. The telephone number at that
location is (44) 20-7396-3400.
The purpose of the Company is to perform any and all corporate activities permissible under the English
Companies Act 1985 and are set forth in detail in Clause 3(1) to 3(13) of the Memorandum of Association of
the Company.
Article 106 of the Articles of Association of the Company (“the Articles”) provides that, as long as he has
disclosed to the directors the nature and extent of any material interest of his and, unless an Institutional
Director, obtained Institutional Consent, a director may vote as a director on any resolution concerning any
matter in which he has, directly or indirectly, an interest or duty. And an interested director shall not, by reason
of his office, be accountable to the Company for any benefit realised through any such contract or arrangement.
No provision is made in the Articles for directors to vote compensation to themselves or any members of their
body under any circumstances. Directors of the Company are not required to own shares of the Company in
order to serve as directors. Directors are empowered by the Memorandum and Articles to borrow funds, but that
power is effectively limited by the Credit Agreement, the Indenture of the Notes and the Debentures. Directors
are not required by the Articles to retire on reaching any age.
Rights of holders of shares can only be varied by passing resolutions with a with a 75% majority at General
Meetings of holders of the share class. The directors may call annual and extraordinary meetings as they see fit.
Shareholders may also requisition a general meeting pursuant to the provisions of the English Companies Act
1985. Rights of admission and voting at general meetings attach to each class of share and are described
elsewhere in this Annual Report. Share transfers that would result in a change of control may not be registered
unless an Approved Offer is made. This imposes various requirements to be met including keeping the offer
open for twenty-one days and the offer having Institutional Consent. Full details are set out in Article 46 of the
Articles.
Material contracts
We have not entered into any material contracts other than contracts entered into in the ordinary course of
business, in the past two years.
Exchange controls
There are no limitations under U.K. law, as currently in effect, on the rights of non-U.K. 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 U.K. laws, decrees or regulations that would affect the transfer of capital or remittance
of dividends, interest or other payments to non-U.K. resident shareholders, except as disclosed below.
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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. Except where noted, it deals only with Notes held as capital assets by United States Holders, as
defined below, and does not deal with special situations, such as those of dealers in securities or currencies,
traders in securities that elect to use a mark-to-market method of accounting for their securities holdings,
financial institutions, life insurance companies, tax-exempt entities, persons holding Notes as a part of a
hedging, integrated or conversion transaction, constructive sale or a straddle or United States 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 made under the Code, 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.
If a partnership holds Notes, the tax treatment of a partner will generally depend on the status of the partner and
the activities of the partnership. Any holder that is a partner of a partnership holding Notes is urged to consult
its own tax advisor.
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 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.
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
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.
It is unclear whether the interest income on a Note will constitute foreign 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 United States 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.
-51-
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 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. A United States Holder
should consult its own tax advisors before making this election.
Sale, exchange, retirement or other disposition of the Notes
A United States Holder’s tax basis in a Note will, in general, be the United States Holder’s cost therefor,
increased by any 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 not previously included in income, which will be taxable as ordinary interest
income) 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.
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 a
United States 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 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.
Under present United States federal income and estate tax law, and subject to the discussion below concerning
backup withholding:
(a) no withholding of United States federal income tax will be required with respect to the payment by the
Issuer or any paying agent of principal or interest of a Note owned by a Non-United States Holder, provided (i)
that the Non-United States Holder does not actually or constructively own 10% or more of the
-52-
total combined voting power of all classes of stock of the Issuer or Testing Holdings USA Inc. entitled to vote
within the meaning of section 871(h)(3) of the Code and the regulations thereunder, (ii) the Non-United States
Holder is not a controlled foreign corporation that is related to the Issuer or Testing Holdings USA Inc. through
stock ownership, (iii) the Non-United States Holder is not a bank whose receipt of interest on a Note is
described in section 881(c)(3)(A) of the Code and (iv) either (A) the Non-United States Holder provides its
name and address on an IRS Form W-8BEN (or successor form), and certifies, under penalty of perjury, that it
is not a United States person or (B) if the Non-United States Holder holds its notes through certain foreign
intermediaries or certain foreign partnerships, it satisfies the certification requirements of applicable United
States Treasury regulations. Special certification rules apply to certain Non-United States Holders that are
entities rather than individuals;
(b) the 30% U.S. federal withholding tax generally will not apply to any gain that a Non-United States Holder
realises on the sale, exchange, retirement or other disposition of a Note; and
(c) a Note beneficially owned by an individual who at the time of death is a Non-United States Holder will not
be subject to United States federal estate tax as a result of such individual’s death, provided that such individual
does not actually or constructively own 10% or more of the total combined voting power of all classes of stock
of the company entitled to vote within the meaning of section 871(h)(3) of the Code and provided that the
interest payments with respect to such Note would not have been, if received at the time of such individual’s
death, effectively connected with the conduct of a United States trade or business by such individual.
If a Non-United States Holder cannot satisfy the requirements of the “portfolio interest” exception described in
(a) above, the Issuer will withhold United States federal income tax at a rate of 30% on payments of premium,
if any, and interest made 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) IRS Form W-8BEN (or successor
form) claiming an exemption from or reduction in withholding under the benefit of an applicable tax treaty or
(2) IRS Form W-8ECI (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. Alternative documentation may be applicable in certain situations.
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% (or lesser rate under an applicable tax
treaty) 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 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 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.
Information reporting and backup withholding
In general, no information reporting or backup withholding will be required with respect to payments made by
the Issuer or any paying agent to Non-United States Holders if the requirements described in (a)(iv) above have
been satisfied (and the payor does not have actual knowledge that the beneficial owner is a United States
person).
In addition, no information reporting or backup withholding will be required with respect to the proceeds of the
sale of a Note within the United States or conducted through certain United States related financial
intermediaries if the requirements described in (a)(iv) above have been satisfied (and the payor does not have
actual knowledge that the beneficial owner is a United States person) or if the holder otherwise establishes an
exemption.
-53-
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a
Non-United States Holder’s United States federal income tax liability provided the required information is
furnished to the IRS.
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 current U.K. tax laws and U.K. Inland Revenue
practice, and such provisions may be repealed, revoked or modified so as 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 Bank S.A./N.V. as operator of the Euroclear System (“Euroclear”) and Clearstream
Banking, société anonyme (“Clearstream, Luxembourg”) 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 U.K. 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 secures payment of or receives interest on the Global
Notes for a Noteholder (except in either case 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 U.K. 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.
The Finance Act 2000 contains legislation which provides that for so long as the Notes are listed on a
recognised stock exchange, there will be no obligation upon any person by or through whom a payment of
interest is made (including the Issuer or any paying agent or any collecting agent) to deduct or withhold on
account of United Kingdom income tax from that payment of interest. The legislation will have effect for
payments of interest made on the bonds on or after April 1, 2001. The Finance Act 2000 also provides for the
abolition from April 1, 2001 of the paying and collecting agent rules summarised above. Instead of the
obligation on paying and collecting agents to withhold tax in certain circumstances, the Inland Revenue are
extending their information powers with effect from April 6, 2001 so that paying and collecting agents can be
-54-
obliged to provide them with details about interest payments in respect of quoted Eurobonds, including the
amount of the interest and the name and address of the person entitled to it.
Proposed European Union Savings Directive
The European Union is currently considering proposals for a new directive regarding the taxation of savings
income. It is proposed that, subject to a number of important conditions being met, Member States will be
required to provide to the tax authorities of another Member State details of payments of interest or other
similar income paid by a person within its jurisdiction to an individual resident in that other Member State,
subject to the right of certain Member States to opt instead for a withholding system for a transitional period in
relation to such payments, and subject to the proposals not being required to be applied to Notes issued before
March 1, 2001. The proposals are not yet final, and they may be subject to further amendment and/or
clarification.
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 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 U.K. 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 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 U.K. 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 authorize 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.
-55-
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 U.K. 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 U.K. 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.
Documents on display
Documents concerning the Company which are referred to in this document may be inspected at the registered
office of the Company, which is 25 Savile Row, London, W1S 2ES.
-56-
Item 11: Quantitative and Qualitative Disclosures about Market Risk
Disclosures about market risks
Our primary market risk exposures are interest rate risk and foreign currency risk. Our exposure to market risk
for changes in interest rates relates primarily to our senior debt obligations (senior secured long-term debt and
revolving credit facility) upon which interest is paid at variable rates. We use interest rate swap and interest rate
cap agreements to hedge fluctuations in these variable rates. We are also exposed to changes in foreign
currency because all of our long-term debt is denominated in foreign currencies, most significantly the U.S.
dollar. We have revenues 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. We have entered into foreign exchange contracts to hedge (into
sterling) firmly committed foreign currency purchases and foreign 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 our geographical diversity. The purpose of the foreign
currency exchange contracts is to lock in the exchange rates. Increases or decreases in our foreign currency firm
commitments are partially offset by gains and losses on the hedging instrument. We do not use foreign
exchange contracts for trading purposes.
Interest rate sensitivity
The table below provides information about our 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 our reporting currency. The instrument’s actual cash flows are denominated in U.S. dollar
(USD), Swedish Kroner (SEK), Euros (EUR) and Hong Kong Dollars (HKD) as indicated in parentheses.
2000
Liabilities
Expected Maturity Date
Dec-01
£m
Dec-02
£m
Dec-03
£m
Dec-04
£m
Dec-05
£m
Thereafter
£m
Total
£m
Fair V
Revolving advances short-term
Floating Rate (GBP)
Average Interest Rate (1)
10.0
8.0 %
—
—
Underlying Long Term Debt (2)
Fixed Rate (USD)
Average Interest Rate
Fixed Rate (USD)
Average Interest Rate (3)
Floating Rate (USD)
Average Interest Rate (1)
Floating Rate (SEK)
Average Interest Rate (1)
Floating Rate (EUR)
Average Interest Rate (1)
Floating Rate (HKD)
Average Interest Rate (1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4.7
8.2 %
5.8
8.1 %
12.1
8.3 %
15.6
8.7 %
1.0
8.0 %
0.6
7.2 %
6.4
7.6 %
1.2
7.2 %
0.8
7.2 %
7.5
7.7 %
2.4
7.5 %
1.6
7.3 %
15.6
7.8 %
15.3
7.7 %
4.6
7.6 %
—
—
-57-
—
—
—
—
10.0
—
—
138.1
10.3 %
138.1
—
—
—
—
—
—
—
—
—
—
208.5
12.0 %
208.5
—
—
—
—
—
—
—
—
38.2
19.9
7.6
29.5
451.8
2000
Expected Maturity Date
Dec-01
£m
Dec-02
£m
Dec-03
£m
Dec-04
£m
Dec-05
£m
Thereafter
£m
Total
£m
Fair V
Interest rate swaps
Pay Fixed to Receive Variable (USD)
15.6
—
—
—
—
— 15.6
Average Pay Rate
Average Receive Rate (4)
6.3%
6.0%
Pay Fixed to Receive Variable (USD)
Average Pay Rate
Average Receive Rate (4)
Pay Fixed to Receive Variable (SEK)
Average Pay Rate
Average Receive Rate (4)
Pay Fixed to Receive Variable (EUR)
Average Pay Rate
Average Receive Rate (4)
Pay Fixed to Receive Variable (HKD)
Average Pay Rate
Average Receive Rate (4)
21.1
6.5%
6.0%
7.7
6.8%
5.5%
4.7
5.1%
4.7%
29.6
6.4%
5.7%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 21.1
—
—
7.7
4.7
—
—
—
—
—
—
— 29.6
—
—
78.7
(1) 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 than 1.50% 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,
2000.
(2) Including current portion.
(3) This debt is separately itemised due to the fact that interest is capitalised over the life of
the debt.
(4) The receive rates consist of the implied forward borrowing rates in the yield curve at the
reporting date.
-58-
1999
Expected Maturity Date
Dec-00
£m
Dec-01
£m
Dec-02
£m
Dec-03
£m
Dec-04
£m
Thereafter
£m
Total
£m
Fair V
Liabilities
Revolving advances short-term
Floating Rate (GBP)
Average Interest Rate (5)
Floating Rate (USD)
Average Interest Rate (5)
Underlying Long Term Debt (2)
6.0
7.9%
4.3
7.8%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6.0
4.3
Fixed Rate (USD)
—
—
—
—
—
126.1
126.1
1
Average Interest Rate
Fixed Rate (USD)
Average Interest Rate (3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10.3 %
190.4
190.4
12.0%
Floating Rate (USD)
Average Interest Rate (5)
1.9
8.6%
4.4
9.3%
5.4
9.4%
11.2
9.6%
14.2
10.0%
Floating Rate (SEK)
Average Interest Rate (5)
Floating Rate (EUR)
Average Interest Rate (5)
Floating Rate (HKD)
Average Interest Rate (5)
0.5
7.0%
0.3
6.3%
2.8
8.8%
1.0
8.5%
0.7
7.4%
5.9
9.1%
1.2
8.9%
0.8
7.8%
6.9
9.2%
2.5
9.1%
1.6
8.4%
14.3
9.45%
15.8
9.2%
4.8
8.6%
—
—
37.1
21.0
8.2
29.9
—
—
—
—
—
—
—
423.0
2
(2) Including current portion.
(3) This debt is separately itemised due to the fact that interest is capitalised over the life of
the debt.
(5) 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 than 1.50% 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,
1999.
-59-
1999
Expected Maturity Date
Dec-00
£m
Dec-01
£m
Dec-02
£m
Dec-03
£m
Dec-04
£m
Thereafter
£m
Total
£m
Fair V
Interest rate swaps
Pay Fixed to Receive Variable (USD)
Average Pay Rate
Average Receive Rate (4)
Pay Fixed to Receive Variable (USD)
Average Pay Rate
Average Receive Rate (4)
Pay Fixed to Receive Variable (SEK)
Average Pay Rate
Average Receive Rate (4)
Pay Fixed to Receive Variable (EUR)
Average Pay Rate
Average Receive Rate (4)
—
—
6.5%
—
—
6.5%
—
—
4.4%
—
—
3.9%
14.3
6.3%
7.1%
22.4
6.5%
7.1%
7.9
6.8%
5.9%
4.8
5.1%
4.9%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 14.3
—
—
— 22.4
—
—
7.9
4.8
—
—
—
—
—
—
Interest Rate Caps
Notional Amount
HKD Strike (cap)
Forward Rate
29.6
8.0%
6.5%
—
—
—
—
—
—
—
—
—
—
—
—
— 29.6
—
—
79.0
(4) The receive rates consist of the implied forward borrowing rates in the yield curve at the
reporting date.
-60-
Exchange rate sensitivity
The table below provides information about our derivative financial instruments and other financial instruments
by functional currency and presents such information in sterling equivalents. The table summarizes 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.
2000
Expected Maturity Date
Dec-01
£m
Dec-02
£m
Dec-03
£m
Dec-04
£m
Dec-05
£m
Thereafter
£m
Total
£m
Fair
Value
£m
Liabilities
Underlying Long Term Debt
Fixed Rate (USD)
Average Interest Rate
—
—
Fixed Rate (USD)
Average Interest Rate
Floating Rate (USD)
Average Interest Rate
Floating Rate (SEK)
Average Interest Rate
Floating Rate (EUR)
Average Interest Rate
Floating Rate (HKD)
Average Interest Rate
Forward exchange agreements
(Receive GBP pay USD)
Contract Amount
4.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
138.1
10.3%
138.1 141.5
208.5
208.5
93.8
12.0%
—
—
4.7
8.2%
5.8
8.1%
12.1
8.3%
15.6
8.7% —
—
1.0
8.0%
0.6
7.2%
6.4
7.6%
1.2
7.2%
0.8
7.2%
7.5
7.7%
2.4
7.5%
1.6
7.3%
15.6
7.8%
15.3
7.7%
4.6
7.6%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38.2 38.2
19.9
19.9
7.6
7.6
29.5
29.5
441.8
330.5
4.2
0.1
Average Contract Exchange Rate
1.47
4.2
0.1
-61-
1999
Expected Maturity Date
Dec-00
£m
Dec-01
£m
Dec-02
£m
Dec-03
£m
Dec-04
£m
Thereafter
£m
Total
£m
V
Liabilities
Revolving advances
Floating Rate (USD)
Average Interest Rate
Underlying Long Term Debt (6)
Fixed Rate (USD)
Average Interest Rate
Fixed Rate (USD)
Average Interest Rate
Floating Rate (USD)
Average Interest Rate
Floating Rate (SEK)
Average Interest Rate
Floating Rate (EUR)
Average Interest Rate
Floating Rate (HKD)
Average Interest Rate
Forward exchange agreements
(Receive GBP pay CHF)
Contract Amount
Average Contract Exchange Rate
(Receive GBP pay USD)
Contract Amount
Average Contract Exchange Rate
(Receive CAD pay USD)
Contract Amount
Average Contract Exchange Rate
(Receive HKD pay GBP)
Contract Amount
Average Contract Exchange Rate
4.3
7.8 %
—
—
—
—
—
—
—
—
—
—
4.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
126.1
10.3 %
126.1
1
190.4
12.0 %
190.4
1.9
8.6 %
4.4
9.3 %
5.4
9.4 %
11.2
9.6 %
14.2
10.0 %
0.5
7.0 %
0.3
6.3 %
2.8
8.8 %
3.2
2.55
5.3
1.60
1.6
1.48
0.4
12.66
1.0
8.5 %
0.7
7.4 %
5.9
9.1 %
—
—
—
—
—
—
—
—
1.2
8.9 %
0.8
7.8 %
6.9
9.2 %
2.5
9.1 %
1.6
8.4 %
14.3
9.4 %
15.8
9.2 %
4.8
8.6 %
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
37.1
21.0
8.2
29.9
417.0 2
3.2
5.3
1.6
0.4
10.5
(6) The amortised amounts were amended in March 1999 in accordance with the
amendment and restatement agreement date March 5, 1999.
-62-
Item 12: Description of Securities Other than Equity Securities
Not applicable.
PART II
Item 13: Defaults, Dividend Arrearages and Delinquencies
None.
Item 14: Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable.
PART III
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: Exhibits
(a) Financial Statements Filed as part of this Report
The following financial statements and related schedules, together with the report of
independent auditors, are filed as part of this Report.
Report of Independent Auditors
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Total Recognised Gains and Losses
Consolidated Statements of Changes in Shareholders’ Deficit
Notes to the Consolidated Financial Statements
(b) Exhibits Filed as part of this Report
None.
Page
F-1
F-2
F-3
F-4
F-5
F-5
F-6
If requested, we agree to furnish to the Securities and Exchange Commission a list or diagram of the
Company’s subsidiaries indicating for each subsidiary (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.
-63-
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 and its
subsidiaries (the “Company”) as of December 31, 1999 and 2000 and the related consolidated statements of
operations, cash flows, changes in shareholders’ deficit and total recognised gains and losses for each of the
three years ended December 31, 2000. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in the United Kingdom and
the United States. 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 financial statement presentation. 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, 1999 and 2000 and the consolidated results of
its operations and its cash flows for the years ended December 31, 1998, 1999 and 2000 in conformity with
generally accepted accounting principles in the United Kingdom.
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 consolidated results of operations for each of the three
years ended December 31, 2000 and consolidated shareholders’ deficit as of December 31, 1999 and 2000 to
the extent summarised in Note 30 to the consolidated financial statements.
KPMG
Chartered Accountants
London, England
March 22, 2001
F-1
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Notes
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
Revenues
Continuing operations
Discontinued operations
Group revenues
Operating costs
Group operating income
Share of operating profit in associates
Total operating income
Operating income/(loss) before exceptional items
Continuing operations
Discontinued operations
Exceptional items (charged)/credited
to operating income
Continuing operations
Discontinued operations
Total operating income
Operating income/(loss) after exceptional items
Continuing operations
Discontinued operations
Total operating income
Non-operating exceptional items
Continuing operations
Discontinued operations
Total non-operating exceptional items
Income on ordinary activities before
net interest
Net interest expense
(Loss)/income before taxation
Taxation
(Loss)/income after taxation
Minority interests
3
4
6
3
4, 5
5
7
8
£m
£m
£m
337.8
22.0
351.2
11.3
398.4
0.7
359.8
(336.8 )
362.5
(311.4 )
399.1
(341.6 )
23.0
—
23.0
44.8
(2.6 )
42.2
(14.0 )
(5.2 )
23.0
30.8
(7.8 )
23.0
—
(1.4 )
(1.4 )
21.6
(31.8 )
(10.2 )
(7.2 )
(17.4 )
(3.2 )
51.1
0.3
51.4
48.0
(2.1 )
45.9
10.5
(5.0 )
51.4
58.5
(7.1 )
51.4
2.4
—
2.4
53.8
(32.2 )
21.6
(9.4 )
12.2
(3.2 )
57.5
0.9
58.4
60.0
(0.7 )
59.3
6.9
(7.8 )
58.4
66.9
(8.5 )
58.4
(3.1 )
(12.1 )
(15.2 )
43.2
(35.8 )
7.4
(10.9 )
(3.5 )
(3.6 )
Net (loss)/income for the group and
its share of associates
21
(20.6 )
9.0
(7.1 )
The accompanying notes on pages F-6 to F-53 are an integral part of these financial statements.
F-2
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets
Cash
Trade receivables
Inventories
Other current assets
Total current assets
Goodwill
Property, plant and equipment, net
Investments
Total assets
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Borrowings (including current portion of long term
borrowings)
Accounts payable, accrued liabilities and deferred
income
Income taxes payable
Total current liabilities
Long term borrowings
Provisions for liabilities and charges
Minority interests
Commitments and contingencies
Shareholders’ deficit
Ordinary shares
Redeemable preference shares
Shares to be issued
Premium in excess of par value
Retained deficit
Notes
December 31,
1999
December 31,
2000
£m
£m
12
14
13
9
10
11
15
16
15
17
27, 28
19
19
19
19
21
20.2
70.1
2.6
15.6
108.5
15.8
53.8
0.5
178.6
15.4
69.5
5.4
90.3
278.2
6.8
5.8
0.8
105.5
2.8
3.6
(315.2)
21.3
81.6
1.7
19.1
123.7
16.8
67.9
0.9
209.3
22.1
80.5
6.9
109.5
300.3
13.9
6.3
0.8
105.5
2.8
3.6
(333.4)
Total shareholders’ deficit
22
(202.5)
(220.7)
Total liabilities and shareholders’ deficit
178.6
209.3
The accompanying notes on pages F-6 to F-53 are an integral part of these financial statements.
F-3
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Notes
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
Total operating cash inflow
Returns on investments and servicing of finance 24
Taxation
Capital expenditure and financial investment
Acquisitions and disposals
24
24
23
24
25
Cash (outflow)/inflow before financing
Financing
(Decrease)/increase in cash in the period
Reconciliation of net cash flow
to movement in net debt
(Decrease)/increase in cash in the period
Cash (outflow)/inflow from increase in debt
Change in net debt resulting from cash flows
Debt issued in lieu of interest payment
Acquisitions and disposals
Other non-cash movements
Exchange adjustments
32.4
(25.0)
(5.9)
(14.0)
(11.7)
(24.2)
16.0
59.8
(23.9)
(6.9)
(17.5)
(5.0)
6.5
(1.6)
71.9
(26.4)
(10.1)
(26.1)
(0.6)
8.7
(7.3)
(8.2)
4.9
1.4
(8.2)
(11.0)
(19.2)
(7.1)
(0.4)
(1.9)
1.7
4.9
22.0
26.9
(8.1)
(1.6)
(2.0)
(9.6)
1.4
7.4
8.8
(10.1)
(0.7)
(2.1)
(23.6)
Movement in net debt in the period
Net debt at the start of the period
(26.9)
(252.1)
5.6
(279.0)
(27.7)
(273.4)
Net debt at the end of the period
(279.0)
(273.4)
(301.1)
The accompanying notes on pages F-6 to F-53 are an integral part of these financial statements.
F-4
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
Net (loss)/income from subsidiaries
Net (loss)/income from associates
Exchange adjustments
Total recognised gains and losses
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
(20.6)
—
(20.6)
0.9
(19.7)
£m
9.4
(0.4)
9.0
(11.0)
(2.0)
£m
(7.2)
0.1
(7.1)
(21.1)
(28.2)
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.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
Ordinary
shares
Redeemable
preference
shares
£m
£m
Shares
to be
issued
£m
Premium
in excess
of par value
£m
Retained
deficit
Total
£m
£m
Balance at January 1, 1998
0.3
81.8 2.8
2.9 (294.5) (206.7)
Net loss
Issue of shares
Exchange adjustments
Balance at December 31, 1998
Net income
Issue of shares
Goodwill on disposals
Exchange adjustments
Balance at December 31, 1999
Net loss
Goodwill on disposals
Exchange adjustments
—
—
—
0.3
—
0.5
—
—
0.8
—
—
—
—
4.9
—
—
—
—
— (20.6)
—
0.1
0.9
—
(20.6)
5.0
0.9
86.7
2.8
3.0
(314.2)
(221.4)
—
18.8
—
—
—
—
—
—
9.0
—
—
0.6
—
1.0
— (11.0)
9.0
19.9
1.0
(11.0)
105.5
2.8
3.6
(315.2)
(202.5)
—
—
—
—
—
—
(7.1)
—
—
10.0
— (21.1)
(7.1)
10.0
(21.1)
Balance at December 31, 2000
0.8
105.5
2.8
3.6
(333.4)
(220.7)
Included in retained deficit is £287.2 million relating to goodwill (1999: £277.4 million and 1998: £270.6
million). This comprises goodwill of £285.0 million written off to reserves in relation to the acquisition of
subsidiaries prior to December 1997 (1999: £276.2 million and 1998: £270.2 million) and £2.2 million
amortised goodwill in relation to acquisitions from January 1, 1998 (1999: £1.2 million and 1998: £0.4
million).
The accompanying notes on pages F-6 to F-53 are an integral part of these financial statements.
F-5
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting policies
The significant accounting policies adopted by the Company and its subsidiaries are set out below. Financial
Reporting Standard 15: Tangible Fixed Assets and Financial Reporting Standard 16: Current tax have been
adopted and no prior year adjustments are required.
Basis of consolidation
The consolidated financial statements of the Company include the financial statements of the Company and its
subsidiaries. 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 Company from, or up
to, the date control passes. The consolidated statements of income of the Company include their respective
shares of income from associated undertakings. The consolidated balance sheets of the Company include
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 foreign 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
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:
Freehold buildings and long leasehold land and buildings
Short leasehold land and buildings
Plant, machinery and equipment
2
term of lease
10% - 33.3%
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.
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.
F-6
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies (continued)
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.
Goodwill
Purchased goodwill in respect of acquisitions since January 1, 1998 is capitalised in accordance with the
requirements of FRS 10: Goodwill and Intangible Assets, and is amortised on a straight line basis over its
estimated useful life, which is up to 20 years. Purchased goodwill in respect of acquisitions before January 1,
1998 was written off to reserves in the year of acquisition in accordance with the accounting standard then in
force. When a subsequent disposal occurs any goodwill previously written off to reserves is written back
through the profit and loss account.
Cash and cash equivalents
Cash, for the purpose of the cash flow statement, comprises cash in hand and deposits repayable on demand,
less overdrafts payable on demand.
Derivative financial instruments
ITS uses various derivative financial instruments to manage its exposure to 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 as a hedge 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 designed 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 designed 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.
2. Basis of preparation
The accompanying consolidated financial statements of the 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 30.
F-7
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Basis of preparation (continued)
The Directors have reviewed the Group’s budget for the current year and outline projections for the subsequent
year including cash flows and forecasts of headroom available against debt covenants. Following this review,
the Directors have formed a judgement that, at the time of approval of the financial statements, the Group has
sufficient resources to continue operating for the foreseeable future. For this reason, the Directors continue to
prepare the financial statements on a going concern basis.
These consolidated financial statements do not constitute ‘statutory accounts’ within the meaning of section
240 of the Companies Act 1985 for any of the three years ended December 31, 1998, 1999, and 2000. Statutory
accounts for 1998 and 1999 have been filed with the United Kingdom Registrar of Companies; the statutory
accounts for 2000 will be filed following the company’s annual general meeting. The auditors have reported on
those accounts; their reports were unqualified and did not contain statements under section 237(2) or (3) of the
Companies Act 1985.
3. Segment information
ITS comprises four operating divisions which are organised as follows: (1) Caleb Brett, which tests and
inspects crude oil, petroleum products and chemicals and agricultural produce; (2) ETL SEMKO, which tests
and certifies electrical and electronic products, telecommunication equipment, building products and heating,
ventilation and air conditioning equipment; (3) Labtest, which tests and inspects textiles, toys and other
consumer products and (4) Foreign Trade Standards, which provides independent pre-shipment inspection
services to governments. Central overheads comprise the costs of the corporate head office and non-operating
holding companies. ITS sold its Bondar Clegg division in 2000 and the results to the date of sale are disclosed
as a discontinued operation. Prior year results have been restated to reflect this disclosure. The Environmental
Testing division which operated principally in the United States and the United Kingdom was sold in 1998 and
its results to the date of sale are disclosed as a discontinued operation. The accounting policies of each division
are the same as those described in the summary of accounting policies.
By division
Revenues
Caleb Brett
ETL SEMKO
Labtest
Foreign Trade Standards
Total continuing operations
Bondar Clegg
Environmental Testing
Total discontinued operations
Total
Operating income/(loss) before exceptional items
Caleb Brett
ETL SEMKO
Labtest
Foreign Trade Standards
Central overheads
13.4
10.9
16.9
8.0
(4.4)
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
123.0
84.9
64.6
65.3
337.8
16.5
5.5
22.0
359.8
137.2
88.2
78.3
47.5
351.2
11.3
—
11.3
362.5
14.8
12.4
21.6
3.1
(3.9)
157.5
99.5
94.0
47.4
398.4
0.7
—
0.7
399.1
16.6
15.0
27.8
5.8
(5.2)
Total continuing operations
Bondar Clegg
Environmental Testing
Total discontinued operations
Total
48.0
(2.1)
—
(2.1)
45.9
60.0
(0.7)
—
(0.7)
59.3
44.8
(0.1)
(2.5)
(2.6)
42.2
F-8
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Segment information (continued)
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
Operating exceptional items
Foreign Trade Standards
Caleb Brett
Total continuing operations
Bondar Clegg
Environmental Testing
Total discontinued operations
Total
Non-operating exceptional items
Caleb Brett
ETL SEMKO
Foreign Trade Standards
Total continuing operations
Bondar Clegg
Environmental Testing
Discontinued operations
Total
Depreciation and amortisation
Caleb Brett
ETL SEMKO
Labtest
Foreign Trade Standards
£m
(12.2)
(1.8)
(14.0)
—
(5.2)
(5.2)
(19.2)
—
—
—
—
—
(1.4)
(1.4)
(1.4)
4.1
3.1
1.5
1.1
£m
8.7
1.8
10.5
(2.2)
(2.8)
(5.0)
5.5
—
2.4
—
2.4
—
—
—
2.4
4.7
3.4
2.0
0.8
£m
9.6
(2.7)
6.9
—
(7.8)
(7.8)
(0.9)
(0.5)
—
(2.6)
(3.1)
(12.1)
—
(12.1)
(15.2)
5.6
4.7
2.8
0.7
Central overheads
Total continuing operations
Bondar Clegg
Environmental Testing
Total discontinued operations
Total
Capital expenditure
Caleb Brett
ETL SEMKO
Labtest
Foreign Trade Standards
Central overheads
Total continuing operations
Bondar Clegg
Environmental Testing
Total discontinued operations
Total
Unallocated costs
0.1
9.9
1.1
0.5
1.6
11.5
3.9
4.1
3.9
0.7
0.1
12.7
1.2
0.1
1.3
14.0
0.2
11.1
1.0
—
1.0
12.1
6.3
5.7
5.0
0.4
—
17.4
0.4
—
0.4
17.8
0.1
13.9
0.2
—
0.2
14.1
10.4
9.9
4.8
0.9
—
26.0
0.3
—
0.3
26.3
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-9
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Segment information (continued)
Total assets
Caleb Brett
ETL SEMKO
Labtest
Foreign Trade Standards
Central overheads
Sub total
Trading balances with other ITS group companies
December 31,
1999
December 31,
2000
£m
£m
78.8
48.7
30.5
48.4
45.9
252.3
(89.2)
93.4
59.6
36.4
43.6
61.6
294.6
(85.3)
Total continuing operations
Bondar Clegg
Environmental Testing
Total discontinued operations
Total
Capital employed
Caleb Brett
ETL SEMKO
Labtest
Foreign Trade Standards
Central overheads
Total continuing operations
Bondar Clegg
Environmental Testing
Total discontinued operations
Total
Reconciliation of capital employed to consolidated
shareholders’ deficit
Capital employed
Taxation
Net borrowings
Minority interest
Consolidated shareholders’ deficit
163.1
15.4
0.1
15.5
178.6
40.4
28.0
13.9
(2.1)
20.3
100.5
4.6
(2.8)
1.8
102.3
102.3
(5.4)
(293.6)
(5.8)
(202.5)
209.3
—
—
—
209.3
49.1
29.4
16.4
0.6
26.7
122.2
—
(7.3)
(7.3)
114.9
114.9
(6.9)
(322.4)
(6.3)
(220.7)
Central overheads comprises assets not attributable to the operating divisions, principally cash.
F-10
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Segment information (continued)
By geographic area
Total assets
Americas
Europe, Africa and Middle East
Asia and Far East
December 31,
1999
December 31,
2000
£m
£m
93.4
122.4
36.5
103.9
141.4
49.3
Trading balances due from other ITS group companies
Total continuing operations
Total discontinued operations
Total
Total assets in significant countries
United States
United Kingdom
Others (each under 10% of total)
Trading balances due from other ITS group companies
Total continuing operations
Total discontinued operations
Total
Property, plant and equipment
Americas
Europe, Africa and Middle East
Asia and Far East
Total continuing operations
Total discontinued operations
Total
Property, plant and equipment in significant countries
United States
United Kingdom
Sweden
Others (each under 10% of total)
Total continuing operations
Total discontinued operations
Total
F-11
(89.2)
163.1
15.5
178.6
72.5
45.6
134.2
(89.2)
163.1
15.5
178.6
24.5
17.6
9.5
51.6
2.2
53.8
21.2
5.0
5.5
19.9
51.6
2.2
53.8
(85.3)
209.3
—
209.3
86.4
69.0
139.2
(85.3)
209.3
—
209.3
32.4
22.3
13.2
67.9
—
67.9
27.5
9.6
5.2
25.6
67.9
—
67.9
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Segment information (continued)
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
Revenues by geographic origin
Americas
Europe, Africa and Middle East
Asia and Far East
Total continuing operations
Total discontinued operations
Total
Revenues from significant countries of origin
United States
United Kingdom
Hong Kong
Others (each under 10% of total)
Total continuing operations
Total discontinued operations
Total
Operating income/(loss) before exceptional items
Americas
Europe, Africa and Middle East
Asia and Far East
Total continuing operations
Total discontinued operations
Total
Operating income/(loss) before exceptional
items from significant countries
United States
United Kingdom
Hong Kong
Others (each under 10% of total)
Total continuing operations
Total discontinued operations
Total
137.0
126.5
74.3
337.8
22.0
359.8
114.2
65.2
39.0
119.4
337.8
22.0
359.8
12.0
11.5
21.3
44.8
(2.6)
42.2
9.3
3.5
10.7
21.3
44.8
(2.6)
42.2
F-12
143.3
117.7
90.2
351.2
11.3
362.5
119.1
51.6
44.4
136.1
351.2
11.3
362.5
10.2
9.8
28.0
48.0
(2.1)
45.9
8.9
(0.6)
14.0
25.7
48.0
(2.1)
45.9
163.5
120.4
114.5
398.4
0.7
399.1
133.7
56.0
54.2
154.5
398.4
0.7
399.1
15.0
9.5
35.5
60.0
(0.7)
59.3
12.0
(1.7)
19.1
30.6
60.0
(0.7)
59.3
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Segment information (continued)
Revenues by geographic area of destination
Americas
Europe, Africa and Middle East
Asia and Far East
Total continuing operations
Total discontinued operations
Total
Revenues from significant destination countries
United States
Hong Kong
Others (each under 10% of total)
Total continuing operations
Total discontinued operations
Total
4. Operating costs and gross profit
Cost of sales
Administrative costs
Total operating costs
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
140.8
120.7
76.3
337.8
22.0
359.8
111.3
38.2
188.3
337.8
22.0
359.8
148.1
111.9
91.2
351.2
11.3
362.5
117.1
43.6
190.5
351.2
11.3
362.5
170.7
111.0
116.7
398.4
0.7
399.1
131.3
51.5
215.6
398.4
0.7
399.1
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
292.1
44.7
292.0
19.4
336.8
311.4
313.3
28.3
341.6
Gross profit
67.7
70.5
85.8
Gross profit is total revenues less cost of sales. Administrative costs comprise the following:
Administrative costs before exceptional items
Operating exceptional items (note 5)
Total administrative costs
25.5
19.2
24.9
(5.5)
44.7
19.4
27.4
0.9
28.3
Administrative costs comprise expenses incurred at the head office and the regional offices of each division. All
expenses incurred at other operating locations are included in cost of sales.
F-13
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. Exceptional items
Operating exceptional items
Foreign Trade Standards
Nigeria
Restructuring
Caleb Brett
Nigeria
EPA fine and costs
Total continuing operations
Bondar Clegg
Environmental Testing
Discontinued operations
Total operating exceptional items
Non-operating exceptional items
Caleb Brett
ETL SEMKO
Foreign Trade Standards
Total continuing operations
Bondar Clegg
Environmental Testing
Discontinued operations
Total non-operating exceptional items
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
(12.2)
—
(12.2)
(1.8)
—
(14.0)
—
(5.2)
(5.2)
(19.2)
—
—
—
—
—
(1.4)
(1.4)
(1.4)
11.3
(2.6)
8.7
1.8
—
10.5
(2.2)
(2.8)
(5.0)
5.5
—
2.4
—
2.4
—
—
—
2.4
9.6
—
9.6
—
(2.7)
6.9
—
(7.8)
(7.8)
(0.9)
(0.5)
—
(2.6)
(3.1)
(12.1)
—
(12.1)
(15.2)
Due to the irregular nature of payments received from the Nigerian government for pre-shipment inspection
work carried out by FTS, in 1997, ITS adopted a policy of making full provision against invoices issued to this
client and only reversing the provision when cash is received. On March 31, 1999 the Nigerian Government
cancelled its pre-shipment inspection programmes. In September 1999, the new government re-introduced a
pre-shipment inspection programme. FTS is participating in this programme but in a much smaller capacity
than the previous programmes. In view of the regular payments received from the government and the reduced
debt exposure, from July 2000 we stopped making exceptional provisions for unpaid invoices issued in respect
of the new government pre-inspection programme. The tax effect of the exceptional credit to income in 2000
was £nil (1999: £nil and 1998: £1.9 million).
The exceptional charge to operating income, of £2.6 million in 1999 in respect of FTS is a result of
restructuring this division following the termination of the old inspection programmes in Nigeria. The tax effect
of this exceptional charge to income in 1999 was £0.1 million.
Until March 1999, the Caleb Brett division also provided testing services to the Nigerian Government and the
policy of making full provision against invoices issued to this client and only reversing the provision when cash
was received was also adopted. The tax effect of the exceptional credit to income was £nil in 1999 and 1998.
The Caleb Brett division is being investigated by the Environmental Protection Agency in Linden, New Jersey
and in Puerto Rico. The exceptional charge of £2.7 million related to legal costs of £1.0 million in 2000 and
further expected costs of £1.0 million in 2001. In addition, we have agreed to pay a fine of £0.7 million to
conclude the Linden investigation. The tax effect of this exceptional charge was £nil.
The exceptional charge to operating income of £2.2 million for Bondar Clegg in 1999 related to restructuring
costs. The tax effect of this exceptional charge was £nil.
F-14
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. Exceptional items (continued)
The exceptional charge to operating income of £7.8 million (1999: £2.8 million and 1998: £5.2 million) for
Environmental Testing was primarily for legal costs relating to the ongoing investigation by the Environmental
Protection Agency (See note 27). The tax effect of this exceptional charge was £nil (1999: £nil and 1998: £nil).
During 2000, Caleb Brett sold a small loss adjusting business in Chile for £0.2 million. Goodwill of £0.6
million that was previously written off to reserves was transferred to the profit and loss account, resulting in an
exceptional charge of £0.4 million. Caleb Brett also incurred an exceptional charge of £0.1 million, when an
investment in a small company in Thailand in which we had a 49% interest, was liquidated. The tax effect of
this exceptional charge was £nil.
During 2000, FTS sold its technical services business in the United States for its net asset value of £1.0 million.
Goodwill of £2.6 million that was previously written off to reserves was transferred to the profit and loss
account, resulting in an exceptional charge of £2.6 million. The tax effect of this exceptional charge was £nil.
During 1999, ETL SEMKO disposed of a non-core activity in the United States that generated an exceptional
credit of £2.2 million. This credit was after deducting attributable goodwill of £1.1 million from the disposal
proceeds of £3.3 million. The tax effect of this exceptional credit was £nil. ETL SEMKO sold 51% of its
Quality Management business in Sweden for £0.2 million. This generated an exceptional credit of £0.1 million.
The tax effect of this exceptional credit was £0.1 million. ETL SEMKO sold 20% of its stake in a testing and
certification facility in the United Kingdom for £0.2 million. This generated an exceptional credit of £0.1
million. The tax effect of this exceptional credit was £nil.
The non-operating exceptional charge of £1.4 million for Environmental Testing in 1998 related to the loss on
disposal of Environmental operations in the United States and the United Kingdom and closure costs. There
was no related tax impact.
Our minerals testing division, Bondar Clegg, ceased operating at the beginning of 2000. The businesses in
North and South America, Ghana and Mali were sold for £1.5 million and we received £0.2 million for the sale
of assets in Africa. We incurred termination and closure costs of £1.0 million. The disposals and closure of
Bondar Clegg generated a net loss of £5.2 million. Goodwill of £6.9 million that was previously written off to
reserves was charged to the profit and loss account, resulting in an exceptional charge of £12.1 million. The tax
effect of this exceptional charge was £nil.
6. Operating income
Operating income is stated after charging:
Depreciation of tangible assets
Amortisation of intangible goodwill
Directors’ emoluments
Staff costs
Leasing and hire charges
Auditors’ remuneration:
Group - as auditors
Group - other services
Company - as auditors
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
11.1
0.4
0.8
155.1
15.9
0.5
0.1
—
F-15
11.3
0.8
0.8
168.2
17.5
0.6
0.3
—
13.0
1.1
0.8
178.0
18.1
0.6
0.2
—
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. Net interest expense
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
12.4
7.2
6.7
3.1
0.6
0.7
0.1
1.9
32.7
(0.9)
31.8
12.8
8.3
5.5
3.0
0.4
0.8
0.1
2.0
32.9
(0.7)
32.2
13.7
10.3
5.1
3.1
0.8
0.8
0.4
2.1
36.3
(0.5)
35.8
Interest expense and other charges
Senior Subordinated Notes
Parent Subordinated PIK Debentures
Senior Term Loan A
Senior Term Loan B
Senior Revolver
Other borrowings
Foreign exchange gains on external loans
Amortisation of debt issuance costs
Interest expense
Interest income on bank balances
Net interest expense
8. Taxation
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
U.K Corporation tax on profit ordinary activities
Double taxation relief
0.5
(0.4)
0.5
(0.5)
£m
£m
Overseas taxes
Transfer (from)/to deferred taxation
Adjustments to prior year liabilities
Associated companies
0.1
8.1
(1.1)
—
7.1
0.1
7.2
—
7.2
1.8
0.2
9.2
0.2
9.4
£m
0.5
(0.5)
—
10.6
(0.3)
0.2
10.5
0.4
10.9
The following table sets out the reconciliation of the notional tax charge at U.K. standard rate to the actual tax
charge:
(Loss)/income before taxation
(10.2)
21.6
7.4
Notional tax (credit)/charge at U.K. standard
rate 30% (1999: 30.25% and 1998: 31%)
Differences in overseas tax rates
Tax on dividends
Permanent differences - disallowables
Permanent differences - untaxed income
Unprovided deferred tax
Other
6.5
(1.4)
0.7
0.3
(0.5)
4.5
(0.7)
9.4
2.2
(1.8)
1.1
5.9
(0.3)
2.8
1.0
10.9
(3.1)
(1.7)
0.4
1.2
(0.9)
10.3
1.0
7.2
F-16
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. Goodwill
Cost
At December 31, 1998
Additions
Exchange adjustments
At December 31, 1999
Total
£m
13.4
4.1
(0.5)
17.0
Additions
Exchange adjustments
At December 31, 2000
Accumulated amortisation
At December 31, 1998
Charged for the year
At December 31, 1999
Charged for the year
Exchange adjustments
At December 31, 2000
Net book value
At December 31, 1998
At December 31, 1999
At December 31, 2000
2.2
(0.2)
19.0
0.4
0.8
1.2
1.1
(0.1)
2.2
13.0
15.8
16.8
Purchased goodwill is amortised to £nil in equal instalments over the Directors’ estimate of its useful life, not
exceeding 20 years.
F-17
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. Property, plant and equipment
Land and
Buildings
Plant and
machinery
Total
£m
£m
£m
Cost
At December 31, 1998
9.5
57.8
67.3
Exchange adjustments
Acquisitions
Additions
(0.2)
—
—
2.2
1.4
17.7
2.0
1.4
17.7
Transfers
Disposals
At December 31, 1999
Exchange adjustments
Acquisitions
Additions
Disposals
At December 31, 2000
Accumulated depreciation
At December 31, 1998
Exchange adjustments
Charged for the year
Transfers
Disposals
At December 31, 1999
Exchange adjustments
Charged for the year
Disposals
At December 31, 2000
Net book value
At December 31, 1998
At December 31, 1999
At December 31, 2000
(0.3)
(4.9)
73.9
5.7
0.6
26.3
(9.6)
96.9
(20.8)
(1.4)
(11.1)
0.1
4.6
(28.6)
(3.2)
(12.7)
7.3
(37.2)
(0.3)
(4.9)
83.2
5.6
0.6
26.4
(9.6)
106.2
(21.4)
(1.4)
(11.3)
0.1
4.6
(29.4)
(3.2)
(13.0)
7.3
(38.3)
37.0
45.9
45.3
53.8
59.7
67.9
—
—
9.3
(0.1)
—
0.1
—
9.3
(0.6)
—
(0.2)
—
—
(0.8)
—
(0.3)
—
(1.1)
8.9
8.5
8.2
F-18
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. Investments
Investments consist of investments in associated undertakings.
Total
At December 31, 1998
Exchange adjustment
Transfer from minority interests
Dividends received
Retained profit for the year
At December 31, 1999
Sale of associate interest
Dividends received
Retained profit for the year
At December 31, 2000
12. Trade receivables
£m
0.2
(0.1)
0.7
(0.4)
0.1
0.5
0.3
(0.4)
0.5
0.9
Trade receivables are shown net of the following allowances for doubtful receivables:
Balance at
beginning of
period
Exchange
adjustments
Receivables
recovered
New
provisions
Receivables
written off
Balanc
end of pe
£m
£m
£m
£m
£m
Year ended December 31, 1999
Nigerian government
Other clients
25.5
4.6
1.0
—
(21.6)
(1.5)
8.5
3.8
—
(1.6)
Total
30.1
1.0
(23.1)
12.3
(1.6)
1
1
Year ended December 31, 2000
Nigerian government
Other clients
Total
13.4
5.3
18.7
0.9
(0.7)
0.2
(12.2)
(2.5)
(14.7)
2.6
5.3
7.9
—
(3.0)
(3.0)
F-19
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. Other current assets
Assets held for resale
December 31,
1999
December 31,
2000
£m
0.2
£m
0.2
Other receivables
Prepayments and accrued income
6.8
8.6
15.6
10.1
8.8
19.1
Within other receivables is £2.2 million due in more than one year (1999: £2.3 million).
14. Inventories
Raw materials
Work in progress
Finished goods
15. Borrowings
Due in less than one year:
Senior Term Loan A
Senior Revolver
Other borrowings
Due in more than one year:
Senior Term Loan A
Senior Term Loan B
Senior Subordinated Notes
Parent Subordinated PIK Debentures
Other borrowings
December 31,
1999
December 31,
2000
£m
1.4
0.4
0.8
2.6
£m
0.5
0.4
0.8
1.7
December 31,
1999
December 31,
2000
£m
£m
4.7
10.4
0.3
15.4
54.7
33.7
120.9
68.6
0.3
278.2
12.1
10.0
—
22.1
46.0
34.7
133.5
86.1
—
300.3
F-20
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. Borrowings (continued)
Maturity of borrowings:
Senior Term
Loan A
Senior Term
Loan B
Senior
Resolver
Senior
Subordinated
Notes
Parent
Subordinated
PIK Debentures
Total
borrowings
£m
£m
£m
£m
£m
£m
Due in less than 1 year
Due in 1 to 2 years
Due in 2 and 5 years
Due in over 5 years
Debt issuance costs
12.8
15.3
31.7
—
59.8
(1.7)
58.1
—
—
35.5
—
35.5
(0.8)
34.7
10.0
—
—
—
10.0
—
10.0
—
—
—
138.1
138.1
(4.6)
133.5
—
—
—
87.5
87.5
(1.4)
86.1
22.8
15.3
67.2
225.6
330.9
(8.5)
322.4
Description of borrowings
(a) Senior Term Loans
In November 1996, the Company entered into a credit agreement (the “Credit Agreement”) comprising a
£125.0 million Term Loan Facility (the “Term Loan Facility”), split into a £85.0 million multicurrency Term A
Facility (the “Term A Facility”), a £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 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 by 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% and then to 1.5%,
following satisfaction of certain financial performance tests. The directors, believe the margin over LIBOR will
be reduced to 1.75% from the next interest period following the filing of this Annual Report
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 30).
(b) 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 £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.
F-21
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. Borrowings (continued)
Description of borrowings (continued)
(c) Parent Subordinated PIK Debentures
In November 1996, the Company issued £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. The
Warrants were recorded at their fair value of £2.8 million which is being amortised over the life of the Parent
Subordinated PIK Debentures.
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.
All interest to date has been paid through the issuance of additional Parent Subordinated Debentures.
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 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.
16. Accounts payable, accrued liabilities and deferred income
Trade accounts payable
Other taxation and social security
Other creditors
Accruals and deferred income
December 31,
1999
December 31,
2000
£m
24.2
4.3
4.6
36.4
69.5
£m
27.3
4.3
4.8
44.1
80.5
Within accruals and deferred income is £0.7 million due in more than one year (1999: £0.1 million).
F-22
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
17. Provisions for liabilities and charges
At December 31, 1998
Exchange adjustments
Transfer from current assets
Charged during the year
Released during the year
Utilised during the year
Deferred tax
Pension
benefits
Restructuring
Other
Total
£m
£m
£m
£m
£m
—
— —
0.5
(1.3)
1.7
—
—
—
1.8
(0.2)
(1.7)
8.5
4.0
4.0
— 0.1 0.1
(1.3)
—
—
12.3
7.7
1.1
(0.9)
— (0.7)
(11.9)
(1.0)
(9.2)
At December 31, 1999
0.4
0.4
2.5
3.5
6.8
Exchange adjustments
Transfers to current (assets)/liabilities
Charged during the year
Released during the year
Utilised during the year
—
—
(0.2)
—
—
—
—
1.8
—
(2.1)
— 0.1
3.7
(1.5)
1.0
12.5
— (0.9)
(5.9)
(1.4)
0.1
2.2
15.1
(0.9)
(9.4)
At December 31, 2000
0.2
0.1
0.6
13.0
13.9
Included in Other provisions are costs (including an estimate of future legal costs) relating to investigations by
the Environmental Protection Agency in the United States and amounts in respect of other claims. The charge
in respect of claims in 2000 includes an amount of £3.1 million for which an equivalent asset has been
recognised in Other receivables reflecting the expected reimbursement of this amount.
18. Deferred taxation
Total potential deferred taxation:
Accelerated capital allowances
Losses carried forward
Other timing differences
Liability
December 31,
1999
December 31,
2000
£m
£m
(1.2)
(11.4)
(8.4)
(21.0)
0.4
(0.1)
(14.1)
(14.6)
(28.8)
0.2
F-23
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19. Share capital
(a) Authorised share capital
Equity:
Ordinary ‘A’ shares of 69,172,061 at 1p each
Ordinary ‘B’ shares of 11,578,635 at 1p each
Ordinary ‘C’ shares of 2,951,417 at 1p each
Ordinary ‘D’ shares of 7,110,713 at 1p each
Non equity: Zero coupon redeemable preference shares
of 105,478,482 at £1 each
(b) Issued and outstanding share capital
Equity:
Ordinary ‘A’ shares of 69,172,061 at 1p each
Ordinary ‘B’ shares of 11,578,635 at 1p each
Ordinary ‘C’ shares of 1p each (none in issue)
Ordinary ‘D’ shares of 1p each (none in issue)
Non equity: Zero coupon redeemable preference shares
of 105,478,482 at £1 each
December 31,
1999
December 31,
2000
£m
£m
0.7
0.1
—
0.1
105.5
106.4
0.7
0.1
—
—
105.5
106.3
0.7
0.1
—
0.1
105.5
106.4
0.7
0.1
—
—
105.5
106.3
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.
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.
F-24
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19. Share capital (continued)
(c) Premium in excess of par value -
Ordinary ‘A’ shares of 1p each
Ordinary ‘B’ shares of 1p each
(d) Shares to be issued
December 31,
1999
December 31,
2000
£m
3.1
0.5
3.6
2.8
£m
3.1
0.5
3.6
2.8
During the period ended December 31, 1996 the Company issued warrants to subscribe for ordinary ‘D’ shares
of 1p each (see note 15 (c)). 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 7.83% of the
fully diluted share capital of the Company. In accordance with FRS 4, the net proceeds of issue of these
warrants ( £2.8 million) have been included within shareholders’ deficit as shares to be issued.
20. 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 2,951,417 Ordinary ‘C’ shares under the scheme.
495,848 (1999: 188,894) options were granted and the weighted average exercise price was £1.17 (1999: £0.10
and 1998: £0.10). 242,013 (1999: 170,187) were forfeited during the year and the weighted average exercise
price was £0.10 (1999: £0.10 and 1998: £0.10). 1,646,001 options were issued during 1999 as part of the share
rights issue. The weighted average grant-date fair value of options granted during the year was £0.20 (1999:
£0.10 and 1998: £0.10).
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 £0.10 and £1.40 per share, being the Directors’ 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.
Number
Exercise
price
(£)
Exercisable between
The outstanding options are
exercisable as follows:
1,748,883
11,806
276,830
35,418
70,834
100,351
47,224
88,543
407,305
2,787,194
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
1.40
March 1, 2000
September 1, 2000
December 31, 2000
June 1, 2001
December 31, 2001
June 1, 2002
December 31, 2002
March 31, 2003
December 31, 2003
March 1, 2004
September 1, 2004
December 31, 2004
June 1, 2005
December 31, 2005
June 1, 2006
December 31, 2006
March 31, 2007
December 31, 2007
No options are exercisable at December 31, 2000.
F-25
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Retained deficit
At beginning of year
Exchange adjustments
Net (loss)/income
Goodwill on disposals
At end of year
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
(294.5)
0.9
(20.6)
—
(314.2)
(11.0)
9.0
1.0
(314.2)
(315.2)
£m
(315.2)
(21.1)
(7.1)
10.0
(333.4)
Included in retained deficit is £287.2 million relating to goodwill (1999: £277.4 million and 1998: £270.6
million). This comprises goodwill of £285.0 million written off to reserves in relation to the acquisition of
subsidiaries prior to December 1997 (1999: £276.2 million and 1998: £270.2 million) and £2.2 million
amortised goodwill in relation to acquisitions from January 1, 1998 (1999: £1.2 million and 1998 £0.4 million).
22. Reconciliation of movement in shareholders’ deficit
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
Total recognised gains and losses for the period
Issue of ordinary share capital
Issue of redeemable preference shares
(19.7)
0.1
4.9
(2.0)
1.1
18.8
(28.2)
—
—
Goodwill on disposals
Opening shareholders’ deficit
Closing shareholders’ deficit
—
(14.7)
(206.7)
(221.4)
1.0
18.9
(221.4)
(202.5)
10.0
(18.2)
(202.5)
(220.7)
Analysis of closing shareholders’ deficit
Equity interests
Non-equity interests
December 31,
1999
December 31,
2000
£m
£m
(308.0)
105.5
(326.2)
105.5
(202.5 )
(220.7 )
F-26
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
23. Reconciliation of operating income to operating cash flows
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
23.0
11.1
0.4
0.2
(1.1)
(11.4)
5.8
—
5.2
(0.8)
32.4
—
—
32.4
51.4
11.3
0.8
0.1
1.1
(3.9)
(6.7)
5.0
2.9
(2.3)
59.7
(0.3)
0.4
59.8
58.4
13.0
1.1
0.1
(0.1)
(11.9)
7.6
—
7.8
(3.6)
72.4
(0.9)
0.4
71.9
Operating income
Depreciation charge
Goodwill amortisation
Loss on sale of fixed assets
(Increase)/decrease in inventories
Increase in receivables and prepayments
Increase/(decrease) in payables
Cash payments from exporters
Discontinued operating exceptional charge –
Environmental
Decrease in other provisions
Equity income of associates
Less dividends received from associates
Total operating cash inflow
24. Analysis of cash flows
Returns on investment and servicing of finance
Net interest paid
Dividends paid to minorities
Capital expenditure and financial investment
Purchase of property, plant and equipment
Sale of property, plant and equipment
Acquisitions and disposals
Purchase of subsidiary undertakings
Acquisition provision payments
Sale of subsidiary undertakings
Financing
Issue of ordinary shares
Issue of redeemable preference shares
Issue/(repayment) of short term debt
Repayment of other loans
Cash subscribed by minorities
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
(22.6)
(2.4)
(21.8)
(2.1)
(23.0)
(3.4)
(25.0)
(23.9)
(26.4)
(17.7)
0.2
(17.5)
(8.3)
(0.2)
3.5
(5.0)
1.1
18.8
(5.9)
(16.1)
0.5
(1.6)
(26.4)
0.3
(26.1)
(2.0)
—
1.4
(0.6)
—
—
(0.6)
(6.8)
0.1
(7.3)
(14.1)
0.1
(14.0)
(10.7)
(0.6)
(0.4)
(11.7)
0.1
4.9
16.4
(5.5)
0.1
16.0
F-27
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
24. Analysis of cash flows (continued)
During 2000, the Company purchased eight businesses throughout the Group. The provisional analysis of net
assets acquired and the fair value to the Company is set out below. The resulting provisional goodwill of £2.2
million has been capitalised and is being amortised over 20 years.
Book value
Other fair value
adjustments
Total
£m
£m
£m
Trade receivables
Property, plant and equipment
Accounts payable
Current taxation
0.1
0.9
(0.3)
(0.2)
0.5
Minority interests
Provisional fair value of net assets acquired:
Fair value of consideration:
Initial cash consideration (including fees of £0.2 million)
Deferred consideration payable
Cash acquired
Less fair value of net assets acquired
Provisional goodwill arising on acquisition
— 0.1
0.6
(0.3)
(0.2)
(0.3)
—
—
(0.3)
0.2
—
0.2
1.9
0.5
—
2.4
(0.2)
2.2
Other fair value adjustments principally relate to the reduction in property, plant and equipment fixed assets to
their net realisable value.
Net cash outflow on purchase of subsidiaries and associates
Fair value of consideration
Net deferred consideration paid on prior year
acquisitions
Net deferred consideration payable
Cash and cash equivalents acquired
Loans acquired
Fees payable
Net cash outflow in respect of acquisitions
made during the period and on prior period
acquisitions
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
14.9
5.6
2.2
—
(3.5)
—
(0.7)
0.6
3.0
(0.4)
(0.1)
—
0.4
0.1
(0.5)
—
—
0.2
11.3
8.5
2.0
F-28
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
25. Analysis of net debt
Net cash
Cash in hand and at bank
Debt
Debt due within one year
Debt due after one year
Total net debt
26. Pension plans
At December
31, 1999
Cash flow
Acquisitions
and disposals
Debt issued in
lieu of interest
payment
Other non-
cash changes
Exchange
adjustments
£m
£m
£m
£m
£m
£m
20.2
1.4
(0.7)
—
—
0.4
(15.4)
(278.2)
(293.6)
(273.4)
7.4
—
7.4
8.8
—
—
—
—
(10.1)
(10.1)
(13.5)
11.4
(2.1)
(0.6)
(23.4)
(24.0)
(0.7)
(10.1)
(2.1)
(23.6)
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 United Kingdom, United States,
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:
Defined contribution plans
Defined benefit plans
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
5.0
1.6
6.6
£m
6.1
1.8
7.9
£m
6.1
1.8
7.9
The pension cost for the defined contribution plans is the contribution payable by the group during the year.
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 1.8%.
At the year end, the aggregate market value of the main defined benefit plans was £35.0 million. The benefits
accrued to members of the UK plan (allowing for expected future salary and pension increases) were 125%
funded at the last actuarial valuation conducted at April 1, 2000. The accrued benefits in the other plans were
between 75% and 108% funded, reflecting differences in local funding practice. Actual contributions to the
plans were determined on the basis of separate actuarial advice and were £2.2 million (1999: £1.7 million and
1998: £1.3 million). A prepayment at year end of £0.8 million (1999: £0.3 million and 1998: £0.4 million) is
included in other current assets, this being the value of surplus assets in the defined benefit plans at the date of
acquisition and the accumulated differences between the actual contributions paid and the pension cost since
that date.
F-29
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27. Contingent liabilities
Performance bonds
Other guarantees
December 31,
1999
December 31,
2000
£m
3.1
3.0
6.1
£m
2.7
1.6
4.3
From time to time ITS is involved in various claims and lawsuits incidental to the ordinary course of our
business, including claims for damages, negligence and commercial disputes regarding inspection and testing
and disputes from former employees. We are not currently party to any legal proceedings other than ordinary
litigation incidental to the conduct of our business and the investigations described below. On the basis of
currently available information, the Directors consider that the cost to ITS of an unfavourable outcome, arising
from any such ordinary litigation is unlikely to have a material adverse effect on the financial position of ITS in
the foreseeable future.
We hold a professional indemnity insurance policy that provides coverage for certain claims from customers.
We consider this policy adequate for normal commercial purposes.
Investigations by the U.S. Environmental Protection Agency
Two of ITS’ 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. – Linden, New Jersey
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.
In September 1999, the Department of Justice announced that three laboratory supervisors pleaded guilty to
criminal charges that they participated in a scheme to falsify chemical analyses of gasoline.
In September 2000, Caleb Brett USA, Inc. pleaded guilty in Federal District Court in New Jersey to the crime
of conspiracy to make false statements to governmental investigators and agreed to pay a U.S. $1.0 million fine.
We made a provision of £0.7 million for this fine in 2000. The sentencing is scheduled for April 12, 2001 when
the final sentence and payment terms will be confirmed. The Court may accept the agreement with the
government or impose a fine of a greater or lessor amount. Due to the fact that Caleb Brett employees mislead
federal investigators about the falsification of data during the investigation, Caleb Brett as a corporation was
prosecuted. Under applicable law, Caleb Brett is responsible for certain acts of its employees, even though such
acts were not committed with the knowledge or permission of the company.
Caleb Brett USA, Inc. – Puerto Rico
Caleb Brett USA, Inc. has been informed that an investigation is underway by the U.S. Department of Justice
Environmental Crime Section of certain practices at its Puerto Rico facility. The investigation, which relates to
events in 1997 and prior, is at a preliminary stage and we are unable to predict the outcome or estimate the cost
of any civil or criminal penalties that may arise. However, on the basis of currently available information, we
consider that the costs to ITS of any civil and criminal penalties, arising from this investigation, that may be
legally enforceable, are unlikely to have a material adverse effect on the financial position of ITS in the
foreseeable future, although we are not able to quantify the cost of any adverse publicity and of the time spent
by ITS executives on this case. We have notified Inchcape plc of the investigation and are pursuing possible
rights of recovery against Inchcape plc under the Share Purchase Deed. This event may give rise to a claim
under our group professional indemnity insurance policy and our brokers have been notified.
F-30
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27. Contingent liabilities (continued)
Intertek Testing Services Environmental Laboratories, Inc. – Richardson, Texas
In December 1997, Intertek Testing Services Environmental Laboratories, Inc. (“ITS Environmental”)
discovered certain discrepancies in reported testing results at its facility in Richardson, Texas. ITS
Environmental promptly reported this discrepancy to the EPA and to clients. Civil and criminal investigations
are under way. A government investigation at the ITS Environmental facility uncovered further discrepancies
beyond that initially discovered and disclosed by ITS Environmental.
In August 1998, ITS Environmental sold its laboratory business in Burlington, Vermont, United States and St.
Helens, United Kingdom and stopped commercial operations at the laboratory in Richardson. These actions
resulted in the discontinuation of business at ITS Environmental. This sale has not relieved ITS Environmental
of any liability it may face as a result of these investigations or otherwise.
After commercial operations ceased in August 1998, the facility in Richardson, Texas was used to reprocess the
original data. The reprocessing is complete and the facility is now closed. ITS Environmental developed what it
believed to be an effective data screening and reprocessing method. The reprocessing effort was aimed at
providing clients with data of known quality. The EPA has advised ITS Environmental that the reprocessing is
not acceptable to the EPA for clean up or compliance purposes. Nevertheless, ITS Environmental believes that
it can establish the scientific integrity of the reprocessing work, which ITS believes confirms that the original
data was accurate to within normally accepted limits. This has been confirmed by an independent consultant
which specialises in reprocessing of data.
ITS Environmental continues to co-operate fully with the government investigation.
On December 9, 1999, a complaint was filed by a customer in federal court in Chicago, Illinois against Intertek
Testing Services Environmental Laboratories, Inc. seeking declaratory judgement and damages arising from
analyses performed between 1991 and 1997. On December 17, 1999, a complaint was filed in state court in
Kansas City, Missouri, against Intertek Testing Services Limited seeking damages from improper testing and
analysis. On December 15, 2000, Intertek Testing Services Limited was voluntarily dismissed from this case by
the plaintiff, without prejudice to refile the complaint at a later date. On January 12, 2000, a third complaint
was filed in state court in Los Angeles, California, against Intertek Testing Services Limited and Intertek
Testing Services Environmental Laboratories, Inc. seeking damages arising for improper testing and analysis
and alleging fraud. Intertek Testing Services Limited was voluntarily dismissed from the case without prejudice
to be brought back in as a defendant at a later date. This complaint has been amended to name Intertek Testing
Services NA Inc. and Testing Holdings Inc., as defendants.
On September 21, 2000, the U.S. Department of Justice announced that a federal grand jury in Dallas, Texas
returned an indictment of thirty counts against thirteen persons who were formerly employed at Intertek Testing
Services Environmental Laboratories Inc in Richardson, Texas. Charges against the thirteen persons include
conspiracy to commit mail fraud, conspiracy to present false, fictitious and fraudulent claims against the United
States and wire fraud. The trial date has been set for October 5, 2001. To date, no criminal charges have been
filed against ITS Environmental.
We are unable to predict the outcome of these actions. However, on the basis of currently available
information, we consider that the costs to ITS of any civil and criminal penalties, arising from this
investigation, that may be legally enforceable, are unlikely to have a material adverse effect on the financial
position of ITS in the foreseeable future, although we are not able to quantify the cost of any adverse publicity
and of the time spent by ITS executives on this case. We have notified Inchcape plc of the investigation and are
pursuing possible rights of recovery against Inchcape plc under the Share Purchase Deed. Our group
professional indemnity insurance policy may respond at least in part, to legal costs, civil damages and third
party claims.
F-31
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28. Other commitments
ITS had annual commitments under non-cancellable operating leases as follows:
December 31,
1999
December 31,
2000
£m
£m
2.9
7.7
2.0
12.6
9.5
3.1
12.6
2.5
8.7
2.6
13.8
10.8
3.0
13.8
Payable in one year:
Expiring within one year
Expiring within two to five years inclusive
Expiring in more than five years
Being in respect of:
Land and buildings
Other
29. 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.
The following numerical disclosures relate to the Group’s financial assets and financial liabilities as defined in
FRS 13: Derivatives and Other Financial Instruments. For all the numerical disclosures, short-term debtors and
creditors, which arise directly from the Group operations, apart from the disclosures, have been excluded as
permitted under FRS 13.
Foreign exchange risk management
A substantial portion of the Company’s sales is derived from customers 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 do not exceed one year.
F-32
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29. Financial instruments (continued)
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.
December 31, 1999
December 31, 2000
United States Dollar
—
6.8
—
Buy
£m
Sell
£m
Buy
£m
Sell
£m
4.2
Swiss Franc
Canadian Dollar
Hong Kong Dollar
—
1.6
0.4
3.2
—
—
—
—
—
—
—
—
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):
December 31, 1999
December 31, 2000
Contract amount
Fair Value
Contract amount
Fair Value
£m
£m
£m
£m
10.0
0.4
0.1
—
0.1
4.2
—
0.1
—
0.1
Assets
Liabilities
Net Assets
Interest rate risk management
The Company has a significant amount of borrowings bearing interest at variable rates. To reduce its exposure
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, 2000, the notional amount in pound sterling of interest rate cap agreements amounted to £nil
(1999: £29.6 million) and the interest rate cap was not applicable (1999: 8%). Unamortised premiums included
in other current assets amount to £nil at December 31, 2000 (1999: £0.1 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.
F-33
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29. Financial instruments (continued)
The following table summarises the Company’s interest rate swaps at December 31, 1999 and 2000:
December 31, 1999
Notional amount
£m
14.3
22.4
Receive rate (floating)
%
6.09%
6.12%
Pay rate (fixed)
%
Maturity
6.25% Dec - 2001
6.45% Dec - 2001
Fair Value
£m
0.1
0.1
7.9
4.8
3.81%
3.49%
6.80% Dec - 2001
5.09% Dec - 2001
Total
—
(0.1)
0.1
December 31, 2000
Notional amount
£m
15.6
21.1
7.7
4.7
29.6
Receive rate (floating)
%
6.00%
6.00%
5.46%
4.72%
5.65%
Pay rate (fixed)
%
Maturity
6.25% Dec - 2001
6.45% Dec - 2001
6.80% Dec - 2001
5.09% Dec - 2001
6.35% Dec - 2001
Fair Value
£m
—
(0.1)
(0.2)
—
(0.2)
Total
(0.5)
Concentration of credit risk
At December 31, 2000 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 £330.5 million and £285.7 million (carrying value £325.2 million and £297.0
million) at December 31, 2000 and 1999, respectively. The fair value of off-balance sheet financial instruments
is as follows:
Forward exchange contracts
Interest rate caps
Interest rate swaps
Year Ended
December 31,
1999
Year Ended
December 31,
2000
£m
0.1
0.1
0.1
£m
0.1
—
(0.5)
F-34
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29. Financial instruments (continued)
Exchange rate sensitivity
The following table provides information about the Company’s derivative financial instruments and other
financial instruments by functional currency and presents such information in sterling equivalents. The table
summarizes 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.
2000
Liabilities
Underlying long term debt (a)
Fixed rate (USD)
Average interest rate
Fixed rate (USD)
Average interest rate
Floating rate (USD)
Average interest rate
Floating rate (SEK)
Average interest rate
Floating rate (EUR)
Average interest rate
Floating rate (HKD)
Average interest rate
Forward exchange agreements
(Receive GBP pay USD)
Contract amount
Average contract exchange rate
Expected Maturity Date
Dec-01
£m
Dec-02
£m
Dec-03
£m
Dec-04
£m
Dec-05
£m
Thereafter
£m
Total
£m
Fair
Value
£m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4.7
8.2 %
5.8
8.1 %
12.1
8.3 %
15.6
8.7 %
1.0
8.0 %
0.6
7.2 %
6.4
7.6 %
1.2
7.2 %
0.8
7.2 %
7.5
7.7 %
2.4
7.5 %
1.6
7.3 %
15.6
7.8 %
15.3
7.7 %
4.6
7.7 %
—
—
—
—
—
—
—
—
—
—
—
—
—
—
138.1
10.3 %
208.5
12.0 %
138.1 141.5
208.5
93.8
—
—
—
—
—
—
—
—
38.2
38.2
19.9
19.9
7.6
7.6
29.5
29.5
441.8
330.5
4.2
1.47
—
—
—
—
—
—
—
—
—
—
4.2
0.1
4.2
0.1
F-35
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29. Financial instruments (continued)
1999
Expected Maturity Date
Dec-00
£m
Dec-01
£m
Dec-02
£m
Dec-03
£m
Dec-04
£m
Thereafter
£m
Total
£m
Fair
Value
£m
4.3
7.8 %
—
—
—
—
—
—
—
—
—
—
4.3
4.3
—
—
—
—
—
—
—
—
—
—
—
—
126.1
10.3 %
126.1 120.7
—
—
—
—
—
—
—
—
190.4
12.0 %
190.4
68.7
1.9
8.6 %
4.4
9.3 %
5.4
9.4 %
11.2
9.6 %
14.2
10.0 %
0.5
7.0 %
1.0
8.5 %
1.2
8.9 %
2.5
9.1 %
15.8
9.2 %
0.3
6.3 %
2.8
8.8 %
0.7
7.4 %
5.9
9.1 %
0.8
7.8 %
6.9
9.2 %
1.6
8.4 %
14.3
9.4 %
4.8
8.6 %
—
—
3.2
2.55
5.3
1.60
1.6
1.48
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
37.1
37.2
21.0
21.0
8.2 8.2
29.9
29.9
417.0 290.0
3.2 —
5.3 —
1.6
0.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Liabilities
Revolving advances
Floating rate (USD)
Average interest rate
Underlying long term debt (a)
Fixed rate (USD)
Average interest rate
Fixed rate (USD)
Average interest rate
Floating rate (USD)
Average interest rate
Floating rate (SEK)
Average interest rate
Floating rate (EUR)
Average interest rate
Floating rate (HKD)
Average interest rate
Forward exchange agreements
(Receive GBP pay CHF)
Contract amount
Average contract exchange rate
(Receive GBP pay USD)
Contract amount
Average contract exchange rate
(Receive CAD pay USD)
Contract amount
Average contract exchange rate
(Receive HKD pay GBP)
Contract amount
Average contract exchange rate
0.4
12.66
—
—
—
—
—
—
—
—
—
—
0.4 —
10.5
0.1
(a) The amortised amounts were amended in March 1999 in accordance with the amendment and restatement
agreement dated March 5, 1999.
Unrecognised gains and losses
There are no material unrecognised gains or losses arising from the use of financial assets and financial
liabilities as hedges.
F-36
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30. 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, 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. Goodwill and identifiable intangibles are being written off over periods not
exceeding 20 years for U.S. GAAP.
The gross cost under U.S. GAAP as of December 31, 2000 of goodwill is £239.0 million (1999: £234.6 million)
and identifiable intangibles related to the covenants not to compete is £nil (1999: £38.7 million). Accumulated
amortisation under U.S. GAAP as of December 31, 2000 of goodwill is £50.8 million (1999: £38.0 million) and
of identifiable intangibles is nil (1999: £38.7 million).
Redeemable preference shares
Under U.K. GAAP, preference shares with mandatory redemption features or that are redeemable at the option
of the security holders are classified as a component of shareholders’ equity. U.S. GAAP requires such
redeemable preference shares to be classified outside of shareholders’ equity. Additionally, under U.S. GAAP,
the initial carrying amount of redeemable preferred stock is equal to its fair value at date of issuance. When the
fair value of mandatorily redeemable preferred stock at the time of its issuance is less than the mandatory
redemption amount, the carrying amount is increased by periodic accretion, using the interest method, such that
the carrying amount will equal the mandatory redemption amount at the mandatory redemption date.
Disposal of business segment
Under U.K. GAAP, the profit or loss arising on the disposal of a business segment after the year end, but before
the earlier of three months and the date when the financial statements are approved, is not recognised in the
financial statements but is disclosed as a post balance sheet event and the disposed business segment is
classified as a discontinued operation in the financial statements. U.S. GAAP requires that if a loss is expected
from such disposal, such loss be recognised in the not yet released financial statements.
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.
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 a provision for compensated absences to be made.
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.
F-37
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30. Summary of differences between U.K. and U.S. GAAP (continued)
Effect of material differences between U.K. and U.S. GAAP and additional disclosures
(a) Net (loss)/income
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
Net (loss)/income reported under U.K. GAAP
(20.6)
9.0
£m
£m
£m
(7.1)
U.S. GAAP Adjustments:
Goodwill amortisation
Covenants not to compete amortisation
Loss on disposal and closure of discontinued
operations
Previously recognised loss on disposal and closure
of discontinued operation
Pensions
Compensated absences
Deferred taxes
Tax effect of U.S. GAAP reconciling adjustments
(11.6)
(12.5)
—
—
(0.2)
(0.3)
—
—
(11.6)
(9.7)
(11.6)
—
—
(0.1)
—
—
Net loss in conformity with U.S. GAAP
(45.2)
(24.0)
Continuing operations
Discontinued operations
(35.1)
(10.1)
(4.6)
(19.4)
Net loss in conformity with U.S. GAAP
(45.2)
(24.0)
(9.9)
—
—
11.6
(0.7)
0.1
—
—
(6.0)
1.2
(7.2)
(6.0)
(b) Shareholders’deficit
The approximate effects on shareholders’ deficit of material differences between U.K. and U.S. GAAP are as
follows:
Shareholders’ deficit reported under U.K. GAAP
U.S. GAAP Adjustments:
Goodwill
Redeemable preference shares, including cumulative accretion
Loss on disposal and closure of discontinued operations
Pensions
Compensated absences
Shareholders’ deficit in conformity with U.S. GAAP *
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
(202.5)
(220.7)
190.0
(26.1)
(5.0)
1.0
(0.7)
(43.3)
188.2
(30.0)
—
0.3
(0.6)
(62.8)
* Shareholders’ deficit and the carrying value of the preference shares as of December 31, 1999 have been
reduced by £79.4 million from amounts previously shown as of December 31, 1999 in order to reflect the
carrying value of such shares as of that date at their initial carrying value plus cumulative accretion from date of
original issue.
F-38
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30. Summary of differences between U.K. and U.S. GAAP (continued)
(b) Shareholders’ deficit (continued)
The following table reconciles shareholders’ deficit under U.S. GAAP:
Year ended
December 31,
1999
Year ended
December 31,
2000
Shareholders’ deficit at beginning of year
Issue of shares
Accretion of discount on redeemable preference shares
Net loss for the year
Exchange adjustments
(7.4)
1.1
(7.5)
(24.0)
(5.5)
(43.3)
—
(3.9)
(6.0)
(9.6)
Shareholders’ deficit at end of year
(43.3)
(62.8)
(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.
Set out below is a summary of the statements of cash flows under U.S. GAAP.
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by/(used in) financing
activities
Effect of exchange rate changes
Net (decrease)/increase in cash by continuing
operations
(Decrease)/increase in cash by continuing
operations
(Decrease)/increase in cash by discontinued
operations
Cash at beginning of period
Year ended
December 31,
1998
Year ended
December 31,
1999
Year ended
December 31,
2000
£m
£m
£m
4.0
(25.2)
34.7
(23.9)
31.5
(23.2)
15.9
(5.3)
(0.5)
(5.8)
(5.8)
(2.5)
25.1
(4.6)
(11.0)
6.2
0.1
6.3
6.3
(2.9)
16.8
(2.7)
0.4
(2.3)
(2.3)
3.4
20.2
Cash at end of period
16.8
20.2
21.3
F-39
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30. 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 Post Retirement Benefits” in respect of the Company’s funded defined benefit plans.
The Company’s principal defined benefits pension plans are located in the United Kingdom, United States,
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:
Change in benefit obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Acquisition
Actuarial loss/(gain)
Benefits paid
Exchange rate effects
Projected benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants’ contribution
Acquisition
Benefits paid
Exchange rate effects
Fair value of plan assets at end of year
Funded status
Unrecognised actuarial loss
Net amount recognised
December 31,
1999
December 31,
2000
£m
£m
23.1
2.2
1.4
0.3
—
1.9
(1.1)
0.1
27.9
23.0
2.2
1.7
0.3
—
(1.1)
0.1
26.2
(1.7)
3.2
1.5
27.9
2.6
2.0
0.4
2.2
(2.0)
(1.0)
1.2
33.3
26.2
2.8
2.2
0.4
3.2
(1.0)
1.1
34.9
1.6
(0.4)
1.2
Amounts recognised in the statement of financial position
consist of:
Prepaid benefit cost
Accrued benefit liability
Shareholders’ deficit *
Net amount recognised
1.7
(0.3)
0.1
1.5
1.3
(0.1)
—
1.2
* Amount charged directly to Shareholders’ deficit to record the additional minimum liability.
F-40
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30. Summary of differences between U.K. and U.S. GAAP (continued)
(d) Pensions (continued)
The following is a summary of the weighted average assumptions:
December 31,
1998
December 31,
1999
December 31,
2000
Discount Rate
Expected return on plan assets
Rate of compensation increase
6.4%
7.9%
4.8%
6.7%
8.0%
5.5%
7.2%
8.0%
5.6%
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortisation of prior service cost
Recognised actuarial (loss)/gain
Net periodic benefit cost
Year Ended
December 31,
1998
Year Ended
December 31,
1999
Year Ended
December 31,
2000
£m
£m
2.1
1.5
(1.8)
—
—
1.8
2.2
1.4
(1.9)
—
—
1.7
£m
2.6
2.0
(2.2)
—
—
2.4
There were no pension plans with accumulated benefits obligations in excess of plan assets as of December 31,
2000. 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 £0.9 million, £0.9 million and
£0.9 million respectively, as of December 31, 1999.
(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 net present value
of future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
F-41
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30. 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.
The fair value of each option grant is estimated on the date of grant using the Black Scholes option-pricing
model with the following weighted average assumptions used for grants in the respective years.
Expected dividend yield
Risk free rate
Expected volatility
Average expected lives
1998
1999
0%
6.0%
0%
0%
6.0%
0%
2000
0%
6.0%
0%
3 years
3 years
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.
The weighted average exercise price of outstanding options is£0.29 (1999: £0.10). The weighted average fair
value of the share options granted by the Company during 2000 was estimated at £0.19 (1999: £0.02 and 1998:
£0.2).
The weighted average remaining contractual life for all shares is 4.1 (1999: 4.5) years. The weighted average
remaining contractual life for £0.10 shares is 3.6 (1999: 4.5) years. The weighted average remaining contractual
life for £1.40 shares is 7.0 (1999: nil) years.
(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 loss differs from net income only by the amount of the foreign
currency exchange adjustments charged to shareholders’ deficit for the period and the periodic accretion of the
redeemable preference stock. Comprehensive loss for each of the years ended December 31, 1998, 1999 and
2000 is equal to the total recognised gains and losses shown on the consolidated statement of total recognised
gains and losses.
The following table reconciles accumulated other comprehensive loss under U.S. GAAP:
Year Ended
December 31,
1998
Year Ended
December 31,
1999
Year Ended
December 31,
2000
Other comprehensive loss at beginning of year
Exchange adjustments
Redeemable preference share accretion
Other comprehensive loss at end of year
(5.5)
0.9
(3.3)
(7.9)
(7.9)
(11.0)
(7.5)
(26.4)
(26.4)
(21.2)
(3.9)
(51.5)
F-42
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. 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, Testing
Holdings Sweden AB, Testing Holdings France EURL, Testing Holdings Germany GmbH (collectively, the
“Guarantor subsidiaries”). 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, the Company and the Guarantor
subsidiaries 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 condensed consolidating
financial information. The condensed consolidating financial information presented below has been segregated
between (a) the Issuer, (b) the Company, (c) the Guarantor subsidiaries and (d) the non-Guarantor subsidiaries.
F-43
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Issuer, guarantor and non-guarantor companies (continued)
Statements of Operations
Year ended December 31, 2000
Intertek
Finance plc
Total group revenue
Operating (costs)/income
Equity income of associated companies
Operating (loss)/income
Non-operating exceptional items
Income/(loss) before interest
Net interest receivable/(payable)
Income/(loss) before taxation
Taxation
Income/(loss) after taxation
Minority interests
Dividends from/(to) group companies
Net income/(loss)
Statements of Operations
Year ended December 31, 1999
Total group revenue
Operating income/(costs)
Equity income of associated companies
Operating income/(loss)
Non-operating exceptional items
Income/(loss) before interest
Net interest receivable/(payable)
Income/(loss) before taxation
Taxation
Income/(loss) after taxation
Minority interests
£m
—
—
—
—
—
—
0.1
0.1
—
0.1
—
—
0.1
Intertek
Finance plc
£m
—
0.1
—
0.1
—
0.1
0.1
0.2
—
0.2
—
Intertek
Testing
Services
Ltd
£m
—
(0.3)
—
(0.3)
(3.6)
(3.9)
(8.9)
(12.8)
0.4
(12.4)
—
—
(12.4)
Intertek
Testing
Services
Ltd
£m
—
0.2
—
0.2
(1.9)
(1.7)
(7.3)
(9.0)
0.1
(8.9)
—
Guarantor
subsidiaries
Non-
Guarantor
subsidiaries
Consolidation
adjustments
Consolid
t
£m
—
—
—
—
(4.6)
(4.6)
(8.0)
(12.6)
0.8
(11.8)
—
3.3
(8.5)
£m
£m
444.0
(386.2)
0.9
(44.9)
44.9
—
3
(3
58.7
(7.0)
51.7
(19.0)
32.7
(12.1)
20.6
(3.6)
(3.3)
13.7
—
—
—
—
—
—
—
—
—
—
Guarantor
subsidiaries
Non-
Guarantor
subsidiaries
Consolidation
adjustments
Consolid
t
3
(3
£m
—
—
—
—
—
—
(7.2)
(7.2)
1.3
(5.9)
—
£m
413.8
(363.0)
0.3
51.1
4.3
55.4
(17.8)
37.6
(10.8)
26.8
(3.2)
£m
(51.3)
51.3
—
—
—
—
—
—
—
—
—
Dividends from/(to) group companies
Net income/(loss)
—
0.2
—
(8.9)
2.8
(3.1)
(2.8)
20.8
—
—
Statements of Operations
Year ended December 31, 1998
Intertek
Finance plc
Total group revenue
Operating income/(costs)
Equity income of associated companies
Operating income/(loss)
Non-operating exceptional items
Income/(loss) before interest
Net interest receivable/(payable)
Income/(loss) before taxation
Taxation
Income/(loss) after taxation
Minority interests
Dividends from/(to) group companies
Net income/(loss)
£m
—
0.1
—
0.1
—
0.1
—
0.1
0.2
0.3
—
—
0.3
Guarantor
subsidiaries
Non-
Guarantor
subsidiaries
Consolidation
adjustments
Consolid
t
3
(3
£m
—
—
—
—
—
—
4.1
4.1
1.3
5.4
—
3.0
8.4
£m
425.4
(402.5)
—
22.9
(1.4)
21.5
(28.4)
(6.9)
(9.2)
(16.1)
(3.2)
(3.0)
(22.3)
£m
(65.6)
65.6
—
—
—
—
—
—
—
—
—
—
—
Intertek
Testing
Services
Ltd
£m
—
—
—
—
—
—
(7.5)
(7.5)
0.5
(7.0)
—
—
(7.0)
F-44
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
December 31, 2000
ASSETS
Current assets
Cash
Trade receivables
Intertek
Finance plc
£m
Intertek
Testing
Services
Ltd
£m
Guarantor
subsidiaries
Non-
Guarantor
subsidiaries
Consolidation
adjustment
£m
£m
—
—
(11.2)
—
0.7
—
31.8
81.6
£m
—
—
Inventories
Other current assets
Total current assets
Goodwill
Property, plant and equipment, net
Investments in subsidiary undertakings
Investments
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT)
Current liabilities
Borrowings (including current portion of long term
borrowings)
Accounts payable, accrued liabilities and deferred
income
Income taxes payable
Total current liabilities
Long term borrowings
Provisions for liabilities and charges
Minority interests
Shareholders’ equity/(deficit)
Ordinary shares
Redeemable preference shares
Shares to be issued
Premium in excess of par value
Retained earnings/(deficit)
Total shareholders’ equity/(deficit)
—
145.8
145.8
—
—
—
—
—
92.9
81.7
—
—
128.6
—
145.8
210.3
—
10.0
11.0
—
11.0
134.4
—
—
0.1
—
—
—
0.3
0.4
42.7
(0.4)
52.3
86.1
—
—
0.8
105.5
2.8
3.6
(40.8)
71.9
Total liabilities and shareholders’ equity/(deficit)
145.8
210.3
F-45
—
218.6
219.3
—
—
217.8
—
437.1
12.0
223.2
(2.3)
232.9
81.4
—
—
115.1
—
—
25.8
(18.1)
122.8
437.1
1.7
294.9
410.0
16.8
67.9
74.5
0.9
—
(733.1
(733.1
—
—
(420.9
—
570.1
(1,154.0
0.1
536.7
9.6
546.4
(1.6)
13.9
6.3
195.9
—
—
0.6
(191.4)
—
(733.1
—
(733.1
—
—
—
(311.1
—
—
(26.4
(83.4
5.1
(420.9
570.1
(1,154.0
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
December 31, 1999
ASSETS
Current assets
Cash
Intertek
Finance plc
£m
Intertek
Testing
Services
Ltd
£m
Guarantor
subsidiaries
Non-
Guarantor
subsidiaries
Consolidation
adjustment
£m
£m
£m
—
(7.5)
0.8
26.9
—
Trade receivables
Inventories
Other current assets
Deferred taxation asset
Total current assets
Goodwill
Property, plant and equipment, net
Investments in subsidiary undertakings
Investments
—
—
130.3
—
130.3
—
—
—
—
—
—
82.6
—
75.1
—
—
128.6
—
Total assets
130.3
203.7
LIABILITIES AND SHAREHOLDERS’ EQUITY/(DEFICIT)
Current liabilities
Borrowings (including current portion of long
term borrowings)
Accounts payable, accrued liabilities and
deferred income
Income taxes payable
Total current liabilities
Long term borrowings
Provisions for liabilities and charges
Minority interests
Shareholders’ equity/(deficit)
Ordinary shares
Redeemable preference shares
Shares to be issued
Premium in excess of par value
Retained earnings/(deficit)
Total shareholders’ equity/(deficit)
—
8.0
—
8.0
122.1
—
—
—
—
—
—
0.2
0.2
10.3
37.1
(0.7)
46.7
68.6
—
—
0.8
105.5
2.8
3.6
(24.3)
88.4
Total liabilities and shareholders’ equity/(deficit)
130.3
203.7
F-46
—
—
197.8
—
198.6
—
—
206.6
—
405.2
5.2
192.1
(1.8)
195.5
89.1
—
—
105.8
—
—
23.6
(8.8)
120.6
405.2
70.1
2.6
256.5
—
356.1
15.8
53.8
74.4
0.5
—
—
(651.6
—
(651.6
—
—
(409.6
—
500.6
(1,061.2
(0.1)
483.9
7.9
491.7
(1.6)
6.8
5.8
205.1
—
—
2.9
(210.1)
—
(651.6
—
(651.6
—
—
—
(310.9
—
—
(26.5
(72.2
(2.1)
(409.6
500.6
(1,061.2
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
December 31, 2000
Intertek
Finance plc
£m
Intertek
Testing
Services
Ltd
£m
Guarantor
subsidiaries
Non-
Guarantor
subsidiaries
Consolidation
adjustments
Co
£m
£m
£m
Total operating cash inflow/(outflow)
—
0.3
(0.6)
72.2
—
Returns on investments and servicing of finance
Taxation
Capital expenditure and financial investment
Acquisitions and disposals
Cash (outflow)/inflow before financing
Financing
(2.3)
—
—
—
1.5
0.7
—
(1.2)
(2.3)
1.3
2.3
(5.0)
(7.8)
0.4
—
(0.7)
(8.7)
8.6
(Decrease)/increase in cash in the period
—
(3.7)
(0.1)
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the period
Cash inflow from increase in debt
Change in net debt resulting from cash flows
Debt issued in lieu of interest payment
Acquisitions and disposals
Other non-cash movements
Exchange movements
—
—
—
—
—
(0.7)
(11.6)
(3.7)
0.4
(3.3)
(10.1)
—
(0.1)
(7.3)
(0.1)
6.3
6.2
—
—
0.7
(6.1)
Movement in net debt in the period
Net debt at the start of the period
(12.3)
(122.1)
(20.8)
(86.5)
0.8
(93.5)
Net debt at the end of the period
(134.4)
(107.3)
(92.7)
(17.8)
(11.2)
(26.1)
1.3
18.4
(13.2)
5.2
5.2
0.7
5.9
—
(0.7)
(2.0)
1.4
4.6
28.7
33.3
F-47
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
December 31, 1999
Intertek
Finance plc
£m
Intertek
Testing
Services
Ltd
£m
Total operating cash (outflow)/inflow
Returns on investments and servicing of finance
Taxation
(0.1)
(2.2)
0.1
(3.5)
0.3
0.5
0.5
(1.9)
1.5
62.9
(20.1)
(9.0)
Guarantor
subsidiaries
Non-
Guarantor
subsidiaries
Consolidation
adjustments
C
£m
£m
£m
—
—
—
Capital expenditure and financial investment
Acquisitions and disposals
—
—
—
(0.2)
Cash (outflow)/inflow before financing
(2.2)
(2.9)
Financing
2.2
2.2
—
(0.2)
(0.1)
0.7
(17.5)
(4.6)
11.7
(6.7)
(Decrease)/increase in cash in the period
—
(0.7)
0.6
5.0
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the period
Cash inflow from increase in debt
Change in net debt resulting from cash flows
Debt issued in lieu of interest payment
Acquisitions and disposals
Other non-cash movements
Exchange movements
—
—
—
—
—
(0.6)
(5.2)
(0.7)
6.0
5.3
(8.1)
—
(0.2)
(2.7)
0.6
14.8
15.4
—
—
(0.6)
(2.0)
Movement in net debt in the period
Net debt at the start of the period
(5.8)
(116.3)
(5.7)
(80.7)
12.8
(106.3)
Net debt at the end of the period
(122.1)
(86.4)
(93.5)
5.0
1.2
6.2
—
(1.6)
(0.6)
0.3
4.3
24.3
28.6
F-48
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
December 31, 1998
Total operating cash inflow/(outflow)
Returns on investments and servicing of finance
Taxation
Capital expenditure and financial investment
Acquisitions and disposals
Intertek
Finance plc
£m
0.3
(2.3)
(0.1)
—
—
Intertek
Testing
Services
Ltd
£m
2.5
(7.5)
1.4
—
2.0
Guarantor
subsidiaries
Non-
Guarantor
subsidiaries
Consolidation
adjustments
Co
£m
£m
(0.4)
6.3
0.9
—
(0.1)
30.0
(18.9)
(8.1)
(14.0)
(13.6)
£m
—
(2.6)
—
—
—
Cash (outflow)/inflow before financing
Financing
(2.1)
(1.6)
2.1
(4.7)
6.7
(6.5)
(24.6)
25.1
(2.6)
—
(Decrease)/increase in cash in the period
—
(6.3)
0.2
0.5
(2.6)
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the period
Cash (outflow)/inflow from increase in debt
Change in net debt resulting from cash flows
Debt issued in lieu of interest payment
Acquisitions
Other non-cash movements
Exchange movements
—
—
—
—
—
(0.4)
0.7
(6.3)
(16.3)
(22.6)
(7.1)
—
(0.2)
0.5
0.2
—
0.2
—
—
1.7
1.0
Movement in net debt in the period
Net debt at the start of the period
0.3
(116.6)
(29.4)
(51.3)
2.9
(109.2)
Net debt at the end of the period
(116.3)
(80.7)
(106.3)
0.5
5.3
5.8
—
(0.4)
(3.0)
(0.5)
1.9
25.0
26.9
(2.6)
—
(2.6)
—
—
—
—
(2.6)
—
(2.6)
F-49
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
December 31, 2000
Reconciliation of operating income to operating
cash inflow:
Operating income
Depreciation charge
Goodwill amortisation
Loss on sale of fixed assets
Increase in inventories
Decrease/(increase) in receivables and prepayments
Intertek
Finance plc
£m
—
—
—
—
—
—
Intertek
Testing
Services
Ltd
£m
Guarantor
subsidiaries
Non-
Guarantor
subsidiaries
Consolidation
adjustments
Consolid
t
£m
£m
£m
(0.3)
—
—
—
—
0.1
—
—
—
—
—
(0.8)
58.6
13.0
1.1
0.1
(0.1)
(11.2)
—
—
—
—
—
—
Increase in payables
Discontinued operating exceptional charges
Decrease in other provisions
Equity income of associates
Less dividends received from associates
Total operating cash inflow/(outflow)
Returns on investment and servicing of finance
Net interest paid
Dividends received
Dividends paid to minorities
Capital expenditure and financial investment
Purchase of property, plant and equipment
Sale of property, plant and equipment
Acquisitions and disposals
Purchase of subsidiaries
Acquisition provision payments
Sale of subsidiary undertakings
Financing
Issue/(repayment) of short term debt
Issue/(repayment) of other loans
Cash subscribed by minorities
0.2
—
—
(0.6)
—
—
(0.6)
(9.2)
1.4
—
(7.8)
—
—
—
(0.1)
—
(0.6)
(0.7)
—
8.5
—
8.5
7.0
7.8
(3.6)
72.7
(0.9)
0.4
72.2
(13.0)
(1.4)
(3.4)
(17.8)
(26.4)
0.3
(26.1)
(1.9)
—
3.2
1.3
(1.2)
(12.1)
0.1
(13.2)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.5
—
—
0.3
—
—
0.3
1.5
—
—
1.5
—
—
—
—
—
(1.2)
(1.2)
0.6
(5.5)
—
(4.9)
—
—
—
—
—
—
—
(2.3)
—
—
(2.3)
—
—
—
—
—
—
—
—
2.3
—
2.3
F-50
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
December 31, 1999
Intertek
Intertek
Guarantor
Non- Consolidation Consolid
Testing
Services
Ltd
£m
subsidiaries
Guarantor
subsidiaries
adjustments
t
£m
£m
£m
Reconciliation of operating income to operating
cash inflow:
Operating income
Depreciation charge
Goodwill amortisation
Loss on sale of fixed assets
Decrease in inventories
(Increase)/decrease in receivables and prepayments
Increase in payables
Cash payments from exporters
Discontinued operating exceptional charges
Increase in other provisions
Equity income of associates
Less dividends received from associates
Finance plc
£m
0.1
—
—
—
—
—
(0.2)
—
—
—
(0.1)
—
—
0.1
—
—
—
—
(0.9)
(2.7)
—
—
—
(3.5)
—
—
Total operating cash (outflow)/inflow
(0.1)
(3.5)
Returns on investment and servicing of finance
Net interest paid
Dividends paid to minorities
Capital expenditure and financial investment
Purchase of property, plant and equipment
Sale of property, plant and equipment
Acquisitions and disposals
Purchase of subsidiary undertakings
Acquisition provision payments
Sale of subsidiaries
Financing
Ordinary shares issued and to be issued
Issue of redeemable preference shares
Repayment of short term debt
Issue/(repayment) of other loans
Cash subscribed by minorities
0.3
—
0.3
—
—
—
—
(0.2)
—
(0.2)
1.1
18.8
(5.9)
(11.8)
—
2.2
(2.2)
—
(2.2)
—
—
—
—
—
—
—
—
—
—
2.2
—
2.2
F-51
—
—
—
—
—
0.5
—
—
—
—
0.5
—
—
0.5
(4.7)
2.8
(1.9)
—
—
—
(0.2)
—
—
(0.2)
—
—
—
0.7
—
0.7
51.1
11.4
0.9
0.1
1.1
(3.5)
(3.9)
5.0
2.9
(2.3)
62.8
(0.3)
0.4
62.9
(15.2)
(4.9)
(20.1)
(17.7)
0.2
(17.5)
(8.1)
—
3.5
(4.6)
—
—
—
(7.2)
0.5
(6.7)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Intertek
Testing
Services
Ltd
£m
Guarantor
subsidiaries
Non-
Guarantor
subsidiaries
Consolidation
adjustments
Consolida
to
£m
£m
£m
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
December 31, 1998
Reconciliation of operating income to operating
cash inflow:
Operating income
Depreciation charge
Goodwill amortisation
Loss on sale of fixed assets
Increase in inventories
Increase in receivables and prepayments
Increase/(decrease) in payables
Discontinued operating exceptional charges
Decrease in other provisions
Intertek
Finance plc
£m
0.1
—
—
—
—
—
0.2
—
—
—
—
—
—
—
—
2.5
—
—
—
—
—
—
—
(0.3)
(0.1)
—
—
Total operating cash inflow
0.3
2.5
(0.4)
Returns on investment and servicing of finance
Net interest paid
Dividends paid to minorities
Capital expenditure and financial investment
Purchase of property, plant and equipment
Sale of property, plant and equipment
Acquisitions and disposals
Purchase of subsidiaries
Acquisition provision payments
Sale of subsidiaries
(2.3)
—
(7.5)
—
(2.3)
(7.5)
—
—
—
—
—
—
—
—
—
—
2.6
(0.6)
—
2.0
3.3
3.0
6.3
—
—
—
(0.1)
—
—
(0.1)
Financing
Ordinary shares issued and to be issued
—
0.2
—
—
22.9
11.2
0.4
0.2
(1.1)
(11.1)
3.1
5.2
(0.8)
30.0
(16.1)
(2.8)
(18.9)
(14.1)
0.1
(14.0)
(13.2)
—
(0.4)
(13.6)
2
1
(1
3
(2
(2
(1
(1
(1
—
—
—
—
—
—
—
—
—
—
—
(2.6)
(2.6)
—
—
—
—
—
—
—
—
Issue of redeemable preference shares
Issue of short term debt
Issue/(repayment) of other loans
Cash subscribed by minorities
—
—
(6.5)
—
(6.5)
—
—
25.0
0.1
25.1
—
—
—
—
—
1
1
—
—
2.1
—
2.1
4.8
16.4
(26.1)
—
(4.7)
F-52
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
December 31, 2000
Intertek
Finance plc
£m
Intertek
Testing
Services
Ltd
£m
Guarantor
subsidiaries
Non-
Guarantor
subsidiaries
Consolidation
adjustments
Consolid
t
£m
£m
£m
Analysis of changes in net debt
Cash at bank at December 31, 1999
Cash flow
Acquisitions and disposals
Exchange adjustments
—
—
—
—
(7.6)
(3.6)
—
—
0.9
(0.2)
—
—
Cash at bank at December 31, 2000
—
(11.2)
0.7
Debt due within one year at December 31, 1999
Cash flow
Other non-cash changes
Exchange adjustments
Debt due within one year at December 31, 2000
—
—
—
—
—
(10.4)
0.4
—
—
(5.2)
6.3
(12.2)
(0.9)
(10.0)
(12.0)
Debt due after one year at December 31, 1999
Debt issued in lieu of interest payment
Other non-cash changes
Exchange adjustments
(122.1)
—
(0.7)
(11.6)
(68.6)
(10.1)
(0.1)
(7.3)
(89.1)
—
13.0
(5.3)
Debt due after one year at December 31, 2000
(134.4)
(86.1)
(81.4)
26.9
5.2
(0.7)
0.4
31.8
0.2
0.7
(1.3)
0.3
(0.1)
1.6
—
(0.8)
0.8
1.6
Total net debt at December 31, 2000
(134.4)
(107.3)
(92.7)
33.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2
(3
(3
F-53
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:
Title:
Date:
Richard Nelson
Director
March 22, 2001
By: /s/ WILLIAM SPENCER
Name:
Title:
Date:
William Spencer
Director
March 22, 2001