In the USA, Ferguson generated strong organic growth from its focus on selected markets, from new branch openings and driving further commercial advantage from its DC network. These factors contributed to significant market outperformance in the year.
Of the sectors in which Ferguson operates, housing related activity remained strong with the more positive economic environment benefiting the RMI sector. RMI is becoming an increasingly important element of overall construction spend in the USA and, with the new XpressNet branch format being introduced and the emphasis being placed on opening new specialist heating, ventilation, and air-conditioning (“HVAC”) branches, should lead to further growth opportunities. The commercial sector, particularly smaller hotels, offices and support businesses for residential construction, continues to improve and although the industrial segment remains the weakest, it is gradually improving.
Local currency sales in the US plumbing operations rose by 20.2% to $7,143.7 million (£3,858.5 million) from $5,941.1 million (£3,390.7 million) in fiscal 2005 with trading profit up by 24.8%. Organic sales growth was 15.2%, including the beneficial effects of commodity price inflation in products such as copper, steel and plastics in the first half, although, as predicted, the commodity price inflation did not continue in the second half. Around $12 – $15 million of the organic increase in trading profit was commodity price driven in the first half of this fiscal year, compared with around $30 million in the second half of the prior fiscal year. The rest of the profit growth reflects an increase in the gross margin as a result of continuing benefits from the distribution center network, a focus on organic growth and operational leverage. The trading margin, at 7.1%, was ahead of the prior year’s margin of 6.8%. The increased margin reflects the benefits of commodity price inflation and the change in the treatment of the revenues of the Integrated Supply Division referred to below, partly offset by the additional costs of infrastructure investment to support future growth. During the year, Ferguson added an additional 3,700 employees.
Further investment in the DCs continued and an additional 1.2 million square feet of capacity has been added since August 2004. Two of Ferguson’s existing DCs were expanded, one was relocated, two new ones were opened, and one small DC in North Carolina was closed. The new DCs are a 600,000 square feet facility in Waterloo, Iowa, which opened in May 2005, and a 120,000 square feet pipe yard in Stockton, California, which commenced operation in September 2005. Volumes through the DC network grew by 36% in the year compared to the prior year and Wolseley estimates that around 50% of branch sales now go through the DC network. Further expansion of the DC network is planned in the current fiscal year to build on Ferguson’s competitive advantage, and Wolseley has recently approved DCs in Florida and northern California.
Following last year’s successful pilot of five small XpressNet branches, the target roll-out programme of 50 new locations to be opened during the year was exceeded, with 60 open by July 31, 2005. The target is to open at least another 60 in 2006 fiscal year.
Ferguson’s total branch numbers increased by 168 during the year to 941 locations (2004: 773).
The recorded sales value in Ferguson’s Integrated Supply Division, for fiscal 2005, represents the gross profit rather than the gross sales value which was recorded in the year to July 31, 2004. This change is the result of a review of revised contractual arrangements. The effect of this change in the year to July 31, 2005, which has no impact on profit, is to reduce sales by $203 million. There was, consequently, a positive impact on the trading margin of Ferguson for the period of 0.2%.
In Canada, the construction and housing markets continued to remain strong with low interest rates supporting a strong residential market and the buoyant energy sector in Western Canada helped sales in the industrial and commercial business.
Local currency sales increased by 12.5% to C$1,177.1 million (£511.8 million) from C$1,046.3 million (£445.7 million) in fiscal 2004. More than 10% of the sales growth was organic, which management believe to be ahead of the market generally. Local currency trading profit rose by 11.8%. Gross margins were affected by competitive pricing pressure in some product areas and a change in business mix.
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Investment in Wolseley Canada continues in order to support a growing business. The costs of restructuring the Industrial Products Group affected profits in that business during the year, although the reorganization and management changes resulted in an increase in sales. Across the company, more than 160 new posts were filled in order to sustain future growth.
Further investments were made in new mobile warehouses which are used primarily to supply plumbing products to commercial projects, and the first of three regional supply centers for larger items was opened in Burlington, Ontario. Further locations will be added in due course. These regional supply centers should lead to lower inventory levels and enable the branch footprint to be utilized more effectively.
Acquisitions by the North American Plumbing and Heating Distribution segment completed during the year ended July 31, 2005, together with the incremental effect of acquisitions completed in the previous year, increased turnover by 4.7% and increased trading profit by 4.3%.
US Building Materials Distribution |
The segment produced 20.0% (2004: 20.2%) of the Group’s turnover and 18.2% (2004: 16.8%) of the Group’s trading profit in fiscal 2005.
The performance of this segment benefited from the improved market focus which was brought about by the recent business restructuring and from strong organic growth. However, the small benefit from higher average lumber prices was more than offset by lower structural panel prices, and the division was also negatively impacted by currency translation.
Reported sales of the division, in sterling, grew by 10.0% in fiscal 2005 to £2,248.9 million (2004: £2,043.7 million) despite an adverse currency impact of £109.5 million (5.4%). The division’s trading profit was up by 25.9% at £130.9 million (2004: £104.0 million), after an adverse currency impact of £5.9 million (5.7%). The divisional trading margin, after the allocation of central costs, increased to 5.8%, from 5.1% in the prior year. The trading margin for SBS, before the allocation of central costs, increased from 5.4% to exceed its target of 6.0%, and return on gross capital employed was also substantially higher.
In local currency, sales were up 16.3% to $4,163.7 million (£2,248.9 million) in fiscal 2005 from $3,581.0 million (£2,043.7 million) in fiscal 2004 with trading profit up by 32.4% before allocation of central costs. Organic sales growth was 10.7%. Acquisitions added $199.3 million of sales.
Commodity lumber prices, which directly affect approximately 33% of SBS’s product range (based on value of sales), held up well. For the year, average lumber prices of $400 per thousand board feet were 6% up on the prior year average of $378 per thousand board feet. Structural panel prices, however, which directly affect a further 13% of SBS’s product range, decreased by 19% to $403 per thousand square feet (2004: $496). Together, these commodity price movements had the effect of reducing SBS’s local currency sales by $16.4 million (0.5%) in the year compared to the prior year. Both lumber and structural panel prices are expected to continue their recent trend downwards over the coming year towards their long term averages of around $340 – $370 per thousand board feet and $325 per thousand square feet, respectively.
New housing, which accounted for 84% (2004: 88%) of the activity in this division, has generally continued to be a bright spot in the US economy. Aggregate housing starts during the period continued at a high level of around two million. In addition, the inventory of unsold new homes at 4 months in July 2005, compared to the longer term average of around 6 months, further demonstrates the overall strength of the housing market. There continued to be significant variations in regional housing markets where SBS operates. The markets in Florida, the Carolinas, California, Washington DC and Boston have been strong, whereas Texas, Colorado, and the Midwest have been more challenging.
SBS’s plans to increase the range of value-added products and services being offered, and to increase the penetration of the RMI market, continue to be implemented. As well as achieving this through its existing branch network, SBS’s acquisition of Vegas General Construction (“Vegas”) in July 2005 also contributed. Vegas is a turnkey supplier of construction materials and services to the residential builder in the large, Las Vegas, housing market and gives SBS additional installation service expertise. Overall, value-added sales in SBS were up 25% on the previous year and, included within this figure, installation business sales rose around 50%.
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SBS’s branch numbers increased by 19 during the year to 255 locations (2004: 236). Acquisitions provided entry to three states (Connecticut, New Mexico and Nevada). SBS now operates in 30 states in total (2004: 27).
Acquisitions completed during the year ended July 31, 2005, together with the incremental effect of acquisitions completed in the previous year increased turnover by 5.6% and increased trading profit by 9.1%.
The segment produced 41.2% (2004: 41.9%) of the Group’s turnover and 40.7% (2004: 42.5%) of the Group’s trading profit in fiscal 2005.
The results in the European Distribution division benefited from strong profit performances from Wolseley UK, PBM, Wasco and from acquisitions. With the exception of Brossette, in France, which had marginally lower sales, all of the Continental European operations increased sales and most achieved profit improvements, in generally flat markets.
Sales for this division increased by 9.2% from £4,248.0 million to £4,638.4 million, including £265.7 million (6.2%) which relates to acquisitions, predominantly Brooks (Ireland) and Klöckner (Austria) in August 2004 and Iser Zauli (Italy) in January 2005. The organic increase in sales was 2.7%. Trading profit rose by 11.5% from £263.2 million to £293.4 million.
The overall divisional trading margin, after the allocation of central costs, improved from 6.2% to 6.3% of sales due to the achievement by PBM (France) of a 6% margin for the first time and improvements at Tobler (Switzerland), CFM (Luxembourg), Cesaro (Czech Republic), Electro Oil (Denmark) and Wasco (Netherlands).
In the year, a further net 93 branches were added to the European network, giving a total of 2,486 locations (2004: 2,393).
Wolseley UK performed strongly against a slowing UK market. Whilst the fundamentals of the UK economy remained positive, in terms of relatively low interest rates and low unemployment, RMI spending slowed in the second half of the financial year in response to weaker consumer confidence. Government spending, feeding through into the construction market, remained a bright spot and the industrial sector continues to improve.
Against this more challenging background, Wolseley UK recorded an 11.7% increase in sales to £2,353.9 million (2004: £2,106.9 million). Management believe that the organic growth of more than 5% outperformed the market generally with the plumbing, heating, pipe and bathroom businesses performing particularly well.
Wolseley UK’s trading profit increased by more than 11% compared to the prior year after taking account of gains from sales of properties of £11 million (2004: £3 million). Trading margin fell slightly from 7.8% to 7.7%, reflecting the impact of including Brooks for the first time and the higher pension, restructuring and rebranding costs in the UK business. In addition, there were some initial costs of the investment in the new national and regional DCs. The new national DC in Leamington Spa, which is to be located alongside Wolseley UK’s new headquarters, is expected to be operational by the fall of 2006 and the regional DC, in the North West, should open around a year thereafter. These investments and the current initiatives to centralize control of transport and branch inventory management, should enhance customer service and support continued growth in the business. Branch service levels continue to show improvements following the ongoing investment in the supply chain.
In Ireland, which again experienced strong growth in the economy, Heatmerchants produced very strong organic growth of more than 20% and Brooks, the lumber and builders merchant, also traded well ahead of expectations in its first year within Wolseley.
During the year, 57 net new locations were added in the UK and Ireland taking the total number of branches for Wolseley UK to 1,570 (2004: 1,513), including 18 branches added as a result of the Brooks acquisition. As a consequence of the step up in the implant programme where branches of other brands are added to a site held by another existing brand, 20% of locations now offer a broader product range through a multi-brand offer.
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In France, government tax incentives continued to underpin growth in the new residential market, but RMI, the principal driver for both Brossette and PBM, continues to show only marginal improvement against the background of little growth in the overall economy, weak consumer confidence and continued high levels of unemployment.
Wolseley’s French operations generated a 1.2% increase in sales to €2,401 million in fiscal 2005.
Local currency sales and trading profit in Brossette were marginally down on the prior fiscal year. The results reflect the ongoing transition as a result of the reorganization of the district, branch and management structures. During the period, Brossette made a significant number of management changes, has commenced the roll-out of its national product range and is moving toward centralized purchasing. Plans for a new regional DC network continue to be developed to enhance customer service and facilitate future expansion. The first customer delivery center opened in June 2005 in the Alps region.
PBM performed above expectations held at the time of the acquisition with local currency sales up 1.9% and trading profit up 13.8% and achieved a 6% trading margin for the first time. PBM is continuing to develop its tool hire business, with four locations having been opened during the year, is expanding the number of joint sites with Brossette and is seeking opportunities to benefit from sharing of best practice and common supplier arrangements. PBM has made further progress during the year in improving its working capital efficiency.
The Group’s other Continental European operations enjoyed generally positive results in fiscal 2005 despite broadly flat markets.
ÖAG in Austria, with its acquisition in August 2004 of Klöckner, a steel stock holding business, achieved an increase in sales of 13.9% although trading profit fell due to competitive pressure on prices, as a consequence of difficult housing and RMI markets. This was further exacerbated by extremely poor weather conditions with very cold temperatures preventing construction for several weeks early in 2005. In Hungary and the Czech Republic, local market conditions remained difficult, but both businesses improved sales, with Cesaro in the Czech Republic also increasing trading profit.
In Italy, despite a weak economy and a fall in the overall construction and renovation markets, Manzardo’s branch opening programme helped to achieve organic sales growth of almost 6%. Organic trading profit was up 7.5%. Iser Zauli, which was acquired in January 2005, traded in line with expectations, and management believe that this acquisition makes Manzardo one of the largest companies in the Italian sanitary/heating market. During the year the decision was taken to invest €20 million in a new central DC in northern Italy to support the growing business there. These facilities are expected to be completed around the fall of 2006.
The difficult economy in The Netherlands continued to affect the construction and new housing markets but, despite this, Wasco made good progress expanding its product range, developing its offering to the more profitable RMI market and focusing on cost control. Wasco achieved organic sales growth of almost 10% and trading profit was up even more. In Luxembourg, CFM increased sales by more than 2% and trading profits by more than 5% although the market has become more competitive. Tobler, in Switzerland, which was acquired on December 1, 2003, performed ahead of expectations, with organic sales up more than 5% and organic trading profits up more than 17% on the prior year.
Acquisitions completed during the year ended July 31, 2005, together with the incremental effect of acquisitions completed in the previous year, increased turnover of the segment by 6.2% and increased trading profit by 5.4%.
Year Ended July 31, 2004 Compared To Year Ended July 31, 2003 |
Turnover increased by 23.2% in fiscal year 2004 from £8,221.0 million to £10,128.1 million. Currency translation had a significant impact on the Group’s reported sterling results for the year compared to the previous year, reducing Group sales by £400.1 million (4.9%). Excluding the effects of foreign currency translation, turnover increased by 29.5%. Turnover increased by £172.0 million due to acquisitions made in the fiscal year 2004 and
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£1,112.0 million due to acquisitions made in the fiscal year 2003. Excluding the effect of these acquisitions and currency translation, turnover in fiscal 2004 grew by £1,023.2 million with the North American Plumbing and Heating Distribution segment responsible for 44.2 percent of the growth, US Building Materials Distribution providing 39.4 percent and European Distribution 16.4%.
Operating profit increased by 31.0% from £443.0 million to £580.2 million. This was driven by an increase in trading profit of £146.3 million (30.9%) partially offset by an increase in goodwill amortization of £9.1 million. Before the effects of currency translation, Group operating profit increased by 37.3%. The effect of US dollar depreciation was to reduce translated US trading profits by £23.5 million (5.0% of 2003 trading profit) compared to fiscal 2003. US dollar denominated profits accounted for approximately 55% of the Group’s trading profit in the period. The strengthening of the Euro partly mitigated the currency effect, with Euro denominated profits accounting for approximately 18% of Group profits in fiscal 2004.
Goodwill amortization increased by £9.1 million from £29.9 million in fiscal 2003 to £39.0 million in fiscal year 2004. This increase was due to amortization relating to goodwill arising on acquisitions completed during fiscal year 2004 and a full year’s amortization of goodwill arising on acquisitions completed in the prior fiscal year.
Net interest payable of £21.1 million in fiscal year 2004 (2003: £17.0 million) reflects an increase in the interest payable on Group debt as a result of acquisitions and an increase in working capital principally in the US, partially offset by the effect of lower interest rates on the Group’s borrowings.
The effective tax rate reduced from 28.0% in fiscal 2003 to 27.1% in fiscal 2004.
North American Plumbing and Heating Distribution |
The North American Plumbing and Heating Distribution segment performed strongly in fiscal 2004 with significant rises in sales and profits.
Reported sales of the segment were up 8.0% from £3,551.5 million to £3,836.4 million despite the adverse impact of currency translation. Trading profit, in sterling, increased by 24.6% from £202.2 million to £252.0 million. These figures are after currency translation which reduced segment sales by £276.8 million (7.8%) and trading profit by £15.9 million (7.9%). Goodwill amortization applicable to this segment was £11.9 million.
There was a net increase of 47 branches in North American Plumbing and Heating Distribution to 1,008 locations (2003: 961).
In the US, Ferguson produced an outstanding performance, generating strong organic growth and benefiting from commodity price inflation. Local currency sales in the US plumbing operations rose by 18.0% to $5,941.1 million (£3,390.6 million) from $5,032.8 million (£3,155.2 million) with trading profit up by 40.3% in fiscal 2004. Organic sales growth was 15% and included the beneficial effects of price inflation in products such as copper, steel and plastics. Management estimated that approximately 40% of the increase in trading profit was commodity price driven, with the remainder reflecting an increase in the gross margin as a result of continuing benefits from the distribution center network, a focus on organic growth and operational leverage.
A new DC was opened at Richland, Washington, in November 2003 and volumes through the distribution center network as a whole increased 49% over the prior year. The trading margin, at 6.8%, was substantially ahead of the prior year (2003: 5.7%), and exceeded the 6% target a year ahead of the original schedule. During the year, the final phases of the integration of Familian Northwest were completed and the business realized the benefits of having a single plumbing and heating organization in the US, including the elimination of duplicated costs. During the year, the Wolseley UK model of small express branches was piloted at five Ferguson locations in the
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US, including Washington DC and Boston, and proved to be successful. Of the sectors in which Ferguson operated, housing related activity held up well and the more positive economic environment benefited the RMI sector. The commercial sector started to show some signs of improvement towards the end of the year, underpinned by increased government spending. The weakest segment continued to be industrial, although the energy sector was more buoyant as a consequence of higher oil prices.
Investment in working capital was increased substantially during the year to support the significant organic growth that Ferguson achieved, to build inventory levels at the new distribution center, as a consequence of the higher unit cost of materials, and to ensure customer demand was met at a time of tightening supply of commodities such as copper and steel.
Following a slow start to the year in Canada due to external factors, positive business sentiment returned and once again Canada proved to be an attractive business environment. Low interest rates supported a strong residential market and the buoyant energy sector in Western Canada helped sales in the industrial and commercial business. However, the cooler summer dampened sales in the HVAC/R (heating, ventilation, air conditioning and refrigeration) business and the strong Canadian dollar affected sales to customers who are dependent on exports. Local currency sales increased by 10.7% to more than CDN$1 billion for the first time. Around half of the sales increase was organic growth, slightly ahead of the market. Local currency trading profit rose by nearly 10%, slower than the sales growth as a result of pricing pressure in some product areas, the additional costs of restructuring the Industrial Products Group and the increase in headcount in order to sustain future growth.
Acquisitions of the North American Plumbing and Heating Distribution segment completed during the year ended July 31, 2004, together with the incremental effect of acquisitions completed in the previous year, increased turnover by 3.3% and increased trading profit by 2.8%.
US Building Materials Distribution |
The performance of the segment, which comprises SBS, benefited from the completion of the NOVA restructuring project, which improved market focus and resulted in estimated cost savings in fiscal 2004 in excess of the $5 million originally targeted. More importantly, the reorganization into 10 districts and the new market focused approach, for example in SBS’s relationship with national house builders, gave a platform to build on the improvements already achieved. Plans to increase the number of value-added products and services being offered and increase the penetration into the RMI market, began to make inroads, with value-added sales up 30% on the prior year.
Average lumber and structural panel prices were higher but the segment was negatively impacted by currency translation. Reported sales in sterling grew 19.3% in fiscal 2004 to £2,043.7 million (2003: £1,712.8 million) despite an adverse currency translation impact of £153.6 million (9.0%). The segment’s trading profit was up 34.2% at £104.0 million (2003: £77.5 million), after an adverse currency translation impact of £7.2 million (9.3%). The trading margin for the segment, after the allocation of central costs, increased to 5.1%, from 4.5% in the prior year. Goodwill amortization applicable to this segment was £6.9 million. The return on capital of SBS was also substantially higher at 16.4% (before allocation of central costs and assets), reflecting higher profits and an improvement in the working capital ratio.
In local currency, sales were up 31.1% in fiscal 2004 to $3,581.0 million (£2,043.7 million) from $2,732.3 million (£1,712.8 million) in fiscal 2003 with trading profit up by approximately 50%. Organic sales growth was 25.8%, including the beneficial effects of commodity price inflation. Acquisitions added $142.9 million of sales.
Commodity lumber and structural panel prices, which directly affected around 35% and 9% of SBS’s product range by sales respectively, rose strongly compared to the prior year. Average lumber prices rose 31.7% to $378 per thousand board feet (2003: $287) and average structural panel prices rose 86.5% to $496 per thousand square feet (2003: $266). Together these price increases had the effect of increasing sales by $514.6 million (18.8%). Organic sales volumes were higher in the year with organic growth from on-going branches up by more than 6%. New housing, which accounted for 88% (2003: 93%) of the activity in this segment, generally continued to be a bright spot in the US economy. Aggregate housing starts during the period continued at a high level of more than 1.8 million. There continued to be significant variations in regional housing markets where SBS
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operates. The markets in California, Florida, Virginia and the Carolinas were strong. Colorado, Ohio, Dallas and Michigan were weak markets, while Atlanta improved.
There was a net increase of 14 branches with 14 being added through acquisition, 7 new branches opened and 7 branches closed, in US Building Materials Distribution, taking the total to 236 branches (2003: 222).
Acquisitions completed during the year ended July 31, 2004, together with the incremental effect of acquisitions completed in the previous year, increased turnover by 5.2% and increased trading profit by 7.8%.
The segment produced 41.9% (2003: 36.0%) of the Group’s turnover and 42.5% (2003: 40.9%) of the Group’s trading profit in fiscal 2004.
The results in the European Distribution segment benefited from a number of factors with PBM performing well ahead of expectations, another strong performance in the UK and profit improvements in almost all of the other European operations.
Sales for this segment increased by 43.7% from £2,956.7 million to £4,248.0 million in fiscal 2004, including £1,093.0 million (37.0%) which related to acquisitions, predominantly PBM in July 2003 and Tobler in December 2003. The organic increase in sales was 5.6%. Trading profit rose by 36.2% from £193.2 million to £263.2 million. Wolseley UK, Brossette in France, Manzardo in Italy, ÖAG in Austria and CFM in Luxembourg all increased their trading margin, although the overall segmental trading margin reduced from 6.5% to 6.2% of sales, primarily due to the inclusion for the first time of PBM, which has a lower margin than the average for the segment, and as a result of higher central costs allocated to the segment. Goodwill amortization attributable to this segment was £20.2 million.
In fiscal 2004 a further net 127 branches were added to the European network, giving a total of 2,393 locations (2003: 2,266).
Wolseley UK grew strongly during fiscal 2004 as the strength of the UK economy and housing market continued. The RMI market remained the principal driver, buoyed by strong consumer demand against the backdrop of historically low (albeit rising) interest rates, low unemployment and house price inflation. Sales increased by 11.5% to £2,106.9 million (2003: £1,888.8 million). Organic growth was 6.3%, which was in excess of the UK construction materials market generally, with the plumbing and heating businesses being the strongest performers and building materials having a strong second half. The commercial and industrial business improved its position although the sector remained difficult. The distribution centers continued to support the expanding branch network through improved efficiency with costs per stock pick (being the cost of the warehouse divided by the number of selections of items made in the period) down 5% over the prior year. These and other operational efficiencies were reflected in an improvement in trading margin from 7.6% to 7.8%. During the 2004 fiscal year, 97 net new locations were added taking the total number of branches for Wolseley UK (including Ireland) to 1,513.
The French construction market started the 2004 fiscal year nervously, with the industrial environment weak and high levels of unemployment holding back consumer confidence. In the second half, however, there were signs of improvement.
Wolseley’s French operations generated sales of £1,621.5 million, an increase of £963.2 million compared to the prior year, principally as a result of the PBM acquisition. Local currency sales in Brossette were up 6.0% on the previous year due to acquisitions and organic growth of more than 3.0%. The trading margin also improved to above 6.0% due to more stringent cost control and the emerging benefits of the reorganization of Brossette’s branch and management structure, which was effected during the year. During the fiscal year 2004, Brossette moved from a single branch to a multi-branch organization, a significant change in the way that Brossette conducted its business. PBM performed above expectations, as a result of the post acquisition initiatives taken by the Group. Sales and profits were up on the prior year in a gradually improving market, although the first half
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started slowly due to the heatwave in France in August 2003 and a sluggish timber import market. Underlying trading margins were higher before absorbing the additional costs of employee redundancies and of the branch rebranding program, which was completed during the year. Working capital management was a particular area of the post acquisition focus, and this showed good progress. The return on capital for PBM in its first full year was in excess of the Group’s weighted average cost of capital.
The Group’s other Continental European operations enjoyed generally good results in fiscal 2004 in uninspiring markets. Following a number of management changes in Austria, ÖAG performed well to increase sales and achieve a double-digit trading profit increase, even though the new housing market remained depressed and increased competition put pressure on prices. Good progress was made in Hungary, with sales up 17% in local currency, and sales in the Czech Republic were also up. In Italy, despite a weak economy and a fall in the overall construction and renovation markets, Manzardo’s branch opening program helped achieve organic sales growth of more than 9%, trading profit growth of more than 30%, and a trading margin above 5% for the first time. In Luxembourg, CFM increased sales by more than 10% and further improved the trading margin to 6.1%, demonstrating resilience against the fall in the local construction market. Wasco, in The Netherlands, was adversely affected by the poor economy and lower construction and new housing expenditure. In response to these market conditions, Wasco has expanded its product range, moved to a central distribution center, opened new express branches and developed plans to expand its small customer base in the more profitable RMI market. While sales increased by more than 10%, additional costs and competitive market conditions led to a fall in Wasco’s profits. Tobler, in Switzerland, which was acquired on December 1, 2003, performed ahead of expectations with sales, trading profits and margins up on the prior year (before acquisition).
Acquisitions completed during the year ended July 31, 2004, together with the incremental effect of acquisitions completed in the previous year, increased turnover of the segment by 36.6% and increased trading profit by 30.0%.
Liquidity and Capital Resources |
Wolseley believes the Group has adequate facilities and working capital to meet its current requirements. As of July 31, 2005, net debt amounted to £1,143.5 million, compared to £941.4 million at July 31, 2004 and £826.7 million at July 31, 2003. Net debt includes both short-term and long-term borrowings less cash and current asset investments but excludes borrowings in respect of the construction loan portfolio, as disclosed in Note 28 of the Consolidated Financial Statements on page F-33. The principal reason for the increase in debt in fiscal 2005 was attributable to acquisitions, and the principal reason for the increase in debt in fiscal 2004 compared to the prior year was acquisitions and the increase in working capital to enable growth. The Group seeks a balance between certainty of funding and a flexible, cost-effective borrowings structure. The overall policy is to ensure that, at a minimum, all projected net borrowing needs are covered by committed facilities arranged by the corporate office, supplemented where appropriate by locally arranged overdraft facilities. The principal source of funds to the Group is committed bank debt.
During the 2005 fiscal year, the Group entered into five new bilateral bank facilities, four of which were denominated in Euros and one of which was denominated in US dollars. At the fiscal year-end exchange rates, the sterling value of these facilities was £268 million. In addition, the SBS syndicated loan was increased by US$100 million to US$500 million, the principal purpose of this loan being to finance SBS’ construction loan receivables. This approach has enabled Wolseley to adjust its funding profile to match more precisely its investment profile and strengthen its relationship with its core banks.
On November 16, 2005, Wolseley raised $1.2 billion through the private placement of fixed and floating senior unsecured notes. The funds raised will be used principally to fund the Group’s working capital and refinance existing facilities that are due to mature within the next two years. Of the eight tranches, six are at fixed rates with maturities ranging from 3 to 15 years and two tranches are floating with maturities of 3 and 7 years. Exhibit 4.24 to this document contains the note and guarantee agreement.
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The year-end maturity profile of Wolseley’s centrally managed facilities at July 31, 2005, was as follows:
Maturity Date | | | Facility
amount
£m | |
| |
|
| |
| Less than 1 year | | | 277 | |
| 1-2 years | | | 709 | |
| 2-3 years | | | 378 | |
| 3-4 years | | | 72 | |
| 4-5 years | | | 396 | |
| | |
|
| |
Total | | | 1,832 | |
| | |
|
| |
| |
Cash Flows from Operations |
Net cash flow from operating activities increased from £325.2 million to £763.6 million in fiscal 2005, due to a strong improvement in working capital levels.
Net absorption of working capital was £59.8 million in fiscal 2005 (2004: £401.9 million). The high level in fiscal 2004 was due to increased inventory levels during that year as a result of the rapid growth in sales of the North American operations, the effects of opening an additional DC in the US Plumbing and Heating Distribution business, an increase in US inventory levels in response to the market shortage of copper and steel products and the effects of inflation on the value of items carried. Payables increased by £176.0 million during fiscal 2005, compared with an increase of £108.6 million in the previous year. Receivables increased by £181.6 million, compared with an increase of £236.3 million in the prior year, driven by the growth in sales.
Net borrowings excluding construction loan borrowings, as set out in Note 28 of the Consolidated Financial Statements, increased during fiscal 2005 by £202.1 million to £1,143.5 million from £941.4 million at July 31, 2004. The increase in borrowings was primarily due to expenditure on acquisitions of £430.6 million offset by strong operating cashflow. During fiscal 2004 net borrowings, excluding construction loan borrowings, increased by £114.7 million to £941.4 million at July 31, 2004. The increase in net borrowings during fiscal 2004 was primarily due to expenditure on acquisitions of £123.5 million. Construction loan borrowings relating to the US Building Materials Distribution segment increased to £263.9 million at July 31, 2005 from £187.7 million at July 31, 2004, having increased from £176.2 million at July 31, 2003. These loans relate to construction loan receivables, which increased to £263.9 million at July 31, 2005 from £187.7 million at July 31, 2004, having increased from £176.1 million at July 31, 2003. The increase in construction loans in fiscal 2005 was is due to an expanding loan book. New markets entered include Fredericksburg, Virginia and San Antonio, Texas, along with new locations in Salt Lake City, Utah, and Greenville/Spartanburg, South Carolina. The construction loan receivables are funded from separately identifiable bank facilities; accordingly, it is considered appropriate that this specific funding should be separately identified from the Group’s general borrowing on the balance sheet. In addition, this funding is excluded from the calculation of Wolseley’s leverage or gearing figures. See Note 19 of the Consolidated Financial Statements for an additional description and maturity profile of borrowings. The Group’s borrowings are not significantly affected by seasonality.
Financial Instruments and Treasury Policy |
For a discussion of the Group’s financial instruments and treasury policies, see Note 32 of the Consolidated Financial Statements.
Capital expenditure in fiscal 2005 increased by £84.0 million (54.2%) on the prior year to £238.9 million, reflecting Wolseley’s policy of continued investment in the business including additions to the branch network, new DCs and the investment in the common IT platform. Capital expenditure increased by 25.3% during the fiscal year 2004 from £108.2 million to £154.9 million. The increase during fiscal 2004 was due to investment in
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the business, including the new Richland DC in the US, the new head office in France, the initial investments in the new head office for Wolseley UK and the common information technology platform. At July 31, 2005, capital expenditure commitments amounted to £95.9 million. These commitments will be financed through borrowings and primarily relate to the expansion of the branch network and new head office developments in Europe.
Cash received on the sale of fixed assets increased from £19.3 million to £73.9 million in fiscal 2005, primarily due to the sale of properties acquired as part of the Brooks acquisition.
Exchange Rate Fluctuations |
Wolseley earns a significant proportion of its sales and profits in foreign currencies, principally the US dollar and to a lesser extent the Euro and Canadian dollar. The average US dollar to sterling exchange rate weakened against the pound by 5.4% during fiscal 2005, compared to a weakening of 9.0% and 8.7% during the fiscal years 2004 and 2003, respectively. The effect of this currency fluctuation was to reduce reported turnover and trading profits for the North American Plumbing and Heating Distribution segment and the US Building Materials Distribution segment by approximately these percentage amounts in fiscal years 2005 and 2004. During fiscal 2005 the Euro strengthened against the pound by 0.3%. The effect of this movement was to increase the reported profits and turnover of the European Distribution segment by 0.1% and 0.2%, respectively. The Euro strengthened against the pound by 2.8% during fiscal 2004, increasing reported turnover and trading profits for the European Distribution segment for the full year ended July 31, 2004 by approximately 1.0% and 0.8%, respectively.
Recently Issued Accounting Standards |
Under current European legislation, the Group will be required to adopt International Financial Reporting Standards and International Accounting Standards (“IFRS”) in the preparation of its financial statements from August 1, 2005 onwards. The areas of greatest impact for the Group are changes in respect of the accounting treatment of goodwill, intangible assets, property leases, share based payments, pensions, deferred tax and dividends. The presentation of the financial statements will also be affected by the transition to IFRS.
For further information about the effect of the transition to IFRS, please visit Wolseley’s website at www.wolseley.com. The information on the website is not incorporated by reference into this report.
New Accounting Developments under US GAAP |
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151 “Inventory Costs” to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognised as current period charges. In addition, SFAS No. 151 requires that the allocation of fixed production overheads to inventory values be based on the normal capacity of the production facilities. SFAS No. 151 is effective for costs incurred in respect of inventories for reporting periods beginning after 15 June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material effect on the results or net assets of the Group.
In December 2004, the FASB issued SFAS No. 153 “Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29” which, for periods beginning after June 15, 2005, no longer allows the exemption included in APB Opinion No. 29 (APB 29) which permitted certain non-monetary exchanges of similar productive assets to be accounted for at book value with no gain or loss being recognised. Under SFAS No. 153 such non-monetary transactions have to be accounted for at fair value, recognising any gain or loss, if the transaction meets a commercial substance criterion and the fair value is determinable. SFAS No. 153 did not affect the guidance in APB 29 for non-monetary exchanges of inventory. The adoption of SFAS No. 153 is not expected to have a material effect on the results or net assets of the Group.
In December 2004, the FASB issued SFAS No. 123(R) “Share-Based Payment” which is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25 “Accounting for Stock Issued to Employees”. Generally the valuation methods contained in SFAS No. 123(R) are similar to those in SFAS No. 123, but SFAS No. 123(R) requires all share-based payments to employees, including grants of employee share options, to be charged to the income statement. SFAS No.123(R) is effective for annual reporting periods beginning after June 15, 2005. The adoption of SFAS No. 123(R) is not expected to have a material effect on the results or net assets of the Group as the Group is already accounting for all share-based payments including grants of share options on fair value basis in accordance with SFAS No. 123.
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In May 2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections”, which is effective for periods beginning after December 15, 2005. This statement replaces APB Opinion No. 20 “Accounting Changes” (APB 20) and SFAS No. 3 “Reporting Accounting Changes in Interim Financial Statements”. APB 20 previously required that most voluntary changes in accounting principle be recognised by including, in net income of the period of the change, the cumulative effect of changing to the new accounting principle. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period specific effects or the cumulative effect of the change. The adoption of SFAS No. 154 is not expected to have a material effect on the results or net assets of the Group.
Research and Development, Patents and Licenses |
Wolseley did not incur any costs exceeding £1 million on product research and development expenditure during the fiscal years 2005, 2004 or 2003. For a discussion related to patents and licenses, see “Item 4 – Information on the Group, paragraph B, – Business Overview – Patents and Trademarks”.
Critical Accounting Estimates |
The Group’s principal accounting policies are set out on pages F-7 to F-9 of the consolidated financial statements and conform with accounting principles generally accepted in the United Kingdom (“UK GAAP”). The preparation of financial statements in accordance with UK GAAP requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. The most sensitive estimates affecting the financial statements are in the areas of assessing the recoverability of receivables, the net realizable value of inventory, the impairment of goodwill and long-lived intangible assets, the reserves in respect of self-insured insurance, the consideration received from vendors and pensions and other post-retirement benefits.
Allowance for Doubtful Accounts |
Provision is made against accounts that in the estimation of management may not be recovered. Within each of the businesses assessment is made locally of the recoverability of accounts receivable based on a range of factors including the age of the receivable, the creditworthiness of the customer and historic experience of credit losses. The provision is assessed monthly with a detailed formal review of balances and security being conducted at the full year and half year. Determining the recoverability of an account involves estimation as to the likely financial condition of the customer and their ability to subsequently make payment. If Wolseley is cautious as to the financial condition of the customer Wolseley may provide for accounts that are subsequently recovered. Similarly if Wolseley is optimistic as to the financial condition of the customer Wolseley may not provide for an account that is subsequently determined to be irrecoverable. Furthermore, while Wolseley has a large geographically dispersed customer base, a slowdown in the markets in which Wolseley operates may result in higher than expected uncollectible amounts and therefore higher (or lower) than anticipated charges for irrecoverable receivables. In the past year Wolseley has seen a reduction in the level of the amount charged in respect of doubtful accounts reflecting an improved incidence of credit losses and improved recoveries.
Wolseley held allowances for doubtful debts totaling £31.7 million, £42.3 million and £46.2 million at July 31, 2005, 2004 and 2003, respectively.
For financial reporting purposes Wolseley evaluates its inventory to ensure it is carried at the lower of cost or net realizable value. Provision is made against slow moving, obsolete and damaged inventories. Damaged inventories are identified and written down through the inventory counting procedures conducted within each business. Provision for slow moving and obsolete inventories is assessed by each business as part of their ongoing financial reporting. Obsolescence is assessed based on comparison of the level of inventory holding to the projected likely future sales. Future sales are assessed based on historical experience, and adjusted where the manufacturer has indicated that it will no longer continue to manufacture the particular item. To the extent that future events impact the saleability of inventory these provisions could vary significantly. For example, changes in specifications or regulations may render inventory, previously considered to have a realizable value in excess of cost, obsolete and requiring such inventory to be fully written off. Wolseley held allowances in respect of
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inventory balances totaling £98.7 million, £83.6 million and £108.2 million at July 31, 2005, 2004 and 2003, respectively.
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Impairment of long-lived assets |
Wolseley periodically evaluates the net realizable value of long-lived assets, including goodwill, other intangible assets and tangible fixed assets, relying on a number of factors, including operating results, business plans and projected future cash flows.
In its UK GAAP financial statements, Wolseley amortizes purchased goodwill arising since August 1, 1998 over its estimated economic life subject to a maximum of 20 years. Unexpected future events may evidence an economic life less than this period in which case a higher amortization charge would be made in those future financial statements as a result of this shorter life. Tangible fixed assets are depreciated over their useful lives. Where there is evidence of a potential impairment to the carrying value of either goodwill or tangible fixed assets, Wolseley undertakes an estimation of the fair value of that asset in accordance with the approach set out in Financial Reporting Standard 11. The fair value is in most cases based on the discounted present value of the future cash flows expected to arise from the business unit to which the goodwill relates, or from the individual asset or asset group. Estimates are used in deriving these cash flows and the discount rate. For US GAAP purposes, following the adoption of SFAS 142 “Goodwill and Intangible Assets” on August 1, 2002, all pre-existing goodwill and indefinite-lived intangible assets are no longer subject to amortization but are reviewed annually for impairment. The Group completed the required impairment tests during fiscal year 2005, which indicated no charge was required (July 31, 2004: nil).
Where there is evidence of a potential impairment to the carrying value of tangible fixed assets, impairment is assessed on the basis of the anticipated undiscounted future cash flow from the relevant assets. If the net present value of estimated cash flows are lower than the carrying value of the asset, an impairment loss is recognized. Wolseley has not experienced any impairments during the periods presented in the consolidated financial statements.
The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent with the application of our intangible and tangible fixed asset accounting policies affect the amounts reported in the financial statements. In particular, if different estimates of the projected future cashflows or a different selection of an appropriate discount rate were made, these changes could materially alter the projected value of the cash flows of the asset, and as a consequence materially different amounts would be reported in the financial statements.
Wolseley operates a captive insurance company, Wolseley Insurance Limited, which is registered and operational in the Isle of Man. This company provides reinsurance exclusively to certain companies within the Wolseley Group. Provision is made based on actuarial assessment of the liabilities arising from the insurance coverage provided. The actuarial assessment of the reserve for future claims necessarily includes estimates as to the likely trend of future claims costs and the estimates as to the emergence of further claims subsequent to the year end. An actuarial review of claims is performed annually. The loss development factors derived from this review are used each quarter to revise the provision based on the most recent claims experience. To the extent that actual claims differ from those projected the provisions could vary significantly. As of July 31, 2005, the provision for claims arising from this insurance was £35.0 million (July 31, 2004: £33.4 million).
Consideration received from vendors |
Wolseley enters into agreements with many of its vendors providing for inventory purchase rebates primarily upon achievement of specified volume purchasing levels with many of these agreements applying to sales in a calendar year. For certain agreements the rebate rises as a proportion of purchases as higher quantities or values of purchases are made. Wolseley accrues the receipt of vendor rebates as part of its cost of sales for products sold, taking into consideration cumulative purchases of inventory to date and projected purchases through the end of the qualifying period. Rebates are accrued for each reporting period with an extensive reassessment of the rebates earned being performed at the end of the fiscal year and half way through the fiscal year. Wolseley has agreements with numerous and geographically dispersed suppliers, but a slow down in the markets in which
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Wolseley operates, or a significant change in the profile of products purchased may result in purchases for the remainder of the year differing significantly from those projected. Consequently the rebate actually received may vary from that accrued in the financial statements.
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Pensions and other post retirement benefit. |
Wolseley operates defined benefit pension schemes in the United Kingdom, and in a number of overseas locations, that are accounted for, under both UK and US GAAP, using methods that rely on actuarial assumptions to estimate costs and liabilities for inclusion in the financial statements. These actuarial assumptions include discount rates, assumed rates of return, salary increases, employee turnover rates and mortality rates.
Wolseley reviews its actuarial assumptions on a regular basis, annually for US GAAP and triennially for UK GAAP in accordance with SSAP 24 “Accounting for pension costs”, and makes modifications to them when it is deemed appropriate to do so. While management believes that the actuarial assumptions are appropriate, any significant changes to those used would affect the balance sheet and profit and loss account under both UK and US GAAP, and result in an increase in the profit and loss account charge in relation to pensions and other post retirement benefits in future years, and, as a consequence, could have an impact on the asset or liability held in the balance sheet, under both UK and US GAAP.
Under UK GAAP, the cost of providing pension benefits is expensed over the average expected service lives of eligible employees in accordance with the provisions of SSAP 24. Changes to actuarial assumptions do not necessarily give rise to different operating results as the regular cost represents a reasonably stable percentage of pensionable payroll and variations from the regular pension cost arising from, for example, experience deficiencies or surpluses, are charged or credited to the profit and loss account over the expected average remaining service lives of current employees in the schemes. The UK GAAP pension expense in 2005 was £42.9 million (2004: £35.4 million, 2003: £28.4 million).
Management estimates that a 0.5% decrease in the expected return on plan assets, and hence in the discount rate, would increase the UK GAAP pension expense for 2005 by approximately £4.7 million while a 0.5% increase in the expected return on plan assets, and hence in the discount rate, would reduce the UK GAAP pension expense for 2005 by approximately £3.7 million.
Under US GAAP, the annual pension charge comprises the estimated cost of benefits accruing in the period as determined in accordance with SFAS 87, “Employers’ Accounting for Pensions”. SFAS 87 requires the use of the projected unit credit actuarial method for determining defined benefit pension costs and provides for the deferral of actuarial gains and losses (in excess of a specified corridor) that result from changes in assumptions or actual experience. Wolseley’s US GAAP pension expense in 2005 was £57.5 million (2004: £50.2 million, 2003: £34.5 million).
Management estimates that a 0.5% reduction in the discount rate would increase the US GAAP pension expense for 2005 by approximately £6.1 million, while a 0.5% increase would reduce the US GAAP pension expense for 2005 by approximately £5.8 million. Management estimates that a 0.5% decrease in the expected return on plan assets would increase the US GAAP pension expense for 2005 by approximately £2.1 million while a 0.5% increase in the expected return on plan assets would reduce the US GAAP pension expense for 2005 by approximately £2.2 million.
Off balance sheet arrangements |
As at July 31, 2005, the Group had no material off-balance sheet arrangements.
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Contractual obligations and commercial commitments |
The following table sets forth the aggregate maturities of the Group’s debt, operating leases and other long term obligations for the five fiscal years subsequent to July 31, 2005 and thereafter.
| | | Fiscal Year ending July 31,
| | | | | | | |
| | | | 2006 | | | 2007 | | | 2008 | | | 2009 | | | 2010 | | | Thereafter | | | Total | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | |
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| Borrowings | | | 437.1 | | | 515.3 | | | 359.0 | | | 105.4 | | | 64.7 | | | 0.1 | | | 1,481.6 | |
| Capital lease obligations | | | 5.1 | | | 10.1 | | | 4.7 | | | 4.4 | | | 5.1 | | | 24.7 | | | 54.1 | |
| Operating lease obligations | | | 153.9 | | | 130.8 | | | 108.6 | | | 90.6 | | | 77.3 | | | 340.2 | | | 901.4 | |
| Cashflow on derivative instruments | | | 0.7 | | | (2.5 | ) | | (1.9 | ) | | (1.4 | ) | | (0.5 | ) | | — | | | (5.6 | ) |
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| | | | 596.8 | | | 653.7 | | | 470.4 | | | 199.0 | | | 146.6 | | | 365.0 | | | 2,431.5 | |
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| Borrowings are gross of cash and cash equivalents except where a right of set-off exists, and include construction loan borrowings, but exclude finance lease obligations. |
| Cash flow on derivative instruments comprises two elements: the attributable interest component of short-term currency swaps, and the difference between the fixed and floating legs of interest rate swaps. Cash flows in respect of interest rate swaps reflect the difference between payments of interest at a contractually fixed rate, and receipts of interest at a variable rate, which have been estimated on the basis of a zero coupon yield curve as of July 31, 2005. |
| Under the revolving credit facilities in effect as of July 31, 2005, amounts are drawn down for periods of up to six months at a variable interest rate which is determined at inception. In respect of amounts drawn down as of July 31, 2005, the Group was committed to interest payments of £8.6 million in the year ending July 31, 2006. Assuming (i) that amounts continue to be drawn down and repaid in accordance with the maturity profile shown above, (ii) that the weighted average variable interest rates, the currency mix and the exchange rates applicable to borrowings as of July 31, 2005 remain constant throughout the term of the facilities, and (iii) that the availability of set off for Group deposits and short-term borrowings is unchanged from that as of July 31, 2005, the Group estimates that interest payments in the five fiscal years subsequent to July 31, 2005 and thereafter would be as follows: in the fiscal year ending July 31, 2006: £48.9 million; in the fiscal year ending July 31, 2007: £16.6 million; in the fiscal year ending July 31, 2008: £6.4 million; in the fiscal year ending July 31, 2009: £4.0 million; in the fiscal year ending July 31, 2010: £0.7 million; thereafter, nil. |
In addition, the Group makes contributions to a number of retirement benefit plans. Contributions for the year ending July 31, 2006 are estimated to be £25.4 million in respect of the UK pension plan and £4.1 million in respect of non-UK plans.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
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A. Directors and Senior Management |
Wolseley’s directors and senior management who served during fiscal 2005, and as at October 31, 2005, are as follows:
Name | | Age as of
October 31,
2005 | | Title |
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John W. Whybrow(3) | | 58 | | Chairman |
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Executive Directors | | | | |
Charles A. Banks(2) (3) (5) (7) | | 64 | | Group Chief Executive Officer |
Jacques Descours(2) | | 57 | | Chief Executive Officer, Wolseley France
(left the Board on October 7, 2004) |
Fenton N. Hord(2) | | 59 | | Chief Executive Officer, US Building Materials Distribution |
Claude A. S. Hornsby(2) (8) | | 49 | | Chief Executive Officer, US Plumbing and Heating Distribution (until September 26, 2005) and Chief Executive Officer, Wolseley North America
(from August 1, 2005) |
Gérard Legtmann(2) | | 42 | | Chief Executive Officer Europe
(left the Board on January 24, 2005) |
Robert Marchbank(2) | | 45 | | Chief Executive Officer Europe
(from January 24, 2005) |
Stephen P. Webster(2) (5) | | 52 | | Group Finance Director |
| | | | | |
Non Executive Directors | | | | |
Gareth Davis(1) (3) (4) | | 55 | | Director |
Andrew J. Duff(3) (4) | | 46 | | Director |
James I. K. Murray(1) | | 59 | | Director |
Nigel M. Stein(1) | | 50 | | Director |
Robert M. Walker(3) (4) | | 60 | | Director |
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Company Secretary | | | | |
Mark J. White(2) (6) | | 45 | | Group Company Secretary and Counsel |
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Member of Executive Committee | | | | |
Adrian Barden(2) | | 50 | | Chief Executive Officer, Wolseley UK Limited |
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| (1) | Member of the audit committee. |
| (2) | Member of the executive committee. Mr Descours and Mr Legtmann ceased to be members of the executive committee upon their leaving the Board, effective October 7, 2004 and January 24, 2005 respectively. |
| (3) | Member of the nominations committee. |
| (4) | Member of the remuneration committee. |
| (5) | Member of the treasury committee. |
| (6) | Trustee of the Wolseley UK Pension Scheme. |
| (7) | Mr. Banks will retire on July 31, 2006. |
| (8) | Mr. Hornsby will become Chief Executive Officer from August 1, 2006. The Board will announce a successor to Mr. Hornsby as Chief Executive Officer of Wolseley North America, when such information becomes available. |
As at July 31, 2005, Wolseley’s board of directors (the “Board”) was made up of eleven members comprising the Chairman, five executive directors and five non executive directors. The non executive directors are considered by the Board to be independent of management and free of any private or professional relationship, which could materially interfere with the exercise of their independent judgment. The Board considers that each of the non executive directors brings his own senior level of experience, gained in their own fields of mainly international operations. Jacques Descours left the Board on October 7, 2004 and Gérard Legtmann left the Board on January 24, 2005. Robert Marchbank was appointed as an executive director as of from January 24, 2005.
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The Board meets regularly during the year as well as on an ad hoc basis, as required by time-critical business needs. The Board has a formal schedule of matters reserved to it for its decision, which were reviewed during the year, although its primary role is to provide entrepreneurial leadership and to review the overall strategic development of the Group as a whole. Day-to-day operational decisions are delegated to the executive committee referred to at “Item 6 – Directors, Senior Management and Employees, Paragraph C – Board Practices”. The Board met eight times during the year and director attendance for each meeting is shown at “Item 6 – Directors, Senior Management and Employees, Paragraph A – Meeting Attendance”. The Board has established a procedure for directors, if deemed necessary, to take independent professional advice at Wolseley’s expense in the furtherance of their duties. Additionally, every director has access to the Company Secretary, who is charged with ensuring that Board procedures are followed and that good corporate governance and compliance is implemented within the Group. Board papers and other information are delivered at times to allow directors to be properly briefed in advance of meetings. In accordance with Wolseley’s articles of association, directors are indemnified by the Company to the extent permitted by law in respect of liabilities incurred as a result of their office. The indemnity would not provide any coverage to the extent that a director is proved to have acted fraudulently or dishonestly. Wolseley has also arranged appropriate insurance coverage in respect of legal action against its directors and officers. The differing roles of Chairman and Group Chief Executive are acknowledged and set out in writing. The Chairman has confirmed that he will not chair any other major company’s board.
The Chairman has addressed the developmental needs of the Board as a whole, with a view to developing its effectiveness as a team and assists in the development of skills, knowledge and expertise. During the year, the Board continued its ongoing evaluation processes to assess its performance and that of its committees and to identify areas in which its effectiveness, policies and processes might be enhanced, utilizing both a questionnaire and discussion with Board members.
Performance evaluations have been carried out for each member of the Board. Executive directors’ performance has been assessed by the Chairman and Mr Banks, Mr Banks’ performance by the Chairman and the non executive directors, the Chairman’s performance by the non executive directors and Mr Banks and the non executive directors’ performance by Mr Banks and the Chairman. The evaluation of the personal performance of the executive directors was also supported by a 360 degree appraisal process which included a peer group review where performance was assessed against set criteria, including the skills brought to the Board and the contributions they made to it.
Meetings between the non executive directors, both with and without the presence of the Chairman and Mr Banks, are scheduled in the Board’s annual timetable. The Board has also arranged to hold two Board meetings each year at divisional locations to help all Board members gain a deeper understanding of the business.
In line with the Combined Code on corporate governance, as referred to at “Item 6 – Directors, Senior Management and Employees, Paragraph C – Board Practices” and as part of their ongoing development, the executive directors are encouraged to take up an external non executive position on a non-competitor board, for which they may retain payments received in respect of the appointment. In order to avoid any conflict of interest, all appointments are subject to the Board’s approval. Generally outside appointments for executive directors are limited to one company board only, although Mr Banks, by exception, serves on two outside boards. The Board is satisfied that these appointments do not conflict with his duties to Wolseley. The Board monitors the extent of directors’ other interests to ensure that the effectiveness of the Board is not compromised. Succession planning is considered to be a matter for the whole Board rather than for a committee. During the year, the Board considered succession issues arising out of Mr Hornsby’s appointment as Chief Executive Officer of Wolseley North America, which became effective on August 1, 2005 and established a working party, which met on a number of occasions during the year, to consider the issues arising out of Mr Banks’ prospective retirement as Chief Executive of the Company. As announced on September 26, 2005, Mr Banks will retire on July 31, 2006 and will be succeeded by Mr Hornsby. The Board will announce a successor to Mr Hornsby as Chief Executive Officer of Wolseley North America in due course.
Wolseley’s articles of association provide that one-third of the directors retire by rotation each year and that each director will seek re-election at the Annual General Meeting every three years. Additionally, new directors are subject to election by shareholders at the first opportunity after their appointment. Messrs Marchbank, Walker, Webster and Whybrow have sought election or re-election at the Annual General Meeting of shareholders held on
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November 17, 2005. Messrs Davis and Hord no later than 2006 and Messrs Banks, Duff, Hornsby, Murray and Stein no later than 2007. It is Board policy that non executive directors are normally appointed for an initial term of three years, which is then reviewed and extended for a further three year period. It is also Board policy that non executive directors should not generally serve on the Board for more than nine years and that, in cases where it is proposed to exceed this period the director concerned will retire annually and offer himself for re-election. Following their appointment, formal comprehensive and tailored induction is offered to all non executive directors supplemented by visits to key locations within the Group and meetings with members of the executive committee and other key senior executives. All of the directors being proposed for re-election at the 2005 Annual General Meeting of Shareholders have been subject to a performance evaluation during the fiscal year ended July 31, 2005.
Although the non executive directors are not asked, at present, to meet the shareholders of Wolseley, their attendance at presentations of the annual results is encouraged. The Chairman ensures that the Board maintains an appropriate dialogue with shareholders. Gareth Davis is the Company’s Senior Independent Non Executive Director.
The formal terms of reference for the main Board committees, approved by the Board and complying with the Code to assist in the discharge of its duties, are available from the Company Secretary and can also be found on Wolseley’s website at www.wolseley.com. Membership of the various committees is shown at “Item 6 – Directors, Senior Management and Employees, Paragraph C – Board Practices”. The Company Secretary acts as secretary to all Board committees.
The following table shows the attendance of directors at meetings of the Board, audit, remuneration and nominations committees during the year ended July 31, 2005:
| | | Board meetings | | Audit Committee meetings | | Remuneration Committee Meetings | | Nominations Committee Meetings | |
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| |
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| | | | Attended | | | Eligible to attend | | | Attended | | | Eligible to attend | | | Attended | | | Eligible to attend | | | Attended | | | Eligible to attend | |
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| C.A.Banks | | | 8 | | | 8 | | | — | | | — | | | — | | | — | | | 1 | | | 2 | |
| G.Davis | | | 8 | | | 8 | | | 5 | | | 5 | | | 6 | | | 6 | | | 2 | | | 2 | |
| A.J.Duff | | | 8 | | | 8 | | | — | | | — | | | 6 | | | 6 | | | 2 | | | 2 | |
| F.N.Hord | | | 8 | | | 8 | | | — | | | — | | | — | | | — | | | — | | | — | |
| C.S.Hornsby | | | 8 | | | 8 | | | — | | | — | | | — | | | — | | | — | | | — | |
R.H.Marchbank(1) | | | 3 | | | 3 | | | — | | | — | | | — | | | — | | | — | | | — | |
| J.I.K.Murray | | | 8 | | | 8 | | | 5 | * | | 5 | | | — | | | — | | | — | | | — | |
| N.M.Stein | | | 7 | | | 8 | | | 5 | | | 5 | | | — | | | — | | | — | | | — | |
| R.M.Walker | | | 7 | | | 8 | | | — | | | — | | | 6 | * | | 6 | | | 2 | | | 2 | |
| S.P.Webster | | | 8 | | | 8 | | | — | | | — | | | — | | | — | | | — | | | — | |
| J.W.Whybrow | | | 8 | * | | 8 | | | — | | | — | | | — | | | — | | | 2 | * | | 2 | |
| (1) | Appointed as a Director on January 24, 2005. |
| |
Background Information Concerning Current Directors and Senior Management at July 31, 2005. |
John W. Whybrow. Mr Whybrow was first appointed to the Board on August 1, 1997. He was Deputy Chairman from April 12, 2002 until his appointment as Chairman on December 13, 2002. He is Chairman of the nominations committee. Mr Whybrow is a non executive director of DSG International plc (formerly Dixons Group plc) and Chairman of CSR plc. He was President and Chief Executive Officer of Philips Lighting Holding B.V., based in The Netherlands, until 2001 and Executive Vice President, Philips Electronics N.V. from 1998 until March 2002, when he returned to the UK. Mr Whybrow is also Chairman of Petworth Cottage Nursing Home.
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Charles A. Banks. Mr Banks was first appointed to the Board on August 1, 1992. He was appointed Group Chief Executive Officer on May 3, 2001. He was previously Chief Executive Officer of Ferguson Enterprises and spent 34 years with that company. He is a non executive director of Bunzl plc and of TowneBank/Peninsula, which is headquartered in Virginia.
Fenton N. Hord. Mr Hord was first appointed to the Board on October 2, 2000. Mr Hord joined the Group as Chief Executive Officer of Stock Building Supply Inc, in 1987. Prior to joining the Group, Mr Hord was President of Eskimo Pie Corporation, which was at the time a subsidiary of Reynolds Metals Co. (now Alcoa). He is a non executive director of Investors Management Corporation.
Claude A. S. Hornsby. Mr Hornsby was first appointed to the Board on May 3, 2001. Mr Hornsby has recently been appointed as the Chief Executive North America and on September 26, 2005 stepped down from his role as President and Chief Executive Officer of Ferguson Enterprises Inc, the US Plumbing and Heating Distribution Segment, which incorporates Familian Northwest and the US’s business of Westburne, the Canadian group acquired in 2001. Mr Hornsby has spent 27 years with Ferguson and will become Chief Executive Officer of the Group following Mr Banks’ retirement on July 31, 2006.
Robert H. Marchbank. Mr Marchbank was first appointed to the Board on January 24, 2005 as Chief Executive of Europe and is responsible for all the European businesses. Mr Marchbank joined the Group at Ferguson Enterprises Inc in 1982. In 2001 he moved to the UK to join the newly created Wolseley Group headquarters as Director of Strategic Planning. Most recently, he was the Director of Information and Processes.
Stephen P. Webster. Mr Webster was first appointed to the Board on August 1, 1994 as Group Finance Director designate. He was appointed as Group Finance Director on December 9, 1994. Mr Webster was formerly a partner in Price Waterhouse and is a Chartered Accountant. Mr Webster is a non executive director of Bradford & Bingley plc.
Gareth Davis. Mr Davis was first appointed to the Board on July 1, 2003. He is a member of the audit, remuneration and nominations committees and is the Senior Independent Non Executive Director. Mr Davis has been Chief Executive of Imperial Tobacco Group plc since its incorporation in 1996, having spent the last 33 years in the tobacco industry.
Andrew J. Duff. Mr Duff was first appointed to the Board on July 1, 2004. He is a member of the remuneration and nominations committees. Mr Duff is Chief Executive of RWE npower plc. Mr Duff previously spent 14 years at BP plc where he held leading positions in marketing and oil trading and was most recently the Director of Strategic Planning for BP Oil, USA. Mr Duff is Chairman of the Electricity Retail Association and is a member of the Confederation of British Industry’s President’s committee.
James I. K. Murray. Mr Murray was first appointed to the Board on April 12, 2002. A Chartered Accountant, Mr Murray is Chairman of the audit committee and is a non executive director of UK Coal PLC. He was Finance Director of Land Securities Plc from 1991 until his retirement in 2001. Mr Murray is the Chairman of Trustees of the Land Securities Pension Fund.
Nigel M. Stein. Mr Stein was first appointed to the Board on December 1, 2003. He is a member of the audit committee. Mr Stein is a Chartered Accountant and has been Finance Director of GKN plc since August 2001. He has worked in a number of other senior financial roles during his ten years with GKN plc, and prior to this, he held senior financial positions with Laird Security Systems and Hestair Duple Limited. Mr Stein is the “Audit Committee Financial Expert” and is considered to be independent. The report of the audit committee is set out at “Item 6 – Directors, Senior Management and Employees, Paragraph C – Board Practices, Audit committee”.
Robert M. Walker. Mr Walker was first appointed to the Board on July 1, 1999. He is Chairman of the remuneration committee (until November 1, 2005) and a member of the nominations committee. Mr Walker is Non Executive Chairman of WHSmith PLC and Williams Lea Group Limited; and a non executive director of Signet Group plc. Mr Walker was, until February 2005, Group Chief Executive of Severn Trent Plc. He previously worked for Procter and Gamble, McKinsey and Company and for over 20 years with PepsiCo.
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Adrian Barden. Mr Barden was appointed as Chief Executive of Wolseley UK Limited on August 1, 2003 and is now, additionally, responsible for certain European business initiatives. He is a member of the executive committee. Mr Barden has been employed by the Group since 1991 and was appointed Managing Director of the Heavyside Division in 1996. He has spent his working life in the building materials distribution industry. He is Vice President of the Construction Products Association (CPA).
Mark J. White. Mr White joined Wolseley on July 1, 2002 as the Group Company Secretary and Counsel. He is a solicitor and is secretary to the audit, nominations, treasury and remuneration committees. He is a member of the executive committee and a trustee of the UK pension scheme. Mr White was previously Company Secretary of Enterprise Oil plc and Rotork plc.
| |
Director and Senior Management Compensation |
Wolseley’s policy now, and for the foreseeable future, is to provide remuneration packages that fairly reward executives for the contribution they make to the business, having regard to the size and complexity of the Group’s business operations and the need to attract, retain and motivate executives of the highest quality. Remuneration packages comprise salary, performance bonuses, share options, long-term incentives, benefits-in-kind and pensions. Wolseley takes a total approach to remuneration, which includes all these elements. The packages are designed to be broadly comparable with those offered by similar international businesses and reflect competitive practices in the countries and markets in which the executive directors operate. The policy is designed to incentivize the directors to meet Wolseley’s financial and strategic objectives such that a significant proportion of remuneration is performance related. The remuneration committee considers that the targets set for the different elements of performance related remuneration are appropriate and demanding in the context of Wolseley’s trading environment and the business challenges it faces. Under Wolseley’s Articles of Association, the maximum aggregate amount of remuneration payable to Wolseley’s non executive directors (as a group) was increased to £750,000 per annum with effect from January 1, 2005, following shareholder approval at the Annual General Meeting held on November 18, 2004.
For the fiscal year ended July 31, 2005, the aggregate compensation paid or accrued by Wolseley and its subsidiaries to or for all directors and senior management as a group (15 persons) for services in all capacities was £8.531 million. Such compensation was primarily in the form of salaries and amounts paid as bonuses pursuant to performance linked bonus plans in which all executive directors participated. Bonuses paid to directors are supervised by the remuneration committee.
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Remuneration during the fiscal year ended July 31, 2005 of the directors and senior management in office during fiscal year 2005 was as follows:
| | | | Salary/
Fees | | | Annual
Bonus | | | Benefits | | | Pension
Supplement/Life Assurance | (j) | | Total
Fiscal
2005 | | | Total
Fiscal
2004 | |
| | | | £’000 | | | £’000 | | | £’000 | | | £’000 | | | £’000 | | | £’000 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Non Executive Chairman | | | | | | | | | | | | | | | | | | | |
| John W. Whybrow | | | 210 | | | — | | | — | | | — | | | 210 | | | 170 | |
Executive Directors | | | | | | | | | | | | | | | | | | | |
Charles A. Banks(a) | | | 716 | | | 1,310 | | | 212 | | | 91 | | | 2,329 | | | 1,909 | |
Fenton N. Hord(b) | | | 365 | | | 718 | | | 1 | | | 295 | | | 1,379 | | | 969 | |
Claude A. S. Hornsby(c) | | | 378 | | | 763 | | | 23 | | | 37 | | | 1,201 | | | 897 | |
Robert H Marchbank(d) | | | 188 | | | 261 | | | 227 | | | 17 | | | 693 | | | — | |
Stephen P. Webster(e) | | | 430 | | | 527 | | | 60 | | | 67 | | | 1,084 | | | 676 | |
Non Executive Directors | | | | | | | | | | | | | | | | | | | |
| Gareth Davis | | | 43 | | | — | | | — | | | — | | | 43 | | | 33 | |
| Andrew J. Duff | | | 38 | | | — | | | — | | | — | | | 38 | | | 3 | |
| James I. K. Murray | | | 48 | | | — | | | — | | | — | | | 48 | | | 38 | |
| Nigel M. Stein | | | 38 | | | — | | | — | | | — | | | 38 | | | 22 | |
| Robert M. Walker | | | 46 | | | — | | | — | | | — | | | 46 | | | 38 | |
Executive Committee Member | | | | | | | | | | | | | | | | | | | |
Adrian Barden(f) | | | 324 | | | 201 | | | 18 | | | 50 | | | 593 | | | 369 | |
Company Secretary | | | | | | | | | | | | | | | | | | | |
Mark J. White(g) | | | 190 | | | 157 | | | 14 | | | 19 | | | 380 | | | 258 | |
Former Directors | | | | | | | | | | | | | | | | | | | |
Jacques R. Descours(h) | | | 58 | | | 139 | | | 1 | | | — | | | 198 | | | 454 | |
Gérard Legtmann(i) | | | 183 | | | — | | | 35 | | | 33 | | | 251 | | | 704 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | 3,255 | | | 4,076 | | | 591 | | | 609 | | | 8,531 | | | 6,540 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | |
| (a) | £70,000 (2004: £70,000) of the figure for benefits relates to relocation from the USA to the UK. £66,633 (2004: £53,123) of the figure for benefits relates to currency protection. £369,908 (2004: £299,623) of the figure for bonuses relates to the vesting on July 31, 2005 of 100% of the award made in 2002 under the long term incentive scheme referred to at “Item 6 – Directors, Senior Management and Employees – Paragraph B, compensation – long-term cash incentive plans”. |
| (b) | £150,000 (2004: nil) of the figure for bonuses relates to the vesting on July 31, 2005 of 100% of the award made in 2002 under the long term incentive scheme referred to at “Item 6 – Directors, Senior Management and Employees – Paragraph B, compensation – long-term cash incentive plans”. |
| (c) | £174,194 (2004: nil) of the figure for bonuses relates to the vesting on July 31, 2005 of 100% of the award made in 2002 under the long term incentive scheme referred to at “Item 6 – Directors, Senior Management and Employees – Paragraph B, compensation – long-term cash incentive plans”. |
| (d) | Appointed on January 24, 2005. £191,018 of the figure for benefits relates to relocation from the USA to the UK. £101,935 of the figure for bonuses relates to the vesting on July 31, 2005 of 100% of the award made in 2002 under the long term incentive scheme referred to at “Item 6 – Directors, Senior Management and Employees – Paragraph B, compensation – long-term cash incentive plans”. |
| (e) | £35,917 (2004: £49,000) of the figure for benefits relates to relocation from Droitwich, UK to Theale, UK. £167,750 (2004: nil) of the figure for bonuses relates to the vesting on July 31, 2005 of 100% of the award made in 2002 under the long term incentive scheme referred to at “Item 6 – Directors, Senior Management and Employees – Paragraph B, compensation – long-term cash incentive plans”. |
| (f) | £47,200 (2004: nil) of the figure for bonuses relates to the vesting on July 31, 2005 of 100% of the award made in 2002 under the long term incentive scheme referred to at “Item 6 – Directors, Senior Management and Employees – Paragraph B, compensation – long-term cash incentive plans”. |
| (g) | £56,000 (2004: nil) of the figure for bonuses relates to the vesting on July 31, 2005 of 100% of the award made in 2002 under the long term incentive scheme referred to at “Item 6 – Directors, Senior Management and Employees – Paragraph B, compensation – long-term cash incentive plans” . |
| (h) | Mr Descours ceased to be a director on October 7, 2004, and the remuneration shown in the table relates to the period from August 1, 2004 to October 7, 2004. The bonus figure relates to the vesting on July 31, 2005 of 100% of the award of £139,423 made in 2002 under the long term incentive scheme referred to at “Item 6 – Directors, Senior Management and Employees – Paragraph B, compensation – long-term cash incentive plans”. Mr Descours will retire from Wolseley France on December 13, 2005 and on such date he will receive a severance indemnity payable under French law of €666,822. |
| (i) | Mr Legtmann ceased to be a director on January 24, 2005. The remuneration shown in the table relates to the period from August 1, 2004 to January 24, 2005. £25,423 (2004: £108,082) of the figure for benefits relates to relocation from the USA to the UK. Mr Legtmann is entitled to receive up to a maximum of £850,000 compensation for the loss of his office and termination of his employment. The compensation is payable in tranches up until January 24, 2006 and is subject to mitigation. Mr Legtmann is entitled to retain medical insurance benefits until January 24, 2006. All other pension provision, bonus and incentive awards lapsed on January 24, 2005. |
| (j) | The payments in respect of life insurance relate to arrangements established before Messrs Hord, Hornsby and Marchbank became Executive Directors, suspended since 2002. |
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Basic salaries of executive directors are determined having regard to competitive market data, the degree of individual responsibility and individual performance. Market data is derived from a group of companies selected on the basis of comparable size, geographic spread and business focus. Due consideration is also given to the wider economic and employment backdrop, including general pay and employment conditions elsewhere in the Group. The target salary is at the median with the opportunity to go above this level, subject to sustained individual performance. The remuneration committee reviewed the salaries of the executive directors with effect from August 1, 2004, having sought the views of both the Chairman and (other than in the case of his own salary) the Group Chief Executive. As a US national, 40% of Mr Banks’ salary is currency protected, based on an exchange rate of £1: $1.50.
Performance bonus arrangements are designed to encourage individual performance, corporate operating efficiencies and profitable growth. The annual bonus awards are based on a mix of demanding financial targets, derived from Wolseley’s historic performance, annual long-term strategic business plan and annual budget, as well as market expectations and will depend on performance against annual targets of return on capital employed, working capital, Group profit before tax and, where relevant, profit before tax for the appropriate division (which, in aggregate, account for 85% of the bonus, the majority of which related to the profit before tax targets). The balance of 15% of the bonus depends on specific personal objectives set for each executive director.
The following percentages of base salary, which vary between executive directors depending on their particular responsibilities and spheres of influence, will be paid in bonus for the fiscal year ended July 31, 2005, subject to the achievement of the minimum, on-target and maximum levels of performance (with the percentages increasing on a linear basis for achievement between each level):
| | | Percentage of base salary payable on achievement of: | | | | |
| | |
| | | Bonus awards | |
Name | | | Minimum Target | | | On-Target | | | Maximum Target | | | for the year (% of salary) | |
| |
|
| |
|
| |
|
| |
|
| |
| Charles A. Banks | | | 60 | | | 100 | | | 150 | | | 131 | |
| Fenton N. Hord | | | 80 | | | 120 | | | 160 | | | 156 | |
| Claude A. S. Hornsby | | | 80 | | | 120 | | | 160 | | | 156 | |
| Robert H. Marchbank | | | 30 | | | 50 | | | 75 | | | 51 | |
| Stephen P. Webster | | | 40 | | | 60 | | | 100 | | | 84 | |
Stretching targets are set for each element of the bonus, determined by the remuneration committee each year, which also considers the levels of performance targets to be achieved for bonus payments to be made in the succeeding year. For the fiscal year ending July 31, 2006, the remuneration committee has determined that the minimum, on-target and maximum targets will be 60/120/170% of base salary for Mr Banks, 80/130/180% for Mr Hornsby, 80/120/160% for Mr Hord and 40/70/100% for Mr Marchbank and Mr Webster.
Long-term incentive plans |
Wolseley currently operates a long-term incentive plan which provides ordinary shares in the capital of Wolseley conditional upon Wolseley’s total shareholder return (“TSR”) over single three year periods. All awards are made subject to the achievement of stretching performance conditions, and TSR has been selected as the performance measure to more closely align the interests of the executive directors and senior executives with those of shareholders over the long-term. The plan rewards the relative out performance of Wolseley against a defined list of comparator companies. Calculations are performed independently and are approved by the remuneration committee.
The long-term incentive plan is discretionary. The remuneration committee’s current policy is to make annual awards to Mr Banks, the executive directors and other senior executives under the Wolseley plc 2002 Long Term Incentive Scheme (“2002 Scheme”), which was approved by shareholders in November 2002 and amended at the annual general meeting held on November 18, 2004. Prior to this date only cash awards were made. Since 2004, awards will normally be made in shares, save where there are material securities or tax law constraints in
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overseas jurisdictions where the scheme is to be operated, in which case conditional awards in cash would continue to be made.
The maximum amount that can be granted under the amended 2002 Scheme for each award is 200% of base salary per annum; however, awards made to date have not exceeded 100% (or 125% in the case of Mr. Banks) of base salary. Each year the remuneration committee will assess the proportion of awards that should be made up of both share options and long-term incentive awards. It is the remuneration committee’s intention that for the year ending July 31, 2006, awards will be made to Mr Banks at 150% of salary with lower award levels for other executive directors. The vesting level for a maximum award under the amended 2002 Scheme requires performance to be in the upper decile. To better reflect market practice, shareholder approval was sought and received on November 18, 2004 so that 25% of awards made from that date would vest for achievement of performance at the median (with a straight line percentage to vest between median and upper decile). Extant awards remain subject to the achievement of performance conditions following a participant’s retirement, and vesting is determined at the end of the performance period.
The remuneration committee has considered whether future grants under the amended 2002 Scheme should be subject to a financial performance underpin, in addition to the satisfaction of a TSR performance target. The remuneration committee concluded that the continuing use of EPS as a performance target under the Wolseley Share Option Plan 2003 and the use of financial measures for the annual bonus plan provide an appropriate balance to the use of TSR within the amended 2002 Scheme, such that the introduction of a further financial underpin was not felt appropriate. This will be kept under review by the remuneration committee.
The lists of comparator companies for awards made since 2001 under the 2001 cash plan (a plan introduced to facilitate Mr Banks’ recruitment, which is similar in structure to the 2002 Scheme) and since 2002 under the 2002 Scheme are based upon the constituent members of the FTSE 100 as at the respective dates of grant, excluding banks, telecommunications, IT and utility companies but together with CRH plc and Travis Perkins plc, which compete in the same sector as the Company. A similar group of companies will be selected for the 2005/06 awards under the amended 2002 Scheme.
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Details of the awards conditionally made to the Executive Directors in office during the year under the amended 2002 scheme and outstanding at July 31, 2005, as well as at the date of this report, are shown in the table below:
Name of Director | | | Interests in £ held at August 1, 2004
(or date of appointment) | | | Interests in shares awarded during the year1 | | | Interests in £ held at July 31, 2005
(or date of departure) | | | Interests in shares held at July 31, 2005 and at the date of this report (or date of departure) | | | Interests in £ held at the date of this report
(or date of departure)2 | | | Performance
periods | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Charles A. Banks | | | 760,873 | | | 95,308 | | | 760,873 | | | 95,308 | | | 369,908 | | | August 1, 2002 –
July 31, 2007 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Adrian Barden
| | | 147,000 | | | 14,332 | | | 147,200 | | | 14,332 | | | 100,000 | | | August 1, 2002 – July 31, 2007 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Jacques-R. Descours | | | 299,170 | | | — | | | 299,170 | | | — | | | 159,747 | | | August 1, 2002 –
July 31, 2007 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Fenton N. Hord | | | 295,439 | | | 38,843 | | | 295,439 | | | 38,843 | | | 145,439 | | | August 1, 2002 –
July 31, 2007 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Claude A.S. Hornsby | | | 363,421 | | | 40,281 | | | 363,421 | | | 40,281 | | | 189,227 | | | August 1, 2002 –
July 31, 2007 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Gérard Legtmann3 | | | 175,000 | | | 23,688 | | | — | | | — | | | — | | | August 1, 2003 –
July 31, 2007 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Robert H. Marchbank | | | 207,026 | | | 23,595 | | | 207,026 | | | 23,595 | | | 105,091 | | | August 1, 2002 –
July 31, 2007 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Stephen P. Webster | | | 360,000 | | | 34,884 | | | 360,000 | | | 34,884 | | | 192,500 | | | August 1, 2002 –
July 31, 2007 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Mark J. White | | | 118,000 | | | 10,276 | | | 118,000 | | | 10,276 | | | 62,000 | | | August 1, 2002 –
July 31, 2007 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| 1. | The share price on the date of grant of the award was 924.5 pence per share. |
| 2. | Awards granted in 2002 (granted at 50% of salary as at August 1, 2002, save for Messrs Barden, Marchbank and White, whose awards were granted at 40% of salary) vested at 100% of award on July 31, 2005. |
| 3. | The awards granted to Mr Legtmann lapsed on January 24, 2005, upon his ceasing to be a director. |
The following table sets out the percentage of each award which has vested and the percentage of each extant award had it vested on July 31, 2005:
Year of Award | | | Percentage vested on maturity or current vesting performance
based on performance as at July 31, 2005 | |
| |
|
| |
| 2001 | | | 100% (vested 31 July 2004) | |
| 2002 | | | 100% (vested 31 July 2005) | |
| 2003 | | | 100% (performance after 24 months) | |
| 2004 | | | 100% (performance after 12 months) | |
Mr Webster, as a UK Executive Director, participates in the Wolseley Group Retirement Benefits Plan (“the Plan”). The Plan is a defined benefit scheme and provides benefits based on final pensionable salaries. The Company makes contributions to the Plan based on the recommendation of the Plan actuary. Bonuses payable to
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UK Executive Directors are not pensionable. Mr Webster currently contributes 6% per annum of his pensionable salary to the Plan.
The UK Finance Act 1989 introduced an earnings cap (“Cap”) for employees joining the Plan after May 31, 1989. This has the effect of limiting the amount of an employee’s salary that can be pensioned through an approved pension scheme. The current limit, to which Mr Webster is subject, is £105,600 per annum. Wolseley has agreed to provide Mr Webster with benefits which are broadly comparable with those that would have applied under the Plan had the Cap not been introduced. This is currently provided for by payments into a Funded Unapproved Retirement Benefits Scheme. Additionally, the Finance Act 1989 capped life assurance payable through an approved pension scheme in respect of such executives. Wolseley has taken out an insurance policy to cover that part of the life assurance for Mr Webster which is in excess of the Cap. The amount charged to the profit and loss account during the year in respect of his future obligation was £66,812 (including £2,496 in respect of life insurance) (2004: £35,712).
The remuneration committee has determined the Company’s approach in response to the UK pensions simplification, which will become effective in April 2006 for those UK Executive Directors who are, or will become, members of the UK approved pension plan. Such directors will be given the option of either:
| • | maintaining the existing pension promise, in which case the executive would be responsible for any additional taxation arising; or |
| | |
| • | ceasing to accrue pension benefit in respect of service after April 2006 and instead, receiving a cash retirement benefit allowance, subject to income taxation consistent with the Company’s cost neutral objective. Past service benefit would remain linked to future salary increases subject to a cap similar to the existing Cap. |
Messrs Banks, Hornsby and Marchbank, who are US citizens, participate in the defined contribution pension arrangements of Ferguson Enterprises Inc. In line with current US practice, Messrs Banks, Hornsby and Marchbank receive contributions at the level of 15% of their earnings (for this purpose $420,000 for Mr Banks, and $400,000 for Messrs Hornsby and Marchbank of bonus respectively is included with their base salary). Mr Hord, also a US citizen, participates in the defined benefit and defined contribution plans of Stock Building Supply, Inc. Mr Hord’s pensionable earnings include his bonus up to a maximum of $742,400 as agreed when the bonus scheme was introduced in order to preserve his pension entitlement at that time. Mr Hord is also a member of a US non-qualified plan, which will provide a benefit for 20 years after retirement at age 60 of 40% of final pensionable salary. At Mr Hord’s option, and with Wolseley’s consent, the benefit can be paid over a period of 1, 5, 10 or 15 years with the total amount of the benefit, in cash terms, being the same.
A US subsidiary of Wolseley has a commitment to a former Wolseley director, who is a United States citizen, to pay a joint survivor pension of $300,000 per annum for fifteen years from August 1, 1993. The net present value of the future obligation as of July 31, 2005 was £460,110 (July 31, 2004: £570,000), which has been charged in prior years’ accounts.
Additionally, Brossette has a commitment to a former Wolseley director, who is a French citizen, to pay an annual pension of €215,392 (2004: €211,212), with a widow’s entitlement of 60%, subject to an annual increase based on the agreed French pension index. The full actuarial cost of this arrangement was provided in previous years as part of Brossette’s ongoing pension obligations. Wolseley is guarantor of this future pension commitment, which as of July 31, 2005 was approximately £1.9 million (2004: £2.1 million).
The following table shows the executive directors and senior management participating during the year in the Group’s defined benefits plans and the amounts of benefit accrued at the end of the year as if the director or manager had left service on July 31, 2005, the change in accrued benefit over the year, the transfer value at both the beginning and end of the year as well as the change in the transfer value over the year as required by the UK Directors’ Remuneration Report Regulations 2002. The increase in transfer value figures represents an obligation on the pension fund or Wolseley – they are not sums due or paid to the director or manager. The UK Listing Rules require additional disclosure of the change in accrued benefit net of inflation and the transfer value of this change. These pension liabilities are calculated using the cash equivalent transfer value method prescribed in the Listing Rules of the UK Listing Authority.
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| | UK Directors’ Remuneration Report/regulations
| | UK Listing Rules
| |
| | | Age at | | | Pension
accumulated | | | Increase
in pension | | Transfer Value
| | | Increase/(decrease) in transfer value 2005 (excluding member | | | Pension Accumulated | | | Increase in Pension 2005 (net of | | | Transfer value of the increase/ (decrease) in 2005 (excluding member | |
| | | July 31, | | | 2005 | | | 2005 | | | 2005 | | | 2004 | | | contributions) | | | 2005 | | | revaluation) | | | contributions) | |
| | | 2004 | | | £000 | | | £000 | | | £000 | | | £000 | | | £000 | | | £000 | | | £000 | | | £000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Adrian Barden | | 50 | | | 30 | | | 2 | | | 304 | | | 235 | | | 63 | | | 30 | | | 1 | | | 8 | |
| Fenton N. Hord | | 58 | | | 311 | | | 37 | | | 4,470 | | | 4,216 | | | 326 | | | 311 | | | 25 | | | 318 | |
Stephen P. Webster(1) | | 52 | | | 19
60 | | | 2
12 | | | 267
653 | | | 189
482 | | | 62
171 | | | 19
60 | | | 2
11 | | | 10
120 | |
| M.J.White | | 45 | | | 6 | | | 2 | | | 46 | | | 20 | | | 21 | | | 6 | | | 2 | | | 11 | |
| (1) | Mr Webster is also entitled to benefits under a Funded Unapproved Retirement Benefits Scheme. The penultimate row of figures in the above table relates to the benefits payable under such plan. |
| Note: | Mr Legtmann received a refund of his contributions consequent on his ceasing to be a director on January 24, 2005. No further person benefits accrue to Mr Legtmann. |
The following table shows those directors participating in money purchase pension plans and the cost of Wolseley’s contributions thereto:
| | | | 2005 | | | 2004 | |
Pensions: Money Purchase Plans | | | £000 | | | £000 | |
| |
|
| |
|
| |
| Charles A. Banks | | | 138 | | | 137 | |
| Fenton N. Hord | | | 4 | | | 3 | |
| Claude S. Hornsby | | | 88 | | | 76 | |
| Robert H. Marchbank* | | | 26 | | | — | |
| * | Mr Marchbank was appointed to the Board on January 24, 2005. |
Executive directors receive a number of other benefits principally related to the provision of company cars, life assurance, health care arrangements and, in the case of Messrs Banks, Marchbank and Webster, relocation and housing allowances following, respectively, their relocations from the USA to the UK (Messrs Banks and Marchbank) and from Droitwich, UK to Theale, UK (Mr Webster), where Wolseley’s head office is located.
The remuneration of non executive directors during the fiscal year under review was made up of a basic fee and an additional fee where a non executive director acts as Chairman of either the audit or remuneration committees and for the director nominated as senior independent non executive director. Fees are reviewed from time to time by the Board. The non executive directors have letters of engagement rather than service contracts and do not participate in any incentive plan, nor is any pension payable in respect of their services as non executive directors. The Board’s policy is that non executive directors are normally appointed for an initial term of three years, which is then reviewed and extended for a further three year period. Appointments may, however, be terminated upon six months’ notice. There are no provisions for compensation in the event of termination. The terms and conditions of appointment of the non executive directors are available for inspection at Wolseley’s registered office during normal business hours and at the Annual General Meeting.
Executive share ownership |
Wolseley introduced a share ownership program with effect from August 1, 2004. It is designed to encourage all directors and members of the executive committee to build up a shareholding with a value of 1.5 times annual base salary for the Group Chief Executive; 1 times annual base salary for all executive directors; 1 times annual fees for all non executive directors, including the Chairman; and 0.5 times annual base salary for all executive committee members. For executive directors and members of the executive committee this may be achieved by retaining shares received as a result of participating in a Wolseley plc employee share plan (other than shares sold to pay a social security or income tax liability or sold to meet the price of the option). The program specifically
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excludes the need to make a personal investment should awards not vest. Normally these levels of shareholding should be expected to be achieved within three to five years from the time the individual is included in the program.
Wolseley has adopted seven share option plans: the 1984 Executive Share Option Scheme (the “1984 Scheme”), the 1989 Executive Share Option Scheme (the “1989 Scheme”) and the Wolseley Share Option Plan 2003 (the “2003 Scheme”) (collectively, the “Executive Option Schemes”); the Wolseley Employees Savings Related Share Option Scheme 1981 (the “UK Option Scheme”) and the Wolseley Irish Sharesave Scheme 2000 (the “Irish Option Scheme”) (collectively the “Employees Savings Option Schemes”); the Wolseley Employees International Stock Appreciation Plan (the “SAP”); and the Wolseley Employee Share Purchase Plan 2001 (the “Purchase Plan”). The number of ordinary shares over which options may be granted under the Executive Option Schemes may not, in any ten year period, exceed five percent of the issued share capital of Wolseley from time to time. The number of ordinary shares over which options may be granted under the Employees Savings Option Schemes, the SAP and the Purchase Plan may not, in any ten year period, when aggregated with options under the Executive Option Schemes, exceed ten percent of the issued share capital of Wolseley from time to time. Shares are allotted under the Executive Option Schemes, the Employees Savings Option Schemes, the SAP and the Purchase Plan when the options are exercised.
Eligibility – All executive directors and other senior company management, as well as all other employees of Wolseley, are eligible to participate in the Executive Option Schemes, save for those within six months of their anticipated retirement (other than US executives). At July 31, 2005, there were approximately 697 participants in the Executive Option Schemes.
Options – Options entitle the recipient to purchase Wolseley’s ordinary shares and are evidenced by an option certificate, which includes the number of shares comprised in the option, the exercise price of the option and the date the option was granted to the recipient. Options are personal to the participant and his personal representatives and may not be transferred. No payment is required for the grant of an option.
Exercise price – The exercise price of an option may not be less than the higher of (i) the nominal value of a share; and (ii) for European participants, an amount equal to the middle market quotation of a share on the dealing day immediately preceding the date of grant and for US participants, the dealing day of the date of grant, as derived from The London Stock Exchange Daily Official List.
Performance conditions – The remuneration committee considers annually the levels of option grants. An option becomes exercisable on the third anniversary of the date of grant, but in respect of options granted after May 31, 1994, it cannot be exercised unless a performance test has been satisfied. Thereafter, it may be exercised at any time until it lapses, 10 years from the date of grant. Options granted between May 1994 and December 1996 may not be exercised unless the growth in earnings per share over a period of three consecutive fiscal years exceeds the growth in the UK Retail Price Index over the same period by at least 6%. Options granted in, and subsequent to, December 1997 may not be exercised unless growth in earnings per share over a period of three consecutive fiscal years exceeds growth in the UK Retail Price Index over the same period by at least 9%. In addition, the number of options exercisable by executive directors in respect of awards made between 1997 and 2002 is determined by the return on capital employed achieved over the same rolling three year period. For options granted in 1997 and 1998, achieving a return on capital employed of 15% per annum will enable 50% of options granted to become exercisable, rising on a sliding scale to 100% for achieving a return on capital employed of 20% or more. With effect from October 1999, the maximum return on capital employed required to permit exercise of 100% of options granted was reduced from 20% to 17.5% and the sliding scale was adjusted accordingly. Options granted in, and subsequent to, November 2003 may not be exercised unless growth in earnings per share over the period of three fiscal years (from the fiscal year immediately prior to the grant) exceeds growth in the UK Retail Price Index over the same period by at least 9%. For options so granted in excess of 100% of salary the earnings per share growth has to exceed the growth in the UK Retail Prices Index by at least 12%, rising to 21% for awards greater than 250% of salary. To the extent that the performance condition is not fully met for options granted in November 2003, the satisfaction of the condition will be retested on the
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fourth anniversary of the award, but from the same fixed base, with the further requirement that the earnings per share growth has to extend the growth in the UK Retail Prices Index by at least 12%, rising to 28% for awards greater than 250% of salary. Awards made from 2004 will not benefit from any such retest of the satisfaction of the performance condition.
Individual limit – Under the 1984 and 1989 Schemes, the maximum number of shares over which a participant may be granted an option on any date is subject to the limit that the aggregate exercise price of that option, when added to the aggregate exercise prices of shares comprised in any extant options to subscribe for shares granted to the participant within the previous ten years under the Executive Option Schemes and any other employee share option scheme operated by Wolseley (excluding shares which are the subject of options granted under any savings related share option scheme and any shares issued upon the exercise of options), may not exceed four times the participant’s total remuneration for Wolseley’s current or preceding fiscal year (whichever of those years gives the greater amount) or, where the participant did not receive remuneration for the preceding fiscal year, four times his total remuneration for the 12 month period beginning with the first day of the current fiscal year in which the participant received remuneration. The maximum number of shares over which a participant may be granted an option under the 2003 Scheme may not exceed an amount equal to three times base salary for UK based executives and five times base salary for US based executives, and in other exceptional circumstances as determined by the remuneration committee. It is the committee’s intention that for the year ending July 31, 2006, awards will not exceed 225% of base salary (or 300% in the case of the US Executive Directors).
Exercise of options – Unvested Options may be exercised in whole or in part following the earliest of (i) the expiration of three years from the date of grant of the option subject to the satisfaction of the relevant performance condition; (ii) the participant’s termination of employment by reason of his death, injury or disability (and in the case of the 1984 Executive Share Option Scheme, redundancy and, in the case of options granted under the 2003 Scheme subject to both the satisfaction of the relevant performance condition and to the exercise of a discretion by the remuneration committee); (iii) the participant’s termination of employment for any reason other than death, injury or disability if the Board in its absolute discretion so determines (under the 1984 and 1989 Schemes and, in the case of retirement, awards made under the 2003 Scheme will be exercisable only after the third anniversary of grant and, subject thereto, to the satisfaction of the relevant performance condition); or (iv) the date the option becomes exercisable upon a change of control of Wolseley or the winding up of Wolseley (save in the case of options granted under the 2003 Scheme where, in addition, the remuneration committee must be satisfied that Wolseley’s performance over the curtailed period justifies vesting). Upon a change of control of Wolseley, and subject to the Companies Act 1985 (the “Companies Act”), the general corporations law of England and Wales, a participant generally may exercise an option at any time within a six month period following the later of the date on which control of Wolseley passes to an acquiror and the date on which the offer to acquire becomes unconditional to exercise any unexercised option then held by the participant. Upon the voluntary winding-up of Wolseley, the participant may exercise an option upon receipt of notice of a meeting to consider such matter. The exercise of vested options under the 1984 and 1989 Schemes is governed by the provisions noted above. The exercise of vested options under the 2003 Scheme must take place within six months of termination of employment for good leavers (or 12 months in the event of death), or within one month of termination of employment for those employees who resign or who are dismissed otherwise than for cause.
Lapse of options – An option lapses under the 1984 and 1989 Schemes (to the extent that it has not been previously exercised) upon the earliest of (i) the expiration of ten years from its date of grant; (ii) the expiration of 12 months from the date of participant’s death; (iii) the expiration of 12 months from the date upon which the participant’s employment terminates by reason of injury or disability (and in the case of the 1984 Scheme, redundancy); (iv) the expiration of 18 months from the date on which the participant retires from employment; (v) the date on which the participant’s employment is otherwise terminated; (vi) upon a change of control of Wolseley, the date that is immediately after the expiration of the applicable six month time period for exercise of options; or (vii) upon the voluntary winding-up of Wolseley, a date that is immediately after the commencement of such winding up of Wolseley. An option lapses under the 2003 Scheme (to the extent that it has not previously been exercised) upon the earliest of (i) the fourth anniversary of grant to the extent that awards granted in November 2003 and June 2004 have not satisfied the performance condition; (ii) the third anniversary of grant to the extent that awards granted after November 2004 have not satisfied the performance condition; (iii) six months (or 12 months in the case of death) after termination of employment (or death) to the extent that the award has satisfied the performance condition where termination occurs otherwise than by resignation or dismissal for
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cause; (iv) one month after termination of employment to the extent that the award has satisfied the performance condition where termination occurs by resignation or dismissal otherwise than for cause; (v) immediately upon termination of employment by reason of death, injury, disability, ill health, expected retirement, redundancy and sale of a Group employing company, unless the remuneration committee otherwise exercises its discretion and, subject thereto, to the satisfaction of the proportionate part of the performance condition as at that time.
Issue of shares – Shares issued and allotted pursuant to the Executive Option Schemes rank in full for all dividends and other distributions paid by reference to a record date falling on or after the date on which the allottee is entered on the register of shareholders of Wolseley and shall in all other respects rank equally with other shares issued by Wolseley of the same class.
Employees Savings Option Schemes |
Eligibility – Under the UK Option Scheme, all UK directors and employees of Wolseley with at least six months’ service prior to Wolseley’s results announcement which immediately precedes a grant of options are eligible to participate in the UK Option Scheme. Under the Irish Option Scheme, all Irish directors and employees of Wolseley with one year’s service on the date of Wolseley’s Annual General Meeting immediately preceding a grant of options are eligible to participate in the Irish Option Scheme. The Board has discretion to include other employees. At July 31, 2005, there were approximately 4,000 participants in the Employees Savings Option Schemes.
Options – Options entitle the participant to acquire Wolseley’s ordinary shares. Options will be personal to the participant and his or her personal representatives and may not be transferred or assigned. No payment is required for the grant of an option.
Exercise price – The exercise price of an option is determined by the Board and may not be less than the greater of (i) the price which is the higher of (a) eighty percent and (b) such greater percentage as may be required by appropriate tax legislation, of the middle market quotation for ordinary shares for such dealing day falling as near to (but not earlier than) 30 days immediately preceding the date of grant, as derived from The London Stock Exchange Daily Official List; or (ii) the nominal value of an ordinary share.
Grant of options – Options may be granted with durations of three, five or, for the UK Option Scheme, seven years. Participants choose the duration of their option at the time of grant. It is a condition of granting an option that participants enter into a savings contract with an approved savings institution under which participants save between £10 and £250 per month (for the UK Option Scheme) or €12 and €320 per month (for the Irish Option Scheme), for a three year (36 monthly contributions) or five year (60 monthly contributions) period depending on whether they have chosen a three, five or seven year option. After either 36 or 60 monthly contributions have been made, the three or five year option matures, a bonus is payable and participants may exercise their options and buy ordinary shares in Wolseley at the exercise price. Participants who choose a seven year option at the time of grant are required to leave their savings accumulated over five years undistributed for another two years, at which time a further bonus is payable and they may exercise their option. Options may be exercised only with the available proceeds of the savings contract together with the applicable bonus. Participants may withdraw from a savings contract at any time (though their options will then lapse) and are not obligated to exercise an option when the contract matures at the relevant bonus date. All savings contracts of any individual which are linked to options are aggregated for the purposes of an overall limit on savings of £250 or €320 per month (as the case may be) per participant. No options may be granted more than 10 years after the first grant of options under the Employees Savings Option Schemes. The UK Option Scheme was extended for ten years in 1991, and approval was further renewed until December 2011 at an Extraordinary General Meeting held on December 14, 2001.
Exercise of options – Upon the maturity of a savings contract, a participant has six months in which to use the savings from the savings contract and the bonus to exercise his option and purchase Wolseley’s ordinary shares at the exercise price. Once six months have passed, the option lapses. In some circumstances, a participant may use his savings and exercise his option before it reaches maturity. These circumstances include (i) the death of a participant; (ii) termination of a participant’s employment by reason of his injury, disability, redundancy or retirement (if a participant’s employment terminates other than in these circumstances, his options will lapse upon the date of such termination); (iii) the participant attaining his retirement date but remaining employed thereafter; (iv) a change of control of Wolseley; and (v) the voluntary winding-up of Wolseley.
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Issue of ordinary shares – Ordinary shares purchased on the exercise of options will rank equally with the issued ordinary shares, except for rights attaching to ordinary shares by reference to a record time or date preceding the time or date of purchase.
Individual limits – The monthly contributions payable by participants under a savings contract (i) when added to any contributions payable in any month by such participant under other existing savings contracts, must not exceed £250 or €320 (as the case may be) per participant or such greater sum as may be permitted by appropriate tax legislation and which have been approved by the Board and (ii) shall not be less than £10 (or the € equivalent).
Wolseley Employees International Stock Appreciation Plan (“SAP”) |
On September 12, 1997, Wolseley established the SAP for employees who were not eligible to participate in the Employees Savings Option Schemes. Directors were not entitled to participate in the SAP. Participants in the SAP must have been employed by a participating company, as determined by the Board from time to time. Participants were granted awards comprised of units of ordinary shares with a base price per unit not to exceed the greater of (i) a price which is 80% of the middle market quotation for ordinary shares on the date immediately preceding the date of grant as derived from the London Stock Exchange Daily Official List and (ii) the nominal value of an ordinary share.
Upon exercise, participants receive an award in an amount determined by a formula reflecting the value of the ordinary shares on the date of exercise. Awards are automatically exercisable upon the earlier to occur of a specified date during the year that is the fifth year anniversary of the date of grant or a specified date during the year in which there is a change of control of Wolseley or a resolution to wind up Wolseley has been approved. A participant’s awards will lapse upon his termination of employment from a company participating in the SAP. The SAP has now been succeeded by the Wolseley Employee Share Purchase Plan 2001.
At July 31, 2005 there were approximately 1,900 employees participating in the SAP in respect of awards made up to the fiscal year ended July 31, 2001.
Wolseley Employee Share Purchase Plan 2001 (the “Purchase Plan”) |
On September 21, 2001, Wolseley established the Purchase Plan in place of the SAP noted above. The Purchase Plan (which is a US Revenue Code 423 Plan) offers to eligible employees of participating companies the opportunity to purchase ordinary shares (which include ADSs evidencing ordinary shares) through share options granted to them under the Purchase Plan. An employee or director of a participating company is eligible to participate in the Purchase Plan if he or she (i) has been employed continuously by a participating company for at least one year, (ii) customarily works more than twenty hours per week for a participating company and (iii) customarily works more than five months in a calendar year for a participating company. Wolseley directors may participate in the Purchase Plan if they satisfy the foregoing requirements.
Eligibility – Employees participate in the Purchase Plan by submitting an enrollment form, which specifies the amount of his or her compensation that will be withheld and accumulated for Purchase Plan purposes. The amount of compensation to be withheld must be at least $25 per month but not more than $400 per month (or such other minimum or maximum amounts as may be established by the Board from time to time). Compensation that is withheld is applied to the purchase of ordinary shares as of the applicable exercise date unless the participant has terminated employment or withdrawn from the Purchase Plan before that date.
Option Price – The option price per share for ordinary shares purchased on the exercise of an option shall not be less than 85% of the Fair Market Value of the ordinary shares on the date of grant (but in all cases must be at least the nominal value of an ordinary share). The term “Fair Market Value” means, on any given date, the closing middle market quotation of an ordinary share as derived from the London Stock Exchange Daily Official List or the primary stock exchange on which the ordinary shares are listed.
A participant may discontinue his or her participation in the Purchase Plan at any time by giving written notice to that effect to the Board at any time prior to the exercise date. The amount credited to a participant’s account will be distributed to the participant upon a withdrawal from the plan.
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Grant of Options – The first award was made under the Purchase Plan in March 2002 when options over 530,169 ordinary shares were granted to 3,274 employees at an option price of 597 pence per share. A total of 24,470 options vested on April 8, 2003. The second award was made under the Purchase Plan in March 2003 when options over 2,260,153 ordinary shares were granted to 3,212 employees at an option price of 437.75 pence per share. A total of 1,420,209 options vested on April 16, 2004. The third award was made under the Purchase Plan in March 2004, when options over 2,986,840 ordinary shares were granted to 7,897 employees at an option price of 698.28 pence per share. A total of 1,677,557 options vested on April 26, 2005.
The fourth award was made in March 2005, at an option price of 935.85 pence per share. Options to purchase 2,780,555 ordinary shares were granted to 9,977 employees – 2,457,792 options over ordinary shares were granted to 9,036 employees based in the US and 322,763 options over ordinary shares were granted to 941 employees based in Canada.
As of October 31, 2005, there were outstanding options to purchase a total of 2,947,807 ordinary shares that had been granted by Wolseley to its directors and senior management. Details of options outstanding under the Executive Option Schemes and the Employees Savings Option Schemes and of the interests of the directors and senior management in such schemes as of October 31, 2005 are set out below:
Title of plan | | | Number of ordinary shares issuable upon exercise | | | Range of exercise prices per ordinary share (pence per share) | | | Range of
expiration dates | |
| |
|
| |
|
| |
|
| |
| Executive Option Schemes | | | 11,809,461 | | | 349.75 – 1100.00 | | | 11/2004 – 03/2015 | |
| Employees Savings Option Schemes | | | 8,129,198 | | | 251.00 – 935.85 | | | 04/2005 – 12/2012 | |
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Name of director/senior manager | | | Exercise price per ordinary share (pence per share) | | | Options
exercisable
between | | | Options at
July 31, 2005 | | | Options at
October 31, 2005 | | | Options at
August 1, 2004
(or date of appointment) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Charles A. Banks(a) | | | 483.50 | | | 2000-2007 | | | 22,615 | | | 22,615 | | | 35,000 | |
| | | | 381.00 | | | 2001-2008 | | | 9,235 | | | 9,235 | | | 25,000 | |
| | | | 397.00 | | | 2002-2009 | | | 6,815 | | | 6,815 | | | 22,000 | |
| | | | 349.75 | | | 2003-2010 | | | — | | | — | | | 50,000 | |
| | | | 468.00 | | | 2004-2011 | | | 400,000 | | | 400,000 | | | 400,000 | |
| | | | 467.00 | | | 2004-2011 | | | 135,400 | | | 135,400 | | | 150,000 | |
| | | | 543.00 | | | 2005-2012 | | | 225,000 | | | 225,000 | | | 225,000 | |
| | | | 743.00 | | | 2006-2013 | | | 263,098 | | | 263,098 | | | 263,098 | |
| | | | 949.00 | | | 2007-2014 | | | 153,429 | | | 153,429 | | | — | |
| | | | | | | | | | | | | | | | | |
Adrian Barden(a) | | | 483.50 | | | 2000-2007 | | | — | | | — | | | 6,000 | |
| | | | 381.00 | | | 2001-2008 | | | 6,000 | | | 6,000 | | | 6,000 | |
| | | | 397.00 | | | 2002-2009 | | | 8,000 | | | 8,000 | | | 8,000 | |
| | | | 349.75 | | | 2003-2010 | | | 13,000 | | | 13,000 | | | 13,000 | |
| | | | 467.00 | | | 2004-2011 | | | 7,600 | | | 7,600 | | | 14,000 | |
| | | | 543.00 | | | 2005-2012 | | | 20,000 | | | 20,000 | | | 20,000 | |
| | | | 743.00 | | | 2006-2013 | | | 60,000 | | | 60,000 | | | 60,000 | |
| | | | 949.00 | | | 2007-2014 | | | 27,924 | | | 27,924 | | | — | |
| | | | | | | | | | | | | | | | | |
Jacques Descours(a)(b) | | | 388.75 | | | 1997-2004 | | | — | | | — | | | 8,000 | |
| | | | 433.00 | | | 1998-2005 | | | 8,300 | | | 8,300 | | | 8,300 | |
| | | | 456.50 | | | 1999-2006 | | | 10,000 | | | 10,000 | | | 10,000 | |
| | | | 483.50 | | | 2000-2007 | | | 10,000 | | | 10,000 | | | 10,000 | |
| | | | 381.00 | | | 2001-2008 | | | 25,000 | | | 25,000 | | | 25,000 | |
| | | | 397.00 | | | 2002-2009 | | | 22,000 | | | 22,000 | | | 22,000 | |
| | | | 349.75 | | | 2003-2010 | | | 50,000 | | | 50,000 | | | 50,000 | |
| | | | 467.00 | | | 2004-2011 | | | 50,000 | | | 50,000 | | | 50,000 | |
| | | | 543.00 | | | 2005-2012 | | | 50,000 | | | 50,000 | | | 50,000 | |
| | | | 743.00 | | | 2006-2013 | | | 43,000 | | | 43,000 | | | 43,000 | |
| | | | | | | | | | | | | | | | | |
Fenton N. Hord(a) | | | 456.50 | | | 1999-2006 | | | — | | | — | | | 10,000 | |
| | | | 483.50 | | | 2000-2007 | | | — | | | — | | | 10,000 | |
| | | | 381.00 | | | 2001-2008 | | | — | | | — | | | 10,000 | |
| | | | 397.00 | | | 2002-2009 | | | — | | | — | | | 12,000 | |
| | | | 349.75 | | | 2003-2010 | | | 50,000 | | | 50,000 | | | 50,000 | |
| | | | 467.00 | | | 2004-2011 | | | 75,000 | | | 75,000 | | | 75,000 | |
| | | | 543.00 | | | 2005-2012 | | | 60,000 | | | 60,000 | | | 60,000 | |
| | | | 743.00 | | | 2006-2013 | | | 65,037 | | | 65,037 | | | 65,037 | |
| | | | 949.00 | | | 2007-2014 | | | 78,162 | | | 78,162 | | | — | |
| | | | | | | | | | | | | | | | | |
Claude A. S. Hornsby(a) | | | 483.50 | | | 2000-2007 | | | — | | | — | | | 8,000 | |
| | | | 381.00 | | | 2001-2008 | | | — | | | — | | | 8,000 | |
| | | | 397.00 | | | 2002-2009 | | | — | | | — | | | 10,000 | |
| | | | 349.75 | | | 2003-2010 | | | — | | | — | | | 15,000 | |
| | | | 485.00 | | | 2004-2011 | | | 14,762 | | | 14,762 | | | 100,000 | |
| | | | 467.00 | | | 2004-2011 | | | 14,600 | | | 14,600 | | | 75,000 | |
| | | | 543.00 | | | 2005-2012 | | | 80,000 | | | 80,000 | | | 80,000 | |
| | | | 743.00 | | | 2006-2013 | | | 101,871 | | | 101,871 | | | 101,871 | |
| | | | 949.00 | | | 2007-2014 | | | 101,321 | | | 101,321 | | | — | |
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Name of director/senior manager | | | Exercise price per ordinary share (pence per share) | | | Options
exercisable
between | | | Options at
July 31, 2005 | | | Options at
October 31, 2005 | | | Options at
August 1, 2004
(or date of appointment) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Gérard Legtmann(c) | | | 743.00 | | | 2006-2013 | | | — | | | — | | | 161,238 | |
| | | | 949.00 | | | 2007-2014 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Robert H. Marchbank(b) | | | 349.75 | | | 2003-2010 | | | 15,000 | | | 15,000 | | | 15,000 | |
| | | | 467.00 | | | 2004-2011 | | | 30,000 | | | 30,000 | | | 30,000 | |
| | | | 543.00 | | | 2005-2012 | | | 30,000 | | | 30,000 | | | 30,000 | |
| | | | 743.00 | | | 2006-2013 | | | 30,000 | | | 30,000 | | | 30,000 | |
| | | | 949.00 | | | 2007-2014 | | | 34,195 | | | 34,195 | | | — | |
| | | | 1100.00 | | | 2008-2015 | | | 50,000 | | | 50,000 | | | — | |
| | | | | | | | | | | | | | | | | |
Stephen P. Webster(a) | | | 433.00 | | | 1998-2005 | | | — | | | — | | | 16,800 | |
| | | | 483.50 | | | 2000-2007 | | | 9,450 | | | 9,450 | | | 30,471 | |
| | | | 381.00 | | | 2001-2008 | | | 25,000 | | | 25,000 | | | 25,000 | |
| | | | 397.00 | | | 2002-2009 | | | 22,000 | | | 22,000 | | | 22,000 | |
| | | | 349.75 | | | 2003-2010 | | | 50,000 | | | 50,000 | | | 50,000 | |
| | | | 467.00 | | | 2004-2011 | | | 75,000 | | | 75,000 | | | 75,000 | |
| | | | 543.00 | | | 2005-2012 | | | 80,000 | | | 80,000 | | | 80,000 | |
| | | | 743.00 | | | 2006-2013 | | | 90,679 | | | 90,679 | | | 90,679 | |
| | | | 949.00 | | | 2007-2014 | | | 79,293 | | | 79,293 | | | — | |
| | | | | | | | | | | | | | | | | |
| Mark J. White | | | 543.00 | | | 2005-2012 | | | 20,000 | | | 20,000 | | | 20,000 | |
| | | | 743.00 | | | 2006-2013 | | | 20,000 | | | 20,000 | | | 20,000 | |
| | | | 949.00 | | | 2007-2014 | | | 20,021 | | | 20,021 | | | — | |
| | | | | | | | | | | | | | | | | |
| (a) | The following exercises of options took place during the 2005 fiscal year, and to October 31, 2005: |
| | (i) | by Charles A. Banks of executive share options on October 7, 2004 in respect of 12,385 ordinary shares at a per share option price of 483.50 pence and 15,765 ordinary shares at a per share option price of 381.00 pence (closing middle market price 941.50 pence); of executive share options on April 1, 2005 in respect of 15,185 ordinary shares at a per share option price of 397.00 pence and 19,689 ordinary shares at a per share option price of 349.75 pence (closing middle market price 1118.00 pence); and of executive share options on July 27, 2005 in respect of 30,311 ordinary shares at a per share option price of 349.75 pence and 14,600 ordinary shares at a per share option price of 467.00 pence (closing middle market price 1180.00 pence); |
| | (ii) | by Adrian Barden of executive share options on December 17, 2004 in respect of 6,400 ordinary shares at a per share option price of 467.00 pence and 6,000 ordinary shares at a per share option price of 483.50 pence (closing middle market price 948.50 pence); |
| | (iii) | by Jacques R. Descours of executive share options on October 19, 2004 in respect of 8,000 ordinary shares at a per share option price of 388.75 pence (closing middle market price 930.50 pence); |
| | (iv) | by Fenton N. Hord of executive share options on October 25, 2004 in respect of 10,000 ordinary shares at a per share option price of 456.50 pence; 10,000 ordinary shares at a per share option price of 483.50 pence; 10,000 ordinary shares at a per share option price of 381.00 pence and 12,000 ordinary shares at a per share option price of 397.00 pence (closing middle market price 913.00 pence). |
| | (v) | by Claude A. S. Hornsby of executive share options on December 17, 2004 in respect of 8,000 ordinary shares at a per share option price of 483.50 pence; 8,000 ordinary shares at a per share option price of 381.00 pence and 10,000 ordinary shares at a per share option price of 397.00 pence (closing middle market price 948.50 pence); of executive share options on January 10, 2005 in respect of 15,000 ordinary shares at a per share option price of 349.75 pence (closing middle market price 983.50 pence); of executive share options on April 5, 2005 in respect of 60,400 ordinary shares at a per share option price of 467.00 pence (closing middle market price 1116.00 pence) and of executive share options on April 29, 2005 in respect of 85,238 ordinary shares at a per share option price of 485.00 pence (closing middle market price 1048.00 pence); and |
| | (vi) | by Stephen P. Webster of executive share options on October 7, 2004 in respect of 16,800 ordinary shares at a per share option price of 433.00 pence (closing middle market price 941.50 pence) and of executive share options on June 8, 2005 in respect of 21,021 ordinary shares at a per share option price of 483.50 pence (closing middle market price 1133.00 pence); |
| (b) | Robert Marchbank was appointed to the board with effect from January 24, 2005. Jacques Descours left the board on October 7, 2004. |
| (c) | Options granted to Gerard Legtmann in 2003 (161,238) and in 2004 (38,461) lapsed on January 24, 2005 upon his ceasing to be a director. |
| (d) | The highest middle-market per share price of Wolseley’s ordinary shares during fiscal year 2005 was 1202.00 pence and the lowest was 822.00 pence. The year-end price at July 31, 2005 was 1186.00 pence per share. |
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Savings related share option schemes, including stock appreciation plan |
| |
Name of Director/Senior Manager | | | Subscription
Price | | | Options
Expire in | | | Options at
July 31, 2005
and October 31, 2005 | | | Options at
August 1, 2004
(or date of appointment) | |
| |
|
| |
|
| |
|
| |
|
| |
| Charles A. Banks | | | 562p | | | 2005 | | | — | | | 1,690 | |
| | | | 698.28p | | | 2005 | | | — | | | 372 | |
| | | | 935.85p | | | 2006 | | | 272 | | | — | |
| | | | 881p | | | 2008 | | | 1,075 | | | — | |
| Adrian Barden | | | 562p | | | 2005 | | | — | | | 608 | |
| | | | 336p | | | 2006 | | | 2,008 | | | 2,008 | |
| | | | 412p | | | 2008 | | | 956 | | | 956 | |
| | | | 881p | | | 2010 | | | 675 | | | — | |
| Fenton N. Hord | | | 698.28p | | | 2005 | | | — | | | 372 | |
| | | | 935.85p | | | 2006 | | | 272 | | | — | |
| Claude A. S. Hornsby | | | 698.28p | | | 2005 | | | — | | | 372 | |
| | | | 935.85p | | | 2006 | | | 272 | | | — | |
| Robert H. Marchbank | | | 698.28p | | | 2005 | | | — | | | 372 | |
| | | | 935.85p | | | 2006 | | | 272 | | | — | |
| | | | 412p | | | 2006 | | | 2,293 | | | 2,293 | |
| Stephen P. Webster | | | 562p | | | 2005 | | | — | | | 1,014 | |
| | | | 412p | | | 2006 | | | 917 | | | 917 | |
| Mark J. White | | | 412p | | | 2008 | | | 3,986 | | | 3,986 | |
Messrs Banks, Hord, Hornsby and Marchbank each exercised options over 358 ordinary shares (a reduction of 14 options over ordinary shares (which lapsed) from the total of options over 372 ordinary shares listed at August 1, 2004 due to exchange rate fluctuations) under the Group’s Purchase Plan, all on April 26, 2005. The closing middle market price on April 26, 2005 was 1099.50 pence per share. Messrs Banks, Barden and Webster each exercised options on June 8, 2005 under the UK Options Scheme. Mr Banks exercised 1,690 options, Mr Barden exercised 608 options and Mr Webster exercised 1,014 options at a price of 562 pence per share. The closing middle market price on June 8, 2005 was 1133 pence per share.
| |
Director Service Agreements |
Wolseley is a party to director service agreements with each of the executive directors. The non executive directors do not have service agreements with Wolseley, but their appointments are terminable upon six months’ notice. All current service agreements with the executive directors are subject to a maximum 12 months’ notice of termination if given by Wolseley and 6 months’ notice of termination if given by the executive director. Such notice periods reflect current market practice and the balance that should be struck between providing contractual protection to the directors that is fair and the interests of our stockholders. The date of each service agreement and the year in which each director was last elected or re-elected are noted in the table below. There are no provisions in any service agreement for early termination payments and, in the event of early termination of any service agreement, the remuneration committee will take a robust view of the mitigation, which should be taken into account when computing any compensation payable.
Name | | | Date of service contract | | | Year of election / re-election | |
| |
|
| |
|
| |
| Charles A. Banks | | | July 9, 2003 | | | 2004 | |
| Fenton N. Hord | | | June 27, 2003 | | | 2003 | |
| Claude A. S. Hornsby | | | July 18, 2003 | | | 2004 | |
| Robert H. Marchbank | | | March 18, 2005 | | | to be elected at the 2005
Annual General Meeting | |
| Stephen P. Webster | | | September 15, 2002 | | | 2003 | |
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Wolseley has entered into service agreements with the executive directors (each an “Executive”). Mr Webster’s agreement provides for his employment as Group Finance Director at a current annual base salary, plus commission or bonus on a basis determined by Wolseley from time to time. Mr Banks’ agreement provides for his employment as Chief Executive Officer at a current base salary, plus commission or bonus on a basis determined by Wolseley from time to time. Mr Hord’s agreement provides for his employment as Chief Executive Officer of SBS at a current base salary, plus commission or bonus on a basis determined by Wolseley from time to time, Mr Hornsby’s agreement provides for his employment as Chief Executive Officer of Ferguson Enterprises Inc. at a current base salary, plus commission or bonus on a basis determined by Wolseley from time to time. Mr Marchbank’s agreement provides for his employment as Chief Executive Officer of Wolseley Europe at a current annual base salary plus commission or bonus on a basis determined by Wolseley from time to time.
Each Executive’s salary is subject to review on an annual basis. Each agreement provides for automatic termination at normal retirement age. Additionally, Wolseley may terminate the Executive’s agreement at any time: (i) if the Executive, without reasonable cause, neglects or refuses to perform his duties under the agreement; (ii) if the Executive becomes insolvent or bankrupt in accordance with English or applicable US law; or (iii) if the Executive engages in dishonesty or other misconduct which, in the opinion of the Board, affects Wolseley’s business. Each Executive’s agreement contains restrictive covenants that would operate upon the Executive’s termination of employment.
The Board is committed to high standards of corporate governance throughout the Group as set out in the Combined Code on corporate governance, published by the Financial Reporting Council in July 2003 (“the Code”) for financial periods beginning on or after November 1, 2003. The Board is accountable to Wolseley’s shareholders for good governance, and this report describes how the Board applied the principles of good governance set out in the Code during the year under review.
The Board has established a number of committees, each of which has formal terms of reference (copies of which for the main committees are available from the Company Secretary and can be found on Wolseley’s website at www.wolseley.com) approved by the Board and complying with the Code to assist in the discharge of its duties. Members of the various committees are referred to in the following paragraphs. The Company Secretary acts as secretary to all Board committees.
The nominations committee meets on an as-needed basis and is comprised of Messrs Whybrow (Chairman), Banks, Davis, Duff and Walker. Mr Whybrow would not chair the committee when it considers the appointment of a successor chairman. The nominations committee reviews the structure, size and composition of the Board and its committees and makes recommendations with regard to any changes that are considered necessary, both in the identification and nomination of new directors and the continuation of existing directors in office. The committee retains external search consultants as appropriate. The nominations committee also advises the Board on succession planning for executive Board appointments, although the Board itself is responsible for succession generally. The nominations committee met twice during the year, and attendance of members of the committee is shown at “Item 6 – Directors, Senior Management and Employees, Paragraph A – Meeting Attendance”.
The audit committee comprises Messrs Davis, Stein and Murray (who chairs the committee). The audit committee’s membership is reviewed by the nominations committee and by Mr Murray at regular intervals. Members of the committee are appointed by the Board following recommendations by the nominations committee. The audit committee is normally comprised of three independent non executive directors, and two members constitute a quorum.
Each member of the audit committee brings relevant financial experience from senior executive levels and is considered to be financially literate under the rules of the NYSE by the Board in its business judgment. The expertise and experience of the members of the audit committee are summarized at “Item 6 – Directors, Senior Management and Employees, Paragraph A – Directors and Senior Management”. The Board considers that each member of the audit committee is independent within the definition set out in the Code and under the standards
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and rules of the NYSE and the Sarbanes-Oxley Act of 2002 as applicable. Mr Stein, the Audit Committee Financial Expert, is considered to have significant, recent and relevant financial experience and expertise, as he is currently Finance Director of GKN plc.
All members of the committee receive appropriate induction, which is in addition to the induction which all new directors receive and includes an overview of the business, its financial dynamics and risks. Audit committee members are expected to have an understanding of the following areas: the principles of, contents of, and developments in, financial reporting, including the applicable accounting standards and statements of recommended practice; key aspects of Wolseley’s approach, including corporate policies; company financing; systems of internal control; matters that require the use of judgment in the presentation of accounts and key figures as well as the role of internal and external auditors. Members of the committee undertake ongoing training as required.
The audit committee meets regularly throughout the year, and its agenda is linked to events in Wolseley’s financial calendar. The agenda is mostly cyclical such that the committee Chairman approves the agenda on behalf of all members of the committee; each member of the committee may require reports on matters of interest in addition to the regular items. Director attendance for each meeting is shown at “Item 6 – Directors, Senior Management and Employees, Paragraph A – Meeting Attendance”.
The committee invites the Chairman, the Chief Executive, the Group Finance Director, Group Financial Controller and the Head of Internal Audit together with senior representatives of the external auditors to attend each meeting although it reserves part of each meeting for discussions without the invitees being present. Other senior management personnel are invited to present such reports as are required for the committee to discharge its duties.
The chairman of the audit committee attends the Annual General Meeting to respond to any shareholder questions that might be raised on the committee’s activities. The remuneration of the members of the audit committee is set out at “Item 6 – Directors, Senior Management and Employees, Paragraph B – Compensation”, and the policy with regard to the remuneration of non executive directors is set out at “Item 6 – Directors, Senior Management and Employees, Paragraph B – Compensation, non executive directors”.
The audit committee is required to assist members of the Board to fulfill their responsibilities related to external financial reporting and associated announcements. During the year, the audit committee reviewed the interim and annual financial statements, the restatement of the interim statement under International Financial Reporting Standards for the six months to January 21, 2005 and the associated interim and preliminary announcements made to the London Stock Exchange and the NYSE and Wolseley’s Annual Report on Form 20-F for fiscal 2004, having received the appropriate information on the accounting principles, policies and practices adopted in the preparation of the accounts; changes proposed to those principles; policies and practices; significant accounting issues; litigation and contingent liabilities and tax matters, including contingencies against tax liabilities together with compliance with statutory tax obligations.
The audit committee is also responsible for the development, implementation and monitoring of Wolseley’s policy on external audit. The audit committee reserves oversight responsibility for monitoring the independence, objectivity and compliance with ethical and regulatory requirements. The audit committee recommends the appointment and reappointment of the Wolseley’s external auditors and reviews the scope, results (including schedules of unadjusted errors and representation letters) and cost effectiveness of the audit as well as the auditors’ remuneration and performance. The audit committee also ensures that key partners within the external auditors are rotated from time to time in accordance with both UK and US rules. It also monitors the extent of non-audit work which the external auditors can perform, to ensure that the provision of those non-audit services that can be undertaken by the external auditors falls within the agreed policy and does not impair their objectivity or independence. Under the policy, the external auditors cannot be engaged to perform any of the following services:
| • | bookkeeping services related to accounting records or financial statements; |
| | |
| • | financial information systems’ design and implementation; |
| | |
| • | appraisal or valuation services, fairness opinions and contributions in kind reports; |
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| | |
| • | internal audit outsourcing services; |
| | |
| • | management functions including human resources; |
| | |
| • | broker or dealer, investment adviser or investment banking services; and |
| | |
| • | legal and other services unrelated to the audit. |
The policy requires pre-confirmation by the committee of any non-audit work subject to de minimis levels. The external auditors provide audit related services such as regulatory and statutory reporting as well as formalities relating to shareholder or other circulars. The external auditors report to the committee any material departures from Group accounting policies and procedures that they identify during the course of their audit work. Within the constraints of applicable US and UK rules, the external auditors undertake due diligence reviews and provide assistance on tax matters given their in-depth knowledge of the Group’s business. The provision of non-audit services within such constraints and the agreed policy is assessed on a case-by-case basis so that the best-placed adviser is retained. During the year the committee reviewed the effectiveness of the external auditors and considered whether the agreed plan had been fulfilled and the reasons for any variation from the plan. The committee also considered the external auditors’ robustness and the degree to which the external auditors were able to assess key accounting and audit judgments and the context of the management letter. The committee reviews annually a formal letter provided by the external auditors confirming their independence and objectivity within the context of applicable regulatory requirements and professional standards. The audit committee also reviewed the terms, areas of responsibility and scope of the audit as set out in the external auditors’ engagement letter; the overall work plan for the forthcoming year, together with the associated fee proposal; any major issues which arose during the course of the audit and their resolution; key accounting and audit judgments; the level of errors identified during the audit; the recommendations made to management by the auditors and management’s response.
The total fees paid to PricewaterhouseCoopers LLP in fiscal year 2005 were £7.2 million (2004: £5.6 million), of which £4.7 million (2004: £3.5 million) related to non-audit work.
The audit committee also reviews the effectiveness of the Group’s internal audit function and its relationship with the external auditors, including internal audit plans and performance. Throughout the year, the committee reviewed the internal audit function’s plans and its achievements against plans. The audit committee considered the results of the audits undertaken by the internal audit function and considered the adequacy of management’s response to matters raised, including the time taken to resolve any such matters. The audit committee oversaw the continued development of the function during the year and considered the need to continue to outsource to KPMG LLP some elements of internal audit’s work to provide support as the function further develops. The committee has also monitored the policy which it approved on the recruitment of staff from both the external auditors and from KPMG LLP.
The audit committee also reviews, where practicable, all proposed announcements to be made by the Company to the extent that they contain material financial information. It also reviews disclosures made by the Chief Executive and Group Finance Director during the certification process for this report concerning the design and operation of internal controls or material weaknesses in the controls, including any fraud involving management or other employees involved in the Group’s financial controls. The committee monitors and reviews the effectiveness of the Group’s internal control systems, accounting policies and practices, risk management procedures and compliance controls as well as the Group’s statements on internal controls before they are agreed by the Board for each year’s annual report. The audit committee has also monitored the Company’s response to the requirements of the Sarbanes-Oxley Act 2002 as they apply to foreign private issuers, with particular focus on the progress made in evaluating internal controls as required by Section 404 of that Act. The Board retains overall responsibility for internal control and the identification and management of business risk. During the year, the committee also reviewed the progress of the Group’s preparation for reporting under the new International Financial Reporting Standards (“IFRS”) and the processes which are being embedded throughout the Group to implement them. The committee also reviewed the impact of adopting IFRS on the opening balance sheet as of August 1, 2004 and was satisfied that suitable policies were being applied and were appropriate. The committee also approved the publication on July 18, 2005 of the restatement of the Group’s interim results for the six months ended January 31, 2005 as prepared under IFRS.
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Wolseley’s whistleblowing policy (which is an extension of the Group-wide Code of Ethics) sets out arrangements for the Company Secretary to receive, in confidence, complaints on accounting, risk issues, internal controls, auditing issues and related matters which would, as appropriate, be reported to the committee. A copy of the Code of Ethics is available on Wolseley’s website at www.wolseley.com as referred to at “Item 16B – Code of Ethics”.
Each year the committee critically reviews its own performance and terms of reference and considers where improvements can be made.
The remuneration committee comprises Messrs Davis, Duff and Walker (who chairs the committee), all of whom are independent within the definition set out in the Code. The remuneration committee met six times during the fiscal year, and director attendance for each meeting is shown at “Item 6 – Directors, Senior Management and Employees, Paragraph A – Meetings Attendance”. The remuneration committee is responsible for making recommendations on remuneration to the Board. During the year, the committee reviewed its terms of reference, as approved in July 2004. It was agreed by the Board that no amendments were required. Copies of these terms of reference are available from the Company Secretary or on Wolseley’s website at www.wolseley.com. The chairman of the remuneration committee attends the Annual General Meeting to respond to any shareholder questions that might be raised on the committee’s activities. On September 26, 2005, the Company announced that Mr Duff would succeed Mr Walker as Chairman of the committee effective November 1, 2005. Mr Walker will remain a member of the remuneration committee.
The executive directors of the Company, together with Mr Barden, who has been responsible for Wolseley UK Limited since August 1, 2003, meet at least eight times each financial year, often on the day before formal Board meetings. The executive committee addresses operational business issues and shares best practices, thereby allowing the directors more time at Board meetings to focus on strategy.
The treasury committee comprises the Group Chief Executive, the Group Treasurer and the Group Finance Director, who acts as its Chairman. Its role is to consider treasury policy, tax matters and certain transactions on behalf of the Group within a framework delegated by the Board. The treasury committee meets approximately five times each fiscal year, as required by the demands of the business.
The discrete internal audit function, which was established within the Group during 2003, continued to expand its scope of work and to recruit further members of staff during the year. The Head of Internal Audit is based at Wolseley’s head office in Theale, UK. The internal audit function is involved in the assessment of the quality of risk management and internal control and helps to promote effective risk management within the businesses. Certain internal audit assignments (such as those requiring specialist expertise) continue to be outsourced by the Head of Internal Audit to KPMG LLP as required. The audit committee reviews internal audit reports and considered the effectiveness of the function.
Wolseley applied all of the principles set out in section 1 of the Code for the period under review and has, throughout the fiscal year, complied with the detailed provisions set out therein, save that, following the introduction of a new directors’ bonus scheme with effect from August 1, 2000, the pensionable salary of one executive director includes his bonus capped at a fixed amount.
Wolseley’s auditors, PricewaterhouseCoopers LLP, are required to review whether the above statement reflects Wolseley’s compliance with the nine provisions of the Code specified for its review by the Listing Rules of the UK Financial Services Authority and to report if it does not reflect such compliance. No such report has been made.
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New York Stock Exchange – corporate governance requirements |
Whilst Wolseley is not required to comply with the measures set by the board of the New York Stock Exchange, Inc. to strengthen corporate accountability as it is a private foreign issuer, it does comply in all material respects with those standards. Those standards state, in brief, that companies should have a nominating/corporate governance committee composed entirely of independent directors with written terms of reference, which develops and recommends to the Board a set of corporate governance principles for the company. Details of Wolseley’s nominations committee are set out at “Item 6 – Directors, Senior Management and Employees, Paragraph C – Board Practices”. The nominations committee does not develop corporate governance principles for the Board to approve. The Board itself approves Wolseley’s overall system of internal controls, governance and authority limits. A majority of the members of the nominations committee are independent non executive directors and all such directors sit on the Board. Wolseley’s practice, in accordance with the UK Companies Act and Code in relation to the appointment and termination of the external auditors, is that a recommendation is made by the audit committee to the Board, which will then make a recommendation to shareholders in general meeting. This differs from US procedures, whereby the external auditors are accountable to the audit committee, which has the authority to appoint or dismiss the external auditors without reference to the shareholders.
In a Group, where local management has considerable autonomy to run and develop their businesses, a well designed system of internal control is necessary to safeguard shareholders’ investment and Wolseley’s assets. The directors acknowledge that they have overall responsibility for the Group’s systems of internal control and for reviewing their effectiveness. In accordance with the guidance set out in the Turnbull Report “Internal Control: Guidance for Directors on the Combined Code”, an ongoing process had been established for identifying, managing and evaluating the risks faced by the Group. This process has been in place for the full fiscal year and up to the date on which the UK financial statements were approved. The systems are designed to manage rather than eliminate the risk of failure to achieve the Group’s objectives, safeguard the Group’s assets against material loss, fairly report the Group’s performance and position and to ensure compliance with relevant legislation, regulation and best practice including that related to social, environmental and ethical matters. The systems provide reasonable, not absolute, assurance against material misstatement or loss. Such systems are regularly reviewed by the Board to deal with changing circumstances. A summary of the key financial risks inherent in Wolseley’s business is included under “Item 3 – Key Information, paragraph D – Risk Factors Relating to Wolseley’s Industry and Business”. Risk assessment and evaluation is an integral part of the annual planning cycle. Each business documents the strategic objectives and the effectiveness of the Group’s systems of internal control. As part of this review, each business area and function has been required to identify and document each significant risk, together with the mitigating actions implemented to manage, monitor and report to management on the effectiveness of these controls. Senior managers are also required to sign bi-annual confirmations of compliance with key procedures and to report any breakdowns in, or exceptions to, these procedures. Summarized results have been presented to senior management and to the audit committee. The Board has reviewed the effectiveness of the Group’s system of internal control for the year under review. A summary of the principal control structures and processes in place across the Group is set out below.
Whilst the Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness, it has delegated responsibility for the internal control and risk management program to the Group Finance Director. The detailed review of internal control and risk management has been delegated to the audit committee. The management of each Group company is responsible for internal control and risk management within its own business and for ensuring compliance with the Group’s policies and procedures. Each Group company has appointed a risk director whose primary role in such capacity is to ensure compliance by local management with the Group’s risk management and internal control program. Both the internal and external auditors have reviewed the overall approach adopted by the Group towards its risk management activities so as to reinforce these internal control requirements.
The Board reviews its strategic plans and objectives on an annual basis and approves Group company budgets and strategies in light of them. Control is exercised at both Group and subsidiary Board level through monthly
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monitoring of performance by comparison to budgets, forecasts and cash targets, and by regular visits to Group companies by the Group Chief Executive and Group Finance Director. Group companies approve and submit risk reports to the audit committee, summarizing the key risks facing their businesses and the controls in place to manage those risks. These reports, together with reports on internal control and departures, if any, from established Group procedures prepared by the external auditors, are reviewed by the Group Finance Director and the audit committee. Group companies submit annual risk and internal control representation letters to the Group Finance Director on internal control and risk management issues, with comments on the control environment within their operations. The Group Finance Director summarizes these submissions for the audit committee, and the chairman of the audit committee reports to the Board on any matters which have arisen from the committee’s review of the way in which the risk management and internal control processes have been applied.
The Board has formal procedures in place for the approval of investment and acquisition projects, with designated levels of authority, supported by post-investment review processes for selected acquisitions and major capital expenditures. The Board considers social, environmental and ethical matters in relation to the Group’s businesses and assesses these when reviewing the risks faced by the Group. The Board is conscious of the effect such matters may have on the short and long-term value of Wolseley. Wolseley’s external auditors and the Head of Internal Audit attend audit committee meetings and receive its papers. The report of the audit committee is set out at “Item 6 – Directors, Senior Management and Employees, Paragraph C – Board Practices, Audit Committee”, and the audit committee members regularly meet the external auditors without the presence of executive management.
Wolseley is required to comply with applicable US regulations, including the Sarbanes-Oxley Act, insofar as they apply to foreign private issuers. Accordingly, Wolseley has established a disclosure committee comprising the Group Chief Executive Officer, the Group Finance Director, the Group Financial Controller and the Group Company Secretary and Counsel. The Group Chief Executive Officer and the Group Finance Director have evaluated the effectiveness of Wolseley’s disclosure controls and procedures as of July 31, 2005. Based on such evaluation, such officers have concluded that, as of that date, Wolseley’s disclosure controls and procedures were effective. There were no significant changes in Wolseley’s disclosure controls and procedures or in other factors that could significantly affect those controls subsequent to the date that the evaluation was completed. During the fiscal year, work necessary to achieve compliance with the requirements of the Sarbanes-Oxley Act related to internal controls has continued, and the Board is confident of meeting the revised deadline imposed by the Commission.
Certifications by the Group Chief Executive and Group Finance Director as required by the Sarbanes-Oxley Act are submitted as exhibits to this Form 20-F.
As of July 31, 2005, Wolseley had 60,188 employees, including 20,384 employees in North American Plumbing and Heating Distribution, 14,165 employees in US Building Materials Distribution and 25,639 employees in European Distribution.
A small proportion of Wolseley’s employees are covered by collective bargaining or other similar labor agreements. Historically, the effects of collective bargaining and other similar labor agreements on the Group have not been significant. Any inability by Wolseley to negotiate acceptable new contracts with unions could cause strikes or other work stoppages, and new contracts could result in increased operating costs. While there are a few collective bargaining agreements covering Wolseley employees which are in the process of being re-negotiated, the non-renewal of these contracts would not have a material impact on Wolseley’s operations. At this time, Wolseley does not currently anticipate any problems re-negotiating acceptable contracts in these cases.
The following table sets forth information known to Wolseley with respect to the beneficial ownership of Wolseley’s ordinary shares as of October 31, 2005 by each of Wolseley’s executive and non executive directors and members of Wolseley’s senior management in office on such date. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary shares subject to stock options currently exercisable or exercisable within 60 days are
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deemed to be outstanding for computing the percentage ownership of the person holding these options and the percentage ownership of any group of which the holder is a member, but are not deemed outstanding for computing the percentage of any other person. Subject to community property laws where applicable, the persons named in the table have sole voting power and investment power with respect to all ordinary shares shown as beneficially owned by them.
Name | | | Number of Shares Beneficially Owned at
October 31, 2005 | | | Percentage
of Shares Outstanding | |
| |
|
| |
|
| |
| Charles A. Banks | | | 200,137 | | | * | |
| Adrian Barden | | | 5,655 | | | * | |
| Gareth Davis | | | 10,664 | | | * | |
| Andrew J. Duff | | | 3,993 | | | * | |
| Fenton N. Hord | | | 83,179 | | | * | |
| Claude A.S. Hornsby | | | 48,017 | | | * | |
| Robert H. Marchbank | | | 12,802 | | | * | |
| James I. K. Murray | | | 5,000 | | | * | |
| Nigel M. Stein | | | 2,500 | | | * | |
| Robert M. Walker | | | 2,160 | | | * | |
| Stephen P. Webster | | | 38,205 | | | * | |
| Mark J. White | | | — | | | n/a | |
| John W. Whybrow | | | 45,284 | | | * | |
| | | | | | | | |
| * | denotes less than 1% of issued share capital of Wolseley. |
As of both July 31, 2005 and October 31, 2005, none of the directors had any beneficial interest in the shares of any Wolseley subsidiary. Apart from contracts of employment, none of the persons listed above had a material beneficial interest in any contract of significance to which Wolseley or any of its subsidiaries was a party during the fiscal year ended July 31, 2005 or the period from then until October 31, 2005. For information regarding option ownership and equity plans, see “Item 6 – Directors, Senior Managers and Employees, Paragraph B – Compensation”.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
Wolseley does not presently have any five percent or greater shareholders. Under the Companies Act 1985, holders of voting securities of a listed UK company must notify Wolseley of the level of their holding whenever it reaches, exceeds or falls below specified thresholds. These thresholds are 3% (beneficial) and 10% (non-beneficial) and every one percentage movement in the number of shares held which have voting rights. The following table sets forth, as of October 31, 2005, the number of ordinary shares held by holders of more than 3% and their percentage ownership which have been notified to Wolseley in accordance with the provisions noted above.
Name | | | % | |
| |
|
| |
| Lloyds TSB Group plc | | | 4.126 | |
| Legal & General Investment Management Limited | | | 3.000 | |
None of Wolseley’s major shareholders has voting rights different from any other shareholder.
As of October 31, 2005, Wolseley had a total of 10,864 shareholders who owned a total of 592,160,675 ordinary shares. Of these, 10,629 were registered with addresses in the UK and collectively, these shareholders owned a total of 590,488,843 ordinary shares, representing 99.72% of Wolseley’s outstanding ordinary shares, including those held through ADSs. Wolseley is not directly or indirectly controlled by another corporation, government or by any other legal or natural person.
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As of October 31, 2005, 639,671 ordinary shares were held on record in the US, held by 40 record holders and representing less than 0.001% of the total number of ordinary shares outstanding and 20,331 ordinary shares were held on record in Canada by 8 record holders. As of October 31, 2005, ADRs evidencing 2,767,673 ADSs were held by 28 record holders. There may be additional beneficial owners resident in the U.S. that have not been specifically identified.
B. Related Party Transactions |
Not applicable.
C. Interests of Experts and Counsel |
Not applicable.
ITEM 8. FINANCIAL INFORMATION |
| |
A. Consolidated Statements and Other Financial Information |
Wolseley’s financial condition is presented in the Consolidated Financial Statements and related notes filed as part of this Annual Report on Pages F-1 through F-69.
Wolseley is involved in various legal proceedings incidental to the nature of its business. Although it is not possible to predict the outcome of these proceedings, or any claim against Wolseley related thereto, Wolseley believes that such proceedings will not, individually or in the aggregate, have a material adverse effect on its financial condition or results of operations. Wolseley maintains various insurance coverages to minimize financial risk associated with claims related to these proceedings. In the opinion of management, uninsured losses, if any, resulting from the ultimate resolution of these matters will not have a material effect on Wolseley’s financial position or results of operations.
Wolseley has paid cash dividends on its ordinary shares in every fiscal period since 1958. Cash dividends are paid to shareholders as of record dates that are fixed between Wolseley and the London Stock Exchange, and such record dates are also announced in accordance with applicable NYSE rules. Wolseley historically pays dividends twice a year. Future cash dividends will be dependent upon Wolseley’s earnings, financial condition (including cash requirements), future earnings prospects and other factors.
None.
ITEM 9. THE OFFER AND LISTING |
| |
A. Offer and Listing Details |
| |
Ordinary Shares Price History |
The ordinary shares are listed on the London Stock Exchange and since May 2001 (in the form of ADSs) on the NYSE. The following table sets forth, for the periods indicated, the reported high and low market quotations based on the Daily Official List of the London Stock Exchange for the ordinary shares, and the reported high and low for ADSs quoted on the NYSE.
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| | | London Stock Exchange (pence per) Ordinary Share
| | NYSE (US Dollars per) ADS(1)
| |
Period | | | High | | | Low | | | High | | | Low | |
| |
|
| |
|
| |
|
| |
|
| |
| | | | (p) | | | (p) | | | ($) | | | ($) | |
| Fiscal year 2001 | | | 546.00 | | | 260.00 | | | 42.00 | | | 26.01 | |
| Fiscal year 2002 | | | 750.00 | | | 370.00 | | | 55.40 | | | 26.00 | |
| Fiscal year 2003 | | | 706.75 | | | 600.00 | | | 60.24 | | | 48.50 | |
| Fiscal year 2004 | | | | | | | | | | | | | |
| First Quarter | | | 754.75 | | | 649.00 | | | 25.66 | | | 21.60 | |
| Second Quarter | | | 790.00 | | | 709.00 | | | 29.44 | | | 24.40 | |
| Third Quarter | | | 857.00 | | | 781.00 | | | 32.40 | | | 29.00 | |
| Fourth Quarter | | | 875.00 | | | 781.00 | | | 33.45 | | | 28.40 | |
| |
| (1) | Each ADS represented five Wolseley ordinary shares until February 2, 2004 when the ratio was altered such that each ADS has since that time represented two Wolseley ordinary shares. The market quotations shown in the table above for periods prior to February 2, 2004 have not been adjusted to reflect the current ratio of two ordinary shares per ADS. |
| | |
| Fiscal year 2005 | | | | | | | | | | | | | |
| First Quarter | | | 971.00 | | | 822.00 | | | 35.35 | | | 30.75 | |
| Second Quarter | | | 1098.50 | | | 877.00 | | | 42.25 | | | 34.65 | |
| Third Quarter | | | 1149.00 | | | 1048.00 | | | 44.59 | | | 40.77 | |
| Fourth Quarter | | | 1202.00 | | | 1040.00 | | | 43.40 | | | 39.54 | |
| May 2005 | | | 1142.00 | | | 1040.00 | | | 42.36 | | | 39.54 | |
| June 2005 | | | 1181.00 | | | 1123.00 | | | 43.40 | | | 41.40 | |
| July 2005 | | | 1202.00 | | | 1159.00 | | | 43.30 | | | 40.00 | |
| August 2005 | | | 1195.00 | | | 1110.00 | | | 42.53 | | | 40.18 | |
| September 2005 | | | 1199.00 | | | 1147.00 | | | 43.60 | | | 41.75 | |
| October 2005 | | | 1240.00 | | | 1102.00 | | | 44.06 | | | 39.76 | |
Not applicable.
The principal trading market for the ordinary shares is the London Stock Exchange. Wolseley’s ADSs, each representing two ordinary shares, are listed on the NYSE under the symbol ‘WOS’. The ADSs are evidenced by ADRs issued by The Bank of New York, as Depositary under the Amended and Restated Deposit Agreement, dated as of February 2, 2004, among Wolseley, the Depositary and the holders from time to time of ADRs (the “Deposit Agreement”).
Not applicable.
Not applicable.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION |
Not applicable.
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B. Memorandum and Articles of Association |
For details on Wolseley’s Memorandum and Articles of Association, please refer to Item 10B of the Annual Report for the fiscal year ended July 31, 2003 as filed with the SEC on November 21, 2003, which section is incorporated herein by reference.
On November 16, 2005, Wolseley raised $1.2 billion through the private placement of fixed and floating senior unsecured notes. The funds raised will be used principally to fund the Group’s working capital and refinance existing facilities that are due to mature within the next two years. Of the eight tranches, six are at fixed rates with maturities ranging from 3 to 15 years and two tranches are floating with maturities of 3 and 7 years. Exhibit 4.24 to this document contains the note and guarantee agreement.
There are no UK restrictions on the import or export of capital including foreign exchange controls that affect the remittances of dividends in cash or other payments to non-resident holders of ordinary shares except for certain restrictions imposed from time to time by the UK government pursuant to legislation, such as The United Nations Act 1946 and the Emergency Powers Act 1964, against the government or residents of certain countries.
Except for certain restrictions that may be imposed from time to time by the UK government under legislation as described above, under English law, persons who are neither residents nor nationals of the UK may freely hold, vote and transfer ordinary shares in the same manner as UK residents or nationals.
The following discussion summarizes the material US and UK tax consequences regarding the ownership and disposition of the ADSs and ordinary shares and is not a complete analysis or listing of all the possible tax consequences of such ownership and disposition. This section is based on the US Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, Treasury Regulations promulgated thereunder, the Convention Between the United States of America and the United Kingdom which entered into force on March 31, 2003 (the “Income Tax Convention”), the Convention Between the United States of America and the United Kingdom which entered into force in 1980 (the “Old Income Tax Convention”), and administrative and judicial interpretations of the Code, the Income Tax Convention and the Old Income Tax Convention, all as in effect as of the date of this Annual Report, and all of which are subject to change, possibly on a retroactive basis. Statements regarding UK tax laws and practices set out below are based on those UK laws and published practices of the UK HM Revenue and Customs as in force on the date of this Annual Report, which are subject to change.
This discussion only applies to US holders (as defined below) who hold their ADSs or ordinary shares as capital assets and use the US dollar as their functional currency. It does not address the tax treatment of US holders subject to special rules, such as banks or other financial institutions, dealers in securities, insurance companies, traders in securities that mark to market, tax-exempt entities, entities treated as partnerships for US federal income tax purposes or their partners, holders of 10% or more of the voting shares of Wolseley, persons holding their ADSs or ordinary shares as part of a hedging, straddle, conversion or constructive sale transaction, persons subject to the alternative minimum tax and persons who are resident or ordinarily resident in the UK (or who ceased to be so resident on or after March 17, 1998 and thereafter became resident within five years of assessment). The summary also does not discuss the tax consequences under state, local or non-US or non-UK laws.
This discussion does not consider particular circumstances. It is not a substitute for tax advice. Shareholders are urged to consult their tax advisors about the US federal, state and local, the UK and other tax consequences to them in light of their particular circumstances of purchasing, owning and disposing of ADSs or ordinary shares, and in particular whether they are eligible for the benefits of the Income Tax Convention and the Old Income Tax Convention.
As used in this discussion, “US holder” means a beneficial owner of ordinary shares or ADSs that is (i) a US citizen or resident, (ii) a corporation or other entity taxable as an association created or organized under the laws of the US or any political subdivision thereof, (iii) a trust if a court within the United States is able to
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exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or (iv) an estate the income of which is subject to US federal income taxation regardless of its source.
On March 31, 2003, the US and the UK ratified the current income tax treaty (the Income Tax Convention) to replace the Old Income Tax Convention. The Income Tax Convention generally became effective with respect to withholding taxes on May 1, 2003, other US taxes on January 1, 2004, UK income and capital gains tax on April 6, 2003 and UK corporation tax on April 1, 2003. Taxpayers may elect to have the Old Income Tax Convention apply for a twelve month period from the date on which the Income Tax Convention would otherwise apply. US holders should consult their tax advisors regarding the potential application of the Income Tax Convention and the Old Income Tax Convention, including the relevant effective dates of the Income Tax Convention.
Considerations Relevant to the ADSs and Ordinary Shares |
US holders of ADSs are treated as the owners of the underlying ordinary shares for purposes of the Income Tax Convention, the Old Income Tax Convention and the Estate and Gift Tax Convention (defined below), and for US federal income tax purposes.
For US federal income tax purposes, distributions paid to a US holder by Wolseley are treated as dividends to the extent paid out of Wolseley’s current or accumulated earnings and profits, as determined for US federal income tax purposes. Distributions by Wolseley in excess of current and accumulated earnings and profits, as determined for US federal income tax purposes, are treated as a return of capital to the extent of the US holder’s adjusted tax basis in its ADSs or ordinary shares, as the case may be, and thereafter as capital gain.
Under current UK taxation law, Wolseley is not required when paying a dividend on ordinary shares to withhold any tax at source. Under the terms of the Old Income Tax Convention, a US holder that is eligible for benefits thereunder is treated as having paid a notional UK withholding tax in an amount equal to a tax credit payment (a “Related Tax Credit”) that the holder is entitled to receive from the UK HM Revenue and Customs. At current tax rates, a dividend of £90 entitles an eligible US holder to a Related Tax Credit of £10 offset by a notional UK withholding tax of £10. Because the Related Tax Credit and the notional UK withholding tax offset each other, the UK HM Revenue and Customs neither makes the Related Tax Credit payment nor collects the notional UK withholding tax. In Revenue Procedure 2000-13, 2000-6 I.R.B. 515, the Internal Revenue Service confirmed that under the Old Income Tax Convention, an eligible US holder will continue to be entitled to claim the US dollar value of such notional UK withholding tax as a credit against the US holder’s US federal income tax liability, subject to certain conditions and limitations. To qualify for the foreign tax credit, a US holder must make an election to receive a foreign tax credit by filing Form 8833 with the taxpayer’s US federal income tax return for the relevant year. Pursuant to this election, the US holder is treated as having paid the notional UK withholding tax on the date of distribution. No claim need be filed with the UK HM Revenue and Customs. US Holders are urged to consult their tax advisors as to whether they are eligible for the benefits of the Old Income Tax Convention. US holders are required to satisfy certain holding period requirements with respect to an ADS or ordinary share in order to claim the U.S. foreign tax credit for the notional UK withholding tax.
The rules relating to foreign tax credits are extremely complex, and US holders should consult their tax advisors with regard to the availability of any foreign tax credit and application of the foreign tax credit rules to their particular situation.
Dividends and amounts in respect of the Related Tax Credit will be income to a US Holder for US federal income tax purposes but generally will not be eligible for the dividends received deduction allowed to corporate holders. Any dividends paid by Wolseley in pounds sterling are included in the gross income of a US holder as an amount equal to the US dollar value of the dividend at the spot rate of exchange on the date the dividend is includable in the income of the US person, regardless of whether the payment is in fact converted into US dollars. US holders should consult their tax advisors regarding the treatment of any foreign currency gain or loss on any pounds sterling received by the US holder that is not converted into US dollars on the day the pounds sterling are includable in the income of the US holder.
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A US holder who is a resident of the United States for purposes of the Old Income Tax Convention will nonetheless not be entitled to the Related Tax Credit and consequently will not be entitled to a credit against US tax liability for the notional withholding tax thereon, if (a) the holding of ordinary shares or ADSs is (i) effectively connected with a permanent establishment situated in the United Kingdom through which the holder carries on business in the United Kingdom or (ii) effectively connected with a fixed base in the United Kingdom from which the holder performs independent personal services or (b) in the case of a US holder that is a corporation, the US holder (i) is also a resident of the United Kingdom for purposes of the Old Income Tax Convention or (ii) is, in certain circumstances, an investment or holding company at least 25% of the capital of which is held, directly or indirectly, by persons who are neither individual residents of the United States nor citizens of the United States. Furthermore, special rules may apply in respect of the Related Tax Credit if the US holder (a) owns at least 10% of the class of shares in respect of which the dividend is paid (or, in the case of a US Holder that is a corporation, controls, alone or with one or more associated corporations, at least 10% of the voting stock of Wolseley plc) or (b) is exempt from tax in the United States on dividends paid by Wolseley plc. In addition, if a US holder is a trust or estate, the Related Tax Credit will be available only to the extent that the income derived by such trust or estate is subject to US tax as the income of a resident either in its hands or in the hands of its beneficiaries.
Under the Income Tax Convention, the Related Tax Credit and the notional UK withholding tax discussed above are eliminated and it would therefore not be possible to claim a foreign tax credit in respect of any dividend payment made by the Company. As stated above, US holders may elect to have the Old Income Tax Convention apply for a twelve-month period from the date on which the new Income Tax Convention would otherwise apply.
Taxation of Capital Gains |
A US holder will not be liable for UK tax on gains realized on the disposal of ADSs or ordinary shares unless, at the time of disposal, that holder carries on a trade (or profession or vocation) in the UK through a branch or agency or permanent establishment and the ADSs or ordinary shares are or have been used, held or acquired for the purposes of such trade, branch or agency or permanent establishment. For US federal income tax purposes, a US resident holder of ADSs or ordinary shares generally will recognize a capital gain or loss on the sale or other taxable disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized on the sale or other disposition (or its US dollar equivalent, determined at the spot rate on the date of sale if the amount is realized in a foreign currency) and the US holder’s adjusted tax basis in the ADSs or ordinary shares. Such gain or loss generally will be treated as long-term capital gain or loss if the ADSs or ordinary shares are held for more than one year as of the date of the sale or other taxable disposition. Gains or losses recognized by US holders generally will be considered US source income or loss for US foreign tax credit limitation purposes. The deductibility of capital losses is subject to certain limitations.
Information Reporting and Backup Withholding |
In general, information reporting requirements will apply to dividend payments (or other taxable distributions) and proceeds paid in respect of ADSs or ordinary shares made within the US (and, in certain cases, outside the US) to a non-corporate US person, and “backup withholding” will apply to such payments paid during year if the US holder or beneficial owner fails to provide an accurate taxpayer identification number in the manner required by US law and applicable regulations, if there has been notification from the US Internal Revenue Service of a failure by the holder or beneficial owner to report all interest or dividends required to be shown on its federal income tax returns or, in certain circumstances, if the holder or beneficial owner fails to comply with applicable certification requirements. Certain corporations and persons that are not US persons may be required to establish their exemption from information reporting and backup withholding by certifying their status on the appropriate US Internal Revenue Service forms W-8 or W-8BEN.
Amounts withheld under the backup withholding rules may be credited against a holder’s tax liability, and a holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the US Internal Revenue Service.
Under the convention which entered into force on November 11, 1979 between the US and UK for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on estates of deceased persons and on gifts (the “Estate and Gift Tax Convention”), ADSs or ordinary shares held by an individual who is domiciled in
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the US and is not a national of or domiciled in the UK will generally not be subject to UK inheritance tax on the individual’s death or on a gift of the ADSs or ordinary shares during the individual’s lifetime except in certain cases where the ADSs or ordinary shares are placed in trust by a settlor domiciled in the UK and not domiciled in the US and in the exceptional case where the ADSs or ordinary shares are part of the business property of a UK permanent establishment of the individual or pertain to a UK fixed base of the individual used for the performance of independent personal services. In a case where the ADSs or ordinary shares are subject both to UK inheritance tax and to US federal gift or estate tax, the Estate and Gift Tax Convention generally provides a credit for the amount of any tax paid in the UK against the US federal tax liability, or for any tax paid in the US against the UK liability, based on priority rules set forth in the Estate Tax and Gift Convention.
| |
Stamp Duty and Stamp Duty Reserve Tax (“SDRT”) |
UK stamp duty will, subject to certain exceptions, be payable on any instrument transferring ordinary shares to the Custodian of the Depositary at the rate of 1.5% (rounded up to the nearest £5) on the value of such ordinary shares. SDRT will be payable at the rate of 1.5% of the consideration under any agreement to issue or transfer ordinary shares to the Custodian of the Depositary. In accordance with the terms of the Deposit Agreement, any tax or duty payable by the Depositary or the Custodian of the Depositary with respect to any ADSs shall be payable by the owner or beneficial owner of the ADSs.
No UK stamp duty will be payable on any transfer of an ADS, provided that the ADS (and any separate instrument of transfer) is executed and retained at all times outside the UK. A transfer of an ADS in the US thus will not give rise to UK stamp duty. Any transfer of ordinary shares not held in the form of ADSs could result in a stamp duty liability at the rate of 0.5% rounded up to the nearest £5. The amount of stamp duty payable is generally calculated on the purchase price of the ordinary shares. There is no charge to ad valorem stamp duty on most gifts. On a transfer from the Depositary or its nominee to the relevant ADS holder under which no beneficial interest passes, a fixed £5 stamp duty should be payable.
UK SDRT at a rate of 0.5%, will be payable on any agreement to transfer ordinary shares or any interest therein. If an instrument transferring the ordinary shares is executed and stamped within six years of the date on which the agreement is made, any SDRT paid will be refundable and any SDRT not paid will cease to be due. SDRT will not be payable on any agreement to transfer ADSs.
F. Dividends and Paying Agents |
Not applicable.
Not applicable.
Any statement in this Annual Report about any of Wolseley’s documents is not necessarily complete. If the document is filed as an exhibit to this Annual Report, the document is deemed to modify the description contained in this Annual Report.
Investors must review the exhibits themselves for a complete description of the document. Investors may review a copy of Wolseley’s filings with the SEC, including exhibits and schedules filed therewith, at the SEC’s public reference facilities at the Headquarters Office, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the SEC located at the Woolworth Building, 233 Broadway, 16th Floor, New York, New York, 10279 and at the Northwestern Atrium Center, 175W. Jackson Boulevard, Suite 900, Chicago, Illinois, 60604. Investors may also obtain copies of such materials from the Public Reference Section of the SEC, at the Headquarters Office, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Investors may call the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Investors may read and copy any reports, statements or other information that Wolseley files with the SEC at the addresses indicated above. These SEC filings are also available to the public from commercial document retrieval services and on the SEC’s website at www.sec.gov.
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Wolseley is required to file reports and other information with the SEC under the Securities Exchange Act of 1934. Reports and other information filed by Wolseley with the SEC may be inspected and copied at the SEC’s public reference facilities described above. As a foreign private issuer, Wolseley is exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and Wolseley’s officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Under the Exchange Act, as a foreign private issuer, Wolseley is not required to publish financial statements as frequently or as promptly as US companies.
I. Subsidiary Information |
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Wolseley is exposed to market risks arising from its international operations. The Group has well defined and consistently applied policies for the management of foreign exchange and interest rate exposures. There has been no change since July 31, 2005 in the major financial risks faced by the Group.
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk and foreign currency risk. The treasury committee of the Board reviews and agrees policies for managing each of these risks and they are summarized below. These policies are regularly reviewed. The Group’s financial instruments, other than derivatives, comprise borrowings, cash and liquid resources and various items, such as trade debtors and trade creditors that arise directly from its operations. The Group also enters into derivative transactions (principally interest rate swaps and forward foreign currency contracts). The purpose of such transactions is to hedge certain interest rate and currency risks arising from the Group’s operations and its sources of finance. Details of financial instruments are shown in Note 32 of the Consolidated Financial Statements.
Derivatives are also used to a limited extent to hedge movements in the price paid for lumber. These options and futures hedging contracts mature within one year and all are with organized exchanges. The Group’s policy is to control credit risk by only entering into financial instruments with authorized counterparties after taking account of their credit rating.
It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments or speculative transactions be undertaken.
Wolseley finances its operations and acquisitions through a mixture of retained profits and bank and other borrowings. Wolseley borrows in the desired currencies principally at floating rates of interest and then uses interest rate swaps to generate the desired interest rate profile so managing the Group’s exposure to interest rate fluctuations. At July 31, 2005 approximately £680 million of Wolseley’s net borrowings were at fixed rates for one year or more after taking account of swaps. Wolseley reviews deposits and borrowings by currency at treasury committee and Board meetings. The treasury committee gives prior approval to any variations from floating rate arrangements. On the basis of Wolseley’s analysis it is estimated that the maximum effect of a rise of one percentage point in the principal interest rates on Wolseley’s continuing businesses would result in an increase in the interest charge of approximately £4.1 million.
Wolseley seeks a balance between certainty of funding and a flexible, cost-effective borrowings structure. Wolseley’s policy is to ensure that, as a minimum, all projected net borrowing needs are covered by committed facilities arranged and provided by the corporate office, supplemented where appropriate by local facilities.
Wolseley has strong cash flows from its operating activities such that, in the absence of significant acquisitions, the Group would anticipate having surplus funds within the medium-term. Wolseley does, however, actively seek opportunities to secure long-term funding at attractive rates.
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Wolseley’s principal source of funds is committed bank debt. A mix of term loans and revolving credit facilities are used to obtain the desired currency and maturity profile. During the year, the Group has entered into five new bilateral facilities; four of which were denominated in Euros and one of which were denominated in US dollars, at the fiscal year-end exchange rates, the sterling value of these facilities was £268 million. In addition, the SBS syndicated loan was increased by US$100 million to US$500 million, the principal purpose of this facility being to finance SBS’s construction loan receivables. This approach has enabled Wolseley to adjust its funding profile to match more precisely its investment profile and strengthen its relationships with its core banks.
On November 16, 2005, Wolseley raised $1.2 billion through the private placement of fixed and floating senior unsecured notes. The funds raised will be used principally to fund the Group’s working capital and refinance existing facilities that are due to mature within the next two years. Of the eight tranches, six are at fixed rates with maturities ranging from 3 to 15 years and two tranches are floating with maturities of 3 and 7 years. Exhibit 4.24 to this document contains the note and guarantee agreement.
The year-end maturity profile of Wolseley’s centrally managed facilities at July 31, 2005 was as follows:
Maturity Date | | | Facility
amount £m | |
| |
|
| |
| Less than 1 year | | | 277 | |
| 1-2 years | | | 709 | |
| 2-3 years | | | 378 | |
| 3-4 years | | | 72 | |
| 4-5 years | | | 396 | |
| | |
|
| |
Total | | | 1,832 | |
| | |
|
| |
As at the year-end, undrawn committed facilities are as follows:
| | | | £m | |
| | |
|
| |
| Less than 1 year | | | 200 | |
| 1-2 years | | | 143 | |
| Over 2 years | | | 48 | |
Wolseley has significant overseas businesses whose revenues are mainly denominated in the currencies of the countries in which the operations are located. Approximately 54% of the Group’s sales during fiscal year 2005 were in US dollars. Wolseley does not have significant transactional foreign currency cash flow exposure. However, those that do arise are generally hedged with either forward contracts or currency options. Wolseley does not normally hedge profit translation exposure since such hedges have only temporary effect. Most of the foreign currency earnings generated by Wolseley’s overseas operations are reinvested in the business to fund growth in those territories. Wolseley’s policy is to maintain the majority of its debt in the currencies of its operating companies as this hedges both the net assets and cash flows of the Group.
Details of average exchange rates used in the translation of overseas earnings, and of year end exchange rates used in the translation of overseas balance sheets, for the principal currencies used by the Group are shown in Note 30 of the Consolidated Financial Statements. The net effect of currency translation during fiscal year 2005 was to decrease turnover by £272.9 million (2.7%) and to reduce trading profit by £17.2 million (2.8%).
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These currency effects reflect a movement during the 2005 fiscal year of the average pound sterling exchange rate against each of the major currencies with which the Group is involved as follows:
| | | | (Strengthening)/
Weakening
of sterling | |
| | |
|
| |
| US Dollar | | | (5.4)% | |
| Euro | | | 0.3% | |
Similarly, it is estimated that a strengthening of sterling by 10% against all the currencies in which Wolseley does business would reduce profit before tax and goodwill amortization for fiscal 2005 by approximately £56 million (8.1%) due to currency translation.
Wolseley’s operating performance is affected by price fluctuations in steel, nickel alloy, copper, aluminum, plastic, lumber and other commodities. Wolseley seeks to minimize the effects of changing prices through economies of purchasing and inventory management resulting in cost reductions and productivity improvements as well as price increases to maintain reasonable profit margins. With the exception of lumber futures held to hedge future sales commitments, no trading instruments are held in respect of these commodities. At July 31, 2005, the Group held lumber futures contracts with a principal value of $37,000.
As discussed above, Wolseley’s results of operations were both favorably and unfavorably impacted by increases and decreases in the pricing of certain commodity-based products. Such commodity price fluctuations have from time to time have had a significant effect on Wolseley’s financial performance and could continue to do so in the future.
Fair Value of Financial Instruments |
As set out in Note 32 of the Consolidated Financial Statements, there is no significant difference between the book value and fair value of Wolseley’s financial instruments as at July 31, 2005.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN ORDINARY SHARES |
Not applicable.
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES |
Details of the internal controls and procedures in place are set out at “Item 6C – Directors, Senior Management and Employees – Board Practices”, which also sets out the conclusions of Wolseley’s Chief Executive Officer and Group Financial Director about the effectiveness of the Group’s disclosure controls and procedures based on their evaluation as of the end of the period covered in this Annual Report. There were no significant changes to Wolseley’s disclosure controls and procedures or in other factors that could significantly affect those controls subsequent to the date of their evaluation was completed.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT |
Details of the audit committee and of Mr Stein, the Audit Committee Financial Expert, are set out at “Item 6C – Directors, Senior Management and Employees – Board Practices”.
Details of the matters related to the Group wide code of ethics and the additions thereto approved by the audit committee to create a confidential and anonymous process for dealing with submissions by employees and others of any concerns or complaints received by the Group regarding, inter alia, accounts, internal accounting or auditing matters, are set out at “Item 6C – Directors, Senior Management and Employees – Board Practices”. Wolseley will provide to any person without charge upon request a copy of the Code of Ethics and additional disclosures policy. Requests should be made to the Group Company Secretary and Counsel at the address set out on page 1 of this report or by facsimile to 011 44 118 929 8701 or by e-mail to mark.white@wolseley.com.
No amendment to or waiver from the Code of Ethics has been made since its introduction to the Chief Executive Officer, Group Financial Director, principal accounting officer or controller or persons performing similar functions.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Details of the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant, PricewaterhouseCoopers LLP (and its predecessor firm PricewaterhouseCoopers), for the audit of the Group’s annual financial statements are set out at “Item 18 – Financial Statements” and Note 4 Amounts Charged in arriving at operating profit on Page F-13 of the Consolidated Financial Statements. Details are also disclosed in such note of audit related fees, tax fees and all other fees for such fiscal years together with a description of the nature of the services comprising such fees.
The audit committee’s pre-approval policy and procedure is incorporated herein by reference to Exhibit 11.3 to the Annual Report for the fiscal year 2003, filed with the SEC on November 21, 2003.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
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ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Period | | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs | |
| |
|
| |
|
| |
|
| |
|
| |
| August 1, 2004 – August 31, 2004 | | | — | | | — | | | — | | | — | |
| September 1, 2004 – September 30, 2004 | | | — | | | — | | | — | | | — | |
| October 1, 2004 – October 31, 2004 | | | — | | | — | | | — | | | — | |
| November 1, 2004 – November 30, 2004 | | | 2,000,000 | (1) | | £9.25 | (1) | | — | | | — | |
| December 1, 2004 – December 31, 2004 | | | — | | | — | | | — | | | — | |
| January 1, 2005 – January 31, 2005 | | | — | | | — | | | — | | | — | |
| February 1, 2005 – February 28, 2005 | | | — | | | — | | | — | | | — | |
| March 1, 2005 – March 31, 2005 | | | — | | | — | | | — | | | — | |
| April 1, 2005 – April 30, 2005 | | | — | | | — | | | — | | | — | |
| May 1, 2005 – May 31, 2005 | | | — | | | — | | | — | | | — | |
| June 1, 2005 – June 30, 2005 | | | — | | | — | | | — | | | — | |
| July 1, 2005 – July 31, 2005 | | | — | | | — | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
Total | | | 2,000,000 | | | £9.25 | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| (1) | The ordinary shares noted in the table above were purchased by the trustees of Wolseley’s employees benefit trusts in November 2004 in anticipation of settlement of awards made under diverse employee incentive arrangements as referred to under “Item 6 – Directors, Senior Management and Employees – Compensation”. |
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PART III
ITEM 17. FINANCIAL STATEMENTS |
Not applicable.
ITEM 18. FINANCIAL STATEMENTS |
The Consolidated Financial Statements and notes thereto as required by Item 18 are attached hereto and found immediately after the text of this Annual Report.
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Exhibit No. | | | Description | |
| |
| |
| 1.1 | | | Memorandum and Articles of Association of Wolseley plc.* | |
| 2.1 | | | Form of Deposit Agreement between Wolseley plc and The Bank of New York, as Depositary.* | |
| 4.1 | | | Service Agreement dated September 25, 2002 between Stephen P. Webster and Wolseley plc.** | |
| 4.2 | | | Agreement dated April 30, 2003 between Saprodis S.A.S. (1), Cofiger S.A.S. (2), Pinault-Printemps Redoute S.A.(3) and Wolseley plc (4) for the acquisition of Pinault Bois et Matériaux S.A.*** | |
| 4.3 | | | Service Agreement dated June 27, 2003 between Fenton Norton Hord and Wolseley plc.*** | |
| 4.4 | | | Service Agreement dated July 9, 2003 between Charles Augustus Banks and Wolseley plc.*** | |
| 4.5 | | | Service Agreement dated July 18, 2003 between Claude A. Swanson Hornsby III and Wolseley plc.*** | |
| 4.6 | | | Service Agreement dated July 21, 2003 between Gérard Legtmann and Wolseley plc.*** | |
| 4.7 | | | Service Agreement dated June 6, 2003 between Adrian Barden and Wolseley plc.*** | |
| 4.8 | | | Engagement Letter dated September 2, 2002 between John Whybrow and Wolseley plc.*** | |
| 4.9 | | | Engagement Letter dated October 15, 2002 between Robert Walker and Wolseley plc.*** | |
| 4.10 | | | Engagement Letter dated November 12, 2002 between John Allan and Wolseley plc.*** | |
| 4.11 | | | Engagement Letter dated October 18, 2002 between James Murray and Wolseley plc.*** | |
| 4.12 | | | Engagement Letter dated June 16, 2003 between Gareth Davis and Wolseley plc.*** | |
| 4.13 | | | Rules of the Wolseley plc 2002 Long Term Incentive Scheme.*** | |
| 4.14 | | | Deed of Variation to Service Agreement dated July 29, 2003, between Wolseley plc and Charles A. Banks.*** | |
| 4.15 | | | Deed of Variation to Service Agreement dated July 30, 2003, between Wolseley plc and Stephen P. Webster.*** | |
| 4.16 | | | Deed of Variation to Service Agreement dated August 11, 2003, between Wolseley plc and Fenton N. Hord.*** | |
| 4.17 | | | Deed of Variation to Service Agreement dated September 12, 2003, between Wolseley plc and Gérard Legtmann.*** | |
| 4.18 | | | Service Agreement dated October 20, 2003 between Jacques Régis-Descours and Wolseley Centers France.**** | |
| 4.19 | | | Rules of the Wolseley Share Option Plan 2003.**** | |
| 4.20 | | | Engagement Letter dated October 17, 2003 between Nigel Stein and Wolseley plc.**** | |
| 4.21 | | | Engagement Letter dated June 25, 2004 between Andrew J. Duff and Wolseley plc.**** | |
| 4.22 | | | Service Agreement dated March 18, 2005 between Robert H. Marchbank and Wolseley plc.***** | |
| 4.23 | | | Rules of the Wolseley plc 2002 Long Term Incentive Scheme (as applying to Awards made after November 18, 2004).***** | |
| 4.24 | | | Note and Guarantee Agreement dated November 16, 2005 by Wolseley Capital Inc and Wolseley Plc***** | |
| 8.1 | | | List of Subsidiaries***** | |
| 8.2 | | | Principal Subsidiary Trade Names ***** | |
| 10.1 | | | PricewaterhouseCoopers LLP consent, dated November 18, 2005. | |
| 11.1 | | | Group Code of Ethics*** | |
| 11.2 | | | Group Whistleblowing Policy*** | |
| 11.3 | | | Pre-approval policy and procedures for the provision of non-audit services by the Auditors.*** | |
| 12.1 | | | Certification by Charles A Banks***** | |
| 12.2 | | | Certification by Stephen P Webster***** | |
| 13.1 | | | Certification by Group Chief Executive and Group Finance Director ***** | |
| | | | | |
| * | incorporated by reference to Wolseley’s Registration Statement on Form 20-F (No. 1-15186). |
| ** | incorporated by reference to Wolseley’s Annual Report on Form 20-F for fiscal year 2002 (No. 1-15186). |
| *** | incorporated by reference to Wolseley’s Annual Report on Form 20-F for fiscal year 2003 (No. 1-15186). |
| **** | incorporated by reference to Wolseley’s Annual Report on Form 20-F for fiscal year 2004 (No. 1-15186). |
| ***** | filed with the Securities and Exchange Commission, as exhibits to this Form 20-F but not reproduced in the printed version of the Annual Report. |
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SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
| | | | WOLSELEY plc | |
| | | | | |
| | | | By: /s/ Mark J. White | |
| | | |
| |
| | | | Mark J. White | |
| | | | Group Company Secretary and Counsel | |
Date: November 18, 2005
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WOLSELEY plc
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
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WOLSELEY plc
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Wolseley plc |
In our opinion, the accompanying consolidated profit and loss accounts and the related consolidated balance sheets, statements of cash flows, statements of total recognized gains and losses and reconciliation of equity shareholders’ funds present fairly, in all material respects, the financial position of Wolseley plc and its subsidiaries as of July 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2005, in conformity with accounting principles generally accepted in the United Kingdom. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 40 to the consolidated financial statements.
PricewaterhouseCoopers LLP
Birmingham, United Kingdom
November 16, 2005
F-2
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WOLSELEY plc
| Consolidated profit and loss account |
| Year ended July 31 |
| | | | | | | 2005 | | | 2004 | | | 2003 | |
| | | | Notes | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
Turnover | | | 2 | | | | | | | | | | |
| Continuing operations | | | | | | 10,875.0 | | | 10,128.1 | | | 8,221.0 | |
| Acquisitions | | | | | | 382.7 | | | — | | | — | |
| | | | | |
| |
| |
| |
| | | | | | | 11,257.7 | | | 10,128.1 | | | 8,221.0 | |
Operating profit | | | | | | | | | | | | | |
| Continuing operations | | | | | | 659.6 | | | 580.2 | | | 443.0 | |
| Acquisitions | | | | | | 17.8 | | | — | | | — | |
| | | | | |
| |
| |
| |
| | | | 2, 3 & 4 | | | 677.4 | | | 580.2 | | | 443.0 | |
| | | | | | | | | | | | | | |
Profit on ordinary activities before interest | | | | | | 677.4 | | | 580.2 | | | 443.0 | |
| Net interest payable | | | 5 | | | (29.6 | ) | | (21.1 | ) | | (17.0 | ) |
| | | | | |
| |
| |
| |
Profit on ordinary activities before tax | | | | | | 647.8 | | | 559.1 | | | 426.0 | |
| | | | | |
| |
| |
| |
Taxation | | | 6 | | | | | | | | | | |
| Current tax charge | | | | | | (141.8 | ) | | (153.0 | ) | | (118.0 | ) |
| Deferred tax charge | | | | | | (44.8 | ) | | (9.1 | ) | | (9.6 | ) |
| | | | | |
| |
| |
| |
| | | | | | | (186.6 | ) | | (162.1 | ) | | (127.6 | ) |
| | | | | |
| |
| |
| |
Profit on ordinary activities after tax | | | | | | 461.2 | | | 397.0 | | | 298.4 | |
| | | | | |
| |
| |
| |
Profit for the year attributable to ordinary shareholders | | | | | | 461.2 | | | 397.0 | | | 298.4 | |
| Dividends | | | 7 | | | (155.7 | ) | | (139.1 | ) | | (123.1 | ) |
| | | | | |
| |
| |
| |
| Profit retained | | | | | | 305.5 | | | 257.9 | | | 175.3 | |
| | | | | |
| |
| |
| |
Earnings per share | | | 8 | | | | | | | | | | |
| Basic earnings per share | | | | | | 78.53p | | | 68.15p | | | 51.53p | |
| | | | | |
| |
| |
| |
| Diluted earnings per share | | | | | | 77.71p | | | 67.36p | | | 51.12p | |
| | | | | |
| |
| |
| |
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-3
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WOLSELEY plc
Consolidated balance sheet |
| As of July 31 |
| | | | | | | 2005 | | | 2004 | |
| | | | Notes | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
Fixed assets | | | | | | | | | | |
| Intangible assets | | | 10 | | | 866.1 | | | 665.9 | |
| Tangible assets | | | 11 | | | 915.9 | | | 716.9 | |
| Investments | | | 12 | | | 3.6 | | | 2.1 | |
| | | | | |
| |
| |
| | | | | | | 1,785.6 | | | 1,384.9 | |
Current assets | | | | | | | | | | |
| Stocks | | | 13 | | | 1,705.0 | | | 1,501.8 | |
| Debtors | | | 14 | | | 2,275.5 | | | 1,964.5 | |
| Construction loans receivable (secured) | | | 15 | | | 263.9 | | | 187.7 | |
| Investments | | | 16 | | | 4.8 | | | 6.2 | |
| Cash at bank, in hand and on deposit | | | | | | 381.1 | | | 291.3 | |
| | | | | |
| |
| |
| | | | | | | 4,630.3 | | | 3,951.5 | |
Creditors: amounts falling due within one year | | | | | | | | | | |
| Short term borrowings | | | 17 | | | 440.9 | | | 384.0 | |
| Construction loans borrowings (unsecured) | | | 15 | | | 263.9 | | | 187.7 | |
| Other creditors | | | 18 | | | 2,098.9 | | | 1,851.2 | |
| | | | | |
| |
| |
| | | | | | | 2,803.7 | | | 2,422.9 | |
| | | | | |
| |
| |
Net current assets | | | | | | 1,826.6 | | | 1,528.6 | |
| | | | | |
| |
| |
Total assets less current liabilities | | | | | | 3,612.2 | | | 2,913.5 | |
Creditors: amounts falling due after one year | | | | | | | | | | |
| Borrowings | | | 19 | | | 1,088.5 | | | 854.9 | |
| Other creditors | | | 18 | | | 18.0 | | | — | |
| Provisions for liabilities and charges | | | 20 | | | 198.8 | | | 156.7 | |
| | | | | |
| |
| |
| | | | | | | 1,305.3 | | | 1,011.6 | |
| | | | | |
| |
| |
Net assets | | | | | | 2,306.9 | | | 1,901.9 | |
| | | | | |
| |
| |
Capital and reserves | | | | | | | | | | |
| Called up share capital | | | 21 | | | 148.0 | | | 146.3 | |
| Share premium account | | | 22 | | | 241.3 | | | 199.9 | |
| Profit and loss account | | | 22 | | | 1,917.6 | | | 1,555.7 | |
| | | | | |
| |
| |
Shareholders’ funds | | | | | | 2,306.9 | | | 1,901.9 | |
| | | | | |
| |
| |
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-4
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WOLSELEY plc
| Consolidated cash flow statement |
| Year ended July 31 |
| | | | | | | 2005 | | | 2004 | | | 2003 | |
| | | | Notes | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
| Net cash inflow from operating activities | | | 26 | | | 763.6 | | | 325.2 | | | 607.7 | |
| Net cash outflow from returns on investments and servicing of finance | | | 27 | | | (30.1 | ) | | (13.4 | ) | | (24.8 | ) |
| Tax paid | | | | | | (150.7 | ) | | (128.1 | ) | | (108.1 | ) |
| Net capital expenditure and financial investment | | | 27 | | | (165.0 | ) | | (135.6 | ) | | (108.2 | ) |
| Acquisitions | | | 24 | | | (405.5 | ) | | (123.5 | ) | | (507.2 | ) |
| Disposals | | | 25 | | | 4.5 | | | — | | | 3.0 | |
| Equity dividends paid | | | | | | (145.4 | ) | | (136.0 | ) | | (113.0 | ) |
| | | | | |
| |
| |
| |
| Cash outflow before use of liquid resources and financing | | | | | | (128.6 | ) | | (211.4 | ) | | (250.6 | ) |
| Management of liquid resources | | | 27 | | | 23.1 | | | (31.1 | ) | | 31.8 | |
| Financing | | | 27 | | | 185.2 | | | 111.9 | | | 314.8 | |
| | | | | |
| |
| |
| |
| Increase/(decrease) in cash in period | | | | | | 79.7 | | | (130.6 | ) | | 96.0 | |
| | | | | |
| |
| |
| |
Reconciliation of net cash flow to movement in net debt | | | 28 | | | | | | | | | | |
| Increase/(decrease) in cash in period | | | | | | 79.7 | | | (130.6 | ) | | 96.0 | |
| Cash flow from increase in debt and lease financing | | | | | | (171.1 | ) | | (94.9 | ) | | (305.4 | ) |
| Cash flow from (decrease)/increase in liquid resources | | | | | | (23.1 | ) | | 31.1 | | | (31.8 | ) |
| | | | | |
| |
| |
| |
| Change in net debt resulting from cash flows | | | | | | (114.5 | ) | | (194.4 | ) | | (241.2 | ) |
| New finance leases and long-term debt acquired with subsidiaries | | | | | | (24.9 | ) | | (5.3 | ) | | (20.6 | ) |
| Translation difference | | | | | | (62.7 | ) | | 85.0 | | | (19.3 | ) |
| | | | | |
| |
| |
| |
| Movement in net debt in period | | | | | | (202.1 | ) | | (114.7 | ) | | (281.1 | ) |
| Opening net debt | | | | | | (941.4 | ) | | (826.7 | ) | | (545.6 | ) |
| | | | | |
| |
| |
| |
| Closing net debt | | | | | | (1,143.5 | ) | | (941.4 | ) | | (826.7 | ) |
| | | | | |
| |
| |
| |
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-5
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WOLSELEY plc
Statement of total recognized gains and losses
Year ended July 31 |
| |
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
| |
| |
| |
Profit for the financial year | | | 461.2 | | | 397.0 | | | 298.4 | |
| Currency translation differences (net of tax) | | | 85.4 | | | (147.2 | ) | | (10.4 | ) |
| | |
|
| |
|
| |
|
| |
Total recognized gains and losses for the financial year | | | 546.6 | | | 249.8 | | | 288.0 | |
| | |
|
| |
|
| |
|
| |
| |
Reconciliation of movements in equity shareholders’ funds
Year ended July 31 |
| |
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| Profit for the financial year | | | 461.2 | | | 397.0 | | | 298.4 | |
| Dividends | | | (155.7 | ) | | (139.1 | ) | | (123.1 | ) |
| Currency translation differences (net of tax) | | | 85.4 | | | (147.2 | ) | | (10.4 | ) |
| New share capital subscribed | | | 32.7 | | | 17.0 | | | 9.4 | |
| Shares purchased by Employee Benefit Trusts | | | (18.6 | ) | | — | | | — | |
| | |
|
| |
|
| |
|
| |
| Net additions to shareholders’ funds | | | 405.0 | | | 127.7 | | | 174.3 | |
| Opening shareholders’ funds | | | 1,901.9 | | | 1,774.2 | | | 1,599.9 | |
| | |
|
| |
|
| |
|
| |
| Closing shareholders’ funds | | | 2,306.9 | | | 1,901.9 | | | 1,774.2 | |
| | |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-6
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WOLSELEY plc
Notes to the consolidated financial statements
Year ended July 31, 2005 |
These consolidated financial statements are prepared under the historical cost convention and in accordance with applicable UK accounting standards. The principal accounting policies, as set out below, have been applied consistently throughout the year.
The Group accounts include the results of the parent company and its subsidiary undertakings as of July 31, 2005.
The trading results of businesses acquired, sold or discontinued during the year are included in profit on ordinary activities from the date of effective acquisition or up to the date of sale or discontinuance, unless provision therefor has been made in earlier years.
The trading results of overseas subsidiary undertakings are translated into sterling using average rates of exchange ruling during the relevant financial period.
The balance sheets of overseas subsidiary undertakings are translated into sterling at the rates of exchange ruling at July 31. Exchange differences arising between the translation into sterling of the net assets of these subsidiary undertakings at rates ruling at the beginning and end of the fiscal year are dealt with through reserves as are exchange differences on foreign currency borrowings raised to finance overseas assets.
Exchange differences on financial instruments entered into for foreign currency net assets hedging purposes are dealt with through reserves.
The cost of the Company’s investments in overseas subsidiary undertakings is translated into sterling at the rate ruling at the date of investment.
All other foreign currency assets and liabilities of the Company and its United Kingdom subsidiary undertakings are translated into sterling at the rate ruling at July 31 except in those instances where forward cover has been arranged, in which case this forward rate is used.
Foreign currency transactions during the year are translated into sterling at the rate of exchange ruling on the date of the transaction except when forward exchange contracts are in place, when the forward contract rate is used. Any exchange differences are dealt with through the profit and loss account.
Goodwill arises when the cost of acquiring subsidiary undertakings and businesses exceeds the fair value attributed to the net assets acquired. Prior to August 1, 1998, goodwill arising on consolidation and purchased goodwill was written off to reserves. Following publication of FRS 10, a revised policy for accounting for goodwill was adopted with effect from August 1, 1998. Goodwill arising from acquisitions completed on or after that date is capitalized and amortized on a straight line basis over a period of not more than 20 years. Goodwill arising on acquisitions prior to August 1, 1998 has not been reinstated on the balance sheet.
The net assets of businesses acquired are incorporated in the consolidated accounts at their fair value to the group. Fair value adjustments principally relate to adjustments necessary to bring the accounting policies of acquired businesses into line with those of the Group but may also include other adjustments necessary to restate assets and liabilities at their fair values at the date of acquisition. All businesses acquired are consolidated using the acquisition method of accounting.
F-7
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Turnover is the amount receivable for the provision of goods and services falling within the Group’s ordinary activities, excluding intra-group sales, estimated and actual sales returns, trade and early settlement discounts, value added tax and similar sales taxes.
Turnover from the provision of goods is recognised when the risks and rewards of ownership of goods have been transferred to the customer. The risks and rewards of ownership of goods are deemed to have been transferred when the goods are shipped to, or are picked up by, the customer.
Turnover from services, other than those that arise from construction service contracts (see below), are recognized when the service provided to the customer has been completed.
Turnover in respect of construction service contracts, where the Group is providing framing lumber installation services to residential property companies, is recognised using the percentage of completion method, with the percentage complete being determined by comparing the percentage of costs incurred to date with the estimated total cost of the contract. Losses on these contracts, if any, are recognized in the period when such losses become probable and can be reasonably estimated.
Turnover from the provision of goods and all services is only recognised when the amounts to be recognized are fixed or determinable and collectibility is reasonably assured.
Where fixed assets are financed by leasing agreements which give rights approximating to ownership, the assets are treated as if they had been purchased and the capital element of the leasing commitments is included in borrowings. The rentals payable are apportioned between interest, which is charged to the profit and loss account, and capital, which reduces the outstanding obligation. The cost of operating leases is charged on a straight line basis over the period of the lease.
Costs in Respect of Computer Systems |
Costs in respect of developing and implementing significant computer systems are capitalized and amortized over their estimated useful lives of typically 3 to 5 years. Costs include: computer and network hardware; software licences; consulting costs attributable to the development, design and implementation of the system and internal costs directly attributable to the development, design and implementation of the system. Costs in respect of training and data conversion are expensed as incurred.
Depreciation is provided on all tangible fixed assets (except freehold land) mainly on a straight line basis to write off the cost of those assets over their estimated useful lives. The principal rates of depreciation are: freehold buildings and long leaseholds, 2-3%; short leaseholds, over the term of the lease; plant and machinery, 10-15%; fixtures and fittings, 15%; computers, 20-100% and motor vehicles, 25%.
Real Property Awaiting Disposal |
Real property awaiting disposal is transferred to current assets at the lower of book written down value and estimated net realizable value. Depreciation is not applied to real property awaiting disposal, but the carrying value is reviewed annually and written down through the profit and loss account to current estimated net realizable value if lower.
F-8
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Stocks are valued at the lower of Group cost and net realizable value, due allowance being made for obsolete or slow moving items. Raw materials, bought out components and goods purchased for resale are stated at cost on a first in, first out basis.
Fixed asset investments are recorded at cost less provision for impairment.
Provision is made for deferred taxation in so far as a liability or asset has arisen as a result of transactions that had occurred by the balance sheet date and have given rise to an obligation to pay more tax in the future, or the right to pay less tax in the future. An asset has not been recognized to the extent that the transfer of economic benefits in the future is uncertain. Deferred tax assets and liabilities recognized have not been discounted.
Provision is made for UK or foreign taxation arising on the distribution to the UK of retained profits of overseas subsidiary undertakings where dividends have been recognized as receivable.
Pensions & Post Retirement Benefits |
The expected costs of providing retirement pensions under defined benefit plans and other post retirement benefits are charged to the profit and loss account over the periods benefiting from the employees’ services in accordance with the recommendations of independent qualified actuaries. Variations from expected cost are normally spread over the average remaining service lives of current employees.
Contributions to defined contribution pension plans are charged to the profit and loss account as incurred.
Derivatives and Financial Instruments |
Financial instruments, in particular, interest rate swaps and currency swaps, are used to manage the financial risks arising from the business activities of the Group and the financing of those activities. There is no trading activity in financial instruments. Financial instruments are accounted for as follows:
| • | Interest rate swaps are used to hedge the Group’s exposure to movements in interest rates. The interest payable or receivable on such swaps is accrued in the same way as interest arising on deposits or borrowings. Interest rate swaps are not revalued to fair value prior to maturity. |
| | |
| • | Cross currency interest rate swaps (currency swaps) are used to hedge foreign currency assets and borrowings. The future currency exchange within such contracts is revalued to the rate of exchange at the balance sheet date and any unrealized gain or loss is matched with that on the underlying asset or liability in reserves. The interest coupon on such swaps is accrued in the same way as that on borrowings and deposits. |
F-9
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The Group is engaged in the distribution and supply of plumbing and heating products and building materials with operations principally in North America and Europe. The Group is organized into the following three segments based on its principal operating businesses: North American Plumbing and Heating Distribution; US Building Materials Distribution and European Distribution.
Analysis of change in sales |
| |
| | | | Fiscal
2004 | | | Exchange | | | New
acquisitions
fiscal 2005 | | | Increment
on fiscal 2004 acquisitions | | | Organic
change | | | Organic
change | | | Fiscal
2005 | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | | | % | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| European Distribution | | | 4,248.0 | | | 9.1 | | | 211.4 | | | 54.3 | | | 115.6 | | | 2.7 | | | 4,638.4 | |
| North American Plumbing and Heating Distribution | | | 3,836.4 | | | (172.5 | ) | | 120.9 | | | 49.9 | | | 535.7 | | | 14.6 | | | 4,370.4 | |
| US Building Materials Distribution | | | 2,043.7 | | | (109.5 | ) | | 50.4 | | | 57.2 | | | 207.1 | | | 10.7 | | | 2,248.9 | |
| | |
| |
| |
| |
| |
| | | | |
| |
| | | | 10,128.1 | | | (272.9 | ) | | 382.7 | | | 161.4 | | | 858.4 | | | 8.7 | | | 11,257.7 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Organic change is the total increase or decrease in the year adjusted for the impact of exchange, new acquisitions in fiscal 2005 and the incremental impact of acquisitions in fiscal 2004.
Analysis of change in sales |
| | | | Fiscal
2003 | | | Exchange | | | New
acquisitions
fiscal 2004 | | | Increment
on fiscal 2003 acquisitions | | | Organic
change | | | Organic
change | | | Fiscal
2004 | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | | | % | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| European Distribution | | | 2,956.7 | | | 30.3 | | | 70.0 | | | 1,023.0 | | | 168.0 | | | 5.6 | | | 4,248.0 | |
| North American Plumbing and Heating Distribution | | |
3,551.5 | | |
(276.8 | ) | | 55.3 |
| | 54.1 |
| | 452.3 |
| | 13.8 |
| | 3,836.4 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| US Building Materials Distribution | | | 1,712.8 | | | (153.6 | ) | | 46.7 | | | 34.9 | | | 402.9 | | | 25.8 | | | 2,043.7 | |
| | |
| |
| |
| |
| |
| | | | |
| |
| | | | 8,221.0 | | | (400.1 | ) | | 172.0 | | | 1,112.0 | | | 1,023.2 | | | 13.1 | | | 10,128.1 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
F-10
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Analysis of change in operating profit before goodwill amortization |
| |
| | | | Fiscal
2004 | | | Exchange | | | New
acquisitions
fiscal 2005 | | | Increment
on fiscal 2004
acquisitions | | | Organic
change | | | Organic
change | | | Fiscal
2005 | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | | | % | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| European Distribution | | | 263.2 | | | 0.3 | | | 9.6 | | | 4.5 | | | 15.8 | | | 6.0 | | | 293.4 | |
| North American Plumbing and Heating Distribution | | | 252.0 | | | (11.6 | ) | | 6.4 | | | 4.0 | | | 45.7 | | | 19.0 | | | 296.5 | |
| US Building Materials Distribution | | | 104.0 | | | (5.9 | ) | | 5.3 | | | 3.6 | | | 23.9 | | | 24.4 | | | 130.9 | |
| | |
| |
| |
| |
| |
| | | | |
| |
| Operating profit before goodwill amortization | | | 619.2 | | | (17.2 | ) | | 21.3 | | | 12.1 | | | 85.4 | | | 14.2 | | | 720.8 | |
| | | | | |
| |
| |
| |
| |
| | | | |
| Goodwill amortization | | | (39.0 | ) | | | | | | | | | | | | | | | | | (43.4 | ) |
| | |
| | | | | | | | | | | | | | | | |
| |
| Operating profit | | | 580.2 | | | | | | | | | | | | | | | | | | 677.4 | |
| | |
| | | | | | | | | | | | | | | | |
| |
Goodwill amortization attributable to each segment was: European Distribution, £23.0 million (2004: £20.2 million); North American Plumbing and Heating Distribution, £12.6 million (2004: £11.9 million); US Building Materials Distribution, £7.8 million (2004: £6.9 million).
Analysis of change in operating profit before goodwill amortization |
| |
| | | | Fiscal 2003 | | | Exchange | | | New
acquisitions
fiscal 2004 | | | Increment
on fiscal
2003
acquisitions | | | Organic
change | | | Organic
change | | | Fiscal 2004 | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | | | % | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| European Distribution | | | 193.2 | | | 1.6 | | | 2.2 | | | 56.2 | | | 10.0 | | | 5.1 | | | 263.2 | |
| North American Plumbing and Heating Distribution | | | 202.2 | | | (15.9 | ) | | 2.0 | | | 3.2 | | | 60.5 | | | 32.5 | | | 252.0 | |
| US Building Materials Distribution | | | 77.5 | | | (7.2 | ) | | 4.1 | | | 1.4 | | | (28.2 | ) | | 40.1 | | | 104.0 | |
| | |
| |
| |
| |
| |
| | | | |
| |
| Operating profit before goodwill amortization | | | 472.9 | | | (21.5 | ) | | 8.3 | | | 60.8 | | | 98.7 | | | 21.9 | | | 619.2 | |
| | | | | |
| |
| |
| |
| |
| | | | |
| Goodwill amortization | | | (29.9 | ) | | | | | | | | | | | | | | | | | (39.0 | ) |
| | |
| | | | | | | | | | | | | | | | |
| |
| Operating profit | | | 443.0 | | | | | | | | | | | | | | | | | | 580.2 | |
| | |
| | | | | | | | | | | | | | | | |
| |
Goodwill amortization attributable to each segment was: European Distribution, £20.2 million (2003: £11.2 million); North American Plumbing and Heating Distribution, £11.9 million (2003: £11.9 million); US Building Materials Distribution, £6.9 million (2003: £6.8 million).
F-11
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
By class of business
| | Turnover
| | Operating Profit
| | Net Assets
| |
| | | 2005 | | | 2004 | | | 2003 | | | 2005 | | | 2004 | | | 2003 | | | 2005 | | | 2004 | | | 2003 | |
| | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| European Distribution | | 4,638.4 | | | 4,248.0 | | | 2,956.7 | | | 270.4 | | | 242.9 | | | 182.0 | | | 1,429.9 | | | 1,190.2 | | | 1,206.4 | |
| North American Plumbing and Heating Distribution | | 4,370.4 | | | 3,836.4 | | | 3,551.5 | | | 283.9 | | | 240.1 | | | 190.3 | | | 1,419.0 | | | 1,147.0 | | | 997.8 | |
| US Building Materials Distribution | | 2,248.9 | | | 2,043.7 | | | 1,712.8 | | | 123.1 | | | 97.2 | | | 70.7 | | | 754.4 | | | 591.3 | | | 524.3 | |
| Parent and others | | — | | | — | | | — | | | — | | | — | | | — | | | (52.5 | ) | | 6.3 | | | (37.3 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | 11,257.7 | | | 10,128.1 | | | 8,221.0 | | | 677.4 | | | 580.2 | | | 443.0 | | | 3,550.8 | | | 2,934.8 | | | 2,691.2 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Net assets are defined as fixed assets plus net current assets, less other creditors due after more than one year and provisions for liabilities and charges but excluding investments, cash, borrowings and dividends payable. The segmental operating profits are stated after the allocation of central costs and charges, in proportion to segmental sales.
Turnover by geographical origin and destination, and fixed assets by geographical location
| | | Turnover
| | Fixed Assets
| |
| | | | 2005 | | | 2004 | | | 2003 | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| United States | | | 6,107.5 | | | 5,434.4 | | | 4,868.1 | | | 427.0 | | | 315.8 | | | 329.5 | |
| Canada | | | 511.8 | | | 445.7 | | | 396.4 | | | 23.2 | | | 18.8 | | | 18.8 | |
| United Kingdom and Ireland | | | 2,353.9 | | | 2,106.9 | | | 1,888.7 | | | 212.9 | | | 191.0 | | | 179.0 | |
| France | | | 1,645.8 | | | 1,621.5 | | | 658.3 | | | 182.0 | | | 150.3 | | | 147.2 | |
| Rest of World | | | 638.7 | | | 519.6 | | | 409.5 | | | 70.8 | | | 41.0 | | | 42.1 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | 11,257.7 | | | 10,128.1 | | | 8,221.0 | | | 915.9 | | | 716.9 | | | 716.6 | |
| | |
| |
| |
| |
| |
| |
| |
Turnover by geographical origin and destination are not materially different. In addition, turnover between business and geographical segments is not material. Corresponding amounts have been reclassified to include Ireland with the United Kingdom. Turnover attributable to the United Kingdom only for the year ended July 31, 2005 is £2,113.8 million (2004: 2,021.7 million; 2003: £1,819.7 million). Fixed assets attributable to the United Kingdom only for the year ended July 31, 2005 are £185.7 million (2004: £187.7 million; 2003: £173.2 million).
F-12
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | | | Continuing | | | | | | | | | | | | | |
| | | | operations | | | Acquisitions | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Turnover | | | 10,875.0 | | | 382.7 | | | 11,257.7 | | | 10,128.1 | | | 8,221.0 | |
| Cost of sales | | | (7,885.6 | ) | | (289.6 | ) | | (8,175.2 | ) | | (7,337.2 | ) | | (5,993.6 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Gross profit | | | 2,989.4 | | | 93.1 | | | 3,082.5 | | | 2,790.9 | | | 2,227.4 | |
| Distribution costs | | | (1,883.1 | ) | | (47.4 | ) | | (1,930.5 | ) | | (1,804.9 | ) | | (1,509.2 | ) |
| Administrative expenses | | | (470.9 | ) | | (28.1 | ) | | (499.0 | ) | | (420.7 | ) | | (302.1 | ) |
| Other operating income | | | 24.2 | | | 0.2 | | | 24.4 | | | 14.9 | | | 26.9 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | 659.6 | | | 17.8 | | | 677.4 | | | 580.2 | | | 443.0 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
4. Amounts charged in arriving at operating profit
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| Operating lease rentals: | | | | | | | | | | |
| – Plant and machinery | | | 23.9 | | | 8.2 | | | 7.8 | |
| – Other operating leases | | | 133.8 | | | 102.9 | | | 98.8 | |
| Depreciation on owned assets | | | 102.6 | | | 101.8 | | | 90.8 | |
| Depreciation on finance lease assets | | | 11.0 | | | 5.9 | | | 4.0 | |
| Amortization of capitalized software costs | | | 0.1 | | | — | | | — | |
| (Profit)/loss on disposal of fixed assets | | | (11.1 | ) | | 0.2 | | | (1.7 | ) |
| Staff costs (Note 9) | | | 1,502.3 | | | 1,332.1 | | | 1,087.4 | |
| Goodwill amortization (Note 10) | | | 43.4 | | | 39.0 | | | 29.9 | |
| | |
|
| |
|
| |
|
| |
| Amounts payable to the auditors: | | | | | | | | | | |
| Audit fees | | | | | | | | | | |
| – Company | | | 0.1 | | | 0.1 | | | 0.1 | |
| – Group | | | 2.4 | | | 2.0 | | | 1.7 | |
| Other assurance services | | | | | | | | | | |
| – UK | | | 0.6 | | | — | | | — | |
| – Rest of World | | | 0.7 | | | — | | | — | |
| Taxation | | | | | | | | | | |
| – UK | | | 2.4 | | | 2.2 | | | 1.5 | |
| – Rest of World | | | 0.4 | | | 0.4 | | | 0.2 | |
| Due diligence reviews | | | | | | | | | | |
| – UK | | | 0.1 | | | 0.1 | | | 0.3 | |
| – Rest of World | | | 0.3 | | | 0.1 | | | 0.4 | |
| Other services | | | | | | | | | | |
| – UK | | | — | | | 0.3 | | | — | |
| – Rest of World | | | 0.2 | | | 0.4 | | | 0.3 | |
| | |
|
| |
|
| |
|
| |
| Total fees payable to the auditors | | | 7.2 | | | 5.6 | | | 4.5 | |
| | |
| |
| |
| |
F-13
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Other assurance services includes fees charged for services in respect of Sarbanes-Oxley S404 compliance and advice relating to the Company’s preparation of financial statements under International Financial Reporting Standards.
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| Interest receivable | | | 26.7 | | | 26.4 | | | 19.2 | |
| Interest payable and similar charges | | | | | | | | | | |
| – Bank loans and overdrafts | | | (55.2 | ) | | (47.3 | ) | | (35.9 | ) |
| – Other loans | | | — | | | — | | | (0.1 | ) |
| – Finance lease charges | | | (1.1 | ) | | (0.2 | ) | | (0.2 | ) |
| | |
|
| |
|
| |
|
| |
| | | | (29.6 | ) | | (21.1 | ) | | (17.0 | ) |
| | |
|
| |
|
| |
|
| |
Net interest receivable on construction loans amounted to £8.7 million (2004: £8.7 million; 2003: £8.3 million).
F-14
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The corporate tax rates applicable in the countries in which the Group principally operates are:
| UK | 30.0% (2004: 30.0%; 2003: 30.0%) |
| France | 35.43% (2004: 34.33%; 2003: 35.43%) |
| US | 35.0% federal tax (2004: 35.0%; 2003: 35.0%) plus appropriate rates of state tax |
The following table analyses profit on ordinary activities before tax:
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| United Kingdom | | | 228.3 | | | 160.6 | | | 98.4 | |
| Overseas | | | 419.5 | | | 398.5 | | | 327.6 | |
| | |
|
| |
|
| |
|
| |
| Total profit on ordinary activities before tax | | | 647.8 | | | 559.1 | | | 426.0 | |
| | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| The tax charge for the year comprises: | | | | | | | | | | |
| UK current year tax charge | | | 42.2 | | | 191.3 | | | 39.3 | |
| – Less: double tax relief | | | (0.9 | ) | | (161.6 | ) | | (9.2 | ) |
| | |
|
| |
|
| |
|
| |
| | | | 41.3 | | | 29.7 | | | 30.1 | |
| – UK prior year | | | (3.3 | ) | | (2.2 | ) | | 1.2 | |
| | |
|
| |
|
| |
|
| |
| Total UK tax charge | | | 38.0 | | | 27.5 | | | 31.3 | |
| | |
|
| |
|
| |
|
| |
| Overseas current year tax charge | | | 108.6 | | | 125.6 | | | 83.8 | |
| Overseas prior year | | | (4.8 | ) | | (0.1 | ) | | 2.9 | |
| | |
|
| |
|
| |
|
| |
| Total overseas tax charge | | | 103.8 | | | 125.5 | | | 86.7 | |
| | |
|
| |
|
| |
|
| |
| Total current tax | | | 141.8 | | | 153.0 | | | 118.0 | |
| Deferred tax charge – origination and reversal of timing differences | | | 44.8 | | | 9.1 | | | 9.6 | |
| | |
|
| |
|
| |
|
| |
| Total tax charge | | | 186.6 | | | 162.1 | | | 127.6 | |
| | |
|
| |
|
| |
|
| |
F-15
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | % | | | % | | | % | |
| | |
|
| |
|
| |
|
| |
| Tax reconciliation: | | | | | | | | | | |
| Average UK corporation tax rate | | | 30 | | | 30 | | | 30 | |
| Prior year amounts | | | (1 | ) | | — | | | 1 | |
| Non-deductible and non-taxable items | | | (3 | ) | | (5 | ) | | (4 | ) |
| Deferred tax: origination and reversal of timing differences | | | (7 | ) | | (3 | ) | | (4 | ) |
| Higher average tax rates in overseas companies | | | 3 | | | 5 | | | 4 | |
| | |
|
| |
|
| |
|
| |
| Effective current tax rate on profit on ordinary activities before tax | | | 22 | | | 27 | | | 27 | |
| | |
| |
| |
| |
| | | | | | | | |
Deferred Tax | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| The elements of deferred tax are as follows: | | | | | | | |
| Accelerated capital allowances | | | 10.4 | | | 2.7 | |
| Other timing differences | | | 34.5 | | | (5.7 | ) |
| | |
|
| |
|
| |
| Deferred tax liability/(asset) | | | 44.9 | | | (3.0 | ) |
| | |
|
| |
|
| |
| The movements in the deferred tax balance were as follows: | | | | | | | |
| Asset at beginning of year | | | (3.0 | ) | | (13.2 | ) |
| Amount charged to profit and loss account | | | 44.8 | | | 9.1 | |
| Acquisitions | | | 1.2 | | | 1.7 | |
| Transfers | | | (0.1 | ) | | (0.1 | ) |
| Exchange | | | 2.0 | | | (0.5 | ) |
| | |
|
| |
|
| |
| Liability/(asset) at end of year | | | 44.9 | | | (3.0 | ) |
| | |
|
| |
|
| |
| The closing balance is made up of: | | | | | | | |
| Deferred tax asset | | | (25.5 | ) | | (34.0 | ) |
| Deferred tax liability | | | 70.4 | | | 31.0 | |
| | |
|
| |
|
| |
| | | | 44.9 | | | (3.0 | ) |
| | |
|
| |
|
| |
There are other deferred tax assets in relation to tax losses totalling £29.7m (2004: £31.4m) that have not been recognized on the basis that their future economic benefit is uncertain.
No provision has been made for deferred tax on gains recognized on revaluing property to its market value or on the sale of properties where potentially taxable gains have been rolled over into replacement assets. Such tax would become payable only if the property were sold without it being possible to claim rollover relief. The total amount unprovided for is £16.6 million (2004: £16.8 million). At present, it is not anticipated that any such tax on gains will become payable in the foreseeable future.
F-16
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| Interim paid 8.80 pence per share (2004: 7.80p; 2003: 5.60p) | | | 51.7 | | | 45.5 | | | 32.6 | |
| Final proposed 17.60 pence per share (2004: 16.00p; 2003: 15.60p) | | | 104.0 | | | 93.6 | | | 90.5 | |
| | |
|
| |
|
| |
|
| |
| Total 26.40 pence per share (2004: 23.80p; 2003: 21.20p) | | | 155.7 | | | 139.1 | | | 123.1 | |
| | |
|
| |
|
| |
|
| |
Basic earnings per share of 78.53 pence (2004: 68.15 pence) is calculated on the profit of £461.2 million (2004: £397.0 million) accruing to ordinary share capital and on a weighted average number of ordinary shares in issue during the year of 587.2 million (2004: 582.6 million). The impact of all potentially dilutive share options on earnings per share would be to increase the weighted average number of shares in issue to 593.4 million and to reduce basic earnings per share to 77.71 pence. The earnings per share before goodwill amortization of 85.93 pence (2004: 74.84 pence) is calculated on the profit of £504.6 million (2004: £436.0 million) accruing to ordinary share capital.
| | | | 2005 | | | 2004 | | | 2003 | |
Employment costs | | | £m | | | £m | | | £m | |
| |
|
| |
|
| |
|
| |
| Wages and salaries | | | 1,249.4 | | | 1,107.8 | | | 941.0 | |
| Social security costs | | | 210.0 | | | 188.9 | | | 118.0 | |
| Other pension costs (Note 33) | | | 42.9 | | | 35.4 | | | 28.4 | |
| | |
|
| |
|
| |
|
| |
| | | | 1,502.3 | | | 1,332.1 | | | 1,087.4 | |
| | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
Average weekly number of employees | | | 2005 | | | 2004 | | | 2003 | |
| |
|
| |
|
| |
|
| |
| European Distribution | | | 24,651 | | | 23,153 | | | 15,829 | |
| North American Plumbing and Heating Distribution | | | 18,081 | | | 15,646 | | | 14,427 | |
| US Building Materials Distribution | | | 10,936 | | | 9,580 | | | 9,043 | |
| | |
|
| |
|
| |
|
| |
| | | | 53,668 | | | 48,379 | | | 39,299 | |
| | |
|
| |
|
| |
|
| |
F-17
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| 10. | Intangible fixed assets |
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
Goodwill cost | | | | | | | |
| At August 1 | | | 789.5 | | | 778.3 | |
| Additions | | | 216.8 | | | 63.2 | |
| Divestments | | | (2.0 | ) | | — | |
| Revisions to prior year acquisitions | | | (0.6 | ) | | 4.2 | |
| Exchange rate adjustment | | | 34.1 | | | (56.2 | ) |
| | |
|
| |
|
| |
| At July 31 | | | 1,037.8 | | | 789.5 | |
| | |
|
| |
|
| |
Goodwill amortization | | | | | | | |
| At August 1 | | | 123.6 | | | 91.5 | |
| Charge for the year | | | 43.4 | | | 39.0 | |
| Divestments | | | (0.4 | ) | | — | |
| Exchange rate adjustment | | | 5.1 | | | (6.9 | ) |
| | |
|
| |
|
| |
| At July 31 | | | 171.7 | | | 123.6 | |
| | |
|
| |
|
| |
Net book value at July 31 | | | 866.1 | | | 665.9 | |
| | |
|
| |
|
| |
In respect of revisions to prior year acquisitions, final adjustments have given rise to a reduction of £0.1 million of consideration, and the estimated fair value of assets and liabilities acquired has increased by £0.5 million. Goodwill in respect of these acquisitions has accordingly been reduced by £0.6 million.
F-18
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | | Land and buildings | | | | | | | |
| | |
| | | Plant, | | | | |
| | | | Freehold | | | Long term leasehold | | | Short term leasehold | | | machinery, equipment | | | Total | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Cost | | | | | | | | | | | | | | | | |
| At August 1, 2004 | | | 477.6 | | | 17.8 | | | 172.4 | | | 609.2 | | | 1,277.0 | |
| Exchange rate adjustment | | | 19.6 | | | 0.8 | | | 4.8 | | | 20.4 | | | 45.6 | |
| Reclassifications between categories | | | (2.2 | ) | | 31.4 | | | (59.4 | ) | | 30.2 | | | — | |
| New businesses | | | 30.8 | | | 34.9 | | | 1.0 | | | 12.2 | | | 78.9 | |
| Additions | | | 86.8 | | | 3.7 | | | 26.7 | | | 148.4 | | | 265.6 | |
| Divestments | | | (0.6 | ) | | — | | | (0.1 | ) | | (1.9 | ) | | (2.6 | ) |
| Disposals | | | (20.3 | ) | | (35.8 | ) | | (4.2 | ) | | (57.9 | ) | | (118.2 | ) |
| Property awaiting disposal | | | (2.9 | ) | | — | | | — | | | — | | | (2.9 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| At July 31, 2005 | | | 588.8 | | | 52.8 | | | 141.2 | | | 760.6 | | | 1,543.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Accumulated depreciation | | | | | | | | | | | | | | | | |
| At August 1, 2004 | | | 91.4 | | | 4.7 | | | 89.0 | | | 375.0 | | | 560.1 | |
| Exchange rate adjustment | | | 3.4 | | | 0.1 | | | 1.5 | | | 11.6 | | | 16.6 | |
| Reclassifications between categories | | | 4.2 | | | 4.4 | | | (29.1 | ) | | 20.5 | | | — | |
| Charge for the year | | | | | | | | | | | | | | | | |
| – owned assets | | | 14.6 | | | 1.0 | | | 12.9 | | | 74.2 | | | 102.7 | |
| – leased assets | | | — | | | 2.3 | | | — | | | 8.7 | | | 11.0 | |
| Divestments | | | (0.3 | ) | | — | | | — | | | (1.6 | ) | | (1.9 | ) |
| Disposals | | | (2.1 | ) | | (0.5 | ) | | (2.8 | ) | | (55.0 | ) | | (60.4 | ) |
| Property awaiting disposal | | | (0.6 | ) | | — | | | — | | | — | | | (0.6 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| At July 31, 2005 | | | 110.6 | | | 12.0 | | | 71.5 | | | 433.4 | | | 627.5 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Net book value at July 31, 2005 | | | 478.2 | | | 40.8 | | | 69.7 | | | 327.2 | | | 915.9 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net book value at August 1, 2004 | | | 386.2 | | | 13.1 | | | 83.4 | | | 234.2 | | | 716.9 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | |
| | | | Freehold | | | Long term leasehold | | | Short term leasehold | | | Plant, machinery, equipment | | | Total | |
Assets held under finance leases | | | £m | | | £m | | | £m | | | £m | | | £m | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Cost | | | — | | | 35.2 | | | — | | | 51.8 | | | 87.0 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Accumulated depreciation | | | — | | | 5.7 | | | — | | | 19.9 | | | 25.6 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net book value at July 31, 2005 | | | — | | | 29.5 | | | — | | | 31.9 | | | 61.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
F-19
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Certain tangible fixed assets have been transferred between asset categories following a detailed review of fixed asset registers in France and the UK.
The cost of tangible fixed assets at 31 July 2005 included £79.0 million (2004: £26.7 million) in respect of assets in the course of construction which are not depreciated until brought into use. Freehold land, which is included above and amounts to £105.8 million (2004: £97.2 million), is not depreciated. Plant, machinery and equipment includes £28.8 million (2004: £9.4 million) of unamortized computer software costs.
| | | Land and buildings | | | | | | | |
| | |
| | | Plant, | | | | |
| | | | Freehold | | | Long term leasehold | | | Short term leasehold | | | machinery, equipment | | | Total | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Cost | | | | | | | | | | | | | | | | |
| At August 1, 2003 | | | 485.1 | | | 17.4 | | | 165.7 | | | 608.6 | | | 1,276.8 | |
| Exchange rate adjustment | | | (39.0 | ) | | (0.1 | ) | | (9.8 | ) | | (45.3 | ) | | (94.2 | ) |
| New businesses | | | 10.4 | | | — | | | 0.2 | | | 7.5 | | | 18.1 | |
| Additions | | | 34.7 | | | 2.3 | | | 20.5 | | | 105.2 | | | 162.7 | |
| Disposals and transfers | | | (11.9 | ) | | (1.8 | ) | | (4.2 | ) | | (66.8 | ) | | (84.7 | ) |
| Property awaiting disposal | | | (1.7 | ) | | — | | | — | | | — | | | (1.7 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| At July 31, 2004 | | | 477.6 | | | 17.8 | | | 172.4 | | | 609.2 | | | 1,277.0 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Accumulated depreciation | | | | | | | | | | | | | | | | |
| At August 1, 2003 | | | 84.8 | | | 4.8 | | | 88.3 | | | 382.3 | | | 560.2 | |
| Exchange rate adjustment | | | (6.8 | ) | | — | | | (4.1 | ) | | (29.4 | ) | | (40.3 | ) |
| Charge for the year | | | | | | | | | | | | | | | | |
| – owned assets | | | 15.8 | | | — | | | 13.4 | | | 72.6 | | | 101.8 | |
| – leased assets | | | — | | | 1.1 | | | 0.5 | | | 4.3 | | | 5.9 | |
| Disposals and transfers | | | (2.1 | ) | | (1.2 | ) | | (9.1 | ) | | (54.8 | ) | | (67.2 | ) |
| Property awaiting disposal | | | (0.3 | ) | | — | | | — | | | — | | | (0.3 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| At July 31, 2004 | | | 91.4 | | | 4.7 | | | 89.0 | | | 375.0 | | | 560.1 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
Net book value at July 31, 2004 | | | 386.2 | | | 13.1 | | | 83.4 | | | 234.2 | | | 716.9 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net book value at August 1, 2003 | | | 400.3 | | | 12.6 | | | 77.4 | | | 226.3 | | | 716.6 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | |
| | | | Freehold | | | Long term leasehold | | | Short term leasehold | | | Plant, machinery, equipment | | | Total | |
Assets held under finance leases | | | £m | | | £m | | | £m | | | £m | | | £m | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Cost | | | — | | | — | | | 23.5 | | | 17.8 | | | 41.3 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Accumulated depreciation | | | — | | | — | | | 0.8 | | | 7.5 | | | 8.3 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net book value at July 31, 2004 | | | — | | | — | | | 22.7 | | | 10.3 | | | 33.0 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
F-20
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | | | Trade investments £m | |
| | |
|
| |
| At August 1, 2003 | | | 0.2 | |
| Additions | | | 1.9 | |
| | |
|
| |
| At July 31, 2004 | | | 2.1 | |
| New businesses | | | 1.3 | |
| Additions | | | 0.2 | |
| | |
|
| |
| At July 31, 2005 | | | 3.6 | |
| | |
|
| |
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| Goods purchased for resale | | | 1,705.0 | | | 1,501.8 | |
| | |
|
| |
|
| |
The current replacement cost of stocks does not differ materially from the historical cost stated above.
Certain subsidiary undertakings have consignment stock arrangements with suppliers in the ordinary course of business. Items drawn from consignment stock are generally invoiced to the companies concerned at the price ruling at the date of drawdown. The value of such stock, at cost, which has been excluded from the balance sheet in accordance with the application notes included in FRS 5, amounted to £15.5 million (2004: £8.5 million).
F-21
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| Amounts falling due within one year: | | | | | | | |
| Trade debtors | | | 1,933.6 | | | 1,647.1 | |
| Other debtors | | | 130.6 | | | 122.2 | |
| Prepayments | | | 138.4 | | | 53.5 | |
| Corporation tax recoverable | | | 6.5 | | | 64.8 | |
| Property awaiting disposal | | | 3.9 | | | 8.5 | |
| | |
|
| |
|
| |
| | | | 2,213.0 | | | 1,896.1 | |
| Amounts falling due after more than one year: | | | | | | | |
| Other debtors | | | 37.0 | | | 34.4 | |
| Deferred tax asset | | | 25.5 | | | 34.0 | |
| | |
|
| |
|
| |
| | | | 2,275.5 | | | 1,964.5 | |
| | |
|
| |
|
| |
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| Construction loans receivable – secured | | | 263.9 | | | 187.7 | |
| Borrowings to finance construction loans – unsecured | | | (263.9 | ) | | (187.7 | ) |
| | |
|
| |
|
| |
| | | | — | | | — | |
| | |
|
| |
|
| |
Construction loans receivable, which are secured principally against homes in the course of construction or completed homes awaiting sale, are made to customers of Stock Building Supply, Inc.
Included in construction loans receivable is an amount of £1.9 million (2004: £2.7 million) representing properties held for sale in lieu of foreclosed loans. Allowances for construction loans included in the above amounted to £2.4 million (2004: £2.2 million).
| 16. | Current asset investments |
| | |
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| US life insurance policies | | | 4.6 | | | 4.6 | |
| French SICAV, bonds and commercial paper | | | 0.2 | | | 1.6 | |
| | |
|
| |
|
| |
| | | | 4.8 | | | 6.2 | |
| | |
|
| |
|
| |
F-22
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
|
| Bank loans and overdrafts | | | | | | | |
| Unsecured | | | 436.7 | | | 378.7 | |
| Other loans: | | | | | | | |
| Secured | | | 0.4 | | | 0.3 | |
| Other loans: | | | | | | | |
| Finance leases | | | 3.8 | | | 5.0 | |
| | |
|
| |
|
| |
| | | | 440.9 | | | 384.0 | |
| | |
|
| |
|
| |
Facilities undrawn at July 31, 2005 and committed for up to one year amounted to £200 million (2004: £200 million).
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| Amounts due within one year: | | | | | | | |
| Trade creditors | | | 1,272.9 | | | 1,115.4 | |
| Bills of exchange payable | | | 193.5 | | | 93.1 | |
| Corporation tax | | | 70.3 | | | 152.5 | |
| Other tax and social security | | | 102.4 | | | 110.4 | |
| Other creditors | | | 79.9 | | | 98.4 | |
| Accruals and deferred income | | | 275.9 | | | 187.8 | |
| Proposed dividend | | | 104.0 | | | 93.6 | |
| | |
|
| |
|
| |
| | | | 2,098.9 | | | 1,851.2 | |
| | |
| |
| |
| | | | | | |
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| Amounts falling due after more than one year: | | | | | | | |
| Other creditors | | | 18.0 | | | — | |
| | |
|
| |
|
| |
| | | | 18.0 | | | — | |
| | |
| |
| |
F-23
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| 19. | Borrowings falling due after one year |
| | |
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
Maturity of borrowings | | | | | | | |
| Due in one to two years | | | 524.2 | | | 38.0 | |
| Due in two to five years | | | 540.8 | | | 745.7 | |
| Due in over five years | | | 23.5 | | | 71.2 | |
| | |
|
| |
|
| |
| | | | 1,088.5 | | | 854.9 | |
| | |
|
| |
|
| |
Repayable after five years otherwise than by instalments | | | | | | | |
| US Industrial Revenue Bonds | | | — | | | 2.7 | |
| Finance leases | | | 23.3 | | | 6.3 | |
| Bank facilities | | | — | | | 62.2 | |
| Other facilities | | | 0.2 | | | — | |
Repayable within 2 to 5 years | | | | | | | |
| US Industrial Revenue Bonds | | | 0.2 | | | — | |
| Finance leases | | | 11.7 | | | 6.6 | |
| Bank facilities | | | 528.4 | | | 739.1 | |
| Other facilities | | | 0.5 | | | — | |
Repayable within 1 to 2 years | | | | | | | |
| US Industrial Revenue Bonds | | | 0.2 | | | — | |
| Finance leases | | | 8.9 | | | 9.3 | |
| Bank facilities | | | 514.6 | | | 28.7 | |
| Other facilities | | | 0.5 | | | — | |
| | |
|
| |
|
| |
| | | | 1,088.5 | | | 854.9 | |
| | |
| |
| |
Finance lease obligations included above are secured against the assets concerned. Other secured loans amounting to £2.9 million (2004: £5.0 million) are secured against various Group assets.
Facilities undrawn at July 31, 2005 and committed for more than one year amounted to £191 million (2004: £58 million).
F-24
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| 20. | Provisions for liabilities and charges |
| | |
| | | | | | | Wolseley | | | Deferred | | | Environmental | | | Other | | | | |
| | | | Pensions | | | Insurance | | | Taxation | | | And Legal | | | provisions | | | Total | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| At July 31, 2003 | | | 52.1 | | | 32.1 | | | 22.7 | | | 27.7 | | | 9.3 | | | 143.9 | |
| Utilized in the year | | | (19.3 | ) | | (9.4 | ) | | — | | | — | | | (1.1 | ) | | (29.8 | ) |
| Charge/(release) for the year | | | 19.1 | | | 14.5 | | | 8.4 | | | 4.9 | | | (0.9 | ) | | 46.0 | |
| Transfers | | | — | | | — | | | 0.5 | | | — | | | 7.5 | | | 8.0 | |
| New businesses | | | — | | | — | | | 1.7 | | | — | | | 0.1 | | | 1.8 | |
| Exchange differences | | | (3.9 | ) | | (3.8 | ) | | (2.3 | ) | | (3.2 | ) | | — | | | (13.2 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| At August 1, 2004 | | | 48.0 | | | 33.4 | | | 31.0 | | | 29.4 | | | 14.9 | | | 156.7 | |
| Utilized in the year | | | (29.5 | ) | | (9.2 | ) | | — | | | — | | | (0.4 | ) | | (39.1 | ) |
| Charge/(release) for the year | | | 23.9 | | | 9.7 | | | 34.8 | | | 2.2 | | | (0.5 | ) | | 70.1 | |
| Transfers | | | 3.2 | | | — | | | — | | | 0.5 | | | (3.0 | ) | | 0.7 | |
| New businesses | | | 1.0 | | | — | | | 1.2 | | | — | | | 0.1 | | | 2.3 | |
| Exchange differences | | | 2.4 | | | 1.1 | | | 3.4 | | | 1.1 | | | 0.1 | | | 8.1 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| At July 31, 2005 | | | 49.0 | | | 35.0 | | | 70.4 | | | 33.2 | | | 11.2 | | | 198.8 | |
| | |
| |
| |
| |
| |
| |
| |
Wolseley Insurance provisions represent an estimate, based on historical experience, of the ultimate cost of settling outstanding and potential claims.
Environmental and legal liabilities include known and potential legal claims and environmental liabilities arising from past events where it is probable that a payment will be made and the amount of such payment can be reasonably estimated. Included in this provision is an amount of £31.7 million (2004: £27.9 million) related to asbestos litigation involving certain Group companies. This liability is fully covered by insurance and accordingly an equivalent insurance receivable has been recorded in ‘Other debtors’ (Note 14) in line with FRS 12 ‘Provisions, contingencies and contingent assets’. The liability has been determined as at July 31, 2005 based on advice from independent professional actuarial advisors. The provision and the related receivable have been stated on a discounted basis using a long-term US treasury rate of 4.5% (2004: 5%). The level of insurance cover available significantly exceeds the expected level of future claims and no profit or cash flow impact is therefore expected to arise in the foreseeable future.
Other provisions principally comprise provisions for terminal dilapidations on property leases and provisions for future rents payable net of rents receivable on onerous and vacant property leases.
Under US GAAP, provisions arising in respect of an acquired business can be discounted, but subsequent adjustments to the provision should be recorded gross, although they relate to changes in the estimated cost of settling liabilities incurred prior to acquisition. Provisions for liabilities arising in respect of continuing businesses should be recorded gross. Accordingly, the provision for asbestos litigation as reported under US GAAP would be £51.9 million (2004: £45.9 million), of which £44.0 million (2004: £38.1 million) is an undiscounted amount with the balance representing a discounted amount.
F-25
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | | Authorized
| | Allotted and issued
| |
| | | | 2005 | | | 2004 | | | 2005 | | | 2004 | |
| Number of ordinary 25p shares (million) | | | 800.0 | | | 800.0 | | | 592.1 | | | 585.1 | |
| Nominal value of ordinary 25p shares (million) | | | £200.0 | | | £200.0 | | | £148.0 | | | £146.3 | |
All allotted and issued shares are fully paid or credited as fully paid.
From August 1, 2004 to July 31, 2005, new ordinary shares of 25 pence each in the Company have been issued as follows:
| | | | Number | | | Price | | | Value/ | | | | |
Allotment date | | | of shares | | | per share | | | Proceeds | | | Purpose of issue | |
| | | | | | | £ | | | £m | | | | |
| |
|
| |
|
| |
|
| |
|
| |
| Various | | | 2,535,072 | | | 251.00-698.28 | | | 14.5 | | | Exercise of savings related share options | |
| Various | | | 4,525,494 | | | 349.75-543.00 | | | 18.2 | | | Exercise of executive share options/stock appreciation rights | |
| | |
| | | | |
| | | | |
| | | | 7,060,566 | | | | | | 32.7 | | | | |
| | |
| | | | |
| | | | |
From August 1, 2003 to July 31, 2004, new ordinary shares of 25 pence each in the Company have been issued as follows:
| | | | Number | | | Price | | | Value/ | | | | |
Allotment date | | | of shares | | | per share | | | Proceeds | | | Purpose of issue | |
| | | | £ | | | £m | | | | | | | |
| |
|
| |
|
| |
|
| |
|
| |
| Various | | | 1,911,017 | | | 251.00-562.00 | | | 8.0 | | | Exercise of savings related share options | |
| Various | | | 2,500,325 | | | 349.75-483.50 | | | 9.0 | | | Exercise of executive share options/stock appreciation rights | |
| | |
| | | | |
| | | | |
| | | | 4,411,342 | | | | | | 17.0 | | | | |
| | |
| | | | |
| | | | |
F-26
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The maximum number of shares pursuant to which options may be granted (but excluding any options which lapse) under all share option schemes and the stock appreciation plan in any ten year period is 10% of the issued share capital from time to time. The number of shares pursuant to which options may be granted under all such schemes as of July 31, 2005 was 59,214,243 of which 15,510,090 have already been issued pursuant to options exercised in the ten year period ended July 31, 2005. The following options were outstanding under the various all employee share plans:
Number of shares under option as of July 31,
| | | | | | Not exercisable | |
2005 | | | 2004 | | | Price | | | after | |
| |
|
| |
|
| |
|
| |
| — | | | 1,943 | | | 409.00p | | | September 2004 | |
| 1,582 | | | 88,687 | | | 345.00p | | | September 2005 | |
| — | | | 7,560 | | | 375.00p | | | September 2004 | |
| 70,618 | | | 76,106 | | | 375.00p | | | September 2006 | |
| — | | | 1,816,500 | | | 348.00p | | | April 2005 | |
| 27,013 | | | 598,299 | | | 251.00p | | | September 2005 | |
| 135,673 | | | 142,402 | | | 251.00p | | | September 2007 | |
| 2,086,700 | | | 2,173,200 | | | 376.00p | | | April 2006 | |
| — | | | 18,957 | | | 336.00p | | | October 2004 | |
| 277,076 | | | 293,453 | | | 336.00p | | | October 2006 | |
| 65,182 | | | 70,099 | | | 336.00p | | | October 2008 | |
| 9,957 | | | 195,561 | | | 562.00p | | | November 2005 | |
| 3,472 | | | 10,854 | | | 562.00p | | | November 2005 | |
| 188,821 | | | 206,467 | | | 562.00p | | | November 2007 | |
| 565 | | | 565 | | | 562.00p | | | November 2007 | |
| 53,029 | | | 57,175 | | | 562.00p | | | November 2009 | |
| 538,652 | | | 587,987 | | | 412.00p | | | November 2006 | |
| 60,159 | | | 62,236 | | | 412.00p | | | November 2006 | |
| 416,661 | | | 451,554 | | | 412.00p | | | November 2008 | |
| 7,248 | | | 7,248 | | | 412.00p | | | November 2008 | |
| 74,322 | | | 81,554 | | | 412.00p | | | November 2010 | |
| — | | | 2,986,840 | | | 698.28p | | | June 2005 | |
| 358,903 | | | 413,035 | | | 657.00p | | | November 2007 | |
| 32,975 | | | 35,817 | | | 657.00p | | | November 2007 | |
| 252,042 | | | 274,967 | | | 657.00p | | | November 2009 | |
| 3,694 | | | 4,990 | | | 657.00p | | | November 2009 | |
| 41,421 | | | 43,612 | | | 657.00p | | | November 2011 | |
| 2,780,555 | * | | — | | | 935.85p | | | June 2006 | |
| 325,491 | ** | | — | | | 881.00p | | | November 2008 | |
| 43,792 | ** | | — | | | 881.00p | | | November 2008 | |
| 201,315 | ** | | — | | | 881.00p | | | November 2010 | |
| 27,086 | ** | | — | | | 881.00p | | | November 2010 | |
| 45,194 | ** | | — | | | 881.00p | | | November 2012 | |
| |
| | | | | | | |
| 8,129,198 | | | 10,707,668 | | | | | | | |
| |
| | | | | | | |
F-27
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
In accordance with Urgent Issues Task Force Abstract 17 “Employee Share Schemes”, the Company has taken advantage of the exemptions contained therein in respect of accounting for discounts arising on its all employee share schemes.
Executive share option schemes |
The maximum number of shares pursuant to which options may be granted (but excluding any options which lapse) under the rules of the executive share options in any ten year period is 5% of the issued share capital from time to time. The number of shares pursuant to which options may be granted as of July 31, 2005 was 29,607,122 of which 4,886,655 have already been issued pursuant to options exercised on or before July 31, 2005. The following options were outstanding:
Date of grant | | | 2005 | | | 2004 | | | Price | | | Not exercisable after | |
| |
|
| |
|
| |
|
| |
|
| |
| November 1994 | | | — | | | 55,400 | | | 388.75p | | | November 2004 | |
| November 1995 | | | 7,000 | | | 53,000 | | | 440.00p | | | November 2005 | |
| November 1995 | | | 8,300 | | | 42,600 | | | 433.00p | | | November 2005 | |
| November 1996 | | | 6,000 | | | 58,000 | | | 456.50p | | | November 2006 | |
| December 1996 | | | 19,000 | | | 24,000 | | | 456.50p | | | December 2006 | |
| December 1997 | | | 64,565 | | | 214,971 | | | 483.50p | | | December 2007 | |
| November 1998 | | | 89,735 | | | 217,500 | | | 381.00p | | | November 2008 | |
| October 1999 | | | 128,415 | | | 492,000 | | | 397.00p | | | October 2009 | |
| October 2000 | | | 251,500 | | | 731,200 | | | 349.75p | | | October 2010 | |
| May 2001 | | | 400,000 | | | 400,000 | | | 468.00p | | | May 2011 | |
| June 2001 | | | 14,762 | | | 100,000 | | | 485.00p | | | June 2011 | |
| November 2001 | | | 842,500 | | | 2,244,400 | | | 467.00p | | | November 2011 | |
| November 2002 | | | 2,644,500 | | | 2,838,500 | | | 543.00p | | | November 2012 | |
| November 2003 | | | 3,295,185 | | | 3,565,423 | | | 743.00p | | | November 2013 | |
| June 2004 | | | 23,752 | | | 23,752 | | | 842.00p | | | June 2014 | |
| November 2004 | | | 3,964,247 | | | — | | | 949.00p | | | November 2014 | |
| March 2005 | | | 50,000 | | | — | | | 1,100.00p | | | March 2015 | |
| | |
| |
| | | | | | | |
| | | | 11,809,461 | | | 11,060,746 | | | | | | | |
| | |
| |
| | | | | | | |
Three Employee Benefit Trusts have been established in connection with the Wolseley Share Option Plan 2003 and the Wolseley plc 2002 Long Term Incentive Scheme. During the year one of these trusts purchased 2,000,000 shares of the Company, with a nominal value of £0.5 million, for a cash consideration of £18.6 million. The market value of these shares as of July 31, 2005 was £23.7 million and none of them had been allocated to employees or Directors at that date. Dividends due on shares held by the Employee Benefit Trusts are waived in accordance with the provisions of their trust deeds.
F-28
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | | | Share premium account
£m | | | Profit and loss
£m | |
| | |
|
| |
|
|
| At August 1, 2003 | | | 177.8 | | | 1,451.2 | |
| Shares issued | | | 15.9 | | | — | |
| Premium on share options exercised through share symmetry arrangements | | | 6.2 | | | (6.2 | ) |
| Transfer from profit and loss account | | | — | | | 257.9 | |
| Currency translation differences (net of tax) | | | — | | | (147.2 | ) |
| | |
|
| |
|
| |
| At August 1, 2004 | | | 199.9 | | | 1,555.7 | |
| Shares issued | | | 31.0 | | | — | |
| Premium on share options exercised through share symmetry arrangements | | | 10.4 | | | (10.4 | ) |
| Shares purchased by Employee Benefit Trusts | | | — | | | (18.6 | ) |
| Retained profit | | | — | | | 305.5 | |
| Currency translation differences (net of tax) | | | — | | | 85.4 | |
| | |
|
| |
|
| |
| At July 31, 2005 | | | 241.3 | | | 1,917.6 | |
| | |
|
| |
|
| |
The premium on share options exercised through share symmetry arrangements represents the difference between the market value and the exercise price of shares issued to the Wolseley plc Employee Benefit Trust to satisfy the exercise of stock appreciation rights.
The details of acquisitions made since August 1, 2004 and consideration paid are shown in Item 4A – Information on the Group, paragraph A – Acquisitions and Divestitures. During the fiscal year ended July 31, 2005, Wolseley completed a total of 26 acquisitions for an aggregate consideration equal to £423 million. These acquisitions enable Wolseley to improve its service to customers through an expansion of its branch network and product offerings.
| | | | | | | | | | Accounting | | | Provisional | |
| | | | Book values | | | Asset | | | policy | | | fair values | |
| | | | acquired | | | revaluations | | | alignments | | | acquired | |
All acquisitions | | | £m | | | £m | | | £m | | | £m | |
| |
|
| |
|
| |
|
| |
|
| |
| Intangible fixed assets | | | 0.3 | | | — | | | (0.3 | ) | | — | |
| Tangible fixed assets | | | 33.8 | | | 46.6 | | | (1.5 | ) | | 78.9 | |
| Fixed asset investments | | | 0.4 | | | 0.9 | | | — | | | 1.3 | |
| Stocks | | | 98.2 | | | — | | | (6.3 | ) | | 91.9 | |
| Debtors | | | 141.1 | | | — | | | (1.6 | ) | | 139.5 | |
| Cash at bank or in hand | | | 19.0 | | | — | | | — | | | 19.0 | |
| Short-term borrowings | | | (26.8 | ) | | — | | | — | | | (26.8 | ) |
| Creditors | | | (86.3 | ) | | (8.4 | ) | | — | | | (94.7 | ) |
| Long-term borrowings | | | (0.7 | ) | | — | | | (0.1 | ) | | (0.8 | ) |
| Provisions | | | (1.1 | ) | | — | | | (1.2 | ) | | (2.3 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
| Total | | | 177.9 | | | 39.1 | | | (11.0 | ) | | 206.0 | |
| | |
| |
| |
| | | | |
| Goodwill arising | | | | | | | | | | | | 216.8 | |
| | | | | | | | | | | |
| |
| Consideration | | | | | | | | | | | | 422.8 | |
| | | | | | | | | | | |
| |
F-29
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The accounting policy adjustments to tangible fixed assets reflect their restatement at depreciated replacement cost with useful lives determined in accordance with Group accounting policies. The book value of stocks has been adjusted to write down slow-moving and obsolete stocks to their estimated net realizable values in accordance with the Group accounting policy. Adjustments to debtors comprise provisions for bad and doubtful debts in accordance with the Group accounting policy. The fair value adjustments shown above for the year ended July 31, 2005 are provisional figures, being the best estimates currently available.
| | | Year ended July 31, 2005
| |
| | | | Consideration (excluding debt assumed) | | | Fair value of net assets acquired | | | Goodwill | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| European Distribution | | | 169.7 | | | 106.4 | | | 63.3 | |
| North American Plumbing and Heating Distribution | | | 94.7 | | | 59.0 | | | 35.7 | |
| US Building Materials Distribution | | | 158.4 | | | 40.6 | | | 117.8 | |
| | |
|
| |
|
| |
|
| |
| | | | 422.8 | | | 206.0 | | | 216.8 | |
| | |
|
| |
|
| |
|
| |
As of July 31, 2005, deferred consideration of £10.4 million (2004: £6.1 million) and contingent consideration of £30.8 million (2004: £9.4 million) was payable in cash.
The aggregate amount of goodwill written off to reserves since May 1, 1958 is as follows:
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| North American acquisitions | | | 325.8 | | | 305.4 | |
| French acquisitions | | | 123.9 | | | 116.7 | |
| Austrian acquisitions | | | 67.1 | | | 67.9 | |
| Other acquisitions | | | 139.2 | | | 122.6 | |
| | |
|
| |
|
| |
| Total | | | 656.0 | | | 612.6 | |
| | |
|
| |
|
| |
24. Analysis of the net outflow of cash in respect of the purchase of businesses
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| Purchase consideration | | | | | | | | | | |
| – Current year acquisitions (Note 23) | | | 422.8 | | | 97.7 | | | 301.8 | |
| – Prior year acquisitions | | | (0.1 | ) | | 10.1 | | | — | |
| Net increase in deferred and contingent consideration (excluding currency translation differences) | | | (25.0 | ) | | (9.8 | ) | | (5.3 | ) |
| | |
|
| |
|
| |
|
| |
| Cash consideration | | | 397.7 | | | 98.0 | | | 296.5 | |
| Cash/bank overdrafts acquired | | | 7.8 | | | 25.5 | | | 210.7 | |
| | |
|
| |
|
| |
|
| |
| | | | 405.5 | | | 123.5 | | | 507.2 | |
| | |
|
| |
|
| |
|
| |
F-30
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| 25. | Disposals and analysis of the net inflow of cash in respect of the sale of businesses |
| | |
Net assets disposed of | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| |
|
| |
|
| |
|
| |
| Intangible assets | | | 2.1 | | | — | | | 0.9 | |
| Tangible fixed assets | | | 0.7 | | | — | | | — | |
| Stocks | | | 3.2 | | | — | | | 0.8 | |
| Debtors | | | 0.3 | | | — | | | 0.2 | |
| | |
|
| |
|
| |
|
| |
| | | | 6.3 | | | — | | | 1.9 | |
| Cash disposal proceeds | | | 4.5 | | | — | | | 3.0 | |
| Deferred consideration | | | 2.0 | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
| Net gain on disposal of operations | | | 0.2 | | | — | | | 1.1 | |
| | |
|
| |
|
| |
|
| |
26. Reconciliation of operating profit to net cash inflow from operating activities
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| Operating profit | | | 677.4 | | | 580.2 | | | 443.0 | |
| Depreciation | | | 113.7 | | | 107.7 | | | 94.8 | |
| (Profit)/loss on fixed asset disposals | | | (11.1 | ) | | 0.2 | | | (1.7 | ) |
| Goodwill amortization | | | 43.4 | | | 39.0 | | | 29.9 | |
| Increase in stocks | | | (54.2 | ) | | (274.3 | ) | | (48.3 | ) |
| Increase in debtors | | | (181.6 | ) | | (236.3 | ) | | (32.9 | ) |
| Increase in creditors and provisions | | | 176.0 | | | 108.6 | | | 123.0 | |
| Increase in construction loans receivable | | | (65.9 | ) | | (33.3 | ) | | (9.7 | ) |
| Increase in construction loans payable | | | 65.9 | | | 33.4 | | | 9.6 | |
| | |
|
| |
|
| |
|
| |
| Net cash inflow from operating activities | | | 763.6 | | | 325.2 | | | 607.7 | |
| | |
|
| |
|
| |
|
| |
F-31
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| 27. | Analysis of cash flows shown net in the cash flow statement |
| | |
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
Returns on investments and servicing of finance | | | | | | | | | | |
| Interest received | | | 26.1 | | | 32.3 | | | 15.1 | |
| Interest paid | | | (55.1 | ) | | (45.5 | ) | | (39.7 | ) |
| Interest element of finance lease rentals | | | (1.1 | ) | | (0.2 | ) | | (0.2 | ) |
| | |
|
| |
|
| |
|
| |
| Net cash outflow for returns on investments and servicing of finance | | | (30.1 | ) | | (13.4 | ) | | (24.8 | ) |
| | |
|
| |
|
| |
|
| |
Capital expenditure and financial investment | | | | | | | | | | |
| Payments to acquire tangible fixed assets | | | (238.9 | ) | | (154.9 | ) | | (124.3 | ) |
| Receipts from sales of tangible fixed assets | | | 73.9 | | | 19.3 | | | 16.1 | |
| | |
|
| |
|
| |
|
| |
| Net cash outflow for capital expenditure and financial investment | | | (165.0 | ) | | (135.6 | ) | | (108.2 | ) |
| | |
|
| |
|
| |
|
| |
Management of liquid resources | | | | | | | | | | |
| Decrease in current asset investments | | | 1.6 | | | 0.1 | | | 2.9 | |
| Decrease/(increase) in money market and other deposits | | | 21.5 | | | (31.2 | ) | | 28.9 | |
| | |
|
| |
|
| |
|
| |
| Net cash inflow/(outflow) from management of liquid resources | | | 23.1 | | | (31.1 | ) | | 31.8 | |
| | |
|
| |
|
| |
|
| |
Financing | | | | | | | | | | |
| Issue of ordinary share capital | | | 32.7 | | | 17.0 | | | 9.4 | |
| Purchase of shares by Employee Benefit Trusts | | | (18.6 | ) | | — | | | — | |
| Drawdown of long term borrowings | | | 176.0 | | | 97.9 | | | 307.8 | |
| Capital element of finance lease rental payments | | | (4.9 | ) | | (3.0 | ) | | (2.4 | ) |
| | |
|
| |
|
| |
|
| |
| Net cash inflow from financing | | | 185.2 | | | 111.9 | | | 314.8 | |
| | |
|
| |
|
| |
|
| |
The Group includes in liquid resources all current asset investments and interest-bearing amounts on deposit which are readily disposable and convertible into cash at values close to book value.
F-32
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| 28. | Analysis of change in net debt |
| | |
| | | | 2004 | | | Cash flow | | | Acquisitions and new finance leases | | | Exchange movement | | | 2005 | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Cash in hand and at bank | | | 260.1 | | | 87.8 | | | — | | | 23.0 | | | 370.9 | |
| Overdrafts | | | (379.0 | ) | | (8.1 | ) | | — | | | (50.0 | ) | | (437.1 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | (118.9 | ) | | 79.7 | | | — | | | (27.0 | ) | | (66.2 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Debt due after more than one year | | | (832.9 | ) | | (176.0 | ) | | (0.8 | ) | | (34.9 | ) | | (1,044.6 | ) |
| Finance leases | | | (27.0 | ) | | 4.9 | | | (24.1 | ) | | (1.5 | ) | | (47.7 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | (859.9 | ) | | (171.1 | ) | | (24.9 | ) | | (36.4 | ) | | (1,092.3 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Current asset investments | | | 6.2 | | | (1.6 | ) | | — | | | 0.2 | | | 4.8 | |
| Money market and other deposits | | | 31.2 | | | (21.5 | ) | | — | | | 0.5 | | | 10.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | 37.4 | | | (23.1 | ) | | — | | | 0.7 | | | 15.0 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net debt | | | (941.4 | ) | | (114.5 | ) | | (24.9 | ) | | (62.7 | ) | | (1,143.5 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | |
| | | | 2003 | | | Cash flow | | | Acquisitions and new finance leases | | | Exchange movement | | | 2004 | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Cash in hand and at bank | | | 215.9 | | | 98.4 | | | — | | | (54.2 | ) | | 260.1 | |
| Overdrafts | | | (198.6 | ) | | (229.0 | ) | | — | | | 48.6 | | | (379.0 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | 17.3 | | | (130.6 | ) | | — | | | (5.6 | ) | | (118.9 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Debt due after more than one year | | | (821.8 | ) | | (97.9 | ) | | — | | | 86.8 | | | (832.9 | ) |
| Finance leases | | | (29.1 | ) | | 3.0 | | | (5.3 | ) | | 4.4 | | | (27.0 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | (850.9 | ) | | (94.9 | ) | | (5.3 | ) | | 91.2 | | | (859.9 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Current asset investments | | | 6.9 | | | (0.1 | ) | | — | | | (0.6 | ) | | 6.2 | |
| Money market and other deposits | | | — | | | 31.2 | | | — | | | — | | | 31.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | 6.9 | | | 31.1 | | | — | | | (0.6 | ) | | 37.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net debt | | | (826.7 | ) | | (194.4 | ) | | (5.3 | ) | | 85.0 | | | (941.4 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
F-33
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| 29. | Related party transactions |
There are no related party transactions requiring disclosure under FRS 8, Related Party Disclosures.
| 30. | Assets and liabilities by currency |
| | |
| | | | | | | US | | | | | | Canadian | | | Other | | | Group | |
| | | | Sterling | | | dollars | | | Euros | | | dollars | | | currencies | | | total | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
As of July 31, 2005 | | | | | | | | | | | | | | | | | | | |
| Intangible fixed assets | | | 155.7 | | | 400.8 | | | 219.0 | | | 64.6 | | | 26.0 | | | 866.1 | |
| Tangible fixed assets | | | 213.4 | | | 428.3 | | | 238.9 | | | 23.3 | | | 12.0 | | | 915.9 | |
| Stocks | | | 267.6 | | | 963.3 | | | 376.0 | | | 74.0 | | | 24.1 | | | 1,705.0 | |
| Debtors (including construction loans receivable) | | | 419.6 | | | 1,400.6 | | | 582.7 | | | 102.3 | | | 37.8 | | | 2,543.0 | |
| Creditors (including construction loans financing) | | | (490.1 | ) | | (1,072.6 | ) | | (591.0 | ) | | (100.9 | ) | | (22.2 | ) | | (2,276.8 | ) |
| Provisions | | | (8.2 | ) | | (136.9 | ) | | (48.9 | ) | | (3.2 | ) | | (1.6 | ) | | (198.8 | ) |
| Proposed dividend | | | (104.0 | ) | | — | | | — | | | — | | | — | | | (104.0 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Gross assets | | | 454.0 | | | 1,983.5 | | | 776.7 | | | 160.1 | | | 76.1 | | | 3,450.4 | |
| (Borrowings)/funds – net | | | | | | | | | | | | | | | | | | | |
| – Short term | | | 29.4 | | | (37.8 | ) | | (13.5 | ) | | 18.1 | | | (51.2 | ) | | (55.0 | ) |
| – Long term | | | (1.0 | ) | | (463.2 | ) | | (593.4 | ) | | (30.9 | ) | | — | | | (1,088.5 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net assets | | | 482.4 | | | 1,482.5 | | | 169.8 | | | 147.3 | | | 24.9 | | | 2,306.9 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Exchange rates at July 31, 2005 | | | | | | | | | | | | | | | | | | | |
| Balance sheet | | | | | | $1.7564 | | | €1.4479 | | | C$2.1464 | | | | | | | |
| Profit and loss account | | | | | | $1.8514 | | | €1.4587 | | | C$2.2997 | | | | | | | |
As at July 31, 2004 | | | | | | | | | | | | | | | | | | | |
| Gross assets | | | 481.4 | | | 1,558.8 | | | 581.9 | | | 152.5 | | | 68.7 | | | 2,843.3 | |
| (Borrowings)/funds – net | | | | | | | | | | | | | | | | | | | |
| – Short term | | | 49.6 | | | 7.9 | | | (165.4 | ) | | 3.2 | | | 18.2 | | | (86.5 | ) |
| – Long term | | | (1.2 | ) | | (462.7 | ) | | (293.3 | ) | | (32.9 | ) | | (64.8 | ) | | (854.9 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net assets | | | 529.8 | | | 1,104.0 | | | 123.2 | | | 122.8 | | | 22.1 | | | 1,901.9 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Exchange rates at July 31, 2004 | | | | | | | | | | | | | | | | | | | |
| Balance sheet | | | | | | $1.8198 | | | €1.5144 | | | C$2.4229 | | | | | | | |
| Profit and loss account | | | | | | $1.7522 | | | €1.4635 | | | C$2.3473 | | | | | | | |
Exchange rates at July 31, 2003 | | | | | | | | | | | | | | | | | | | |
| Balance sheet | | | | | | $1.6076 | | | €1.4171 | | | C$2.2427 | | | | | | | |
| Profit and loss account | | | | | | $1.5951 | | | €1.5039 | | | C$2.3835 | | | | | | | |
As of July 31, 2005, the Group had entered into certain short-term currency swaps amounting to assets of £287 million, €130 million, Canadian $33 million and 22 million Swiss Francs and liabilities of £4 million, $578 million and Canadian $170 million. Both the assets and liabilities are excluded from the above tables.
There are no material foreign currency transactional exposures as, where appropriate, Group companies use forward exchange contracts to hedge transactions that are not denominated in their functional currency.
F-34
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| 31. | Interest rate and currency profile |
The current value of interest bearing assets, borrowings and off balance sheet contracts at July 31, 2005 was as follows:
Currency | | | Interest bearing assets | | | Borrowings | | | Off balance sheet contracts | | | Net | | | Floating | | | Fixed | | | Total | | | Weighted average fixed interest rate | | | Weighted Average time for which rate is fixed | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | % | | | Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sterling | | | 29.4 | | | (1.0 | ) | | 282.6 | | | 311.0 | | | 311.0 | | | — | | | 311.0 | | | — | | | — | |
| US Dollars | | | 495.9 | | | (996.9 | ) | | (329.3 | ) | | (830.3 | ) | | (574.1 | ) | | (256.2 | ) | | (830.3 | ) | | 4.2 | | | 1.5 | |
| Euros | | | 94.4 | | | (701.3 | ) | | 89.8 | | | (517.1 | ) | | (88.9 | ) | | (428.2 | ) | | (517.1 | ) | | 3.0 | | | 2.6 | |
| Canadian Dollars | | | 18.1 | | | (30.9 | ) | | (63.9 | ) | | (76.7 | ) | | (46.3 | ) | | (30.4 | ) | | (76.7 | ) | | 6.0 | | | 1.4 | |
| Other currencies | | | 12.0 | | | (63.2 | ) | | 9.7 | | | (41.5 | ) | | (41.5 | ) | | — | | | (41.5 | ) | | — | | | — | |
| | |
| |
| |
| |
| |
| |
| |
| | | | | | | |
| Total | | | 649.8 | | | (1,793.3 | ) | | (11.1 | ) | | (1,154.6 | ) | | (439.8 | ) | | (714.8 | ) | | (1,154.6 | ) | | | | | | |
| | |
| |
| |
| |
| |
| |
| |
| | | | | | | |
The off balance sheet contracts are short-term currency swaps. Interest receipts and payments on the floating rate assets and liabilities are determined by reference to short-term benchmark rates applicable to the relevant currency or market, such as LIBOR.
The Group has entered into the following interest rate swaps and forward rate agreements with the following net effect as at July 31, 2005:
Amount | | | Expiry date | | | Wolseley receives | | | Wolseley pays | |
| |
|
| |
|
| |
|
| |
| EUR50 million | | | August 2005 | | | 6 month EURIBOR | | | 2.53% to 2.535 | % |
| US$50 million | | | September 2005 | | | 3 month LIBOR | | | 2.62% to 2.6375 | % |
| US$125 million | | | September 2005 | | | 6 month LIBOR | | | 2.0375% to 2.06 | % |
| EUR75 million | | | October 2005 | | | 6 month EURIBOR | | | 2.575% to 2.6075 | % |
| EUR40 million | | | October 2005 | | | 3 month EURIBOR | | | 2.52 | % |
| US$50 million | | | September 2006 | | | 3 month LIBOR | | | 3.25 | % |
| US$100 million | | | September 2007 | | | 3 month LIBOR | | | 3.66% to 3.665 | % |
| US$50 million | | | September 2006 | | | 6 month LIBOR | | | 2.64% to 2.655 | % |
| EUR100 million | | | October 2006 | | | 6 month EURIBOR | | | 2.90% to 2.915 | % |
| EUR40 million | | | October 2006 | | | 3 month EURIBOR | | | 2.9225% to 2.9275 | % |
| EUR80 million | | | September 2007 | | | 3 month EURIBOR | | | 3.185% to 3.195 | % |
| US$100 million | | | September 2006 | | | 6 month LIBOR | | | 4.206% to 4.2075 | % |
| US$100 million | | | September 2007 | | | 6 month LIBOR | | | 4.323% to 4.3275 | % |
| EUR50 million | | | August 2007 | | | 6 month EURIBOR | | | 2.313 | % |
| EUR50 million | | | October 2007 | | | 6 month EURIBOR | | | 2.365 | % |
| EUR100 million | | | October 2008 | | | 6 month EURIBOR | | | 2.4875 | % |
| EUR200 million | | | August 2009 | | | 6 month EURIBOR | | | 2.588% to 2.59 | % |
F-35
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The value of interest bearing assets, borrowings and off balance sheet contracts at July 31, 2004 was as follows:
Currency | | | Interest bearing assets | | | Borrowings | | | Off balance sheet contracts | | | Net | | | Floating | | | Fixed | | | Total | | | Weighted average fixed interest rate | | | Weighted Average time for which rate is fixed | |
| | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | % | | | Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sterling | | | 49.6 | | | (1.2 | ) | | (28.2 | ) | | 20.2 | | | 20.2 | | | — | | | 20.2 | | | — | | | — | |
| US Dollars | | | 343.5 | | | (798.3 | ) | | 27.8 | | | (427.0 | ) | | (220.9 | ) | | (206.1 | ) | | (427.0 | ) | | 2.8 | | | 1.9 | |
| Euros | | | 66.9 | | | (525.6 | ) | | 70.0 | | | (388.7 | ) | | (120.6 | ) | | (268.1 | ) | | (388.7 | ) | | 2.8 | | | 1.9 | |
| Canadian Dollars | | | 7.0 | | | (36.7 | ) | | (69.2 | ) | | (98.9 | ) | | (66.0 | ) | | (32.9 | ) | | (98.9 | ) | | 6.0 | | | 2.7 | |
| Other currencies | | | 18.2 | | | (64.8 | ) | | — | | | (46.6 | ) | | (46.6 | ) | | — | | | (46.6 | ) | | — | | | — | |
| | |
| |
| |
| |
| |
| |
| |
| | | | | | | |
| Total | | | 485.2 | | | (1,426.6 | ) | | 0.4 | | | (941.0 | ) | | (433.9 | ) | | (507.1 | ) | | (941.0 | ) | | | | | | |
| | |
| |
| |
| |
| |
| |
| |
| | | | | | | |
The off balance sheet contracts are short-term currency swaps. Interest receipts and payments on the floating rate assets and liabilities are determined by reference to short-term benchmark rates applicable to the relevant currency or market, such as LIBOR.
The Group held the following categories of financial instruments:
| | | As of July 31, 2005
| | As of July 31, 2004
| |
| | | | Book value | | | Fair value | | | Book value | | | Fair value | |
| | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
Financial instruments held to fund the Group’s operations | | | | | | | | | | | | | |
| Short term borrowings | | | (440.9 | ) | | (440.9 | ) | | (384.0 | ) | | (384.0 | ) |
| Loans and other borrowings payable after one year | | | (1,088.5 | ) | | (1,088.5 | ) | | (854.9 | ) | | (854.9 | ) |
| Cash and deposits | | | 381.1 | | | 381.1 | | | 291.3 | | | 291.3 | |
| Construction loans receivable | | | 263.9 | | | 263.9 | | | 187.7 | | | 187.7 | |
| Construction loans payable | | | (263.9 | ) | | (263.9 | ) | | (187.7 | ) | | (187.7 | ) |
| Current asset investments | | | 4.8 | | | 4.8 | | | 6.2 | | | 6.2 | |
| Other debtors falling due after more than one year (cash settled) | | | 7.1 | | | 6.3 | | | 6.5 | | | 5.9 | |
| Lease termination provisions | | | (1.0 | ) | | (0.8 | ) | | (1.3 | ) | | (1.1 | ) |
| Other creditors falling due after more than one year (cash settled) | | | (18.0 | ) | | (14.4 | ) | | — | | | — | |
Financial instruments held to manage the Group’s interest rate and currency profile | | | | | | | | | | | | | |
| Interest rate swaps | | | — | | | 0.2 | | | — | | | (1.0 | ) |
| Short term currency swaps | | | — | | | (11.1 | ) | | — | | | 0.4 | |
For the purpose of the previous table, the fair values of short-term borrowings, cash and deposits, construction loans payable and current asset investments, approximate book value due to their short maturities. The loans and other borrowings payable after one year generally attract variable interest rates based on 6 month LIBOR. Thus the fair value of these instruments as of July 31, 2005 also approximates to their book value. The fair value of construction loans receivable approximates to book value as the interest rates attaching to these loans reflect a
F-36
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
market risk premium. Sterling cash and deposits are utilised to reduce currency borrowings through the use of short-term currency swaps.
To determine the fair value of currency and interest rate swaps for inclusion in the above table, a calculation was made of the net gain or loss which would have arisen if these contracts had been terminated on July 31, 2005.
An analysis of the unrecognized gains and losses on the Group’s hedges at July 31, 2005 is set out below:
| | | | Gains | | | Losses | | | Total | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| Unrecognized gains and losses on hedges at beginning of the year | | | 0.7 | | | (1.3 | ) | | (0.6 | ) |
| Gains and losses arising in previous years recognized in the year | | | (0.6 | ) | | 0.3 | | | (0.3 | ) |
| | |
|
| |
|
| |
|
| |
| Gains and losses before the start of the year not recognized in the year | | | 0.1 | | | (1.0 | ) | | (0.9 | ) |
| Gains and losses arising in the year not recognized in the year | | | 3.2 | | | (13.2 | ) | | (10.0 | ) |
| | |
|
| |
|
| |
|
| |
| Unrecognized gains and losses on hedges at the end of the year | | | 3.3 | | | (14.2 | ) | | (10.9 | ) |
| | |
|
| |
|
| |
|
| |
| Of which: | | | | | | | | | | |
| Gains and losses expected to be recognized within one year | | | 1.4 | | | (12.2 | ) | | (10.8 | ) |
| Gains and losses expected to be recognized after one year | | | 1.9 | | | (2.0 | ) | | (0.1 | ) |
The Group’s policies in respect of foreign currency and interest risk management and the related use of financial instruments are set out in Item 11: Quantitative and Qualitative Disclosures About Market Risk.
Short-term debtors and creditors arising directly from the Group’s operations are excluded from the above disclosures other than those relating to assets and liabilities by currency.
| 33. | Pensions and other post retirement benefits |
The principal plan operated for UK employees is the Wolseley Group Retirement Benefits Plan which provides benefits based on final pensionable salaries. The assets are held in separate trustee administered funds. The plan’s retirement benefits are funded by a contribution from employees with the balance being paid by Group companies. The contribution rates paid by employees at July 31, 2005 are either 5% or 6% of earnings depending upon the level of benefits they were accruing at that date. The Group and employee contribution rates are calculated on the Projected Unit Method and agreed with an independent consulting actuary.
An independent actuarial valuation was last carried out on May 1, 2004. On that date the market value of the plan’s assets was £334.3 million. The market value of the assets was 74% of accrued benefits, after allowing for increases in earnings and pensions in payment. The normal cost to the Company and the contribution rate for the year ending July 31, 2006 is 17.2% of pensionable earnings in respect of those employees accruing benefits based on 60ths. The financial assumptions used were based on gilt and bond yields as at the valuation date. The principal actuarial assumptions used were an investment return of 6.5% per annum before retirement, an investment return of 5.25% per annum after retirement, future salary increases of 4% per annum plus an additional promotional salary scale, and increases to pensions in payment of 2.25% per annum. The actuarial valuation also assumes that mortality will be in line with nationally published PMA92 and PFA92 mortality tables incorporating projected improvements to life expectancy to 2010 (current pensioners) and 2020 (non-retired members). The total charge to the profit and loss account for UK companies was £17.0 million (2004: £13.5 million).
F-37
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The principal plans operated for US employees are defined contribution schemes, details of which are set out below. In addition, the Group operates three defined benefit schemes in the United States. In Canada a defined benefit scheme and a defined contribution scheme are operated. The majority of assets are held in trustee administered funds independent of the assets of the companies.
Defined contribution plans |
Defined contribution plans are established in accordance with US 401(k) rules. Companies contribute to both employee compensation deferral and profit sharing plans. Contributions are charged to the profit and loss account in the period in which they fall due. In the year ended July 31, 2005 the cost of defined contribution plans charged to the profit and loss account was £17.7 million (2004: £14.3 million).
Defined benefit plans are operated by three US subsidiary undertakings and Wolseley Canada. Two of the US plans and the Canadian plan are funded. Two plans are closed to new entrants. The closed plans now provide a minimum pension guarantee in conjunction with a defined contribution plan. No further funding by Group companies is required. The remaining plans provide benefits based on final pensionable salaries. The contribution rate is calculated on the Projected Unit (credit) Method as agreed with independent consulting actuaries. The independent actuaries have reported on the assets and liabilities of the plans as of July 31, 2004. The principal actuarial assumptions were based upon investment returns of 7.7% and future salary increases of 2%. The obligations are discounted at 6.4%. The fair value of the assets of the funded plans amounted to £52.5 million. The market value of the assets was 87.5% of the accrued benefits. Surpluses and deficits revealed by the valuation are being amortised over the expected remaining service lives of members. The total profit and loss account charge for North American schemes was £1.8 million (2004: £3.1 million).
Both defined contribution and defined benefit schemes are operated. Liabilities arising under defined benefit schemes are calculated in accordance with actuarial advice. Full provision is made for such liabilities in these accounts. Contributions to defined contribution schemes are accounted for in the period in which they fall due.
The cost of other defined contribution and defined benefit schemes charged to the profit and loss account was £6.4 million (2004: £4.5 million).
Post retirement health care |
There are no material obligations to provide post retirement health care benefits.
FRS 17 retirement benefits |
The valuation used for FRS 17 disclosures with respect to the UK scheme has been based on the most recent actuarial valuation dated May 1, 2004 and updated by the scheme actuary to take account of the requirements of FRS 17 in order to assess the liabilities of the scheme as of July 31, 2005. Scheme assets are stated at their market value at July 31, 2005. Non-UK schemes have been aggregated and weighted averages applied.
F-38
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The financial assumptions used to calculate scheme liabilities under FRS 17 are:
| | | 2005 | | 2004 | | 2003 | |
| | | | UK | | | Non-UK | | | UK | | | Non-UK | | | UK | | | Non-UK | |
| | |
| |
| |
| |
| | | | Projected | | | Projected | | | Projected | | | Projected | | | Projected | | | Projected | |
| Valuation method | | | Unit | | | Unit | | | Unit | | | Unit | | | Unit | | | Unit | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Discount rate | | | 5.00% | | | 5.11% | | | 5.70% | | | 5.68% | | | 5.50% | | | 5.96% | |
| Inflation rate | | | 2.75% | | | 1.34% | | | 2.99% | | | 2.50% | | | 2.64% | | | 2.50% | |
| Increase to deferred benefits during deferment | | | 2.75% | | | 2.00% | | | 3.00% | | | 2.00% | | | 2.65% | | | 2.00% | |
| Increases to pensions in payment | | | 2.70% | | | 1.63% | | | 3.00% | | | 1.75% | | | 2.65% | | | 1.82% | |
| Salary increases | | | *3.25% | | | 2.50% | | | *3.50% | | | 3.16% | | | 4.65% | | | 3.41% | |
| | |
| * | In addition, a promotional salary scale has been added to the salary increase assumption as of July 31, 2004 and July 31, 2005. As of July 31, 2005 this was equivalent to an overall increase of 1.5% per annum. |
The assets in the UK schemes and the expected rates of return were:
| | | 2005 | | 2004 | | 2003 | |
| | |
| |
| |
| |
| | | | UK | | | | | | UK | | | | | | UK | | | | |
| | | | Long-term rate of return expected
as of
31 July 2005 | | |
Value as of
31 July 2005
£m | | | Long-term rate of return expected
as of
31 July 2004 | | |
Value as of
31 July 2004
£m | | | Long-term rate of return expected
as of
31 July 2003 | | |
Value as of
31 July 2003
£m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Equities | | | 7.30% | | | 358.8 | | | 7.00% | | | 279.1 | | | 6.75% | | | 251.2 | |
| Bonds | | | 4.10% | | | 49.4 | | | 4.75% | | | 42.0 | | | 4.50% | | | 34.8 | |
| Other | | | 5.00% | | | 0.8 | | | 5.70% | | | 5.2 | | | 5.30% | | | 4.0 | |
| | | | | |
| | | | |
| | | | |
| |
| Total market value of assets | | | 6.90% | | | 409.0 | | | 6.69% | | | 326.3 | | | 6.46% | | | 290.0 | |
| Present value of schemes liabilities | | | | | | (523.2 | ) | | | | | (456.5 | ) | | | | | (432.4 | ) |
| | | | | |
| | | | |
| | | | |
| |
| Deficit in the schemes | | | | | | (114.2 | ) | | | | | (130.2 | ) | | | | | (142.4 | ) |
| Related deferred tax asset | | | | | | 34.3 | | | | | | 39.1 | | | | | | 42.7 | |
| | | | | |
| | | | |
| | | | |
| |
| Net pension liability | | | | | | (79.9 | ) | | | | | (91.1 | ) | | | | | (99.7 | ) |
| | | | | |
| | | | |
| | | | |
| |
| | | | | | | | | | | | | | | | | | | | |
F-39
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The assets in the non-UK schemes and the expected rates of return were:
| | | 2005 | | 2004 | | 2003 | |
| | |
| |
| |
| |
| | | | Non-UK | | | | | | Non-UK | | | | | | Non-UK | | | | |
| | | | Long-term rate of return expected
as of
31 July 2005 | | |
Value as of
31 July 2005
£m | | | Long-term rate of return expected
as of
31 July 2004 | | |
Value as of
31 July 2004
£m | | | Long-term rate of return expected
as of
31 July 2003 | | |
Value as of
31 July 2003
£m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Equities | | | 7.44% | | | 64.0 | | | 8.16% | | | 44.1 | | | 8.00% | | | 33.3 | |
| Bonds | | | 4.89% | | | 28.7 | | | 4.70% | | | 18.8 | | | 5.39% | | | 15.3 | |
| Other | | | 2.86% | | | 12.0 | | | 3.65% | | | 10.5 | | | 3.00% | | | 0.9 | |
| | | | | |
| | | | |
| | | | |
| |
| Total market value of assets | | | 6.21% | | | 104.7 | | | 6.63% | | | 73.4 | | | 7.10% | | | 49.5 | |
| Present value of schemes liabilities | | | | | | (181.2 | ) | | | | | (126.1 | ) | | | | | (113.2 | ) |
| | | | | |
| | | | |
| | | | |
| |
| Deficit in the schemes | | | | | | (76.5 | ) | | | | | (52.7 | ) | | | | | (63.7 | ) |
| Related deferred tax asset | | | | | | 26.5 | | | | | | 14.9 | | | | | | 22.8 | |
| | | | | |
| | | | |
| | | | |
| |
| Net pension liability | | | | | | (50.0 | ) | | | | | (37.8 | ) | | | | | (40.9 | ) |
| | | | | |
| | | | |
| | | | |
| |
| | | | | | | | | | | | | | | | | | | | |
| | | The Group
| |
| | | | 2005 | | | 2004 | |
Adjustment to net assets under FRS17 | | | £m | | | £m | |
| |
|
| |
|
| |
| Net assets | | | 2,306.9 | | | 1,901.9 | |
| FRS 17 pension liability over that established under SSAP24 | | | (97.4 | ) | | (94.1 | ) |
| | |
|
| |
|
| |
| Net assets including FRS17 pension liability | | | 2,209.5 | | | 1,807.8 | |
| | |
|
| |
|
| |
| | | The Group
| |
| | | | 2005 | | | 2004 | |
Adjustment to reserves under FRS17 | | | £m | | | £m | |
| |
|
| |
|
| |
| Profit and loss reserve | | | 1,917.6 | | | 1,555.7 | |
| FRS 17 pension liability over that established under SSAP24 | | | (97.4 | ) | | (94.1 | ) |
| | |
|
| |
|
| |
| Profit and loss reserve including FRS 17 pension liability | | | 1,820.2 | | | 1,461.6 | |
| | |
|
| |
|
| |
F-40
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The net pension liability of £129.9 million calculated in accordance with FRS 17 compares with the pension provision for defined benefit schemes currently recorded of £49.0 million less the related deferred tax asset of £16.5 million.
| | | | UK | | | Non-UK | | | UK | | | Non-UK | |
| | | | 2005 | | | 2005 | | | 2004 | | | 2004 | |
Analysis of amount charged to operating profit | | | £m | | | £m | | | £m | | | £m | |
| |
|
| |
|
| |
|
| |
|
| |
| Current service cost | | | 13.1 | | | 4.6 | | | 15.3 | | | 3.2 | |
| Settlements and curtailments | | | — | | | (1.1 | ) | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | 13.1 | | | 3.5 | | | 15.3 | | | 3.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | UK | | | Non-UK | | | UK | | | Non-UK | |
Analysis of amount charged to other finance | | | 2005 | | | 2005 | | | 2004 | | | 2004 | |
income/(expense) | | | £m | | | £m | | | £m | | | £m | |
| |
|
| |
|
| |
|
| |
|
| |
| Interest on pension liabilities | | | (26.2 | ) | | (8.2 | ) | | (24.0 | ) | | (6.1 | ) |
| Expected return on scheme assets | | | 22.3 | | | 5.7 | | | 19.0 | | | 4.0 | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | (3.9 | ) | | (2.5 | ) | | (5.0 | ) | | (2.1 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | |
| | | | UK | | | Non-UK | | | UK | | | Non-UK | |
| | | | 2005 | | | 2005 | | | 2004 | | | 2004 | |
Movement in scheme deficit during year | | | £m | | | £m | | | £m | | | £m | |
| |
|
| |
|
| |
|
| |
|
| |
| Deficit at August 1 | | | (130.2 | ) | | (52.7 | ) | | (142.4 | ) | | (63.7 | ) |
| Exchange | | | — | | | (3.4 | ) | | — | | | 5.1 | |
| Acquisitions | | | — | | | 0.1 | | | — | | | 1.2 | |
| Reclassifications | | | — | | | (1.9 | ) | | — | | | — | |
| Amounts charged to operating profit | | | (13.1 | ) | | (3.5 | ) | | (15.3 | ) | | (3.2 | ) |
| Contributions | | | 20.0 | | | 6.2 | | | 13.4 | | | 6.6 | |
| Other finance expenses | | | (3.9 | ) | | (2.5 | ) | | (5.0 | ) | | (2.1 | ) |
| Actuarial gain/(loss) | | | 13.0 | | | (18.8 | ) | | 19.1 | | | 3.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
| Deficit at July 31 | | | (114.2 | ) | | (76.5 | ) | | (130.2 | ) | | (52.7 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
F-41
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
History of experience gains and losses – UK schemes
| | | | 2005 | | | 2004 | | | 2003 | | | 2002 | |
| | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
| Difference between the expected and the actual return on scheme assets | | | | | | | | | | | | | |
| Amount | | | 46.8 | | | 10.8 | | | (1.9 | ) | | (84.5 | ) |
| Percentage of scheme assets | | | 11.4% | | | 3.3% | | | 0.7% | | | 31.5% | |
| Experience gains and losses on scheme liabilities | | | | | | | | | | | | | |
| Amount | | | (0.4 | ) | | 3.2 | | | — | | | (0.9 | ) |
| Percentage of the present value of scheme liabilities | | | 0.1% | | | 0.7% | | | 0.0% | | | 0.3% | |
| Effect of changes in assumptions underlying the present value of scheme liabilities | | | | | | | | | | | | | |
| Amount | | | (33.4 | ) | | 5.1 | | | (51.5 | ) | | 12.0 | |
| Percentage of the present value of scheme liabilities | | | 6.4% | | | 1.1% | | | 11.9% | | | 3.4% | |
| Total amount recognized in the Statement of Total Recognized Gains and Losses | | | | | | | | | | | | | |
| Amount | | | 13.0 | | | 19.1 | | | (53.4 | ) | | (73.4 | ) |
| Percentage of the present value of scheme liabilities | | | 2.5% | | | 4.2% | | | 12.3% | | | 20.7% | |
History of experience gains and losses – Non-UK schemes
| | | | 2005 | | | 2004 | | | 2003 | | | 2002 | |
| | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
| Difference between the expected and the actual return on scheme assets | | | | | | | | | | | | | |
| Amount | | | 3.5 | | | 3.2 | | | (2.2 | ) | | (5.3 | ) |
| Percentage of scheme assets | | | 3.4% | | | 4.4% | | | 4.4% | | | 11.5% | |
| Experience gains and losses on scheme liabilities | | | | | | | | | | | | | |
| Amount | | | — | | | 3.0 | | | 1.4 | | | 9.0 | |
| Percentage of the present value of scheme liabilities | | | 0.0% | | | 2.4% | | | 1.2% | | | 9.8% | |
| Effect of changes in assumptions underlying the present value of scheme liabilities | | | | | | | | | | | | | |
| Amount | | | (22.3 | ) | | (2.8 | ) | | (8.4 | ) | | (0.7 | ) |
| Percentage of the present value of scheme liabilities | | | 12.3% | | | 2.2% | | | 7.4% | | | 0.8% | |
| Total amount recognized in the Statement of Total Recognized Gains and Losses | | | | | | | | | | | | | |
| Amount | | | (18.8 | ) | | 3.4 | | | (9.2 | ) | | 3.0 | |
| Percentage of the present value of scheme liabilities | | | 10.4% | | | 2.7% | | | 8.1% | | | 3.3% | |
As of July 31, 2005 authorised capital expenditure which was contracted for but not provided in these accounts amounted to £95.9 million (2004: £62.1 million).
F-42
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| 35. | Operating lease commitments |
Future minimum payments due in the next twelve months under operating lease commitments are as follows:
| | | Property leases
| | Other leases
| |
| | | | 2005 | | | 2004 | | | 2005 | | | 2004 | |
| | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
| Leases which expire within | | | | | | | | | | | | | |
| |
| 12 months | | | 12.1 | | | 8.1 | | | 5.0 | | | 3.8 | |
| 13-24 months | | | 16.8 | | | 13.0 | | | 5.8 | | | 3.1 | |
| 25-36 months | | | 15.8 | | | 13.4 | | | 4.1 | | | 2.4 | |
| 37-48 months | | | 9.8 | | | 9.9 | | | 1.7 | | | 0.6 | |
| 49-60 months | | | 17.9 | | | 9.5 | | | 1.1 | | | 0.6 | |
| Over 60 months | | | 60.1 | | | 49.1 | | | 2.2 | | | 1.0 | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | 132.5 | | | 103.0 | | | 19.9 | | | 11.5 | |
| | |
|
| |
|
| |
|
| |
|
| |
| | |
| 36. | Contingent liabilities |
The Group experiences legal claims in the normal course of its business. Provision is made in note 20 for such legal claims where it is probable that a payment will be made and the amount of such payment can be reasonably estimated.
Wolseley plc and the Group have the undermentioned quantifiable contingent liabilities which arose in the ordinary course of business and which have not been provided in these accounts since no actual liability is expected to arise:
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| Sundry guarantees, performance bonds and indemnities | | | 77.8 | | | 55.1 | |
| Obligations under forward foreign exchange contracts | | | 412.6 | | | 139.3 | |
An amount of £401.5 million (2004: £139.7 million) is expected to be received from counterparties in respect of the obligations under forward foreign exchange contracts detailed above.
As of July 31, 2005, cash deposits of Wolseley Insurance Limited amounting to £40.8 million (2004: £32.7 million) were charged in favour of Lloyds TSB Bank plc to secure letters of credit provided by that bank.
The Company acts as guarantor or surety for various subsidiary undertakings in leasing and other agreements entered into by them in the normal course of business and has given indemnities and warranties to the purchasers of businesses from the Company and certain Group companies in respect of which no material liabilities are expected to arise. Additionally, the Company has guaranteed the pension payable by Brossette BTI to Mr. G. Pinault, a former director.
| 37. | Post balance sheet events |
There have been no significant post balance sheet events.
F-43
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| 38. | Company balance sheet as of July 31, 2005 |
| | |
| | | | Note | | | 2005 | | | 2004 | |
| | | | | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
Fixed assets | | | | | | | | | | |
| Investments | | | 39 | | | 1,535.4 | | | 1,405.8 | |
| | | | | |
| |
| |
| | | | | | | 1,535.4 | | | 1,405.8 | |
Current assets | | | | | | | | | | |
| Debtors | | | 39 | | | 3,419.0 | | | 2,869.4 | |
| Cash at bank and in hand and on deposit | | | | | | 9.0 | | | 70.2 | |
| | | | | |
| |
| |
| | | | | | | 3,428.0 | | | 2,939.6 | |
Creditors: amounts falling due within one year | | | | | | | | | | |
| Short term borrowings | | | 39 | | | 65.5 | | | 35.7 | |
| Other creditors | | | 39 | | | 2,695.9 | | | 2,223.6 | |
| | | | | |
| |
| |
| | | | | | | 2,761.4 | | | 2,259.3 | |
| | | | | |
| |
| |
Net current assets | | | | | | 666.6 | | | 680.3 | |
| | | | | |
| |
| |
Total assets less current liabilities | | | | | | 2,202.0 | | | 2,086.1 | |
Creditors : amounts falling due after one year | | | | | | | | | | |
| Borrowings | | | 39 | | | 837.3 | | | 695.5 | |
| | | | | |
| |
| |
| | | | | | | 1,364.7 | | | 1,390.6 | |
| | | | | |
| |
| |
Capital and reserves | | | | | | | | | | |
| Called up share capital | | | 21 | | | 148.0 | | | 146.3 | |
| Share premium account | | | 39 | | | 241.3 | | | 199.9 | |
| Profit and loss account | | | 39 | | | 975.4 | | | 1,044.4 | |
| | | | | |
| |
| |
Shareholders’ funds | | | 39 | | | 1,364.7 | | | 1,390.6 | |
| | | | | |
| |
| |
| | |
| 39. | Notes to the Company balance sheet |
| | | Investment in subsidiaries
| |
| | | | Cost | | | Provisions | | | Net book amount | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| As of August 1, 2004 | | | 1,436.1 | | | (30.3 | ) | | 1,405.8 | |
| Additions | | | 129.6 | | | — | | | 129.6 | |
| | |
|
| |
|
| |
|
| |
| As of July 31, 2005 | | | 1,565.7 | | | (30.3 | ) | | 1,535.4 | |
| | |
|
| |
|
| |
|
| |
F-44
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The principal subsidiary undertakings of the Group are listed on page F-70 of these Consolidated Financial Statements. A complete list of subsidiary undertakings is available on request to the Company.
| | | | 2005 | | | 2004 | |
Debtors | | | £m | | | £m | |
| |
|
| |
|
| |
| Amounts owed by Group undertakings | | | 3,410.1 | | | 2,822.9 | |
| Other debtors | | | 0.8 | | | 0.9 | |
| Prepayments and accrued income | | | 5.2 | | | 1.1 | |
| Corporation tax recoverable | | | — | | | 42.5 | |
| | |
|
| |
|
| |
| Amount receivable within one year | | | 3,416.1 | | | 2,867.4 | |
| Amount receivable after one year: | | | | | | | |
| Deferred tax asset | | | 2.9 | | | 2.0 | |
| | |
|
| |
|
| |
| Total | | | 3,419.0 | | | 2,869.4 | |
| | |
|
| |
|
| |
| | | | | | | | |
| | | | 2005 | | | 2004 | |
Short-term borrowings | | | £m | | | £m | |
| |
|
| |
|
| |
| Bank loans and overdrafts: | | | | | | | |
| Unsecured | | | 65.5 | | | 35.7 | |
| | |
|
| |
|
| |
| | | | | | | | |
| | | | 2005 | | | 2004 | |
Creditors: amounts due within one year | | | £m | | | £m | |
| |
|
| |
|
| |
| Amounts owed to Group undertakings | | | 2,561.3 | | | 2,115.3 | |
| Corporation tax | | | 2.5 | | | — | |
| Other tax and social security | | | 0.4 | | | 0.2 | |
| Other creditors | | | 2.8 | | | 3.5 | |
| Accruals and deferred income | | | 24.9 | | | 11.0 | |
| Proposed dividend | | | 104.0 | | | 93.6 | |
| | |
|
| |
|
| |
| | | | 2,695.9 | | | 2,223.6 | |
| | |
|
| |
|
| |
F-45
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | | | 2005 | | | 2004 | |
Borrowings falling due after one year | | | £m | | | £m | |
| |
|
| |
|
| |
Maturity of borrowings | | | | | | | |
| Due in one to two years | | | 361.5 | | | 27.5 | |
| Due in two to five years | | | 475.8 | | | 640.6 | |
| Due in over five years | | | — | | | 27.4 | |
| | |
|
| |
|
| |
| | | | 837.3 | | | 695.5 | |
| | |
|
| |
|
| |
Repayable after 5 years otherwise than by instalments: | | | | | | | |
| Bank facilities | | | — | | | 27.4 | |
Repayable within 2 to 5 years | | | | | | | |
| Bank facilities | | | 475.8 | | | 640.6 | |
Repayable within 1 to 2 years | | | | | | | |
| Bank facilities | | | 361.5 | | | 27.5 | |
| | |
|
| |
|
| |
| | | | 837.3 | | | 695.5 | |
| | |
|
| |
|
| |
| | | | | | | | |
| | | | Share | | | Profit and | |
| | | | Premium | | | loss | |
| | | | Account | | | account | |
Reserves | | | £m | | | £m | |
| |
|
| |
|
| |
| At August 1, 2004 | | | 199.9 | | | 1,044.4 | |
| Shares issued | | | 41.4 | | | — | |
| Shares purchased by Employee Benefit Trusts | | | — | | | (18.6 | ) |
| Transfer from profit and loss account | | | — | | | 105.3 | |
| Dividends payable | | | — | | | (155.7 | ) |
| | |
|
| |
|
| |
| At July 31, 2005 | | | 241.3 | | | 975.4 | |
| | |
|
| |
|
| |
Included in this profit and loss account balance is an amount of £938.9 million which may not be distributable.
| | | | 2005 | | | 2004 | |
Reconciliation of movements in equity shareholders’ funds | | | £m | | | £m | |
| |
|
| |
|
| |
| Profit for the financial year | | | 105.3 | | | 146.4 | |
| Dividends | | | (155.7 | ) | | (139.1 | ) |
| New share capital subscribed | | | 43.1 | | | 23.2 | |
| Shares purchased by Employee Benefit Trusts | | | (18.6 | ) | | — | |
| | |
|
| |
|
| |
| Net (reductions)/additions to shareholders’ funds | | | (25.9 | ) | | 30.5 | |
| Opening shareholders’ funds | | | 1,390.6 | | | 1,360.1 | |
| | |
|
| |
|
| |
| Closing shareholders’ funds | | | 1,364.7 | | | 1,390.6 | |
| | |
|
| |
|
| |
As permitted by Section 230 of the Companies Act 1985, the Company has not presented its own profit and loss account.
F-46
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| 40. | Summary of significant differences between accounting principles generally accepted in the United Kingdom and the United States |
The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United Kingdom (“UK GAAP”), which differ in certain significant respects from generally accepted accounting principles in the United States (“US GAAP”). Such differences involve methods for measuring the amounts shown in the financial statements, as well as additional disclosures required by US GAAP. The following is a summary of the material adjustments to consolidated profit for the financial year and consolidated shareholders’ funds that would have been required in applying the significant differences between UK and US GAAP.
| Reconciliation of consolidated profit for the financial year: | | Year ending July 31,
| |
| | | | | | | 2005 | | | 2004 | | | 2003 | |
| | | | Note | | | £m | | | £m | | | £m | |
| | |
| |
| |
| |
| |
Profit for the financial year under UK GAAP | | | | | | 461.2 | | | 397.0 | | | 298.4 | |
| US GAAP adjustments: | | | | | | | | | | | | | |
| Amortization of goodwill | | | (i | ) | | 44.2 | | | 39.0 | | | 29.9 | |
| Amortization of intangible assets | | | (i | ) | | (13.2 | ) | | (13.5 | ) | | (4.3 | ) |
| Tangible fixed asset amortization | | | (ii | ) | | (11.0 | ) | | — | | | — | |
| Committed rental increases | | | (iii | ) | | (5.3 | ) | | — | | | — | |
| Pensions | | | (iv | ) | | (14.5 | ) | | (16.1 | ) | | (6.6 | ) |
| Deferred taxation | | | (v | ) | | (0.4 | ) | | 0.9 | | | (0.3 | ) |
| Stock compensation | | | (vi | ) | | (26.8 | ) | | (16.6 | ) | | (10.2 | ) |
| Other adjustments | | | (viii | ) | | (9.4 | ) | | 4.2 | | | 0.2 | |
| Taxation effect of US GAAP adjustments | | | (v | ) | | 19.2 | | | 9.0 | | | 3.5 | |
| | | | | |
| |
| |
| |
| Total US GAAP adjustments | | | | | | (17.2 | ) | | 6.9 | | | 12.2 | |
| | | | | |
| |
| |
| |
Profit for the financial year under US GAAP | | | | | | 444.0 | | | 403.9 | | | 310.6 | |
| | | | | |
| |
| |
| |
Presentation of earnings per share under US GAAP | | | (ix | ) | | | | | | | | | |
| Basic earnings per share | | | | | | 75.61p | | | 69.33p | | | 53.64p | |
| Diluted earnings per share | | | | | | 74.94p | | | 68.53p | | | 53.21p | |
| | | | | | | | | | | | | | |
| Weighted average shares outstanding (millions) | | | | | | 587.2 | | | 582.6 | | | 579.1 | |
| Dilutive effect of stock options (millions) | | | | | | 5.3 | | | 6.8 | | | 4.6 | |
| | | | | |
| |
| |
| |
| Weighted average shares outstanding assuming dilution (millions) | | | | | | 592.5 | | | 589.4 | | | 583.7 | |
| | | | | |
| |
| |
| |
F-47
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Reconciliation of consolidated shareholders’ funds | | | | | Year ended July 31,
| |
| | | | | | | 2005 | | | 2004 | |
| | | | Note | | | £m | | | £m | |
| | |
| |
| |
| |
Shareholders’ funds under UK GAAP | | | | | | 2,306.9 | | | 1,901.9 | |
| US GAAP adjustments: | | | | | | | | | | |
| Goodwill | | | (i | ) | | 206.9 | | | 337.3 | |
| Intangible assets | | | (i | ) | | 244.2 | | | 132.6 | |
| Goodwill amortization | | | (i | ) | | (83.6 | ) | | (147.8 | ) |
| Intangible amortization | | | (i | ) | | (49.5 | ) | | (34.4 | ) |
| Contingent consideration | | | (i | ) | | 30.8 | | | 13.4 | |
| Tangible fixed asset amortization | | | (ii | ) | | (11.0 | ) | | — | |
| Committed rental increases | | | (iii | ) | | (5.6 | ) | | — | |
| Pensions | | | (iv | ) | | (63.7 | ) | | (69.9 | ) |
| Deferred taxation | | | (v | ) | | (19.3 | ) | | (18.9 | ) |
| Ordinary dividends | | | (vii | ) | | 104.0 | | | 93.6 | |
| Other adjustments | | | (viii | ) | | (13.8 | ) | | 6.3 | |
| Taxation effect of US GAAP adjustments | | | (v | ) | | (33.7 | ) | | (13.7 | ) |
| | | | | |
| |
| |
| Total US GAAP adjustments | | | | | | 305.7 | | | 298.5 | |
| | | | | |
| |
| |
Shareholders’ funds under US GAAP | | | | | | 2,612.6 | | | 2,200.4 | |
| | | | | |
| |
| |
A summary of the principal differences and additional disclosures applicable to the Group are set out below:
| (i) | Purchase accounting adjustments |
Under UK GAAP, the purchase price of a business is assigned first to the separable tangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. Any excess of cost over the fair value of net tangible assets is then allocated to identifiable intangible assets to the extent that their value can be measured reliably on initial recognition, the asset can be separately disposed of and the asset is controlled through custody or legal right. Any remaining excess should then be recorded as goodwill. Under US GAAP, the purchase cost of an investment is assigned to the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. Any excess of cost over fair value of net assets acquired is recorded as goodwill.
The purchase accounting differences specifically related to the Group are as follows:
Prior to August 1, 1998, purchased goodwill was written off to reserves in the year of acquisition as permitted under UK GAAP. Since August 1, 1998, all acquired goodwill has been capitalized and amortized over a period not exceeding 20 years. If a subsidiary or a business is subsequently sold or closed, previously written off goodwill which was the result of the initial acquisition is taken into account in determining the profit or loss on sale or closure.
F-48
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Under US GAAP prior to January 1, 2002, goodwill arising on acquisitions prior to July 1, 2001, was capitalized and amortized over its estimated useful life, not exceeding 40 years. Under the transition provisions of SFAS 142 “Goodwill and other intangible assets,” goodwill which arose during the period subsequent to July 1, 2001 has not been amortized. From August 1, 2002, goodwill is no longer amortized, but is reviewed at least annually for impairment.
Impairment of goodwill is measured according to a two-step approach. In the first step, the fair value of a reporting unit is compared to the carrying amount of the reporting unit, including goodwill. If the carrying amount exceeds the fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. In the second step, the implied fair value of the goodwill is estimated as the fair value of the reporting unit less the fair values of all the other tangible and intangible assets of the reporting unit. If the carrying amount of the goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the goodwill. The Group completed the required impairment tests during 2005, which indicated no impairment charge was required.
A roll forward of goodwill in total and by reportable segment for 2005 and 2004 is as follows:
| | | | European Distribution | | | North American Plumbing and Heating Distribution | | | US Building Materials Distribution | | | Total | |
| | | | £m | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
| Balance at 1 August 2003 | | | 428.0 | | | 262.8 | | | 186.8 | | | 877.6 | |
| Additions | | | 9.4 | | | 9.0 | | | 7.6 | | | 26.0 | |
| Adjustment to prior years | | | 1.1 | | | — | | | — | | | 1.1 | |
| Foreign exchange movements | | | (12.0 | ) | | (21.9 | ) | | (15.4 | ) | | (49.3 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
| Balance at 31 July 2004 | | | 426.5 | | | 249.9 | | | 179.0 | | | 855.4 | |
| Additions | | | 44.3 | | | 29.0 | | | 57.6 | | | 130.9 | |
| Disposals | | | — | | | (1.6 | ) | | — | | | (1.6 | ) |
| Adjustment to prior years | | | 0.1 | | | (0.2 | ) | | (0.5 | ) | | (0.6 | ) |
| Foreign exchange movements | | | 18.2 | | | (3.8 | ) | | (9.1 | ) | | 5.3 | |
| | |
|
| |
|
| |
|
| |
|
| |
| Balance at 31 July 2005 | | | 489.1 | | | 273.3 | | | 227.0 | | | 989.4 | |
| | |
| |
| |
| |
| |
Under UK GAAP specific criteria apply in recognizing intangible assets. None of the Group’s intangible assets meet these criteria and accordingly intangible assets have not been separately recorded. Under US GAAP, intangible assets acquired are recorded at their fair value. Intangible assets are comprised of contractual customer relationships, trademarks, licensing agreements, covenants not to compete, and supply and distribution agreements, and are deemed to be definite-lived pursuant to SFAS No. 142.
F-49
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | | | Gross carrying amount | | | Accumulated amortization | | | Net book value | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| Contractual customer relationships | | | 172.4 | | | 15.7 | | | 156.7 | |
| Trademarks | | | 29.8 | | | 6.1 | | | 23.7 | |
| Licensing agreements | | | 10.8 | | | 3.0 | | | 7.8 | |
| Other | | | 31.2 | | | 24.7 | | | 6.5 | |
| | |
|
| |
|
| |
|
| |
| As of July 31, 2005 | | | 244.2 | | | 49.5 | | | 194.7 | |
| | |
|
| |
|
| |
|
| |
| Contractual customer relationships | | | 82.6 | | | 7.2 | | | 75.4 | |
| Trademarks | | | 14.2 | | | 3.8 | | | 10.4 | |
| Licensing agreements | | | 10.8 | | | 1.7 | | | 9.1 | |
| Other | | | 25.0 | | | 21.7 | | | 3.3 | |
| | |
|
| |
|
| |
|
| |
| As of July 31, 2004 | | | 132.6 | | | 34.4 | | | 98.2 | |
| | |
|
| |
|
| |
|
| |
Intangible assets are being amortized over their useful lives, which range from one to 25 years.
| | | | £m | |
| | |
| |
| Actual aggregate amortization expense | | | | |
| |
| – For the year ending July 31, 2003 | | | 4.3 | |
| – For the year ending July 31, 2004 | | | 13.5 | |
| – For the year ending July 31, 2005 | | | 13.2 | |
| Estimated aggregate amortization expense | | | | |
| – For the year ending July 31, 2006 | | | 25.5 | |
| – For the year ending July 31, 2007 | | | 23.2 | |
| – For the year ending July 31, 2008 | | | 20.7 | |
| – For the year ending July 31, 2009 | | | 18.4 | |
| – For the year ending July 31, 2010 | | | 16.0 | |
Under UK GAAP, the fair value of inventories acquired is generally taken to be the cost of the inventory to the acquired company. Under US GAAP, the fair value of purchased work in process and finished goods is based on estimated selling prices less costs to complete and sell the inventory, less a reasonable profit allowance for the completing and selling effort.
Under UK GAAP, prior to the implementation of FRS 7, Fair Values in Acquisition Accounting, in 1995, the recognition criteria for restructuring provisions were less restrictive. Provisions of this nature were treated as pre-acquisition and increased the goodwill arising on the acquisition, which was written-off directly to reserves. Under US GAAP many of these restructuring provisions are not permitted.
F-50
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Adjustments made to reconcile UK GAAP and US GAAP have an effect on the net assets of businesses disposed of and accordingly a corresponding impact on the loss on disposal. These adjustments include the amortized amount of goodwill previously written-off to reserves. In addition, under US GAAP, cumulative currency translation adjustments related to these disposals are included in the loss on disposal calculation.
Contingent purchase consideration |
Under UK GAAP contingent purchase consideration is generally included as part of the purchase cost at the date of acquisition. Under US GAAP this cost is not recognized until the contingency is resolved and the amount determinable.
Under UK GAAP, when the net assets acquired exceed the purchase consideration, the difference is classified as negative goodwill, is carried forward as a credit balance included in goodwill, and is released to the profit and loss account over the period of its useful economic life. Under US GAAP, the amount by which the net assets acquired exceed the purchase consideration is applied to reduce the carrying value of the net assets acquired.
| (ii) | Tangible fixed asset amortization |
Leasehold improvements are amortized over the lesser of the life of the asset or lease term. The lease term under UK GAAP includes the period the lessee has contracted to lease the asset plus any further terms for which the lessee has the option to continue to lease the asset which option it is reasonably certain at the inception of the lease that the lessee will exercise. In determining this life the Company considers the plans of the business, the nature of the property leased and the experience of the Company in respect of similar properties. Under US GAAP the lease term is determined as the non-cancellable lease term and any option renewal period where failure to exercise such an option would result in an economic penalty in such amount that renewal appears at the inception of the lease to be reasonably assured. Under US GAAP the historical experience of the Company is not considered, and as a result, under US GAAP the lease term for certain leases is shorter than that applying under UK GAAP and a higher depreciation charge reported. The US GAAP adjustment in 2005 includes an immaterial amount in respect of prior years.
| (iii) | Committed rental increases |
Under UK GAAP, committed rental increases, which could be considered in the same way as inflationary increases and increases due to market comparables, are generally recognized as they arise. Under US GAAP, committed rental increases are required to be spread over the entire lease term. The US GAAP adjustment in 2005 includes an immaterial amount in respect of prior years.
The Group operates defined benefit pension plans in the UK, Ireland, USA, Canada, France, Austria, Luxembourg, Switzerland and the Netherlands. The most significant plan is the Wolseley Group Retirement Benefits Plan in the UK, which after stock market falls is in a deficit position.
F-51
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Under UK GAAP, the cost of providing pension benefits is expensed over the average expected service lives of eligible employees in accordance with the provisions of Statement of Standard Accounting Practice (“SSAP”) 24, Accounting for Pension Costs. SSAP 24 aims to produce an estimate of cost based on long-term actuarial assumptions. Variations from the regular pension cost arising from, for example, experience deficiencies or surpluses, are charged or credited to the profit and loss account over the expected average remaining service lives of current employees in the schemes.
Under US GAAP, the annual pension cost comprises the estimated cost of benefits accruing in the period as determined in accordance with Statement of Financial Accounting Standards (“SFAS”) 87, “Employers’ Accounting for Pensions”. SFAS 87 requires the use of the projected unit credit actuarial method for determining defined benefit pension costs and provides for the deferral of actuarial gains and losses (in excess of a specified corridor) that result from changes in assumptions or actual experience. SFAS 132, “Employers’ Disclosure about Pensions and Other Post-Retirement Benefits”, requires disclosure of the components of net periodic pension cost and the funded status of the pension plans.
The components of net periodic pension cost for all Group-sponsored defined benefit plans are as follows:
| | | Year ended July 31, | |
| | |
| |
| | | UK Plans | | Non-UK Plans | |
| | |
| |
| |
| | | | 2005
£m | | | 2004
£m | | | 2003
£m | | | 2005
£m | | | 2004
£m | | | 2003
£m | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Service cost | | | 12.4 | | | 14.2 | | | 11.1 | | | 5.3 | | | 3.2 | | | 1.6 | |
| Interest cost | | | 26.4 | | | 24.2 | | | 21.6 | | | 8.2 | | | 6.1 | | | 5.2 | |
| Expected return on plan assets | | | (22.3 | ) | | (19.1 | ) | | (19.0 | ) | | (5.9 | ) | | (4.0 | ) | | (3.3 | ) |
| Amortization of unrecognized transition obligation/(asset) | | | — | | | (4.2 | ) | | (4.0 | ) | | — | | | 0.5 | | | 0.6 | |
| New entrants’ prior service cost | | | — | | | — | | | — | | | 0.5 | | | — | | | — | |
| Amortization of unrecognized prior service cost | | | — | | | — | | | — | | | 0.4 | | | 0.4 | | | 0.2 | |
| Amortization of unrecognized net loss | | | 12.0 | | | 12.0 | | | 8.9 | | | 0.4 | | | 0.8 | | | 0.1 | |
| Curtailments and settlements | | | — | | | — | | | — | | | 1.1 | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net periodic pension cost | | | 28.5 | | | 27.1 | | | 18.6 | | | 10.0 | | | 7.0 | | | 4.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
F-52
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The following table sets out the benefit obligation and plan assets of the UK pension plan in accordance with US GAAP:
| | | UK Plan as of July 31, | |
| | |
| |
| | | | 2005
£m | | | 2004
£m | |
| | |
|
| |
|
| |
Change in benefit obligation: | | | | | | | |
| Benefit obligation at beginning of year | | | 459.5 | | | 435.4 | |
| Service cost | | | 12.4 | | | 14.2 | |
| Interest cost | | | 26.4 | | | 24.2 | |
| Plan participants’ contribution | | | 5.6 | | | 5.0 | |
| Actuarial loss/(gain) | | | 35.0 | | | (7.2 | ) |
| Benefits paid | | | (12.0 | ) | | (12.1 | ) |
| | |
|
| |
|
| |
| Benefit obligation at end of year | | | 526.9 | | | 459.5 | |
| | |
|
| |
|
| |
Change in plan assets: | | | | | | | |
| Fair value of plan assets at beginning of year | | | 326.3 | | | 290.2 | |
| Actual return on plan assets | | | 69.1 | | | 29.8 | |
| Employer contribution | | | 20.0 | | | 13.4 | |
| Plan participants’ contribution | | | 5.6 | | | 5.0 | |
| Benefits paid | | | (12.0 | ) | | (12.1 | ) |
| | |
|
| |
|
| |
| Fair value of plan assets at end of year | | | 409.0 | | | 326.3 | |
| | |
|
| |
|
| |
| Funded status | | | (117.9 | ) | | (133.2 | ) |
| Unrecognized net actuarial loss | | | 154.2 | | | 178.0 | |
| | |
|
| |
|
| |
| Prepaid pension costs | | | 36.3 | | | 44.8 | |
| | |
|
| |
|
| |
Net amount recognized | | | | | | | |
| Amounts recognized in the balance sheet: | | | | | | | |
| Prepaid pension cost | | | 36.3 | | | 44.8 | |
| Accrued pension cost | | | (84.3 | ) | | (108.0 | ) |
| Accumulated other comprehensive loss | | | 84.3 | | | 108.0 | |
| | |
|
| |
|
| |
| Net amount recognized | | | 36.3 | | | 44.8 | |
| | |
|
| |
|
| |
Estimated future benefit payments | | | | | | | |
| Year ended July 31, | | | | | | | |
| 2006 | | | | | | 11.5 | |
| 2007 | | | | | | 11.8 | |
| 2008 | | | | | | 12.1 | |
| 2009 | | | | | | 12.5 | |
| 2010 | | | | | | 12.9 | |
| Years from August 1, 2010 to July 31, 2015 | | | | | | 70.8 | |
| | | | | |
| |
The Group expects to contribute £25.4 million to the UK pension plan in the year ending July 31, 2006.
F-53
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The following table sets out the benefit obligation and plan assets of the non-UK pension plans in accordance with US GAAP:
| | | Non-UK Plans as of July 31, | |
| | |
| |
| | | | 2005
£m | | | 2004
£m | |
| | |
|
| |
|
| |
Change in benefit obligation: | | | | | | | |
| Benefit obligation at beginning of year | | | 127.1 | | | 115.1 | |
| Change due to remeasurement | | | 2.8 | | | (0.4 | ) |
| Service cost | | | 5.3 | | | 3.2 | |
| Interest cost | | | 8.2 | | | 6.1 | |
| Settlements and curtailments | | | 1.1 | | | — | |
| Member contributions | | | 0.6 | | | 1.1 | |
| Actuarial loss/(gain) | | | 18.1 | | | (2.0 | ) |
| Acquisition and reclassification | | | 18.9 | | | 18.1 | |
| Benefits paid | | | (10.1 | ) | | (4.6 | ) |
| New entrants’ prior service cost | | | 0.5 | | | 0.4 | |
| Exchange rate fluctuation | | | 8.7 | | | (9.9 | ) |
| | |
|
| |
|
| |
| Benefit obligation at end of year | | | 181.2 | | | 127.1 | |
| | |
|
| |
|
| |
Change in plan assets: | | | | | | | |
| Fair value of plan assets at beginning of year | | | 73.4 | | | 49.5 | |
| Actual return on plan assets | | | 9.6 | | | 7.2 | |
| Employer contribution | | | 9.6 | | | 6.6 | |
| Member contributions | | | 0.6 | | | 1.1 | |
| Acquisition | | | 16.6 | | | 19.3 | |
| Benefits paid | | | (10.1 | ) | | (4.6 | ) |
| Exchange rate fluctuation | | | 5.3 | | | (5.7 | ) |
| | |
|
| |
|
| |
| Fair value of plan assets at end of year | | | 105.0 | | | 73.4 | |
| | |
|
| |
|
| |
| Funded status | | | (76.2 | ) | | (53.7 | ) |
| Unrecognized net actuarial loss | | | 19.3 | | | 4.8 | |
| Unrecognized prior service cost | | | 2.8 | | | 2.3 | |
| | |
|
| |
|
| |
Accrued pension cost | | | (54.1 | ) | | (46.6 | ) |
| | |
|
| |
|
| |
| Amounts recognized in the balance sheet consist of: | | | | | | | |
| Prepaid pension cost | | | 2.7 | | | 1.5 | |
| Accrued pension cost | | | (69.9 | ) | | (53.6 | ) |
| Intangible asset | | | 1.3 | | | 2.3 | |
| Accumulated other comprehensive loss | | | 11.8 | | | 3.2 | |
| | |
|
| |
|
| |
| Net amount recognized | | | (54.1 | ) | | (46.6 | ) |
| | |
|
| |
|
| |
F-54
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Estimated future benefit payments | | | | | | £m | |
| | | | | |
| |
| Year ended July 31, | | | | | | | |
| 2006 | | | | | | 5.0 | |
| 2007 | | | | | | 5.8 | |
| 2008 | | | | | | 6.9 | |
| 2009 | | | | | | 7.7 | |
| 2010 | | | | | | 9.3 | |
| Years from August 1, 2010 to July 31, 2015 | | | | | | 47.7 | |
| | | | | |
| |
The Group expects to contribute £4.1 million to the non-UK pension plans in the year ending July 31, 2006.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the plans with accumulated benefit obligations in excess of plan assets were £667.1 million, £578.9 million and £474.2 million, respectively as of July 31, 2005 (2004: £567.6 million, £474.7 million and £380.2 million).
The amount included within other comprehensive income for the year ended July 31, 2005 arising from a change in the additional minimum liability recognized is a credit of £17.0 million.
The expected long term rates of return for equities have been determined by reference to government bond rates (minimum risk rates) in the countries in which the plans are based. To reflect the additional risks associated with equities, expected long term rates of return on equities include a risk premium. These risk premiums are long term assumptions and were set after taking actuarial advice and considering the assumptions used by listed companies. The expected long term rates of return for other assets are determined in a similar way, i.e. by using an appropriate risk premium relative to government bonds in the relevant country. For the UK scheme a premium of 3.0% per year as at July 31, 2005 (2004: 2.25%; 2003: 2.25%) was applied to the expected return from government bonds. For the principal overseas schemes in USA, Canada and Switzerland a similar approach was adopted with returns set by reference to long term bond rates after taking actuarial advice.
The Group’s investment strategy for its funded post employment plans is decided locally by Wolseley and, if relevant, the trustees of the plan, and takes account of the relevant statutory requirements. The Group’s objective for the investment strategy is to achieve a target rate of return in excess of the return on the liabilities, while taking an acceptable amount of investment risk relative to the liabilities.
This objective is implemented by using specific allocations to a variety of asset classes that are expected over the long term to deliver the target rate of return. Most investment strategies have significant allocations to equities, with the intention being that this will result in the ongoing cost to the group of the post employment plans being lower over the long term and be within acceptable boundaries of risk.
For the United Kingdom pension fund the policy is to invest approximately 85% of the assets in equities, and 15% in other asset classes, principally bonds. The investment strategy is subject to regular review by the scheme trustees in consultation with the Group. For the overseas schemes the investment strategy involves the investment in defined levels of predominantly equities with the remainder of the assets being invested in cash and bonds.
F-55
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Assumptions used to determine the pension cost for the defined benefit plans under US GAAP were as follows:
| | | Year ended July 31, | |
| | |
| |
| | | UK Plan | | Non-UK Plans | |
| | |
| |
| |
| | | | 2005 | | | 2004 | | | 2005 | | | 2004 | |
| | |
|
| |
|
| |
|
| |
|
| |
| Discount rate | | | 5.00% | | | 5.70% | | | 5.11% | | | 5.68% | |
| Expected return on plan assets | | | 6.90% | | | 6.70% | | | 6.21% | | | 6.63% | |
| Rate of compensation increase | | | *3.25% | | | *3.50% | | | 2.50% | | | 3.16% | |
| * | In addition, a promotional salary scale has been added to the salary increase assumption as of July 31, 2005 and July 31, 2004. As of July 31, 2005 this was equivalent to an overall increase of 1.5% per annum. |
The Group also sponsors defined contribution pension plans covering employees. Contributions are recognized as paid and amounted to approximately £19.1 million and £16.1 million during the years ended July 31, 2005 and 2004, respectively.
Under UK GAAP, provision is made for deferred tax in so far as a liability or asset arose as a result of transactions that had occurred by the balance sheet date and gave rise to an obligation to pay more tax in future, or a right to pay less tax in future. An asset has not been recognized to the extent that the transfer of economic benefits in the future is uncertain. Deferred tax assets and liabilities recognized have not been discounted. Provision is made for UK or foreign taxation arising on the distribution to the UK of retained profits of overseas subsidiary undertakings where dividends have been recognized as receivable.
Under US GAAP, deferred taxation is provided for on a full liability basis. Under the full liability method, deferred tax assets or liabilities are recognized for differences between the accounting and taxation basis of assets and liabilities and for tax loss carryforwards at the statutory rate at each reporting date. A valuation allowance is established when it is more likely than not that some portion of all of the deferred tax assets will not be realized.
F-56
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
The tax effects of temporary differences that give rise to significant deferred tax assets and liabilities under US GAAP are as follows:
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| Deferred tax assets: | | | | | | | |
| Accounts receivable | | | 11.6 | | | 8.2 | |
| Inventory | | | 22.5 | | | 20.2 | |
| Fixed assets | | | 4.1 | | | 2.6 | |
| Intangible assets | | | 1.0 | | | 11.9 | |
| Pensions | | | 38.3 | | | 33.5 | |
| Loss carryforwards | | | 32.7 | | | 35.4 | |
| Stock options | | | 5.5 | | | 8.8 | |
| Derivatives | | | 3.3 | | | — | |
| Purchase incentive volume rebates | | | 3.0 | | | — | |
| Leases | | | 6.3 | | | — | |
| Other | | | 6.0 | | | 1.1 | |
| | |
|
| |
|
| |
| Total deferred tax assets | | | 134.3 | | | 121.7 | |
| | |
|
| |
|
| |
| Deferred tax liabilities: | | | | | | | |
| Inventory | | | (64.2 | ) | | (32.4 | ) |
| Fixed assets | | | (31.6 | ) | | (24.6 | ) |
| Goodwill and intangible assets | | | (86.0 | ) | | (44.4 | ) |
| Purchase volume incentive rebates | | | (21.5 | ) | | (14.3 | ) |
| Other | | | (1.9 | ) | | (6.0 | ) |
| | |
|
| |
|
| |
| Total deferred tax liabilities | | | (205.2 | ) | | (121.7 | ) |
| | |
|
| |
|
| |
| | | | (70.9 | ) | | — | |
| Valuation allowance | | | (27.0 | ) | | (29.6 | ) |
| | |
|
| |
|
| |
| Net deferred tax liability | | | (97.9 | ) | | (29.6 | ) |
| | |
|
| |
|
| |
Deferred taxes are classified as follows:
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| Current | | | (41.3 | ) | | (11.1 | ) |
| Non-current | | | (56.6 | ) | | (18.5 | ) |
| | |
|
| |
|
| |
| | | | (97.9 | ) | | (29.6 | ) |
| | |
|
| |
|
| |
Recognized deferred tax assets are based upon the expected future utilization of tax loss carry forwards and the reversal of other temporary differences. The tax loss carry forwards do not expire and there are no current restrictions on their utilization. For financial reporting purposes, the Group has recognized a valuation allowance for those benefits for which realization does not meet the “more likely than not” criterion. The valuation allowance has reduced by £2.6 million in the year ended July 31, 2005, as some losses, the realization of which was uncertain, have been utilized in the period. No provision has been made in respect of unremitted foreign earnings because they are intended to be permanently reinvested. It is not practicable to estimate the amount of additional tax that might be payable on these other foreign earnings.
F-57
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Wolseley operates seven share option plans: the 1984 Executive Share Option Scheme, the 1989 Executive Share Option Scheme and the Wolseley Share Option Plan 2003 (collectively, the “Executive Option Schemes”); the Wolseley Employees Savings Related Share Option Scheme 1981 and Wolseley Irish Sharesave Scheme 2000 (collectively, the “Employees Savings Option Schemes”); the Wolseley Employee Share Purchase Plan 2001 (the “Employee Share Purchase Plan”); and the Wolseley Employees International Stock Appreciation Plan (the “SAP”).
Under UK GAAP, no compensation expense is required to be recognized for any of these options plans. Under US GAAP, stock based compensation for the Executive Options Schemes, the Employees Saving Option Schemes and the Employee Share Purchase Plan is accounted for based on the fair value of the award on the date of grant following SFAS 123, Accounting for Stock-Based Compensation.
Awards granted under the Executive Option Schemes vest over a period of three years. Awards granted under the Employee Savings Option Schemes vest over periods ranging from three to seven years. Awards granted under the Employee Share Purchase Plan vest over a one year period.
The SAP is treated as a variable plan since the award to be received by the employees is indeterminate at the date of grant. As a variable plan, the compensation cost is determined each year with reference to the period-end quoted market price of the stock, and the charge is fixed once the award to be paid to employees is known. Awards granted under the SAP vest over a period of five years.
| | | Year ended July 31,
| |
| | | | 2005 | | | 2005 | | | 2004 | | | 2004 | | | 2003 | | | 2003 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | Shares | | | Weighted Average Exercise Price | | | Shares | | | Weighted Average Exercise Price | | | Shares | | | Weighted Average Exercise Price | |
Executive Share Option Schemes | | | 000’s | | | £ | | | 000’s | | | £ | | | 000’s | | | £ | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Outstanding as of August 1 | | | 11,061 | | | 5.64 | | | 8,618 | | | 4.68 | | | 6,291 | | | 4.28 | |
| Granted | | | 4,131 | | | 9.51 | | | 3,598 | | | 7.44 | | | 2,870 | | | 5.43 | |
| Exercised, surrendered or expired | | | (3,383 | ) | | 4.82 | | | (1,155 | ) | | 4.06 | | | (543 | ) | | 3.84 | |
| | |
| | | | |
| | | | |
| | | | |
| Outstanding as of July 31 | | | 11,809 | | | 7.22 | | | 11,061 | | | 5.64 | | | 8,618 | | | 4.68 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Exercisable as of July 31 | | | 1,831 | | | 4.42 | | | 2,389 | | | 4.08 | | | 1,760 | | | 4.39 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Weighted average fair value of options granted during the year | | | | | | 3.06 | | | | | | 2.29 | | | | | | 1.43 | |
| | | | | |
| | | | |
| | | | |
| |
Employees Savings Option Schemes and SAP | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Outstanding as of August 1 | | | 10,708 | | | 4.83 | | | 11,501 | | | 3.79 | | | 11,681 | | | 3.65 | |
| Granted | | | 3,434 | | | 9.26 | | | 3,759 | | | 6.90 | | | 3,557 | | | 4.28 | |
| Exercised | | | (4,215 | ) | | 4.85 | | | (3,307 | ) | | 3.78 | | | (2,210 | ) | | 3.45 | |
| Surrendered or expired | | | (1,798 | ) | | 6.24 | | | (1,245 | ) | | 4.19 | | | (1,527 | ) | | 4.54 | |
| | |
| | | | |
| | | | |
| | | | |
| Outstanding as of July 31 | | | 8,129 | | | 6.38 | | | 10,708 | | | 4.83 | | | 11,501 | | | 3.79 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Exercisable as of July 31 | | | 72 | | | 4.12 | | | 117 | | | 3.46 | | | 33 | | | 3.43 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Weighted average fair value of options granted during the year | | | | | | 2.70 | | | | | | 2.61 | | | | | | 1.38 | |
| | | | | |
| | | | |
| | | | |
| |
F-58
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Share options outstanding and exercisable at July 31, 2005 are as follows:
| | | Options Outstanding
| | | | | Options Exercisable
| |
Range of exercise prices | | | Shares 000’s | | | Weighted Average Remaining Contractual Life Years | | | Weighted Average Exercise Price £ | | | Shares 000’s | | | Weighted Average Exercise Price £ | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| £2.51 – £3.50 | | | 758 | | | 1.7 | | | 3.22 | | | 282 | | | 3.40 | |
| £3.51 – £4.50 | | | 3,488 | | | 0.7 | | | 3.88 | | | 250 | | | 3.95 | |
| £4.51 – £5.50 | | | 3,991 | | | 6.8 | | | 5.18 | | | 1,347 | | | 4.68 | |
| £5.51 – £6.50 | | | 256 | | | — | | | 5.62 | | | 15 | | | 5.62 | |
| £6.51 – £7.50 | | | 3,984 | | | 7.2 | | | 7.28 | | | 9 | | | 6.57 | |
| £7.51 – £8.50 | | | 24 | | | 8.9 | | | 8.42 | | | — | | | — | |
| £8.51 – £9.50 | | | 7,387 | | | 5.4 | | | 9.38 | | | — | | | — | |
| £10.51 – £11.50 | | | 50 | | | 9.6 | | | 11.00 | | | — | | | — | |
| | |
| | | | | | | |
| | | | |
| | | | 19,938 | | | 5.0 | | | 6.88 | | | 1,903 | | | 4.41 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
The principal assumptions made in order to estimate the fair value at the date of grant of options awarded during the year were:
| | | Executive Share Options
| | Employee Share Options
| |
| | | | 2005 | | | 2004 | | | 2003 | | | 2005 | | | 2004 | | | 2003 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Risk free interest rate | | | 4.72% | | | 5.00% | | | 4.69% | | | 4.60% | | | 4.61% | | | 4.29% | |
| Expected dividend yield | | | N/A | | | 4.30% | | | 3.90% | | | N/A | | | 3.82% | | | 3.79% | |
| Expected volatility | | | 40.1% | | | 38.8% | | | 35.3% | | | 40.0% | | | 40.6% | | | 35.3% | |
| Expected life | | | 5.7 years | | | 6 years | | | 5 years | | | 1-7 years | | | 1-7 years | | | 1-7 years | |
For the year ended July 31, 2005 executive and employee share options were valued on a basis that included estimates of the dividends to be paid during the vesting period of the options. Dividends were assumed to increase at 10% per annum.
The Company has operated a Long Term Incentive Scheme since November 2002. Until 2004 only cash awards were made. Following an amendment to the Scheme in November 2004 awards will normally be made in shares, save where there are material securities or tax law constraints in overseas jurisdictions where the scheme is to be operated, in which case conditional awards in cash would continue to be made. Under UK GAAP, the awards settled in shares are accounted for on the basis of the intrinsic value of the award on the date of grant. Under US GAAP, the awards settled in shares are accounted for on the basis of the fair value of the award on the date of grant. Awards granted under the Long Term Incentive Scheme vest over three years. During the year ended July 31, 2005 awards of 627,735 shares were granted subject to certain market- related conditions. The awards were valued using the Monte Carlo method, with the principal assumptions being an expected dividend yield of 2.29% and an expected volatility of 27.74%, yielding a weighted average fair value of £4.85.
F-59
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Under UK GAAP, ordinary dividends proposed are provided for in the year in respect of which they are recommended by the board of directors although approval of the final dividend will not take place until the Company’s annual general meeting subsequent to the year-end. Under US GAAP, such dividends are provided for in the year in which they are declared and approved by the board of directors.
Under UK GAAP, a provision for restructuring costs is recognized only when a present obligation (legal or constructive) exists as a result of a past event; it is probable that a transfer of economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.
Under US GAAP, for restructuring plans initiated after January 1, 2003, a liability for a cost associated with an exit or disposal activity can only be recognized when the liability is incurred. An entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. The timing of recognition and related measurement of a liability for one-time termination benefits in relation to employees who are to be involuntarily terminated depends on whether the employees are required to render service until they are terminated in order to receive the termination benefits and, if so, whether employees will be retained to render service beyond the minimum retention period.
Sale and leaseback accounting |
Under UK GAAP, gains on sale and leaseback transactions where the subsequent lease is an operating lease are recognized immediately if the transactions are established at fair value. Differences between the sale price and fair value are generally deferred and amortized over the period for which the assets are expected to be used. Under US GAAP, such gains are deferred and amortized over the term of the lease.
Compensated short-term absences |
Under UK GAAP, in line with common practice, the Group generally does not account for holiday pay accruals unless legally obliged to make cash settlement. Under US GAAP the expected cost of compensated short-term absences (e.g. holidays) should be recognized when employees render the service that increases their entitlement.
Under UK GAAP, the Group does not capitalize interest on specific or general borrowings to finance the construction or development of certain tangible or intangible fixed assets for internal use. Under US GAAP, this interest is capitalized. The amount of interest capitalized is based on a weighted average method considering the general borrowings outstanding during the period. Capitalized interest is then depreciated as a component of the underlying asset. Interest of £2.4 million has been capitalized in the year ended July 31, 2005 (2004: £0.3 million; 2003: £0.2 million).
Derivative instruments and hedging activities |
Under UK GAAP, derivative financial instruments that reduce exposures on anticipated future transactions may be accounted for using hedge accounting. Under US GAAP all derivatives are recorded at fair value. If certain conditions and criteria set out in FAS 133 ‘’Accounting for Derivative Instruments and Hedging Activities” are met, hedge accounting would apply. Wolseley has designated its interest swap contracts as qualifying hedge instruments under US GAAP and as such, these instruments are carried at fair value with valuation adjustments recorded through other comprehensive income. An unrealized loss of £10.8 million (2004: loss of £1.0 million) was recorded in other comprehensive income in respect of the derivatives that did qualify for hedge accounting.
F-60
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| (ix) | Presentation of earnings per share |
Basic net income per share is computed by dividing net income by the weighted average number of ordinary shares outstanding. Diluted net income per share is computed by dividing net income by the weighted average number of ordinary shares and potentially dilutive ordinary shares, which includes the dilutive effect of stock options. Dilutive potential ordinary shares for all periods presented are computed utilizing the treasury stock method.
| (x) | Other disclosures required by US GAAP |
Under UK GAAP, the Cash Flow Statements are presented in accordance with FRS 1, as revised, Cash Flow Statements and under US GAAP in accordance with SFAS 95, Statement of Cash Flows. Under UK GAAP, cash flows are classified under operating activities, return on investment and servicing of finance, tax paid, capital expenditure and financial investments, acquisitions and disposals, equity dividends paid, management of liquidity resource and financing. Under US GAAP, cash flows are classified under operating activities, investing activities and financing activities. Under UK GAAP, cash is defined as cash in hand and deposits repayable on demand, less overdrafts repayable on demand, and does not include the effect of exchange rates. Under US GAAP, cash and cash equivalents are defined as cash accounts and all investments purchased with original maturities of three months or less. The statement below shows the adjustments to be made to the UK GAAP cash flow statement to comply with US GAAP:
| | | | | | Year ended July 31,
| |
| | | | | | | 2005 | | | 2004 | | | 2003 | |
| | | | Note | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
|
| |
| Net cash flow from operating activities | | | 26 | | | 763.6 | | | 325.2 | | | 607.7 | |
| Interest paid | | | 27 | | | (55.1 | ) | | (45.5 | ) | | (39.7 | ) |
| Interest received | | | 27 | | | 26.1 | | | 32.3 | | | 15.1 | |
| Interest element of finance lease | | | 27 | | | (1.1 | ) | | (0.2 | ) | | (0.2 | ) |
| Tax paid | | | | | | (150.7 | ) | | (128.1 | ) | | (108.1 | ) |
| | | | | |
| |
| |
| |
| Net cash from operating activities under US GAAP | | | | | | 582.8 | | | 183.7 | | | 474.8 | |
| | | | | |
| |
| |
| |
| Capital expenditure | | | 27 | | | (165.0 | ) | | (135.6 | ) | | (108.2 | ) |
| Financial investment | | | 27 | | | 1.6 | | | 0.1 | | | 2.9 | |
| Acquisitions | | | 24 | | | (405.5 | ) | | (123.5 | ) | | (507.2 | ) |
| Disposals | | | 25 | | | 4.5 | | | — | | | 3.0 | |
| | | | | |
| |
| |
| |
| Net cash from investing activities under US GAAP | | | | | | (564.4 | ) | | (259.0 | ) | | (609.5 | ) |
| | | | | |
| |
| |
| |
| Issue of ordinary share capital | | | 27 | | | 32.7 | | | 17.0 | | | 9.4 | |
| Purchase of shares by Employee Benefit Trusts | | | 27 | | | (18.6 | ) | | — | | | — | |
| Debt due after one year | | | 27 | | | 176.0 | | | 97.9 | | | 307.8 | |
| Finance leases | | | 27 | | | (4.9 | ) | | (3.0 | ) | | (2.4 | ) |
| Overdrafts | | | 28 | | | 8.1 | | | 229.0 | | | (53.0 | ) |
| Dividends paid | | | | | | (145.4 | ) | | (136.0 | ) | | (113.0 | ) |
| | | | | |
| |
| |
| |
| Net cash from financing activities under US GAAP | | | | | | 47.9 | | | 204.9 | | | 148.8 | |
| Effect of exchange rates on cash | | | 28 | | | 23.5 | | | (54.2 | ) | | (3.1 | ) |
| | | | | |
| |
| |
| |
| Net increase in cash and cash equivalents | | | | | | 89.8 | | | 75.4 | | | 11.0 | |
| Cash and cash equivalents at August 1 | | | | | | 291.3 | | | 215.9 | | | 204.9 | |
| | | | | |
| |
| |
| |
| Cash and cash equivalents at July 31 | | | | | | 381.1 | | | 291.3 | | | 215.9 | |
| | | | | |
| |
| |
| |
| Cash and cash equivalents: | | | | | | | | | | | | | |
| Cash at bank and in hand | | | | | | 370.9 | | | 260.1 | | | 215.9 | |
| Money market and other deposits | | | | | | 10.2 | | | 31.2 | | | — | |
| | | | | |
| |
| |
| |
| | | | | | | 381.1 | | | 291.3 | | | 215.9 | |
| | | | | |
| |
| |
| |
F-61
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Revenue is the amount receivable for the provision of goods and services falling within the Group’s ordinary activities, excluding intra-group sales, estimated and actual sales returns, trade and early settlement discounts, value added tax and similar sales taxes.
Revenue from the provision of goods is recognised when the risks and rewards of ownership of goods have been transferred to the customer. The risks and rewards of ownership of goods are deemed to have been transferred when the goods are shipped to, or are picked up by, the customer.
Revenue from services, other than those that arise from construction service contracts (see below), are recognized when the service provided to the customer has been completed.
Revenue in respect of construction service contracts, where the Group is providing framing lumber installation services to residential property companies, is recognised using the percentage of completion method, with the percentage complete being determined by comparing the percentage of costs incurred to date with the estimated total cost of the contract. Losses on these contracts, if any, are recognized in the period when such losses become probable and can be reasonably estimated.
Revenue from the provision of goods and all services is only recognised when the amounts to be recognized are fixed or determinable and collectibility is reasonably assured.
Inventories are valued at the lower of cost and net realizable value. Cost is calculated on a first in, first out basis. Net realizable value is the estimated market value less selling costs.
Allowance for doubtful accounts |
The Group maintains allowances for doubtful accounts, which are included in debtors in the accompanying consolidated balance sheets. Allowances for doubtful accounts amounted to £31.7 million and £42.3 million at July 31, 2005 and 2004, respectively. Bad debt expenses of £8.1 million and £25.9 million were charged during the years ended July 31, 2005 and 2004, respectively.
Total assets and total liabilities |
US GAAP requires that total assets and total liabilities be disclosed. Total assets and total liabilities under UK GAAP are shown below.
| | | | 2005 | | | 2004 | |
| | | | £m | | | £m | |
| | |
|
| |
|
| |
| Total assets | | | 6,415.9 | | | 5,336.4 | |
| | |
|
| |
|
| |
| Total liabilities | | | 4,109.0 | | | 3,434.5 | |
| | |
|
| |
|
| |
The preparation of financial statements in conformity with generally accepted accounting principles both in the UK and the US 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
F-62
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Some of the areas where estimation is significant are as follows:
| • | Allowance for doubtful accounts |
| | |
| | Wolseley evaluates the collectibility of accounts receivable based on a range of factors including the age of the receivable, the creditworthiness of the customer and historic experience of credit losses. While Wolseley has a large geographically dispersed customer base, a slowdown in the markets in which Wolseley operates may result in higher than expected uncollectible amounts and therefore higher (or lower) than anticipated charges for irrecoverable receivables. |
| | |
| | | | | 2005 | | | 2004 | |
| | | | | £m | | | £m | |
| | | |
|
| |
|
| |
| | At August 1 | | | 42.3 | | | 46.2 | |
| | Charged | | | 8.1 | | | 25.9 | |
| | Utilized and released to income statement | | | (20.2 | ) | | (26.5 | ) |
| | Currency translation adjustment | | | 1.5 | | | (3.3 | ) |
| | | |
|
| |
|
| |
| | At July 31 | | | 31.7 | | | 42.3 | |
| | | |
| |
| |
| | |
| | For financial reporting purposes Wolseley evaluates its inventory to ensure it is carried at the lower of cost or net realizable value. Provision is made against slow moving, obsolete and damaged inventories. To the extent that future events impact the saleability of inventory these provisions could vary significantly. |
| | | | | 2005 | | | 2004 | |
| | | | | £m | | | £m | |
| | | |
|
| |
|
| |
| | At August 1 | | | 83.6 | | | 80.8 | |
| | Charged to income | | | 10.9 | | | 5.1 | |
| | Currency translation adjustment | | | 4.2 | | | (2.3 | ) |
| | | |
|
| |
|
| |
| | At July 31 | | | 98.7 | | | 83.6 | |
| | | |
| |
| |
| | |
| • | Impairment of long-lived assets |
| | |
| | Wolseley periodically evaluates the net realizable value of long-lived assets, including goodwill, other intangible assets and tangible fixed assets, relying on a number of factors, including operating results, business plans and projected future cash flows. |
| | |
| | In its UK GAAP financial statements, Wolseley amortizes purchased goodwill arising since August 1, 1998 over its estimated economic life subject to a maximum of 20 years. Unexpected future events may evidence an economic life less than this period in which circumstances a higher amortization charge would be made in those future financial statements as a result of this shorter life. Tangible fixed assets are depreciated over their useful lives. |
| | |
| | Where there is evidence of a potential impairment to the carrying value of either goodwill or tangible fixed assets, Wolseley undertakes an estimation of the fair value of that asset in accordance with the approach set out in Financial Reporting Standard 11. The fair value is in most cases based on the discounted present value of the future cash flows expected to arise from the business unit to which the goodwill relates, or from the individual asset or asset group. Estimates are used in deriving these cash flows and the discount rate. |
F-63
Back to Contents
WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | For US GAAP purposes, following the adoption of SFAS 142 “Goodwill and Intangible Assets” on August 1,2002, all pre-existing goodwill and indefinite-lived intangible assets are no longer subject to amortization but are reviewed annually for impairment. The Group completed the required impairment tests during 2005 which indicated no charge was required. |
| | |
| | Where there is evidence of a potential impairment to the carrying value of tangible fixed assets, impairment is assessed on the basis of the anticipated undiscounted future cash flow from the relevant assets. If the net present value of estimated cash flows is lower than the carrying value of the asset, an impairment loss is recognized. Wolseley has not experienced any impairments during the periods presented in the consolidated financial statements. |
| | |
| | Wolseley operates a captive insurance company, Wolseley Insurance Limited, which is registered and operational in the Isle of Man. The company provides reinsurance exclusively to certain companies within the Wolseley Group. Provision is made based on actuarial assessment of the liabilities arising from the insurance coverage provided. To the extent that actual claims differ from that projected the provisions could vary significantly. As of July 31, 2005, the provision for claims arising from this insurance was £35.0 million (2004: £33.4 million). |
| | |
| • | Consideration received from vendors |
| | |
| | At the beginning of each calendar year, Wolseley enters into agreements with many of its vendors providing for inventory purchase rebates primarily upon achievement of specified volume purchasing levels. For certain agreements the rebate rises as a proportion of purchases as higher quantities or values of purchases are made. Wolseley accrues the receipt of vendor rebates as part of its cost of sales for products sold, taking into consideration cumulative purchases of inventory to date and projected purchases through the end of the qualifying period. Rebates are accrued for each reporting period with an extensive reassessment of the rebates carried being performed at the end of the fiscal year and half way through the fiscal year. While Wolseley believes it will continue to receive consideration from vendors in fiscal year 2006 and thereafter, there can be no assurance that vendors will continue to provide comparable amounts of vendor rebates in the future. |
| | |
| • | Allocation of purchase price to intangible assets |
| | |
| | In accordance with SFAS 141, Wolseley allocates part of the purchase price for acquired businesses to intangible assets including customer relationships and trade names. Estimates are made in respect of the benefits attributable to these assets used to determine the appropriate value for inclusion in the accounts. Changes to these estimates would result in different values being attributed to these assets. |
| | |
| • | Pensions and other post retirement benefits |
| | |
| | Wolseley operates defined benefit pension schemes in the United Kingdom, and in a number of overseas locations, that are accounted for, under both UK and US GAAP, using methods that rely on actuarial assumptions to estimate costs and liabilities for inclusion in the financial statements. These actuarial assumptions include discount rates, assumed rates of return, salary increases, employee turnover rates and mortality rates. |
| | |
| | Wolseley reviews its actuarial assumptions on a regular basis, annually for US GAAP and triennially for UK GAAP in accordance with SSAP 24 “Accounting for pension costs”, and makes modifications to them when it is deemed appropriate to do so. While management believes that the actuarial assumptions are appropriate, any significant changes to those used would affect the balance sheet and profit and loss account under both UK and US GAAP, and result in an increase in the profit and loss account charge in relation to |
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
| | pensions and other post retirement benefits in future years, and, as a consequence, could have an impact on the asset or liability held in the balance sheet, under both UK and US GAAP. |
| | |
| | Under UK GAAP, the cost of providing pension benefits is expensed over the average expected service lives of eligible employees in accordance with the provisions of SSAP 24. Changes to actuarial assumptions do not necessarily give rise to different operating results as the regular cost represents a reasonably stable percentage of pensionable payroll and variations from the regular pension cost arising from, for example, experience deficiencies or surpluses, are charged or credited to the profit and loss account over the expected average remaining service lives of current employees in the schemes. The UK GAAP pension expense in 2005 was £42.9 million (2004: £35.4 million, 2002 £28.4 million). |
| | |
| | Under US GAAP, the annual pension charge comprises the estimated cost of benefits accruing in the period as determined in accordance with SFAS 87, “Employers’ Accounting for Pensions”. SFAS 87 requires the use of the projected unit credit actuarial method for determining defined benefit pension costs and provides for the deferral of actuarial gains and losses (in excess of a specified corridor) that result from changes in assumptions or actual experience. Our US GAAP pension expense in 2005 was £57.5 million (2004: £50.2 million, 2002: £34.5 million). |
During the years ended July 31, 2005, 2004 and 2003, the Group acquired several companies. These acquisitions are discussed in Note 23. The results of operations of these acquired businesses have been included in the accompanying Consolidated Financial Statements from their relative dates of acquisition. Acquisitions completed during fiscal 2005 resulted in goodwill of £130.9 million and intangible assets totalling £104.5 million. Intangible assets are comprised of non-contractual customer relationships, covenants not to compete, trademarks, customer contracts and supply and distribution agreements.
These goodwill and intangible assets have been allocated to the Group’s operating segments as follows: European Distribution: £44.3 million goodwill, £23.7 million intangible assets; North American Plumbing and Heating Distribution: £29.0 million goodwill, £15.6 million intangible assets; US Building Materials Distribution: £57.6 million goodwill, £65.2 million intangible assets. None of the goodwill has been assumed deductible for tax purposes.
The aggregate amount assigned to intangible assets of £104.5 million can be analyzed by class and weighted average period of amortization as follows:
Class | | | Amount | | | Weighted average amortization period | |
| | | | £m | | | Years | |
| | |
|
| |
|
| |
| Non-contractual customer relationships | | | 84.6 | | | 10.3 | |
| Trademarks | | | 14.9 | | | 9.4 | |
| Non-compete agreements | | | 3.7 | | | 4.8 | |
| Other | | | 1.3 | | | 3.8 | |
| | |
|
| |
|
| |
| | | | 104.5 | | | 9.8 | |
| | |
|
| |
|
| |
The fair values ascribed to the acquisitions in 2005 are preliminary and will be finalized in the year following acquisition.
No amortization has been recognized in respect of goodwill arising on acquisitions completed during fiscal 2005.
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Intangible assets are being amortized over their useful lives which range from one to twenty-five years. Amortization recognized during 2005 in respect of these intangibles was £11.1 million.
Pro forma information (unaudited) |
The following unaudited pro forma information presents the results of operations of the Group under UK GAAP as if the fiscal 2005 acquisitions had occurred on August 1, 2003 and the fiscal 2004 and 2003 acquisitions had occurred on August 1, 2002:
| | | Year ended July 31,
| |
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | (unaudited | ) | | (unaudited | ) | | (unaudited | ) |
| | |
|
| |
|
| |
|
| |
| Sales (£m) | | | 11,724.9 | | | 11,061.0 | | | 9,547.3 | |
| Net income (£m) | | | 469.8 | | | 405.6 | | | 330.7 | |
| Basic earnings per share | | | 80.00p | | | 69.61p | | | 57.10p | |
| Diluted earnings per share | | | 79.16p | | | 68.81p | | | 56.65p | |
The unaudited pro forma information has been prepared for comparative purposes only and includes certain adjustments, such as amortization expense and interest expense related to the acquisitions. The pro forma results do not necessarily represent the results of operations that would have occurred if the acquisitions had been effective at the beginning of fiscal 2004 and 2003, nor are they necessarily indicative of future results.
The following table reconciles operating profit under UK GAAP to US GAAP:
| | | Year ended July 31,
| |
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| Operating profit under UK GAAP | | | 677.4 | | | 580.2 | | | 443.0 | |
| US GAAP adjustments, excluding capitalized interest and taxes | | | (38.4 | ) | | (3.1 | ) | | 8.8 | |
| | |
|
| |
|
| |
|
| |
| Operating profit under US GAAP | | | 639.0 | | | 577.1 | | | 451.8 | |
| | |
|
| |
|
| |
|
| |
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Presentation of profit and loss account |
The Group presents its consolidated profit and loss account in accordance with UK GAAP and the Companies Act 1985. This presentation differs in certain respects from that which is required under US GAAP. The following income statement presents the Group’s result of operation prepared in accordance with UK GAAP, but in a format that is required under US GAAP.
| | | Year ended July 31,
| |
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | £m | | | £m | | | £m | |
| | |
|
| |
|
| |
|
| |
| Revenues | | | 11,257.7 | | | 10,128.1 | | | 8,221.0 | |
| Cost of goods sold | | | (8,175.2 | ) | | (7,337.2 | ) | | (5,993.6 | ) |
| | |
|
| |
|
| |
|
| |
| Gross profit | | | 3,082.5 | | | 2,790.9 | | | 2,227.4 | |
| Selling, general and administrative expenses and other expenses | | | (2,405.1 | ) | | (2,210.7 | ) | | (1,781.4 | ) |
| | |
|
| |
|
| |
|
| |
| Income from operations | | | 677.4 | | | 580.2 | | | 443.0 | |
| Finance costs | | | (29.6 | ) | | (21.1 | ) | | (17.0 | ) |
| | |
|
| |
|
| |
|
| |
| Income before income taxes | | | 647.8 | | | 559.1 | | | 426.0 | |
| Income taxes | | | (186.6 | ) | | (162.1 | ) | | (127.6 | ) |
| | |
|
| |
|
| |
|
| |
| Net income | | | 461.2 | | | 397.0 | | | 298.4 | |
| | |
|
| |
|
| |
|
| |
Under US GAAP, a reconciliation is required of the reported amount of total income tax expense attributable to continuing operations and the amount of income tax that would result from applying statutory tax rates to pretax income from continuing operations. Under UK GAAP this reconciliation only includes current tax expense. A reconciliation prepared in accordance with US GAAP of the UK statutory tax rate and the actual tax rate is as follows:
| | | | 2005 | | | 2004 | | | 2003 | |
| | | | % | | | % | | | % | |
| | |
|
| |
|
| |
|
| |
| Corporation tax at UK statutory rate | | | 30.0 | | | 30.0 | | | 30.0 | |
| Foreign tax rate differences | | | 2.8 | | | 4.0 | | | 4.0 | |
| Permanent differences | | | (3.1 | ) | | (5.0 | ) | | (3.7 | ) |
| Other | | | (0.9 | ) | | — | | | (0.3 | ) |
| | |
|
| |
|
| |
|
| |
| Effective tax rate | | | 28.8 | | | 29.0 | | | 30.0 | |
| | |
|
| |
|
| |
|
| |
The taxation effects of US GAAP adjustments comprised £19.2 million credited to net income and £2.1 million charged to other comprehensive income.
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
US GAAP requires disclosure of the maturity of long-term debt in each of the five years following the end of the financial year. The following is a summary of the Group’s debt maturity as of July 31, 2005:
Due in the year ending July 31: | | | £m | |
| | |
|
| |
| 2006 | | | 440.9 | |
| 2007 | | | 524.2 | |
| 2008 | | | 362.8 | |
| 2009 | | | 109.0 | |
| 2010 | | | 69.0 | |
| Thereafter | | | 23.5 | |
| | |
|
| |
| Total | | | 1,529.4 | |
| | |
| |
The weighted average interest paid on debt was as follows:
| | | Year ended July 31,
| |
| | | | 2005 | | | 2004 | |
| | | | % | | | % | |
| | |
|
| |
|
| |
| US Industrial Revenue Bonds | | | 1.96 | | | 1.96 | |
| Revolving credit facility | | | 2.55 | | | 1.53 | |
| Term loans | | | 6.00 | | | 2.77 | |
The Group has given certain covenants to banks in connection with credit facilities totaling £1,632 million. They relate mainly to maintaining a level of tangible net worth, total borrowings and interest cover. The Group was in compliance with all such covenants as of July 31, 2005.
Additions to fixed assets have been allocated to the Group’s operating segments as follows: European Distribution, £133.5 million, North American Plumbing and Heating Distribution, £103.5 million; US Building Materials, £28.6 million.
F-68
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WOLSELEY plc
Notes to the consolidated financial statements (continued)
Year ended July 31, 2005
Capital and operating lease commitments |
The Group leases property, buildings and plant, machinery and equipment under capital and operating lease agreements, which are subject to various renewal options and escalation clauses. The following is a summary as of July 31, 2005 of the future minimum lease payments under these agreements:
| | | | Capital | | | Operating | |
| | | | leases | | | leases | |
Year ending July 31: | | | £m | | | £m | |
| |
|
| |
|
| |
| 2006 | | | 5.1 | | | 153.9 | |
| 2007 | | | 10.1 | | | 130.8 | |
| 2008 | | | 4.7 | | | 108.6 | |
| 2009 | | | 4.4 | | | 90.6 | |
| 2010 | | | 5.1 | | | 77.3 | |
| Thereafter | | | 24.7 | | | 340.2 | |
| | |
|
| |
|
| |
| Total minimum lease payments | | | 54.1 | | | 901.4 | |
| | | | | |
| |
| Less interest element | | | (6.4 | ) | | | |
| | |
| | | | |
| Present value of net minimum lease payments | | | 47.7 | | | | |
| | |
| | | | |
F-69
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WOLSELEY plc
Name | | | Country of Incorporation or Registration | |
| |
|
| |
| Ferguson Enterprises Inc. | | | United States | |
| Stock Building Supply Holding, Inc. | | | United States | |
| Wolseley UK Limited | | | United Kingdom | |
| Brossette SA | | | France | |
| Wolseley Canada Inc. | | | Canada | |
| Wolseley Industrial Products Group Inc. | | | Canada | |
| Wolseley Austria AG | | | Austria | |
| Wolseley Czech Republic spol. s.r.o. (formerly Cesaro spol. s.r.o.) | | | Czech Republic | |
| Wolseley Hungária KFT (formerly Mart KFT) | | | Hungary | |
| Manzardo SpA | | | Italy | |
| Comptoir des Fers et Métaux SA | | | Luxembourg | |
| Heatmerchants Ltd | | | Republic of Ireland | |
| Brooks Group Limited | | | Republic of Ireland | |
| Electro-Oil International AS | | | Denmark | |
| Wasco Holding BV | | | The Netherlands | |
| PB & M SA | | | France | |
| Wolseley (Schweiz) AG | | | Switzerland | |
Principal subsidiaries are all wholly owned and operate mainly in the countries of incorporation or registration as stated above.
Acquisitions completed during the year |
| | | | | | | Country of | |
Name | | | Date | | | Incorporation | |
| |
|
| |
|
| |
| Brooks Group Limited | | | August 2004 | | | Ireland | |
| Klöckner Stahl und Metall GmbH | | | August 2004 | | | Austria | |
| Rouquette Matériaux SAS | | | September 2004 | | | France | |
| Socatra | | | September 2004 | | | France | |
| Cline Contract Sales | | | September 2004 | | | USA | |
| Béton Manufacturé de Lagny SA | | | November 2004 | | | France | |
| Clark Group, Inc. | | | November 2004 | | | USA | |
| TAPS Wholesale Bath Centre, Inc. | | | November 2004 | | | Canada | |
| Parnell – Martin Management LLC | | | December 2004 | | | USA | |
| R Supply Company | | | December 2004 | | | USA | |
| Iser Zauli Srl | | | January 2005 | | | Italy | |
| Duval Matériaux de Construction SA | | | January 2005 | | | France | |
| J. D. Daddario Co., Inc. | | | January 2005 | | | USA | |
| Mecko Supply Co., Inc. | | | February 2005 | | | USA | |
| Gator Lumber Company | | | March 2005 | | | USA | |
| Full Service Supply, Inc. | | | April 2005 | | | USA | |
| Davidson Industries, Inc. | | | April 2005 | | | USA | |
| Niklaus Energie- und Gebäudetechnik AG | | | April 2005 | | | Switzerland | |
| J.C. Baldridge Lumber Company, NSL | | | April 2005 | | | USA | |
| Dispotherm Sarl | | | May 2005 | | | France | |
| Etablissement Serge Barral | | | May 2005 | | | France | |
| Adams Building Materials, Inc. | | | May 2005 | | | USA | |
| United Supply & Distributing, Inc. | | | May 2005 | | | USA | |
| Webb Distributors, Inc. | | | June 2005 | | | USA | |
| Vegas General Construction Co. | | | July 2005 | | | USA | |
| East Haven Builders Supply, Inc. | | | July 2005 | | | USA | |
F-70
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934