Exhibit 23.2
PRICEWATERHOUSECOOPERS
| ||
The Directors Appleton Papers Inc. 825 E. Wisconsin Avenue | PricewaterhouseCoopers LLP Donington Court Pegasus Business Park Castle Donington East Midlands DE74 2UZ Telephone +44 (0) 1509 604000 Facsimile +44 (0) 1509 604010 | |
PO Box 359 Appleton WI 54912-0359 | ||
18 August 2004
Our ref: mgg/djb/bemrose group
Dear Sirs
We hereby consent to the use in the Registration Statement on Form S-4 of our report dated 26 September 2003 relating to the financial statements for the year ended 30 June 2003 of Bemrose Group Limited (as attached), which appear in such Registration Statement.
Yours faithfully
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
East Midlands
PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of PricewaterhouseCoopers LLP
is 1 Embankment Place, London WC3N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Services Authority for designated investment business.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and the shareholders of Bemrose Group Limited:
In our opinion, the accompanying consolidated balance sheet and the related consolidated profit and loss account, statements of total recognized gains and losses, reconciliation of movements in shareholders’ funds and cash flows present fairly, in all material respects, the financial position of Bemrose Group Limited and its subsidiaries at 28 June 2003 and the results of their operations and their cash flows for the year then ended 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 audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States), which 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 audit provides 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 22 to the consolidated financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
East Midlands
26 September 2003
F-83
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 28 JUNE 2003
| Note | Year ended £’000 | ||||
Turnover | |||||
Continuing operations | 1 | 62,174 | |||
Changes in stocks of finished goods and work in progress | 2 | (241 | ) | ||
| 61,933 | |||||
Operating expenses | 2 | (56,457 | ) | ||
Operating profit | |||||
Continuing operations | 5,476 | ||||
Net interest payable | 6 | (1,213 | ) | ||
Profit on ordinary activities before tax | 4,263 | ||||
Tax on profit on ordinary activities | 7 | (1,060 | ) | ||
Profit for the financial year | 3,203 | ||||
Dividends | 8 | (15 | ) | ||
Transfer to reserves | 18 | 3,188 | |||
The accompanying notes are an integral part of these financial statements.
F-84
OTHER CONSOLIDATED STATEMENTS
FOR THE YEAR ENDED 28 JUNE 2003
Statement of total recognised gains and losses
| Note | Year ended 28 June 2003 £’000 | ||||
Profit for the financial year | 3,203 | ||||
Exchange adjustments on foreign currency net investments | 18 | (30 | ) | ||
Recognised gains and losses for the financial year | 3,173 | ||||
Note of historical cost profits and losses
There is no difference between the profit on ordinary activities before taxation and the profit for the year stated above, and their historical cost equivalents.
Reconciliation of movements in shareholders’ funds
| Note | Year ended 28 June 2003 £’000 | ||||
Opening shareholders’ funds | 3,768 | ||||
Profit for the financial year | 3,203 | ||||
Dividends | 8 | (15 | ) | ||
Other recognised gains and losses for the year | 18 | (30 | ) | ||
Shares issued in the year | 17 | 50 | |||
Shares redeemed in year | 17 | (2 | ) | ||
Closing shareholders’ funds | 6,974 | ||||
The accompanying notes are an integral part of these financial statements.
F-85
CONSOLIDATED BALANCE SHEET
28 JUNE 2003
| 2003 | |||||
| Note | £’000 | ||||
Fixed assets | |||||
Intangible assets—negative goodwill | 9 | (92 | ) | ||
Tangible assets | 10 | 14,828 | |||
Investments | 11 | 1 | |||
| 14,737 | |||||
Current assets | |||||
Stocks | 12 | 5,343 | |||
Debtors due within one year | 13 | 7,937 | |||
Debtors due after more than one year | 13 | 3,043 | |||
Cash at bank and in hand | 4,945 | ||||
| 21,268 | |||||
Creditors: amounts falling due within one year | 14 | (16,143 | ) | ||
Net current assets | 5,125 | ||||
| Total assets less current liabilities | 19,862 | ||||
| Creditors: amounts falling due after more than one year | 15 | (11,877 | ) | ||
| Provisions for liabilities and charges | 16 | (1,011 | ) | ||
Net assets | 6,974 | ||||
Capital and reserves | |||||
Called up share capital | 17 | 240 | |||
Share premium account | 18 | 48 | |||
Profit and loss account | 18 | 6,686 | |||
Equity shareholder’s funds | 6,974 | ||||
The accompanying notes are an integral part of these financial statements.
F-86
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 28 JUNE 2003
| Year ended 28 June 2003 | ||||||||||
| Note | £’000 | £’000 | ||||||||
Net cash inflow from operating activities | A | 8,708 | ||||||||
Returns on investments and servicing of finance | ||||||||||
Interest received | 119 | |||||||||
Interest paid | (1,293 | ) | ||||||||
| (1,174 | ) | |||||||||
Taxation | ||||||||||
Corporation tax paid | (1,194 | ) | ||||||||
Corporation tax received | 400 | |||||||||
| (794 | ) | |||||||||
Capital expenditure | ||||||||||
Purchase of tangible fixed assets | (1,786 | ) | ||||||||
Sale of tangible fixed assets | 21 | |||||||||
| (1,765 | ) | |||||||||
Equity dividends paid | (5 | ) | ||||||||
Cash inflow before financing | 4,970 | |||||||||
Financing—issue of shares | B | 50 | ||||||||
—redemption of shares | (2 | ) | ||||||||
—movement in debt | B | (2,018 | ) | |||||||
| (1,970 | ) | |||||||||
Increase in cash in the year | 3,000 | |||||||||
Notes: | ||||||||||
A | Reconciliation of operating profit to operating cash flow | |||||||||
Operating profit | 5,476 | |||||||||
Depreciation charge | 2,290 | |||||||||
Amortisation of negative goodwill | (47 | ) | ||||||||
Profit on sale of tangible fixed assets | (17 | ) | ||||||||
Decrease in pension prepayment | 847 | |||||||||
Decrease in stocks | 509 | |||||||||
Decrease in debtors | 35 | |||||||||
Decrease in creditors | (385 | ) | ||||||||
Net cash inflow from continuing operating activities | 8,708 | |||||||||
The accompanying notes are an integral part of these financial statements.
F-87
BEMROSE GROUP LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 28 JUNE 2003
| Year ended 28 June 2003 £’000 | |||||
B | Financing | ||||
Issue of ordinary share capital | 50 | ||||
Redemption of ordinary share capital | (2 | ) | |||
Debt due within one year | |||||
Secured loans repaid | (2,000 | ) | |||
Repayment of unsecured loan stock | (18 | ) | |||
Net cash outflow from financing | (1,970 | ) | |||
At 29 £’000 | Cash Flow £’000 | Non-cash Change £’000 | At 28 £’000 | ||||||||||
C | Analysis of net debt | ||||||||||||
Cash at bank and in hand | 1,945 | 3,000 | — | 4,945 | |||||||||
Debts due after one year | (14,249 | ) | 18 | 2,354 | (11,877 | ) | |||||||
Debts due within one year | (1,831 | ) | 2,000 | (2,523 | ) | (2,354 | ) | ||||||
| (16,080 | ) | 2,018 | (169 | ) | (14,231 | ) | |||||||
Total | (14,135 | ) | 5,018 | (169 | ) | (9,286 | ) | ||||||
F-88
ACCOUNTING POLICIES
FOR THE YEAR ENDED 28 JUNE 2003
Principal accounting policies
The financial statements have been prepared in accordance with applicable Accounting Standards in the United Kingdom. A summary of the more important group accounting policies, which have been applied consistently, is set out below.
Basis of accounting
The financial statements are prepared in accordance with the historical cost convention.
Goodwill
Goodwill represents the excess of the fair value of the identifiable net assets acquired over the fair value of the consideration given.
Goodwill arising on the acquisition of subsidiaries or businesses is capitalised and amortised through the profit and loss account over its useful economic life. Negative goodwill is credited to the profit and loss account over the period expected to benefit, which the directors consider to be 5 years.
Turnover
Turnover represents the net invoiced value of goods and services to customers outside the Group.
Depreciation
Depreciation is calculated so as to write off the cost of tangible fixed assets, less their estimated residual values, on a straight-line basis over the estimated useful economic lives of the assets concerned. The lives used are as follows:
Freehold property | 40 years | |
Plant, machinery, fixtures and fittings | 5-25 years | |
Motor vehicles | 3-6 years |
Freehold land is not depreciated.
Stocks
Stocks comprise raw materials, work in progress and finished goods and are valued at the lower of cost and net realisable value. Cost is calculated including materials, labour and the attributable overheads according to the stage of production.
Leases
Rental costs under operating leases are charged to the profit and loss account in equal annual amounts over the periods of the leases.
Loan finance costs
The initial issue costs incurred in obtaining loan finance are deducted from the loan liability and charged to the profit and loss account over the life of the loan in proportion to the outstanding liability.
F-89
BEMROSE GROUP LIMITED
ACCOUNTING POLICIES—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
Deferred taxation
Provision is made at the rate of tax expected to be payable for the liability to corporation tax in the foreseeable future from the allocation of items to different periods for taxation and for accounting purposes. Assets are only recognised to the extent that it is more likely than not that an asset will be realised in the future.
Foreign currencies
Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Exchange gains and losses arising from trading are included in operating profit.
Differences on exchange arising from the translation of the opening net assets and liabilities of foreign subsidiaries and on foreign currency investments are taken to reserves.
Pension costs
The group operates a funded defined benefit pension scheme in respect of service until 3 September 2000. The fund is valued every three years by a professionally qualified independent actuary, the rates of contribution payable being determined by the actuary. Pension costs are accounted for on the basis of charging the expected cost of providing pensions over the period during which the group benefits from the employees’ services. The effects of variations from regular cost are spread over the expected average remaining service lives of members of the scheme.
The group now makes payments to a defined contribution pension scheme. The scheme is externally funded. The group’s liability to pension costs in respect of service since 3 September 2000 is limited to the value of contributions made which are charged to the profit and loss account in the period in which they fall due.
F-90
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28 JUNE 2003
1. Turnover
The turnover attributable to each of the group’s geographical markets is:
Year 28 June | ||
United Kingdom | 56,916 | |
Rest of the world | 5,258 | |
| 62,174 | ||
2. Change in stocks of finished goods and work in progress and operating expenses
Year 28 June | |||
Changes in stocks of finished goods and work in progress | (241 | ) | |
Operating expenses | |||
Raw materials and consumables | 23,642 | ||
Rentals under operating leases: | |||
Hire of vehicles and equipment | 657 | ||
Other operating leases | 153 | ||
Vacant property costs | 152 | ||
Auditors’ remuneration for group audit | 30 | ||
Staff costs (note 3) | 21,417 | ||
Depreciation of owned assets | 2,290 | ||
Amortisation of goodwill | (47 | ) | |
Profit on disposal of tangible fixed assets | (17 | ) | |
Exchange losses | 36 | ||
Redundancy costs | (11 | ) | |
Other external charges | 8,155 | ||
| 56,457 | |||
Audit fees included above in respect of the company were £5,000. Non-audit fees paid to the auditors during the year were £25,000.
F-91
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
3. Employees
The average weekly number of persons (including executive directors) employed by the group during the year is analysed below:
Year 28 June | ||
Production | 585 | |
Sales and distribution | 61 | |
Administration | 194 | |
| 840 | ||
The costs incurred in respect of these employees were:
Year 28 June | ||
Wages and salaries | 18,720 | |
Social security costs | 1,762 | |
Pension costs (note 4) | 935 | |
| 21,417 | ||
4. Employee pension schemes
The group participates in a funded scheme operated by Legal & General and provides benefits based upon a defined contribution level. Until 3 September 2000 the scheme provided benefits based upon final salary. The assets of the scheme are held separately from those of the group. The cost of the scheme is assessed in accordance with the advice of a qualified actuary using the projected unit method of valuation. The latest actuarial update of the scheme was at 1 June 2003. The next formal triennial valuation of the scheme is due as of 1 June 2004. The assumptions that have the most significant effect on the valuation are those relating to the rate of return on investments and the rate of increase in salaries. At the latest valuation of the scheme it was assumed that the effective rate of return on investments would be 7.5% per annum and that pensionable salaries would increase at 3% per annum. This valuation showed that the market value of the scheme’s assets was £27m and that the actuarial value of those costs represented 100% of the benefits that had accrued to members, valuing the scheme on an ongoing basis.
The fully funded position differs from the £3,000,000 surplus included in debtors and derived from the previous valuation of Scheme. This experience loss is being spread forward and charged in accordance with SSAP 24.
The group also makes contributions to defined benefit schemes for specific employees.
The pension charge for the year was £935,000. This comprised of the regular cost of £1,170,000 less interest on the prepayment of £270,000 plus deficit spreading of £35,000. There were no outstanding contributions at 28 June 2003. The recommended rate for contributions is 6.5% and contributions recommenced in April 2003 following a pensions holiday.
F-92
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
FRS 17 requires certain disclosures to be made and a valuation based upon its guidelines. A qualified independent actuary has based the calculations upon a 1 June 2003 actuarial update rolled forward to 28 June 2003. The major assumptions used were:
| 28 June 2003 | |||
Discount rate | 5.25 | % | |
Inflation assumption | 2.5 | % | |
Rate of increase of salaries | 3.0 | % | |
Rate of increase in pensions in payment | 2.5 | % |
The assets in the Scheme (excluding defined contribution assets and members’ AVC funds) and the expected rate of return at 28 June 2003 were:
Expected of return on net assets | Value (£’000) | |||||||
28 June 2003 | 29 June 2002 | 28 June 2003 | ||||||
Equities | 8.0 | % | 7.25 | % | 22,216 | |||
Bonds | 5.25 | % | 5.25 | % | 5,057 | |||
Total market value of assets | 27,273 | |||||||
The following amounts at 28 June 2003 were measured in accordance with the requirements of FRS 17:
| Value at 28 June 2003 £’000 | |||
Total market value of assets | 27,273 | ||
Present value of Scheme liabilities | 45,543 | ||
Deficit in the Scheme | (18,270 | ) | |
Related deferred tax asset | 5,480 | ||
Net pension deficit | (12,790 | ) | |
F-93
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
If the above amounts had been recognised in the financial statements at 28 June 2003, the Group’s net assets and profit and loss reserve would be as follows:
| Value at 28 June 2003 £’000 | |||
Net assets | |||
Net assets excluding SSAP 24 pension asset | 4,844 | ||
FRS 17 pension liability | (12,790 | ) | |
Net liabilities including FRS 17 pension liability | (7,946 | ) | |
Reserves | |||
Profit and loss reserve excluding SSAP 24 pension asset | 4,556 | ||
FRS 17 pension reserve | (12,790 | ) | |
Profit and loss reserve | (8,234 | ) | |
The following amounts would have been recognised in the performance statements in the year to 28 June 2003 under the requirements of FRS 17:
Profit and loss account | Year ended 28 June 2003 £’000 | ||
Operating profit | |||
Current service cost | 1,290 | ||
Past service cost | — | ||
Total operating charge | 1,290 | ||
Other finance income | |||
Expected return on pension Scheme assets | (2,080 | ) | |
Interest on pension Scheme liabilities | 2,410 | ||
Net return | 330 | ||
F-94
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
Year 28 June | |||
Statement of total recognised gains and losses (STRGL) | |||
Actual return less expected return on pension Scheme assets | (3,420 | ) | |
Experience gains and losses arising on Scheme liabilities | (1,540 | ) | |
Changes in assumptions underlying the present value of Scheme liabilities | (2,120 | ) | |
Actuarial loss recognised in STRGL | (7,080 | ) | |
Movements in the surplus for the year ended 28 June 2003:
Year 28 June | |||
Deficit in Scheme at beginning of year | (9,730 | ) | |
Movement in year: | |||
Current service cost | (1,290 | ) | |
Contributions | 160 | ||
Other finance income | (330 | ) | |
Actuarial loss | (7,080 | ) | |
Deficit in Scheme at end of year | (18,270 | ) | |
Details of experience gains and losses for the year ended 28 June 2003:
Year 28 June | |||
Difference between the expected and actual return on Scheme assets | |||
Amount (£’000) | (3,420 | ) | |
Percentage of Scheme assets | (12.5 | )% | |
Experience gains and losses on Scheme liabilities | |||
Amount (£’000) | (1,540 | ) | |
Percentage of the present value of the Scheme liabilities | (3.4 | )% | |
Total amount recognised in statement of total recognised gains and losses | |||
Amount (£’000) | (7,080 | ) | |
Percentage of the present value of the Scheme liabilities | (15.5 | )% | |
F-95
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
5. Directors
Year 28 June £’000 | |||
Aggregate emoluments (including benefits in kind) | 615 | ||
Company contributions to personal pension schemes | Nil | ||
Highest paid director: | |||
Aggregate emoluments (including benefits in kind) | £ | 198,467 | |
Company contributions to personal pension schemes | £ | Nil | |
Accrued pension benefit | £ | 87,836 | |
Three of the directors have benefits accruing under a defined benefit scheme; one director has benefits accruing under a defined contribution scheme.
6. Net interest payable
Year 28 June | |||
Interest receivable and similar income | (127 | ) | |
Interest paid on bank loans and overdrafts | 555 | ||
Interest paid on other loans | 616 | ||
Amortisation of issue costs of loans | 169 | ||
| 1,213 | |||
7. Tax on profit on ordinary activities
Year 28 June | |||
United Kingdom taxation: | |||
Current year: | |||
Corporation tax at 30% | 1,568 | ||
Deferred taxation | (172 | ) | |
Prior year: | |||
Corporation tax | (311 | ) | |
Deferred taxation | (25 | ) | |
| 1,060 | |||
F-96
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
The current corporation tax charge differs from the standard UK corporation tax rate of 30% applied to the profit for the year. The differences are:
Year 28 June | |||
Profit for the year at 30% | 1,279 | ||
Capital allowances exceeding depreciation | (148 | ) | |
Expenses not deductible for tax purposes | 58 | ||
Pension and other expenses not deductible until paid | 310 | ||
Losses carried forward | 69 | ||
| 1,568 | |||
8. Dividends
Year 28 June | ||
Dividends on A cumulative convertible participating preferred ordinary shares: | ||
Interim 3.00p, paid 31 December 2002 | 5 | |
Participating dividend payable at 5.56p per share | 10 | |
| 15 | ||
9. Intangible assets
| Negative goodwill £’000 | |||
Cost: | |||
At 30 June 2002 and 28 June 2003 | (227 | ) | |
Amortisation: | |||
At 30 June 2002 | 88 | ||
Credit for the year | 47 | ||
At 28 June 2003 | 135 | ||
Net book value at 28 June 2003 | (92 | ) | |
Net book value at 29 June 2002 | (139 | ) | |
The negative goodwill arising on the acquisition of the businesses of Bemrose Security & Promotional Printing and The Henry Booth Group is being credited to the profit and loss account on a straight-line basis over 5 years. This is the period over which the directors estimate that the business will benefit from the negative goodwill.
F-97
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
10. Tangible assets
| Freehold Land and Buildings £’000 | Plant and machinery £’000 | Fixtures and fittings £’000 | Total £’000 | |||||||
Cost: | ||||||||||
At 30 June 2002 | 6,302 | 34,971 | 5,569 | 46,842 | ||||||
Additions | — | 1,737 | 667 | 2,404 | ||||||
Disposals | — | (668 | ) | — | (668 | ) | ||||
At 28 June 2003 | 6,302 | 36,040 | 6,236 | 48,578 | ||||||
Depreciation: | ||||||||||
At 30 June 2002 | 152 | 27,331 | 4,641 | 32,124 | ||||||
Charge for the year | 77 | 1,836 | 377 | 2,290 | ||||||
Disposals | — | (664 | ) | — | (664 | ) | ||||
At 28 June 2003 | 229 | 28,503 | 5,018 | 33,750 | ||||||
Net book value at 28 June 2003 | 6,073 | 7,537 | 1,218 | 14,828 | ||||||
Net book value at 29 June 2002 | 6,150 | 7,640 | 928 | 14,718 | ||||||
11. Investments
| £’000 | ||
Government securities | ||
Cost at 28 June 2003 | 1 | |
Subsidiary companies:
The principal operating subsidiaries at 28 June 2003, all wholly owned, were:
Company | Country of incorporation and operation | Business | ||
BemroseBooth Limited * | England | Specialist and secure print services | ||
Bemrose Security & Promotional Printing Limited | England | Dormant | ||
The Henry Booth Group Limited* | England | Dormant | ||
HBGI Holdings Limited * | England | Holding company | ||
BemroseBooth USA Inc | USA | Marketing |
| * | Held directly |
F-98
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
12. Stocks
28 June 2003 | ||
Raw materials and consumables | 1,134 | |
Work in progress | 2,038 | |
Finished goods and goods for resale | 2,171 | |
| 5,343 | ||
13. Debtors
28 June 2003 | ||
Due within one year: | ||
Trade debtors | 7,337 | |
Other debtors | 26 | |
Prepayments | 574 | |
| 7,937 | ||
Due after more than one year: | ||
Pension scheme prepayments | 3,043 | |
14. Creditors: amounts falling due within one year
28 June 2003 | ||
Bank loans | 2,354 | |
Trade creditors | 6,031 | |
Corporation tax | 955 | |
Other tax and social security | 987 | |
Other creditors | 5,806 | |
Dividends | 10 | |
| 16,143 | ||
The bank loans are secured by a fixed charge over the freehold property and book debts of the group and by a floating charge over all other assets. Bank loans are stated net of issue costs of £146,000.
F-99
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
15. Creditors: amounts falling due after more than one year
28 June 2003 | ||
Bank loans | 2,885 | |
Other loans | 8,992 | |
| 11,877 | ||
The bank loans are secured by a fixed charge over the freehold property and book debts of the group and by a floating charge over all other assets. Bank loans are stated net of issue costs of £315,000.
Bank loans (net of issue costs) falling due within: | ||
Within one year | 2,354 | |
From one to two years | 2,885 | |
| 5,239 | ||
Other loans falling due within: | ||
From two to five years | 4,000 | |
After more than five years | 4,992 | |
| 14,231 | ||
Bank loans comprise £5,700,000 repayable by instalments every 6 months, which commenced in March 2001 bearing interest at LIBOR plus 1.5%. Bank loans are stated net of issue costs of £461,000.
An unsecured loan of £8,570,000 from Lloyds TSB Development Capital Limited, the majority shareholder, is repayable by 4 annual instalments commencing 31 December 2006 and bears interest at base rate plus 3%. Unsecured loans of £422,000, from the B and C ordinary shareholders, bear interest at base rate plus 2% and have no fixed repayment date.
16. Provisions for liabilities and charges
June 28 2003 | ||
Deferred taxation liability | 1,011 | |
Movements in the year:
Deferred 2003 | |||
At 29 June 2002 | 1,208 | ||
Transferred to tax on profit on ordinary activities | (197 | ) | |
At 28 June 2003 | 1,011 | ||
F-100
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
Deferred taxation liability:
| Amount provided and full potential liability 2003 £’000 | ||
Depreciation/capital allowances | 204 | |
Other timing differences | 807 | |
| 1,011 | ||
17. Called up share capital
28 June 2003 £’000 | ||
Authorised, allotted, called up and fully paid | ||
A cumulative convertible participating preferred ordinary shares of £1 each | 180,000 | |
B ordinary shares of £1 each | 45,600 | |
C ordinary shares of £1 each | 14,400 | |
| 240,000 | ||
Holders of the A cumulative convertible participating preferred ordinary shares rank for a fixed cumulative net cash dividend of 6.00p per share for the financial periods ending 31 December 2002. Subsequently the holders of the A ordinary shares rank for the higher of the above fixed dividend or a cumulative preferential net cash dividend equal to 10% of the net profits of the group. Holders of the A ordinary shares also have preferred rights in the event of a return of capital.
The C ordinary shares are non-voting.
The directors consider all shares to be equity shares as a result of their right to dividends and capital. Accordingly the A shares are included as equity shares.
On 20 May 2003 the company bought back 2,400 C £1 ordinary shares for £2,400 (representing 1% of the called up share capital). On the same date 2,400 new C £1 ordinary shares were issued for cash of £50,000.
F-101
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
18. Reserves
Profit Account | Share Account | ||||
At 30 June 2002 | 3,528 | — | |||
Transfer to reserves | 3,188 | — | |||
Currency adjustments | (30 | ) | — | ||
Shares issued in year | — | 48 | |||
At 28 June 2003 | 6,686 | 48 | |||
19. Financial commitments
| 28 June 2003 | ||||
Land buildings | Other £’000 | |||
At 28 June 2003, the group was committed to making the following payments during the next year in respect of non-cancellable operating leases which expire; | ||||
within one year | — | 150 | ||
in two to five years | 111 | 202 | ||
in more than five years | 155 | — | ||
| 266 | 352 | |||
20. Related party transactions
Related party transactions with other group companies are not disclosed under the exemption in FRS 8 for subsidiaries at least 90% owned by their ultimate parent company.
21. Ultimate controlling party
The directors consider that Lloyds TSB Development Capital Limited is the ultimate controlling party as a result of its 75% shareholding in the company.
22. Differences between UK GAAP and US GAAP
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Kingdom (‘UK GAAP’). Such principles differ in certain respects from generally accepted accounting principles in the United States (‘US GAAP’). A summary of principal differences and additional disclosures applicable to the group is set out below.
F-102
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
| Explanation reference | Year ended 28 June 2003 £’000 | |||||
Profit attributable to shareholders under UK GAAP | 3,203 | |||||
US GAAP adjustments: | ||||||
Revenue recognition | (ii | ) | 128 | |||
Pensions | (iii | ) | (805 | ) | ||
Depreciation of tangible fixed assets | (iv | ) | 222 | |||
Amortization of intangible assets | (v | ) | (144 | ) | ||
Derivatives | (vi | ) | 90 | |||
Deferred taxation | (vii | ) | (153 | ) | ||
Net income under US GAAP | 2,541 | |||||
| Explanation reference | At 28 June 2003 £’000 | |||||
Equity shareholders’ funds under UK GAAP | 6,974 | |||||
US GAAP adjustments: | ||||||
Business combinations | (i | ) | (634 | ) | ||
Revenue recognition | (ii | ) | (530 | ) | ||
Pensions | (iii | ) | (10,895 | ) | ||
Depreciation of tangible fixed assets | (iv | ) | 956 | |||
Amortization of intangible assets | (v | ) | (1,020 | ) | ||
Deferred taxation | (vii | ) | 3,345 | |||
Shareholders’ deficit under US GAAP | (1,804 | ) | ||||
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
(i) Business combinations
On 3 July 2000 the group acquired the businesses of Bemrose Security & Promotional Printing and The Henry Booth Group. Under UK GAAP the acquisition was accounted for by the acquisition method.
Certain purchase accounting adjustments arose under US GAAP purchase accounting, which did not arise under UK GAAP. These include definite lived intangible assets comprising customer relationships, trademarks and the assembled workforce. Purchase accounting adjustments also arose on tangible fixed assets, inventory, pensions and a provision in respect of a discontinued business.
Under US GAAP purchase accounting, finished goods and work in progress inventory is valued on the basis of estimated selling price less selling costs and a selling margin. Raw materials are valued based upon their book costs as adjusted for any excess or obsolescence. The inventory write up at 3 July 2000 amounted to £1,013,000.
The provision in respect of a discontinued business relates to an operation where a decision had been taken to close prior to 3 July 2000. The business was closed in October 2000 and, under US GAAP purchase accounting principles, the costs to closure, amounting to £379,000, have been provided at the acquisition date.
F-103
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
As a result of the US GAAP purchase accounting entries negative goodwill arose at 3 July 2000. This has been rateably apportioned across the non-current assets in the balance sheet at that time.
(ii) Revenue recognition
The group manufactures certain products when ordered by customers, which are stored at the group’s premises as required by the customer for subsequent call off. Sales invoices are raised to the customer when the manufacturing process is complete and the products are placed into store. Under UK GAAP accounting the sale is recognised at this point, as the production contract with the customer is complete. Under US GAAP accounting, because certain risks remain with the group until the product is dispatched, the revenue cannot be recognised until this point in time. An adjustment has been made to reflect the impact on sales recognised under UK GAAP where the product remained on the group’s premises at the balance sheet date.
(iii) Pensions
Under UK GAAP, pension costs are accounted for under the rules set out in Statement of Standard Accounting Practice No. 24 (SSAP 24). Its objectives and principles are broadly in line with those set out in the US accounting standard for pensions, Statement of Financial Accounting Standard No. 87, “Employers’ Accounting for Pensions” (SFAS 87). However, SSAP 24 is less prescriptive in the application of the actuarial method and assumptions to be applied in the calculation of pension costs.
Under US GAAP, the annual pension cost comprises the estimated cost of benefits accruing in the period as determined in accordance with SFAS 87.
Under US GAAP purchase accounting principles, the SSAP 24 pension prepayment at 3 July 2000 and subsequent charges to the profit and loss account have been adjusted to their SFAS 87 equivalents. Under SFAS 87 the group recognised an additional minimum pension liability of £10,960,000 at 28 June 2003 together with the related deferred tax asset.
(iv) Depreciation of tangible fixed assets
Under US GAAP purchase accounting principles, tangible fixed assets were revalued at 3 July 2000. This revaluation together with the apportionment of negative goodwill arising at that date has reduced the subsequent depreciation charge in the profit and loss account.
(v) Amortization of intangible assets
Both UK and US GAAP require purchase consideration to be allocated to the net assets acquired at their fair value on the date of acquisition.
Under US GAAP, identifiable intangible assets are separately valued and amortized over their useful lives. The separately identifiable intangible assets included in the US GAAP balance sheet are principally comprised of trade marks, customer related intangibles and the assembled workforce.
The company adopted SFAS 142, “Goodwill and Other Intangible Assets” with effect from July 1, 2002 and accordingly the intangible asset in respect of the assembled workforce was transferred to goodwill and no longer amortised. Trademarks were assessed to be an indefinite lived intangible. The remaining customer related intangible asset continued to be amortized over its estimated useful life of nine years. For purchase transactions prior to July 1, 2002, goodwill was capitalized and amortized over its useful life. From July 1, 2002, in accordance with SFAS 142, the company no longer amortizes goodwill but rather tests such assets for impairment on an annual basis or where there is an indicator of impairment.
F-104
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
The company has completed the first step of the impairment test under the transitional requirements of SFAS 142 and an annual impairment review as of 28 June 2003. No impairment charge of goodwill was indicated.
(vi) Derivatives
In October 2000 the group entered into an interest rate swap for the period through to September 2002. The fair value of this derivative of £90,000 has, in accordance with US GAAP, been accounted for in the 29 June 2002 balance sheet.
(vii) Deferred taxation
Under UK GAAP, deferred taxation is provided in full on all material timing differences. Deferred tax assets are recognized where their recovery is considered more likely than not.
US GAAP requires deferred taxation to be provided in full, using the liability method. In addition, US GAAP requires the recognition of the deferred tax consequences of differences between the assigned values and the tax bases of the identifiable intangible assets, with the exception of non tax-deductible goodwill, in a purchase business combination. Consequently, the deferred tax liability attributable to all other timing differences, including identifiable intangible assets, has been recognized and is being amortized in line with the movements in the underlying assets and liabilities.
F-105
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
(viii) US GAAP shareholders’ funds roll forward
Shareholders’ funds roll forward prepared in accordance with US GAAP is as follows:
| £’000 | |||
Balance at beginning of year | 3,324 | ||
Net income | 2,541 | ||
Dividends | (15 | ) | |
Recognition of additional minimum pension liability net of taxation | (7,672 | ) | |
Net exchange movements | (30 | ) | |
Shares issued in the year | 50 | ||
Shares redeemed in the year | (2 | ) | |
Balance at end of year | (1,804 | ) | |
(ix) Cash flow statements
The consolidated cash flow statement has been prepared under UK GAAP in accordance with FRS 1 (revised) and presents substantially the same information as required under SFAS 95. There are certain differences between FRS 1 (revised) and SFAS 95 with regard to classification of items within the cash flow statement.
In accordance with FRS 1 (revised), cash flows are prepared separately for operating activities, returns on investments and servicing of finance, taxation, capital expenditure and financial investment, acquisitions and disposals, equity dividends paid, management of liquid resources and financing. Under SFAS 95, cash flows are classified under operating activities, investing activities and financing activities. Under FRS 1 (revised), cash is defined as cash in hand and deposits repayable on demand, less overdrafts repayable on demand. Under SFAS 95, cash and cash equivalents are defined as cash and investments with original maturities of three months or less.
A summary of the group’s cash flows from operating, investing and financing activities classified in accordance with SFAS 95 is presented below. For the purposes of this summary, the group considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.
| Year ended 28 June 2003 £’000 | |||
Net cash provided by operating activities | 6,735 | ||
Net cash used in investing activities | (1,765 | ) | |
Net cash used in financing activities | (1,970 | ) | |
Net increase in cash and cash equivalents | 3,000 | ||
Cash and cash equivalents at beginning of year | 1,945 | ||
Cash and cash equivalents at the end of the year | 4,945 | ||
Cash and cash equivalents at the end of the year are: | |||
Cash at bank and in hand | 4,945 | ||
(x) Impact of new accounting standards
In April 2003, the Financial Accounting Standards Board (FASB) issued SFAS 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS 149 amends and clarifies financial
F-106
BEMROSE GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS—(Continued)
FOR THE YEAR ENDED 28 JUNE 2003
accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS 133. This statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this statement is not expected to have a material effect on the company’s results.
In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that a company classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective for the first fiscal period beginning after December 15, 2003. The adoption of this statement is not expected to have a material effect on the company’s results.
In January 2003, the FASB issued FASB Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities.” This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, addresses consolidation by business enterprises of variable interest entities. FIN 46 explains the concept of a variable interest entity and requires consolidation by the primary beneficiary where there is a controlling financial interest in a variable interest entity or where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. In December 2003, the FASB released a revised version of FIN 46 (hereafter referred to as FIN 46R) clarifying certain aspects of FIN 46 and providing certain entities with exemptions from the requirements of FIN 46. FIN 46R applies immediately for the Company to variable interest entities created after December 31, 2003, and applies for the first reporting period beginning after December 15, 2004 to variable interest entities in which an enterprise holds a variable interest that was acquired before January 1, 2004. The Company is currently evaluating the impact of this statement.
23. Subsequent events (unaudited)
In December 2003, Appleton Papers Inc. acquired Bemrose Group Limited. The purchase price for this acquisition, net of cash acquired, approximated £34.5 million.
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