FOTHERGILL TYGAFLOR DIVISION OF COURTAULDS AEROSPACE LIMITED
ACCOUNTS
17 FEBRUARY 1995
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF CHEMFAB CORPORATION
WE HAVE AUDITED THE ACCOMPANYING BALANCE SHEETS OF THE FOTHERGILL TYGAFLOR
DIVISION OF COURTAULDS AEROSPACE LIMITED AS AT 17 FEBRUARY 1995 AND 31 MARCH
1994 AND THE RELATED PROFIT AND LOSS ACCOUNTS AND CASH FLOW STATEMENTS FOR THE
PERIODS THEN ENDED. THESE FINANCIAL STATEMENTS ARE THE RESPONSIBILITY OF THE
DIVISION'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE
FINANCIAL STATEMENTS BASED ON OUR AUDITS.
WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH UNITED KINGDOM AUDITING STANDARDS
WHICH DO NOT DIFFER IN ANY SIGNIFICANT RESPECT FROM THOSE GENERALLY ACCEPTED IN
THE 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. AN
AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT
ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL
STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDITS PROVIDES A REASONABLE BASIS
FOR OUR OPINION.
IN OUR OPINION, THE FINANCIAL STATEMENTS REFERRED TO ABOVE PRESENT FAIRLY, IN
ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF THE FOTHERGILL TYGAFLOR
DIVISION OF COURTAULDS AEROSPACE LIMITED AT 17 FEBRUARY 1995 AND 31 MARCH 1994
AND THE RESULTS OF ITS OPERATIONS AND ITS CASH FLOWS FOR THE PERIODS THEN ENDED,
IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
KINGDOM WHICH DIFFER IN CERTAIN RESPECTS FROM THOSE FOLLOWED IN THE UNITED
STATES (SEE NOTE 18 OF THE NOTES TO THE ACCOUNTS).
ERNST & YOUNG
CHARTERED ACCOUNTANTS
MANCHESTER
ENGLAND
28 APRIL 1995
PROFIT AND LOSS ACCOUNT
PERIOD YEAR
ENDED ENDED
17 FEBRUARY 31 MARCH
1995 1994
POUNDS POUNDS
NOTES STLG000 STLG000
TURNOVER 2 5,813 5,952
COST OF SALES 3,693 3,887
----- -----
GROSS PROFIT 2,120 2,065
ADMINISTRATIVE EXPENSES 1,304 1,290
----- -----
OPERATING PROFIT 3 816 775
INTEREST PAYABLE AND SIMILAR CHARGES 4 - -
----- -----
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 816 775
TAXATION ON PROFIT ON ORDINARY ACTIVITIES 6 270 260
----- -----
PROFIT FOR THE FINANCIAL PERIOD/YEAR 546 515
===== =====
A SUMMARY OF THE SIGNIFICANT ESTIMATED ADJUSTMENTS TO PROFIT FOR THE FINANCIAL
PERIOD/YEAR THAT WOULD BE REQUIRED HAD UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES BEEN APPLIED INSTEAD OF THOSE GENERALLY ACCEPTED IN
THE UNITED KINGDOM IS SET OUT IN NOTE 18 TO THE ACCOUNTS.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
THERE ARE NO RECOGNISED GAINS OR LOSSES OTHER THAN THE PROFIT OF POUNDS
STLG 546,000 FOR THE PERIOD ENDED 17 FEBRUARY 1995 AND THE PROFIT OF
POUNDS STLG 515,000 FOR THE YEAR ENDED 31 MARCH 1994.
BALANCE SHEET
17 FEBRUARY 31 MARCH
1995 1994
POUNDS POUNDS
NOTES STLG000 STLG000
FIXED ASSETS
TANGIBLE ASSETS 7 980 1,164
----- -----
CURRENT ASSETS
STOCK 8 1,104 1,327
DEBTORS 9 1,419 1,400
CASH AT BANK AND IN HAND 1,484 643
----- -----
4,007 3,370
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 10 867 952
----- -----
NET CURRENT ASSETS 3,140 2,418
----- -----
TOTAL ASSETS LESS CURRENT LIABILITIES 4,120 3,582
PROVISIONS FOR LIABILITIES AND CHARGES
DEFERRED TAXATION 11 123 131
----- -----
3,997 3,451
===== =====
NET WORTH
AS AT 1 APRIL 3,451 2,936
RETAINED PROFIT FOR THE FINANCIAL PERIOD/YEAR 546 515
----- -----
3,997 3,451
===== =====
A SUMMARY OF THE ESTIMATED SIGNIFICANT ADJUSTMENTS TO NET WORTH THAT WOULD BE
REQUIRED HAD UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES BEEN
APPLIED INSTEAD OF THOSE GENERALLY ACCEPTED IN THE UNITED KINGDOM IS SET OUT IN
NOTE 18 TO THE ACCOUNTS.
CASH FLOW STATEMENT
NOTES PERIOD YEAR
TO THE ENDED ENDED
CASH 17 FEBRUARY 31 MARCH
FLOW 1995 1994
STATEMENT POUNDS POUNDS
STLG000 STLG000
NET CASH INFLOW FROM OPERATING ACTIVITIES 1 1,135 955
----- -----
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
INTEREST PAID - -
----- -----
NET CASH INFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE - -
TAXATION
TAXATION PAID 3 (244) -
INVESTING ACTIVITIES
PAYMENTS TO ACQUIRE TANGIBLE FIXED ASSETS (50) (312)
----- -----
INCREASE IN CASH AND CASH EQUIVALENTS 2 841 643
===== =====
THE SIGNIFICANT DIFFERENCES BETWEEN THE CASH FLOW STATEMENT PRESENTED ABOVE AND
THAT REQUIRED UNDER UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IS
SET OUT IN NOTE 18 TO THE ACCOUNTS.
NOTES TO CASH FLOW STATEMENT
1. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
PERIOD YEAR
ENDED ENDED
17 FEBRUARY 31 MARCH
1995 1994
POUNDS POUNDS
STLG000 STLG000
OPERATING PROFIT 816 775
DEPRECIATION CHARGE 234 238
DECREASE/(INCREASE) IN STOCK 223 (102)
(INCREASE)/DECREASE IN DEBTORS (19) 141
(DECREASE) IN CREDITORS (119) (97)
----- -----
1,135 955
===== =====
2. ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS DURING THE PERIOD/YEAR
PERIOD YEAR
ENDED ENDED
17 FEBRUARY 31 MARCH
1995 1994
POUNDS POUNDS
STLG000 STLG000
BALANCE AT 1 APRIL 643 -
NET CASH INFLOW 841 643
----- -----
BALANCE AT 17 FEBRUARY/31 MARCH 1,484 643
===== =====
THE FOTHERGILL TYGAFLOR DIVISION DID NOT MAINTAIN ITS OWN BANK ACCOUNT BUT
UTILISED THE TOTAL FACILITIES OF THE PERFORMANCE FABRICS DIVISION. FOR THE
PURPOSES OF THESE ACCOUNTS IT HAS BEEN ASSUMED THAT THE DIVISION HAD NO CASH
AND BANK BALANCE AS AT 1 APRIL 1993. THE NET CASH INFLOWS IN THE YEAR TO 31
MARCH 1994 AND THE PERIOD TO 17 FEBRUARY 1995 ARE REFLECTED IN THE CASH AND
BANK BALANCES AS AT THOSE DATES.
3. TAXATION
THE TAXATION CHARGES IN THE PERIOD ENDED 17 FEBRUARY 1995 AND THE YEAR ENDED
31 MARCH 1994 ARE NOTIONAL CHARGES (SEE NOTE 1 TO THE ACCOUNTS).
TAXATION DUE IN RESPECT OF EARLIER PERIODS HAS NOT BEEN CALCULATED. AS A
RESULT NO PAYMENT OF CORPORATION TAX IS SHOWN IN THE CASH FLOW STATEMENT FOR
THE YEAR ENDED 31 MARCH 1994.
NOTES TO THE ACCOUNTS
as at 17 February 1995
1. ACCOUNTING POLICIES
Basis of preparation
Prior to 17 February 1995 the business was part of the Performance Fabrics
Division of Courtaulds Aerospace Limited. These accounts have been prepared on
the basis of the results and balances of the Performance Fabrics Division that
were included in the statutory accounts for Courtaulds Aerospace Limited for
the year ended 31 March 1994 and the management accounts of the Performance
Fabrics Division for the period ended 17 February 1995. The results and
balances relating to the Fothergill Tygaflor division have been extracted
from those accounts.
Allocation of common costs
Certain of the operating costs of the Performance Fabrics Division were not
specifically identified as relating to either the Fothergill Tygaflor division
or the other parts of the Division. These common costs have been allocated to
the business on the basis considered most appropriate. These bases include
turnover, headcount and site occupancy.
Accounting convention
The accounts have been prepared under the historical cost convention and in
accordance with applicable United Kingdom accounting standards.
Depreciation
Depreciation is calculated so as to write off the cost of tangible fixed assets
by equal instalments over their estimated useful lives at the following rates:
Motor vehicles 20% per annum
Plant and machinery 10% per annum
Micro computers 33 1/3% per annum
Mini computers 20% per annum
Fixtures and fittings 10% per annum
Depreciation is charged in the financial year following the year in which
assets are brought in to use, except for motor vehicles, which are depreciated
as from the year in which they are brought in to use. A full year's
depreciation is charged in the year of disposal. All computer software is
expensed on receipt and not capitalised and depreciated.
Stocks
Stocks are stated at the lower of cost incurred in bringing each product to its
present location and condition, and net realisable value as follows:
Raw materials, consumables and goods for resale - purchase cost on a first-in,
first-out basis
Work in progress and finished goods - cost of direct materials and
labour plus attributable
overheads based on a normal
level of activity.
Net realisable value is based on estimated selling price less any further costs
expected to be incurred to completion and disposal.
Taxation
The division has never incurred charges in respect of taxation as this was
previously accounted for by Courtaulds Aerospace Limited. For the purpose of
these accounts a notional tax charge has been calculated. These charges are
based on the results for the periods adjusted to reflect the different
treatment of certain items for taxation purposes and the rates of UK
corporation taxation.
It has been assumed that the notional taxation charges calculated were paid
nine months after the end of the financial year.
Deferred taxation
Notional deferred taxation is provided using the liability method on all timing
differences which are expected to reverse in the future without being replaced,
calculated at the rate at which it is anticipated the timing differences will
reverse.
Foreign currencies
Assets and liabilities in foreign currencies are translated into pounds stlg
at the rate of exchange ruling at the period end or more usually at the forward
cover rate. Profits and losses on exchange arising in the normal course of
trading are dealt with in the profit and loss account.
Leases
Rentals payable under operating leases are charged to the profit and loss
account in the period in which they fall due.
Pensions costs
The expected cost of pensions is charged to the profit and loss account so as
to spread the cost of pensions over the service life of employees in the
pension scheme. Variations from the regular cost are spread over the expected
remaining service lives of current employees in the scheme.
Research and development
Expenditure on research and development is charged to the profit and loss
account in the year in which it is incurred.
2. TURNOVER
Turnover represents the net invoiced value of goods and services sold,
excluding value added tax.
3. OPERATING PROFIT
This is stated after charging/(crediting): Period Year
ended ended
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Depreciation of fixed assets 234 238
Research and development expenditure 179 249
Hire of plant and machinery 71 96
Exchange gain on foreign currency transactions (2) 51
===== =====
4 INTEREST PAYABLE AND SIMILAR CHARGES
Period Year
ended ended
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Interest payable on bank loans and overdrafts wholly
repayable within five years - -
===== =====
5. STAFF COSTS
Period Year
ended ended
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Wages and salaries 1,587 1,518
Social security costs 130 150
Other pension costs - -
----- -----
1,717 1,668
===== =====
The average weekly number of employees during the period was as follows:
Period Year
ended ended
17 February 31 March
1995 1994
No. No.
Production 59 55
Administration 41 44
----- -----
100 99
===== =====
6. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
Period Year
ended ended
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Based on the profit for the year:
Corporation tax at 33% (1994: 33%) 278 244
Deferred taxation (8) 16
----- -----
270 260
===== =====
7. TANGIBLE FIXED ASSETS
Furniture Plant and
and fixtures machinery Total
POUNDS POUNDS POUNDS
STLG000 STLG000 STLG000
Cost:
At 1 April 1994 511 1,336 1,847
Additions 29 21 50
----- ----- -----
At 17 February 1995 540 1,357 1,897
----- ----- -----
Depreciation:
At 1 April 1994 204 479 683
Charge for the year 142 92 234
----- ----- -----
At 17 February 1995 346 571 917
----- ----- -----
Net book value:
At 17 February 1995 194 786 980
===== ===== =====
At 31 March 1994 307 857 1,164
===== ===== =====
8. STOCKS
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Raw materials 185 198
Work in progress 333 506
Finished goods 586 623
----- -----
1,104 1,327
===== =====
9. DEBTORS
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Trade debtors 1,392 1,371
Prepayments and accrued income 27 29
----- -----
1,419 1,400
===== =====
10. CREDITORS: amounts falling due within one year
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Trade creditors 445 600
Corporation tax 278 244
Other taxes and social security costs 57 52
Accruals and deferred income 87 56
----- -----
867 952
===== =====
11. DEFERRED TAXATION
Deferred taxation provided in the accounts and the amounts not provided are as
follows:
Provided Not provided
17 February 31 March 17 February 31 March
1995 1994 1995 1994
POUNDS POUNDS POUNDS POUNDS
STLG000 STLG000 STLG000 STLG000
Accelerated capital allowances 123 131 - -
Other timing differences - - - -
----- ----- ----- -----
123 131 - -
===== ===== ===== =====
12. CAPITAL COMMITMENTS
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Contracted - 5
===== =====
Authorised but not contracted 1 22
===== =====
13. OTHER FINANCIAL COMMITMENTS
At 17 February 1995 the division had annual commitments under non-cancellable
operating leases as set out below:
17 February 31 March
1995 1994
Land and Land and
buildings Other buildings Other
POUNDS POUNDS POUNDS POUNDS
STLG000 STLG000 STLG000 STLG000
Operating leases which expire:
within one year - 4 - 14
within two to five years - 66 - 42
in over five years - - - -
----- ----- ----- -----
- 70 - 56
===== ===== ===== =====
14. ULTIMATE HOLDING COMPANY
Prior to 17 February 1995 the division was part of Courtaulds Aerospace Limited
which is a wholly owned subsidiary of Courtaulds plc, a company incorporated in
the United Kingdom.
15. RELATED PARTY TRANSACTIONS
The division purchases high performance fabric and other raw material from
fellow divisions of Courtaulds plc. These purchases are recorded at cost and
do not include any commercial margin. The total of such purchases in the
period ended 17 February 1995 were Pounds Stlg 710,000 and in the year ended
31 March 1994 were Pounds Stlg 605,000. The amounts due to fellow divisions
at 17 February 1995 was Pounds Stlg 175,000 and at 31 March 1994 was Pounds
Stlg 132,000.
16. PENSIONS
Eligible employees are members of the Courtaulds plc defined benefit pension
scheme with assets held in separate trustee administered funds.
The scheme was valued by independent actuaries as at 31 March 1993.
The valuation used the projected unit method and was carried out on two
different bases, using a conservative set of actuarial assumptions for funding
purposes and a best estimate set for accounting purposes (as required by SSAP
24). After allowing for benefit improvements announced in December 1993, and
future increases in pensionable remuneration, the actuarial value of the assets
was sufficient to cover the benefits that had accrued to members by 114% on the
funding basis and by 124% on the SSAP 24 basis. The market value of the Scheme
assets at the date of the valuation was Pounds Stlg 883 million. The principal
actuarial assumptions used in the valuation were:
Funding SSAP 24
basis basis
Long term annual rate of return on investments 9.5% 10.0%
Annual increase in dividends 5.0% 5.5%
Average annual increase in total pensionable remuneration 7.5% 7.5%
Average annual increase in present and future pension payments 5.0% 5.0%
Period Year
ended ended
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Regular cost 102 105
Variation from regular cost (102) (105)
----- -----
Net charge to operating profit - -
===== =====
17. COMPANIES ACT 1985
These accounts do not constitute statutory accounts within the meaning of
section 240 of the Companies Act 1985, as amended, of Great Britain insofar as
such accounts have to comply with the disclosure and other provisions of that
Act.
18. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The company's financial statements are prepared in accordance with accounting
principles generally accepted in the United Kingdom ("UK GAAP") which differ in
certain respects from United States generally accepted accounting principles
("US GAAP"). The following significant differences apply to the company.
Pensions
Pension costs, based on actuarial assumptions and methods, are charged in the
financial statements so as to allocate the cost of providing benefits over the
service lives of employees in a consistent manner approved by the actuary. US
GAAP as set out in Financial Accounting Standards 87 prescribes the method of
actuarial valuation and also requires assets to be assessed at fair value and
the assessment of liabilities to be based on current interest rates.
The calculations in accordance with Financial Accounting Standards 87 are as
follows:
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Actuarial present value of accumulated benefit obligation (1,573) (1,286)
----- -----
Actuarial present value of projected benefit obligation
(PBO) for services rendered to date (2,178) (1,759)
Plan assets at fair value 1,923 1,925
----- -----
Funded status (excess of plan assets over the PBO) (255) 166
Unrecognised net (gain)/loss from past experience different
from that assumed and effects of changes in assumptions 208 (145)
Prior service cost not yet recognised in net periodic
pension cost 30 32
Unrecognised net transition (asset)/obligation (109) (118)
----- -----
Prepaid/(accrued) pension costs (126) (65)
===== =====
Period Year
ended ended
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Service cost benefits earned during the period 89 96
Interest cost on projected benefit obligation 131 139
Actual return on plan assets (6) (239)
Net amortisation and deferral (153) 69
----- -----
Net periodic pension cost (NPPC) 61 65
===== =====
The assumptions used in the above calculations differ from those used for UK
GAAP purposes mainly due to the market value bias under US GAAP. The principal
financial assumptions used to calculate the above figures are set out below:
Valuation date 17 February 1 April
1995 1994
Expected long term rate of return on scheme assets 9.5% 9.0%
Discount rate 9.0% 8.5%
Rate of increase in compensation levels 7.0% 6.5%
Rate of increase of pensions in payment 5.0% 4.5%
Cash flow statement
The cash flow statement included in these accounts presents substantially the
same information as that requested under US GAAP by US Statement of Financial
Accounting Standards 95, "Statement of Cash Flows". These standards differ,
however, with regard to classification of items within the statement and as
regards the definition of cash and cash equivalents.
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, investing activities
and financing activities. US GAAP, however, requires only three categories of
cash flow activity to be reported: operating, investing and financing. Cash
flows from taxation and servicing of finance and returns on investments shown
under UK GAAP would be included as operating activities under US GAAP.
Reconciliation
The following is a summary of adjustments to profit which would be required if
US GAAP had been applied instead of UK GAAP.
Period Year
ended ended
17 February 31 March
1995 1994
POUNDS POUNDS
STLG000 STLG000
Profit on ordinary activities before tax Pension 816 775
costs (61) (65)
----- -----
Income before tax according to generally accepted
accounting principles in the United States 755 710
===== =====
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No 2-89831 and No 33-61946 and Form S-3 No 33-18264) pertaining
to the 1986 Stock Option Plan, the 1991 Stock Option Plan and the 1991
Chemfab Employee Stock Option Plan and the 1986 Stock Option Plan and the
1983 Incentive Stock Option Plan, respectively, of Chemfab Corporation of our
report dated 28 April 1995 with respect to the financial statements of the
Fothergill Tygaflor division of Courtaulds Aerospace Limited included in the
Current Report (Form 8-K/A) dated 5 May 1995 of Chemfab Corporation filed
with the Securities and Exchange Commission.
Ernst & Young
Chartered Accountants
Manchester
England
4 May 1995