===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 20-F
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-30932
REGUS PLC
(Exact Name of Registrant as Specified in Its Charter)
England and Wales
(Jurisdiction of Incorporation or Organization)
3000 Hillswood Drive
Chertsey KT16 0RS, England
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
American Depositary Shares evidenced by American Depositary Receipts, each
representing five Ordinary Shares, nominal value 5p per share
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
-----------------
The number of outstanding shares in the capital of Regus plc as of
December 31, 2000:
580,676,185 Ordinary shares
-----------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 |_| Item 18 |X|
===============================================================================
TABLE OF CONTENTS
Page
----
Introduction
Forward-Looking Statements..........................................1
Certain Information.................................................1
Part I Item 1 Identity of Directors, Senior Management
and Advisers.................................Not applicable
Item 2 Offer Statistics and Expected Timetable......Not applicable
Item 3 Key Information...........................................2
Selected Financial Data..............................2
Risk Factors.........................................4
Item 4 Information on the Company................................9
History and Development of Regus plc.................9
Business Overview...................................10
Organizational Structure............................17
Properties..........................................19
Item 5 Operating and Financial Review and Prospects.............21
Operating Results...................................21
Liquidity and Capital Resources.....................32
Prospects...........................................34
Item 6 Directors, Senior Management and Employees...............35
Directors and Senior Management.....................35
Compensation........................................37
Board Practices.....................................37
Employees...........................................43
Share Ownership.....................................43
Item 7 Major Shareholders and Related Party Transactions........52
Major Shareholders..................................52
Related Party Transactions..........................55
Item 8 Financial Information....................................55
Consolidated Statements and Other Financial
Information.......................................55
Legal Proceedings...................................56
Significant Changes.................................56
Item 9 Listing Details..........................................56
Market Price Information............................56
Markets.............................................57
Item 10 Additional Information ..................................57
Memorandum and Articles of Association..............57
Material Contracts..................................57
Taxation............................................57
Documents on Display................................62
Item 11 Quantitative and Qualitative Disclosures about
Market Risk..............................................62
Currency Translation Risk...........................62
Currency Transaction Exposure Risk..................62
Counter Party Risk..................................62
Funding and Deposits................................62
Interest Rate Risk..................................63
Item 12 Description of Securities Other Than Equity
Securities...................................Not applicable
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..............................63
Use of Proceeds.....................................63
Part III Item 18 Financial Statements....................................F-1
Item 19 Exhibits..............................................III-1
INTRODUCTION
Forward-looking Statements
This annual report contains forward-looking statements. These
forward-looking statements are not historical facts, but rather are based on
our current expectations, estimates and projections about our industry, our
beliefs and assumptions. Words such as "anticipates", "expects", "intends",
"plans", "believes", "seeks", "estimates" and similar expressions are intended
to identify forward-looking statements. These statements are not guarantees of
future performance and are subject to risks, uncertainties and other factors,
some of which are beyond our control, are difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in the
forward-looking statements. These risks and uncertainties are described in
"Item 3. Key Information--Risk Factors" and elsewhere in this annual report. We
caution you not to place undue reliance on these forward-looking statements,
which reflect our management's view only as of the date of this annual report.
Certain Information
As used in this annual report, "we", "us", "our", the "Company" and
"Regus" refer to Regus plc and its subsidiaries, except where it is clear that
such terms mean only Regus plc.
We publish our consolidated financial statements in UK pounds sterling. In
this annual report, references to "pounds sterling", "pounds", "(pound)",
"pence" and "p" are to the currency of the UK and references to "US dollars",
"dollars", "$", "cents", or "c" are to the currency of the US. See "Item 3. Key
Information--Selected Financial Data--Exchange Rate Information" for historical
information regarding the noon buying rates in The City of New York for cable
transfers in pounds as certified for customs purposes by the Federal Reserve
Bank of New York with respect to the pound. You should not construe these
translations as representations that the pound amounts actually represent such
US dollar amounts or could have been or could be converted into US dollars at
the rates indicated or at any other rates.
This annual report includes product names and other trade names, logos and
trade marks, either registered or with respect to which applications are
pending, of Regus and of other companies.
Various amounts and percentages set out in this annual report have been
rounded and accordingly may not total.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
Our selected financial data at December 31, 1999 and 2000 and for the
years ended December 31, 1998, 1999 and 2000 have been derived from our
consolidated financial statements prepared in accordance with generally
accepted accounting principles in the United Kingdom or UK GAAP and included in
this annual report. Our consolidated financial statements have been audited by
KPMG Audit Plc, independent accountants. Our summary financial data for the
years ended December 31, 1996 and 1997 and at December 31, 1996, 1997 and 1998
have been derived from our consolidated financial statements that are not
included in this annual report. You should read the following data with the
more detailed information contained in "Item 5, Operating and Financial Review
and Prospects" included herein.
We prepare our accounts in accordance with UK GAAP, which differs in
significant respects from generally accepted accounting principles in the
United States or US GAAP. For a discussion of significant differences between
UK GAAP and US GAAP and a reconciliation to US GAAP of many of the amounts, see
note 27 to the consolidated financial statements.
Year ended December 31,
----------------------------------------------------------------------------
1996 1997 1998 1999 2000 2000(1)
---------- ------------ ------------ ------------ ---------- -----------
(pound) (pound) (pound) (pound) (pound) $
(in millions except per share data)
Amounts under UK GAAP:
Income Statement Data:
Revenue (including share of joint venture)....... 32.9 58.8 111.6 200.6 429.2 641.9
Less: Share of revenue in joint venture(2)....... - - - -(3) (8.1) (12.1)
---------- ------------ ------------ ------------ ---------- -----------
Total revenue.................................... 32.9 58.8 111.6 200.6 421.1 629.8
Cost of sales (center costs)..................... (29.7) (50.3) (97.2) (183.5) (320.8) (479.8)
---------- ------------ ------------ ------------ ---------- -----------
Gross profit (center contribution)............... 3.2 8.5 14.4 17.1 100.3 150
Administration expenses.......................... (8.3) (13.1) (29.6) (60.0) (86.9) (129.9)
Exceptional item(4).............................. - - - (5.1) (9.5) (14.2)
---------- ------------ ------------ ------------ ---------- -----------
Operating income (loss).......................... (5.1) (4.6) (15.2) (48.0) 3.9 5.9
Share of operating loss in joint venture(2)...... - - - (0.1) (1.0) (1.5)
---------- ------------ ------------ ------------ ---------- -----------
Total operating income (loss).................... (5.1) (4.6) (15.2) (48.1) 2.9 4.3
Net interest payable............................. (0.6) (1.8) (2.0) (6.8) (6.8) (10.1)
---------- ------------ ------------ ------------ ---------- -----------
Loss on ordinary activities before tax........... (5.7) (6.4) (17.2) (54.9) (3.9) (5.8)
Tax on loss on ordinary activities............... (0.2) (0.5) (0.8) (1.5) (9.9) (14.8)
---------- ------------ ------------ ------------ ---------- -----------
Loss on ordinary activities after tax............ (5.9) (6.9) (18.0) (56.4) (13.8) (20.6)
Minority interests............................... - (5) 0.1 - 0.3 0.4
---------- ------------ ------------ ------------ ---------- -----------
Net income (loss)................................ (5.9) (6.9) (17.9) (56.4) (13.5) (20.2)
========== ============ ============ ============ ========== ===========
Year ended December 31,
----------------------------------------------------------------------------
1996 1997 1998 1999 2000 2000(1)
---------- ------------ ------------ ------------ ---------- -----------
(pound) (pound) (pound) (pound) (pound) $
(in millions except per share data)
Net income (loss) per share - basic and fully (0.01) (0.02) (0.04) (0.12) (0.03) (0.04)
diluted..........................................
Net income (loss) per ADS - basic................ (0.07) (0.09) (0.21) (0.60) (0.14) (0.20)
- fully diluted........ (0.07) (0.09) (16) (0.60) (0.13) (0.19)
Weighted average number of shares outstanding
(in thousands)............................. 400,000 400,000 427,729 469,486 497,889 497,889
Balance Sheet Data (at period end):
Fixed assets..................................... 11.2 24.0 54.7 126.8 244.6 365.8
Cash............................................. 3.5 14.8 48.0 72.1 169.8 254.0
Total assets..................................... 21.6 53.0 142.2 268.3 544.4 814.1
Other net current liabilities(6)................. (14.5) (32.7) (59.9) (120.4) (187.9) (281.3)
Creditors: amounts falling due after more (9.8) (22.8) (29.1) (102.4) (23.1) (34.5)
than one year..............................
Minority interests............................... (0.1) (0.1) (0.2) (0.2) (0.4) (0.6)
Equity shareholders' funds (deficit)............. (9.5) (16.6) 13.9 (23.7) 203.1 304.0
Year ended December 31,
----------------------------------------------------
1998 1999 2000 2000
----------- ---------- --------- ------------
(pound) (pound) (pound) $
(in millions except per share data)
Amounts under US GAAP:
Income Statement Data:
Net sales........................................ 111.6 200.6 421.1 629.8
Net income (loss)................................ (16.4) (70.6) (16.8) (25.2)
Net income (loss) per share basic and fully (0.04) (0.15) (0.03) (0.05)
diluted........................................
Net income (loss) per ADS - basic and diluted ... (0.19) (0.75) (0.17) (0.25)
Balance Sheet Data (at period end):
Total assets..................................... 143.3 270.7 499.3 746.7
Long-term liabilities............................ (34.1) (110.9) (23.8) (35.7)
Cash (including restricted cash)(7).............. 48.0 72.1 169.8 254.0
Equity shareholders' funds (deficit)............. 10.0 (29.9) 168.7 252.4
- ---------
(1) Pounds sterling amounts for 2000 have been translated into US dollars
using the noon buying rate in effect on December 31, 2000 of (pound) 0.67 =
$1.00. For the convenience of the reader, such information is unaudited.
(2) Includes our 50% interest in Regus Equity Business Centers LLC, our joint
venture in the US with Equity Office Properties Trust, accounted for under
the equity method of accounting.
(3) Constituted revenue of (pound) 9,000 in 1999.
(4) Included costs associated with our postponed flotation on the London Stock
Exchange in 1999 and costs associated with the reduction of the reward
employee share options in 2000.
(5) Constituted a loss of (pound) 13,000 in 1997.
(6) Other net current liabilities are current assets (excluding cash) less
current liabilities.
(7) Restricted cash is primarily deposits held as security for lease
guarantees and represented (pound) 8.2 million at December 31, 1998,
(pound) 22.0 million at December 31, 1999, and (pound) 40.9 million at
December 31, 2000.
Exchange Rate Information
The tables below set forth, for the periods indicated, information
concerning the noon buying rates for pounds, expressed in US dollars per pound.
Year ended December 31,
- ----------------------- Period
Average(1) Period End
------------ ------------
1996....................................... 1.57 1.71
1997....................................... 1.64 1.64
1998....................................... 1.66 1.66
1999....................................... 1.61 1.62
2000....................................... 1.51 1.50
2001 (through June 27)..................... 1.44 1.42
(1) The average of the noon buying rates on the last day of each full month
during the period.
Month
- ----- High Low
------------ ------------
December 2000.............................. 1.50 1.44
January 2001............................... 1.50 1.46
February 2001.............................. 1.48 1.44
March 2001................................. 1.47 1.42
April 2001................................. 1.45 1.42
May 2001................................... 1.44 1.41
June 2001 (through June 27)................ 1.42 1.37
RISK FACTORS
You should carefully consider the risks described below as well as the
other information contained in this annual report in evaluating us and our
business. If any of the following risks actually occurs, our business,
financial condition or results of future operations could be significantly
harmed. In that case, the trading price of our shares and ADSs could decline
and you may lose all or part of your investment. This annual report contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements as a result of many factors, including the risks faced by us
described below and elsewhere in this annual report. You should also refer to
the other information in this annual report, including our consolidated
financial statements and the related notes.
Risks Associated with the Serviced Office Market
We face competition, and if we are unable to compete effectively, we may be
unable to maintain or expand our network of centers and we may lose customers
Barriers to entry into the serviced office market at the local level are
low. Although barriers to establishing a national or international network are
higher, we cannot assure you that these barriers will remain or will deter new
entrants or existing competitors, some of whom have announced expansion plans.
In addition, there is the potential for local operators to overcome these
barriers to establishing wider networks by forming alliances. There is also the
potential for property companies, hotel operators or other companies to enter
the market, either alone or in collaboration with service providers such as us.
If we are unable to respond adequately to the competitive challenges we face or
establish a sustainable competitive advantage, we may be unable to maintain or
expand our network of
centers and we may lose market share. In addition, we cannot assure you that in
more competitive markets there will not be pressure on our prices, causing an
adverse impact on our revenue and profitability.
The concept of serviced offices may not be widely accepted in all markets
The acceptance of the concept of serviced offices is at varying stages of
development across the different geographical regions in which we operate. For
example, in many less developed countries, such as Russia and China, serviced
offices are a relatively new concept while in the UK, the US and Western
Europe, the serviced office market is more developed. However, even in these
more developed markets, the serviced office market represents only a small
percentage of the entire office market. We cannot assure you that the concept
will become increasingly accepted around the world. If the concept is not more
widely accepted in areas where we operate our centers, our revenue and
profitability could be adversely affected.
Current drivers of the growth of the serviced office market may not develop
as expected and could hinder market demand for serviced offices
There can be no assurance that the factors that we expect to drive the
growth of the serviced office market in the future will in fact do so. For
example, the trends towards globalization of trade and increased outsourcing of
office and related services may not develop as expected.
Changes in the structure of the property industry could reduce demand for
serviced offices
In some markets, the attraction of our products derives in part from the
long length of leases for traditional office space. A shortening of normal
lease terms or other changes in the property market could make serviced offices
less attractive to customers.
Changes in work practices and technological advances could be detrimental
to our business
Changes in work practices could occur which are detrimental to our
business, such as a move to working at home where office infrastructure is not
necessary. In addition, technological advances could occur that facilitate this
shift to working at home. For example, improvements in the connectivity of
homes around the world could allow employees of our current and potential
customers to participate in video conferences at home or participate in virtual
meetings from home using broadband Internet or other technologies.
Technological advances could require us to make substantial investments to
maintain our competitive position
We provide our customers with access to information technology and
telecommunications equipment and infrastructure for use in their businesses. We
cannot assure you that there will not be significant developments in the
technology which businesses use that would require us to make a further
substantial investment in new technology to maintain our competitive position
or which would adversely affect the attraction of our products.
Risks Associated with Regus
If demand for our business services falls, our profitability will be
disproportionately affected due to the long-term nature of our lease
commitments
We lease substantially all of our properties. The length of our leases or
the period after which we can exercise any break option in the leases is nearly
always longer, and usually significantly longer, than the duration of our
contracts with customers, the majority of which are for the short-term leasing
of serviced office space between one and twelve months. If demand falls,
whether as a result of economic conditions or otherwise, we may be unable to
build or maintain occupancy or prices. If revenues decline, we would not
immediately be able to reduce our lease cost base and would also be constrained
in doing so over the long term. Some of our leases contain restrictions that
would prevent us from transferring the lease or assigning the premises.
Additionally, significant costs could be incurred if we were to dispose of
unprofitable centers. A reduction in revenues would also result in a negative
impact on our cash flow, as a consequence of the nature of our working capital
cycle.
Due to the concentration of our business centers in the UK and Ireland,
adverse economic conditions in the UK and Ireland could cause our business to
suffer
Currently, our most profitable geographic segments, is the UK and Ireland
segment. The UK and Ireland accounted for approximately 42% of our revenues in
2000. Adverse economic conditions in the UK could have a material adverse
effect on our results of operations and financial condition.
We are dependent on our Chief Executive
We believe that our future success depends on the continued service of
Mark Dixon, our Chief Executive and the founder of our business. While we have
an employment agreement with him, this agreement does not prevent him from
terminating his employment at any time on 12 months' notice. If we lose Mark
Dixon without suitable replacement, our business and future operations may by
adversely affected.
Our rapid growth has placed a strain on our operational, financial and other
resources, and if we fail to successfully handle future growth, we may be
unable to execute our business plan
The rapid growth of our network of centers has placed, and we expect it
will continue to place, strain on our operational and financial resources and
personnel. Due to the pace of our expansion, we need to recruit and train a
significant number of employees, imposing considerable strains on many of our
operational areas. The loss of employees or the potential inability to recruit
employees in sufficient numbers to meet our business objectives or the failure
of management, sales, financial or other functions to cope with our growth
could have a material adverse effect on our financial condition and results of
operations. In addition, as a result of our rapid growth, our operating costs,
including start-up costs and sales and marketing expenses, and capital
expenditures, relating to the fit-outs of our new centers, have increased. As
we continue to grow, we expect our operating costs and capital expenditures to
continue to increase.
Our growth will be limited if we are not able to secure appropriate
properties on suitable terms
We aim to establish business centers in prime locations. The availability
of suitable property may be restricted from time to time in markets and cities
depending upon overall demand for new office space, the supply of newly built
office space, which can have extended lead times, and local planning and zoning
regulations. Accordingly, we cannot assure you that we will continue to be able
to secure appropriate properties on suitable terms, or at all, in our chosen
markets.
Our leases contain upward only rent reviews that could adversely impact our
cost base
We are exposed to movements in property markets. All of our UK leases,
together with a small number of other leases, contain provisions for upward
only rent reviews linked to open market rents that could adversely impact our
cost base. These rent reviews have potential increased cost implications in
periods of relatively high rents. If open market rents were to decrease, the
rent payable by us under these leases would stay the same as that for the prior
period and would not decrease in line with open market rents. We cannot assure
you that we will be able to maintain our margins in these circumstances.
Likewise, in the event of a reduction in the prices that we charge our
customers, whether as a result of a reduction in demand for serviced offices or
otherwise, we would not be entitled to reduce the rent payable by us, even
following rent reviews. In addition, the majority of our other leases contain
upward only rent reviews which are fixed or are linked to the consumer price
index or other inflation-related indices.
We are exposed to foreign exchange, economic and, in some instances,
political risks as well as other geographical risks related to the 48 countries
in which we operate, which could cause an adverse impact on our business
We operate business centers in 48 countries around the world and our
overall success as a global business depends, in part, upon our ability to
succeed in differing economic, social and political conditions. We are
confronted with different legal and regulatory requirements in many
jurisdictions. These include, but are not limited
to, different tax regimes, laws relating to health and safety, and laws
relating to the repatriation of funds or nationalization of assets. Our
international operations also expose us to different local business risks and
challenges, such as exchange rate risks in translating non-sterling profits,
management and control of an international organization and other political
risks. Our expansion in the US as well as in emerging markets requires us to
respond to rapid changes in market conditions in these countries. We cannot
assure you that we will continue to succeed in developing and implementing
policies and strategies that are effective in each country where we do
business. In addition, there can be no assurance that any of the foregoing
factors will not have a material adverse effect on our results of operations
and financial condition.
We may incur significant costs related to the refurbishment of our centers
or the reinstatement of the properties we rent
We have not undertaken a major refurbishment exercise to date since the
majority of our centers have been opened in the last few years. We anticipate
that we will be required to refurbish those of our business centers that are
more than seven to nine years old, but we cannot assure you that the costs,
timing or disruption of refurbishment will not impact our business to an extent
greater than anticipated.
In addition, the terms of most building leases require us to ensure that a
property is kept in good repair throughout the lease term and that alterations
carried out to the premises are reinstated at the end of the lease term. We
cannot assure you that reinstatement costs and, if Regus has failed to comply
with its repairing obligations during the lease term, full repairing costs will
not be incurred on termination of such leases, causing an adverse impact on our
results of operations and financial condition.
You may have difficulty assessing our business because the serviced office
market is a developing and rapidly evolving sector and there are very few other
public companies in this sector
As a company in the serviced office market, you may have difficulty
assessing our business because this market is a developing and rapidly evolving
sector and there are very few other public companies in this sector. In
addition, we believe that none of these other public companies is comparable to
us for reasons related to their geographical focus and corporate structure.
Performance and trends are therefore more difficult to assess than in many
other more established sectors.
Due to our expansion of our network of centers in the US, adverse economic
conditions in the US could cause our business to suffer
Currently, as part of our growth strategy, we intend to expand our network
of centers, especially in the US. If we execute this strategy, adverse economic
conditions in the US could have a material adverse effect on our results of
operations and financial condition.
The rapid expansion of our network of centers may not increase our revenue
if we misjudge customer demand for these new centers or these new centers
cannibalize our revenue from neighboring centers
We are rapidly expanding our network of centers in response to specific
customer requirements or expectations that demand can be developed to fill
additional centers. A misjudgment by us as to the timing of customer demand for
such new centers, or the consequent impact on existing centers in neighboring
areas, could have a material short term impact on the profitability of our
centers.
You should not rely on our quarterly operating results as an indication of
our future results because they are subject to significant fluctuations
Our results of operations may fluctuate significantly on a quarterly basis
due to a variety of factors, including:
o the timing of opening new centers;
o capital expenditure relating to the expansion of our network of
centers and periodic refurbishment of existing centers;
o changes in revenue and working capital caused by changes in pricing,
occupancy or other business conditions; and
o increases in costs, including employment costs.
Accordingly, you should not rely on quarter-to-quarter comparisons of our
results of operations as an indication of our future performance.
Risks Associated with the ADSs
We are subject to the control of Mark Dixon
Our Chief Executive, Mark Dixon, through Maxon Investments BV, owns
beneficially 61% of our issued shares. As the majority shareholder, he is able
to exercise significant control over our operations, including the election of
our board of directors, the declaration of some dividends, the approval or
disapproval of major corporate transactions and the determination of other
matters to be decided by the holders of our shares. Our business goals and
those of Mr. Dixon may not always remain aligned. As a result, the market price
of our shares and ADSs could be adversely affected.
Substantial sales of our shares or ADSs could cause the price of our shares
and ADSs to decline
There can be no assurance that our directors and executive officers, Maxon
Investments BV or other existing shareholders will not elect to sell shares.
The market price of our shares and ADSs could decline as a result of any sales
of shares by our directors, executive officers or shareholders or the
perception that these sales could occur. If these, or any other, sales were to
occur, we may have difficulty in selling securities in the future at a time or
at a price we deem appropriate.
Your rights as shareholders are governed by English law, which significantly
limits your rights to bring derivative actions and may make it more difficult
for you to win US securities law claims against us
We are a public limited company incorporated under the laws of England and
Wales. The rights of holders of shares and, therefore, many of the rights of
ADS holders, are governed by English law and by our memorandum and articles of
association. These rights differ from the rights of shareholders in typical US
corporations. In particular, English law significantly limits the circumstances
under which shareholders of English companies may bring derivative actions.
Under English law generally, only we can be the proper claimant in proceedings
in respect of wrongful acts committed against us. In addition, it may be
difficult for you to prevail in a claim against us under, or to enforce
liabilities predicated upon, US securities laws.
The depositary is not responsible for any failure to carry out voting
instructions of ADR holders
The depositary will not be responsible for failing to carry out
instructions to vote the ADRs or for the manner in which the ADRs are voted or
the effect of the vote.
Holders of our ADRs may incur fees that holders of capital stock may
not incur
ADR holders may be charged a fee for issuances of ADRs resulting from
distributions of shares, rights and other property and for each surrender of
ADRs in exchange for deposited securities. ADR holders or persons depositing
shares also may be charged cable, telex, facsimile, delivery and foreign
currency conversion charges of the depositary. We pay all other charges and
expenses of the depositary and any agent of the depositary other than the
custodian.
We may amend the deposit agreement without the consent of the ADR holders
We and the depositary may amend the deposit agreement without the consent
of the ADR holders. No amendment may impair the rights of ADR holders to
surrender the ADRs and receive the underlying securities. ADR holders must be
given 30 days notice of any amendment that affects any substantial existing
right or imposes or increases any fees or charges, except for taxes and other
charges specified in the deposit agreement.
ITEM 4. INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF REGUS PLC
History
Our business was founded in 1989 by Mark Dixon, our Chief Executive,
shortly before we opened our first business center in Brussels. Our business
growth accelerated after we merged our operations with the slightly larger
organization owned by Reinhold City A.B. in 1990. In 1992, an investment
vehicle owned by Mark Dixon, Maxon Investments BV, bought out the majority
shareholder. By the end of 1992, we operated 11 centers in eight countries
through operating companies owned by Regus Business Centers BV. The following
table shows our expansion since 1992. Due to our rapid expansion, comparisons
with prior periods may not be meaningful.
Year ended December 31,
---------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999 2000
------ ------ ------ -------- ------- -------- ---------- -------- ----------
Centers(1)........... 11 16 24 35 58 97 155 245 335
Workstations(2)...... N/A N/A N/A 2,884 5,152 9,157 16,293 29,777 50,333
Countries............ 6 8 14 16 22 23 30 45 48
Employees(3)......... 42 63 94 207 316 542 923 1,492 2,101
Revenues (in (pound)
millions)............ 2.8 6.7 11.3 19.4 32.9 58.8 111.6 200.6 421.1
- ---------
(1) At period end. Includes closed centers through the periods up to closure.
(2) Represents weighted average available workstations for the period. The
number of workstations is not available for 1992, 1993 and 1994 because we
closed a number of business centers in those years and we cannot
accurately assess the impact of the closures on the number of
workstations.
(3) Average total employees for the period.
In July 1998, we reorganized our operations by inserting a UK holding
company, Regus Business Centers plc, between Regus Business Centers BV and
Maxon Investments BV. On July 18, 2000, we changed our name from Regus Business
Centers plc to Regus plc. Regus plc was incorporated in England and Wales as a
public limited company under the laws of England and Wales. Our principal
executive offices are located at 3000 Hillswood Drive, Chertsey KT16 0RS,
England and our telephone number is (44) (1932) 895-000. Regus Business Centers
Corp., our US headquarters, is located at Suite 412, 100 Manhattanville Road,
Purchase, NY 10577 and its telephone number is (914) 304-4100.
Maxon Investments BV owned all of Regus Business Centers plc until August
1998 when a consortium comprising an affiliate of Bankers Trust, now part of
Deutsche Bank, and two affiliates of Apollo acquired 17.5% of our share capital
for cash consideration of $100 million, of which $83 million was paid to us by
way of subscription for new shares and the balance of $17 million was paid to
Maxon Investments BV in consideration for the sale of existing shares. In
October and November 1999, we allotted a further 2.9% of our issued share
capital to two affiliates of Deutsche Bank and two affiliates of Apollo, for a
total consideration to us of (pound) 20 million, as part of a wider arrangement
to which Maxon Investments BV was a party. The wider arrangement consisted of
Maxon Investments BV granting to those affiliates of Deutsche Bank and Apollo
options over a further 0.8% of our existing issued share capital (subject to
proportionate adjustment to reflect any reorganization of us) for an aggregate
strike price of (pound) 1 in consideration of the waiver of certain rights held
by those parties.
In October 2000, we completed an initial public offering of 128,829,075
shares, raising (pound) 250 million ($373 million) for the Company and (pound)
81 million ($121 million) for certain selling shareholders. At that time, we
listed our ordinary shares on the London Stock Exchange and our ADSs were
listed on NASDAQ.
On April 23, 2001, we acquired Stratis Business Centers, Inc. in the US.
Under the terms of the agreement, we agreed to pay a total purchase price of
$10 million. Of this, $4 million has been paid to the shareholders of Stratis
in cash at closing and a further $1 million has been held in escrow and will be
paid out quarterly over the next twelve months, assuming no dispute between the
parties arises. The balance of the purchase price is payable in shares of Regus
plc, some of which are restricted.
On April 25, 2001, we acquired Satellite/Skyport Conference Centers, an
operator of business centers in Belgium and the Netherlands, for NLG8 million.
On June 4, 2001, we announced we were in discussion relating to a possible
transaction with Frontline Capital Group and HQ Global Holdings, Inc. On June
7, 2001, we announced that such discussion had been terminated. Costs relating
to the proposed transaction will be recognized in the second quarter of 2001.
Capital Expenditures
Capital expenditures, net of sales of tangible fixed assets, increased to
(pound) 86.6 million in 2000 from (pound) 75.7 million in 1999, (pound) 21.2
million in 1998 and (pound) 9.1 million in 1997. These increases in capital
expenditures were primarily due to the purchase of office furniture, fixtures
and fitting and telephone and other office equipment, related to fit-outs of
centers opened in each period.
Notwithstanding our cash flow from operating activities, the rate of
expansion in new center openings since 1997 was only partially financed by
operating cash flow. The average capital expenditure on fixtures and fittings
for a new business center rose from approximately (pound) 0.7 million per new
center in 1998 to approximately (pound) 1.0 million per new center opened in
1999 but fell to approximately (pound) 0.8 million per new center opened in
2000. This reflects the fact that we are taking advantage of bulk purchasing
power and managing effectively our supplier relationships. Capital expenditure
is depreciated over periods between two and ten years.
All start-up costs and maintenance expenditure are charged to the profit
and loss account as incurred. Every seven to nine years, however, a major
refurbishment is expected and such expenditure would be included as capital
expenditure. However, the recent opening of most centers means that, with one
exception funded by the freehold owner of the entire building, no centers to
date have required such a refurbishment.
We intend to continue to increase the number of our centers, especially in
the US. In addition, we intend to expand a number of our centers in order to
increase the available workstation capacity for our customers.
BUSINESS OVERVIEW
We are a provider of high quality, business services to the global
economy. Our international network of adaptable business centers allows our
customers to outsource completely or in part their workspace requirements. Our
business center offerings include a client driven mix of workstations,
conference rooms and related support services, such as video conferencing,
telecommunications, Internet connectivity, reception and secretarial services.
Customers can use all or part of our business centers for durations of one hour
to over five years.
Our serviced business centers represent an alternative to traditional
office space. Located in downtown business districts, suburban office parks and
near transportation gateways, we can tailor our business centers to a variety
of customer requirements. These business services offer advantages of
convenience, flexibility and immediate availability. In addition, our business
services can cost less than traditional office leasing, depending upon
individual circumstances, such as the number of employees in the office and the
term of occupancy.
We have grown rapidly in recent years. As of December 31, 2000, we
operated a network of 335 business centers in 48 countries.
We have focused our growth on expanding our international network of
business centers. The following table shows the 48 countries in which we
operated by region and the number of centers in each country as of December 31,
2000.
UK and Ireland Italy (6) Ukraine (1) China (5)
Ireland (2) Latvia (1) Egypt (1)
UK (82) Luxembourg (1) Americas Israel (1)
The Netherlands (20) Argentina (1) Japan (4)
Rest of Europe Norway (2) Brazil (6) Malaysia (1)
Austria (3) Poland (3) Chile (2) Morocco (1)
Belgium (9) Portugal (3) Mexico (5) Philippines (1)
Czech Republic (3) Romania (1) Panama (1) Singapore (2)
Denmark (3) Russia (2) Peru (1) South Africa (6)
Finland (3) Slovak Republic (1) US (62) Tanzania (1)
France (16) Spain (8) Thailand (1)
Germany (39) Sweden (6) Rest of World Tunisia (1)
Greece (2) Switzerland (4) Australia (4) Vietnam (2)
Hungary (3) Turkey (1) Azerbaijan (1)
Our growth has enabled us to develop a broad customer base. A large
proportion of our customers, based on revenue, operate in rapidly growing
sectors such as information technology, financial services, consultancy and
telecommunications.
Our customers increasingly demand technologically sophisticated and
flexible business services, such as ours. The desire of our customers to
capture the benefits offered by business models based upon outsourcing office
and related services, globalization of trade, advances in technology and
changes in work practices drives this demand for our business services. Our
business services assist our customers to compete effectively in an economic
climate increasingly characterized by the speed, flexibility and technology of
the Internet. We believe that new and established companies in varied industry
segments will continue to realize the competitive advantages offered by our
business services.
The Regus Strategy
Our goal is to become the leading provider of high quality, business
services to the global economy. In bringing together people, property and
technology, we aim to provide a complete outsourced workspace to our customers,
allowing those customers to focus on their own businesses. Our strategies to
meet this goal include the following key elements:
Further Develop the Regus Brand
We believe that raising awareness of the benefits of using serviced
offices and building a major international business services brand will further
encourage use of our business centers by important corporate customers. In
addition, we intend to leverage our brand and reputation for providing high
quality fixtures, fittings and infrastructure in our centers through the
introduction of additional products. For example, we are considering
launching a range of new products, currently called Regus Workz and Regus Next
Generation, under the Regus brand. See "--Future Products and Other
Initiatives".
Improve the Yield from Existing Centers
We seek to continue to increase the revenues and profitability of our
existing business centers as they mature. We aim to achieve higher yields in
the following ways: increasing prices, expanding the range of services offered
to customers within each business center, expanding the size of our business
centers and extracting cost savings through our purchasing power.
Expand within Existing Countries of Operation either Organically or
Through Acquisitions
Within existing countries of operation, we can expand by opening new
centers, expanding existing business centers, establishing joint ventures or
acquiring companies that operate business centers or offer complementary
services that could be rolled out to our network of business centers. The
establishment of the first business center in a given country entails gaining
local market and regulatory knowledge, hiring and training local people and
establishing appropriate infrastructure. Subsequent expansion of our business
within that country tends to be less risky and less costly. The creation of a
national network of business centers within a country enhances our ability to
service national customers, generates greater customer awareness and enables us
to attract key national accounts. In the medium term, we expect a significant
proportion of our growth to occur in the US market.
Actively Manage Risk
Our business faces, among others, political, economic, liquidity and
capital risks, due to our international growth. We aim to continue to manage
such risks through the following mechanisms.
o At December 31, 2000, we had approximately 4,500 customers, spread across
48 countries. For the year ended December 31, 2000, no single customer
accounted for more than 2% of our total revenue. Our broad customer base
mitigates our risk of exposure to any one customer or market.
o We have entered into profit and risk sharing lease agreements with
building owners, called "turnover leases" and "part-turnover leases", and
we expect to enter into additional turnover and part-turnover leases.
Under these arrangements, a property owner agrees to defer base rents
payable on a new business center in exchange for future profit sharing if
the business center successfully matures. At December 31, 2000, we had 19
turnover leases and 67 part-turnover leases which accounted for 5.7% and
20.0% of the total number of our business centers, respectively, and 3.9%
and 18.4% of the total number of our workstations, respectively, at that
date.
o We have established joint ventures and intend to establish additional
joint ventures or make strategic arrangements with established property
companies through which we share the costs associated with acquiring prime
office locations for our business centers.
Expand Internationally Through Franchising
We believe that the international expansion of our global network of
business centers can be accelerated through selective franchising of our brand.
We will adopt franchising in countries and regions where we determine that the
resources required to set up and manage a new operation cannot be justified in
the context of prospective returns and other opportunities available to us. We
expect, however, to benefit directly from royalty income from franchisees and
indirectly from our ability to offer customers an expanded global network. Our
franchising efforts are in an early stage of development, although the
acquisition of Stratis Business Centers Inc. in the US, which includes 16
franchised business centers and an infrastructure to support continued
expansion of this program, will assist in accelerating our progress in the US.
Products and Services
Our business centers are the core of our offering of high quality global
business services. We design our business centers around a flexible arrangement
of workstations, conference rooms and reception areas. We staff all of our
business centers with employees trained to provide our customers with a high
level of service. We assure our customers of a uniform level of staff
professionalism through our training courses offered through Regus Academy, our
training and development program. Our global network of business centers offers
high standards of office design, fixtures, fittings, technology and staff. The
flexibility of our business centers has allowed us to develop a suite of
additional products and services that meet the requirements of all sizes of
corporate customers. These products and services are designed to work as
"components" that integrate well into a customer's existing office
infrastructure and with emerging trends of outsourcing non-core activities and
globalizing business models. We market and sell these products and services
together as complete solutions and separately as components of a customer's
existing office infrastructure, depending on customer requirements.
In 2000, we opened 93 centers worldwide. As of December 31, 2000, in line
with our business plan for 2000, we had 335 centers or 64,070 workstations
worldwide and 62 centers or 17,009 workstations in the US. In the next five
years, we plan to open up to 700 business centers in the US as part of a plan
to have one business center in every town with a population greater than
100,000 that fits our other business center opening criteria, including, but
not limited to, financial criteria, satisfactory infrastructure and proximity
to public transportation hubs. We expect that each business center in the US,
once it becomes an established center, will generate on average at least $3
million in revenue each year.
The products and services that we offer in our business centers include
the following.
Workstations
Our principal business service, currently accounting for a substantial
proportion of our revenues, involves agreeing to use one or a number of our
workstations. Each workstation is in a fully equipped office with
telecommunications systems, data transmission services, reception areas and
supported, as needed, by trained receptionists and secretaries. A customer can
use a flexible number of workstations that vary in size from a private office
for a single individual to a large open plan office with multiple workstations.
All our workstations are furnished to uniformly high standards. Customers can
use workstations for any duration between one hour to one year and beyond.
Customers are billed monthly on an itemized invoice.
Conference Rooms
Our conference rooms vary in size from small interview rooms to large
conference rooms accommodating up to 100 people. While we generally provide our
customers with conference rooms along with workstations, conference rooms are
also separately available at short notice for periods of one hour to one day or
longer to our customers who do not also require workstations.
Link
We offer a professional and confidential telephone answering and mail
handling service that allows small and medium sized business customers to
operate a virtual office with a business address at one of our business
centers. We have invested heavily in telecommunications technologies so that
our operators can answer each call with personalized greetings for each of our
customers. If desired, we can transfer calls to forwarding numbers or provide
callers with messages from our customer.
Video Conferencing
Most of our business centers maintain high quality video conferencing
facilities, bookable by the hour. These facilities are available to those
customers who use workstations at our business centers and to those customers
who only require video conference capability.
Touchdown
We offer a membership program which, upon completion of simple
registration procedures, provides customers with preferential, instant, easy
access to our international network of business centers. Membership allows a
customer enhanced flexibility to use our products and services at short notice
anywhere in our global network to suit our customers' business needs.
Netspace
We provide Netspace to companies that want to outsource the management of
their own office space. With Netspace, we provide all or a substantial amount
of the office services and manage the office without disturbing the customer's
existing office lease arrangements.
Related Services
We also offer, in most business centers, access to our global wide area
network which provides software and data transmission services as part of the
standard services available to our customers. In addition, we provide customers
using our workstations, conference rooms, Link and video conferencing products
with related services and facilities. These services, for which we charge
separately, include telephones, fax, photocopying, secretarial services,
catering, storage and parking.
We believe that businesses that are initially attracted to one of our
particular products, for example, a short term need for a single workstation,
may become convinced by our business center concept and use us as a solution to
their requirements for longer term workspace and related value added services.
Future Products and Other Initiatives
We have recently launched, or currently expect to launch, subject to
business conditions, the following products and initiatives in the near future.
Although not currently contemplated, we may introduce other products and
initiatives as well.
Franchises
We believe that we can grow our network of business centers more quickly
through franchising, particularly in developing countries where the franchise
can apply its local expertise and capital. We plan, therefore, to launch new
centers in these areas through franchise arrangements, under which we will
approve the location, design and marketing of the centers while extending the
same quality control and staff training procedures to the franchise operators
as we apply to all our proprietary business centers. A number of franchise
agreements are currently being negotiated.
Regus Next Generation
We plan to launch a new type of business center, built from prefabricated
materials and positioned outside regional cities and in other locations where
land values are lower than those in our traditional heartland. Our strategy is
to market these centers to small and medium enterprises at a lower price than,
but at a similar margin to, our traditional centers. We have already signed one
lease for a building in Harlow in the UK.
Host Regus
We continue to be in the process of creating a fund to invest in high
quality properties in the UK suitable for future business centers. We expect to
take a minority stake of up to (pound) 8 million in Host Regus and will lease
properties from Host Regus under agreed leases. It is anticipated that the fund
will raise up to (pound) 40 million of equity and up to a further (pound) 40
million of debt.
Other
We are piloting a new type of business center called Regus Workz designed
specifically for the more casual business cultures of the new economy. We
currently have one pilot center in the US and one in the UK. No further pilots
are planned in the short term.
We also have a pilot project of a product called Regus Engineer with
Deutsche Telekom in Germany, which is dedicated to servicing the needs of
service engineers. There are no current plans to entend this pilot.
Sales and Marketing
Our sales and marketing strategy, which involves a constant appraisal and
improvement of product mix, investment in local advertising and a continuing
focus on service quality, has been key to developing the Regus brand during
2000. During November 2000, we capitalized on the opportunity to increase brand
awareness and grow concept understanding in key markets through the UK, via the
first ever title sponsorship of the Regus London Film Festival and Regus London
Film Festival On Tour.
To develop our brand awareness further, we signed our biggest-ever
sponsorship deal at the end of the year when we became an Official Partner to
the Ryder Cup 2001.
We market and sell our products and services around the world. As of
December 31, 2000, we had approximately 333 employees engaged in sales and
marketing across the globe. Our sales and marketing team aims to attract new
customers, to develop and expand relationships with existing customers and to
build a major business services brand. Our direct sales force includes 179
field sales executives assigned to individual business centers and 51 corporate
account managers responsible for key customer accounts.
These direct sales functions are supported by a team of telesales
representatives and analysts. As an indirect sales channel, we have established
relationships with real estate brokers and other agents to refer us business.
We have consistently invested in marketing activity. We use a wide range
of approaches, depending upon the market and specific sales objectives, in
order to provide sales leads. Our marketing campaign includes commercial radio
and television, brochures, newspaper and magazine advertising and direct
marketing mailings. We measure the efficiency of marketing activity on a cost
per enquiry and cost per sale basis.
Customers
We sell our products and services to a broad base of customers in many
different industries around the world.
At December 31, 2000, we had approximately 4,500 customers, spread across
48 countries. Many of our customers are major international corporations. For
the year ended December 31, 2000, no single customer accounted for more than 2%
of our total revenue. Our customers are drawn from a wide range of industry
sectors, including consulting, energy, financial services, information
technology, media, pharmaceuticals and telecommunications.
Property and supplier relationships
We consider the location of its business centers to be of paramount
importance and has generally positioned them in city centers, at important
transportation hubs, such as major airports, and in business parks. Our
international corporate development team which, at the end of the year,
consisted of 42 people, works with our regional management teams and property
owners to identify suitable locations.
In 2000, we continued to develop our global network by adding a further
93 centers and by expanding 17 existing centers. We closed three centers. As a
result of opening centers that are generally larger, we increased the
number of workstations available at the end of the year by 60%, to 64,070,
compared with 40,136 at the end of 1999. We expect this rate of growth to
continue with a further 53 leases signed at the year end, all of which are due
to open during 2001. In 2000, we focused on the strategically important US
market and expanded within existing countries of operation. We added only three
new countries in the year.
The corporate development team actively manages our relationships with
major property owners throughout the world. Their objective is to position
Regus as the partner of choice for any property owner. Regus can offer property
owners a menu of deal structures, ranging from conventional leases through
participation leases and management contracts to franchise, depending upon the
property owner's appetite for risk and reward. Once we have decided to lease a
property, our team of designers, contractors and suppliers works to build out
the workstations and conference rooms to our consistently high standards.
We have established 50/50 joint ventures with Arlington Securities and
Teesland Group plc in the UK, with Equity Office Properties Trust, Duke-Weeks
and Crescent in the US, Brookfield in Canada, Pirelli in Italy and Gesco in
India. In each case we operate business centers in our partners' buildings on a
profit-share arrangement through which we are paid a management fee by the
joint-venture company and share in the business centers' profits.
We work closely with the owners of our buildings and with our partners
who are involved in new products and initiatives. As the business has grown and
matured, we have strengthened our relationships with our principal suppliers,
on a mutually beneficial basis, and have achieved significant purchasing
discounts on certain products. As a result, approximately 80% of our capital
expenditure on new centers is placed with only 16 suppliers. We continue to
develop non-exclusive partnerships with "best-in-class" companies to facilitate
entry into new and/or existing markets. These enable us to introduce new
products more efficiently and quickly and to reduce the risk of doing so.
Competition
The serviced office market is new and fragmented. Many participants are
local entrepreneurs operating a small number of business centers. In the UK,
for example, the Business Center Association Limited comprises over 160 members
who operate business centers. Some market participants, however, have emerged
to compete on a broader geographic basis.
Principal Competitors
We believe that our principal competitors fall into the following
categories:
Traditional Office Space
In deciding how to meet their workspace requirements, our potential
customers will have the choice of either using a provider of serviced offices
such as ours or of leasing, building out and staffing traditional office space
themselves. As most businesses have historically relied on the internal
provision of office infrastructure, traditional office space remains the first
choice for many of our potential customers. Nevertheless, we believe that the
benefits of serviced offices will continue to persuade potential customers to
outsource their workspace requirements and rely on our expertise in providing
high quality business services.
Global Serviced Office Competitors
HQ Global Workplaces, Inc. or HQ and, to a more limited extent, WWBCN,
are the only other serviced office providers with significant presences on more
than one continent. HQ, which merged in 2000 with Vantas, owns, manages or
franchises approximately 460 business centers in 17 countries, although most
are located in the US. We believe that WWBCN, an association of independent
business center operators based mainly in Europe and North America, intends to
grow its business and extend its global reach.
Regional Serviced Office Competitors
Two companies have established a large international presence in a single
region. Servcorp operates business centers in 16 cities principally in
Australia and the rest of the Asia Pacific region. Servcorp believes it is the
market leader in Australia, Japan, Singapore, Thailand, Malaysia and New
Zealand. Servcorp has also entered into a joint marketing agreement with HQ.
Ihr Buro operates business centers mainly in Europe.
National Serviced Office Competitors
In addition to regional competitors, several businesses operate in the
serviced office market on a national level. Significant national competitors
include Marylebone Warwick Balfour, Citibase and FirstBase plc in the UK and
Your Office in the US. Many of these companies do not operate national networks
on the same scale as us and target products to different segments of the market
than we do.
Local Serviced Office Competitors
Within many countries where we operate, a large number of small,
entrepreneurial businesses operate serviced offices. These local businesses
tend to target smaller and less established companies and typically offer
business centers with less services than we do. As a result, we do not
generally regard these providers as a competitive threat for the near term.
However, we anticipate that as the market consolidates or as alliances emerge
in the longer term, some of these local businesses may represent more serious
competition.
Market Entry by Property Owners
Our experience has been that property owners are attracted to the higher
yields that serviced offices can provide, but recognize their lack of
operational infrastructure to manage a business providing serviced offices. As
a consequence, we believe that property owners will continue to enter the
serviced office market through joint ventures and other partnerships but not as
independent competitors. Nonetheless, we anticipate that in the future some
property owners may enter the serviced office market on a standalone basis and
could provide us with new competition.
Intellectual Property and Other Proprietary Rights
We regard the protection of our intellectual property as critical to our
future success, and we rely on a combination of copyright, trademark, and trade
secret and contractual restrictions to establish and protect our proprietary
rights in products and services.
We have acquired trade mark registration of the name "Regus" and the
"Regus" logo in the countries in which we have more established operations such
as the UK and other countries in Europe. We have made applications to register
the name "Regus" and the "Regus" logo as trade marks in a number of countries
in which we have recently begun to operate, such as in the Asia Pacific region,
Africa and Latin America. In the US, we have acquired trademark registrations
of "Regus" and the "Regus" logo and we have made applications to register
"Touchdown" and "Netspace".
To date, we have not received any material notifications of trademark
infringement.
ORGANIZATIONAL STRUCTURE
Regus plc is the holding company for a number of subsidiaries which are
our operating companies. The following is a list of our significant
subsidiaries at May 31, 2001. Save where stated otherwise, each subsidiary is
wholly owned by us.
Jurisdiction of % of equity
Company Incorporation and votes held
- ------- ------------- --------------
Regus Business Center SA Argentina 100
Regus Centers Pty Ltd Australia 100
Regus Business Center GmbH Austria 100
Regus Belgium Belgium 100
Regus Business Center SA Belgium 100
Regus do Brasil Ltda Brazil 100
Regus Business Center Ltd Canada 100
Regus Business Center Ltda Chile 100
Regus Business Service Co Ltd China 95
Regus Business Services (Shanghai) Ltd China 100
Regus Colombia Ltda Colombia 100
Regus Business Center sro Czech Republic 100
Regus Business Centre ApS Denmark 100
Regus Business Center (Egypt) Egypt 100
FoRe Business Centers Ltd +++ England 50
Host Regus Ltd England 100
Regus Business Centers (Holdings) Ltd* England 100
Regus Business Center Trading Ltd + England 100
Regus Business Centers (UK) Ltd England 100
Regus City Ltd England 100
Regus Management Limited England 100
Regus (UK) Limited England 100
Park Business Centers Ltd +++ England 50
Regus Finland Oy Finland 100
Regus Paris SA France 100
Regus Roissy SA France 100
Regus Business Center GmbH Germany 100
Regus Hellas SA Greece 100
Regus Business Center Ltd Hong Kong 100
Regus Central Europe Trading & Servicing Kft Hungary 100
Europa Business Center Ltd Ireland 100
Regus Ireland Ltd Ireland 100
Regus Finance Ireland 100
Regus Franchise International Limited Ireland 100
Regus Business Centers Ltd Israel 100
Regus Business Center Srl Italy 100
Regus Business Center Italia SpA +++ Italy 65
Regus Japan KK Japan 100
Regus Korea Limited Korea 100
SIA Regus Business Center Latvia 100
Regus Luxembourg SA Luxembourg 100
Regus Centers Sdn Bhd Malaysia 100
Regus Business Center SA de CV Mexico 100
Regus Services SA de CV Mexico 100
Regus Maroc SARL Morocco 100
Regus Amsterdam BV Netherlands 100
Regus Business Center BV Netherlands 100
Regus International Holdings BV ++ Netherlands 60
Satellite Business Center Schiphol BV Netherlands 100
Jurisdiction of % of equity
Company Incorporation and votes held
- ------- ------------- --------------
Skyport Brussels NV Netherlands 100
Regus Business Center Oslo AS Norway 100
Regus Business Center (Panama) SA Panama 100
Regus Business Center (Peru) SA Peru 100
Regus Centers Inc Philippines 100
Regus Business Center SP zoo Poland 100
Regus Business Center Lda Portugal 100
Regus Business Center (Romania) SRL Romania 100
LLC Regus Business Center Russia 100
Regus Centers Pte Ltd Singapore 100
Regus Business Center Bratislava sro Slovakia 100
Regus Business Center SA Spain 100
Business Center Gothenburg AB Sweden 100
Business Center Stockholm AB Sweden 100
Regus Business Center (S) SA Switzerland 100
Regus Business Center (Tanzania) Ltd Tanzania 100
Regus Center (Thailand) Ltd Thailand 100
Regus Tunisie SARL Tunisia 100
Regus Is Merkezi Isletmeciligi Ltd Sirketi Turkey 100
Regus Business Centers (Ukraine) Ukraine 100
Regus Business Center Corp USA 100
Regus Business Centers LLC USA 60
Regus Crescent Business Centers LLC +++ USA 50
Regus Equity Business Centers LLC +++ USA 50
Stratis Business Centers, Inc USA 100
Regus Business Center Venezuela CA Venezuela 100
Regus Center (Vietnam) Ltd Vietnam 100
* Regus plc owns these subsidiaries directly.
+ Our Azerbaijan business operates as a branch of this company.
++ Our South Africa business operates as a branch of this company.
+++ Joint ventures.
PROPERTIES
We consider the location of our business centers to be of paramount
importance and we have generally restricted the placement of our business
centers to city centers, important transportation hubs, such as major airports,
and business parks. We have an international property team, which works with
our regional management teams and property owners to identify suitable
locations for our business centers. The team actively manages our relationships
with major property owners worldwide. Once we have decided to lease a property,
our team of designers, contractors and suppliers work to build out the
workstations and conference rooms to the consistently high quality expected
from our business centers.
Leasing
We lease substantially all of our property portfolio. Across the
portfolio, there are variations in lease durations and lease termination
provisions, due to differences in leasing practices in the different
jurisdictions of our operations. Accordingly, our ability to mitigate our
obligations in the event of a downturn in the performance of our business
centers, by terminating or renegotiating our leases, differs with the
geographic variations.
As at December 31, 2000, 44% of our total number of leases (including
lease commitments for centers that are not yet open) had less than 6 years
until either expiry or the first time we have an option to break. This equates
to 30% of our total number of workstations. 16% of our total number of leases,
equating to 22% of our total number of workstations, had more than 12 years to
run, virtually all of which were in the UK and Ireland. Of our total number of
leases, including commitments, 25% were located in the UK and Ireland, 41% were
located in the Rest of Europe and 26% were located in the Americas.
A majority of our leases are on conventional rental terms and as such
provide for regular payments of agreed rent and for periodic reviews of rent
levels. Rent reviews are normally on terms in accordance with local market
practice. For example, UK leases provide for regular upward only rent
adjustment to the prevailing market rate, if higher than the agreed rent, while
other jurisdictions may have regular fixed rent increases or rent increases
linked to market indices. Upward only rent reviews mean that in a declining
market, rents can never be lowered.
In order to mitigate our exposure on long-term lease commitments as well
as aligning our interests with those of the building owner, we have entered
into some profit and risk sharing lease arrangements called "turnover leases".
In a typical turnover lease, we will only pay rent when and to the extent that
the center is cumulatively profitable after deducting operating costs and our
management fee. To the extent that there are sufficient cumulative profits, we
will pay the rent and also any accumulated rent unpaid since the start of the
lease. Once, and if, we have paid all the rent due, any remaining surplus
profit is paid out to us and the building owner annually on a pre-agreed basis
which is normally 50/50.
As a variant of this, we have also entered into "part-turnover leases",
whereby a portion of the rent which is the guaranteed rent is paid every
quarter to the landlord whether or not there is any profit. In these leases,
usually a smaller element of the rent paid to the landlord is dependent upon
profit than under a turnover lease.
Building owners will generally have a right to convert turnover and
part-turnover leases to conventional rent terms on a specified date, being no
earlier than the end of the fifth year of the lease term which, if exercised,
would normally give rise to right for us to terminate the lease.
Where we enter into formal joint ventures with property owners, the
economic result in respect of each property within the arrangement is very
similar to a turnover lease. In a typical joint venture, we share with our
partners the start-up costs of opening business centers, including the
fitting-out of the business centers. We receive a management fee for each
center which is deducted from the customer revenue which we collect. The rent
is paid by the joint venture vehicle to the property owner out of the remaining
funds. Finally, after all expenses, any profits in the joint vehicle are
distributed usually on a 50/50 basis. These joint ventures help us to mitigate
the risk we face in leasing properties for our business centers.
On December 31, 2000, we had 232 conventional leases which accounted for
72% of the total number of our business centers and 75% of the total number of
workstations. On the same date, we had 19 turnover leases and 67 part-turnover
leases which accounted for 6% and 21% of the total number of our business
centers, respectively, and 4% and 19% of the total number of our workstations,
respectively. We operated the remaining 1% of the total number of our business
centers and 2% of our workstations through management contracts. If analyzed by
reference to rent payable for accounting purposes, rather than by the number of
centers or workstations, conventional leases, turnover leases and part-turnover
leases accounted for 76%, 4% and 20%, respectively, of the total rent payable.
By their terms, our management contracts do not require rental payments. If
analyzed by reference to our total revenue, conventional leases, turnover
leases, part-turnover leases and management contracts accounted for 71%, 5%,
22% and 2%, respectively, of our total revenue. In addition, we have achieved a
broad geographic distribution of turnover, part-turnover and conventional
leases. We have turnover leases in 8 countries and part-turnover leases in 21
countries.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
OPERATING RESULTS
The following discussion of our financial condition and results of
operation should be read in conjunction with the consolidated financial
statements and notes, included elsewhere in this document. Our consolidated
financial statement are prepared in accordance with UK GAAP which differs from
US GAAP as discussed in note 27 to the consolidated financial statements. This
discussion contains forward looking statements based upon current expectations
which involve risks and uncertainties. Actual results and timing of events may
differ significantly from those projected in these forward looking statements
due to a number of factors, including those set forth in this document in the
section "Risk Factors" and elsewhere in this document.
Overview
We are a provider of high quality, business services to the global
economy. Our international network of adaptable business centers allows our
customers to outsource completely or in part their workspace requirements. Our
business center offerings include a client driven mix of workstations,
conference rooms and related support services, such as video conferencing,
telecommunications, Internet connectivity and reception and secretarial
services. Customers can use all or part of our business centers for durations
of one hour to over five years.
Our serviced business centers represent an alternative to traditional
office space. Located in downtown business districts, suburban office parks and
near transportation gateways, we can tailor our business centers to a variety
of customer requirements. These business services offer advantages of
convenience, flexibility, immediate availability and cost over traditional
office leasing.
The following table sets forth, for the periods indicated, the number of
our centers, workstations, countries in which we have centers and employees.
Year ended December 31,
---------------------------------------------
1998 1999 2000
------------ ----------- ------------
Centers(1)............... 155 245(2) 335(3)
Workstations(4).......... 16,293 29,777 50,333
Countries................ 30 45 48
Employees(5)............. 923 1,492 2,101
(1) At period end. Including closed centers through the periods up to closure.
(2) Includes 91 centers opened, including two centers owned by our joint
venture with Equity Office Properties Trust, three centers closed and 18
centers expanded during 1999.
(3) Includes three centers closed and 17 centers expanded during 2000.
(4) Represents weighted average available workstations for the period.
(5) Average total employees for the period.
Due to our rapid expansion during the four years ended December 31, 2000,
comparisons with prior periods may not be meaningful.
Income Statement Items
Revenue and Center Contribution
Our revenue consists of revenue from our products, including office or
workstation revenue and related service revenue, including principally
telephone, information technology and data services, fax, photocopying,
secretarial services, catering, storage and parking.
Gross profit or center contribution is revenue less cost of sales. Cost of
sales consists of costs from the individual business centers, including
property lease costs, employee costs, start-up costs, including formation
costs, costs related to finding properties and any other opening costs,
telephone costs, equipment rental and depreciation. Initial start-up costs,
including those incurred in connection with the setting up of the legal and
financial control infrastructure, are typically higher for the establishment of
the first center in a new country. Thereafter, new centers in the same country
benefit from this initial investment by us. We charge start-up costs to the
income statement as they are incurred. Tangible fixed assets are capitalized
and depreciated on a straight line basis over the estimated useful life of each
type of asset, including office furniture, fixtures and fittings and telephones
and other office equipment. The center contribution margin is calculated by
dividing center contribution by revenue.
Our revenue is largely dependent upon the number of workstations (as
defined below), the price per workstation paid by our customers, occupancy
rates and any additional services used by our customers. Our prices are subject
to any regional differences as described under "--Geographic Region". The
actual timing of new center openings in a period can have a significant effect
and result in fluctuations in occupancy and average prices achieved and
therefore in revenue and center contribution. For example, new centers opened
in the second half of any year may adversely affect average occupancy levels
and average prices achieved for all centers opened during that year because
these new centers will not have matured by the end of that year.
The principal cost of sales is the leasing of the property. We lease
office space either through conventional leases or turnover leases. The rent
payable by us on turnover leases is wholly or partially conditional on the
profitability of the center. For a description of turnover and part-turnover
leases, see "Item 4. Information on the Company -- Properties". For turnover
leases, we estimate the likely base rent payable based on performance in the
period up to the first break point in the lease for the tenant and, for
accounting purposes, this estimated base rent is spread on a straight line
basis over that period. Any subsequent changes in estimates are spread over the
remaining period to the same break point in the lease. In the case of full
turnover leases, rent is due and payable based upon the profitability of the
center. The lease specifies a base rent, which is due and payable once a
cumulative operating surplus has been achieved. In the case of partial turnover
leases, the specified base rent is due and payable on a guaranteed basis, with
the remainder due and payable once a cumulative surplus has been achieved.
Amounts payable in respect of profit shares are accrued once a sufficient net
surplus has been made which would result in a profit share being paid. Any
incentives or rent free periods on conventional leases and the conventional
element of part-turnover leases are spread on a straight line basis over the
period to the first market rent review or first break point in the lease,
whichever is shorter, so that the amounts charged to the income statement are
the same each year over that period. Of the total rent expense for the year
ended December 31, 1998, 1999 and 2000 of (pound) 33.4 million, (pound) 71.8
million and (pound) 125.1 million, respectively, the profit share element was
(pound) 528,000, (pound) 2,473,000 and (pound) 6,434,000, respectively.
Operating Result
Our operating result is our center contribution after sales and marketing
costs and regional and central overheads. Sales and marketing costs are closely
related to the aggregate number of centers and, in part, to the opening of new
centers. Regional and central overheads include salary and other compensation
costs from our corporate headquarters in the UK, our regional office network
and the team of employees sent temporarily to new centers to open those new
centers.
Method of Analysis
Workstations
To describe the trends in our results in this discussion and analysis, we
have broken down our results by workstation, established vs. new centers and
geographic region. The number of "workstations" in a center is determined by
the number of persons who could be supported in the available space based on
management's assessment, taking into account local business customs. This
determination is made for available space at its opening and does not change
over time. The number of workstations in centers of the same size varies
considerably based on differences in local work practices and can vary over
time as existing centers are expanded by taking additional space in the same
building. Whenever we use the term "workstations" in this Annual Report, we are
referring to weighted average available workstations within a period regardless
of whether these workstations are occupied. Weighted average available
workstations for any period is calculated by adding the number of available
workstations at the end of each month of the period and dividing that number by
the total number of months in the period.
We believe that the analysis of our results by available workstation
capacity for our customers is more meaningful than any analysis by number of
centers open due to the effect of expansions, relocations and closures of
centers and the variation in the size of centers.
Established vs. New Centers
We operate our business by closely monitoring our center contribution.
Although there are material variances on a center by center basis, our
experience is that, within 18 months, a center has reached a relatively stable
level of center contribution margin. On this basis, we have analyzed our
results between established centers and new centers. "Established centers"
refer to centers that have been open for a period of at least eighteen months
as at the end of the relevant period and "new centers" refer to those centers
that have been open for less than eighteen months as at the end of the relevant
period. Due to the incurrence of significant new center start-up costs and the
offering of initial discounts to new customers to fill the center faster during
the first 18 months of a new center's operation, we believe that this breakdown
is meaningful in order to segregate these effects into the new centers
category.
Geographic Region
We break down our revenue, center contribution and operating result in
this section by geographic region in order to highlight the different drivers
of our growth and the status of our development based on geographic region. The
prices we charge for our centers depend, among other things, on the region
where the center is located and the location of the center within a region.
Generally, within a given country, the price per workstation has been higher in
major cities than in smaller cities and has been higher in developed countries
than in emerging market countries.
Occupancy
The following table sets forth, for the periods indicated, the weighted
average occupancy of our business centers on an established vs. new center
basis. We calculate occupancy of each business center on a month-end basis. The
weighted average occupancy percentage is calculated by dividing the total
number of occupied offices by the total number of available offices. An office
is deemed to be occupied if it has income in the month, unless such income is
in respect of contracts of less than one month in duration.
Year ended December 31,
------------------------------------------------
1998 1999 2000
------ ------ ------
Established centers.......... 79 78 83
New centers.................. 54 51 60
The weighted average occupancy of our established centers remained
relatively constant over the three-year period ended December 31, 2000.
The concept of weighted average occupancy needs to be treated with care
for three reasons:
o The weighted average occupancy of our new centers is substantially
affected by the opening of business centers as occupancy in new centers
generally builds over the first 12 months. Within a particular period, the
timing of openings of business centers has a distorting effect on weighted
average occupancy levels. This is particularly the case for centers opened
in the second half of the year.
o Expansions of existing business centers have an equivalent distorting
effect on weighted average occupancy levels of established centers.
o The opening of new centers in areas where there are existing centers also
distorts the weighted average occupancy levels of our business centers
because there are cases where our customers migrate from established
centers to new centers in the same area, causing occupancy to increase in
the new center and occupancy to decrease in the established center. Over
time, the occupancy levels of the two centers generally even out, but in
the initial period, there will be a distortion in weighted average
occupancy.
Currency Fluctuations
As we conducted business in 48 countries as at December 31, 2000, a
substantial portion of our revenue and costs is derived from countries outside
the UK and therefore in currencies other than pounds sterling. In 2000,
approximately 45% of our revenue was denominated in currencies other than
pounds sterling. For a more detailed description of our exposure to currency
fluctuations, see "Item 11. Quantitative and Qualitative Disclosures about
Market Risk--Foreign Currency Exchange Rate Risk".
Results of Operations
Year ended December 31, 2000 vs. Year ended December 31, 1999
The following table sets forth, for the periods indicated, our revenue,
center contribution and workstations (i.e., weighted average number of
available workstations) by geographic region.
Year ended December 31,
----------------------------------------------------------------------------------------
1999 2000
------------------------------------------ -------------------------------------------
Center Center
Revenue Contribution Workstations Revenue Contribution Workstations
--------- ------------- -------------- ---------- ------------- -------------
(in (pound) millions except workstations)
UK & Ireland 102.9 20.2 12,324 188.6 59.6 17,568
Rest of Europe 73.7 10.8 12,276 118.9 29.2 17,565
Americas 15.6 (6.0) 3,218 86.5 13.9 10,900
Rest of World 8.4 (7.9) 1,959 27.1 (2.4) 4,300
--------- ------------- -------------- ---------- ------------- -------------
Total 200.6 17.1 29,777 421.1 100.3 50,333
--------- ------------- -------------- ---------- ------------- -------------
The following table sets forth, for the periods indicated, our revenue,
center contribution and workstations by established centers vs. new centers.
Year ended December 31,
----------------------------------------------------------------------------------------
1999 2000
------------------------------------------ -------------------------------------------
Center Center
Revenue Contribution Workstations Revenue Contribution Workstations
--------- ------------- -------------- ---------- ------------- -------------
(in (pound) millions except workstations)
Established centers 134.0 41.7 16,772 293.6 92.3 30,941
New centers 66.6 (24.6) 13,005 127.5 8.0 19,392
--------- ------------- -------------- ---------- ------------- -------------
Total 200.6 17.1 29,777 421.1 100.3 50,333
--------- ------------- -------------- ---------- ------------- -------------
Revenue
Revenue on a global basis increased 110% to (pound) 421.1 million (1999:
(pound) 200.6 million), with weighted average workstations increasing 69% to
50,333 (1999: 29,777). As a result, total revenue per available workstation
("REVPAW") increased 24% to (pound) 8,367 (1999: (pound) 6,737). In 2000, we
opened 93 new centers, including 12 centers in joint ventures, expanded 17
existing centers and closed three centers.
Revenue from established centers increased 119% to (pound) 293.6 million
in 2000 from (pound) 134.0 million in 1999 while weighted average workstations
in our established centers increased 84% to 30,941 in 2000 from 16,772 in 1999.
Accordingly, REVPAW in established centers increased to (pound) 9,488 (1999:
(pound) 7,990), principally due to an increase in both pricing and occupancy.
Revenue from new centers increased 92% to (pound) 127.5 million and workstations
in new centers increased 49% to 19,392 in 2000 from 13,005 in 1999. REVPAW in
our new centers increased to (pound) 6,578 in 2000 from (pound) 5,121 in 1999
because we opened new centers in higher-priced markets and achieved faster fill
rates.
Revenue in the UK and Ireland increased 83% to (pound) 188.6 million
(1999: (pound) 102.9 million), with workstations increasing 43% to 17,568.
REVPAW increased to (pound) 10,736 (1999: (pound) 8,350). In 2000, we opened 17
new centers, one of which was part of a joint venture, in the UK and Ireland,
including four in central London.
Revenue in the rest of Europe increased 61% to (pound) 118.9 million in
2000 from (pound) 73.7 million in 1999 and workstations in the Rest of Europe
increased 43% to 17,568 in 2000 from 12,276 in the same period. REVPAW
increased to (pound) 6,771 in 2000 from (pound) 6,004 in 1999. In 2000, we
opened 27 centers in the Rest of Europe, including eight in Benelux, two in
France, eight in Germany and three in Spain.
Revenue in the Americas increased 455% to (pound) 86.5 million in 2000
from (pound) 15.6 million in 1999 primarily due to a 239% increase in
workstations in 2000. In 2000, we opened 31 new centers in the Americas,
including 26 in the US, 1 in Brazil and 3 in Mexico. We also opened 11
additional centers in the US in joint ventures.
Revenue in the Rest of World increased 224% to (pound) 27.1 million in 2000
from (pound) 8.4 million in 1999 primarily due to a 119% increase in
workstations in 2000. In 2000, we opened 10 centers including three centers in
Australia, two in Japan and, for the first time, a center in each of
Azerbaijan, Egypt and Tunisia.
Center Contribution
Center contribution on a global basis increased 486% to (pound) 100.3
million (1999: (pound) 17.1 million). This increase is principally as a result
of a 110% increase in revenue, offset in part by a 75% increase in cost of
sales to (pound) 320.8 million (1999: (pound) 183.5 million). In our most
important markets, particularly the UK, western Europe and the US, there was
strong demand which resulted in new centers filling more quickly, in
opportunities for price increases and in comparatively high levels of
occupancy.
Contribution from established centers increased 122% to (pound) 92.3
million, primarily as a result of an 84% increase in workstations, to 30,941.
The contribution margin (contribution as a percentage of revenue) from
established centers remained stable at 31%. Contribution from new centers
increased to (pound) 8.0 million (1999: loss of (pound) 24.6 million),
reflecting our strategy of focusing our new center opening program on countries
in which we already operate. As a result, start-up costs of new centers were
substantially reduced.
Center contribution in the UK and Ireland increased 196% to (pound) 59.6
million (1999: (pound) 20.2 million). Contribution margin in the UK and Ireland
increased to 32% (1999: 20%), primarily as a result of higher occupancy and
prices. The UK and Ireland continue to benefit from favourable economic
conditions and a comparative shortage of office space, particularly in central
London.
Center contribution in mainland Europe increased 170% to (pound) 29.2
million, with margin increasing to 25% (1999: 15%). By focusing on opening new
centers only in countries where we had existing centers, the region benefited
from reduced start-up costs compared with the previous year, as well as from
particularly strong markets in western European capital cities.
Contribution in the Americas increased to(pound) 13.9 million (1999: loss
of(pound) 6.0 million). This was principally attributable to the maturing of
existing centers.
Losses in the Rest of the World decreased to (pound) 2.4 million (1999:
loss of (pound) 7.9 million), primarily as a result of reducing the number of
new center openings from 13 in 1999 to nine in 2000.
Administrative Expenses and Exceptional Item
The following table sets forth, for the periods indicated, our
administrative expenses.
Year ended December 31,
----------------------------------
1998 1999
---------- ----------
Sales and marketing costs 34.0 43.5
Regional and central overheads 26.0 43.4
Total administrative expenses 60.0 86.9
Exceptional item 5.1 9.5
Total administrative expenses increased 45% to (pound) 86.9 million,
largely as a result of our substantial investment in sales, marketing and
administrative infrastructure needed to support our expanding network. As a
percentage of revenues, however, administrative expenses decreased to 21% for
the year (1999: 30%), reflecting increased efficiencies arising from our
strategy of focusing on countries and markets in which we had existing
operations. Sales and marketing costs increased 28% to (pound) 43.5 million
(1999: (pound) 34.0 million). Regional and central overheads increased 66% to
(pound) 43.4 million (1999: (pound) 26.1 million). This was principally
attributable to an increase in the number of employees in our headquarters and
regional network, from 258 in 1999 to 292 in 2000.
The (pound) 9.5 million exceptional item in 2000 relates to the costs
associated with the reduction of the exercise price of the Reward Options
granted in the Team Member Share Plan. The original exercise price was
(pound) 1.455 per share, which was written down to (pound) 0.05 per share
following the successful Initial Public Offering. The (pound) 5.1 million
exceptional item in 1999 related to costs in connection with the postponed
flotation.
Operating Profit (Loss)
The following table sets forth, for the periods indicated, our operating
profit (loss) by geographic region.
Year ended December 31,
---------------------------------
1999 2000
--------- ---------
UK & Ireland 4.8 36.7
Rest of Europe (10.5) 3.8
Americas (19.8) (14.6)
Rest of World (15.7) (11.6)
Other Office Costs (1.8) (1.9)
Exceptional item (5.1) (9.5)
--------- ---------
Total (48.1) 2.9
--------- ---------
Our operating profit on a global basis increased to (pound) 2.9 million in
2000 from negative (pound) 48.1 million in 1999. This increase is principally
due to the 486% increase in center contribution, offset in part by the 45%
increase in administrative expenses in 2000 compared to 1999. Exchange rate
movements caused a (pound) 1.1 million decrease in operating profit in 2000.
Net Interest Payable
The following table sets forth, for the periods indicated, our net
interest payable.
Year ended December 31,
----------------------------------
1999 2000
---------- ----------
Interest expense on overdrafts and loans 7.5 7.8
Interest Expense on finance leases 3.0 2.9
Interest income (3.7) (3.9)
---------- ----------
Net Interest payable 6.8 6.8
---------- ----------
Interest payable is principally affected by the interest payable on our
(pound) 100 million senior multi-currency secured loan facility. This facility
was repaid from the proceeds of our initial public offering. Interest income
comprised interest on cash held in deposits generated from organic growth of
our business and the excess portion of debt drawn down from our multi-currency
secured loan facility.
Tax on Loss on Ordinary Activities
The following table sets forth, for the periods indicated, our tax on loss
on ordinary activities.
Year ended December 31,
----------------------------------
1999 2000
---------- ----------
UK tax..................................... 0.2 5.2
Overseas tax............................... 1.3 4.7
---------- ----------
Tax on loss on ordinary activities......... 1.5 9.9
---------- ----------
Despite our overall loss making position in 1999 and 2000, we provided for
tax liabilities in both periods. The principal reason for this was that tax
liabilities were incurred on profits arising in the UK, Ireland, Italy,
Luxembourg, The Netherlands, Belgium, France, Switzerland and Spain. However,
these taxable profits could not be offset by tax losses in all other countries
where we operate. The majority of our operating companies have tax losses
available to carry forward against future profits. In some countries, there are
time restrictions on the carry forward of such losses.
Year ended December 31, 1999 vs. Year ended December 31, 1998
The following table sets forth, for the periods indicated, our revenue,
center contribution and workstations (i.e., weighted average number of
available workstations) by geographic region.
Year ended December 31,
----------------------------------------------------------------------------------------
1998 1999
------------------------------------------ -------------------------------------------
Center Center
Revenue Contribution Workstations Revenue Contribution Workstations
--------- ------------- -------------- ---------- ------------- -------------
(in (pound) millions except workstations)
UK & Ireland 61.2 12.9 7,435 102.9 20.2 12,324
Rest of Europe 45.3 3.7 7,820 73.7 10.8 12,276
Americas 2.6 (1.8) 442 15.6 (6.0) 3,218
Rest of World 2.5 (0.4) 596 8.4 (7.9) 1,959
--------- ------------- -------------- ---------- ------------- -------------
Total 111.6 14.4 16,293 200.6 17.1 29,777
--------- ------------- -------------- ---------- ------------- -------------
The following table sets forth, for the periods indicated, our revenue,
center contribution and workstations by established centers vs. new centers.
Year ended December 31,
----------------------------------------------------------------------------------------
1998 1999
------------------------------------------ -------------------------------------------
Center Center
Revenue Contribution Workstations Revenue Contribution Workstations
--------- ------------- -------------- ---------- ------------- -------------
(in (pound) millions except workstations)
Established centers 71.4 23.0 9,070 134.0 41.7 16,772
New centers 40.2 (8.6) 7,223 66.6 (24.6) 13,005
--------- ------------- -------------- ---------- ------------- -------------
Total 111.6 14.4 16,293 200.6 17.1 29,777
--------- ------------- -------------- ---------- ------------- -------------
Revenue
Our revenue on a global basis increased 80% to (pound) 200.6 million in
1999 from (pound) 111.6 million in 1998. Our workstations increased 83% to
29,777 in 1999 from 16,293 in 1998. In 1999, we opened 91 new centers,
including two centers opened through our joint venture with Equity Office
Properties Trust, expanded 18 existing centers and closed three centers.
Revenue from established centers increased 88% to (pound) 134.0 million in
1999 from (pound) 71.4 million in 1998 and workstations in our established
centers increased 85% to 16,772 in 1999 from 9,070 in 1998. Accordingly, REVPAW
in our established centers increased to (pound) 7,990 in 1999 from (pound) 7,872
in 1998 due mainly to an increase in the aggregate amount of basic revenue and
related service revenue offset by a small reduction in occupancy levels.
Revenue from new centers increased 66% to (pound) 66.6 million in 1999 from
(pound) 40.2 million in 1998 and workstations in our new centers increased 80%
to 13,005 in 1999 from 7,223 in 1998. REVPAW in our new centers decreased to
(pound) 5,121 in 1999 from (pound) 5,566 in 1998 primarily due to the timing of
new center openings and the opening of 51 new centers in 22 new countries,
representing 41% of centers classified as new centers in 1999, which had the
effect of reducing occupancy levels and the aggregate amount of basic revenue
and related service revenue in 1999 compared to 1998.
Revenue in the UK and Ireland increased 68% to (pound) 102.9 million in
1999 from (pound) 61.2 million in 1998 and workstations in the UK and Ireland
increased 66% to 12,324 in 1999 from 7,435 in 1998. REVPAW increased to
(pound) 8,350 in 1999 from (pound) 8,231 in 1998. In 1999, 18 new centers were
opened in the UK and Ireland, including six in central London.
Revenue in the Rest of Europe increased 63% to (pound) 73.7 million in
1999 from (pound) 45.3 million in 1998 and workstations in the Rest of Europe
increased 57% to 12,276 in 1999 from 7,820 in the same period. Revenue
increased to (pound) 6,004 in 1999 from (pound) 5,793 in 1998. In 1999, we
opened 30 new centers in the Rest of Europe, including 12 in Germany, five in
the Benelux region, one in France and the remainder spread across 10 countries.
In 1999, we opened for the first time a new center in each of Latvia, the
Slovak Republic, Romania and Turkey.
Revenue in the Americas increased 500% to (pound) 15.6 million in 1999 from
(pound) 2.6 million in 1998 primarily due to the 628% increase in workstations
in 1999. In 1999, we opened 28 new centers in the Americas, including 20 in the
US and five in new countries comprising one in each of Argentina, Peru and
Panama and two in Mexico. We opened two additional centers in the US through
our joint venture with Equity Office Properties Trust.
Revenue in the Rest of the World increased 236% to (pound) 8.4 million in
1999 from (pound) 2.5 million in 1998 primarily due to the 229% increase in
workstations in 1999. In 1999, we opened for the first time a new center in
each of Tanzania, Thailand, the Philippines, Malaysia and Australia and two new
centers in each of Singapore and Vietnam.
Center Contribution
Our center contribution on a global basis increased 19% to (pound) 17.1
million in 1999 from (pound) 14.4 million in 1998. This increase is principally
due to the 80% increase in revenue, offset in part by the 89% increase in cost
of sales to
(pound) 183.5 million in 1999 from (pound) 97.2 million in 1998. A significant
factor in the cost of sales increasing at a higher rate than revenue was the
increase in rental costs as a percentage of revenue to 35% in 1999 from 30% in
1998. This increase was principally due to the expansion in the US, resulting
in increased start-up costs. In addition, as some of our centers with turnover
leases became more mature and profitable in 1999, the rental payments linked to
the profitability of these centers payable by us to our landlords increased.
Center contribution from established centers increased 81% to (pound) 41.7
million in 1999 from (pound) 23.0 million in 1998 primarily due to the 85%
increase in workstations to 16,772. Center contribution margin from established
centers decreased to 31% in 1999 from 32% in 1998. Losses from new centers
increased 186% to a loss of (pound) 24.6 million in 1999 from a loss of
(pound) 8.6 million in 1998. The increase in losses from new centers reflected
our move toward opening larger centers. Larger centers typically record greater
losses in the months immediately after the center is opened. In addition, of
the 20 US centers opened in 1999, 15 opened in the second half of 1999 thus
producing substantial costs but only limited revenue during the year. The
losses were also impacted by our development in Asia where we incurred
significant losses at the start-up stage.
Center contribution in the UK and Ireland increased 57% to (pound) 20.2
million in 1999 from (pound) 12.9 million in 1998 primarily attributable to an
increased number of centers becoming established. Center contribution margin in
the UK and Ireland decreased to 20% in 1999 from 21% in 1998 primarily due to
the 18 new centers opened in the UK and Ireland and the high cost of these
centers. In the UK and Ireland, we have created a national network of business
centers and our brand is becoming increasingly well known. These factors,
together with favorable economic conditions, mean that our margins in the UK
and Ireland tend to be higher than other regions.
Center contribution in the Rest of Europe increased 192% to (pound) 10.8
million in 1999 from (pound) 3.7 million in 1998. Center contribution margin in
the Rest of Europe increased to 15% in 1999 from 8% in 1998. High levels of
occupancy and price growth in The Netherlands, the elimination of losses in
France and a substantial reduction in losses in Germany all contributed to the
Rest of Europe's significantly improved contribution in 1999.
Losses in the Americas increased 233% to negative (pound) 6.0 million in
1999 from negative (pound) 1.8 million in 1998. This increase was principally
attributable to the scale and timing of openings in the US.
Losses in the Rest of the World increased substantially to negative
(pound) 7.9 million in 1999 from negative (pound) 0.4 million in 1998 primarily
due to significant losses incurred by us in establishing a presence in Asia.
For example, the three centers we opened in Tokyo produced losses of (pound) 3.5
million.
Administrative Expenses and Exceptional Item
The following table sets forth, for the periods indicated, our
administrative expenses and an exceptional item in 1999, relating to costs
associated with the postponed flotation on the London Stock Exchange in 1999.
Year ended December 31,
----------------------------------
1998 1999
----------- -----------
(in (pound) million)
Sales and Marketing costs 14.3 34.0
Regional and central overheads 15.3 26.0
Total administrative expenses 29.6 60.0
----------- -----------
Exceptional item - 5.1
----------- -----------
Administrative expenses increased 103% to (pound) 60.0 million in 1999 from
(pound) 29.6 million in 1998 largely as a result of our substantial investment
in sales, marketing and administrative infrastructure needed to support our
expanding network of centers. During 1999, we increased the number of countries
in which we operate to 45 countries. Of the 45 countries, 28 had only one or
two Regus centers open at year end. Sales and marketing costs increased 138% to
(pound) 34.0 million in 1999 (or 57% of total administrative expenses) from
(pound) 14.3 million in 1998 (or 48% of total administrative expenses) primarily
due to the increase in sales and marketing employees from 159 in 1998 to 285 in
1999 and costs incurred in connection with brand development activities and the
reorganization of our sales and marketing infrastructure during 1999. We
increased the size of our worldwide sales and marketing team in 1999 primarily
due to the increase in number of centers opened in 1999 and the increase in the
number of countries in which we operated from 30 in 1998 to 45 in 1999.
Regional and central overheads increased 70% to (pound) 26.0 million in 1999 (or
43% of total administrative expenses) from (pound) 15.3 million in 1998 (or 52%
of total administrative expenses). This increase was principally attributable
to the increase in the number of employees in our headquarters and regional
network from 140 in 1998 to 258 in 1999 and the increase in the number of
countries in which we operated in 1999.
Operating Loss
The following table sets forth, for the periods indicated, our operating
loss by geographic region.
Year ended December 31,
-----------------------------------
1998 1999
----------- ----------
(in (pound) million)
UK & Ireland (1)........................... - 4.8
Rest of Europe............................. (11.2) (10.5)
Americas................................... (3.2) (19.8)
Rest of World.............................. (2.2) (15.7)
Other Office costs......................... 1.4 (1.8)
Exceptional items.......................... - (5.1)
----------- ----------
Total...................................... (15.2) (48.1)
----------- ----------
(1) UK & Ireland reported an operating loss of (pound) 49,000 in 1998.
Our operating loss on a global basis increased 216% to (pound) 48.1 million
in 1999 from (pound) 15.2 million in 1998. This increase is principally due to
the 103% increase in administrative expenses and the (pound) 5.1 million
exceptional item in 1999, each as described above, offset in part by the 19%
increase in center contribution in 1999 compared to 1998. Exchange rate
movements caused a (pound) 0.7 million reduction in operating profit in 1999.
Net Interest Payable
The following table sets forth, for the periods indicated, our net
interest payable.
Year ended December 31,
-----------------------------------
1998 1999
----------- ----------
(in (pound) million)
Interest expense on overdrafts and loans... 1.4 7.5
Interest expense on finance leases......... 1.9 3.0
Interest income............................ (1.3) (3.7)
---------- -----------
Net interest payable....................... 2.0 6.8
---------- -----------
Interest payable increased substantially in 1999 compared to 1998
primarily due to interest payable on our (pound) 100 million multi-currency
secured loan facility, (pound) 90 million of which was drawn down during 1999.
Interest expense on finance leases has increased over the period due to the
number of fit-outs for new centers.
Interest receivable increased significantly in 1999 compared to 1998 as a
result of an increase in cash held in deposits from organic growth of our
business and the unused portion of debt drawn down from our multi-currency
secured loan facility.
Tax on Loss on Ordinary Activities
The following table sets forth, for the periods indicated, our tax on loss
on ordinary activities.
Year ended December 31,
-----------------------------------
1998 1999
------------ -----------
(in (pound) million)
UK tax..................................... 0.4 0.2
Overseas tax............................... 0.4 1.3
------------ -----------
Tax on loss on ordinary activities......... 0.8 1.5
------------ -----------
Despite our overall loss making position in 1998 and 1999, we provided for
tax liabilities in both periods. The principal reason for this was that tax
liabilities were incurred on profits arising in the UK, Ireland, Italy,
Luxembourg and The Netherlands. However, these taxable profits could not be
offset by tax losses in all other countries where we operate.
Recently Issued Accounting Announcements
Lease Accounting
The UK Accounting Standards Board is in the relatively early stages of
considering changes to the treatment of lease accounting and in December 1999
issued a discussion paper titled "Leases: Implementation of a New Approach".
The paper proposes that, at the beginning of a lease, the lessee would
recognize an asset and a liability equivalent to the fair value of the rights
and obligations that are conveyed by the lease. This is typically the present
value of the minimum payments required by the lease. Thereafter, the accounting
for the lease asset and liability would follow the normal requirements for
accounting for fixed assets and debt. The lessor would report financial assets,
representing amounts receivable from the lease, and residual interests as
separate assets.
The paper also examines the principles of accounting for more complex
features of lease agreements, including rentals contingent upon the lessee's
revenues or profits, such as our turnover leases. In the case of turnover
leases, the minimum lease payments may be unrepresentative of the value
conveyed by the lease. In such cases, the fair value to be capitalized should
be the fair value which may be determined by reference to a similar lease
having no contingent payments, such as a lease at market rent. Contingent
rentals in excess of this fair value would only be recognized when the
contingency criteria were met. Comments on this paper were submitted in April
2000. The proposals have received widespread comment from a broad cross-section
of UK industry and professional bodies. There is now a substantial process to
be undertaken including consultation and the issuance of further draft
proposals. It is too early in this process to assess the form, content and
implications of any resulting new accounting standard.
Accounting Standards and Pronouncements
Statement of Financial Accounting Standards (SFAS) 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, and SFAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, is effective for us as
of January 1, 2001. SFAS 133 requires that an entity recognize all derivatives
as either assets or liabilities measured at fair value. The accounting for
changes in the fair value of a derivative depends on the use of the derivative.
Derivatives that are not designated as part of a hedging relationship must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, the effective portion of the hedge's change in fair
value is either (1) offset against the change in fair value of the hedged
asset, liability or firm commitment through income or (2) held in equity until
the edged item is recognized in income. The ineffective portion of a hedge's
change in fair value is immediately recognized in income. Adoption of these new
accounting standards on a US GAAP basis has no impact on income and earnings in
the first quarter of 2001.
In September 2000 the Financial Accounting Standards Board issued SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. SFAS No. 140 replaces SFAS No. 125 Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. SFAS No. 125 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, however it carries over most of the provisions of
SFAS No. 125 without reconsideration. SFAS No. 140 is generally effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. The disclosure requirements are effective for
financial statements for fiscal years ending after December 15, 2000. We do not
expect the adoption of SFAS No. 140 to have a material impact on its present
activities.
US GAAP Reconciliation
Under US GAAP, net profit (loss) for the years ended December 31, 1998,
1999 and 2000 would have been (pound) (16.4) million, (pound) (70.6) million and
(pound) (16.8) million, respectively. Total shareholders' funds (deficit) as of
December 31, 1998, 1999 and 2000 would have been (pound) 10.0 million,
(pound) (29.9) million and (pound) 169 million, respectively. The principal
differences between UK and US GAAP applicable to our consolidated financial
statements relates to compensation expense associated with share options, the
recognition of interest expense associated with warrants issued in connection
with subordinated loans and changes in the fair value of those warrants, the
treatment of our shares held by the employee share trust, and deferred taxes,
including those arising from US GAAP adjustments, required under US GAAP. The
effect of these differences and other items identified have been discussed in
the notes to the consolidated financial statements along with reconciliations
of retained loss and total shareholders' funds (deficit) under UK GAAP to
similar measures under US GAAP. See note 27 to the consolidated financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our liquidity requirements arise primarily from the need to fund our lease
commitments for our centers and capital expenditures for the fit-out of new
centers and the refurbishment of older established centers. To date, these
requirements have been funded largely through cash flow from operations, bank
borrowings and equity funding from our existing shareholders. We expect to
continue to incur additional property leasing costs and capital expenditures in
order to expand our network of centers around the world and improve the quality
of our centers, although management believes that the large majority of these
requirements will be met by cash flow from operations and a portion of the net
proceeds of the initial public offering.
Generally, after the first six months of operation, our centers operate
with negative working capital, i.e., creditors, or accounts payable, exceed
debtors, or accounts receivable. This is principally caused by our standard
terms and conditions of our agreements with our customers, which typically
require our customers upon signing their agreement with us to pay an initial
one-time deposit of two months' rental payments and to pay monthly rental
payments in advance. The customer deposits and the advance rental payments are
recorded as creditors.
The following table sets forth, for the periods indicated, information
about our cash flows under US GAAP.
Year ended December 31,
---------------------------------------------
1998 1999 2000
----------- --------- --------
(US GAAP)
(in (pound) millions)
Cash and cash equivalents at beginning of period...... 13.8 39.8 50.1
Cash from (used in) operating activities.............. 12.1 6.7 108.7
Cash from (used in) investing activities.............. (28.4) (90.8) (109.3)
Cash from (used in) financing activities.............. 42.7 103.9 68.4
Effect of exchange rate changes on cash............... (0.4) (1.4) 1.5
Other non-cash movement............................... - (8.1) 9.5
----------- --------- --------
Cash and cash equivalents at end of period............ 39.8 50.1 128.9
----------- --------- --------
Cash from operating activities was (pound) 108.7 million in 2000 compared
to (pound) 6.7 million in 1999, (pound) 10.1 million before an exceptional item,
and (pound) 12.1 million in 1998. These decreases in cash from operating
activities from 1998 to 1999, primarily reflected the (pound) 3.8 million
increase in interest paid on new loans entered during 1999, increases in
interest paid on finance leases and the (pound) 1.5 million payment of debt
arrangement fees in 1999, partly offset by the increase in the number of
workstations from 16,293 to 29,777 in 1999. Cash from operating activities
increased substantially in 2000, primarily due to the overall expansion of our
business, including the increase in the number of workstations from 29,777 to
50,333, causing our operating loss to decrease by (pound) 52.0 million, our
depreciation to increase by (pound) 20.5m and our creditors (known as accounts
payable under US terminology) to increase by (pound) 55.3 million, partly offset
by the increase in debtors (known as accounts receivable under US terminology)
of (pound) 25.7 million.
Cash used in investing activities, including principally capital
expenditure but also financial investments, acquisitions and disposals,
increased significantly to (pound) 151.8 million (including a loan to our
Employee Trust of (pound) 42.5 million for the purchase of our own shares) in
2000 from (pound) 90.8 million in 1999 and (pound) 28.4 million in 1998. The
increases in each period were primarily due to a significant increase in
capital expenditure resulting from the purchase of tangible fixed assets
related to fit-outs of centers opened in each period. In addition, in 1999 and
2000, we invested (pound) 1.3 million and (pound) 3.8 million, respectively, in
our joint venture entities in the form of capital contributions. In 1998, we
had no acquisitions or disposals. In 2000 the increase is also due to the
increase in restricted cash of (pound) 19.0 million and the purchase of own
shares of (pound) 42.5 million (included in investing activities) relating to
shares held by Regus Employee Trust.
Cash from financing activities was (pound) 110.9 million in 2000 compared
to (pound) 103.9 million in 1999 and (pound) 42.7 million in 1998. These
increases in cash from financing activities, other than for the year 2000, were
principally attributable to new loans in 1998 ((pound) 5.6 million) and 1999
((pound) 105.1 million) and the issuance of equity shares in 1998 ((pound) 50.2
million) and 1999 ((pound) 20.0 million) offset in part by the repayment of
loans in 1998 ((pound) 2.0 million) and 1999 ((pound) 12.3 million) and the
payment of principal under finance leases in 1998 ((pound) 10.6 million) and
1999 ((pound) 15.8 million). The increased cash provided in financing activities
in 2000 was primarily due to (pound) 235.8 million cash received from the
initial public offering offset mainly by the repayment of debt of (pound) 116.3
million.
Capital Resources
Significant sources of financing during the periods under discussion
included the following items.
o In October 2000, we and certain selling shareholders offered and sold
128,829,075 of our shares, nominal value 5p per share, and ADSs, each ADS
representing five shares, at a public offering price of (pound) 2.60 per
share and $18.79 per ADS. We received net proceeds of $353.1 million after
deducting the underwriting discount and actual offering expenses paid by
us of $26.8 million.
o In June 1999, we entered into a (pound) 100 million senior secured
multicurrency revolving facility led by Merrill Lynch, which subsequently
was partially syndicated to Deutsche Bank and Commerzbank, with
Commerzbank as the lead arranger. As required by this facility, we repaid
the outstanding balance under this facility from the proceeds of the
October 2000 offering and cancelled this facility in October 2000.
o As at December 31, 2000, we had commitments through bank guarantees to
property owners, suppliers and to overseas banks totaling (pound) 42.2
million compared to (pound) 26.5 million at December 31, 1999. These bank
guarantees are collateralized by placing funds on deposit with the bank
issuing the guarantees. We earn interest on these deposits and, in a
number of cases, the bank has security over the deposit.
o Bank loans from Union Bank of Switzerland AG or UBS and National
Westminster Bank PLC were repaid with the proceeds of the(pound) 100
million senior secured multicurrency revolving facility during 1999.
Associated with the subordinated loan from UBS was an option agreement
dated November 12, 1997 and amended as of August 3, 1998 among UBS, Regus
Business Center BV, Maxon Investments BV and us, granting options to UBS
on a small proportion of our shares held by Maxon Investments BV. These
options were exercisable against payment by UBS of a strike price
of(pound) 0.01 per share upon the earliest of an initial public offering,
a significant trade sale of our company and five years. On September 20,
2000, Maxon Investments BV and UBS entered into a deed of amendment to
this option agreement under which UBS agreed to waive its rights to
receive our shares in the offering in consideration for the payment by
Maxon Investments BV of(pound) 8.5 million, less(pound) 25,500 of
commissions and expenses, at the time of an initial public offering. This
amount was paid in October 2000 in full satisfaction of all obligations to
UBS.
o In August 1998, a consortium comprising an affiliate of Bankers Trust, now
part of Deutsche Bank, and two affiliates of Apollo Real Estate Investment
Fund III LP or Apollo acquired 17.5% of our share capital for cash
consideration of $100 million, of which $83 million was paid to us by way
of subscription for new shares and the balance of $17 million was paid to
Maxon Investments BV in consideration for the sale of existing shares. In
October and November 1999, we allotted a further 2.9% of our issued share
capital to two affiliates of Deutsche Bank and two affiliates of Apollo
for a total consideration to us of(pound) 20 million. On November 30,
1999, Maxon Investments BV granted an option exercisable for an aggregate
strike price of(pound) 1.00 in favor of affiliates of Deutsche Bank and
Apollo over 3,926,484 shares. This grant was made in consideration of
these entities waiving their rights in the shareholders' agreement
described under "Item 7. Major Shareholders and Related Party
Transactions--Related Party Transactions--Shareholders' Agreement" to
require that they be permitted to sell shares in an initial public
offering ahead of other shareholders. This option was exercised in October
2000.
As of December 31, 2000, we had bank indebtedness of approximately
(pound) 5.8 million. Within the next 12 months, we expect to be able to finance
our business, including the rest of the expansion of our network of business
centers, from cash flow from operations. Beyond the next 12 months, we expect
to continue to increase the number of our centers and to expand some of our
existing centers. For a discussion of our expected capital expenditures in 2001
and 2002, see "Item 4. Information on the Company--Business Overview--Capital
Expenditures". We believe that we will be able to fund these capital
expenditures from cash flow from operations. However, if cash flow from
operations does not increase as expected, we would rely on borrowings, to the
extent available on suitable terms, to support these capital expenditures.
PROSPECTS
Trading conditions generally have become more challenging over the last
quarter of 2000 and first quarter of 2001, particularly in the US.
Enquiry levels, a good indicator of future demand for our services, remain
buoyant overall. The nature of enquiries is trending towards larger, longer term
contracts that, by their nature, take longer to conclude and tend to be at finer
margins because
customers are more price-sensitive. The impact of these types of contracts on
our business is mitigated by reduced resale costs.
We will add significantly more workstations to the network in the first
half 2001 compared with second half 2001. We expect to add approximately 10,000
workstations to the network in second quarter 2001 which is expected to limit
center contribution in the second quarter but beneficially impact second half
2001 contribution.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth our directors and executive officers and
their ages and positions.
Name (1) Position Age
- -------- -------- ---
Directors
George Gray Non-Executive Chairman 62
Mark Dixon Director 41
Rudolf Lobo Director and Company Secretary 44
Stephen Stamp Director 39
Robert Kuijpers* Non-Executive Director 62
John Matthews Non-Executive Director 55
Roger Orf Non-Executive Director 47
Executive Officers
Mark Dixon Chief Executive 41
Rudolf Lobo Executive Director and Company Secretary 44
Stephen Stamp Group Finance Director 39
Christopher Boulton International Property Director 37
Robert Gaudreau Executive Vice President, North America 39
Steve Jude International Sales and Marketing Director 38
Sean Morgan Managing Director, UK and Ireland 47
Jim Howland Chief Executive Officer, Americas 40
* Resigned on April 2, 2001 to take up executive role of Chief Executive
Officer, International.
- ---------
(1) The address for each listed director and officer is c/o Regus plc, 3000
Hillswood Drive, Chertsey KT16 0RS, England.
Dr. Gray was appointed as our non-executive director in August 1999 and
became non-executive chairman upon our initial public offering. He was
executive chairman of Serco Group plc, a provider of business services. He was
appointed chairman of Serco on completion of the management buy-out from RCA.
He is also a non-executive director of Misys plc, a software company.
Mr. Dixon founded the business in 1989 and has been primarily responsible
for the development of the business over the last ten years. He is recognized
as a major contributor to the growth of the serviced office industry and as a
successful entrepreneur. Prior to October 2000, Mr. Dixon was the executive
chairman.
Mr. Lobo joined us eight years ago and was previously group finance
director. He is responsible for commercial issues, risk management, legal
services and has responsibility for directing our IT and e-business strategy.
Previously, Mr. Lobo was the group company secretary of Medicom International
Ltd, a publisher of medical journals, and a director of several of its
subsidiaries.
Mr. Stamp joined us in January 2000 from Shire Pharmaceuticals Group plc,
a pharmaceuticals company, where he was group finance director. Prior to
joining Shire in 1994, he was an assistant director of corporate finance at
Lazard Brothers and before that spent four years at KPMG London, qualifying as
a chartered accountant in 1987. He is also a non-executive director of Enact
Pharma plc, a pharmaceuticals company.
Mr. Kuijpers was appointed as non-executive director in September 1999.
Mr. Kuijpers is chief executive officer of DHL Worldwide Express, a courier
company. Prior to joining DHL in 1988, he was employed in a number of positions
with H.J. Heinz, a producer of food and beverages. His last position with H.J.
Heinz was as managing director for continental Europe. Before this, he held a
number of positions in sales and marketing.
Mr. Matthews was appointed as non-executive director in 1995. He is
currently the chairman of Crest Nicholson plc, a property and construction
company, deputy chairman of Perry Group plc, a retail motor dealer and repair
specialist, and a director of Rotork plc, which sells valve actuators, as well
as several private companies. A chartered accountant, he has held senior
positions in investment banking and in industry, having been a managing
director of County NatWest Ltd. and chief executive of Indosuez Capital Ltd.,
both of which are financial services organizations. He was also deputy chairman
and deputy chief executive of Beazer plc, a company involved in aggregates and
construction.
Mr. Orf was appointed as non-executive director in August 1998. Since
1995, Mr. Orf has been a managing director and founding partner of Pelham
Partners Limited, a property management and advisory company, and has worked
with Apollo and its affiliates on all of their European investments. Mr. Orf
was in charge of European real estate investment banking at Goldman Sachs where
he was employed from April 1982 to 1995.
Mr. Boulton joined us in 1998 and is responsible for managing the property
team and for our property strategy, including the negotiation of joint ventures
and the management of our international portfolio. Prior to joining us, he was
a partner at CB Hillier Parker, a firm of international property consultants,
where he advised large UK and US corporates on property acquisitions since
joining that firm in 1987.
Mr. Gaudreau has more than 14 years of experience in the serviced office
industry and more than eight years of experience with us as group sales
director. Since 1998, he has been responsible for the growth and development of
our operations in North America.
Mr. Jude joined us in September 1999 and is responsible for setting all
non-American sales strategy, managing the direct sales force and managing
global marketing strategy. Prior to joining us, he was director of
international sales for Avis Europe plc, part of Avis Rent-A-Car Company, from
1993 to 1999.
Mr. Morgan joined us in October 1994 as group operations director. As
managing director of the UK and Ireland, he is responsible for the day to day
operation of this region. In addition, he manages our operational policies. Mr.
Morgan was previously senior vice president of operations, North America for
Trust House Forte, Inc, a hospitality and hotel company.
Mr. Howland joined us in December 2000 as CEO, Americas with overall
responsibility for the US, Canada, South and Central America. Previously, Mr.
Howland was President, International Merchant Services at American Express. He
has also worked for McKinsey & Co.and Hewlett Packard.
Except as set out below, none of the directors and executive officers
identified above has:
o any unspent convictions in relation to indictable offenses;
o been the subject of bankruptcy proceedings or an individual voluntary
arrangement;
o been a director of any company at the time of or within 12 months
preceding its receivership, compulsory liquidation, creditors'
voluntary liquidation, administration, entry into company voluntary
arrangements or entry into composition or arrangement with its
creditors generally or any class of creditors;
o been a partner in a partnership at the time of or within 12 months
preceding such partnership's compulsory liquidation, administration
or entry into a partnership voluntary arrangement or the appointment
of a receiver over any such partnership's assets;
o had a receiver appointed with respect to any assets belonging to him;
o been the subject of public criticism by any statutory or regulatory
authority, including recognized professional bodies; or
o been disqualified by a court from acting as a director of a company
or from acting in the management or conduct of the affairs of any
company.
In December 1998, our Chief Executive, Mark Dixon, was convicted by a
Magistrates Court of causing actual bodily harm. This plea related to a 1998
incident in which Mr. Dixon was involved in a fracas that led to an individual
sustaining minor injuries. The court sentenced Mr. Dixon to serve 50 hours of
community service and ordered him to pay (pound) 815 in compensation. Mr. Dixon
has satisfied the court's sentence. Our board of directors has considered this
matter and has noted that Mr. Dixon has no other convictions and that the
offense did not involve dishonesty or business impropriety. The board of
directors has taken the view that the conviction has no material bearing on Mr.
Dixon's fitness to be a director and our Chief Executive.
COMPENSATION
The aggregate compensation paid by us to all persons who served in the
capacity as director or executive officer for the year ended December 31, 2000
(13 persons) was approximately (pound) 1,273,000 in salaries, (pound) 471,000 in
bonuses, nothing in severance payments, (pound) 67,000 for benefits in kind and
(pound) 69,000 in pension contributions. Benefits in kind include car allowance,
reimbursement of gasoline costs and private medical insurance. Of these
figures, an aggregate of approximately (pound) 988,000 was paid to directors,
excluding pension contributions of (pound) 48,000. These figures do not include
expenses reimbursed to executive officers, including business travel,
professional and business association dues.
We have not made any currently outstanding loans to any of our directors.
In addition, we do not have any outstanding guarantees for the benefit of any
of our directors.
BOARD PRACTICES
The Board of Directors is committed to maintaining the highest standards
of corporate governance in line with the Combined Code, issued by the London
Stock Exchange in 1998, which sets out the Principles of Good Governance and
the Code of Best Practice.
Board composition
The Board currently comprises three executive directors, three
independent non-executive directors, including a non-executive chairman and
Roger Orf who, by virtue of his interest in the share capital of the Company
(as described in the Remuneration report) is not an independent non-executive
director. The Chairman of the audit committee, currently John Matthews, has
acted as senior independent director since 1995. The Board schedules seven
meetings each year, but arranges to meet at other times, as appropriate. It has
a formal schedule of matters specifically reserved for its decision and
approval. The Board is supplied with appropriate and timely information to
enable it to discharge its duties and requests additional information or
variations to regular reporting as it requires. A procedure exists for
directors to seek independent professional advice at the Company's expense in
the furtherance of their duties, if necessary. In addition, appropriate
training is made available for all new directors to assist them in the
discharge of their responsibilities. All directors have access to the advice
and services of the Company Secretary, who is responsible for ensuring that
Board procedures are followed and that applicable rules and regulations are
complied with. While all directors are expected to bring an independent
judgment to bear on strategy, performance, resources (including key
appointments) and standards of conduct, the independent non-executive directors
were selected and appointed for this purpose. All directors submit themselves
for re-election at least every three years and directors appointed during the
period are required to seek re-election at the next Annual General Meeting. The
independent non-executive directors understand that the Board will not
automatically recommend their re-election.
Board committees
The Board has a number of standing committees, which all have written
terms of reference setting out their authority and duties:
Audit committee - the members of this committee are John Matthews
(Chairman), George Gray and Robert Kuijpers (all independent non-executive
directors). The audit committee meets as required, but not less than four times
a year. Its responsibilities, in addition to those referred to under Internal
Control, include a critical review of the annual and interim financial
statements (including the Board's statement on internal control in the annual
report) prior to their submission to the Board for approval, when a report from
the committee is also given. The committee also reviews the scope and results
of the external audit and its cost effectiveness and the independence and
objectivity of the auditors. Although other directors, including the Group
Finance Director, attend audit committee meetings, the committee can meet for
private discussions with the internal and external auditors.
Nomination committee - the members of this committee are George Gray
(Chairman), John Matthews, Robert Kuijpers *(all independent non-executive
directors), and Mark Dixon. The committee meets as required but not less
than once a year. Its responsibilities include reviewing the Board structure,
size and composition, nominating candidates to the Board to fill Board
vacancies when they arise and recommending directors who are retiring by
rotation to be put forward for re-election.
Remuneration committee - the members of this committee are John Matthews
(Chairman), George Gray and Robert Kuijpers * (all independent non-executive
directors). For a statement setting out the role and responsibility of this
committee and our remuneration policy, see "- Remuneration Policy.". From the
end of March 2001 Robert Kuijpers stepped down as a non-executive director and
no longer serves on the committees above.
* resigned on April 2, 2001 as a director.
Going concern
After making appropriate enquiries, the directors consider that we have
adequate resources to continue in operational existence for the foreseeable
future. For this reason, they continue to adopt the going-concern basis in
preparing the financial statements.
Internal control
The Board acknowledges its overall responsibility for our system of
internal control and for reviewing its effectiveness on a timely basis. The
internal control processes have been designed to identify, evaluate and manage
the key risks that we encounter in pursuing our objectives. Internal control
processes encompass all controls, including financial, operational and
compliance controls and risk management. Such a system is, however, designed to
manage rather than eliminate the risk of failure to achieve business
objectives, and cannot provide absolute assurance against material
misstatement.
The Board conducted an in-depth review of our strategy prior to the
initial public offering on October 17, 2000 and it continues to conduct regular
reviews of our strategic direction. Country and regional strategic objectives,
quarterly plans and performance targets for 2001 and beyond have been set by
the executive directors and are regularly reviewed by the Board in the context
of our overall objectives.
The control framework and key procedures in place throughout the year
ended December 31, 2000 are:
o The executive directors ("the Group executive") normally meet monthly
together with certain other senior executives to consider our
financial performance, business development and our management
issues. Directors of key operating companies meet regularly to manage
their respective businesses.
o Major business risks and their financial implications are appraised
by the executives responsible as part of the budget process and are
endorsed by regional management. Key risks are reported to the Board
and the audit committee. The appropriateness of controls is
considered by the executives, having regard to cost/benefit,
materiality and the likelihood of risks crystallizing.
o Country and regional budgets, containing financial and operating
targets, capital expenditure proposals and performance indicators,
are reviewed by the Group executive and must support regional
business strategies.
o Monthly reports on Group and regional performances are provided to
the Group executive. Quarterly summaries and forecasts are presented
to the Board and discussed at Board meetings. Performance against
budgets and objectives is reviewed with regional management, as are
forecasts and material sensitivities. The Board regularly receives
reports from key executives and functional heads on matters such as
forecasts, business development, strategic planning, legal and
corporate.
o Appropriate delegated authority levels are in force which prescribe
the limits to which it can be committed.
o A policy governs appraisal and approval of investment expenditure and
asset disposals. Post-investment audits are undertaken.
o Other key policies and control procedures (including finance,
operations and health and safety) are available to all staff on
web-based systems.
Since our initial public offering on October 17, 2000, we have
strengthened our internal audit function, co-sourced with Arthur Andersen,
which reports to management on our worldwide operations. Its program of work
and its findings, including any material control issues and resultant actions,
are reviewed by the audit committee. To underpin the effectiveness of controls,
it is our policy to recruit and develop appropriately skilled management and
staff of high calibre and integrity. High standards of business ethics and
compliance with laws, regulations and internal policies are demanded from staff
at all levels.
Communications with shareholders
A regular programme of meetings with major institutional shareholders is
planned in order to communicate our performance and prospects. In addition,
presentations will be made four times a year after the announcement of results,
the details of which, together with our financial reports and announcements,
will be accessible via our Internet site. The Company corresponds regularly on
a range of subjects with its individual shareholders who have an opportunity to
question the Board, as well as the Chairman of the audit and remuneration
committees, at the Annual General Meeting.
Compliance statement
Since listing its shares with the London Stock Exchange, the Company has
complied with the provisions set out
in Section 1 of the Code of Best Practice prepared by the Committee on Corporate
Governance and published in June 1998 ("the Combined Code") except for the
requirement of provision D2.1 of the Code (according to the Guidance notes
issued to directors by the Turnbull working party issued in September 1999).
This Code provision states that the directors should, at least annually, conduct
a review of the effectiveness of our system of internal controls and should
report to shareholders that they have done so. The review should cover all
controls, including financial, operational and compliance controls and risk
management.
The following procedures will enable the Company to report full compliance
for 2001 but were not in place throughout the year ending December 31, 2000:
o Throughout 2001, an ongoing process for the formal identification of
the Company's significant risks and mitigating control processes will
be in place.
o An embedded system of reporting the effectiveness of controls (and,
where relevant, management's actions in response to any observed
weaknesses) will be established during the first quarter of 2001.
o A multi-disciplinary risk forum, chaired by Rudolf Lobo, has been
established to report to the Board on a quarterly basis from the
first quarter of 2001. It will consider all aspects of risk
management and, through its reports, will enable the Board to assess
regularly the overall effectiveness of our system of internal
control.
For the period prior to October 17, 2000, we complied with the remaining
provisions of the Combined Code except for:
o the requirement to re-elect directors at least every three years
(provision A6.2); and
o the establishment of an Audit Committee (provision A3.1).
The remuneration committee
The remuneration committee is chaired by John Matthews and its other
members are George Gray and Robert Kuijpers. All members of this committee are
independent non-executive directors. Mark Dixon and/or other directors may be
invited to attend some meetings of the committee in an advisory capacity as the
committee considers appropriate. The committee will consider all material
elements of remuneration policy, remuneration and incentives of executive
directors and senior management with reference to independent remuneration
research and professional advice in accordance with the Combined Code on
Corporate Governance, and will make recommendations to the Board of Directors
on the framework for executive remuneration and its cost. The Board of
Directors is then responsible for implementing the recommendations and agreeing
the remuneration package of individual directors. Directors are not permitted,
under Regus' Articles of Association, to vote on their own terms and conditions
of remuneration. The committee does not make recommendations on the
remuneration of non-executive directors, which is a matter solely for the full
Board. The members of the remuneration committee attend the Company's Annual
General Meeting and are available to answer shareholders' questions about
directors' remuneration.
Remuneration policy
Remuneration policy centers on ensuring that remuneration packages are
sufficiently competitive to attract, retain and motivate the right calibre of
executive directors and senior management. Incentive payments are conditional
upon demanding performance criteria so as to align incentive awards paid to
directors directly with the interest of shareholders. The remuneration
committee uses the services of external consultants to help it agree
appropriate packages reflecting the remuneration policy. The constituent parts
of those packages are set out in the following paragraphs.
Basic salary and benefits
Salaries are reviewed annually and determined by the committee, taking
into account the performance of the individual directors over the previous 12
months and the pay and employment conditions elsewhere. The committee also uses
information provided by external consultants relating to the rates of pay for
similar positions in comparable companies. Any increases in basic salary are
effective from January 1 in each year. The remuneration table included within
this report also shows benefits received in 2000. The main benefits relate to
the provision of company cars and the provision of private medical insurance
for the director and his immediate family.
Annual performance bonus
Under the annual bonus scheme, the executive directors are entitled to an
annual bonus of up to 40% of their basic salary, which is payable provided the
budget targets for the relevant financial year are achieved.
Long-term incentive plan
Other than share options, the executive directors do not participate in
any of the long-term incentive plans offered to senior management.
Share options
We believe that share ownership by employees, including the executive
directors, strengthens the link between their personal interests and those of
ordinary shareholders. Regus has established a number of employee share plans,
including the Regus Team Member Share Plan, a replacement plan known as the
Regus Global Share Plan and the Regus International Sharesave Plan. As at
February 26, 2001 no options had been granted to executive directors, other
than those detailed in the table of directors' interests at the end of this
report. During 1999, we established the Regus Employee Trust. The Trust is a
discretionary trust for the benefit of employees, including executive
directors. The Trust may issue shares to our employees (including directors) at
the discretion of the Company. The Trust has purchased some of the shares in
the Company which would be required if participants were entitled to exercise
the maximum number of options outstanding under the share option plans.
Pensions
The executive directors participate in the Company's Money Purchase
(Personal Pension) Scheme. The Company matches employee contributions up to a
maximum of 10% of basic salary. The main benefits to executive directors, who
contribute a percentage of their gross salaries to the scheme, are:
o A pension, based on the value of fund built up from personal
contributions, at any age between 50 and the normal pension age of
65;
o A tax-free cash sum, payable when taking the benefits;
o Life assurance cover based on the level of contributions with the
opportunity to purchase additional cover, subject to Inland Revenue
limit of 5% of net relevant earnings; and
o Pension to spouse payable on death.
All executive directors are subject to the Inland Revenue cap on the
amount of salary which may be treated as pensionable.
Service contracts
On July 1, 2000, Mark Dixon, Rudolf Lobo and Stephen Stamp entered into
full-time rolling service agreements with Regus Management Limited. These are
terminable by either party giving not less than 12 months' notice to the other
party or automatically on the respective directors reaching the age of 65.
George Gray, Robert Kuijpers, John Matthews and Roger Orf, as non-executive
directors, have been appointed pursuant to letters of appointment dated
September 2, 1999 (as amended by letters of amendment dated November 30, 1999
and September 21, 2000), October 4, 1999, October 26, 1999 and August 29, 2000
respectively. These appointments are for three years, terminable on three
months' notice by the Company or the directors.
Directors' and Executive Officers' remuneration table
(1) In addition to the annual bonus of 40% of their basic salary, the
directors indicated received a one-off bonus of $10,000 each. This was
approved by the remuneration committee.
(2) former director
Pension
Salary Bonus Benefits Total Total Pension scheme scheme
/fees remuneration remuneration contributions contributions
2000 1999 2000 1999
(pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000
- -------------------------------------------------------------------------------------------------------------------------
Executive
Directors
Mark Dixon (1) 300.0 127.0 21.0 448.0 384.8 28.0 56.0
Peter Jenkins(2) 4.6 - 0.2 4.8 208.7 - 0.9
Stephen Stamp (1) 150.0 67.0 8.3 225.3 - 10.5 -
Rudy Lobo (1) 145.0 65.0 13.8 223.8 181.1 9.6 7.7
Non-executive
Directors
George Gray 34.5 - - 34.5 20.8 - -
Robert Kuijpers 25.0 - - 25.0 6.3 - -
Executive Officers
Christopher 100.0 75.0 12.6 187.6 159.5 6.0 0.0
Boulton
Robert Gaudreau 196.5 66.7 6.3 269.5 164.2 0.0 0.0
Steve Jude 110.0 35.2 0.0 145.2 39.3 8.2 0.0
Sean Morgan 105.0 35.0 4.0 144.0 126.6 6.7 4.5
Jim Howland 9.0 0.0 0.0 9.0 0.0 0.0 0.0
- -------------------------------------------------------------------------------------------------------------------------
Total 1,206.3 470.9 66.2 1,743.4 1,312.6 69.0 69.1
- -------------------------------------------------------------------------------------------------------------------------
EMPLOYEES
Regus is a service business and the directors recognize that our success
depends to a large extent on the caliber and motivation of the individuals we
employ. We have actively encouraged and promoted a dynamic, high work ethic
environment. All employees are regarded as "team members", irrespective of
functional title or status. Team members are kept informed of developments in
the business through a bi-weekly electronic newsletter and through RegusSmart,
our intranet.
As of December 31, 2000, we employed a total of approximately 2,615
people: 818 in the UK and Ireland; 908 in the rest of Europe; 512 in the
Americas; 254 in the rest of the world and 123 at Regus headquarters. The
employees in each region perform management, business center staffing, sales,
marketing, and customer support functions. At December 31, 1998 and 1999, we
had 1,152 and 1,761 employees, respectively.
A key element of remuneration is performance related. Currently, staff are
able to earn bonuses of up to 25% of salary and managers are able to earn
bonuses of up to 40%. An employee share scheme was introduced in December 1999
under which grants had been made to all of our employees as at December 31,
2000. Details of the scheme are set out under "-- Employee Share Plans".
SHARE OWNERSHIP
The table below sets forth information regarding the beneficial ownership,
(excluding share options) of our directors and executive officers of our shares
as of February 26, 2001 (the most recent practicable date).
Beneficial Ownership
Name of Beneficial Number Percentage
Owner
----------------------- -------------- ---------------
Directors and
Executive Officers:
George Gray........... 38,462 *
Mark Dixon (1)........ 355,329,286 61.19%
Rudolf Lobo........... 38,462 *
Stephen Stamp......... 384,615 0.06%
Robert Kuijpers....... - -
John Matthews......... 10,385 *
Roger Orf (2)......... 4,399,594 0.76%
Christopher Boulton... - -
Robert Gaudreau....... - -
Steve Jude............ * *
Sean Morgan........... * *
Jim Howland.......... - -
* less than 0.01% holding
(1) Mr Dixon's beneficial ownership of shares is calculated by attributing to
him all shares owned by Maxon Investments BV, an entity in which Mr Dixon holds
a 100% beneficial ownership interest. (2) Mr Orf's beneficial ownership of
shares is calculated by attributing to him all shares owned by Theatre
Acquisitions LLC, an entity in which Mr Orf holds a 100% beneficial interest.
Directors' and executive officers share options
Option 31 December Granted 31 December Exercise Date from which Expiry
type 1999 during 2000 2000 price exercisable date
- ------------------------------------------------------------------------------------------------------------------------
Rudy Lobo A 266,179 - 266,179 5.0p 01/03 12/09
A 283,503 - 283,503 145.5p 01/03 12/09
B 11,570,000 - 11,570,000 0.375p 12/03 -
C - 4,003 4,003 242.0p 01/04 07/04
Stephen Stamp A - 2,790,203 2,790,203 145.5p 01/03 01/10
C - 4,003 4,003 242.0p 01/04 07/04
Christopher A 16,107 16,107 5.0p 01/03 12/09
Boulton A 193,297 193,297 145.5p 01/03 12/09
A 46,042 46,042 260.0p 01/04 08/10
Robert Gaudreau A 348,113 348,113 5.0p 01/03 12/09
A 318,073 318,073 145.5p 01/03 12/09
B 11,570,000 11,570,000 0.375p 12/03 -
Steve Jude A 5039 5039 5.0p 01/03 12/09
A 269,872 269,872 145.5p 01/03 12/09
A 48,307 48,307 260.0p 01/04 08/10
C 4,003 4,003 242.0p 01/04 07/04
Sean Morgan A 141,653 141,653 5.0p 01/03 12/09
A 270,715 270,715 145.5p 01/03 12/09
A 75,608 75,608 260.0p 01/04 08/10
C 4,003 4,003 242.0p 01/04 07/04
Jim Howland D 120,000 120,000 $25.00 12/03 12/05
A Awarded under the Regus Team Member Share Plan for nil consideration. The
grant to Mr Stamp is subject to higher performance targets.
B Awarded to Mr Lobo by Maxon pursuant to an agreement dated September 17, 1999
recording the terms of an agreement entered into on 11 November 1992 between Mr
Lobo and Maxon, as amended on June 30, 2000. These shares are currently held by
HSBC Trustees (Jersey) Limited and will not be capable of exercise before 31
December
2003 other than in defined circumstances (which include the discretion of
Maxon). The shares subject to the option are transferable to Mr Lobo upon
payment to Maxon of an exercise price of (pound) 45,000, which is equivalent to
the market value of the relevant shares at the time the parties entered into
the option arrangements. C Awarded under the Regus International Sharesave
Plan, the maximum monthly contribution for which may not exceed the amount
permitted by the Income and Corporation Taxes Act 1988. D Awarded under the
Regus Global Share Plan for nil consideration. The option is over ADSs. E
Awarded to Mr Gaudreau by Maxon pursuant to an agreement dated September 17,
1999 recording the terms of an agreement entered into on November 11, 1992, as
supplemented by an agreement dated September 17, 1999 recording the terms of an
agreement entered into on February 12, 1999. The shares subject to the option
are transferable to Mr Gaudreau upon payment to Maxon of an exercise price of
(pound) 45,000, which is equivalent to the market value of the relevant shares
at the time the parties entered into the option arrangements.
Employee Share Plans
We have established a number of employee share plans as described below.
In addition, our board of directors has authority to establish further plans
provided that the number of shares that may be issued under those plans count
against the limits described below, that those plans do not confer benefits on
employees that are substantially greater than the benefits which an employee
could receive from participating in the plans described below and that, once
established, such plans may not be amended without the approval of the
shareholders at a general meeting if such approval would be required to amend
the comparable provisions of the plans summarized below.
The Regus Team Member Share Plan
Our team member share plan is a share option plan administered by our
board of directors or a duly authorized committee. It is divided into a number
of subplans designed to allow employees who work abroad to be granted tax
efficient options wherever possible. There is also a subplan which allows our
board of directors to grant participants awards that entitle them to a cash
payment calculated by reference to the increase in the market value of our
shares between grant and exercise.Options entitle the holder to acquire our
shares. Options may either be options to subscribe for new shares or options to
purchase existing shares from an employee trust. Options are granted under this
plan for no consideration. Three types of options have been granted:
performance, premier and reward options. Options were granted to substantially
all employees as of December 1, 1999. Further issues were made during 2000.
Performance options are subject to performance targets that must normally be
satisfied before the options may be exercised. Our board of directors has the
discretion to waive some or all of the exercise price of the reward options.
Options are personal to the option holder and may not be transferred.
Premier and, subject to meeting the performance targets, performance
options become exercisable in five installments no earlier than January 1 of
each of 2003, 2004, 2005, 2006 and 2007 for grants up to May 00 and grants made
after this date are exercisable in five installments one year later than each
of the above. Reward options become exercisable in four tranches on January 1
of each of 2003, 2004, 2005, and 2006. If the participant's employment ends,
the options lapse unless the employment ends in specified circumstances, such
as disability or redundancy.
As at March 31, 2001, options under this plan were outstanding over
23,377,299 shares. No further options may be granted under this plan.
The following table sets forth, as of March 31, 2001, by date of grant,
the number and type of options granted, the number of shares over which options
were granted, the exercise price of the options and the end of the exercise
period of the options.
Total No. of End of
No. of No. of No. of Shares Over Exercise
Reward Premier Performance which Options Exercise Price Period of
Date of Grant Options Options Options Granted of Options(2) Options
- ------------------- ------------- -------------- -------------- ------------------ -------------------------- --------------
December 10, 1999.. 3,896,472 9,582,328 7,492,834 20,971,634 (pound) 0.05/(pound) 1.455 12/9/09
January 7, 2000(1). - 128,866 2,661,337 2,790,203 (pound) 1.455 1/6/10
February 2, 2000... 100,000 - - 100,000 (pound) 0.05/(pound) 1.455 2/1/10
May 17, 2000....... 50,633 30,085 30,343 111,061 (pound) 0.05/(pound) 1.455 5/16/10
August 21, 2000.... - 2,587,245 1,061,013 3,648,258 (pound) 2.60 8/20/10
September 18, 2000. - 164,516 261,779 426,295 (pound) 2.60 9/17/10
Lapsed Options..... (486,223) (3,219,685) (964,244) (4,670,152) n/a n/a
Total.............. 3,560,882(2) 9,273,355 10,543,062 23,377,299 n/a n/a
(1) The grant on January 7, 2000 was to Mr. Stephen Stamp and is subject
to higher performance targets.
(2) The Company elected to waive partially the exercise price of all of
the reward options and reduce the exercise price from(pound) 1.455
to(pound) 0.05 during 2000.
The Regus High Performance Bonus Plan
Our bonus plan is administered by our board of directors or a duly
authorized committee. There are two elements to our bonus plan: a cash plan and
a share plan.
Participation in our bonus plan is discretionary but is limited to our key
employees, directors and executive officers. At the beginning of each financial
year, the selected participants are notified of the amount of bonus that may be
earned under the cash plan over the financial year and of the appropriate
performance targets. Payment of the bonus at the end of the financial year is
deferred for two years and is normally contingent on the participant remaining
employed by us throughout that two-year deferral period.
At the end of the two-year deferral period, the participant may be invited
to invest some or all of his after-tax bonus in buying our shares to be
retained for three years. In return, the participant is granted an award under
the share plan over an equal number of shares. An award is a deferred right to
acquire shares at no cost. All awards are satisfied by the transfer of shares
from an employee trust.
An award may be exercised normally in the six months following the third
anniversary of the date of grant. An award will normally lapse if a
participant's employment ends. A participant is free to withdraw his shares at
any time but, if he does so, the corresponding award lapses.
As at December 31, 2000, no options under our bonus plan were outstanding.
The Regus Global Share Plan
Our global share plan will be administered by the remuneration committee
of our board of directors, all of whose members will be non-executive
directors.
This option plan is divided into a number of subplans which have been
designed to allow employees to be granted tax efficient options wherever
possible. Our board of directors may from time to time create additional
subplans. There is also a subplan which allows the remuneration committee to
grant participants awards that entitle
them to a cash payment calculated by reference to the increase in the market
value of our shares between grant and exercise.
Options will entitle the holder to acquire our shares or ADSs. Options may
either be options to subscribe for new shares or options to purchase existing
shares from an employee trust. There will be two types of option: A options and
B options. The terms of the two options will be similar except that B options
must be subject to performance targets whereas performance targets are optional
for A options.
Options will be personal to the optionholder and may not be transferred.
No payment will be required for the grant of an option.
Whenever A options are granted, they will be granted to all employees,
including directors, who satisfy the eligibility criteria. A person will be
eligible for an A option if he has been employed by us or a participating
subsidiary of ours for at least 12 months, or for such shorter period, if any,
as the remuneration committee may decide. The remuneration committee may from
time to time impose additional eligibility conditions provided that the purpose
or effect of those conditions is not to restrict eligibility for A options to
higher paid employees.
All employees, including executive directors, will be eligible to receive
B options at the discretion of the remuneration committee. An employee who is a
director of any member of our group companies will not, however, be eligible to
receive a B option unless he is required to devote substantially the whole of
his working time to his duties to us.
No options may be granted more than 10 years after the date on which
options are first granted under our global share option plan.
No options were granted before or at the time of the offering. The
exercise price may not be less than the market value of a share, determined in
accordance with the Taxation of Chargeable Gains Act 1992, for the dealing day
immediately preceding the date of grant or, where options are granted pursuant
to an invitation, the date of the invitation.
Except in relation to the first grant of options to an individual or in
circumstances determined by the remuneration committee to be exceptional, the
number of shares over which an employee may be granted a B option to subscribe
on any date, when added to the number of shares in respect of which he has been
granted B options to subscribe in the previous 12 months under this option
plan, will be limited so that the total cost of exercise does not exceed once
times his annual remuneration.
All B options must, and A options may, be granted subject to a performance
target, the achievement of which will normally be a condition precedent to the
right of exercise. The remuneration committee has the right to set different
targets from year to year. The remuneration committee also has the discretion
to change the performance target from time to time if events happen which make
it fair and reasonable to do so but not so as to make the performance target
materially easier or more difficult to satisfy. The remuneration committee may
also waive the performance target if it considers that it is fair and
reasonable to do so. The performance targets for any options granted to our
executive directors will be disclosed in our annual report each year.
Options will be exercisable normally only during such period as the
remuneration committee may decide beginning not earlier than the third
anniversary and ending not later than the tenth anniversary of grant and only
if the performance target, if any, has been met. Special rules apply, however,
on termination of employment.
Options, other than those granted under the Inland Revenue approved part,
may be satisfied by the payment of a cash sum, or shares of an equivalent
value, representing the difference between the exercise price and the market
value of the shares at the date of exercise.
On December 11, 2000, two grants were made to a single individual over an
aggregate total of 120,000 ADSs with an exercise price of $25.00.
On March 26, 2001, a grant was made over 1,942,441 ordinary shares with an
exercise price of (pound) 2.56 and over 185,636 ADSs with an exercise price of
$183/16.
On June 8, 2001, a grant was made over 351,388 ordinary shares with an
exercise price of (pound) 2.56 and over 124,439 ADSs with an exercise price of
$183/16. On June 8, 2001, a further grant was made over 84,876 ordinary shares
with an exercise price of (pound) 2.275 and over 83,949 ADSs with an exercise
price of $16.20.
The Regus International Sharesave Plan (UK Part)
This savings-related share option plan, which is operated and administered
by our board of directors or a duly appointed committee, has been designed to
be approved by the Inland Revenue under the Income and Corporation Taxes Act
1988. All UK employees who have one or more years of continuous service with us
or any subsidiary nominated to join in our savings-related share option plan,
are eligible to participate in any invitation. Our board of directors has the
discretion to reduce or eliminate the period of qualifying service and/or to
invite other of our employees to participate.
Options will entitle the holder to acquire our shares. Options may either
be options to subscribe for new shares or options to purchase existing shares
from an employee trust. No payment will be required for the grant of an option.
Options will be personal to the participant and may not be transferred.
Whenever invitations to participate in our savings-related share option
plan are issued, each eligible employee may apply for an option, the total
exercise price of which does not exceed the monthly contributions and bonus
repayable under the Save-as-You-Earn (SAYE) contract to be entered into as a
condition of the grant of the option. The aggregate maximum monthly
contribution payable by an employee may not exceed such sum as may from time to
time be permitted by the Income and Corporation Taxes Act 1988.
The exercise price may not be less than 80% of the market value of a
share, determined in accordance with the Taxation of Chargeable Gains Act 1992,
for the dealing day selected by our board of directors in the period of 30 days
immediately preceding the date of grant.
In normal circumstances, an option may be exercised only during the period
of six months starting on the bonus date. The bonus date is the date on which
the bonus under the related SAYE contract is payable. This will be the third or
fifth anniversary of the starting date of the SAYE contract and will be
determined at the time of grant. Early exercise is allowed in circumstances
where a participant's employment terminates for a specified reason such as
death, redundancy, disability or retirement. Except in such circumstances,
options lapse when the employment ends.
In all cases of early exercise, an option may be exercised only to the
extent of the amounts then paid under the related SAYE contract and any
interest or bonus payable thereon.
As of May 31, 2001, an option over 518,051 shares had been granted under
this plan.
The Regus US Stock Purchase Plan
Our US plan is operated and administered by our board of directors or a
duly authorized committee. Participation in the US plan will be limited to
employees of our US subsidiaries who have been continuously employed for such
period, not exceeding one year, as our board of directors may decide and who
satisfy such other criteria as our board of directors may from time to time
decide. Offers to participate in our US plan are issued to all eligible
employees.
Options will entitle the holder to acquire our shares or ADSs. Options may
either be options to subscribe for new shares or options to purchase existing
shares from an employee trust. Options will be personal to the participant and
may not be transferred. No payment will be required for the grant of an option.
Offers to participate in our US Plan may be issued from time to time at
the discretion of our board of directors. Each employee who wishes to
participate in an offering must agree to save over a two year period. Savings
will be made by way of payroll deduction. The minimum monthly contribution is
1% of the respective employee's salary and the maximum (including any
contributions still being paid) is $400, or such higher amount as our board of
directors may decide and which is the US dollar equivalent of the maximum
contribution permitted at the time under a savings contract linked to an Inland
Revenue approved savings-related share option scheme, which amount shall not
exceed $25,000 per calendar year.
Each option will be over such number of shares as has an aggregate
exercise price equal to the amount which the eligible employee agrees to save
over the two year period to which, if our board of directors so decides, there
may be added additional contributions to represent notional interest on the
employee's savings.
The exercise price may not be less than 85% of the market value of a
share, determined in accordance with the Taxation of Chargeable Gains Act 1992,
for the dealing day immediately preceding the date of grant.
Subject to adjustment in the event of a variation of share capital, the
maximum number of shares which may be made available for our US plan will be
10,000,000.
Unless a participant chooses not to exercise his option prior to the end
of the two-year savings period, it will be exercised in full on the expiry of
the two-year savings period. Generally, options will lapse when an employee
ceases to be employed by us but special rules apply when the employment ends
for specified reasons such as injury, redundancy and retirement. In these
cases, the option may be exercised to the extent of the participant's
accumulated savings and interest at the date of termination.
As of May 31, 2001, an option over 23,786 ADSs had been granted under this
plan.
The Regus International Sharesave Plan
The terms of our international sharesave plan are similar in all material
respects to the UK part of our sharesave plan. It is designed, however, for
participants who are not subject to UK tax and does not include, therefore,
those provisions which are necessary to obtain Inland Revenue approval of our
sharesave plan.
As of May 31, 2001, an option over 216,479 shares had been granted under
this plan.
The Regus International Sharesave Plan (Irish Part)
The terms of this plan are similar in all material respects to the UK part
of our sharesave plan except that it has been designed to qualify for approval
by the Irish tax authorities. No grant has been made under this plan.
The Regus International Sharesave Plan (French Part)
The terms of this plan are similar in all material respects to the UK part
of our sharesave plan, except there will only be a five year option period and
a longer period of 20 days to establish the exercise price. In addition, the
option may normally only be exercised in respect of 20% of the shares
originally comprised in it on the fifth anniversary of grant and on each of the
following four anniversaries. The plan has been designed to qualify for
approval by the French tax authorities.
As of May 31, 2001 an option over 59,042 shares had been granted under
this plan.
The Regus All-Employee Share Ownership Plan
The ownership plan, which has been designed to be approved by the Inland
Revenue under the Finance Act 2000 is constituted by a trust deed. Save to the
extent required by the terms of the trust deed, the ownership plan is
administrated by our board of directors.
On any occasion on which our board of directors decides to operate the
ownership plan, it may be operated on one or more of the bases allowed by the
legislation. These are as follows:
(i) as a free plan;
(ii) as a partnership plan; and
(iii) as a matching plan.
Under the free plan, the employing companies will provide the trustees
with funds to enable them to subscribe for and/or purchase shares which will be
allocated to the eligible employees. The maximum individual allocation of
shares under the free plan in any tax year will be (pound) 3,000.
Any allocation of shares under the free plan must be made on similar terms
but can be linked to such individual, team, divisional or corporate performance
as our board of directors may decide. The performance targets set for each unit
must be broadly comparable and must not contain any features which have the
effect of concentrating the awards on directors or higher-paid employees.
Shares under the free plan must be held by the trustees for a minimum
period of three years or for such longer period not exceeding five years as our
board of directors may decide. If a participant ceases to be employed by us
before the end of this period, his shares under the free plan must be withdrawn
from the trust. If the participant ceases to be employed within the minimum
three year period, or within such shorter period as our board of directors may
decide, otherwise than in specified circumstances such as redundancy or
disability, the free plan may provide that the shares under the free plan will
be forfeited.
Under the partnership plan, an eligible employee may enter into an
agreement with us to allocate up to (pound) 1,500 of his pre-tax salary each
year to subscribe for and/or purchase shares. The agreement may provide for
these partnership shares to be bought within 30 days of the day on which the
deduction is made. Alternatively, the agreement may provide for the deductions
to be accumulated for a period, not exceeding 12 months, and for the shares to
be bought within 30 days of the end of that period. A participant may withdraw
his shares under this plan at any time.
If our board of directors decides to operate the partnership plan in any
period, it may also decide to operate the matching plan in the same period.
Under the matching plan, the employing companies will provide the trustees with
funds to enable them to subscribe for and/or purchase shares which will then be
allocated to the eligible employees up to a maximum ratio of two matching
shares for every partnership share. Participation in the matching plan must be
open to all eligible employees on the same basis.
Matching shares must be held by the trustees for a minimum period of three
years or for such longer period not exceeding five years as our board of
directors may decide. If a participant ceases to be employed by us before the
end of this period, his matching shares must be withdrawn from the trust. If
the participant ceases to be employed within the minimum three year period, or
within such shorter period as our board of directors may decide, other than for
a specified reason such as redundancy or disability or withdraws his
partnership shares from the trust before the end of the minimum three year
period, the matching plan may provide that his matching shares will be
forfeited.
All of our UK resident employees who have not less than one year's
continuous service, or such shorter period as our board of directors may
decide, must be eligible to participate in the plan. Other employees may be
eligible to participate in the plan at our board of directors' discretion.
The subscription price of any shares issued for the purposes of the plan
will be determined by our board of directors. Except as required by
legislation, it may not be less than an amount equal to the market value of a
share, determined in accordance with the Taxation of Chargeable Gains Act 1992,
for the dealing day immediately preceding the date of subscription.
The ownership plan may provide that any dividends paid on the free,
partnership or matching shares will either be paid to the participants or
re-invested in the purchase of additional shares to be held in the ownership
plan for a period of three years.
The ownership plan may provide that the voting rights attributable to the
shares of a participant may not be exercised while the shares are held in the
trust. Alternatively, the participant may be allowed to direct the trustees on
how to exercise those voting rights. The trustees will not, however, exercise
the voting rights attributable to the shares held in the trust except in
accordance with the participant's instructions.
In the event of a general offer being made to the shareholders or a rights
or capitalization issue, participants will be able to direct the trustees how
to act on their behalf.
No grant has been made under this plan.
The Regus International All-Employee Share Ownership Plan
The terms of this plan are similar in all material respects to the
ownership plan. It is designed, however, for participants who are not subject
to UK tax and does not include those provisions which are necessary to obtain
Inland Revenue approval of the ownership plan.
No grant has been made under this plan.
Provisions Common to All Plans
Except as mentioned below, the following provisions are common to each of
the plans.
Plan Limit
On any date, the aggregate nominal amount of new shares which may be
allocated pursuant to a plan may not, when added to the nominal amount of new
shares allocated in the previous 10 years under all of our employee share
schemes but after the date of listing, exceed 10% of our equity share capital.
For these purposes, shares are allocated under option plans when the
options are granted and under other schemes when the shares are issued. Options
which lapse, by reason of non-exercise or otherwise, cease to count. No account
is taken of shares which are acquired by purchase rather than by subscription
except where such shares were first issued to an employee trust for the purpose
of satisfying a participant's rights. No account is taken of shares which an
employee purchases using his own funds except on the exercise of an option
under an option plan.
Change of Control
Subject as set out in the following paragraphs, the exercise of
options/awards under the plans will be permitted in the event of a change of
control, a reorganization, an amalgamation or a voluntary winding up of Regus
plc. Unless the remuneration committee decides otherwise, options under our
team member share plan and our global share option plan may be exercised even
if the performance targets have not been met. In the event of a change of
control of Regus plc, participants may surrender their options in return for
substitute options over shares in the acquiring company.
If control is obtained by or from a person who, together with persons
connected or associated with him, holds 50% or more of our shares on the
offering date, the exercise of options/awards will not be allowed except in the
case of the Irish Plan. In these circumstances, exercise will only be permitted
if either that person becomes bound or entitled to exercise rights of
compulsory acquisition under sections 429-430F of the Companies Act or our
shares will cease to be traded on a recognized stock exchange.
If the change of control forms part of a transaction as a result of which
more than 50% of the shareholders in the acquiring company will be the same as
our shareholders and the participants are offered compensation, whether in
the form of options over shares in the acquiring company or otherwise, which
our board of directors or, as the case may be, remuneration committee considers
to be fair and reasonable, our board of directors or remuneration committee may
decide that options/awards (other than those granted under the Irish Plan)
which are not otherwise exercisable apart from the change of control may not be
exercised.
Listing
Application will be made to the Financial Services Authority for admission
to the Official List of new shares issued under the plans and to the London
Stock Exchange for shares to be admitted to trading. New shares issued under
the plans will rank equally in all respects with existing shares except for
rights attaching to shares by reference to a record date prior to the date of
allotment.
Variation of Capital
In the event of a variation in our share capital or in such other
circumstances as our board of directors considers appropriate, our board of
directors may adjust options/awards in such manner as it determines to be
appropriate.
Benefits Non-Pensionable
Benefits under the plans will not form part of a participant's
remuneration.
Amendments and Termination
Our board of directors or, as the case may be, our remuneration committee
may make such amendments to the plans either as are necessary or desirable to
obtain or retain the approval, where applicable, of the relevant tax
authorities or to take account of changes to applicable legislation. Our board
of directors or the remuneration committee may also make such amendments to the
plans and to any option/award as may be necessary or desirable to obtain or
maintain favorable tax, exchange control or regulatory treatment for
participants or for any company in our group of companies.
Except as described above or for amendments designed to ease the
administration of the plans or for amendments to our team member share plan or
our bonus plan, no amendment which is to the advantage of employees or
participants may be made to those provisions dealing with eligibility,
individual or plan limits, the terms of options/awards or the adjustment of
options/awards without the prior approval of our shareholders at a general
meeting.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
The table below sets forth information regarding the beneficial ownership
of our shares on a fully-diluted basis as of February 26, 2001 (except for
lapsed options which are at December 31, 2000), the most recent practicable
date prior to the date of this annual report. Percentage of beneficial
ownership is based on 605,297,683 shares outstanding (including outstanding
options granted in respect of 24,621,498 shares).
Beneficial ownership is determined in accordance with the rules of the US
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. The number of our shares held in the US amounts to
0.27% of our total outstanding share capital. There are two holders of record
of our shares in the US. The address for each listed director or officer is c/o
Regus plc, 3000 Hillswood Drive, Chertsey KT16 0RS, England. We believe that
the persons named in the table have sole voting and investment power with
respect to all shares shown as beneficially owned by them. The shareholders
listed below have the same voting rights as our other shareholders
Save as disclosed below, as of June 19, 2001 which is the most recent
practicable date prior to the date of this annual report, we are not aware of:
o any arrangements that might lead to a change in control of our
business,
o any person who is interested in 3% or more of our capital or
o any person other than Maxon Investments BV who can, will or could
directly or indirectly, jointly or severally, exercise control over
us.
Name of Beneficial Owner Number Percentage
------------------------------------- --------------- ----------------
Paramount Nominees Limited (1) 355,329,286 58.7%
HSBC Trustee (Jersey) Limited (2) 23,140,000 3.8%
Chase Nominees Limited 24,406,380 4.0%
The Capital Group 18,582,149 3.1%
Mourant and Co. Trustees Limited (3) 18,120,670 3.0%
(1) The beneficiary is Maxon Investments BV. Mark Dixon owns 100% interest in
Maxon.
(2) The beneficiary of half of this holding is Rudolf Lobo, and half is for
Robert Gaudreau.
(3) These shares are held by Regus Employee Trust.
There are no ongoing contractual or other arrangements between any of our
shareholders, including Maxon Investments BV, and us or our management other
than those described under "--Related Party Transactions" and the service
agreement of Mark Dixon described under "Item 6. Directors, Senior Management
and Employees--Board Practices--Directors' Service Agreements" and the loan
agreement pursuant to which Maxon Investments BV has lent Rudolf Lobo $500,000
at a rate of interest on the amount outstanding at the standard variable
mortgage rate of the UK's Nationwide Building Society plus a margin of 0.75%,
such amount being repayable on 6th April, 2004, and none of our shareholders
have any special rights to appoint a member to our board. Maxon Investments BV
has confirmed to us that it will not act in a manner which it knows would
prevent us from carrying on our business independently of Maxon Investments BV.
In addition, provisions in our Articles of Association and the relevant
provisions of the Listing Rules regulate Maxon Investment BV's relationship
with us. By virtue of these factors, our directors believe that we are capable
of carrying on our business independently of Maxon Investments BV and that all
transactions and relationships between us and Maxon Investments BV are, and
will be, at arms' length and on a normal commercial basis.
RELATED PARTY TRANSACTIONS
Option Agreements with Executive Officers
Rudolf Lobo, one of our directors and executive officers, and Robert
Gaudreau, one of our executive officers, each has an interest in 11,570,000 of
our existing shares in respect of which options were granted by Maxon
Investments BV pursuant to an agreement dated September 17, 1999, recording the
terms of an agreement entered into on November 11, 1992 between Mr. Lobo and
Maxon Investments BV and an agreement dated September 17, 1999 recording the
terms of an agreement entered into on November 11, 1992, as supplemented by an
agreement dated September 17, 1999 recording the terms of an agreement entered
into on February 12, 1999, between Mr. Gaudreau and Maxon Investments BV. Each
agreement was amended on June 30, 2000. Each interest represents 1.9% of our
issued share capital on a fully diluted basis as at 26 February, 2001. These
shares are currently held by HSBC Trustees (Jersey) Limited and will not be
capable of exercise, in the case of Mr. Lobo's interest, before December 31,
2003 and, in the case of Mr. Gaudreau's interest, until December 31, 2002,
other than in defined circumstances, which include the discretion of Maxon
Investments BV. The shares subject to the options are transferable to Mr. Lobo
or Mr. Gaudreau, as the case may be, upon payment to Maxon Investments BV of an
exercise price of (pound) 45,000 by each of Mr. Gaudreau and Mr. Lobo which is
equivalent to the market value of the relevant shares at the time the parties
entered into the option arrangements.
Option Agreement with UBS
In connection with a revolving credit facility dated November 12, 1997
between UBS, our former lender, and Regus Business Centers BV, an option
agreement dated November 12, 1997, as amended by supplemental agreements dated
August 3, 1998 and September 20, 2000, was entered into among Maxon Investments
BV, the
holder of 70.5% of our shares on a fully-diluted basis as of September
18, 2000 that is controlled by Mark Dixon, our Chief Executive, Mr. Dixon,
Regus Business Centers BV, our Dutch subsidiary, UBS, our former lender and a
holder of options to purchase our shares, and us. Pursuant to the agreement,
Maxon Investments BV granted UBS the right to purchase Regus shares from Maxon
Investments BV against payment by UBS of a strike price of (pound) 0.01 per
share. The number of shares under option is determined by reference to a
percentage of our issued share capital at the date of exercise of the option.
The percentage shareholding under option is determined by reference to
o the time lapsed since the date of the UBS option agreement and the
date of exit. The total value which UBS may acquire under the UBS
option agreement is capped. This cap is determined by reference to
the time lapsed since the date of the option agreement and the date
of exercise; and
o our net equity value at the time of exit as defined as our total
market value on the basis of the initial public offering price. UBS
may exercise the option on the earliest of:
o our shares being listed on any stock exchange or
o Mr. Dixon ceasing to control 51% of our voting rights.
UBS may, within three months from receipt of a notice that an exit is
planned, exercise the option. If not exercised within that period, the option
is exercised automatically. UBS may sell the shares acquired under the UBS
option agreement at any time and has the right and in the event of a trade
sale, the obligation, to sell such shares simultaneously with Maxon Investments
BV on the same terms and conditions as Maxon Investments BV, but without the
obligation to make any representations or warranties in connection with such
sale.
If an exit has not occurred within five years, UBS may sell the option to
Maxon Investments BV or Mr. Dixon for cash consideration calculated by
reference to our net equity value at the time. Under the UBS option agreement,
Maxon Investments BV agreed:
o to notify UBS in writing if any exit is planned;
o not to sell or transfer our shares to third parties save for such
dispositions which do not exceed 20% of our issued share capital;
o not to amend the Articles of Association if such amendment would have
a material adverse effect on the ability of Maxon Investments BV to
perform its obligations under the UBS option agreement and
o to notify UBS three weeks prior to any proposed amendments to the
Articles of Association.
On September 20, 2000, Maxon Investments BV and UBS entered into a deed of
amendment to the UBS option agreement under which UBS agreed to waive its
rights to receive our shares in the offering in consideration for the payment
by Maxon Investments BV of (pound) 8.5 million, less (pound) 25,500 of expenses
and commissions, if an initial public offering occurs before November 12, 2000.
This obligation was satisfied in full and we no longer have any liability to
UBS under these agreements.
Option Agreements with Affiliates of Deutsche Bank and Apollo
In connection with the fourth and fifth amendments to the shareholder's
agreement, Maxon Investments BV and Serviced Office Investments Limited and DB
Capital Partners Europe LP, the Deutsche Bank affiliates that collectively owns
0.73% of our shares on a fully-diluted basis as of June 19, 2001, and AP Pelham
Partners XI LLC and AP Regus Investors LLC, the Apollo affiliates that
collectively owns none of our shares on a fully-diluted basis as of June 19,
2001, entered into an option agreement dated November 30, 1999 (as amended by a
deed of amendment dated January 4, 2000) (the deed of option and waiver),
pursuant to which Maxon Investments BV granted the Deutsche Bank and Apollo
affiliates the right to purchase from Maxon Investments BV, against payment of
a (pound) 1.00 aggregate strike price, 1,963,242 A ordinary shares, as defined
below under shareholder's agreement, in the case of the Deutsche Bank
affiliates and 1,963,242 A ordinary shares in
the case of the Apollo affiliates. The option may be exercised by the Deutsche
Bank and Apollo affiliates within 12 months (or such shorter period ending on
the date on which an exit, being either an initial public offering or
completion of the disposal of all or substantially all of our shares or assets,
occurs) from the earlier of:
o the date on which our board of directors notifies the Deutsche Bank
and Apollo affiliates in writing that an exit is imminent and
o the date we announce to the public our intention to proceed with an
initial public offering.
By deeds dated August and September 2000, the Deutsche Bank and Apollo
affiliates have agreed to exercise the option immediately before the offering
date.
Under the deed of option and waiver, the Deutsche Bank and Apollo
affiliates waived their right to sell shares held by them into an initial
public offering ahead of us issuing new shares in that initial public offering
and agreed that the Deutsche Bank and Apollo affiliates have the right to sell
$66,275,000 rather than $132,550,000 of their shareholdings to any private
equity investor making an investment into us before Maxon Investments BV may
sell and we may issue shares to such investor.
In the deed of option and waiver, Maxon Investments BV also undertakes to
use reasonable endeavors to procure that the initial public offering is
structured such that the Deutsche Bank and Apollo affiliates may sell shares
into the initial public offering as part of any over-allotment option, but only
to the extent required to ensure that each Deutsche Bank and Apollo affiliate
receives its percentage of $132,550,550, taking into account the percentage of
total issued ordinary shares held by each affiliate, prior to Maxon Investments
BV receiving any proceeds from the sale of shares in such over-allotment
option. In addition, if the offer price is less than $1.34, Maxon Investments
BV agrees to pay to each Deutsche Bank and Apollo affiliate, in respect of each
ordinary share held, the difference between the equivalent in US dollars of the
offer price applicable on an initial public offering and $1.34, less any
capital distributions received by that Deutsche Bank or Apollo affiliate.
These options Agreements are no longer subsisting.
Registration Rights Agreement with Affiliates of Deutsche Bank and Apollo
We have entered into a registration rights agreement with the affiliates
of Deutsche Bank and Apollo to allow them, subject to certain limitations, to
sell all or part of their remaining shares in an SEC-registered public offering
until the release of our financial results for our third quarter 2002 (on or
about November 15, 2002).
Release of Guarantees of Maxon Investments BV
By a deed of undertaking dated September 11, 2000 between Maxon
Investments BV, the holder of 355,329,286 of our shares on a fully-diluted
basis as of June 19, 2001 that is controlled by our Chief Executive Mark Dixon,
and us, conditional on the completion of the offering, we will agree to take
steps to release Maxon Investments BV from its obligations under guarantees
given in respect of six leases and one finance lease facility and to indemnify
Maxon Investments BV against any liability in connection with such guarantees.
We negotiated the deed of undertaking with Maxon Investments BV on an arms'
length basis.
ITEM 8. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Consolidated financial statements are set forth under "Item 18. Financial
Statements."
LEGAL PROCEEDINGS
Regus is not a party to any material legal proceedings. We are involved
from time to time in various legal proceedings incidental to the ordinary
course of our business. We are not and have not been involved in any
significant legal or arbitration proceedings and, as far as our directors are
aware, no such proceedings are pending or threatened by or against us which may
have, or have had within the previous 12 months, a material effect of our
financial position and results of operations.
SIGNIFICANT CHANGES
We have not experienced any significant changes since the date of the
annual financial statements.
ITEM 9. LISTING DETAILS
The information in this section has been extracted from publicly available
documents from various sources, including officially prepared materials from
the London Stock Exchange and the Nasdaq National Market and has not been
prepared or independently verified by us. This is the latest available
information to our knowledge.
MARKET PRICE INFORMATION
Shares
Our outstanding shares are listed and traded on the London Stock Exchange.
The shares were first listed on the London Stock Exchange in October 2000. The
prices for shares as quoted in the official list of the London Stock Exchange
are in pounds. The following table shows:
o the reported high and low closing prices quoted in pounds for the
shares on the London Stock Exchange; and
o the reported high and low closing prices for the shares, translated
into US dollars, based on the noon buying rate on the last business
day of each period presented.
Price Per Share Price per Share
--------------- ---------------
High Low High Low
--------- --------- -------- ---------
Annual prices:
2000............................. (pound) 3.76 (pound) 2.60 $5.62 $3.89
Quarterly prices:
2000:
Fourth Quarter (from October 17, (pound) 3.76 (pound) 2.60 $5.62 $3.89
2000).........................
2001:
First Quarter.................... (pound) 3.92 (pound) 2.50 $5.56 $3.55
Second Quarter (through May 31, (pound) 3.14 (pound) 2.06 $4.45 $2.92
2001)............................
Monthly prices:
December 2000.................... (pound) 3.76 (pound) 3.27 $5.62 $4.89
January 2001..................... (pound) 3.67 (pound) 3.16 $5.36 $4.63
February 2001.................... (pound) 3.92 (pound) 3.28 $5.66 $4.73
March 2001....................... (pound) 3.70 (pound) 2.50 $5.25 $3.55
April 2001....................... (pound) 3.14 (pound) 2.56 $4.49 $3.66
May 2001......................... (pound) 3.14 (pound) 2.06 $4.45 $2.92
On May 31, 2001, the closing price of shares on the London Stock Exchange
was (pound) 2.50 equivalent to $3.54375 per share translated at the noon buying
rate of (pound) 0.7055 per $1.00 on May 31, 2000.
ADSs
Our ADSs, each representing five shares, were originally issued in October
2000 in a public offering and are listed and traded on the Nasdaq National
Market.
The following table sets forth, for the periods indicated, the reported
high and low closing prices on the Nasdaq National Market for the outstanding
ADSs.
Price per ADS
-------------
High Low
---------- ----------
Annual prices:
2000.......................................... $28.25 $19.94
Quarterly prices:
2000:
Fourth Quarter (from October 17, 2000)........ $28.25 $19.94
2001:
First Quarter................................. $28.13 $16.75
Second Quarter (through May 31, 2001)......... $21.75 $14.52
Monthly prices:
December 2000................................. $28.25 $22.75
January 2001.................................. $28.00 $24.00
February 2001................................. $28.13 $24.75
March 2001.................................... $26.25 $16.75
April 2001.................................... $21.75 $17.75
May 2001...................................... $21.75 $14.52
MARKETS
The ordinary shares have been approved for listing on the London Stock
Exchange under the symbol "RGU" and the ADSs have been approved for listing on
the Nasdaq National Market under the symbol "REGS".
ITEM 10. ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
We incorporate by reference the information disclosed under "Description
of Share Capital" in our Registration Statement on Form F-1 (File No.
333-12504).
MATERIAL CONTRACTS
None.
TAXATION
UK Tax Considerations
This discussion describes the material UK taxation consequences of the
acquisition, ownership and disposition of shares by UK holders. Although it is
not entirely free from doubt, in practice, holders of ADSs should be treated as
holding the beneficial interest in shares represented by the relevant ADSs for
the purposes of UK tax and for the purpose of the US/UK income tax treaty with
respect to income and gains (the "Treaty"). The discussion is intended as a
general guide only and is based on current UK legislation and Inland Revenue
practice as at the date of this document. Except where the position of non-UK
resident shareholders and Eligible US Shareholders (as defined below) is
expressly referred to, these comments deal only with the position of
shareholders who are resident in the UK for tax purposes, who are the
beneficial owners of their shares and who hold their shares as an investment.
They do not deal with the position of classes of shareholders subject to
special rules, such as dealers in securities.
For the purposes of this summary, an "Eligible US Shareholder" means a US
holder (as defined in "--United States Federal Income Tax Considerations") that
is a beneficial owner of a cash dividend and:
o is an individual or a corporation resident in the US for the purposes
of the Treaty and, in the case of a corporation, is not also resident
in the UK for UK tax purposes;
o is not a corporation which, alone or together with one or more
associated corporations, controls, directly or indirectly, 10% or
more of our voting stock;
o holds ADSs or shares in a manner which is not effectively connected
with a permanent establishment in the UK through which that US Holder
carries on business or with a fixed base in the UK from which that US
Holder performs independent personal services; and
o is not otherwise ineligible for benefits under the Treaty in
connection with the ADSs or shares.
United Kingdom Taxation of Dividends
Under current UK legislation, we are not required to withhold any amounts
in respect of tax from our dividend payments.
UK Resident Shareholders
An individual shareholder who is resident in the UK for UK tax purposes
will be entitled to a tax credit in respect of any dividend received from us
and will be taxable on the gross dividend, which is the aggregate of the
dividend received and related tax credit. The value of the tax credit will be
equal to one-ninth of the dividend received (and therefore 10% of the gross
dividend). The gross dividend will be treated as an individual's marginal
income. The tax credit will, however, be treated as discharging the
individual's liability to income tax in respect of the gross dividend, unless
and except to the extent that the gross dividend falls above the threshold for
the higher rate of income tax. A UK resident individual shareholder who is
liable to income tax at the higher rate will be subject to tax at the rate
applicable to dividends for such shareholders (currently 32.5%) on the gross
dividend. The tax credit will be set against but will not fully discharge such
shareholder's tax liability on the gross dividend and he will have to pay
additional tax equal to 22.5% of the gross dividend, to the extent such sum
when treated as marginal income falls above the threshold for the higher rate
of income tax.
So, for example, a dividend of (pound) 80 will carry a tax credit of
(pound) 8.89, which is one-ninth of (pound) 80, and to the extent that the
dividend and the related tax credit fall above the threshold for the higher
rate of income tax, the additional income tax payable on the dividend by an
individual liable to income tax at the higher rate will be a net tax charge of
(pound) 20 at current rates of tax (22.5% of (pound) 88.89, i.e. dividend
payment received of (pound) 80 plus tax credit of (pound) 8.89). There will be
no payment of the tax credit or any part of it to an individual whose liability
to income tax on the dividend and the related tax credit is less than the tax
credit, except where the individual holds the relevant shares through a
personal equity plan or individual savings account and the dividend is received
into such accounts or plans on or before April 5, 2004.
UK resident shareholders which are not liable to UK tax on dividends,
including pension funds and charities,
will not be entitled to reclaim the tax credits in respect of dividends
although charities will be entitled to a payment by the Inland Revenue of a
specified proportion of any dividend paid by us to the charities on or before
April 5, 2004, that proportion declining on a year by year basis.
Subject to exceptions for some insurance companies with overseas business,
UK resident corporate shareholders will generally not be subject to corporation
tax in respect of dividends received from us, but will not be entitled to the
payment of any tax credit with respect to the dividends.
Eligible US Shareholders
An Eligible US Shareholder is entitled, in principle, to receive a payment
from the UK Inland Revenue in respect of a dividend from us in an amount equal
to the tax credit (the "Tax Credit Amount") to which a UK resident individual
is generally entitled in respect of the dividend. However, that entitlement is
subject to a deduction of tax withheld under the Treaty (the "UK Withholding
Tax"). In this case, the amount of such deduction will equal the Tax Credit
Amount, i.e., one-ninth of the dividend; therefore, an Eligible US Shareholder
will not be able to claim any payment from the UK Inland Revenue in respect of
a dividend from us.
Other Non-UK Resident Shareholders
A shareholder who is not resident in the UK for tax purposes will not
generally be entitled to claim any part of the tax credit. A shareholder who is
not resident in the UK for UK tax purposes should consult his own tax adviser
concerning his tax liabilities on dividends received, his entitlement to
reclaim any part of the tax credit and, if he is so entitled, the procedure for
doing so.
United Kingdom Taxation on Chargeable Gains
UK Resident Shareholders
A disposal (or deemed disposal) of shares by a shareholder resident or (in
the case of an individual) ordinarily resident for tax purposes in the UK may,
depending on the shareholder's particular circumstances, and subject to any
available exemption or relief, give rise to a chargeable gain or an allowable
loss for the purposes of UK taxation on chargeable gains.
Shareholders Temporarily Non-Resident in the UK
A shareholder who is an individual and who has, on or after March 17,
1998, ceased to be resident and ordinary resident for tax purposes in the UK
for a period of less than five years of assessment and who disposes of shares
during that period may be liable, on his return, to UK taxation on chargeable
gains arising during his period of absence, subject to any available exemption
or relief.
Non-UK Resident Shareholders and Eligible US Shareholders
Subject to the provisions set out above in relation to temporary
non-residents, shareholders who are neither resident nor ordinarily resident
for tax purposes in the UK and Eligible US Shareholders will not be liable to
UK tax on chargeable gains realized on the disposal of their shares or ADSs (as
the case may be) unless the shareholder or Eligible US Shareholder carries on a
trade, profession or vocation in the UK through a branch or agency and has
used, held or acquired the shares or ADSs (as the case may be) for the purposes
of such trade, profession or vocation or such branch or agency.
Stamp Duty and Stamp Duty Reserve Tax
Subject to some exceptions, a conveyance or transfer on sale of shares
other than to a depositary or clearance service or its nominee or agent may
attract ad valorem UK stamp duty on the instrument of transfer at the rate of
0.5% of the amount or value of the consideration for the transfer, rounded up
if necessary to the nearest multiple of (pound) 5. An unconditional agreement to
transfer shares other than to a depositary or clearance service or its nominee
or
agent will generally give rise to stamp duty reserve tax at the rate of 0.5%
of the amount or value of the consideration for the transfer. However, if
within six years of the date of the agreement, or, if the agreement was
conditional, the date the agreement became unconditional, an instrument of
transfer is executed pursuant to the agreement and stamp duty is paid on that
instrument, then the charge to stamp duty reserve tax will be cancelled or,
where the stamp duty reserve tax charge has been paid, the stamp duty reserve
tax will, provided that a claim for repayment is made, be repaid.
A charge to stamp duty or stamp duty reserve tax may arise on the issue or
transfer of shares to an issuer of depositary receipts, to its nominee or agent
or to particular persons providing a clearance service, their nominees or their
agents. The rate of stamp duty or stamp duty reserve tax will generally be 1.5%
of either (a) in the case of an issue of shares, the issue price of the shares
concerned, or (b) in the case of a transfer of shares, the value of the
consideration or, in some circumstances, the value of the shares concerned. In
the case of stamp duty, the amount will be rounded up if necessary to the
nearest multiple of (pound) 5.
No stamp duty reserve tax will be payable on an agreement to transfer an
ADR and provided that the ADR (and any instrument or written agreement of
transfer) is executed and retained at all times outside the UK it should not in
practice be necessary to pay stamp duty in respect of such transfer. On a
transfer of shares from the custodian of a depositary to a holder of an ADS
upon cancellation of the ADS where there is no transfer of beneficial
ownership, a fixed stamp duty of (pound) 5 per instrument of transfer will be
payable by such holder.
Paperless transfers of shares within CREST are generally liable to stamp
duty reserve tax, rather than stamp duty. CREST is obliged to collect stamp
duty reserve tax on relevant transactions settled within the system. Deposits
of shares into CREST generally will not be subject to stamp duty or, unless the
transfer into CREST itself is for consideration, to stamp duty reserve tax.
Stamp duty reserve tax is generally the liability of the purchaser and
stamp duty is normally paid by the purchaser.
Special rules apply to market intermediaries and to some sale and
repurchase and stock borrowing arrangements.
Agreements to transfer shares to charities will not give rise to stamp
duty or stamp duty reserve tax.
If you are in any doubt as to your tax position or if you require more
detailed information than that outlined above you should consult an appropriate
professional adviser immediately.
United States Federal Income Tax Considerations
This discussion describes the material US federal income tax consequences
of the acquisition, ownership and disposition of shares, including shares
represented by ADSs evidenced by ADRs. This discussion of US federal income tax
consequences applies to you only if you are a US holder. For purposes of this
discussion, you are a "US holder" if you are a beneficial owner of shares or
ADSs and you are, for US federal income tax purposes:
o an individual citizen or resident of the US,
o a corporation, or an entity treated as a corporation, organized under
the laws of the US or any state thereof or the District of Columbia
or
o otherwise subject to US federal income tax on a net income basis in
respect of the shares or ADSs.
This discussion applies only to holders who will hold shares or ADSs as capital
assets. This discussion is based:
o upon current US law, US Internal Revenue Service practice, US
judicial decisions, administrative pronouncements and US Treasury
Regulations, changes to any of which after the date hereof could
apply on a retroactive basis and affect the tax consequences
described herein, and
o in part upon representations of the Depositary and assumes that each
obligation provided for in or otherwise contemplated by the Deposit
Agreement and any related agreement will be performed in accordance
with its respective terms.
The US Treasury has expressed concerns that parties to whom depositary
receipts such as the ADSs are released may be taking actions that are
inconsistent with the claiming of foreign tax credits by United States holders.
Accordingly, the analysis of the creditability of UK Withholding Tax described
below could be affected by future actions that may be taken by the US Treasury.
Please note that the US and the UK are negotiating a new income tax
treaty. The following discussion does not address all of the tax consequences
that may be relevant to you in light of your particular situation. For example,
this discussion does not address the treatment of insurance companies,
regulated investment companies, tax-exempt organizations, financial
institutions, holders subject to the alternative minimum tax, securities
broker-dealers, persons holding through foreign partnerships or other
pass-through entities, holders who hold shares or ADSs as part of hedging or
conversion transactions or holders who own directly, indirectly or by
attribution 10% or more of the voting power of Regus and holders whose
functional currency for US tax purposes is not the US dollar.
You should consult your own tax advisers as to the particular tax
consequences to you under US federal, state and local and other laws, of the
acquisition, ownership and disposition of shares or ADSs. Holders of ADSs will
be treated as owners of the underlying shares attributable thereto.
Taxation of Sales or other Dispositions
If you sell or otherwise dispose of your shares or ADSs, you will
recognize capital gain or loss for US federal income tax purposes in the same
manner as on the sale or disposition of any other shares held by you as capital
assets. As a result, you will generally recognize capital gain or loss for US
federal income tax purposes equal to the difference between the amount realized
and your adjusted basis in the shares or ADSs. This capital gain or loss will
be long-term capital gain on loss if your holding period in the shares or ADSs
exceeds one year. Any gain or loss will generally be US source.
US Taxation of Dividends
The gross amount of any distributions, other than some pro rata
distributions of ordinary shares or rights to acquire ordinary shares, in
respect of ordinary shares or ADSs to US holders will constitute foreign source
dividend income for US federal income tax purposes to the extent such
distributions are made from the current or accumulated earnings and profits of
Regus plc, as determined in accordance with US federal income tax principles.
Such dividends will not be eligible for the dividends received deduction
otherwise allowed to corporations. The amount of any cash distribution paid in
pounds sterling (including the UK withholding in an amount equal to the Tax
Credit Amount) will be equal to the US dollar value of the pounds sterling on
the date of receipt by the Depositary or by you if you hold ordinary shares, as
applicable, regardless of whether the payment is in fact converted into US
dollars. Gain or loss, if any, recognized on the sale or other disposition of
pounds sterling will be US source ordinary income or loss. The amount of any
distribution of property other than cash will be the fair market value of such
property on the date of distribution.
Subject to certain restrictions and limitations, if you comply with the
applicable filing requirements you may elect to claim a foreign tax credit for
UK Withholding Tax. If you elect to claim the foreign tax credit, the UK
Withholding Tax will constitute foreign source dividend income for US federal
income tax purposes to the extent made from current or accumulated earnings and
profits of Regus plc. The limitation of foreign taxes eligible for credit is
calculated separately with respect to specific classes of income. For this
purpose, any dividends paid by Regus plc on the Shares or ADSs will generally
constitute "passive income" or, in the case of US financial service providers,
may be "financial services income".
We believe that we will not be considered a "passive foreign investment
company" for US federal income tax purposes. However, since our status as a
passive foreign investment company depends on the composition of our
income and assets and the market value of our assets from time to time, there
can be no assurance that we will not be considered a possible foreign
investment company in any taxable year. If we were treated as a passive foreign
investment company in any taxable year during which you held Shares or ADSs you
may be subject to certain adverse consequences, including the imposition of tax
at higher rates than would otherwise apply to income derived from the Shares or
ADSs as well as additional tax form filing requirements.
DOCUMENTS ON DISPLAY
The documents concerning us which are referred to herein may be inspected
at the Securities and Exchange Commission. You may read and copy any document
filed or furnished by us at the SEC's public reference rooms in Washington
D.C., New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the reference rooms.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our treasury policy seeks to ensure that adequate financial resources are
available for the development and growth of its operations while managing its
currency, interest rate and counter-party risks. Our Treasury strategy and
policy is developed centrally with subsidiary companies operating within a
framework of controls approved by the Board. We do not engage in speculative
transactions. Our policy on the major areas of treasury activity is set out
below.
Currency translation risk
The results of our foreign subsidiaries are translated into Sterling at
the average exchange rates for the period concerned. The balance sheets of
foreign subsidiaries are translated into Sterling at the closing exchange
rates. Any gains and losses resulting from the translation are recorded in
reserves where they are matched with the gains and losses on borrowings,
foreign exchange contracts, currency swaps or currency options, used to hedge
the net assets of subsidiaries. Our Treasury makes proposals to a committee of
the Board each quarter on hedging its foreign assets in this way. Quantitative
information on fair value of instruments is given in note 20 in the accounts in
this annual report.
Currency transaction exposure risk
Currency transaction exposure arises where sales and purchases are
transacted by a business unit in a currency other than its own functional
currency. The majority of the Group's businesses, however, sell to clients and
pay suppliers in their local markets in their own functional currencies and
therefore have limited transaction exposure. Where this is not the case, it is
our policy to cover material transactions as soon as they are committed and to
use forward currency contracts to do so. Quantitative information on currency
exposure if given in note 20 in the accounts in this annual report.
Funding and deposits
The Group is currently net cash positive, with substantial cash balances.
During the year, the major debt facility was repaid in full and cancelled on
receipt of proceeds from our successful initial public offering. Outstanding
borrowings comprise office equipment financed through finance and operating
leases and specific loans from certain property owners advanced on commercial
terms. Wherever possible, these borrowings are matched to the local currency of
the borrower or, in the case of lease finance, to the life of the asset
financed. During 2001 we will arrange sufficient bank credit facilities on
normal commercial terms to provide further liquidity or capital for growth.
Surplus funds are deposited in investment grade instruments that carry low
credit risk and which are readily realisable in major currencies.
Counter-party risk
We actively manages our relationships with a panel of high-quality
financial institutions. Cash assets, borrowings and other financial instruments
are distributed against predetermined limits approved by the Board to control
exposure to any particular institution.
Interest rate risk
Our current policy is to borrow and invest surplus funds on a floating rate
basis. Group Treasury is, however, currently undertaking a review of policy in
light of the increase in surplus funds resulting from the initial public
offering and the potential arrangement of debt facilities in 2001. This will
consider the appropriateness of fixing interest rates using forward rate or
interest rate swap agreements. Quantitative information for interest rate risk
is given in note 20 in the accounts of this report.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
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
USE OF PROCEEDS
Pursuant to our Registration Statement on Form F-1 (File No. 333-12504),
which was declared effective by the Securities and Exchange Commission on
October 16, 2000, we and certain selling shareholders offered and sold
147,936,767 of our shares, nominal value 5p per share, and ADSs, each ADS
representing five shares, at a public offering price of (pound) 2.60 per share
and $18.79 per ADS. We received net proceeds of $353.1 million, after deducting
the underwriting discount and actual offering expenses paid by us of $26.8
million. The global coordinator of this offering was Merrill Lynch
International.
From October 16, 2000 to March 31, 2001, we used net offering proceeds of
$149.7 million for retiring our (pound) 100 million senior secured multicurrency
revolving facility, the expansion of our network of business centers, funding a
loan by us to the Regus Employee Trust, a minority equity investment in Host
Regus and general corporate purposes. This use of proceeds was in line with the
use of proceeds described in our Registration Statement.
PART III
ITEM 18. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors of REGUS PLC.
We have audited the accompanying consolidated balance sheets of REGUS PLC and
its subsidiaries (together, the Group), as of December 31, 2000 and 1999 and
the related consolidated profit and loss account, statements of cash flows and
total recognized gains and losses and reconciliation of movements in group
shareholders' funds/(deficit) for each of the years in the three-year period
ended December 31, 2000. These consolidated financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. These standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. 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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Group as of
December 31, 2000 and 1999 and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2000 in
conformity with generally accepted accounting principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Application of accounting principles generally
accepted in the United States of America would have affected results of
operations for each of the years in the three-year period ended December 31,
2000 and shareholders' funds as of December 31, 2000 and 1999, to the extent
summarized in Note 27 to the consolidated financial statements.
/s/ KPMG Audit Plc
KPMG Audit Plc
London England
26 February 2001
Regus plc
Consolidated Profit & Loss Account
12 months 12 months to 12 months to
to Dec 31 2000 Dec 31 1999 Dec 31 1998
Note (pound) '000' (pound) '000' (pound) '000'
Turnover (including share of joint ventures) 1 429,200 200,610 111,619
Less: Share of turnover of joint ventures 1 (8,075) (9) 0
---------------------- --------------- ------------------
Turnover 421,125 200,601 111,619
Cost of sales (center costs) (320,832) (183,487) (97,226)
---------------------- --------------- ------------------
Gross profit (centre contribution) 1 100,293 17,114 14,393
---------------------- --------------- ------------------
Administration expenses before exceptional items (86,859) (60,054) (29,561)
Exceptional items 3 (9,501) (5,125) -
---------------------- --------------- ------------------
Administration expenses after exceptional items (96,360) (65,179) (29,561)
---------------------- --------------- ------------------
Group operating profit/(loss) 3,933 (48,065) (15,168)
Share of operating loss in joint ventures (1,027) (92) 0
---------------------- --------------- ------------------
Total operating profit/(loss): group and share of joint 2,906 (48,157) (15,168)
ventures
Net interest payable and other similar charges 6 (6,763) (6,782) (2,003)
---------------------- --------------- ------------------
Loss on ordinary activities before tax 2 (3,857) (54,939) (17,171)
Tax on loss on ordinary activities 7 (9,926) (1,524) (850)
---------------------- --------------- ------------------
Loss on ordinary activities after tax (13,783) (56,463) (18,021)
Equity minority interests 253 17 84
---------------------- --------------- ------------------
Retained loss for the financial year 18 (13,530) (56,446) (17,937)
====================== =============== ==================
Loss per ordinary share: 8
Basic (p) (2.7) (12.0) (4.2)
Diluted (p) (2.6) (12.0) (4.2)
Basic (p)* (1.1) (11.3) (4.2)
Diluted (p)* (1.1) (11.3) (4.2)
* before exceptional items
See accompanying notes to consolidated financial statements
All results arose from continuing operations.
F-2
Regus PLC
Consolidated Balance Sheets
December 31 December 31 1999
Notes (pound) '000' (pound) '000'
Fixed assets
Tangible assets 9 193,453 125,571
Investments
Investments in subsidiaries 10 - -
Investment in own shares 10 47,021 -
Interest in joint ventures: 10
----------------- ----------------------
Share of gross assets 13,601 1,361
Share of gross liabilities (9,461) (155)
----------------- ----------------------
4,140 1,206
----------------- ----------------------
Total investments 51,161 1,206
----------------- ----------------------
244,614 126,777
----------------- ----------------------
Current assets
Stocks 279 244
Debtors 11 129,677 69,183
Cash at bank and in hand 169,821 72,100
----------------- ----------------------
299,777 141,527
Creditors: amounts falling due within one year 12 (317,883) (189,860)
----------------- ----------------------
Net current (liabilities)/assets (18,106) (48,333)
Total assets less current liabilities 226,508 78,444
----------------- ----------------------
Creditors: amounts falling due after more than one year 13 (23,050) (102,350)
Provisions for liabilities and charges 15 (794) -
----------------- ----------------------
Net assets/(liabilities) 202,664 (23,906)
================= ======================
Capital and reserves
Called up Share capital 16 29,034 24,061
Share premium account 17 279,858 46,283
Other reserves 18 615 606
Profit and loss account 18 (106,417) (94,681)
----------------- ----------------------
Equity shareholders funds/(deficit) 203,090 (23,731)
Equity minority interests (426) (175)
----------------- ----------------------
202,664 (23,906)
================= ======================
See accompanying notes to consolidated financial statements
F-3
Regus plc
Consolidated cash flow statements
12 months to 12 Months to 12 Months to
Dec 31 2000 Dec 31 1999 Dec 31 1998
Note (pound) 000 (pound) '000' (pound) '000'
Cash inflow from continuing operating activities
Net cash inflow before exceptional items 117,899 17,731 15,691
Outflow related to exceptional item 19(a) - (3,370) -
-------------------- ----------------- ------------------
Net cash inflow from continuing operating activities 19(a) 117,899 14,361 15,691
-------------------- ----------------- ------------------
Returns on investments and servicing of finance
Interest received 3,851 1,287 1,310
Interest paid (7,993) (3,575) (1,429)
Interest paid on finance leases (2,861) (2,943) (1,884)
Debt arrangement fees paid - (1,500) -
-------------------- ----------------- ------------------
(7,003) (6,731) (2,003)
-------------------- ----------------- ------------------
Taxation
Tax paid (2,224) (969) (1,558)
-------------------- ----------------- ------------------
(2,224) (969) (1,558)
-------------------- ----------------- ------------------
Capital expenditure and financial investment
Purchase of tangible fixed assets (88,078) (76,024) (21,454)
Sale of tangible fixed assets 1,506 311 253
Purchase of own shares (42,500) - -
-------------------- ----------------- ------------------
(129,072) (75,713) (21,201)
-------------------- ----------------- ------------------
Acquisitions and disposals
Investment in joint ventures (3,789) (1,296) -
-------------------- ----------------- ------------------
(3,789) (1,296) 0
-------------------- ----------------- ------------------
Cash outflow before management of liquid resources and financing (24,189) (70,348) (9,071)
Management of liquid resources 19(b) (78,712) (16,519) (29,356)
Financing 19(b) 118,766 96,979 43,185
-------------------- ----------------- ------------------
Increase in cash in the year 19(c)&(d) 15,865 10,112 4,758
==================== ================= ==================
See accompanying notes to consolidated financial statements
F-4
Regus plc
Consolidated statements of total recognized gains and losses
12 months to 12 Months to 12 Months to
Dec 31 2000 Dec 31 1999 Dec 31 1998
(pound) '000' (pound) '000' (pound) '000'
Loss for the financial year (13,530) (56,446) (17,937)
Exchange differences 2,675 (1,160) (1,800)
Tax charge on exchange differences (872) - -
------------------ ------------------ -----------------
Total recognized losses for the year (11,727) (57,606) (19,737)
================== ================== =================
Reconciliation of movements in group shareholders' funds/(deficit)
12 months to 12 Months to 12 Months to
Dec 31 2000 Dec 31 1999 Dec 31 1998
(pound) '000' (pound) '000' (pound) '000'
Loss for the financial year (13,530) (56,446) (17,937)
Net proceeds of ordinary shares issued 238,548 20,000 50,244
Exchange differences 2,675 (1,160) (1,800)
Tax charge on exchange differences (872) - -
------------------ ------------------ -----------------
Net increase/(decrease) in shareholders' funds 226,821 (37,606) 30,507
Shareholders' (deficit)/funds at January 1 (23,731) 13,875 (16,632)
------------------ ------------------ -----------------
Shareholders' funds/(deficit) at December 31 203,090 (23,731) 13,875
================== ================== =================
See accompanying notes to consolidated financial statements
F-5
Regus Plc
Accounting Policies
1. Description of business
Regus plc (the "Company"), formerly Regus Business Centres plc, and
its consolidated subsidiaries (the "Group") are engaged in the
provision of fully serviced business centres offering clients a mix of
workstations, conference rooms and related support services. The Group
operates an international network of business centres and is divided
into four geographic regions, UK & Ireland, Rest of Europe, Americas
and Rest of World. Maxon Investments BV ("Maxon") is the ultimate
parent company and M.L.J. Dixon, the Chief Executive of the Company,
has an effective controlling interest in the equity shares of the
Company via Maxon.
2. Basis of preparation
The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United Kingdom
("UK GAAP"), under the historical cost convention. These principles
differ in certain significant respects from generally accepted
accounting principles in the United States ("US GAAP"). Application of
US GAAP would have affected shareholders' funds/(deficit) and results
of operations at and for the years ended December 31, 1999 and 2000,
to the extent summarised in note 27.
The preparation of financial statements in conformity with UK GAAP and
US GAAP requires management to make estimates and assumptions that
reflect the reported amounts of assets and liabilities and disclosure
of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses for an accounting
period. Such estimates and assumptions could change in the future as
more information becomes known or circumstances change, such that the
Group's results may differ from the amounts reported and disclosed in
the financial statements. The following principal accounting policies
have been applied consistently in dealing with items which are
considered material in relation to the group's financial statements.
3. Basis of consolidation
The financial statements have been prepared using the merger
accounting principles contained in FRS 6 Acquisitions and Mergers in
relation to the Group reorganisation which comprised the addition on
July 23, 1998 of a new Group holding company, Regus plc, above the
previous one, Regus Business Centre BV. Under merger accounting, the
results and cash flows of the two companies are combined as though the
structure was in place from January 1, 1997. Profit and loss and
balance sheet comparatives are shown on the combined basis and
adjustments have been made where necessary to adopt accounting
policies consistent with UK GAAP rather than Dutch GAAP as used by the
previous holding company.
The consolidated financial statements incorporate the financial
statements of the Company and all its subsidiary undertakings which
are more than 50% owned subsidiaries. Subsidiary undertakings not more
than 50% owned, including 50% owned joint ventures, are accounted for
under the gross equity method and included in interest in joint
ventures. All significant inter-company accounts and transactions have
been eliminated on consolidation.
4. Transactions in foreign currencies
Assets and liabilities of foreign subsidiaries and related hedging
instruments are translated into sterling at the closing exchange rate
prevailing at the balance sheet date. Results of overseas undertakings
are translated into sterling at the average rates of exchange for the
relevant period. Differences arising from the re-translation of the
results of overseas undertakings are dealt with through reserves.
Transactions in foreign currency are recorded using the rate of
exchange at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated using the
rate of exchange prevailing at the balance sheet date and the gains or
losses on translation are included in the profit and loss account.
F-6
Regus plc
Accounting Policies (continued)
5. Tangible fixed assets and depreciation
Depreciation is provided on a straight-line basis at rates calculated
to write off the cost of fixed assets over their estimated useful
lives at the following rates:
Furniture - 5 years
Fixtures and fittings - shorter of the lease term, the
first break point of the
building lease or 10 years
Telephones and office equipment - 5 years
Computer hardware - 3 years
Computer software - 2 years
Cars - 4 years
6. Fixed asset investments
Fixed asset investments are generally accounted for at the lower of
cost and recoverable amount. Investments designated as hedging
instruments are carried at market value, any gains or losses being
recognised consistently with the item being hedged.
7. Stocks
Stocks are stated at the lower of cost and net realisable value.
Stocks relate to items purchased for resale to customers and to items
intended for distribution within the business such as office supplies
and marketing materials. Provision is made for any deterioration in
net realisable value as a result of obsolescence or damage.
8. Deferred taxation
Provision under the liability method is made for deferred taxation at
the current rate of corporation tax on all timing differences, to the
extent that they are expected to crystallise.
9. Refurbishment
The terms of most building leases require Regus to make good
dilapidation or other damage occurring during the rental period. Due
to the nature of the business, centres are maintained to a high
standard. Accruals for dilapidations are only made when it is known
that a dilapidation has occurred.
10. Turnover
Turnover represents the value of services provided to third parties in
the year and is exclusive of VAT and similar taxes.
Centre income is invoiced monthly in advance and is deferred until the
month in which the services are provided.
Income for other services supplied to clients utilising centres is
charged and recognised in the month in which the related services are
provided.
11. Cost of sales
Cost of sales consists of costs from the individual business centres,
including property lease costs, employee costs and start-up costs.
12. Start-up costs
Start-up costs (including formation costs, costs related to finding
property and any other centre opening costs) are charged to the profit
and loss account as they are incurred.
13. Pensions
The Group operates defined contribution schemes. Contributions are
charged to the profit and loss account on an accruals basis.
F-7
Regus plc
Accounting Policies (continued)
14. Leases
a) Finance leases
Where the Group enters into a lease for furniture, fittings, equipment
or cars which entails taking substantially all the risks and rewards
of ownership of an asset, the lease is treated as a finance lease.
This also includes occasions where the Group takes interest bearing
extended credit from suppliers and certain loans from landlords.
Under all such lease arrangements the asset is recorded in the balance
sheet as a tangible asset and is depreciated over the shorter of the
lease term and its estimated useful life in accordance with the policy
described above. Future instalments under such leases, net of finance
charges, are included in creditors.
Lease payments are apportioned between the finance element, which is
charged to the profit and loss account on a sum of the digits basis or
a post-tax actuarial basis, and the capital element, which reduces the
outstanding obligation for future instalments.
b) Building leases
Building leases are all accounted for as operating leases because
substantially all the risks and rewards of ownership remain with the
lessor.
The rental on certain leases is wholly or partly conditional on the
profitability of the centre and therefore the risk to the business, in
terms of rent, is reduced. Once all outstanding rent has been paid,
landlords receive a share of the profits of the centre.
For leases which are wholly or partly conditional on the profitability
of the centre, an estimate is made of the likely rent payable based on
profitability in respect of the period up to the date of the first
market rent review or first break point in the lease, whichever is
sooner, and this is spread on a straight line basis over that period.
Any subsequent changes in estimates are spread over the remaining
period to the date of the first market rent review or first break
point in the lease, whichever is sooner. Amounts payable in respect of
profit shares are accrued once a sufficient net surplus has been made
which would result in a profit share being paid.
Any incentives or rent free periods on conventional leases and the
conventional element of leases, which are partly conventional and
partly conditional on profitability are spread on a straight line
basis over the period to the date of the first market rent review or
first break point in the lease, whichever is sooner, so that the
amounts charged to the profit and loss account are the same each year
over that period.
15. Financial instruments
The Group uses various derivative financial instruments to hedge its
exposures to fluctuations in foreign exchange risks. These include
forward currency contracts and currency options.
The accounting method used for derivative financial instruments is
determined by whether or not the instrument is designated as a hedge
of an existing exposure and, if so by the accounting method used for
the item being hedged.
The Group considers its derivative financial instruments to be hedges
when certain criteria are met.
Forward currency contracts
The Group's criteria to qualify for hedge accounting are:
o The instrument must be related to a foreign currency asset or
liability
o It involve the same currency as the hedged item
o It must reduce the risk of foreign currency exchange movements
on the Group's operations;
The group has established policies and procedures for risk assessment
and the approval, reporting and monitoring of derivative financial
instruments. The group does not enter into financial instruments for
trading or speculative purposes.
F-8
Regus plc
Accounting Policies (continued)
Forward currency contracts are marked to market at the period end,
with the resulting exchange gains or losses taken to administration
expenses in the profit and loss account, except where the hedged
item's exchange
Difference is reflected in reserves (such as quasi equity loans). In
this situation the gain or loss is taken to reserves. The gains or
losses on the forward contracts are recognised when the gains or
losses on the underlying hedged transactions are recognised. The net
resulting unrealised asset or liability is reflected in debtors or
creditors as appropriate.
Premiums or discounts on derivative financial instruments that hedge
an existing exposure are charged or credited to interest income or
cost over the life of the instrument, the related asset or liability
is classified as an accrual or prepayment.
Derivative financial instruments that are not designated as hedges are
marked to market using period end market rates and gains or losses are
taken to the profit and loss account.
Gains or losses arising on hedging instruments which are cancelled due
to the termination of the underlying exposure are taken to
administration expenses immediately.
Currency options
Under hedge accounting for currency options, the Group defers the
instruments impact on profit until it fully recognises the underlying
hedged item in the profit and loss account.
Option costs are charged to the interest cost over the life of the
option contract, the related asset is classified as prepayments.
At maturity, any realised gain on the option is recognised in the
profit and loss account in administration expenses.
F-9
Regus plc
Notes to the financial statements for the year ended December 31, 2000
1 Segmental reporting
The following tables set out the Group's segmental analysis by geographic
region and by established and new centres. Established centres are those that
have been open for a period of at least eighteen months as at the end of the
relevant period and new centres are those that have been open for less than
eighteen months as at the end of the relevant period.
Turnover Gross profit/(loss) (center contribution)
12 months to 12 months to 12 months to 12 months to 12 months to 12 months to
December 31 December 31 December 31 December 31 December 31 December 31
2000 1999 1998 2000 1999 1998
(pound) '000' (pound) '000' (pound) '000' (pound) '000' (pound) '000' (pound) '000'
Geographical analysis
United Kingdom & 188,862 102,856 61,192 59,619 20,169 12,922
Ireland
Rest of Europe 118,933 73,739 45,307 29,214 10,830 3,680
Americas 94,296 15,646 2,595 13,850 (6,012) (1,840)
Rest of World 27,109 8,369 2,525 (2,390) (7,873) (369)
--------------- ---------------- ---------------- ----------------- ------------------- -----------------
429,200 200,610 111,619 100,293 17,114 14,393
=============== ================ ================ ================= =================== =================
Total Group 421,125 200,601 111,619
Total joint ventures 8,075 9 -
=============== ================ ================
Established centers 293,555 134,016 71,422 92,329 41,673 22,966
New centers 127,570 66,585 40,197 7,964 (24,559) (8,573)
--------------- ---------------- ---------------- ----------------- ------------------- -----------------
Total 421,125 200,601 111,619 100,293 17,114 14,393
=============== ================ ================ ================= =================== =================
Operating profit/(loss) Net assets/(liabilities)
12 months to 12 months to 12 months to As at As at
Dec 31 2000 Dec 31 1999 Dec 31 1998 Dec 31 2000 Dec 31 1999
(pound) '000' (pound) '000' (pound) '000' (pound) '000 (pound) '000'
Geographical analysis
United Kingdom & Ireland 36,763 4,830 (49) 21,304 (5,952)
Rest of Europe 3,783 (10,527) (11,165) (28,972) (27,073)
Americas (14,646) (19,812) (3,187) (308) (15,189)
Rest of World (11,609) (15,742) (2,154) (29,294) (17,791)
Other (1,884) (1,781) 1,387 249,435 47,224
Exceptional Item (9,501) (5,125) - (9,501) (5,125)
--------------- ---------------- ----------------- ---------------- ---------------
2,906 (48,157) (15,168) 202,664 (23,906)
=============== ================ ================= ================ ===============
Total Group 3,933 (48,065) (15,168) 198,524 (25,112)
Total joint ventures (1,027) (92) - 4,140 1,206
=============== ================ ================= ================ ===============
There is no difference between segmental information on an origin basis and
on a destination basis. The directors are of the opinion that the whole of
the turnover is derived from the same class of business.
F-10
Regus plc
Notes to the financial statements
2 Loss on ordinary activities before tax
12 months to 12 months to 12 months to
December 31 2000 December 31 1999 December 31 1998
(pound) '000' (pound) '000' (pound) '000'
Loss before tax is stated after charging:
Depreciation of tangible fixed assets:
- owned assets 27,671 12,459 4,614
- assets under finance leases 12,875 7,602 4,781
Loss on sale of fixed assets 1,520 15 14
Operating leases:
- property 136,969 71,805 33,451
- equipment 6,033 5,466 3,214
Audit fees:
- group 546 375 304
Non audit fees paid to KPMG:
- UK companies 204 76 46
- group 546 306 168
- exceptional (note 3) - 900 -
Other exceptional items (note 3) 9,501 4,225 -
In addition to the fees above, audit fees of (pound) 240,000 and
non-audit fees of (pound) 786,000 paid to KPMG were offset against the
share premium account.
3 Exceptional item
The exceptional pre-tax charge of (pound) 9,501,000 in 2000 related to
the costs associated with the write down of the Reward share options
exercise price from (pound) 1.455 to (pound) 0.05. The exceptional
pre-tax charge of (pound) 5,125,000 in 1999 related principally to costs
associated with the raising of loan finance and the postponed flotation
work during 1999.
4 Loss of holding company
Of the loss attributable to shareholders, a loss of (pound) 11,922,000
(December 1999: loss of (pound) 11,730,000) is dealt with in the
accounts of Regus plc.
F-11
Regus plc
5 Employees and directors
12 months to 12 months to 12 months to
December 31 2000 December 31 1999 December 31 1998
(pound) '000' (pound) '000' (pound) '000'
Staff costs for the Group during the year
Wages and salaries 61,648 42,126 21,650
Social security costs
Other pension costs 7,851 5,465 2,995
260 300 60
-------------------- ------------------------ -------------------------
69,759 47,891 24,705
==================== ======================== =========================
The Group contributes to the personal pension schemes of a small number
of employees. The amount which is included within creditors is
(pound) 44,000 (Dec 99: (pound) 12,000, Dec 98: nil). Included within the
above staff costs in December 1999 are (pound) 900,000 of exceptional
costs in relation to the postponed flotation work (see note 3).
12 months to 12 months to 12 months to
December 31 2000 December 31 1999 December 31 1998
Number Number Number
Average number of people (including executive directors)
employed during the year
Center staff 1,525 949 624
Sales staff 284 285 159
Finance staff 135 111 66
Other staff 157 147 74
-------------------- ------------------------ -------------------------
2,101 1,492 923
==================== ======================== =========================
12 months to 12 months to 12 months to
December 31 2000 December 31 1999 December 31 1998
(pound) '000' (pound) '000' (pound) '000'
Directors
Aggregate emoluments 988 787 688
==================== ======================== =========================
Compensation for loss of office - 36 -
==================== ======================== =========================
Company pension payments to money purchase 48 65 -
scheme
==================== ======================== =========================
Highest paid director
Aggregate emoluments 448 385 411
==================== ======================== =========================
Company pension payments to money 28 56 -
purchase scheme ==================== ======================== =========================
Retirement benefits are accruing to three directors under a money
purchase scheme. One director (Dec 99: one director) received share
options under the long term incentive scheme. More detailed information
on directors emoluments is provided in the report of the Remuneration
Committee.
6 Net interest payable and other similar charges
12 months to 12 months to 12 months to
December 31 2000 December 31 1999 December 31 1998
(pound) '000' (pound) '000' (pound) '000'
Interest payable on overdrafts and loans 7,759 7,495 1,429
Interest payable on finance leases 2,867 2,965 1,884
-------------------- ------------------------ -------------------------
10,626 10,460 3,313
Interest income (3,863) (3,678) (1,310)
-------------------- ------------------------ -------------------------
Net interest payable and other similar 6,763 6,782 2,003
charges ==================== ======================== =========================
F-12
7 Taxation
12 months to 12 months to 12 months to
December 31 2000 December 31 1999 December 31 1998
(pound) '000' (pound) '000' (pound) '000'
United Kingdom
Corporation tax at 30% (Dec 1999: 30%, Dec 4,402 - 301
1998: 31%)
Deferred tax 794 - -
Under provision in respect of prior periods - 180 141
-------------------- ------------------------ -------------------------
5,196 180 442
Overseas
Corporation taxes 4,752 1,322 382
(Over)/under provision in respect of (22) 124 -
prior periods
Deferred tax - (102) 26
-------------------- ------------------------ -------------------------
9,926 1,524 850
==================== ======================== =========================
Approximate gross tax losses to carry
forward against certain future UK
corporation tax liabilities - 5,855 1,398
=================== ======================== =========================
Approximate gross tax losses to carry
forward against certain
future overseas corporation tax liabilities 76,910 57,718 17,205
==================== ======================== =========================
No deferred tax has been provided on the unremitted accumulated
reserves of the subsidiary undertakings as accumulated reserves of
subsidiary undertakings are retained to finance their business.
At December 31, 2000, the total unremitted accumulated reserves of the
subsidiary undertakings were(pound) 2,047,000 (Dec 1999: (pound)
2,369,000)
The tax losses above have the following expiration dates:
As at As at
Dec 31 2000 Dec 31 1999
(pound) '000' (pound) '000'
2000 - 860
2001 196 915
2002 757 1,497
2003 2,592 3,489
2004 15,885 10,010
2005 7,574 273
2006 397 298
2007 and later 27,647 16,547
---------------- -------------------
55,048 33,889
Available indefinitely 21,862 29,684
---------------- -------------------
76,910 63,573
================ ===================
A reconciliation of the actual tax charge resulting from applying the UK
statutory rate to the loss before tax is as follows.
12 months to 12 months to 12 months to
December 31 2000 December 31 1999 December 31 1998
(pound) '000' (pound) '000' (pound) '000'
UK statutory rate applied to result for (1,157) (16,502) (5,151)
year
Adjusted for:
Permanent differences:
Professional fees associated with
postponed
Flotation and costs of obtaining loan - 2,010 -
finance
Other permanent differences 451 217 643
Difference in taxation rates (1,721) (1,732) (943)
Tax losses utilized 1,133) (795) (103)
Deferred tax asset not booked in respect of:
Tax losses carried forward 6,907 16,211 3,774
Start up costs and other reserves 6,717 1,905 2,528
Adjustment in respect of prior periods (22) 304 141
Other items (116) (94) (39)
--------------------- -------------------- --------------------
Actual tax charge 9,926 1,524 850
===================== ==================== ====================
F-13
Regus plc
8 Loss per Share
Loss per share has been calculated by dividing the retained loss for
the financial year by the weighted average number of ordinary shares in
issue excluding those held under the employee share trust. The loss per
share before exceptional items has been calculated by adjusting the
loss for the years ended December 31, 2000 and 1999 by the exceptional
items of (pound) 9.5 million and (pound) 5.1 million and the tax thereon
of (pound) 1.5 million and (pound) 1.5 million respectively. There were
no adjustments to the retained profit/ (loss) for the year for the
diluted earnings per share computations. The basic weighted number of
ordinary shares has been adjusted by 13,829,065 (1999: nil) shares,
relating to share options, to arrive at the diluted number of ordinary
shares. The 2000 and 1999 diluted shares were not included in the
computation of diluted earnings per share due to losses in 2000 and
1999, resulting in options being antidilutive. The following summarizes
the calculation of loss per share for the years ended December 31, 1999
and 2000:
12 months to 12 months to 12 months to
Dec 31 2000 Dec 31 1999 Dec 31 1998
Retained profit/(loss) for the year ((pound) '000) (13,530) (56,446) (17,937)
----------------- ----------------- ----------------
Retained profit/(loss) for the year before ((pound) '000) (5,529) (52,821) (17,937)
exceptional items ----------------- ----------------- ----------------
Weighted average ordinary shares in issue - basic ('000's) 497,889 469,486 427,729
----------------- ----------------- ----------------
- diluted ('000') 511,718 469,486 427,729
----------------- ----------------- ----------------
Loss per ordinary share - basic p (2.7) (12.0) (4.2)
================= ================= ================
- diluted p (2.6) (12.0) (4.2)
================= ================= ================
Loss per ordinary share before exceptional items p (1.1) (11.3) (4.2)
- basic ================= ================= ================
- diluted p (1.1) (11.3) (4.2)
================= ================= ================
F-14
Regus plc
9 Tangible fixed assets
Furniture &
fittings Computers Motor vehicles Total
(pound) '000' (pound) '000' (pound) '000' (pound) '000'
Cost
At January 1, 1999 67,595 4,653 499 72,747
Exchange differences (2,828) (227) (12) (3,067)
Additions 85,460 7,568 225 93,253
Reclassifications 1,244 (1,226) (18) 0
Disposals (804) (175) (116) (1,095)
------------------ ------------------ --------------- ----------------
At December 31, 1999 150,667 10,593 578 161,838
------------------ ------------------ --------------- ----------------
Aggregate depreciation
At January 1, 1999 16,404 1,374 227 18,005
Exchange differences (943) (81) (6) (1,030)
Charge for the period 17,967 1,965 129 20,061
Disposals (507) (165) (97) (769)
------------------ ------------------ --------------- ----------------
At December 31, 1999 32,921 3,093 253 36,267
------------------ ------------------ --------------- ----------------
Net book value at December 31, 1999 117,746 7,500 325 125,571
================== ================== =============== ================
Cost
At January 1, 2000 150,667 10,593 578 161,838
Exchange differences 96 187 2 285
Additions 99,549 12,002 101 111,652
Disposals (5,619) (1,285) (259) (7,163)
------------------ ------------------ --------------- ----------------
At December 31, 2000 244,693 21,497 422 266,612
------------------ ------------------ --------------- ----------------
Aggregate depreciation
At January 1, 2000 32,921 3,093 253 36,267
Exchange differences 280 70 (2) 348
Charge for the period 34,759 5,664 123 40,546
Disposals (2,688) (1,137) (177) (4,002)
------------------ ------------------ --------------- ----------------
At December 31, 2000 65,272 7,690 197 73,159
------------------ ------------------ --------------- ----------------
Net book value at December 31, 2000 179,421 13,807 225 193,453
================== ================== =============== ================
The net book value of tangible fixed assets includes an amounts in
respect of fixed assets held under finance leases as follows:
Dec 31 2000 Dec 31 1999
(pound) '000 (pound) '000
Cost 74,570 51,675
Depreciation (28,078) (15,900)
----------------- -----------------
Net book value 46,492 35,775
================= =================
10 Investments
Investment in Interest in Total
own shares joint ventures
(pound) '000 (pound) '000 (pound) '000
At January 1, 1999 - - -
Exchange differences - 2 2
Additions - 1,296 1,296
Revaluation - - -
Share of losses retained - (92) (92)
----------------- ----------------- ---------------
At January 1, 2000 - 1,206 1,206
Exchange differences - 170 170
Additions 45,200 3,791 48,991
Revaluation 1,821 - 1,821
Share of losses retained - (1,027) (1,027)
----------------- ----------------- ---------------
At December 31, 2000 47,021 4,140 51,161
================= ================= ===============
The nominal value of the group's investment in own shares is (pound) 906,534.
Note 21 provides details of investments in own shares.
Details of investments in subsidiary companies are given in note 29.
F-15
Regus plc
11 Debtors
Amounts falling due within one year
Dec 31 2000 Dec 31 1999
(pound) '000 (pound) '000
Trade debtors 60,990 31,153
Amounts owed by Group undertakings - -
Amounts owed by participating interest 1,862 -
Other debtors 29,940 14,951
Prepayments and accrued income 26,364 16,121
VAT recoverable 10,521 6,958
------------------- -------------------
129,677 69,183
------------------- -------------------
Amounts falling due after one year
Dec 31 2000 Dec 31 1999
(pound) '000' (pound) '000
Amounts owed by Group undertakings - -
------------------- -------------------
- -
------------------- -------------------
Total debtors 129,677 69,183
=================== ===================
As at December 31, 2000 the provision for bad and doubtful debts was
(pound) 1,701,000 (1999: (pound) 1,047,000). An allowance for bad and
doubtful debts is recorded at the end of each period based upon the
expected collectability of all trade receivables.
Analysis of the bad and doubtful debt provision is as follows:
Dec 31 2000 Dec 31 1999
(pound) '000 (pound) '000
Opening balance 1,047 732
Additional charges to profit and loss account 842 439
Provision utilisation (190) (79)
Exchange difference 2 (45)
---------------- ----------------
Closing balance 1,701 1,047
================ ================
F-16
Regus plc
12 Creditors - Amounts falling due within one year
Dec 31 2000 Dec 31 1999
(pound) '000' pound) '000'
Bank loans and overdrafts 5,750 26,154
Other loans 807 122
Obligations under finance leases 10,614 9,314
Amounts owed to group undertakings - -
Trade creditors 31,207 19,928
Customer deposits 80,024 37,674
Other tax and social security 16,128 9,043
Corporation tax 9,849 1,877
Deferred income 43,541 23,551
Deferred landlord contributions 3,173 4,529
Rent accruals 56,307 34,145
Other accruals 58,392 21,440
Other creditors 2,091 2,083
------------------ ----------------
317,883 189,860
================== ================
As at December 31, 2000 other accruals included property taxes
(pound) 4,495,000 (December 1999: (pound) 2,644,000) telephone call
cost accruals (pound) 1,435,000 (December 1999: (pound) 1,128,000)
marketing and advertising (pound) 3,378,000 (December 1999: (pound)
1,384,000), commissions and bonuses (pound) 5,976,000 (December 1999:
(pound) 1,357,000), holiday pay (pound) 1,120,000 (December 1999:
(pound) 722,000), legal and audit fees (pound) 1,440,000 (December
1999: (pound) 637,000), other accruals (pound) 27,397,000 (December
1999: (pound) 13,568,000) and share option cost accruals (pound)
13,151,000 (December 1999: (pound) nil).
13 Creditors - Amounts falling due after more than one year
Dec 31 2000 Dec 31 1999
(pound) '000' (pound) '000'
Bank loans 12 80,804
Other loans 1,475 1,934
Obligations under finance leases 21,150 13,674
Amounts owed to group undertakings - -
Accruals and deferred income 361 5,855
Other creditors 52 83
------------------ ----------------
23,050 102,350
================== ================
Certain bank loans are secured on the assets of the applicable
subsidiaries and bear interest at local commercial rates. All other
creditors are unsecured and non-interest bearing. Deferred tax has
been provided to the extent that the directors believe on the basis
of reasonable assumptions that it is probable that the liability will
crystallize in the foreseeable future.
As at December 31, 2000 the Group had (pound) 13,748,000 (December
1999: (pound) 3,011,000) of other available credit facilities, none of
which (December 1999: (pound) 846,000) was drawn, that bear interest
at various commercial rates with maturities through December 2004.
14 Maturity of debt
The maturity profile of the carrying amount of the Group's financial
liabilities as at December 31, was as follows:
Bank loans Other loans Finance leases Dec 31 2000
& overdrafts Total
(pound) '000' (pound) '000' (pound) '000' (pound) '000
Within 1 year 5,750 807 10,614 17,171
Between 1 and 2 years 4 285 10,224 10,513
Between 2 and 5 years 8 678 10,685 11,371
In 5 years or more - 512 241 753
------------- ------------- ---------------------------------
5,762 2,282 31,764 39,808
============= ============= =================================
Bank loans Other loans Finance leases Dec 31 1999
& overdrafts Total
(pound) '000' (pound) '000' (pound) '000' (pound) '000
Within 1 year 26,154 122 9,314 35,590
Between 1 and 2 years 80,783 1,361 7,216 89,360
Between 2 and 5 years 21 547 6,436 7,004
In 5 years or more - 26 22 48
------------- ------------- ---------------------------------
106,958 2,056 22,988 132,002
============= ============= =================================
F-17
Regus plc
14 Maturity of debt (continued)
The following provides additional disclosure for bank loans and
overdrafts and other loans:
Dec 31 2000 Dec 31 1999
(pound) '000' (pound) '000'
Within 1 year 6,557 26,276
Between 1 and 2 years 289 82,144
Between 2 and 3 years 249 343
Between 3 and 4 years 238 88
Between 4 and 5 years 199 137
After 5 years 512 26
----------------- ----------------
8,044 109,014
================= ================
The following provides additional finance lease disclosure including
the interest components of future minimum lease payments:
Dec 31 2000 Dec 31 1999
(pound) '000' (pound) '000'
Within 1 year 11,966 10,984
Between 1 and 2 years 11,967 7,901
Between 2 and 3 years 7,862 4,726
Between 3 and 4 years 1,970 2,358
Between 4 and 5 years 1,379 209
After 5 years 1,118 23
----------------- ----------------
Total commitment 36,262 26,201
Less amounts representing interest (4,498) (3,213)
----------------- ----------------
Present value of future minimum lease payments 31,764 22,988
Within 1 year 10,614 9,314
----------------- ----------------
After 1 year 21,150 13,674
================= ================
F-18
Regus plc
15 Provisions for liabilities and charges
Deferred tax
2000
(pound) '000'
At January 1 -
Provided in year 794
----------------
At December 31, 794
================
There is no unprovided deferred tax
16 Share capital
Dec 31 2000 Dec 31 1999
(pound) '000' (pound) '000'
Authorized
659,999,615 New A Ordinary shares of 5p each - 33,000
140,000,385 New B Ordinary shares of 5p each - 7,000
800,000,000 Ordinary shares of 5p each 40,000 -
---------------- -----------------
40,000 40,000
================ =================
Allotted and fully paid
385,665,000 New A Ordinary shares of 5p each - 19,283
95,557,208 New B Ordinary shares of 5p each - 4,778
580,676,185 Ordinary shares of 5p each 29,034 -
---------------- -----------------
29,034 24,061
================ =================
In March 2000 1,855,670 new A ordinary shares of 5 pence each were
allotted for a total consideration of (pound) 2,700,000.
In October 2000, 97,598,307 ordinary shares of 5 pence each were
issued in an Initial Public Offering for a total consideration of
(pound) 253,756,000. At the same time, the new A & B ordinary shares of
5 pence each were re-classified as ordinary shares of 5 pence each.
17 Share premium account (non distributable)
Dec 31 2000 Dec 31 1999
(pound) '000' (pound) '000'
At January 1 46,283 50,227
Premium on issue of shares during period 251,483 19,313
Bonus issue during the year - (23,257)
Issue costs (17,908) -
---------------- -----------------
At December 31, 279,858 46,283
================ =================
F-19
Regus plc
18 Reserves
Profit and Loss Other (non
distributable)
(pound) '000' (pound) '000'
At January 1, 1999 (37,075) 606
Retained loss for the period (56,446) -
Exchange differences (1,160) -
----------------- ------------------
At January 1, 2000 (94,681) 606
Retained loss for the period (13,530) -
Transfer to capital reserve (9) 9
Exchange differences 2,675 -
Tax on exchange differences (872) -
----------------- ------------------
At December 31, 2000 (106,417) 615
================= ==================
19 Cash flow statement
(a) Reconciliation of operating profit to net cash inflow from
operating activities
12 months to 12 months to 12 months
Dec 31 2000 Dec 31 1999 to Dec 31 1998
(pound) '000' (pound) 000' (pound) '000'
Continuing operating activities
Operating profit/(loss) 3,933 (48,065) (15,168)
Depreciation charge 40,546 20,061 9,395
Loss on disposal of fixed assets 1,520 15 14
(Increase)/decrease in stocks (33) 22 (140)
Increase in debtors (58,228) (32,573) (25,316)
Increase in creditors 130,161 74,901 46,906
----------------- ------------------ ------------------
Net cash inflow from continuing operating activities 117,899 14,361 15,691
================= ================== ==================
The cash inflow for December 1999 includes a (pound) 3,370,000
outflow relating to the exceptional item charged during the year
(see note 3).
(b) Financing and management of liquid resources
12 months to 12 months to 12 months
Dec 31 2000 Dec 31 1999 to Dec 31 1998
(pound) '000' (pound) '000' (pound) '000'
Management of liquid resources
New cash deposits (95,897) (105,536) (57,432)
Repayment of cash deposits 17,185 89,017 28,076
----------------- ------------------ ------------------
(78,712) (16,519) (29,356)
================= ================== ==================
Financing
New loans 13,945 105,073 5,581
Repayment of loans (116,325) (12,298) (2,027)
Payment of principal under finance leases (14,702) (15,796) (10,613)
Issue of equity shares 253,756 20,000 50,244
Issue costs (17,908) - -
----------------- ------------------ ------------------
118,766 96,979 43,185
================= ================== ==================
F-20
Regus plc
19 Cash flow statement (continued)
(c) Reconciliation of net cash flow to movement in net
funds/(borrowings)
12 months to 12 months to 12 months to
Dec 31 2000 Dec 31 1999 Dec 31 1998
(pound) '000' (pound) '000' (pound) '000'
Increase in cash in the period 15,865 10,112 4,758
Cash (inflow) / outflow from change in borrowings and 117,082 (76,979) 7,059
finance leases
Cash (inflow) / outflow from increase in liquid 78,712 16,519 29,356
resources
----------------- ------------------ -----------------
Change in net funds / borrowings resulting from cash flows 211,659 (50,348) 41,173
Other non-cash items:
New finance leases (23,574) (17,234) (19,272)
Translation difference 1,830 (1,280) (559)
----------------- ------------------ -----------------
Movement in net funds / borrowings in the period 189,915 (68,862) 21,342
Net (borrowings)/funds at January 1 (59,902) 8,960 (12,382)
----------------- ------------------ -----------------
Net funds/(borrowings) December 31, 130,013 (59,902) 8,960
================= ================== =================
(d) Analysis of changes in net funds/(borrowings) in the period
At Jan 1 2000 Cashflow Other non-cash Exchange At Dec 31 2000
changes movements
(pound) '000' (pound) '000' (pound) '000' (pound) '000' (pound) '000'
Cash at bank and in hand 16,426 8,030 6,583 393 31,432
Overdrafts (1,923) 7,835 (7,229) 114 (1,203)
---------------- ------------ ---------------- --------------- ----------------
14,503 15,865 (646) 507 30,229
Debt due after 1 year (82,738) (10,076) 91,387 (60) (1,487)
Debt due within 1 year (24,353) 112,456 (93,852) 395 (5,354)
Finance leases due after 1 year (13,674) 6,534 (14,000) (10) (21,150)
Finance leases due within 1 year (9,314) 8,168 (9,377) (91) (10,614)
---------------- ------------ ---------------- --------------- ----------------
(130,079) 117,082 (25,842) 234 (38,605)
Liquid resources 55,674 78,712 2,914 1,089 138,389
---------------- ------------ ---------------- --------------- ----------------
(59,902) 211,659 (23,574) 1,830 130,013
================ ============ ================ =============== ================
F-21
Regus plc
19 Cash flow statement (continued)
(d) Analysis of changes in net funds/(borrowings) in the period
(continued)
At Jan 1 1999 Cashflow Other non-cash Exchange At Dec 31 1999
changes movements
(pound) '000' (pound) '000' (pound) '000' (pound) '000' (pound) '000'
Cash at bank and in hand 8,137 17,024 (7,733) (1,002) 16,426
Overdrafts (122) (6,912) 4,329 782 (1,923)
--------------- ---------------- ------------------ ---------------- ----------------
8,015 10,112 (3,404) (220) 14,503
Debt due after 1 year (11,296) (80,571) 9,811 (682) (82,738)
Debt due within 1 year (5,850) (12,204) (5,757) (542) (24,353)
Finance leases due after 1 (12,969) 5,751 (6,817) 361 (13,674)
year
Finance leases due within 1 year (8,818) 10,045 (10,686) 145 (9,314)
--------------- ---------------- ------------------ ---------------- ----------------
(38,933) (76,979) (13,449) (718) (130,079)
Liquid resources 39,878 16,519 (381) (342) 55,674
--------------- ---------------- ------------------ ---------------- ----------------
8,960 (50,348) (17,234) (1,280) (59,902)
=============== ================ ================== ================ ================
At Jan 1 1998 Cashflow Other non-cash Exchange At Dec 31 1998
changes movements
(pound) '000' (pound) '000' (pound) '000' (pound) '000' (pound) '000'
Cash at bank and in hand 3,845 4,297 0 (5) 8,137
Overdrafts (570) 461 0 (13) (122)
--------------- ---------------- ------------------ ---------------- ----------------
3,275 4,758 0 (18) 8,015
Debt due after 1 year (12,350) 1,063 0 (9) (11,296)
Debt due within 1 year (1,185) (4,617) 0 (48) (5,850)
Finance leases due after 1 (6,834) 6,779 (12,845) (69) (12,969)
year
Finance leases due within 1 (6,195) 3,834 (6,427) (30) (8,818)
year
--------------- ---------------- ------------------ ---------------- ----------------
(26,564) 7,059 (19,272) (156) (38,933)
Liquid resources 10,907 29,356 0 (385) 39,878
--------------- ---------------- ------------------ ---------------- ----------------
(12,382) 41,173 (19,272) (559) 8,960
=============== ================ ================== ================ ================
Liquid resources include cash held on deposit of which
(pound) 40,945,000 at December 31, 2000 (1999:(pound) 21,970,000)
relates to deposits which are held by banks as security for the
issuance of bank guarantees to support lease commitments by Regus
operating companies. These amounts are blocked and are not available
for use by the business.
There are arrangements in place where cash balances with certain
banks can be offset against overdrawn accounts in the same bank.
Non-cash changes comprise new finance leases and reclassifications
between categories.
F-22
Regus plc
20 Financial instruments
Details of the role that financial instruments have had during the
year in managing the risks that the Group faces are discussed in Item
11 of this form 20-F.
Short term debtors and creditors and intercompany balances
Short term debtors and creditors and Intercompany balances have been
excluded from all the following disclosures other than the currency
risk disclosure.
Interest rate risk and currency profile of financial liabilities and
assets The following table analyses the currency and interest rate
composition of the Group's financial liabilities and assets,
comprising gross borrowings, and deposits where applicable.
December 31, 2000
Financial At At fixed rates Non-interest Total Weighted Weighted
liabilities Floating bearing average fixed average
rates interest rate period for
which rate
is fixed
(pound) '000 (pound) '000 (pound) '000 % Years
Euro (1,491) (3,037) - (4,528) 8.0 4.3
Japanese Yen - (895) - (895) 6.8 3.3
Sterling (500) (6,078) - (6,578) 9.8 3.8
US Dollar - (20,996) - (20,996) 8.9 4.7
Others (6,053) (758) - (6,811) 11.3 3.7
--------- ---------------- ------------ --------------- ================ ==============
(8,044) (31,764) - (39,808)
Financial assets
Australian Dollars 1,961 - - 1,961 - -
Euro 32,571 - 39 32,610 - -
Japanese Yen 2,393 - 2 2,395 - -
Sterling 102,433 - 95 102,528 - -
US Dollar 18,407 - 94 18,501 - -
Others 11,784 - 42 11,826 - -
--------- ---------------- ------------ --------------- ================ ==============
169,549 - 272 169,821
--------- ---------------- ------------ ---------------
161,505 (31,764) 272 130,013
========= ================ ============ ===============
of which:
current asset 138,389 - - 138,389
investments
gross borrowings (8,044) (31,764) - 39,808)
cash 31,160 - 272 31,432
-------- ----------------- ------------ ----------------
161,505 (31,764) 272 130,013
========= ================ ============ ================
December 31, 1999
Financial At At fixed rates Non-interest Total Weighted Weighted
liabilities floating bearing average fixed average
rates interest rate period for
which rate is
fixed
(pound) '000 (pound) '000 (pound) '000 % Years
Euro (853) (3,590) - (4,443) 8.5 4.5
Japanese Yen (11,526) (797) - (12,323) 7.2 3.5
Sterling (92,785) (11,434) - (104,219) 10.3 4.0
US Dollar - (6,230) - (6,230) 9.3 5.0
Others (3,850) (937) - (4,787) 11.5 4.0
--------------------------- ------------ --------------- ================ ==============
(109,014) (22,988) - (132,002)
Financial assets
Australian Dollars 1,491 - - 1,491 - -
Euro 13,394 - 35 13,429 - -
Japanese Yen 201 - - 201 - -
Sterling 45,242 - 39 45,281 - -
US Dollar 6,333 - 40 6,373 - -
Others 5,302 - 23 5,325 - -
-------- ----------------- ------------ ---------------- ================ ===============
71,963 - 137 72,100
--------------------------- ------------ ---------------
(37,051) (22,988) 137 (59,902)
=========================== ============ ===============
of which:
Current asset 55,674 - - 55,674
investments
gross borrowings (109,014) (22,988) - (132,002)
Cash 16,289 - 137 16,426
--------------------------- ------------ ----------------
(37,051) (22,988) 137 (59,902)
=========================== ============ ===============
F-23
Regus plc
20 Financial instruments (continued)
Maturity analysis of undrawn committed borrowing facilities
The Group has the following undrawn committed borrowing facilities
available at the December 31, in respect of which all conditions
precedent had been met at that date:
Dec 31 2000 Dec 31 1999
Expiring within: (pound) '000 (pound) '000
One year or less 3,589 10,000
Between one and two years - -
In more than two years - 1,250
---------------- ----------------
3,589 11,250
================ ================
Currency exposures
As explained in the Financial review, to mitigate the effect of the
currency exposures arising from its net investments overseas the Group
borrows, where appropriate, in the local currencies arising from its net
investments. Gains and losses arising on net investments overseas are
recognized in the statement of total recognized gains and losses. The
tables below show the extent to which Group companies have monetary
assets and liabilities in currencies other than their local currency.
Foreign exchange differences on retranslation of these assets and
liabilities are taken to the profit and loss account of the Group
companies and the Group.
Net foreign currency monetary assets/(liabilities)
December 31, 2000 Euro Japanese Yen Sterling US Dollar Others Total
Functional currency of Group (pound) '000 (pound) '000' (pound) '000 (pound) '000 (pound) '000 (pound) '000
operation
Euro - - 27,390 6,268 144 33,802
Sterling 2,550 104 - 6,607 9,031 18,292
US Dollar 12 - 899 - (110) 801
Others 27 5 54 2,023 2,450 4,559
-------- --------------- ------------- ------------- --------------- -------------
2,589 109 28,343 14,898 11,515 57,454
======== =============== ============= ============= =============== =============
December 31 1999 Euro Japanese Yen Sterling US Dollar Others Total
Functional currency of Group (pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000
operation
Euro - - 1,400 6,190 342 7,932
Sterling 1,109 368 - 5,135 5,667 12,279
US Dollar - - - - - 0
Others 60 84 26 335 1,918 2,423
-------- --------------- ------------- ------------- --------------- -------------
1,169 452 1,426 11,660 7,927 22,634
======== =============== ============= ============= =============== =============
Fair value disclosures
The following table provides a comparison by category of the carrying
amounts and the fair value of the Group's financial assets and
liabilities at December 31. Fair value is the amount at which a
financial instrument could be exchanged in an arm's length transaction
between informed and willing parties, other than a forced or liquidation
sale and excludes acquired interest. Set out below the table is a
summary of the methods and assumptions used for each category of
financial instrument.
December 31 2000 December 31 1999
Book value Fair value Book value Fair value
(pound) '000 (pound) '000 (pound) '000 (pound) '000
Primary financial instruments held or issued to finance
the Group's operations
Short-term borrowings (17,171) (15,874) (35,590) (34,842)
Long-term borrowings (22,637) (16,837) (96,412) (92,531)
Short-term deposits 138,389 138,389 55,674 55,674
Accounts receivable 60,990 60,990 31,153 31,153
Accounts payable (31,207) (31,207) (19,928) (19,928)
Cash at bank and in hand 31,432 31,432 16,426 16,426
================= ================ ================ ================
Derivative financial instruments held
to hedge the currency exposure on
expected future results
Forward foreign currency contracts 1,510 1,510 - -
Currency options - 45 - -
================= ================ ================ ================
F-24
Regus plc
20 Financial instruments (continued)
Summary of methods and assumptions
Forward foreign currency contracts Fair value is based on market
and currency options price of comparable instruments
at the balance sheet date
Short-term deposits and borrowings The fair value of short-term
deposits, loans and overdrafts
approximates to the carrying
value because of the short
maturity of these instruments.
The fair value of finance
leases has been calculated by
discounting future cash flows
at the Group's weighted average
cost of capital.
Long-term borrowings The fair value of bank loans and
other loans approximates to the
carrying value because the
majority are floating rate where
payments are reset to market
rates at intervals of less than
one year. The fair value of
finance leases has been
calculated by discounting future
cash flows at the Group's
weighted average cost of
capital.
Hedges
The table below shows the extent to which the Group has off-balance
sheet (unrecognized) and on-balance sheet (deferred) gains and losses in
respect of financial instruments used as hedges at the beginning and end
of the year. It also shows the amount of such gains and losses which
have been included in the profit and loss account for the year and those
gains and losses which are expected to be included in next year's profit
and loss accounts.
All the gains and losses on the hedging instruments are expected to be
matched by losses and gains on the hedged transactions or positions.
Under the Group's accounting policy, foreign currency assets and
liabilities which are hedged using forward foreign currency contracts
are translated at the period end rate and the forward contract is marked
to market. The Group defers the impact of foreign currency options on
profit until it fully recognizes the underlying hedged item in the
profit and loss account.
The gains or losses on both these types of instruments is treated as
deferred for the purposes of the table below.
Unrecognized Deferred
Net Gains Net Gains
Gains Losses /losses Gains Losses /Losses
(pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000
Gains and losses on hedges at January 1, 2000 - - - - - -
Arising in previous years included in 2000
income- - - - - - -
-------- ----------- ------------ ----------- ---------- ------------
Gains and losses not included in 2000 income
Arising before January 1, 2000 - - - - - -
Arising in 2000 45 - 45 - - -
-------- ----------- ------------ ----------- ---------- ------------
Gains and losses on hedges at December 31, 2000 45 - 45 - - -
======== =========== ============ =========== ========== ============
of which:
Gains and losses expected to be included in
2001 income 45 _ 45 - - -
Gains and losses expected to be included in
2002 income or later - - - - - -
======== =========== ============ =========== ========== ============
F-25
Regus plc
21 Employee share ownership plan ("ESOP")
During 1999 the Group established the Regus Employee Trust. The Trustee
is Mourant & Co Trustees Limited which is an independent professional
trust company residing in Jersey. The trust is a discretionary trust for
the benefit of employees (including directors). The ESOP provides for
the issue of options and the payment of bonuses to the Group's employees
(including directors) at the discretion of the Company.
The Trustee is not entitled to receive dividends.
At December 31, 2000, the trust held 18,120,670 shares in Regus plc
(note 10). The market value at December 31, 2000 was (pound) 65.6
million. Costs incurred by the trust are expensed in the profit and loss
account.
At December 31, 2000, awards over a total of 28,047,451 (December 1999:
20,971,634) shares had been granted to employees. The awards have been
issued in eight tranches and some of the awards had been granted subject
to the performance of the group (performance awards).
Details of the awards are provided below:
Dec-31-00 Dec-31-99
Award Type Date exercisable Number of Exercise price Number of awards Exercise
awards ((pound)) price ((pound))
Performance awards Jan 1 03 to Jan 1 07 10,184,514 1.455 7,492,834 1.455
Jan 1 04 to Jan 1 08 1,322,792 2.60 -
Non-performance awards Jan 1 03 to Jan 1 07 9,741,279 1.455 9,582,328 1.455
Jan 1 03 to Jan 1 06 4,047,105 0.05 3,896,472 1.455
Jan 1 04 to Jan 1 08 2,751,761 2.60 -
------------------ -----------------
28,047,451 20,971,634
Lapsed Options (4,025,953) -
------------------ -----------------
Net options 24,021,498 20,971,634
In addition at December 31, 2000, awards over 120,000 American
Depository Shares (December 1999: nil) had been granted to an employee
employed by the Group. The employee may begin to exercise these between
December 12, 2003 and December 12, 2005. All of these awards had been
granted subject to conditions linked to the performance of the Group.
The exercise price of these awards is $25.00.
The Group also operates a SAYE share ownership plan.
22 Capital commitments
Dec 31 2000 Dec 31 1999
(pound) '000' (pound) '000'
Contracts placed for future capital
expenditure not provided in the
financial statements 14,279 17,432
========== ==================
23 Operating lease commitments
At December 31, the Group has lease agreements in respect of properties,
vehicles, plant and equipment, for which the payments extend over a
number of years.
Property Vehicles, plant Dec 31 2000 Dec 31 1999
and equipment Total Total
(pound) '000' (pound) '000' (pound) '000' (pound) '000'
Annual commitments under
non-cancelable operating leases
expiring:
Within one year 2,601 1,903 4,504 1,169
Between one and five years 78,830 7,527 86,357 35,797
After five years 59,829 31 59,860 61,667
----------------- ------------------ ----------------- -----------------
141,260 9,461 150,721 98,633
================= ================== ================= =================
F-26
Dec 31 2000 Dec 31 1999
Total Total
(pound) '000' (pound) '000'
Minimum future lease payments under non-cancelable operating leases:
Amounts due within one year 150,721 98,633
Amounts due between one and two years 149,732 103,079
Amounts due between two and three years 143,571 97,087
Amounts due between three and four years 114,692 83,487
Amounts due between four and five years 88,320 58,609
Amounts due after five years 245,420 177,472
----------------- -----------------
892,456 618,367
================= =================
F-27
Regus plc
24 Contingent liabilities
The Group has bank guarantees and letters of credit held with certain
banks totaling (pound) 42,183,000 (December 1999: (pound) 26,538,000),
The Company also acts as a guarantor for certain obligations of other
subsidiary entities.
25 Related party transactions
During the year ended December 31, 2000 the Group received management
fees of (pound) 2,566,000 (December 1999: (pound) 2,000) from its joint
venture entities as listed in note 28. At December 31, 2000,
(pound) 1.9 million (December 99: (pound) nil) was due to the Group
from the joint ventures.
26 Ultimate parent company and controlling party
Maxon Investments BV, a company incorporated in the Netherlands is
considered as the ultimate parent company. M.L.J. Dixon is considered
the ultimate controlling party by virtue of his effective controlling
interest in the equity shares of the Company via Maxon Investments BV.
27 Summary of differences between UK and US GAAP financial statements
The Group's consolidated financial statements are prepared in
accordance with UK GAAP, which differs in certain respects from US
GAAP. Differences which have a significant effect on the consolidated
net loss and shareholders' funds/(deficit) of the Group are set out
below.
(a) Deferred taxes
Under UK GAAP, deferred taxes are accounted for using the liability
method to the extent that it is considered probable that a liability
or asset will crystallize in the foreseeable future. Under US GAAP,
income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss carry forwards. Deferred
tax assets and liabilities are measured using the enacted tax rate
expected to apply to taxable income in the years in which these
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date. Valuation allowances are provided to the extent that the
realization of deferred tax assets is not more likely than not.
(b) Share option schemes
Under UK GAAP, options granted to employees by the Company to
subscribe in the Company's shares where the exercise price of the
option is linked to performance do not result in any compensation
costs being recorded by the Company if the stated exercise price is
equal to or in excess of the fair value of the underlying ordinary
shares at the date of grant.
Under US GAAP, Accounting Principles Board Opinion No. 25, "
Accounting for Stock Issued to Employees" compensation cost must be
recognized if the option plan contains performance related criteria
which results in the option plan being accounted for as a variable
plan. Expense is recorded in each period to the measurement date or
vesting date for increases in the fair value of the underlying
ordinary shares over the stated exercise price of the share options
with an offsetting credit to the share premium amount. However under
UK GAAP and US GAAP any cash awards are recorded as a liability at
each balance sheet date. Under UK GAAP, compensation expense is not
recorded in relation to options granted to an employee by the primary
shareholder of the Company.
In November 1999, Maxon granted an option in favor of affiliates of
Deutsche Bank and Apollo, two significant shareholders in the Group,
over 3,926,484 shares for an aggregate strike price of (pound) 1. The
options were exercisable within twelve months (or such shorter period
ending on the date on which an exit, being either an initial public
offering or completion of the disposal of all or substantially all of
the Group's shares or assets, occurs) from the earlier of the date on
which the board of Directors notifies the Deutsche Bank and Apollo
affiliates in writing that an exit is imminent and the date of an
announcement to the public of an intention to proceed with an initial
public offering. UK GAAP is not prescriptive with respect to
accounting for transactions by the principal shareholder which benefit
the Group. Under US GAAP, AIN-APB25. No.1, " Stock Plans Established
by a Principal Stockholder." provides guidance for accounting for
compensatory and non-compensatory stock plans established by a
principal stockholder and, by analogy, for other transactions entered
into by a principal stockholder that may benefit the company. The
option agreement specified that it was for the benefit of Maxon and
for the benefit of and on behalf of the Group, and was made in
consideration of Deutsche Bank and Apollo waiving certain rights
contained in the shareholders' agreement. As such, the effects of the
option would be recorded wholly within shareholders' funds.
During the year, the exercise price of Reward Options was reduced from
(pound) 1.455 to (pound) 0.05. The costs associated with this were
treated as an exceptional item under UK GAAP (note 3). Under UK GAAP,
the difference between the fair value of the exercise price was
recognized as an expense in 2000. Under US GAAP, if the exercise price
of a stock option is reduced, the award shall be accounted for as
variable from the date of modification to the date the award is
exercised. The compensation expense is recorded over the vesting
period as an operating expense.
F-28
Regus plc
27 Summary of differences between UK and US GAAP financial statements
(continued)
(c) Share purchase warrants
Under UK GAAP, the recognition and measurement of share purchase
warrants is not prescribed where the company is not a party to the
warrant agreement. US GAAP is prescriptive and requires a portion of
the proceeds from the issuance of debt with detachable warrants to be
allocated to those warrants. The allocation between debt and warrants
should be based upon the relative fair values of the two at time of
issuance. If the contract does not give the issuing company the choice
of cash settlement or settlement in shares, public companies should
report the proceeds from the issuance of share purchase warrants as
liabilities and subsequently measure the share purchase warrants at
fair value with changes in fair value reported in earnings. The debt "
discount" should be amortized using the effective interest method over
the life of the debt.
(d) Earnings per share (EPS)
Under UK GAAP, primary EPS is based on the weighted average number of
ordinary shares outstanding during the period. Primary EPS is the
profit/(loss) in pence attributable to each equity share, based on the
profit/ (loss) for the financial period attributable to ordinary
shareholders divided by the weighted average number of ordinary shares
in issue during the period. This method is used in computing basic EPS
under US GAAP.
Under FRS 14 (Earnings per share), diluted EPS must be disclosed. This
is based on profit/(loss) for the financial period and computed using
the weighted average number of shares in issue during the period and
the dilutive effect of all share options and ordinary share
equivalents. This method is similar to the treasury stock method used
to compute diluted EPS for US GAAP purposes. Under UK GAAP, the
weighted average number of ordinary shares in issue during the period
should exclude the shares held by the Group's employee share ownership
plans (ESOP) in respect of which dividends have been waived. Under US
GAAP, such shares are regarded as treasury stock. As of December 31,
2000, the ESOP had acquired 18,120,670 shares.
As of December 31, 2000 and December 31, 1999, potentially dilutive
options representing 24,021,498 and 20,971,634 shares, respectively,
were excluded from the calculation of basic EPS. They were not
included in the calculation of the diluted EPS as they were deemed to
be anti-dilutive at December 31, 2000.
Classification differences between UK & US GAAP
(e) Cash flows
Under UK GAAP, the Group complies with FRS 1 (revised) (Cash Flow
Statements), the objective and principles of which are similar to
those set out in Statement of Financial Accounting Standards No. 95
(Statement of Cash Flows) (SFAS 95). The principal difference between
the two standards is in respect of classification. Under FRS 1
(revised), the Group presents its cash flow for (a) continuing
operating activities; (b) returns on investment and servicing of
finance; (c) taxation; (d) capital expenditures and financial
investment; (e) acquisitions and disposals; (f) dividends to ordinary
shareholders; (g) management of liquid resources; and (h) financing
activities. SFAS 95 requires only three categories of cash flow
activity, those relating to (a) operating; (b) investing; and (c)
financing activities.
F-29
Regus plc
27 Summary of differences between UK and US GAAP financial statements
(continued)
The cash flows within the UK headings of " Continuing operating
activities", " Returns on investments and servicing of finance" and "
Taxation" would all be included within the heading of " Net cash
provided by operating activities" under SFAS 95. Likewise, the UK
headings of " Capital expenditure and financial investment" and "
Acquisitions and disposals" plus movements in restricted cash excluded
from cash and cash equivalents as set out below corresponds with " Cash
flows from investing activities" under SFAS 95, and " Management of
liquid resources" and " Financing" under UK GAAP, subject to movements
in restricted cash being classified within " Cashflows from investing
activities", correspond with " Cash flows from financing activities"
under US GAAP. Other non-cash movements comprise new finance leases and
reclassifications between categories and the amounts of these
adjustments are set out in note 18(d).
In addition under FRS 1 (revised), cash represents cash at bank and in
hand less bank overdrafts. Movements of liquid resources are included
under a separate heading. Under US GAAP, cash and cash equivalents are
not offset by bank overdrafts repayable within twenty four hours from
the date of the advance. Such overdrafts are classified within financing
activities under US GAAP. In addition, cash and cash equivalents would
include cash and short-term investments with original maturities of
three months or less. Under US GAAP cash and cash equivalents for
cashflow purposes excludes restricted cash, primarily deposits held as
security for lease guarantees, of (pound) 40,945,000 and
(pound) 21,970,000 at December 31, 1999 and 2000 respectively. Movements
in restricted cash are classified within " Cashflows from investing
activities".
Set out below, for illustrative purposes, are summary consolidated
statements of cash flows under US GAAP :
12 months to 12 months to 12 months to
Dec 31 2000 Dec 31 1999 Dec 31 1998
(pound) '000' (pound) '000' (pound) '000'
Net cash provided by/(used in) operating 108,672 6,661 12,130
activities
Net cash used in investing activities (109,336) (90,809) (28,402)
Net cash provided by financing activities 68,431 103,892 42,724
Effect of exchange rate changes on cash 1,482 (1,344) (390)
------------------ --------------- ----------------
Net increase in cash and cash equivalents 69,249 18,400 26,062
Other non cash movement 9,497 (8,114) 0
------------------ --------------- ----------------
78,746 10,286 26,062
Cash and cash equivalents at beginning of year 50,131 39,845 13,783
------------------ --------------- ----------------
Cash and cash equivalents at the end of the 128,877 50,131 39,845
year ================== =============== ================
(f) Foreign Currency Translation
Under UK GAAP the financial statements of the Group's foreign
subsidiaries are measured using local currency (pounds sterling) as the
functional currency. Assets and liabilities of these subsidiaries are
translated at exchange rates as of the balance sheet date. Revenues and
expenses are translated at average rates of exchange in effect during
the year. Gains and losses arising on these translations are taken to
reserves, net of exchange differences arising on related foreign
currency borrowings.
Under US GAAP, the financial statements of the Group's foreign
subsidiaries are measured using local currency (pounds sterling) as the
functional currency. Assets and liabilities of these subsidiaries are
translated at exchange rates as of the balance sheet date. Revenues and
expenses are translated at average rates of exchange in effect during
the year. The resulting cumulative translation adjustments are recorded
as a separate component of shareholders' funds/(deficit) as other
comprehensive income. Foreign currency transaction gains and losses are
included in consolidated net profit/(loss).
F-30
Regus plc
27 Summary of differences between UK and US GAAP financial
statements (continued)
Under UK GAAP the cumulative foreign exchange differences as at
December 31, 2000,were ((pound) 204,000) (1999: (pound) (2,879,000)).
Under US GAAP the cumulative foreign exchange adjustments are
(pound) 129,000 (Dec 1999: (pound) (2,840,000)). The difference in
foreign exchange differences between UK and US GAAP relates to
exchange differences on deferred tax assets held under US GAAP.
(g) Current assets & liabilities
Current assets under UK GAAP include debtors which fall due after more
than one year and restricted cash. Under US GAAP, such assets would be
reclassified as non-current assets. Restricted cash of
(pound) 40,945,000 (Dec 99: (pound) 21,970,000) would be reclassified
under US GAAP from current assets to non-current assets.
(h) Employee share trust arrangements
An employee share trust has been established in accordance with
certain employee share option schemes. Under UK GAAP, the Company's
ordinary shares held by the employee share trust are included at
either historical net book value or, in certain circumstances, at
closing market value in fixed asset investments. As at December 31,
2000 the employee share trust held ordinary shares with a historical
net book value of (pound) 45,200,000. Under US GAAP, such shares are
classified as treasury stock and presented at their historical cost as
a deduction in shareholders' equity.
(i) Extraordinary items
Under UK GAAP, extraordinary items are those possessing a high degree
of abnormality which arose from events or transactions that fall
outside the ordinary activities of the business. Extraordinary items
are included in the profit and loss account after " Profit on ordinary
activities after tax". It is very rare under UK GAAP for a business to
account for an item as extraordinary given the narrow definition.
Under US GAAP, extraordinary items are considered both unusual in
nature and infrequent in occurrence. In practice, costs related to the
early extinguishment of debt would be classified as extraordinary
under US GAAP.
(j) SFAS 130 (Reporting Comprehensive Income)
Statement of Financial Accounting Standards No 130 (Reporting
Comprehensive Income) (SFAS 130) requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income should be reported in the financial statement
that is displayed with the same prominence as other financial
statements. It requires that an enterprise (i) classify items of other
comprehensive income by their nature in a financial statement and (ii)
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in
the equity section of statement of financial position. Required
disclosures have been made in the Group's financial statements in the
statement of recognized gains and losses.
(k) Effect of differences between UK & US GAAP
The following is a summary of the material adjustments to net loss
which would have been required if US GAAP had been applied instead of
UK GAAP:
12 months to 12 months to 12 months to
Dec 31 2000 Dec 31 1999 Dec 31 1998
(pound) '000' (pound) '000' (pound) '000'
Net loss reported in accordance with UK GAAP (13,530) (56,446) (17,937)
US GAAP adjustments:
Stock purchase warrants - (1,500) (4,329)
Amortization of debt discount - (2,038) (527)
Compensation expense related to options granted by (6,836) (11,840) 3,896
shareholder
Compensation expense related to other variable plan 3,997 - -
options
Deferred taxes (474) 644 2,315
Income taxes on US GAAP adjustments - 611 158
--------------- ----------------- -----------------
Net loss in conformity with US GAAP (16,843) (70,569) (16,424)
=============== ================= =================
Weighted average shares outstanding ('000) 502,773 469,486 427,729
Loss per ordinary share before extraordinary items (p) (3.4) (14.7) (3.8)
Loss per ordinary share after extraordinary items (p) (3.4) (15.0) (3.8)
(1) In the year ended December 31, 1999 there was an extraordinary
cost of (pound) 1,775,000 relating to the early extinguishment of debt.
F-31
Regus plc
27 Summary of differences between UK and US GAAP financial
statements (continued)
Effect of differences between UK & US GAAP (continued)
The following is a summary of the material adjustments to
shareholders' funds/ (deficit) which would have been required if US
GAAP had been applied instead of UK GAAP:
Dec 31 2000 Dec 31 1999 Dec 31 1998
(pound) '000' (pound) '000' (pound) '000
Shareholders' funds/(deficit) recorded in accordance with 203,090 (23,731) 13,875
UK GAAP
US GAAP adjustments:
Stock purchase warrants and debt discount - (8,500) (4,962)
Compensation expense related to options granted by - - -
shareholder (1)
Compensation expense related to other variable plan
options (2) 10,778 - -
Deferred taxes 1,902 2,376 1,693
Income taxes on US GAAP adjustments - - (611)
Employee share trust (investment in own shares) (47,021) - -
------------- --------------- -----------------
Shareholders' funds/(deficit) recorded in accordance with 168,749 (29,855) 9,995
US GAAP ============= =============== =================
(1) Shareholders' funds/(deficit) was not affected by the differences
between UK GAAP and US GAAP since these differences resulted in
recording an increase to expense and a corresponding increase to
contributed capital.
(2) Shareholders' funds/(deficit) was not affected by the differences
between UK GAAP and US GAAP on these options as the difference
resulted in recording an increase to expense and a corresponding
increase to contributed capital, except for awards granted to
employees where the company will pay a cash bonus for the difference
between the fair value and the base price of the awards.
28 Additional US GAAP disclosures
(a) Income tax and deferred tax
Loss before tax under UK GAAP between UK and overseas was as follows:
12 months to 12 months to 12 months to
Dec 31 2000 Dec 31 1999 Dec 31 1998
(pound) '000' (pound) '000' (pound) '000'
UK 21,994 (9,236) (203)
Overseas (25,851) (45,703) (16,968)
-------------- ------------------ -----------------
(3,857) (54,939) (17,171)
============== ================== =================
The significant components of deferred income tax expense attributable
to income from continuing operations for the years ended December 31,
2000 and 1999 as adjusted for US GAAP are as follows:
12 months to 12 months to 12 months to
Dec 31 2000 Dec 31 1999 Dec 31 1998
(pound) '000' (pound) '000' (pound) '000'
Deferred tax (exclusive of the effects of other 1,267 (1,357) (2,450)
components below)
Adjusted to deferred tax assets and liabilities for - - 3
enacted changes in laws and rates.
Increase/(decrease) in beginning of the year balance of - - -
the valuation allowance for deferred tax assets.
1,267 (1,357) (2,447)
-------------- ------------------ -----------------
============== ================== =================
F-32
Regus plc
28 Additional US GAAP disclosures (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2000 and 1999 adjusted for US GAAP are presented below:
12 months to 12 months to
Dec 31 2000 Dec 31 1999
(pound) '000' (pound) '000'
Deferred tax assets:
Net operating loss carry forwards 27,970 22,197
Start up costs and reserves 9,390 4,549
Other 3,219 1,022
------------------ -----------------
Total gross deferred tax assets 40,579 27,768
Less valuation allowance (33,976) (22,484)
------------------ -----------------
Net deferred tax assets after valuation allowance 6,603 5,284
------------------ -----------------
Deferred tax liabilities:
Accelerated capital allowances (3,362) (2,687)
Other (2,132) (221)
------------------ -----------------
Total gross deferred liabilities (5,494) (2,908)
------------------ -----------------
Net deferred tax assets 1,109 2,376
================== =================
The valuation allowance for deferred tax assets as of January 1, 2000
and 1999 was (pound) 22,484,000 and (pound) 6,770,000, respectively.
The net change in the total valuation allowance for the years ended
December 31, 2000 and 1999 was an increase of (pound) 11,492,000 and
(pound) 15,714,000 respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred is dependent tax
assets on the generation of future taxable income during the periods
in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making
this assessment. Management believes it is more likely than not that
the Group will realize benefits of these deductible differences, net
of existing valuation allowances at December 31, 2000.
F-33
Regus plc
28 Additional US GAAP disclosures (continued)
(b) Share compensation
Employee Share Option Scheme
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (Accounting for
Stock-Based Compensation) (SFAS 123), which encouraged the use of a
fair value based method of accounting for compensation expense
associated with share options and similar plans. For US GAAP purposes,
the Company has elected to continue to use the intrinsic value based
method prescribed by Accounting Principles Board Opinion No. 25
(Accounting for Stock Issued to Employees) (APB 25), as permitted by
SFAS 123. SFAS 123 requires additional disclosures, including
pro-forma calculations of net earnings and earnings per share as if
the fair value method of accounting prescribed by SFAS 123 had been
applied in 1999 and 2000. The Company issued share options to
substantially all its employees during 1999. Further issues were made
during 2000.Employees received share options to acquire a fixed number
of shares based on their salary level and position in the Company. All
employees received options that are subject to a performance target
(the performance options) and all employees received options
designated as reward options. The exercise price for share options
granted to employees is fixed at the date of the grant although the
directors of the Company have the discretion to waive some or all of
the exercise price of the reward options. The fair value of shares at
the date of grant is equal to the exercise price. The options vested
on the later of a flotation of the Company's shares or defined periods
as follows: in the case of ordinary and performance options, vesting
occurs in three equal installments on January 1, of each of 2003, 2004
and 2005. In the case of reward options, vesting occurs in two equal
installments on January 1, in each of 2003 and 2004. In each case, the
vesting period was extended by the directors as the market
capitalization of the Company on flotation exceeded (pound) 1 billion.
The performance options require that the value of the Company's
ordinary shares outperform the Financial Times Stock Exchange 250
Index by the following margins over the option period:
30% for options exercisable in 2003 or before;
40% for options exercisable in 2004; or
50% for options exercisable in 2005 or after.
If a target is not met, the performance options will only be
exercisable if and when a subsequent target is met.
Certain countries in which the Company operates do not provide for the
issuance and exercise of share options. In these situations, the
awards granted to the employees represent rights under which the
Company will pay a cash bonus to the employee for the difference
between the fair value of the Company's shares on the date of exercise
and a base price for the award. The base price is an amount determined
by the board of directors of the Company on the date of grant, which
cannot be less than the fair value of the Company's shares at that
date. As of December 31, 2000 and 1999, these awards were not a
material portion of the awards granted to date.
If a participant's employment with the Group ends, his options or
awards will normally lapse unless he leaves in specified circumstances
such as injury, disability or redundancy. In such circumstances, his
option or award may be exercised within 12 months of the later of the
date on which his employment ends and the last vesting date for the
option or award.
Number of options (000's)
(UK shares) (ADR shares) (SAYE shares)
Exercise Exercise Exercise Exercise Exercise Exercise Exercise
price at price at price at price at price at price at price at
(pound) 1.455 (pound) 0.05 (pound) 2.60 $25.00 $15.98* (pound) 2.42 (pound) 2.64
000s 000s 000s 000s 000s 000s 000s
Options outstanding:
December 31, 1998 - - - - - - -
Granted 17,075 3,897 - - - - -
Forfeited - - - - - - -
------------- ----------- ----------- ----------- ----------- ------------- -----------
December 31, 1999 17,075 3,897 - - - - -
Granted 2,851 150 4,075 120 24 734 59
Forfeited (3,262) (436) (328) - - - -
------------- ----------- ----------- ----------- ----------- ------------- -----------
December 31, 2000 16,664 3,611 3,747 120 24 734 59
============= =========== =========== =========== =========== ============= ===========
*over ADR shares
F-34
Regus plc
28 Additional US GAAP disclosures (continued)
Options have been issued at an exercise price of (pound) 1.455 and
(pound) 2.60. During the year the exercise price of the Reward options
was reduced to (pound) 0.05. From the date of modification to the date
the award is exercised, such awards shall be accounted for as
variable. Compensation expense is recorded over the vesting period.
The weighted average remaining contractual life amounts to 9.1 years
(111 months) (1999: 9.9 years (119 months). The Company granted
20,971,634 options in December 1999, 2,790,203 options in January
2000, 100,000 options in February 2000, 111,061 options in May 2000,
3,648,258 options in August 2000, 426,295 options in September 2000
and 817,358 sharesave options in November 2000. In addition, the
company issued 120,000 options over American Depositary Receipts in
December 2000. None of the outstanding options were exercisable at
December 31, 1999 or December 31, 2000.
Share-based compensation represents the difference between the
exercise price of share options granted in 1999 and the fair market
value of the underlying ordinary shares at each period end. The
Company has not recorded any compensation expense under APB 25 for the
year ended December 31, 1999 as there is no difference between the
estimated fair value of the ordinary share price on December 31, 1999
and the exercise price. The estimated fair value for purposes of APB
25 is based on a valuation of the Company at the time of the issuance
of shares in October and November 1999. As at December 31, 2000 the
Company has recorded a compensation credit of (pound) 3,997,000 (1999:
nil) for the increase in the fair market value of the underlying
shares.
The Company did not issue stock options before 1999 therefore SFAS 123
has no effect on the Company's net loss for the year ended December
31, 1998. If compensation expense had been determined based upon the
estimated grant date fair value in accordance with SFAS 123, the
Company's net loss for the year ended December 31, 1999 and 2000 would
have been as follows:
12 months to 12 months to
Dec 31 2000 Dec 31 1999
(pound) '000' (pound) '000'
Net Loss:
As reported (16,843) (70,569)
Proforma (19,282) (70,672)
Net loss per ordinary share p p
As reported (3.4) (15.0)
Proforma (3.8) (15.1)
Fair values above were determined using the Black-Scholes
option-pricing model. The key assumptions used in the Black-Scholes
model were as follows:
Dividend yield 0% 0%
Expected volatility 33% 0%
Risk free interest rate 5.2% 5.6%
Expected life 3-6 years 7 years
The weighted average fair value of stock options granted during 1999
and 2000 is (pound) 0.47 and (pound) 2.59 respectively and is being
amortized over the vesting periods ranging for up to five years from
January 1st, 2003 to January 1st, 2008.
SAYE scheme
The group operates several sharesave plans in various countries which
allow all employees to save a regular sum over 2 to 5 years after
which the accumulated fund belonging to the employee can be used to
purchase share in Regus plc at a price from (pound) 2.42 to (pound)
2.64 depending upon local country legislation, a discount of 15-20% at
the date of the grant. Any options granted where the discount on the
exercise price is greater than 15% are considered compensatory under
US GAAP and any expense is recognized over the life of the savings
contract.
F-35
Regus plc
28 Additional US GAAP disclosures (continued)
Executive Officer Share Option Agreements
In November 1992 Maxon entered into option agreements with certain
executive officers of the Company related to shares of the Company
held by Maxon as part of the compensation for the services of these
executive officers. These agreements covered 8% of the shares of the
Company held by Maxon, with a stated exercise price of (pound) 0.00375
per share, both as adjusted for subsequent share splits. Until June
30, 2000, this exercise price was subject to adjustment based on a
proportional share of any future capital contributions made by Maxon
to the Company. There have been no such contributions since the date
of these agreements. These options vest over periods from December 31,
2002 to December 31, 2003. On June 30, 2000 the agreement was amended
to fix the exercise price at (pound) 0.00375 irrespective of any future
capital contributions made by Maxon to the Company.
In February 1999, Maxon entered into a supplemental agreement with one
of the executive officers whereby Maxon paid the executive officer
US$2 million in exchange for the forfeiture of a portion of the shares
covered under the option agreements leaving a total of approximately
23,140,000 shares outstanding under the option agreements. The
repurchase of the options resulted in no additional compensation
expense, as the previously recorded compensation expense related to
those options had already exceeded the consideration paid for the
retirement of those options.
As the exercise price was subject to adjustment, these option
agreements required variable plan accounting under APB 25 up to June
30, 2000. Accordingly, the Company has recorded a compensation
gain/(expense) at each period end for the increase or decrease in the
value of the underlying shares. Compensation gain/(expense) of
(pound) (6,836,000) and (pound) (11,840,000) was recorded during the
years ended December 31, 2000 and 1999, respectively from the
fluctuations in the fair value of the underlying securities. From July
1, 2000, as the exercise price is fixed, these option agreements will
require fixed plan accounting and hence no further compensation gain
or expense is expected.
At December 31, 1999, there were no directly comparable quoted
companies against which the Company's shares can be valued. Hence the
fair value of the underlying shares have been calculated by reference
to the subscription prices for shares issued by the Company to
independent third parties on August 3, 1998 and October/November1999.
The subscription price for the shares issued at August 3, 1998 and
October/November 1999 have been used to calculate the fair value of
the options as at December 31, 1999. For the year ended December 31,
2000, the value of the Company has been calculated by using the
companies quoted price on the London Stock Exchange since the IPO on
October 16, 2000.
(c) Stock purchase warrants and options
The Company entered into a medium term (pound) 10 million secured loan
facility with Union Bank of Switzerland (UBS) dated November 12, 1997.
The facility included a detachable stock warrant agreement of the same
date among Maxon, Mark Dixon and UBS that grants options to UBS on a
proportion of the shares of the Company held by Maxon. These options
were exercisable upon the earliest of an initial public offering of
ordinary shares of the Company's stock, a significant trade sale of
the Company, or five years from the date of the warrant agreement.
Under the original agreement the exercise price of the warrants was
nominal and the number of shares granted via these warrants was
contingent upon the timing and valuation of the Company, with a stated
maximum value of (pound) 8.5 million.
On August 3, 1998 Maxton and UBS entered into a deed of amendment to
the UBS option agreement under which UBS agreed to waive its rights to
receive shares of the Company at the time of an initial public
offering in consideration for a payment by Maxon of (pound) 8.5 million
to be paid at the time of the initial public offering.
Under UK GAAP this arrangement has no impact on the Company's
financial statements as the Company is not a party to the warrant
agreement. However, under US GAAP when the principal shareholder
enters into transactions that directly relate to obligations of the
Company these transactions should be accounted for as if the Company
had entered into the transaction directly.
At the date of the loan facility and warrant agreement, the fair value
of the related warrants of (pound) 2.6 million is reflected under US
GAAP as a liability to the Company, due to UBS' ability to require the
settlement of warrants in cash, and as a discount against proceeds.
This discount has been amortized using the effective interest method
over the life of the loan, with additional interest expense of
(pound) 527,000 in the year ended December 31, 1998. The loan facility
was prepaid in June 1999, with the unamortized portion of the discount
charged to the profit and loss account at that time. The total
additional interest expense in the year ended December 31, 1999 was
(pound) 2,038,000, which includes the amortization of (pound) 263,000
and the write-off of the unamortized portion of the loan discount of
(pound) 1,775,000.
The warrant liability was adjusted to the fair value at each balance
sheet date. The Company has recorded expenses of (pound) 1.5 million
and (pound) nil for the years ended December 31, 1999, and 2000 related
to these increases in fair value. This results in a liability of
(pound) 8.5 million at December 31, 1999. On the date of the IPO the
warrant agreement between UBS and Maxon was settled, and the liability
was reclassified as a contribution to share capital.
(d) Segment information
SFAS 131 (Disclosures about Segments of an Enterprise and related
Information)
Statement of Financial Accounting Standards No. 131
(Disclosure about Segments of an Enterprise and Related Information)
(SFAS 131) requires that companies disclose segment data based on how
management makes decisions about allocating resources to segments and
measuring their performance. It also requires entity-wide disclosures
about the products and services an entity provides, the material
countries in which it holds assets and reports revenues and its major
customers.
Pursuant to the definitions contained in SFAS 131, the Company has
eight geographical reportable segments for the purposes of managing
the business: UK & Ireland, Benelux, Germany, Southern Europe,
Northern Europe, North America, South and Central America and Rest of
the World. Each segment has separate results that are reviewed by the
Group's Chief operating decision maker. Each segment provides the same
products and services. The accounting policies of the segments are the
same as described in the summary of significant accounting policies.
Other office costs comprise head office costs net of management
charges to other operating segments. Other assets comprise assets
managed at a corporate level and which are not attributed to
individual segments.
F-36
Regus plc
28 Additional US GAAP disclosures (continued)
The Group's interest, tax expense and exceptional items are managed
centrally at corporate level and are not attributed to individual
segments.
Turnover Gross profit/(loss) (center contribution)
12 months to 12 months to 12 months to 12 months to 12 months to 12 months to
Dec 31 2000 Dec 31 1999 Dec 31 1998 Dec 31 2000 Dec 31 1999 Dec 31 1998
(pound) '000 (pound) '000' (pound) '000' (pound) '000 pound) '000' (pound) '000'
Geographical analysis
United Kingdom & 188,862 102,856 61,192 59,619 20,169 12,922
Ireland
Benelux 25,432 17,554 11,842 8,123 5,669 3,451
Germany 27,388 16,410 11,529 6,258 1,813 1,257
Northern Europe 23,847 15,279 10,028 1,345 (1,661) (535)
Southern Europe 42,266 24,496 11,908 13,488 5,009 (493)
North America 79,230 11,268 252 12,407 (4,854) (1,568)
South & Central America 15,066 4,378 2,343 1,443 (1,158) (272)
Rest of world 27,109 8,369 2,525 (2,390) (7,873) (369)
------------- -------------- ------------- ------------- --------------- ---------------
429,200 200,610 111,619 100,293 17,114 14,393
============= ============== ============= ============= =============== ===============
Total Group 421,125 200,601 111,619
Total joint ventures 8,075 9 -
============= ============== =============
Operating profit/(loss) Net assets/(liabilities)
12 months to 12 months to 12 months to As at Dec 31 As at Dec 31 As at Dec 31
Dec 31 2000 Dec 31 1999 Dec 31 1998 2000 1999 1998
(pound) '000 (pound) '000' (pound) '000' (pound) '000 (pound) '000' (pound) '000'
Geographical analysis
United Kingdom & 36,763 4,830 (49) 21,304 (5,952) (10,029)
Ireland
Benelux 4,043 2,800 (366) 2,068 (858) (1,528)
Germany 1,091 (2,184) (2,605) (6,792) (7,548) (7,290)
Northern Europe (7,502) (9,884) (4,174) (24,020) (14,546) (7,228)
Southern Europe 6,151 (1,259) (4,020) (228) (4,121) (2,539)
North America (11,156) (15,267) (2,326) 4,919 (11,353) 4,308
South & Central America (3,490) (4,545) (861) (5,227) (3,836) (821)
Rest of world (11,609) (15,742) (2,154) (29,294) (17,791) (2,544)
Other office costs, (1,884) (1,781) 1,387 249,435 47,224 41,388
(liabilities)/assets
Exceptional item (9,501) (5,125) - (9,501) (5,125) -
------------- ---------------- ------------- ------------------------------------ -------------
2,906 (48,157) (15,168) 202,664 (23,906) 13,717
============= ================ ============= ================= ================= =============
Total Group 3,933 (48,065) (15,168) 198,524 (25,112) 13,717
Total joint ventures (1,027) (92) - 4,140 1,206 -
============= ================ ============= ================= ================= =============
Total Assets Capital
Expenditure
As at As at 12 months to 12 months to 12 months to
Dec 31 2000 Dec 31 1999 Dec 31 2000 Dec 31 1999 Dec 31 1998
(pound) '000' (pound) '000' (pound) '000' (pound) '000' (pound) '000'
Geographical analysis
United Kingdom & 151,534 115,986 32,265 35,079 21,619
Ireland
Benelux 24,764 14,168 7,963 4,137 2,677
Germany 19,023 11,271 3,062 3,967 1,519
Northern Europe 19,135 15,771 1,686 6,091 3,704
Southern Europe 35,872 18,434 5,992 4,038 5,359
North America 107,090 40,613 41,122 20,752 1,411
South & Central America 13,325 7,657 3,374 4,214 716
Rest of world 41,783 31,217 9,917 14,099 2,576
Other office assets, 224,200 36,041 6,271 876 799
expenditure
Less inter-company set (92,335) (22,854) - - -
off ------------- ---------------- ----------------- ----------------- -------------
544,391 268,304 111,652 93,253 40,380
============= ================ ================= ================= =============
Total group 530,790 266,943
Total joint ventures 13,601 1,361
============= ================
F-37
29 Principal group companies
Name of group entity Country of incorporation % of equity and
votes held
Regus Business Centre SA Argentina 100
Regus Centres Pty Ltd Australia 100
Regus Business Centre GmbH Austria 100
Regus Business Center SA Belgium 100
Stephanie Square Business Center SA Belgium 100
Regus Do Brasil Ltda Brazil 100
Regus Business Center Ltd Canada 100
Regus Business Center Chile Ltda Chile 100
Regus Business Service Co Ltd China 95
Regus Business Services (Shanghai) Ltd China 100
Regus Colombia Ltda Colombia 100
Regus Business Center s.r.o Czech Republic 100
Regus Copenhagen ApS Denmark 100
Regus Business Centre (Egypt) Egypt 100
FoRe Business Centers Ltd +++ England 50
Host Regus Ltd England 100
Regus Business Centers (Holdings) Ltd* England 100
Regus Business Center Trading Ltd + England 100
Regus Business Centers (UK) Ltd England 100
Regus City Ltd England 100
Regus Management Limited England 100
Regus (UK) Limited England 100
Park Business Centers Ltd +++ England 50
Regus Finland Oy Finland 100
Regus Paris SA France 100
Regus Roissy SA France 100
Regus Business Center GmbH Germany 100
Regus Hellas SA Greece 100
Regus Business Center Ltd Hong Kong 100
Regus Central Europe Trading and Servicing Ltd Hungary 100
Regus Kft Hungary 100
Europa Business Center Ltd Ireland 100
Regus Ireland Ltd Ireland 100
Regus Finance Ireland 100
Regus Franchise International Limited Ireland 100
Regus Business Centers Ltd Israel 100
Regus Business Center Srl Italy 100
Regus Milano Centrale Business Center S.p.A ++ Italy 65
Regus Japan KK Japan 100
Regus Korea Limited Korea 100
SIA Regus Business Centre Latvia 100
Regus Luxembourg SA Luxembourg 100
Regus Centres Sdn Bhd Malaysia 100
Regus Business Centre SA de CV Mexico 100
Regus Services SA de CV Mexico 100
Regus Maroc SARL Morocco 100
Regus Amsterdam BV Netherlands 100
Regus Business Center BV Netherlands 100
Regus International Holdings BV ++ Netherlands 60
Regus Business Center Oslo AS Norway 100
Regus Business Center (Panama) SA Panama 100
Regus Business Center (Peru) SA Peru 100
Regus Centers Inc Philippines 100
Regus Business Center SP zoo Poland 100
Regus Business Center Lda Portugal 100
Regus Business Centre (Romania) SRL Romania 100
LLC Regus Business Centre Russia 100
Regus Centres Pte Ltd Singapore 100
Regus Business Centre Bratislava sro Slovakia 100
Regus Business Center SA Spain 100
F-38
Business Center Gothenburg AB Sweden 100
Business Center Stockholm AB Sweden 100
Regus Business Center (S) SA Switzerland 100
Regus Business Center (Tanzania) Ltd Tanzania 100
Regus Centers (Thailand) Ltd Thailand 100
Regus Tunisie SARL Tunisia 100
Regus Is Merkezi Isletmeciligi Ltd Sirketi Turkey 100
Regus Business Centers (Ukraine) Ukraine 100
Regus Business Center Corp USA 100
Regus Crescent Business Centers LLC +++ USA 50
Regus Equity Business Centers LLC +++ USA 50
Regus Business Center Venezuela CA Venezuela 100
Regus Center (Vietnam) Ltd Vietnam 100
Investments in Group undertakings are held at cost all of which are
included within the consolidated results. Shares listed above are held
directly by Regus plc. where indicated by an asterisk.
Other than Regus Business Center BV, Regus Business Centers (Holdings)
Ltd and Regus Finance which are investment holding companies, and
Regus Management Limited which is a management company employing head
office staff, the principal activity of all other companies is the
provision of fully serviced business centers.
+ Our Azerbaijan business operates as a branch of this company.
++ Our South African business operates as a branch of this company.
+++ These are joint ventures.
F-39
ITEM 19. EXHIBITS
1. Articles of Association of Regus plc
2. Service Agreement of Mark Dixon
The following exhibits were filed as part of the Registration Statement
on Form F-1 (Registration No. 333-12504) and incorporated by reference herein.
4.1 Form of specimen of certificate for shares of Regus plc, nominal
value 5p per share.
4.2 Forms of ADR (incorporated by reference in the Form F-6
Registration Statement filed with the Securities and Exchange
Commission on September 11, 2000).
4.3 Form of Deposit Agreement between Regus plc and Morgan Guaranty
Trust Company of New York, as depositary (incorporated by
reference in the Form F-6 Registration Statement filed with the
Securities and Exchange Commission on September 11, 2000).
4.4 Form of Registration Rights Agreement among Regus plc, AP Regus
Investors LLC, AP Pelham Partners XI LLC, DB Capital Partners
Europe LP and Serviced Office Investments Limited.
10.1 Acquisition Subscription and Shareholders Agreement dated August
3, 1998 and as amended as of November 27, 1998, December 21,
1998, September 17, 1999, October 28, 1999 and November 30, 1999
between Maxon Investments BV, Serviced Office Investments
Limited, BT Capital Partners Europe LP, AP Pelham Partners XI
LLC, AP Regus Investors LLC, Regus Business Centres plc, Regus
Business Centres BV and Apollo Real Estate Investment Fund III
LP.
10.2 Deed of Undertaking dated September 11, 2000 between Regus plc
and Maxon Investments BV.
10.3 Option Agreement dated November 12, 1997 as amended as of
August 3, 1998 and September 20, 2000 among Maxon
Investments BV, Mark Dixon, Regus Business Centres BV, UBS
and Regus Business Centres plc.
10.4 Senior Secured Multicurrency Revolving Facilities Agreement
dated June 24, 1999 and as amended on August 26, 1999, December
23, 1999, March 3, 2000 and August 7, 2000 between Regus plc and
its subsidiaries, Commerzbank, Deutsche Bank and Merrill Lynch
International.
10.5 Form of Loan Agreement between Regus (UK) Limited and
Mourant & Co Trustees Limited, as trustee of the Regus Employee
Trust.
10.6 Form of Agreement for the Purchase of Shares in Regus plc
between Maxon Investments BV and Mourant & Co Trustees Limited,
as trustee of the Regus Employee Trust.
10.7 Form of Agreement for the Purchase of Shares in Regus plc
between Serviced Office Investments Limited and Mourant & Co
Trustees Limited, as trustee of the Regus Employee Trust.
10.8 Form of Agreement for the Purchase of Shares in Regus plc
between DB Capital Partners Europe LP and Mourant & Co Trustees
Limited, as trustee of the Regus Employee Trust.
10.9 Form of Agreement for the Purchase of Shares in Regus between AP
Regus Investors LLC and Mourant & Co Trustees Limited, as
trustee of the Regus Employee Trust.
10.10 Form of Agreement for the Purchase of Shares in Regus plc
between AP Pelham Partners XI LLC and Mourant & Co Trustees
Limited, as trustee of the Regus Employee Trust.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
By: /s/ Mark Dixon
--------------
Name: Mark Dixon
Title: Chief Executive
Dated: June 28, 2001
III-1
EXHIBIT INDEX
Exhibit Number Description of Document
-------------- ---------------------------------------
1 Articles of Association of Regus plc.
2 Service Agreement of Mark Dixon.
The following exhibits were filed as part of the Registration Statement
on Form F-1 (Registration No. 333-12504) and incorporated by reference herein.
4.1 Form of specimen of certificate for shares of Regus plc, nominal
value 5p per share.
4.2 Forms of ADR (incorporated by reference in the Form F-6
Registration Statement filed with the Securities and Exchange
Commission on September 11, 2000).
4.3 Form of Deposit Agreement between Regus plc and Morgan Guaranty
Trust Company of New York, as depositary (incorporated by
reference in the Form F-6 Registration Statement filed with the
Securities and Exchange Commission on September 11, 2000).
4.4 Form of Registration Rights Agreement among Regus plc, AP Regus
Investors LLC, AP Pelham Partners XI LLC, DB Capital Partners
Europe LP and Serviced Office Investments Limited.
10.1 Acquisition Subscription and Shareholders Agreement dated August
3, 1998 and as amended as of November 27, 1998, December 21,
1998, September 17, 1999, October 28, 1999 and November 30, 1999
between Maxon Investments BV, Serviced Office Investments
Limited, BT Capital Partners Europe LP, AP Pelham Partners XI
LLC, AP Regus Investors LLC, Regus Business Centres plc, Regus
Business Centres BV and Apollo Real Estate Investment Fund III
LP.
10.2 Deed of Undertaking dated September 11, 2000 between Regus plc
and Maxon Investments BV.
10.3 Option Agreement dated November 12, 1997 as amended as of
August 3, 1998 and September 20, 2000 among Maxon
Investments BV, Mark Dixon, Regus Business Centres BV, UBS
and Regus Business Centres plc.
10.4 Senior Secured Multicurrency Revolving Facilities Agreement
dated June 24, 1999 and as amended on August 26, 1999, December
23, 1999, March 3, 2000 and August 7, 2000 between Regus plc and
its subsidiaries, Commerzbank, Deutsche Bank and Merrill Lynch
International.
10.5 Form of Loan Agreement between Regus (UK) Limited and
Mourant & Co Trustees Limited, as trustee of the Regus Employee
Trust.
10.6 Form of Agreement for the Purchase of Shares in Regus plc
between Maxon Investments BV and Mourant & Co Trustees Limited,
as trustee of the Regus Employee Trust.
10.7 Form of Agreement for the Purchase of Shares in Regus plc
between Serviced Office Investments Limited and Mourant & Co
Trustees Limited, as trustee of the Regus Employee Trust.
10.8 Form of Agreement for the Purchase of Shares in Regus plc
between DB Capital Partners Europe LP and Mourant & Co Trustees
Limited, as trustee of the Regus Employee Trust.
10.9 Form of Agreement for the Purchase of Shares in Regus between AP
Regus Investors LLC and Mourant & Co Trustees Limited, as
trustee of the Regus Employee Trust.
10.10 Form of Agreement for the Purchase of Shares in Regus plc
between AP Pelham Partners XI LLC and Mourant & Co Trustees
Limited, as trustee of the Regus Employee Trust.