SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 2, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACTION OF 1934
For the transition period from _______________ to ________________
Commission File Number 1-14258
PREMIER FARNELL PLC
-------------------
(Exact name of Registrant as specified in its charter)
PREMIER FARNELL PLC
-------------------
(Translation of Registrant's name into English)
England
(Jurisdiction of incorporation or organization)
150 Armley Road, Leeds,
West Yorkshire LS12 2QQ, England
--------------------------------
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
American Depositary Shares, each representing two New York Stock Exchange
Ordinary Shares of 5 pence each,
evidenced by American Depositary Receipts
Ordinary Shares of 5 pence each New York Stock Exchange (*)
American Depositary Shares, each representing one New York Stock Exchange
$1.35 Cumulative Convertible Redeemable
Preference Share of L1 each, evidenced
by American Depositary Receipts
$1.35 Cumulative Convertible Redeemable Preference New York Stock Exchange(*)
Shares of L1 each
(*) Listed, not for trading, but only in connection with the registration of
American Depositary Shares pursuant to the requirements of the New York Stock
Exchange ("NYSE").
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the Annual
Report.
TITLE OF EACH CLASS FEBRUARY 2, 2003
Ordinary Shares of 5 pence each (including American
Depositary Shares detailed below) 362,438,230
American Depositary Shares, each representing two
Ordinary Shares of 5 pence each 4,403,262
$1.35 Cumulative Convertible Redeemable
Preference Shares of L1 each (*)
(including American Depositary Shares detailed
below) 1,320,383
89.2p Cumulative Convertible Redeemable
Preference Shares of L1 each (*) 6,451,838
-----------
7,772,221
American Depositary Shares, each Representing one
$1.35 Cumulative Convertible Preference Share
of L1 each 1,313,706
- -----------------------------
(*) The $1.35 Cumulative Convertible Redeemable Preference Shares of L1 each
and the 89.2p Cumulative Convertible Redeemable Preference Shares of L1
each issued as a result of the changeover provisions of the $1.35
Cumulative Convertible Redeemable Preference Shares are treated as a single
class of stock, except as to voting rights in limited circumstances.
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
PART I..................................................................................................... 1
Item 1. Identity of Directors, Senior Management and Advisers......................................... 1
Item 2. Offer Statistics and Expected Timetable....................................................... 1
Item 3. Key Information............................................................................... 2
Item 4. Information on the Company.................................................................... 10
Item 5. Operating and Financial Review and Prospects.................................................. 20
Item 6. Directors, Senior Management and Employees.................................................... 35
Item 7. Major Shareholders and Related Party Transactions............................................. 48
Item 8. Financial Information......................................................................... 50
Item 9. The Offer and Listing......................................................................... 50
Item 10. Additional Information....................................................................... 54
Item 11. Quantitative and Qualitative Disclosures About Market Risk ................................. 63
Item 12. Description of Securities Other than Equity Securities....................................... 66
PART II.................................................................................................... 66
Item 13. Defaults, Dividends Arrearages and Delinquencies............................................. 66
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds................. 66
Item 15. Disclosure Controls and Procedures........................................................... 67
Item 16. [Reserved]................................................................................... 67
PART III................................................................................................... 67
Item 17. Financial Statements......................................................................... 67
Item 18. Financial Statements......................................................................... 67
Item 19. Exhibits..................................................................................... 68
SIGNATURES................................................................................................. 70
Index to Consolidated Financial Statements................................................................. F-1
Exhibit Index.............................................................................................. A-1
CAUTIONARY STATEMENT PURSUANT TO THE
UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In order to utilize the "Safe Harbor" provisions of the United States Private
Securities Litigation Reform Act of 1995, Premier Farnell plc is providing the
following cautionary statement. This Annual Report contains certain forward
looking statements relating to the business of Premier Farnell plc and certain
of its plans and objectives, including but not limited to, future capital
expenditures, future ordinary expenditures and future actions to be taken by
Premier Farnell plc. By their nature, forward-looking statements involve risk
and uncertainty because they relate to events and depend on circumstances that
will occur in the future. Actual expenditures made and actions taken may differ
materially from Premier Farnell plc's expectations contained in the
forward-looking statements as a result of various factors, many of which are
beyond the control of Premier Farnell plc. These factors include, but are not
limited to, integration of new information systems, continued use and acceptance
of e-commerce programs and systems and their impact on other distribution
systems, the ability to expand into new markets and territories, the
implementation of new marketing initiatives, changes in demand for electronic,
electrical, electro-magnetic and industrial products, rapid changes in
distribution of products and customer expectations, product availability, the
ability to introduce and customers' acceptance of new services, products and
product lines, the impact of competitive pricing, fluctuations in foreign
currencies, changes in interest rates and overall market conditions,
particularly the impact of changes in worldwide and national economies, and
changes in general economic and business conditions.
PART I
As used in this Annual Report, the term "Premier Farnell" or the "Company"
refers to the registrant, and the "Group" refers to the registrant and its
consolidated subsidiaries as a group, unless the context otherwise indicates.
As used herein, "Fiscal" or "Fiscal Year" refers to the fiscal year which is the
period from the end of one fiscal year of Premier Farnell to the Sunday nearest
January 31 of the following calendar year (e.g., a reference to "Fiscal 2002" is
a reference to Premier Farnell's fiscal year that began February 4, 2002 and
ended February 2, 2003).
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
1
ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
The following tables set forth certain selected consolidated financial data for
the Group for the Fiscal Years and in the currencies indicated, and are
qualified by reference to, and should be read in conjunction with, the
Consolidated Financial Statements of Premier Farnell, which are included in Part
III in this Annual Report, and "Operating and Financial Review and Prospects."
The US dollar amounts are provided for convenience purposes only. The selected
financial data for and as of each of the last five Fiscal Years are derived from
Premier Farnell's Consolidated Financial Statements, which have been prepared in
accordance with United Kingdom generally accepted accounting principles ("UK
GAAP"). In addition, the unaudited quarterly financial results of the Company
for the period February 3, 2003 to May 4, 2003 appear on pages 3 through 17 of
the Report of Foreign Private Issuer on Form 6-K furnished to the Securities and
Exchange Commission on May 28, 2003.
A reconciliation to United States generally accepted accounting principles ("US
GAAP") of certain amounts as of February 2, 2003 and February 3, 2002 and for
each of the three Fiscal Years ended February 2, 2003, February 3, 2002 and
January 28, 2001 is set forth in Note 25 of the Notes to the Consolidated
Financial Statements of Premier Farnell, which are included in Part III in this
Annual Report.
2
PREMIER FARNELL SELECTED INCOME STATEMENT DATA
FISCAL YEAR
---------------------------------------------------------------
1998 1999 2000 2001 2002 2002
(LM) (LM) (LM) (LM) (LM) ($M)
RESTATED RESTATED RESTATED RESTATED
(1) (1) (1) (1)
---------------------------------------------------------------
AMOUNTS IN ACCORDANCE
WITH UK GAAP:
NET SALES
Continuing operations 705.0 752.1 876.2 806.4 759.0 1,244.8
Cost of sales
- normal (375.6) (413.5) (498.7) (473.2) (447.0) (733.1)
- exceptional (15.0) - - - - -
--------------------------------------------------------------
GROSS PROFIT 314.4 338.6 377.5 333.2 312.0 511.7
Net operating expenses
- before amortization of goodwill (207.2) (234.9) (262.5) (244.8) (229.1) (375.7)
- amortization of goodwill - - - (1.5) (2.6) (4.3)
- exceptional 5.0 - - - - -
--------------------------------------------------------------
OPERATING INCOME (Continuing operations)
- before amortization of goodwill 112.2 103.7 115.0 88.4 82.9 136.0
- amortization of goodwill - - - (1.5) (2.6) (4.3)
--------------------------------------------------------------
TOTAL OPERATING INCOME 112.2 103.7 115.0 86.9 80.3 131.7
Loss on disposal of businesses - - - (11.0) (4.8) (7.9)
Net interest payable (11.8) (11.9) (12.9) (15.9) (15.7) (25.7)
--------------------------------------------------------------
INCOME BEFORE TAXES 100.4 91.8 102.1 60.0 59.8 98.1
Taxes on income (33.8) (25.6) (30.8) (21.4) (18.2) (29.8)
--------------------------------------------------------------
66.6 66.2 71.3 38.6 41.6 68.3
NET INCOME
==============================================================
3
PREMIER FARNELL SELECTED INCOME STATEMENT DATA
FISCAL YEAR
-------------------------------------------------------------------------
1998 1999 2000 2001 2002 2002
(LM) (LM) (LM) (LM) (LM) ($M)
RESTATED RESTATED RESTATED RESTATED
(1) (1) (1) (1)
EXCEPT PER SHARE AMOUNTS
-------------------------------------------------------------------------
Weighted average number of
Ordinary Shares (in thousands) 271,602 271,662 271,992 271,880 331,571 331,571
Net income per Ordinary Share:
Basic 16.0p 15.6p 16.9p 4.6p 9.3p $ 0.153
Diluted 16.0p 15.6p 16.8p 4.6p 9.3p $ 0.153
Dividend per Ordinary Share 9.0p 9.0p 9.0p 9.0p 9.0p $ 0.148
AMOUNTS IN ACCORDANCE
WITH US GAAP:
Loss after tax prior to cumulative
effect of adoption of FAS 142 (0.1) (2.2) (15.3) (26.8) (134.3) (220.3)
Cumulative effect of adoption of
FAS 142 - - - - (728.0) (1,193.9)
-------------------------------------------------------------------------
Net loss (0.1) (2.2) (15.3) (26.8) (862.3) (1,414.2)
-------------------------------------------------------------------------
Basic loss per ordinary share ADR
(2):
Prior to cumulative effect of
adoption of FAS 142 and gain on
the extinguishment of preference
shares (0.1p) (1.6p) (11.3p) (19.7p) (82.4p) ($ 1.351)
Cumulative effect of adoption of
FAS 142 - - - - (439.1p) ($ 7.201)
Preference share extinguishment
gain - - - - 1.4p $ 0.023
-------------------------------------------------------------------------
Net loss per ordinary share ADR (2) (0.1p) (1.6p) (11.3p) (19.7p) (520.1p) ($ 8.529)
-------------------------------------------------------------------------
4
PREMIER FARNELL SELECTED INCOME STATEMENT DATA
FISCAL YEAR
-------------------------------------------------------------------------
1998 1999 2000 2001 2002 2002
(LM) (LM) (LM) (LM) (LM) ($M)
RESTATED RESTATED RESTATED RESTATED
(1) (1) (1) (1)
-------------------------------------------------------------------------
Diluted loss per ordinary share ADR
(2):
Prior to cumulative effect of
adoption of FAS 142 and gain on
the extinguishment of preference
shares (0.1p) (1.6p) (11.2p) (19.6p) (82.2p) ($ 1.348)
Cumulative effect of adoption of
FAS 142 - - - - (438.0p) ($ 7.183)
Preference share extinguishment
gain - - - - 1.4p $ 0.023
-------------------------------------------------------------------------
Diluted loss per ordinary share ADR
(2) (0.1p) (1.6p) (11.2p) (19.6p) (518.8p) ($ 8.508)
-------------------------------------------------------------------------
Dividend per Ordinary Share ADR
(2) (3) $ 0.295 $ 0.295 $ 0.295 $ 0.295 $ 0.295 $ 0.295
(1) The classification of costs between cost of sales and net operating expenses
in the Income Statements has been restated for each of the years Fiscal 1998
to Fiscal 2002 to reflect the manner in which management measures the
performance of the Group. Further details are given in Note 1 of the Notes
to the Consolidated Financial Statements, which are included in Part III in
this Annual Report.
(2) Each Ordinary Share ADR represents two Ordinary Shares.
(3) Dividend per Ordinary Share ADR information for each of the Fiscal Years
1998 to 2002 has been translated using the Noon Buying Rate (as defined
herein) on February 3, 2003 of L1.00 = $1.64.
5
PREMIER FARNELL SELECTED BALANCE SHEET DATA
FISCAL YEAR
-------------------------------------------------------------------------
1998 1999 2000 2001 2002 2002
(LM) (LM) (LM) (LM) (LM) ($M)
-------------------------------------------------------------------------
AMOUNTS IN ACCORDANCE
WITH UK GAAP:
Fixed assets 83.2 91.0 109.0 165.7 161.6 265.0
Net current assets 193.1 208.2 239.0 231.5 126.7 207.8
-------------------------------------------------------------------------
Total assets less current
liabilities 276.3 299.2 348.0 397.2 288.3 472.8
Creditors due after more than one year (193.0) (195.4) (216.8) (241.5) (141.5) (232.1)
Provisions for liabilities and
charges (24.6) (29.7) (31.9) (44.2) (43.3) (71.0)
-------------------------------------------------------------------------
Net assets 58.7 74.1 99.3 111.5 103.5 169.7
=========================================================================
Shareholders' funds 58.4 73.8 99.0 111.5 103.5 169.7
Minority interests 0.3 0.3 0.3 - - -
-------------------------------------------------------------------------
58.7 74.1 99.3 111.5 103.5 169.7
=========================================================================
Total assets 428.3 446.5 524.6 565.8 543.0 890.5
Total debt 194.5 196.5 216.8 264.5 238.8 391.6
Nominal value of Ordinary Share
capital 13.6 13.6 13.6 13.6 18.1 29.7
AMOUNTS IN ACCORDANCE
WITH US GAAP:
Total assets 1,941.1 1,924.4 2,091.9 2,100.5 1,203.5 1,973.7
Shareholders' funds 993.6 975.8 1,037.9 1,007.9 525.5 861.8
EXCHANGE RATES
In this document, references to "pounds sterling", "Sterling",
"sterling", "L", "pence", or "p", are to United Kingdom ("UK")
currency, and references to "US dollars", "US $" or "$" are to United
States ("US") currency. Solely for the convenience of the reader, this
document contains translations of certain pounds sterling amounts into
US dollars at specified rates or, if not so specified, at the noon
buying rate in New York City for cable transfers in pounds sterling as
certified for customs purposes by the Federal Reserve Bank of New York,
as rounded to the nearest cent (the "Noon Buying Rate") on February 3,
2003 of L1.00 = $1.64. No representation is made that the pounds
sterling amounts have been, could have been or could be converted into
US dollars at the rates indicated.
6
The following tables sets forth, for the periods indicated, the average of the
high and low Noon Buying Rates for pounds sterling, expressed in US dollars per
L1.00 (to the nearest cent):
FISCAL YEAR / PERIOD ENDED AVERAGE (*)
- -------------------------- -----------
January 31, 1999 1.66
January 30, 2000 1.61
January 28, 2001 1.50
February 3, 2002 1.43
February 2, 2003 1.53
May 4, 2003 (First Quarter) 1.60
(*) The average of the Noon Buying Rates on the last day of each month during
the Fiscal Year or, for the final month in each fiscal period, the last day of
such fiscal period.
Exchange rate information for the six calendar months through May 2003,
expressed in US dollars per $1.00 (to the nearest cent), is set forth below:
MONTH HIGH LOW
----- ---- ---
December 2002 1.56 1.61
January 2003 1.65 1.60
February 2003 1.65 1.57
March 2003 1.61 1.56
April 2003 1.61 1.55
May 2003 1.65 1.59
On June 6, 2003, the Noon Buying Rate was L1.00 = $1.66.
DIVIDENDS
The Company's share capital consists of: ordinary shares of 5p each ("Ordinary
Shares"), US $1.35 cumulative convertible redeemable preference shares of
L1 each ("Dollar Preference Shares") and 89.2p cumulative convertible
redeemable preference shares of L1 each ("Sterling Preference Shares").
American Depositary Shares, each representing two Ordinary Shares ("Ordinary
ADSs") and evidenced by American Depositary Receipts ("Ordinary ADRs"), and
separate American Depositary Shares, each representing one Dollar Preference
Share ("Dollar Preference ADSs"), and also evidenced by American Depositary
Receipts ("Dollar Preference ADRs"), have been issued pursuant to American
Depositary Receipt Programs established by the Company in April 1996, with The
Bank of New York, as depositary (the "Depositary"). The Company's Articles of
Association allow, in certain circumstances, for Dollar Preference Shares to be
irrevocably changed over to Sterling Preference Shares. The Company's Articles
of Association state that changeovers will not be effective until notices of
changeover have been received in respect of at least 400,000 Dollar Preference
Shares. This threshold has been met and, as of February 2, 2003, 7,733,758
Dollar Preference Shares have been changed over.
7
As used herein, Dollar Preference Shares and Sterling Preference Shares are
sometimes collectively referred to as "Preference Shares," Dollar Preference
ADSs are referred to as "Preference ADSs" and Dollar Preference ADRs are
sometimes collectively referred to as "Preference ADRs." In addition, Ordinary
ADSs and Preference ADSs are sometimes collectively referred to as "ADSs" and
Ordinary ADRs and Preference ADRs are sometimes referred to as "ADRs". Finally,
to conform to terminology commonly used in the financial community and for the
ease of the reader, unless the context otherwise requires, the terms Ordinary
ADR, Preference ADR or ADR may be used to refer to both the applicable
respective category of American Depositary Receipts and the Ordinary ADSs,
Preference ADSs or ADSs generally evidenced by such category of American
Depositary Receipts.
Ordinary Shares. The Company has paid cash dividends on its Ordinary Shares each
year since 1967. An interim cash dividend is normally declared by the Company's
Board of Directors in September of each year and paid in October. A final
dividend for each Fiscal Year is normally recommended by the Board of Directors
in March following the end of the Fiscal Year to which the dividend relates and,
subject to approval by the shareholders at the Company's Annual General Meeting,
is paid in the following June or July with respect to the Fiscal Year just
ended.
The table below sets forth the amounts of interim, final and total cash
dividends payable on each Ordinary Share in respect of each Fiscal Year
indicated.
PENCE PER ORDINARY SHARE
------------------------
FISCAL YEAR INTERIM FINAL TOTAL
- ----------- ------- ----- -----
1998 4.0p 5.0p 9.0p
1999 4.0p 5.0p 9.0p
2000 4.0p 5.0p 9.0p
2001 4.0p 5.0p 9.0p
2002 4.0p 5.0p 9.0p
The following table sets forth the amount of such interim, final and total
dividends payable on each Ordinary ADS, each representing two Ordinary Shares,
translated, solely for convenience, into US cents.
TRANSLATED INTO US CENTS PER ORDINARY ADS,
EACH REPRESENTING TWO ORDINARY SHARES
-------------------------------------
FISCAL YEAR INTERIM FINAL TOTAL
- ----------- ------- ----- -----
1998(1) 13.23 15.81 29.04
1999(2) 13.21 15.00 28.21
2000(3) 11.77 14.01 25.78
2001(4) 11.55 14.91 26.46
2002 12.41(5) 16.62(6) 29.03
- --------------------
(1) Interim and final dividends translated into US dollars at rates of 1.6540
and 1.5805, respectively, being the actual rates used on payment of the
dividends to ADR holders.
8
(2) Interim and final dividends translated into US dollars at rates of 1.6517
and 1.4999, respectively, being the actual rates used on payment of the
dividends to ADR holders.
(3) Interim and final dividend translated into US dollars at rates of 1.4710 and
1.4007, respectively, being the actual rates used on payment of the
dividends to ADR holders.
(4) Interim and final dividend translated into US dollars at rates of 1.4441 and
1.4910, respectively, being the actual rates used on payment of the
dividends to ADR holders.
(5) Interim dividend translated into US dollars at a rate of 1.5515, being the
actual rate used on payment of the dividend to ADR holders.
(6) Final dividend payable on June 25, 2003 translated into US dollars at a rate
of 1.6622, the exchange rate in effect on June 6, 2003. The exchange rate in
effect at the time of payment may be higher or lower than the rate used in
this table.
Cash dividends on Ordinary Shares are declared and payable in pounds sterling,
and fluctuations in the exchange rate between pounds sterling and US dollars
will affect the US dollar amounts received by holders of Ordinary ADRs upon
conversion of such dividends. For information regarding historical exchange
rates for pounds sterling into US dollars, see "Key Information - Exchange
Rates" above.
The Company presently expects to continue to pay dividends on the Ordinary
Shares out of funds legally available therefore. The payment and amount of
future dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account the Company's earnings, cash flow, financial
and economic conditions and such other factors as the Company's Board of
Directors deems appropriate.
Preference Shares. Holders of Dollar Preference Shares are entitled to receive a
fixed cumulative preference dividend at the rate of $1.35 per annum for every
L1 of nominal value and holders of Sterling Preference Shares are entitled to
receive a fixed cumulative preference dividend at the rate of 89.2p per annum
for every L1 of nominal value.
These preferential dividends accrue from day to day and are payable
semi-annually in arrears, out of funds legally available therefore, in equal
amounts on January 26 and July 26 in each year. The preferential dividend on any
Dollar Preference Share changed over to a Sterling Preference Share accrues at
the sterling rate as from the dividend payment date immediately before the
changeover date. The preferential dividends are payable to holders on the
register at the record date set by the Company's Board of Directors.
Special Conversion Right. Pursuant to the terms of their issue, the Preference
Shares are convertible into Ordinary Shares at the rate of 2.06864 Ordinary
Shares for each Preference Share converted. Pursuant to the terms of a special
conversion right for holders of Preference Shares (the "Special Conversion
Right") approved by shareholders on May 13, 2002, holders of Preference Shares
were granted the right, for a limited time, to convert their Preference Shares
at an enhanced rate of conversion of 4.6 Ordinary Shares for each Preference
Share converted. The right to exercise this Special Conversion Right expired on
June 24, 2002 for US holders and June
9
26, 2002 for UK holders. Holders of Preference Shares were entitled to receive a
one-time payment in lieu of the preference dividend payable on July 12, 2002 in
respect of Preference Shares that were converted pursuant to the Special
Conversion Right of 19.8 pence for each Sterling Preference Share converted and
$0.30 for each Dollar Preference Share converted.
Taxation of Dividends. Certain US Holders (as defined herein) of ADRs may be
eligible for a UK tax credit in respect of dividends paid to them before May 1,
2003. A repayment may be available in respect of such tax credit, but any such
repayment would be limited or eliminated by a notional UK withholding tax.
Subject to certain limitations, this withholding tax will be treated as a
foreign income tax eligible for credit against a US Holder's US federal income
taxes. The credit is abolished from May 1, 2003. See "Additional Information -
Taxation of Dividends."
RISK FACTORS
The Group's business and operations are subject to various risks, many of which
are beyond the control of the Group. In addition to changes in general or
economic business conditions which affect most businesses, the following risk
factors could have an adverse impact on the Group's financial condition or
results of operations:
- changes in foreign currency exchange rates; and
- catastrophic events involving the Group's principal distribution
facilities.
Currency exchange rate fluctuations, especially a strong US dollar, impact
earnings when reported in sterling. This is a translation risk rather than a
specific cash flow risk. In Fiscal 2002, 49% of the Group's net sales were
derived from the US. The net translation effect of changes in average exchange
rates between Fiscal 2001 and Fiscal 2002 was to reduce Group sales by L22.2
million and reduce income before taxes by L0.9 million. This was due principally
to the US dollar average exchange rate in Fiscal 2001 of L1=$1.43 compared to
Fiscal 2002 of L1=$1.53. The impact on income before taxes was partly offset by
the Group's interest charge on its US dollar denominated debt. Transaction risk
arises principally in respect of sales denominated in Euros, when the associated
purchases are denominated in sterling. A weak Euro will therefore have a
negative impact on earnings and the Group hedges this risk through forward
contracts.
The Group has two principal distribution facilities, South Carolina, US, and
Leeds, England, from which a significant proportion of the Group's sales are
dispatched. Any catastrophic event to either of these facilities would have a
significant impact on the Group's business.
ITEM 4. INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF THE COMPANY
Premier Farnell was incorporated in England and Wales in 1966 as a private
company under the name Farnell Limited. It re-registered as a public company
with the name Farnell Electronics PLC ("Farnell") in 1981. The present name,
Premier Farnell plc, was adopted on April 11, 1996 in connection with the
acquisition of Premier Industrial Corporation ("Premier"). The Company's
10
registered office is Farnell House, Forge Lane, Leeds, LS12 2NE, England and the
telephone number is +44 (0) 113 387 5299.
The Group is a distributor of electronic, electrical, electromechanical and
industrial components principally in the United States (the "US"), the United
Kingdom (the "UK") and mainland Europe. The Group currently has offices in 21
countries, principally in the territories described above, but also in Canada,
Mexico, Singapore, Hong Kong, Malaysia, China, Australia and Brazil. The Group
offers a broad range of products, including semiconductors, connectors,
electromechanical products and passive components, as well as other products
used in the electronics industry, such as consumable spares, soldering equipment
and supplies, hand tools and test equipment. The Group also produces and
distributes high-performance fire fighting components for the original equipment
manufacturer ("OEM") and replacement markets as well as asphalt and concrete
resurfacing products, and distributes repair products and hand tools for the
automotive aftermarket, electrical connectors, hand and power tools and health
and safety equipment for the industrial maintenance and repair market and wire
and cable harnesses for the automotive and steel industries.
Over recent years, Premier Farnell has expanded its distribution activities
through internal growth and by acquisition.
In January 1999, the Group announced the Challenge Program. The Challenge
Program focused on e-commerce, customer relationship and publication management
systems, logistics and customer service, data management and analysis, marketing
initiatives, business contact centers and training. The implementation of the
Challenge Program is now substantially complete in the Group's major markets.
On February 28, 2001, the Company sold Brooks Technology, based in North America
and on March 30, 2001, the Company sold its automotive and industrial products
distribution business in North America. Together, these two businesses
contributed L53.8 million of sales anD L0.6 million of operating income in
Fiscal 2000. In Fiscal 2001, these businesses contributed L7.1 million of sales
and L0.2 million of operating income in the period prior to disposition.
On July 2, 2001, the Company acquired BuckHickman, a UK catalog distributor of
industrial products. In Fiscal 2001, BuckHickman contributed L52.9 million of
sales and L3.6 million of operating income in the period following acquisition.
In Fiscal 2002, BuckHickman contributed L96.1 million of sales and L5.8 million
of operating income.
On June 28, 2002, the Company sold its D-A Lubricant business, part of the
Industrial Products Division in North America. This business contributed L15.3
million of sales and L0.4 million of operating income in Fiscal 2001 and L5.4
million of sales and L0.1 million OF operating loss in Fiscal 2002 prior to the
date of disposition.
In February 2003, the Company announced its intention to rebrand certain
businesses within the Marketing and Distribution Division to reflect the major
investments made by the Group to improve the quality of its information
management systems, the closer working relationship of those businesses to
provide improved customer service, and to signal to customers the range and
depth of services that those businesses can now provide and how they work
together in providing them.
11
Management expects that rebranding with a new visual identity and addition of
the suffix InOne will communicate the Group's progress and retain the historical
value of existing business names. In March 2003, Newark Electronics began doing
business as Newark InOne and, in May 2003, BuckHickman began doing business as
BuckHickman InOne. In May 2003, Farnell completed the implementation of the
Farnell InOne trade name, which was begun in March 2003.
CAPITAL EXPENDITURES
Amounts spent on property, plant and equipment amounted to L25.6 million in
Fiscal 2000, L24.8 million in Fiscal 2001 and L24.9 million in Fiscal 2002.
In Fiscal 2000, capital expenditures included L13.8 million on front-office,
customer sales and service systems. An additional L5.6 million on computer
systems was spent to enhance existing systems and to facilitate integration of
the front-office systems being developed. During Fiscal 2000, a number of
surplus properties were sold for L4.4 million before tax.
In Fiscal 2001, capital expenditures included L15.0 million on computer systems.
The Group spent L10.8 million on front-office, customer facing systems including
Siebel Customer Relationship Management ("CRM") systems, Stibo publication
management systems and Alterian data mining software, and the remaining L4.2
million was spent in enhancing existing systems, including expenditures to
facilitate the integration of the front-office systems with the back-office
systems. Additional capital expenditures for Fiscal 2001 included L4.3 million
at Akron Brass on its new manufacturing facility, bringing the cumulative amount
spent on this new facility to L4.8 million. During Fiscal 2001, surplus
properties were sold for L1.3 million before tax.
In Fiscal 2002, capital expenditures of L24.9 million included L18.5 million on
computer systems. The Group spent L10.8 MILLIon on front-office, customer facing
systems based around CRM systems and an additional L7.7 million was spent in
enhancing existing systems, including expenditures at Newark and Farnell to
facilitate the integration of the front-office systems with the back-office
systems. The front-office systems were successfully deployed at Farnell's UK
business in November 2002 and in March 2003 were successfully deployed across
Newark's branch and business contact center infrastructure. During Fiscal 2002,
surplus properties were sold for L1.7 million before tax.
BUSINESS OVERVIEW
The Company classifies its operations into two divisions - the Marketing and
Distribution Division and the Industrial Products Division.
12
Net sales information for each of the divisions appears below:
FISCAL YEAR ENDED
JANUARY 28, FEBRUARY 3, FEBRUARY 2,
2001 2002 2003
(IN LM)
---------------------------------------------
Marketing and Distribution
Division
Americas 446.9 373.7 311.6
Europe and Asia Pacific 266.1 314.5 348.6
---------------------------------------------
713.0 688.2 660.2
Industrial Products Division 163.2 118.2 98.8
---------------------------------------------
Total Net Sales 876.2 806.4 759.0
=============================================
The Marketing and Distribution Division markets electronic, electrical,
industrial components and products and spares for consumer appliances and
consists of five operations: Newark and MCM, in the Americas and Farnell,
BuckHickman and CPC in Europe and Asia Pacific. The Industrial Products Division
produces and distributes high-performance fire fighting components for the OEM
and replacement markets as well as asphalt and concrete resurfacing products,
and distributes repair products and hand tools for the automotive aftermarket,
electrical connectors and equipment for the industrial maintenance and repair
market and wire and cable harnesses for the automotive and steel industries.
Neither division is dependent upon a single customer, the loss of which would
have a material adverse effect on the Group.
MARKETING AND DISTRIBUTION DIVISION - THE AMERICAS
The Americas are served by Newark, headquartered in Chicago, Illinois, US, and
MCM, headquartered in Dayton, Ohio, US. Newark is a small order, high service
distributor of electronic components and MCM is a catalog distributor of
electronic components, spare parts and accessories.
Newark distributes electronic components and electrical products, including
microprocessors, switches, relays, semiconductors, electronic interconnection
devices, integrated circuits, capacitors, resistors, connectors and test
equipment. Newark provides customers with a wide range of products and a number
of ordering and delivery options that make it possible for Newark to deliver its
products promptly in the US, Brazil, Canada or Mexico. Newark also provides a
complementary specialist sourcing service for non-stocked items, with access to
more than 1.1 million products globally.
Newark supplies products to a broad range of customers, including small quantity
manufacturers, research and development departments, repair and maintenance
organizations, governmental agencies, electrical contractors, design engineers,
electronic service dealers, industrial customers and universities and other
educational establishments. Newark offers customers a variety of sales
13
channels, including a local branch network, field sales, national account and
business contact centers, e-commerce, catalog and direct marketing. Newark also
publishes an annual catalog that serves as a reference manual for electronic
components.
Newark's branch network is one of its most important marketing channels. As part
of the Challenge Program, Newark began a program of investment in branch offices
in Fiscal 2000. This included the installation of computers and associated staff
training in readiness for the new CRM software, implemented as part of the
Challenge Program. As a result, certain smaller offices were closed in late
Fiscal 2000 and early Fiscal 2001. Currently, Newark operates 46 branches and 2
business contact centers.
MCM supplies products to retailers, installers and repairers of consumer
electronics. MCM's markets for its products in the US have changed considerably
over the past five years, as falling retail prices have made new purchases more
attractive than repair. As a consequence, MCM has targeted specific growth
markets, such as computer accessories, security, gaming and amusement and other
specialized sectors. MCM publishes catalogs annually which are supplemented by
frequent mailings featuring new products and special offers.
Premier Farnell has invested in Siebel's CRM software, which enables customer
data to be collected in a structured manner, allowing for more efficient
telemarketing and more targeted direct mail activity. In March 2003, the
integrated CRM system became operational in the Newark branches and business
contact centers. This system replaced the interim CRM solution installed in
Newark's business contact centers in Fiscal 2001.
Newark, as well as Farnell and BuckHickman, have continued to pursue a strategic
initiative to develop the business of key accounts, typically consisting of
larger customers, including the identification of customers who operate on a
national or international scale, and to provide a tailored service to meet their
needs.
Newark has established eProcurement capabilities and expertise and currently has
agreements with approximately 118 eProcurement customers, providing them a
convenient and flexible electronic method of purchasing products. In addition,
Newark has focused on providing vendor managed inventory systems to its
customers. MCM has developed customized extranets, providing a highly
personalized service for its large customers.
In the second quarter of Fiscal 2002, Newark closed its Chicago, Illinois, US
distribution facility. Newark's distribution now operates from a single center
located in Gaffney, South Carolina, US. MCM maintains a distribution center at
Springboro, Ohio, US.
In May 2002, Newark commenced operations in Mexico.
MARKETING AND DISTRIBUTION DIVISION - EUROPE AND ASIA PACIFIC
Europe and Asia Pacific are served by Farnell, headquartered in Leeds, England,
BuckHickman, based in Coventry, England and CPC, based in Preston, England.
14
Farnell is a small order, high-service distributor of electronic, electrical and
industrial products and has offices in 17 countries across Europe and Asia
Pacific. Farnell offers a range of components including semiconductors,
connectors, optoelectronic products and displays, wire and cable, resistors,
capacitors, pneumatics, hydraulics, HVAC products, hand and power tools, health
and safety equipment and laboratory equipment. It offers next-day delivery of
most stocked items to customers in the UK, Europe, Asia and Australasia. During
Fiscal 2002, Farnell opened offices in Austria and Italy.
Farnell's customer base, which is similar to Newark's, includes small quantity
manufacturers, research and development departments, repair and maintenance
organizations, governmental agencies, electrical contractors, electronic service
dealers, industrial customers and universities and other educational
establishments. Farnell offers a variety of sales channels, including catalogs,
direct-mail, field sales, national accounts, business contact centers, CD-ROM,
web-based services and eProcurement. Each year, Farnell publishes paper
catalogs, as well as many targeted direct-mail brochures and electronic catalogs
for web sites and related e-commerce applications.
In order to provide customers throughout the world with access to the electronic
and electrical products from both Newark and Farnell, Newark and Farnell are
continuing to integrate their product ranges. Jointly, Newark and Farnell have
entered into worldwide agreements with a number of suppliers. These agreements
give customers worldwide access to a comprehensive range of product offerings.
BuckHickman is a catalog distributor of industrial products and is an authorized
UK distributor for many leading industrial tools and supplies manufacturers.
Additionally, BuckHickman is the exclusive distributor of its Roebuck brand of
industrial products. BuckHickman sells through catalogs, its own network of 31
UK branches and its sales force.
CPC is a catalog distributor of electronic components, spare parts and
accessories to retailers, installers and repairers of electronic consumer
appliances and office equipment, educational establishments and a range of
industrial customers. The markets for these products in the UK have changed
considerably over the past five years, as falling retail prices have made new
purchases more attractive than repair. As a consequence, CPC has targeted new
growth markets, such as computer accessories, security, education and other
specialized sectors. CPC publishes catalogs annually which are sent to customers
throughout the UK and Ireland. The catalogs are supplemented by frequent
mailings featuring new products and special offers.
The Marketing and Distribution Division has benefited from a range of
cross-selling opportunities with BuckHickman now selling Farnell and CPC
products to its customers, and Farnell now selling BuckHickman products in the
UK and Ireland.
In November 2002, the integrated CRM system became operational at the UK
business contact center, which replaced the interim CRM solutions installed in
Fiscal 2001. Farnell and BuckHickman have increased their service offerings and
have continued to install vendor-managed inventory systems throughout the UK,
which complement other stockroom management initiatives.
Farnell has now established approximately 108 eProcurement relationships.
15
Farnell has its main distribution center in Leeds, England as well as regional
distribution centers in Australia, Malaysia and Singapore. To improve the
service offerings to customers located in mainland Europe, additional warehouse
capacity has been leased in Liege, Belgium. The Liege facility became
operational in September 2002 and has begun supplying products to mainland
European markets. BuckHickman maintains a national distribution center in
Coventry, England and CPC's distribution center is in Preston, England.
INDUSTRIAL PRODUCTS DIVISION
The Industrial Products Division produces and distributes high-performance fire
fighting components for the OEM and replacement markets as well as asphalt and
concrete resurfacing products, electrical connectors and equipment for the
industrial maintenance and repair market and high endurance wire and cable for
the automotive and steel industries to customers located primarily in the US and
Canada. The Division also distributes repair products and hand tools for the
automotive aftermarket to customers located primarily in Europe. The Division
markets its product lines through separate businesses, each with its own sales
force. Products are sold by field representatives, its sales personnel and
independent dealers and distributors. The Division operates distribution
facilities in the US, Canada, Mexico and France.
On June 28, 2002, the Company completed the sale of its D-A Lubricant business,
a specialty lubricants business, which was formerly part of the Industrial
Products Division.
BREAKDOWN OF NET SALES BY GEOGRAPHIC MARKETS
The table below sets forth a breakdown of total Group net sales by geographic
market for Fiscal 2002, Fiscal 2001 and Fiscal 2000, respectively:
FISCAL YEAR ENDED
JANUARY 28, FEBRUARY 3, FEBRUARY 2,
2001 2002 2003
(IN LM)
---------------------------------------------
Americas 576.1 456.9 375.3
United Kingdom 168.5 215.5 251.6
Rest of World 131.6 134.0 132.1
---------------------------------------------
Total Net Sales 876.2 806.4 759.0
=============================================
SUPPLY ARRANGEMENTS
The Group obtains products from a variety of sources, and certain product lines
are purchased pursuant to distributor agreements. These agreements are typically
for periods of one year, renewable annually, are non-exclusive, and authorize
the Group generally to sell a supplier's product range in one or more countries.
These agreements may be cancelled by either party on short notice, and, upon
cancellation by a supplier, generally provide for a return of the supplier's
inventory. Purchases by the Group of finished products for distribution are
significant and the Group believes that it generally has
16
good relationships with its suppliers. However, the loss of certain suppliers
could have an adverse effect on the business of particular divisions. Under the
Group's global supplier program, the Group intends to continue to build upon its
global relationships with certain suppliers which present opportunities to
better serve customers by sharing data, bringing new products rapidly to market
and providing access to a greater range of products. In respect of new product
lines and products which are subject to relatively fast technological change
(e.g., semiconductors), the Group typically has protection from potential
inventory losses through a right to return to the supplier for credit new
product that does not sell as anticipated or product that becomes obsolete, as
defined in the supply contract.
SEASONALITY AND PRODUCT AVAILABILITY
Although the Group's business is not seasonal in any material respect, it is
affected by the cyclical nature of the electronics industry and overall trends
in the general economies of the countries in which it operates. The Group has
also experienced industry-wide product shortages and excess supplies from time
to time. The Group as a whole has not been dependent on any particular patent,
trademark, license, franchise or concession.
COMPETITION
In the Marketing and Distribution Division, competition varies from country to
country, but generally comes from national and regional distributors. The
Marketing and Distribution Division serves as a single-source electronic and
industrial product component supplier to a broad range of customers in the
research and development, maintenance, repair and operations market. Product
availability and service are key factors in maintaining a strong competitive
position in the industry. Customers have a variety of local, regional and
national sources of supply for small quantities of components. The Marketing and
Distribution Division is characterized by the quality of customer service
provided. The primary customer requirements are extensive product choice, high
levels of in-stock availability and prompt, reliable delivery.
The Industrial Products Division specializes in product lines and markets where
it aims to provide unique customer benefits that differentiate it from
competitors. Product performance and customer service are important competitive
factors.
IMPACT OF GOVERNMENTAL REGULATION
The Group has ongoing remedial environmental activities at a formerly-owned
facility in the US. The estimated costs of such activities, which are not
expected to be material, have been reserved for in the Group's financial
statements. In addition, the Group has been involved with several third-party
waste disposal sites in various states for which it has been named a potentially
responsible party under applicable environmental laws. Such laws can impose
joint and several liability upon each party at a given site; however, based on
the number of other companies involved in the process and the relatively small
volume of waste attributed to the Group, the extent of the Group's allocated
financial contribution to the investigation and remediation of these sites is
not expected to be material.
17
ORGANIZATIONAL STRUCTURE
The principal operating subsidiaries of the Company, each of which is
wholly-owned, are as follows:
COUNTRY OF
INCORPORATION
NAME OF PRINCIPAL SUBSIDIARY AND OPERATION
---------------------------- ---------
Farnell Electronic Components Ltd UK
Farnell Electronic Components Pty Ltd Australia
Farnell Electronic Components Limited New Zealand
Farnell Italia Srl Italy
Farnell InOne GmbH Germany
Farnell Danmark AS Denmark
Oy Farnell (Finland) AB Finland
Farnell Components AB Sweden
Farnell AG Switzerland
Farnell Components (Ireland) Limited Eire
Farnell (France) SAS France
Farnell (Netherlands) BV Netherlands
Farnell-Newark InOne Distribuidora de Componentes Eletronicos
Ltda. Brazil
Farnell Components Pte Ltd Singapore
Farnell Components (M) SDN BHD Malaysia
Farnell Components (HK) Ltd Hong Kong
Farnell (Belgium) NV Belgium
Farnell Components SL Spain
Combined Precision Components PLC UK
Buck & Hickman Limited UK
Newark Corporation USA
Newark Electronics Corporation USA
MCM Electronics, Inc USA
Premier Farnell, LLC USA
Premier Farnell Canada Limited Canada
NV Premier Industrial Belgium SA Belgium
Premier Industrial Deutschland GmbH Germany
Premier Industrial Holland BV Holland
Premier Industrial France SARL France
Premier Industrial Italia Srl Italy
Premier Industrial (UK) Ltd UK
Premierco Espana SL Spain
TPC Wire and Cable de Mexico SRL de CV Mexico
Premier Farnell Electronics de Mexico SRL de CV Mexico
18
PROPERTY, PLANTS AND EQUIPMENT
The principal property, plants and equipment of the Company, are as follows:
AREA SQUARE OWNED/
FACILITY LOCATIONS FOOTAGE USES LEASED
- -----------------------------------------------------------------------------------------------------------------------------
Akron Brass Wooster, Ohio, US 113,000 Office, research and Owned
development, and
manufacturing
Akron Brass Wooster, Ohio, US 29,575 Foundry Owned
BuckHickman Coventry, England 80,000 Office and distribution Leased
center
CPC Preston, England 175,000 Office and distribution Owned
Distribution center
Center
Maybrook Leeds, England 244,000 Distribution center Owned
Distribution
Center
European Liege, Belgium 162,000 Distribution center Leased
Distribution
Center (1)
Newark- Chicago, Illinois, US 145,000 Corporate Offices - Owned
Ravenswood Newark
Gaffney Gaffney, South Carolina, US 225,000 Distribution center Owned
Distribution
Center
Premier Farnell London, England 3,400 Corporate Offices Leased
London
Premier Farnell Leeds, England 27,200 Corporate Offices Owned
Armley
Farnell Leeds, England 131,000 Corporate Offices - Owned
Farnell and distribution
center
19
AREA SQUARE OWNED/
FACILITY LOCATIONS FOOTAGE USES LEASED
- -----------------------------------------------------------------------------------------------------------------------------
Premier Farnell Independence, Ohio, US 21,200 Corporate Offices and Leased
North America TPC Wire & Cable
headquarters
MCM Springboro, Ohio, US 131,000 Distribution center Owned
Distribution
Center
- ----------
(1) The Company has an option to acquire an additional 43,000 square feet
within the existing warehouse to be exercised before March 2004 as well
as an option for an additional warehouse to be constructed on adjacent
land comprising 160,000 square feet to be exercised before September
2008.
The Company believes that its current facilities are suitable for their intended
use and adequately service the Company's current operating requirements.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following Operating and Financial Review and Prospects should be read in
conjunction with the "Key Information - Selected Financial Data," "Information
on the Company" and the Consolidated Financial Statements and related Notes
thereto included in Part III of this Annual Report.
The Consolidated Financial Statements and the financial information discussed
below have been prepared in accordance with UK GAAP and differ in significant
respects from those prepared under US GAAP. For a discussion of the principal
differences between UK GAAP and US GAAP, see Note 25 of the Notes to the
Consolidated Financial Statements found in Part III of this Annual Report.
OVERVIEW
In January 1999, the Group announced a L90 million capital and revenue
investment program, the Challenge Program. Part of this program was the
implementation and monitoring of the interdependent initiatives developed
throughout the Group. The Challenge Program focused on e-commerce, customer
relationship management and publication management systems, logistics and
customer service, data management and analysis, marketing initiatives, business
contact centers and training. The Challenge Program is now substantially
complete in the Group's major markets.
On February 28, 2001, the Company sold Brooks Technology, part of the Industrial
Products Division in North America, for L9.5 million, with further cash payments
depending on future performance. In Fiscal 2002, L0.1 million of deferred
consideration was received in respect of the disposal of Brooks Technology. On
March 30, 2001, the Company sold the automotive and industrial
20
products distribution business of the Industrial Products Division in North
America for L24.7 million. Taken together, these two businesses contributed
L53.8 million of sales and L0.6 million of operating income in Fiscal 2000. The
gain on disposal, net of costs, and before any adjustments for goodwill,
amounted to L14.6 million. After adjusting for goodwill of L25.6 million in
accordance with UK GAAP, the reported loss on disposal was L11.0 million.
On July 2, 2001, the Company acquired BuckHickman, a UK catalog distributor of
industrial products, for L66 million in cash, including the cost of the
acquisition.
On June 28, 2002, the Company sold its D-A Lubricant business, part of the
Industrial Products Division in North America for L4.3 million. In Fiscal 2001,
this business contributed L15.3 million of sales and L0.4 million of operating
income. The loss on disposal, net of costs, and before any adjustments for
goodwill, amounted to L2.3 million. After adjusting for goodwill of L2.6 million
in accordance with UK GAAP, the reported loss on disposal was L4.9 million.
OPERATING RESULTS
FISCAL 2002 COMPARED WITH FISCAL 2001 AND FISCAL 2000
Financial Overview. Fiscal 2000 and Fiscal 2002 were 52-week periods, whereas
Fiscal 2001 was a 53-week period.
Consolidated net sales decreased 8.0% from L876.2 million in Fiscal 2000 to
L806.4 million in Fiscal 2001, including sales of L52.9 million from
BuckHickman, which was acquired on July 2, 2001. The contribution to sales
provided by the businesses sold in February and March 2001 was L7.1 million in
Fiscal 2001 compared to L53.8 million in Fiscal 2000. The impact of the
translation of overseas sales in Fiscal 2001 compared to Fiscal 2000 was
favorable by L20.4 million due principally to the strength of the US dollar
against sterling.
Consolidated net sales decreased 5.9% from L806.4 million in Fiscal 2001 to
L759.0 million in Fiscal 2002. Sales from BuckHickman In Fiscal 2002 amounted to
L96.1 million compared to the prior year of L52.9 million. The contribution to
sales provided by businesses sold in Fiscal 2002 and Fiscal 2001 was L5.4
million in Fiscal 2002 compared to L22.4 million in Fiscal 2001. The impact of
the translation of overseas sales in Fiscal 2002 compared to Fiscal 2001 was
unfavorable by L22.2 million due principally to the weakness of the US dollar
against sterling.
Consolidated net sales over the last two years have been affected by the
worldwide economic downturn and the resulting decline in the market for
electronic components.
In Fiscal 2002, 49% of the Group's net sales were derived from the US. In Fiscal
2000 and Fiscal 2001, the strength of the US dollar increased the translated
value of the Group's dollar net sales when compared to the prior Fiscal Year's
sales, whereas in Fiscal 2002, the weakness of the US dollar decreased the
translated value of the Group's dollar net sales when compared to the prior
Fiscal Year. The results of the US businesses were translated into sterling in
Fiscal 2000 at an average exchange rate of L1=US $1.50, in Fiscal 2001 at L1=US
$1.43 and in Fiscal 2002 at L1=US $1.53. Reported results in future years could
fluctuate significantly due to changes in the
21
relative strengths of sterling and the US dollar. However, actual US dollar cash
inflows are to a large degree naturally hedged by US dollar cash outflows. See
"Quantitative and Qualitative Disclosures About Market Risk."
The classification of costs between cost of sales and net operating expenses has
been restated for each of Fiscal Years 2000 and 2001 to reflect the manner in
which management measure the performance of the Group. Further details are given
in Note 1 of the Notes to the Consolidated Financial Statements, which are
included in Part III in this Annual Report.
Cost of sales was L498.7 million, L473.2 million, and L447.0 million in Fiscal
2000, Fiscal 2001 and Fiscal 2002, respectively. The resulting gross profit as a
percentage of net sales was 43.1%, 41.3% and 41.1%, respectively. Gross profit
was higher in Fiscal 2000 principally as a result of the businesses sold in
Fiscal 2001 and 2002, which achieved higher gross profit margins than the
retained businesses. The gross margin in Fiscal 2002 was maintained at the
Fiscal 2001 level.
Total net operating expenses decreased from L262.5 million in Fiscal 2000 to
L246.3 million in Fiscal 2001 and further to L231.7 million in Fiscal 2002.
Total net operating expenses included amortization of goodwill arising on the
acquisition of BuckHickman of L1.5 million in Fiscal 2001 and L2.6 million in
Fiscal 2002. Total net operating expenses as a percentage of net sales was 30.0%
in Fiscal 2000, 30.5% in Fiscal 2001 and 30.5% in Fiscal 2002. The effect of the
decrease in total sales in Fiscal 2001 and Fiscal 2002 was significantly reduced
by a cost reduction program. This cost reduction program was implemented across
the organization early in the economic downturn. This program included staff
reductions in Fiscal 2001 of 497 employees, representing 10% of the total work
force, of which 415 were in North America. Costs incurred in connection with
making these staff reductions amounted to L1.6 million. Following the cost
reduction program in Fiscal 2001, cost controls were maintained throughout
Fiscal 2002. Restructuring costs of L0.6 million were incurred in Fiscal 2002
relating to the closure of a warehouse in North America.
Total operating income was L115.0 million in Fiscal 2000, L86.9 million in
Fiscal 2001 and L80.3 million in Fiscal 2002. AS a percentage of net sales,
total operating income was 13.1% in Fiscal 2000, 10.8% in Fiscal 2001 and 10.6%
in Fiscal 2002. The decrease in Fiscal 2001 is principally a result of the
decrease in sales, although the impact of this was significantly reduced by the
cost management initiatives outlined above. Despite the further fall in sales in
Fiscal 2002, total operating income as a percentage of net sales in Fiscal 2002
was only slightly below that in Fiscal 2001 reflecting the continued control of
costs. Restructuring costs of L1.2 million were incurred in Fiscal 2000 relating
to branch and sales force reorganization in North America. The restructuring
costs were offset by gains on the disposal of properties of L1.9 million. Costs
in Fiscal 2001 relating to the staff reduction of L1.6 million were offset by
gains on the disposal of properties of L1.5 million. Costs in Fiscal 2002
relating to the closure of a North American warehouse of L0.6 million were
offset by gains on the disposal of properties of L0.5 million.
Marketing and Distribution Division. The Marketing and Distribution Division
represented 87% of the Group's sales in Fiscal 2002.
22
Net sales of the Marketing and Distribution Division decreased by 3.5% from
L713.0 million in Fiscal 2000 to L688.2 million in Fiscal 2001, and by 4.1% to
L660.2 million in Fiscal 2002, compared to Fiscal 2001. Net sales in the
Americas region decreased by 16.4% from L446.9 million in Fiscal 2000 to L373.7
million in Fiscal 2001, and by 16.6% to L311.6 million in Fiscal 2002 compared
to Fiscal 2001. The impact of the translation of overseas sales was favorable by
L17.3 million in Fiscal 2001 compared to Fiscal 2000, but unfavorable by L20.8
million in Fiscal 2002 compared to Fiscal 2001, due to the relative
strength/weakness of the US dollar against sterling.
Net sales in the Europe and Asia Pacific region increased by 18.2% from L266.1
million in Fiscal 2000 to L314.5 million in Fiscal 2001 and by 10.8% to L348.6
million in Fiscal 2002. The impact of the translation of overseas sales was
unfavorable by L0.5 million in Fiscal 2001 compared to Fiscal 2000 but was
favorable by L1.9 million in Fiscal 2002 compared to Fiscal 2001. Sales from
BuckHickman, which was acquired in July 2001, amounted to L52.9 million in
Fiscal 2001 and L96.1 million in Fiscal 2002.
Sales of the Marketing and Distribution Division over the past two years have
been impacted by the worldwide downturn in the economy. A slowdown in the US
market was first seen in the final quarter of Fiscal 2000 due to the downturn in
the demand for electronic components in the electronics and telecommunications
sector. During Fiscal 2001, the downturn in the Americas spread to the rest of
the world. In particular, Asia experienced a decline in sales consistent with
that seen in the US and sales declines were also experienced in the UK and
Germany, though at a lower rate. This downturn, combined with the general
worldwide economic downturn, affected the broad industrial customer base
throughout Fiscal 2001. General industrial demand and activity in the
electronics industry remained weak throughout Fiscal 2002 in the Division's
primary US and European markets. However, sales per working day have remained
relatively stable since May 2002 and an improving sales trend was seen in the
second half of Fiscal 2002.
Despite the decline in sales over the last two years, the Division has continued
its revenue investment program by focusing on expansion of product range,
international development, obtaining a deeper understanding of customers and
markets, greater penetration of existing multi-national and large accounts and
ongoing improvement of customer service.
Operating income of the Marketing and Distribution Division was L104.2 million
in Fiscal 2000 (Americas L60.5 million, Europe and Asia Pacific L43.7 million),
L77.1 million in Fiscal 2001 (Americas L38.4 million, Europe and Asia Pacific
L38.7 million after amortization of goodwill of L1.5 million) and L72.6 million
in Fiscal 2002 (Americas L33.0 million, Europe and Asia Pacific L39.6 million
after amortization of goodwill of L2.6 million). Operating income as a
percentage of sales was 14.6% in Fiscal 2000 (Americas 13.5%, Europe and Asia
Pacific 16.4%), 11.2% in Fiscal 2001 (Americas 10.3%, Europe and Asia Pacific
12.3% after amortization of goodwill) and 11.0% in Fiscal 2002 (Americas 10.6%,
Europe and Asia Pacific 11.4% after amortization of goodwill). The decrease in
Fiscal 2001 reflects principally the reduction in sales, despite the acquisition
of BuckHickman, although the effect of this reduction in sales was significantly
reduced by the cost reduction program implemented by management, as discussed
above. In Fiscal 2002, the operating margin fell only slightly despite the
increase in goodwill amortization, reflecting tight control of gross margin and
costs. The reduction in operating margin in Europe
23
and Asia Pacific was attributable to BuckHickman, which has a lower operating
margin, and the increase in goodwill amortization.
Industrial Products Division. As noted above, this Division disposed of two
businesses in Fiscal 2001 and one business in 2002.
Net sales of the Industrial Products Division in Fiscal 2000 were L163.2
million, decreasing to L118.2 million in Fiscal 2001 and to L98.8 million in
Fiscal 2002. The decrease in sales over the last two fiscal years was primarily
a result of the sale of the businesses referred to above. The impact of the
translation of overseas sales was favorable by L3.6 million in Fiscal 2001
compared to Fiscal 2000, but unfavorable by L3.3 million in Fiscal 2002 compared
to Fiscal 2001, due to the strength/weakness of the US dollar against sterling.
In Fiscal 2001, while sales of high performance fire fighting components and
repair products and hand tools for the automotive aftermarket were relatively
flat compared with the prior Fiscal Year, sales of wire and cable to the North
American automotive and steel industries and sales of asphalt and concrete
resurfacing products declined as a result of the general overall economic
downturn in North America.
In Fiscal 2002, sales of high performance fire fighting components were L33.2
million compared to L34.9 million in Fiscal 2001. This decline in sales was
primarily due to the unfavorable impact of the US dollar against sterling. Sales
to the US municipal and original equipment markets improved, although the
industrial segment was weaker. The completion of the $7 million expansion and
upgrade to the manufacturing facility in Fiscal 2001 has significantly enhanced
manufacturing capacity and efficiency enabling the business to generate a higher
gross margin for its products.
In Fiscal 2002, sales of repair products and hand tools for the automotive
aftermarket were L35.0 million compared to L35.0 million in Fiscal 2001. A sales
force salary restructuring program was completed in Fiscal 2002 with the sales
force moving from a commission only to a salary based scheme. Despite some
disruption in France as a result of the implementation of this new restructuring
program, sales productivity levels have generally increased.
In Fiscal 2002, sales of wire and cable to the North American automotive and
steel industries were L12.8 million compared to L13.6 million in Fiscal 2001.
The businesses major markets have continued to suffer from downturns, which have
now lasted several years.
Operating income of the Industrial Products Division was L18.6 million in Fiscal
2000, L17.7 million in Fiscal 2001 and L15.2 million in Fiscal 2002. The decline
in Fiscal 2002 reflects the impact of the business disposals referred to above,
the impact of the disruption in France arising from the sales force
restructuring program, a gain on disposal of excess properties in Fiscal 2001
and the impact of currency translation.
Loss on Disposal of Businesses, Income Before Taxes, Income Taxes and Net
Income. The loss on disposal of businesses in Fiscal 2001 of L11.0 million and
in Fiscal 2002 of L4.8 million relate to the sale of the businesses of the
Industrial Products Division referred to above. In Fiscal
24
2001, the gain on the net assets sold, net of costs, amounted to L14.6 million,
which was offset by goodwill relating to the acquisition of these businesses of
L25.6 million, which had previously been eliminated against reserves in
accordance with UK GAAP. In Fiscal 2002, the loss on the net assets sold, net of
costs, amounted to a L2.3 million. The reported loss was increased by L2.6
million to L4.9 million, reflecting the goodwill relating to the acquisition of
this business which had previously been eliminated against reserves in
accordance with UK GAAP. In Fiscal 2002, L0.1 million of deferred consideration
was received in respect of the disposals in Fiscal 2001.
Income before taxes in Fiscal 2000, Fiscal 2001 and Fiscal 2002 was L102.1
million, L60.0 million and L59.8 million, respectively, after net interest
payable of L12.9 million, L15.9 million and L15.7 million, respectively. The
majority of this interest relates to the US dollar-denominated debt. The
increase in the interest charge in Fiscal 2001 from Fiscal 2000 was the result
of increased debt related to the acquisition of BuckHickman in July 2001 and
currency translation effects. The interest charge in Fiscal 2002 was similar to
Fiscal 2001 with the full year impact of the increased debt related to the
acquisition of BuckHickman being offset by favorable currency translation
effects. The impact of the translation of overseas income before taxes in Fiscal
2001 was favorable by L1.7 million and in Fiscal 2002 was unfavorable by L0.9
million, both due principally to the rate of exchange of the US dollar against
sterling.
Taxes on income were L30.8 million, L21.4 million and L18.2 million in Fiscal
2000, Fiscal 2001 and Fiscal 2002, respectively. The tax charge in Fiscal 2002
is net of a tax credit of L0.9 million arising on the disposal of businesses. No
tax charge or credit arose on the disposals in Fiscal 2001. The effective rate
of income tax was 30.2%, 29.5% and 28.4% in Fiscal 2000, Fiscal 2001 and Fiscal
2002, respectively. The effective tax rates are calculated as follows:
FISCAL 2000 FISCAL 2001 FISCAL 2002
LM LM LM
Income before taxes 102.1 60.0 59.8
Loss on disposal of businesses - 11.0 4.8
Goodwill amortization - 1.5 2.6
--------------------------------------------------
Income before taxes, goodwill amortization and loss on
disposal of businesses 102.1 72.5 67.2
--------------------------------------------------
Taxes on income 30.8 21.4 18.2
Tax credit on disposal of businesses - - 0.9
--------------------------------------------------
Taxes on income excluding tax credit on disposal of
businesses 30.8 21.4 19.1
--------------------------------------------------
Effective rate of income tax 30.2% 29.5% 28.4%
--------------------------------------------------
The effective rates of income tax include tax credits arising from the favorable
settlement of earlier years' tax liabilities of L0.5 million, L0.7 million and
L1.0 million in Fiscal 2000, Fiscal 2001 and Fiscal 2002, respectively.
Excluding these tax credits, the effective rate of income tax was 30.7%, 30.5%
and 29.9%, respectively. The actual amount of income taxes paid in each of
25
these years was L28.3 million, L27.4 million and L12.7 million, respectively.
Taxes paid in Fiscal 2002 benefited by approximately L9.0 milliON as a result of
tax repaid from prior years.
Primarily as a result of the above noted items, net income for the year was
L71.3 million in Fiscal 2000, L38.6 million in Fiscal 2001 and L41.6 million in
Fiscal 2002. Net income after preference and ordinary dividends amounted to
L21.5 million in Fiscal 2000. In Fiscal 2001 and 2002, the net loss after
preference and ordinary dividends amounted to L12.0 million and L1.8 million,
respectively.
FOREIGN CURRENCY
A substantial proportion of the Group's net sales and expenses are denominated
in US dollars and Euros. The management of the Group's exposure to movements in
foreign exchange rates is discussed in "Quantitative and Qualitative Disclosures
About Market Risk".
INFLATION
Generally, the Group's costs are affected by inflation, which can impact future
results.
LIQUIDITY AND CAPITAL RESOURCES
The Group's liquidity requirements arise primarily from capital investment,
obligations on indebtedness and working capital needs. The Company believes that
current available bank facilities will be sufficient to support the Group's
working capital requirements for at least the next 12 months.
The Group has been able to fund its working capital requirements for the past
three Fiscal Years through cash flow from operations. Net cash flow from
operating activities amounted to L112.4 million for Fiscal 2000, L107.1 million
for Fiscal 2001 and L92.0 million for Fiscal 2002.
The Group's current assets consist primarily of accounts receivable and
inventory. The Group's current assets as a percentage of total assets were
79.2%, 70.7% and 70.2% in Fiscal 2000, Fiscal 2001 and Fiscal 2002,
respectively.
Net cash payments for capital expenditures and financial investment in Fiscal
2000, Fiscal 2001 and Fiscal 2002 were L21.7 million, L24.1 million and L23.2
million, respectively. Details of capital expenditures in these years are
provided in "Information on the Company - Capital Expenditures."
For Fiscal 2003, capital expenditures are expected to be in the range of L15
million to L25 million, and relate principally to expenditure on front-office
systems and other information technology development.
In Fiscal 2001 and Fiscal 2002, L27.5 million and L3.3 million, respectively, of
net cash was generated from the disposal of businesses. The acquisition of
BuckHickman on July 2, 2001 for L66 million was funded from existing facilities
and cash resources.
26
In connection with the Special Conversion Right, during Fiscal 2002, holders of
Preference Shares were entitled to receive a one-time payment in lieu of the
preference dividend in respect of those Preference Shares converted of 19.8
pence for each Sterling Preference Share converted and $0.30 for each Dollar
Preference Share converted. As a result of the Special Conversion Right,
19,530,070 Preference Shares were converted into 89,838,310 Ordinary Shares.
Costs in respect of the Special Conversion Right amounted to L0.9 million.
In addition, in July 2002 the Company purchased in the open market and cancelled
a total of 643,964 of its own preference shares at a cash cost of L8.3 million.
As a result of the conversions in connection with the Special Conversion Right
and the repurchase of Preference Shares, dividends paid on preference shares in
Fiscal 2002 amounted to L10.8 million (Fiscal 2001:L26.1 million and Fiscal
2000:L25.3 million) and dividends paid on ordinary shares amounted to L28.1
million (Fiscal 2001:L24.5 million, Fiscal 2000: L24.5 million).
Subsequent to the end of Fiscal 2002, the Company purchased in the open market
and cancelled an additional 197,000 of its own Preference Shares at a cash cost
of L2.3 million. From time to time and subject to shareholder approval, the
Company may repurchase its Preference Shares and Ordinary Shares.
Indebtedness. The Company's net debt of L209.2 million at February 2, 2003
consisted of gross debt of L238.8 million less cash at bank and on hand of L29.6
million. The gross debt represents unsecured loans, consisting of L94.5 million
($155 million) principal amount of 7.0% US dollar guaranteed senior notes
payable June 2003, L94.5 million ($155 million) principal amount of 7.2% US
dollar guaranteed senior notes payable June 2006, amounts borrowed under the
Company's bilateral bank facilities of L44.0 million, unsecured bank overdrafts
of L2.7 million, and other borrowings of L3.1 million. The Company's bilateral
bank facilities consist of multi-currency revolving facilities totaling L125
million, which carry a LIBOR- based floating rate of interest and are committed
until 2006. As of May 1, 2003, these facilities were drawn down by L42.0 million
($68.9 million).
Since the end of Fiscal 2002, the Group has raised $225 million (L137 million)
of new funding in the private placement market. This consists of $66 million of
7-year notes and $159 million of 10-year notes at fixed interest rates of 5.3%
and 5.9%, respectively. This funding was drawn down on June 13, 2003 and has
been arranged principally to refinance the L94.5 million ($155 million) 7.0%
senior notes repayable on June 17, 2003 and for other general corporate
purposes.
Gross debt at February 2, 2003 is repayable as follows:
Lm
Within year ending January 2004 97.3
Within year ending January 2005 0.2
Within year ending January 2007 138.8
In subsequent years 2.5
-----
Total 238.8
-----
27
Cash balances decreased from L37.6 million at the end of Fiscal 2000 to L28.1
million at the end of Fiscal 2001 and increased to L29.6 million at the end of
Fiscal 2002. No debt was due for repayment during Fiscal 2002. As of February 2,
2003, cash balances consisted of L2.5 million in sterling, L4.2 million in US
dollars, L16.9 million in Euros and L6.0 million in other currencies.
The agreements entered into by the Company in connection with the US senior
notes and the Company's multi-currency bilateral revolving bank facilities
described above include various financial covenants relating to the performance
of the Group which are commensurate with typical requirements for facilities of
this nature. These covenants may have the effect of restricting the Company's
ability to incur additional indebtedness and limiting other activities of the
Company. Based upon current levels of indebtedness and performance, the Group is
operating within its financial covenants.
In addition to the gross debt discussed above, the Group has annual commitments
under operating leases. As of February 2, 2003, the annual commitments were as
follows:
LEASE EXPIRING: LAND AND BUILDINGS OTHER ASSETS TOTAL
- --------------- ------------------ ------------ -----
Lm Lm Lm
Within one year 0.7 0.9 1.6
Between two and five years 3.2 2.7 5.9
After five years 1.8 - 1.8
--- --- ---
5.7 3.6 9.3
=== === ===
Commitments for property, plant and equipment that were authorized and
contracted for at February 2, 2003 amounted to L3.2 million.
Dividend Obligations. Holders of Dollar Preference Shares are entitled to
receive a fixed cumulative preference dividend at the rate of $1.35 per annum
for every L1 of nominal value and holders of Sterling Preference Shares are
entitled to receive a fixed cumulative preference dividend at the rate of 89.2p
per annum for every L1 of nominal value.
These preferential dividends accrue from day to day and are payable
semi-annually in arrears to holders on the relevant record date, out of funds
legally available therefore, in equal amounts on January 26 and July 26 in each
year. The preferential dividend on any Dollar Preference Share changed over to a
Sterling Preference Share accrues at the sterling rate as from the dividend
payment date immediately before the changeover date. The preferential dividends
are payable to holders on the register at the record date set by the Company's
Board of Directors.
Holders of Preference Shares were entitled to receive a one-time payment payable
on July 12, 2002 in lieu of the preference dividend in respect of Preference
Shares that were converted pursuant to the Special Conversion Right of either
19.8 pence per Sterling Preference Share converted or $0.30 per Dollar
Preference Share converted. See "Key Information - Special Conversion Right" for
additional information.
28
Historically, the aggregate amount payable annually by the Company in respect of
dividends on the Preference Shares has been approximately L26 million ($38
million). As a result of conversions in connection with the Special Conversion
Right, aggregate dividends payable by the Company on the Preference Shares were
L11 million ($17 million) for Fiscal 2002, including the one-time payment in
lieu of the preference dividend referred to above. In subsequent years, the
aggregate dividend payable by the Company on the Preference Shares is expected
to be approximately L7 million ($11 million).
In addition, although the declaration and payment of dividends on Ordinary
Shares remains subject to the discretion of the Company's Board of Directors,
the Company currently intends to continue to pay regular semi-annual dividends
on such shares. In respect of Fiscal 2002, Premier Farnell declared aggregate
dividends on Ordinary Shares of 9.0p per share. As of February 2, 2003, there
were a total of 362,438,230 Ordinary Shares outstanding. For more information on
the Company's dividend obligations, see "Key Information - Dividends".
Capital Resources. Premier Farnell currently expects that existing working
capital, cash flow from operations and credit facilities available under the
terms of its existing borrowing arrangements are sufficient to fully satisfy its
obligations with respect to the interest on the Group's indebtedness and
dividends on the Preference Shares and to pay, as and when declared by the
Company, dividends on the Ordinary Shares. Premier Farnell has historically
generated significant levels of cash flow from operations, and it is expected
that this will be used to pay interest on the Group's debt and dividends.
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
Historically, the Marketing and Distribution Division has not incurred
substantial research and development costs because it relies principally on its
suppliers for product development activities. With respect to the Industrial
Products Division, research and development costs were approximately L1.1
million, L0.9 million and L1.0 million in Fiscal 2002, Fiscal 2001 and Fiscal
2000, respectively.
TREND INFORMATION
During Fiscal 2002, most of the Group's markets continued to be impacted by the
downturn in the electronics cycle combined with significantly reduced industrial
demand due to the general worldwide economic decline. During Fiscal 2003, the
Group's sales have continued to be affected by the economic downturn, with
little improvement in the Group's markets, and are likely to continue to be
affected until there is an improvement in the world economy.
The Challenge Program has assisted in shifting the Company's focus towards the
goal of understanding the changing needs of its customers and creating better
ways to provide the products and services that they require. To meet this goal,
the Company has pursued and obtained agreements with major national and
international global customers. Management expects that these agreements will
allow the Company to gain more of these customers' business and build long-term
relationships. The Company also continues to focus its efforts on creating and
supplying value-added services to its customers, such as eProcurement
arrangements, vendor managed inventory installations, increased product ranges,
improved service levels and geographic expansion. Management expects that by
29
taking these steps, the Company will be able to provide a broader range of
services to customers with the potential for an increase in net sales.
CRITICAL ACCOUNTING ESTIMATES
Critical Accounting Estimates. The Group's financial statements are prepared in
accordance with UK GAAP. The Group's principal accounting policies are given in
Note 1 of the Notes to the Consolidated Financial Statements, which are included
in Part III of this Annual Report. In preparing the financial statements under
UK GAAP, the Company's Board of Directors are required to make estimates and
assumptions that impact the reported results of operations and financial
position. Actual results may differ from these estimates. Certain of the Group's
accounting policies have been identified as the most critical accounting
policies by considering which policies involve particularly complex or
subjective decisions or assessments and these are discussed below. The
discussion below should be read in conjunction with the full statement of
accounting policies.
Pensions and other post employment benefits. The nature of pensions and other
post-retirement benefits is inherently long-term and future actual experience
may differ from the actuarial assumptions which are used to calculate the
Group's costs for pensions and other post-retirement benefits. The principal
actuarial assumptions relate to the expected return on assets, future salary
increases, pension increases, and interest rates for costing liabilities and
health care cost trends. Those assumptions are detailed in Note 21 of the Notes
to the Consolidated Financial Statements which are included in Part III of this
Annual Report. The most sensitive assumption for the Group's pension plans under
UK GAAP Statement of Standard Accounting Practice ("SSAP") 24 is the expected
return on assets. For Fiscal 2002, the SSAP 24 pension valuation reflected in
the financial results assumes an expected return on assets for both the UK
pension plan and US pension plans of 8.5%. With respect to the UK pension plan,
the estimated impact of reducing the expected return on assets by 0.5% to 8.0%
would be to increase the SSAP 24 pension cost from L0.1 million to L0.5 million,
and the estimated impact of increasing the expected return on assets by 0.5% to
9.0% would be to change the SSAP 24 pension cost from L0.1 million to a pension
credit of L0.3 million. With respect to the US pension plans, the estimated
impact of reducing the expected return on assets by 0.5% to 8.0% would be to
reduce the SSAP 24 pension income from L6.9 million to L5.7 million, and the
estimated impact of increasing the expected return on assets by 0.5% to 9.0%
would be to increase the SSAP 24 pension income from L6.9 million to L8.1
million.
Estimated useful lives of tangible fixed assets. Tangible fixed assets, other
than land which is not depreciated and motor vehicles which are depreciated on a
reducing balance basis, are depreciated on the straight-line method over their
estimated useful lives. Useful lives are estimated based on a number of factors
including the expected usage of the asset, expected physical deterioration and
technological obsolescence. The annual rate of depreciation of the asset may
need to be increased if it becomes clear that its useful life will be shorter
than originally expected. In turn, if the actual useful life of the asset turns
out to be longer than the estimated useful life, the asset may continue to be
used after being fully written down, thus incurring no further depreciation
charge. The market value of buildings is often more affected by property market
conditions than the age of the building and,
30
accordingly, when a building is sold a significant gain or loss could arise from
the difference between the sale proceeds and the carrying value of the asset.
Inventories. Inventories are stated on a first-in, first-out basis at the lower
of cost and net realizable value. Management frequently reviews inventory using
historical data to estimate the amount of excess, obsolete or unsaleable
inventory and reserves are made as considered appropriate.
Trade receivables. Exposure to losses on trade receivables is principally
dependent on each customer's financial condition. Management frequently reviews
trade receivable balances using knowledge of the customer, aging analysis and
payment history, and reserves are made as considered appropriate.
Estimated useful lives of intangible fixed assets and goodwill. Under US GAAP,
the Group is required to adopt the new standard, Financial Accounting Standard
("FAS") 142, prospectively as of February 4, 2002. Under this new standard,
goodwill and other intangible assets that are deemed to have an indefinite life
are no longer amortized. Separate intangible assets with finite lives continue
to be amortized over their useful lives. Goodwill and indefinite-lived
intangible assets are tested for impairment on an annual basis by applying a
fair-value-based test. The Group performed the transitional impairment test
under FAS 142 and compared the carrying amount for each reporting unit to its
fair value, which was determined based on discounted cash flows. Upon completion
of the transitional test, the Group determined that there was an impairment of
goodwill of L728 million as of February 4, 2002 and also determined that there
were no similar impairments to indefinite lived intangible assets. The Group
also completed the annual impairment test required by FAS 142 as of July 31,
2002, which resulted in no impairment charges.
In determining the fair value of each business unit based on discounted cash
flows, a number of assumptions are made, including future sales growth rates,
operating margins, working capital trends, capital expenditure and the
appropriate discount factor. If actual experience differs from any of these
assumptions, variances in the fair value of the business unit would result which
may impact the amount of goodwill carried on the balance sheet. The most
sensitive of the assumptions used are forecast sales growth and operating margin
in respect of Newark, which is the largest reporting unit where impairment has
arisen under the FAS 142 transitional test. For each 0.1% reduction in absolute
terms of sales growth percentage and operating margin from those forecast, the
impairment of L728 million would have been increased by approximately L5 million
and L3 million, respectively.
The definite lived intangible assets of the Group recognized under US GAAP are
the customer list of the Newark and BuckHickman businesses. The lives of these
assets were reassessed on February 4, 2002 in accordance with the provisions of
FAS 142, and it was determined that no change was required to the estimated
useful lives. If actual useful life differs from estimated useful life,
variations in amortization charges would result and, in addition, the assets may
be carried in the Company's balance sheet at values different to fair values.
The estimated useful life of a customer list is the estimated average period
that each customer will buy from the business before such customer ceases to be
a customer. The most sensitive estimate used is the
31
estimated useful life of the Newark customer list acquired in 1996 which was
reassessed using available historic data of customer turnover and attrition
rates. For example, if the Newark customer list were to have a useful life of
10% less than that estimated, this would result in an increase in the annual
amortization from approximately L30 million to L34 million.
NEW ACCOUNTING STANDARDS
US GAAP. In August 2001, the US Financial Accounting Standards Board ("FASB")
issued FAS No. 143, "Accounting for Asset Retirement Obligations". The Company
adopted FAS 143, on February 3, 2003. Under FAS 143, the fair value of a
liability for an asset retirement obligation covered under the scope of FAS 143
would be recognized in the period in which the liability is incurred, with an
offsetting increase in the carrying amount of the related long-lived asset. Over
time, the liability would be accreted to its present value, and the capitalized
cost would be depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity would either settle the obligation for
its recorded amount or incur a gain or loss upon settlement. Adoption of FAS 143
did not have a significant impact on the Group's results of operations or
financial position as of February 3, 2003, because the Group does not currently
have any contractual arrangements under which an asset retirement obligation
exists.
In April 2002, FAS 145, "Rescission of FAS 4, 44 and 64, Amendment to FAS 13,
and Technical Corrections," was issued. This statement updates, clarifies and
simplifies existing accounting pronouncements. It rescinds FAS 4, which required
all gains and losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of related taxes. Upon
adoption, the criteria in Accounting Principles Board ("APB") 30 will be used to
classify such gains and losses. Gains or losses on extinguishment of debt that
were classified as extraordinary in prior periods presented that do not meet APB
30 criteria for classification as extraordinary must be reclassified into
earnings from operations. FAS 145 also rescinds FAS 64, which amended FAS 4 and
FAS 44, which established accounting requirements for the transition of the
Motor Carrier Act of 1980. FAS 145 amends FAS 13 to require that certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. The Company
has adopted FAS 145 effective February 3, 2003. The provisions of the standard
relating to sale and leaseback accounting are not expected to have a significant
impact on the Group's results of operations because the Company does not
currently have any transactions that would be implicated under this standard.
The provisions of the standard relating to gain or loss recognition on
extinguishment of debt will need to be considered in Fiscal 2003 in respect of
the gain/loss recognized on the Preference Share repurchase because the Company
has repurchased additional Preference Shares since February 3, 2003.
In July 2002, FAS 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued. This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". FAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred and that
32
an entity's commitment to a plan, by itself, does not create a present
obligation to others that meets the definition of a liability. FAS 146 is
effective prospectively for exit or disposal activities initiated after December
31, 2002, and the Company adopted the statement effective February 3, 2003.
Adoption did not have a significant impact on the Group's results of operations,
financial position or liquidity. FAS 146 changes the timing of liability and
expense recognition but not the ultimate amount of those expenses.
In December 2002, FAS 148 "Accounting for Stock-Based Compensation - transition
and disclosure" was issued. This statement amends transitional and certain
disclosure provisions FAS 123 "Accounting for Stock-Based Compensation," but
does not amend the recognition provisions of FAS 123. FAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. FAS 148 also
requires more prominent and more frequent disclosure in the financial statements
about the effects of stock-based compensation. The Company already accounts for
stock-based compensation in accordance with FAS 123 and therefore adoption of
FAS 148 effective February 3, 2003 did not have a significant impact on the
Group's results of operations, financial position or liquidity.
In April 2003, the FASB issued FAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." FAS No.
149 is effective prospectively for contracts entered into or modified after June
30, 2003 and prospectively for hedging relationships designated after June 30,
2003. The Company is currently analyzing the impact of this statement, but does
not believe that it will have a material impact on its results of operations or
financial position upon adoption.
In May 2003, the FASB issued FAS No. 150, "Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity and requires that these
instruments be classified as liabilities in statements of financial position.
This statement is effective prospectively for financial instruments entered into
or modified after May 31, 2003 and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. This statement shall be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
statement and still existing at the beginning of the interim period of adoption.
The Company is currently analyzing the impact of this statement.
In November 2002, Financial Accounting Standard ("FIN") 45 "Guarantor's
Accounting and Disclosure requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," was issued. This Interpretation expands
the guidance of FAS 5, FAS 57, and FAS 107 and incorporates without change the
provisions of FIN 34, which is now superseded. FIN 45 elaborates on the existing
disclosure requirements for most guarantees, including loan guarantees such as
standby letters or credit. It also clarifies that at the time the Company issues
a guarantee,
33
the Company must recognize an initial liability of the fair value, or market
value, of the obligations it assumes under that guarantee for those guarantees
subject to the recognition provisions of the Interpretation and must disclose
that information in its interim and annual financial statements. The initial
recognition and measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002, regardless of the
guarantor's fiscal year end. Adoption of FIN 45 has not had a significant impact
on the Group's results of operations, financial position or liquidity. The Group
has adopted the disclosure standards, performed a review and determined that
there is nothing to disclose as a result.
In January 2003, FIN 46 "Consolidation of Variable Interest Entities," was
issued. FIN 46 requires that companies that control another entity through
interests other than voting interests should consolidate the controlled entity
where the Company is considered to be the Primary Beneficiary to the arrangement
or disclose the nature of the interest in the entity where the Company is
considered to have a significant interest in the entity. FIN 46 applies to
variable interest entities created after January 31, 2003 and to variable
interest entities in which an enterprise obtains an interest after that date.
The related disclosure requirements are effective immediately and are given in
Note 25 of the Notes to the Consolidated Financial Statements included in Part
III in this Annual Report. Adoption of FIN 46 has not had a significant impact
on the Group's results of operations, financial position or liquidity.
UK GAAP. On November 30, 2000, the UK Accounting Standards Board ("ASB") issued
Financial Reporting Standard ("FRS") 17, "Retirement Benefits." FRS 17
introduces a different approach to accounting for defined benefit pension
schemes. At each year end the pension scheme assets are to be measured at market
value, the pension scheme liabilities are to be measured at a present value
using a specified actuarial valuation method and discounted at a corporate bond
rate, the resulting surplus or deficit of which is to be shown on the balance
sheet. The FRS redefines what should be reported as operating costs, including
an annual "current service cost" (which is no longer reduced or increased by
spreading forward surpluses or deficits). The expected return on scheme assets
less the notional interest cost on the scheme liabilities is included as other
finance costs (or income) adjacent to interest. Actuarial gains and losses from
year to year are to be recognized immediately in the statement of total
recognized gains and losses.
Implementation rules require balance sheet disclosures in Fiscal 2001, balance
sheet and income statement disclosures in Fiscal 2002 and full implementation in
Fiscal 2003. However, in December 2002, the ASB extended the transitional
arrangement for FRS 17, although the disclosure requirements remain in place.
Fiscal 2002 disclosures in accordance with FRS 17 are given in Note 21 to the
Consolidated Financial Statements found in Part III of this Annual Report. If
FRS 17 had been fully adopted in Fiscal 2002, net income before tax would have
been reduced by L3.2 million, which is the net of L10.2 million charged to
operating income and L7.0 million credited to interest. The consolidated net
assets would have been reduced by L31.1million.
34
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS AND SENIOR MANAGEMENT
BOARD OF DIRECTORS
SIR MALCOLM BATES, 68, was appointed Chairman (Non-Executive) in 1997. He is
also Chairman of the Company's Nominations Committee as well as a member of the
Audit, Remuneration and Organization and Management Development Committees. Sir
Malcolm also serves as Chairman of London Transport and AMP (UK) plc (includes
AMP Pearl Assurance, NPI and AMP London Life). He is Non-Executive Director of
AMP Ltd (Australia).
JOHN R. HIRST, 50, was appointed Group Chief Executive in 1998 and serves as a
member of the Company's Nominations and Organization and Management Development
Committees. Mr. Hirst was previously with Imperial Chemical Industries plc,
where he spent 19 years and held a number of senior posts, including divisional
Chief Executive of ICI Performance Chemicals, Chief Executive of ICI Autocolor
and Group Treasurer.
ANDREW C. FISHER, 45, was appointed Group Finance Director in 1994. Mr. Fisher
was previously a partner with Price Waterhouse.
SIR ROBERT HORTON, 63, was appointed Non-Executive Director in 1995 and Deputy
Chairman in June 2002 and serves as Chairman of the Company's Organization and
Management Development Committee and is a member of the Nominations Committee.
Sir Robert is also the Non-Executive Chairman of Chubb plc and a Non-Executive
Director for Emerson Electric Co. (US). He served formerly as Chairman of
Railtrack plc and Chairman and Chief Executive Officer of BP.
MICHAEL LESTER, 63, was appointed Non-Executive Director in 1998. He serves as
Chairman of the Company's Remuneration Committee and is a member of the Audit
Committee. Mr. Lester is also a Director of BAE Systems plc and was formerly a
Director and Vice Chairman for The General Electric Company plc.
CARY J. NOLAN, 60, was appointed Non-Executive Director in 1999 and also serves
as a member of the Company's Audit and Remuneration Committees. Mr. Nolan was
formerly President, Chief Executive Officer of Marconi Medical, Cooper Surgical
and Picker International Inc. and President of Xerox Medical Systems Division.
He is a Non-Executive Director of Toshiba Medical and Tomotherapy Inc.
D. JOHN S. ROQUES, 64, was appointed Non-Executive Director in 1999. He is
Chairman of the Company's Audit Committee and is a member of the Remuneration
Committee. Mr. Roques is Chairman of Portman Building Society and Non-Executive
Director for BBA Group plc and Chubb plc. He was formerly the senior partner of
Deloitte & Touche.
WILLIAM B. KORB, 63, was appointed Non-Executive Director in January 2003 and
serves on the Company's Remuneration and Organization and Management Development
Committees. Mr. Korb
35
was President and CEO of Gilbarco Incorporated and is a Non-Executive Director
of Cambrex Corporation.
The above list does not include Morton L. Mandel and Patrick F. Sullivan, both
of whom resigned from the Board of Directors as of June 12, 2002. Mr. Mandel, a
co-founder of Premier, was appointed Deputy Chairman (Non-Executive) in 1996 and
served on the Company's Audit and Remuneration Committees. Mr. Sullivan was
appointed Non-Executive Director in 1999 and served on the Company's Nominations
and Organization and Management Development Committees.
SENIOR MANAGEMENT
LAURENCE BAIN, 49, joined the Group in July 2002 as Chief Operating Officer. Mr.
Bain was previously Vice President and Director of Operations for the Personal
Communication Sector of Motorola in Europe, Middle East and Africa.
PETER COSTELLO, 57, joined the Group in 1995 and is Chief Executive of the North
American operations of the Industrial Products Division. Mr. Costello was
previously Chief Executive of the Group's former Product Manufacturing Division
and was appointed Chief Executive of the Industrial Products Division in 1998.
CHRISTOPHER C. HAWORTH, 45, joined CPC in 1975, where he was Managing Director
when it was acquired by the Group in 1995. Mr. Haworth was appointed Chief
Operations Officer of Farnell in December 2000 and is currently Chief Operating
Officer, Marketing and Distribution Division, Europe and Asia Pacific.
GRAHAM JOHNSON, 43, joined the Group in April 2002 and is the Group Director,
Information Technology and Business Systems. Mr. Johnson was formerly a Senior
Consultant for PricewaterhouseCoopers.
BRIAN LEWIS, 57, was appointed Group Director, Human Resources in 1999. Mr.
Lewis was previously Corporate Vice President, Human Resources at Borealis A/S
and Vice President, Human Resources at Coca Cola South-East and West Asia.
NICHOLAS ROSS, 55, was appointed Group Director, Communications in July 2000.
Mr. Ross was formerly Chief Executive Industrial Products Division, Europe and,
prior to that, Director of Business Development. He joined the Group in 1985.
MIKE RUPRICH, 47, was appointed Chief Executive of Newark Electronics in 1999.
His current role is Chief Executive, Marketing and Distribution Division,
Americas. Mr. Ruprich was previously President and Chief Executive of JLK Direct
Distribution, Inc.
MATTHEW TOOGOOD, 39, was appointed Group Director of Strategic Marketing and
Planning in February 2003. Mr. Toogood joined Premier Farnell in March 2000 and
was formerly Strategic Marketing Director for the Marketing and Distribution
Division, Europe and Asia Pacific.
36
STEVEN WEBB, 40, was appointed Company Secretary and General Counsel in December
2000. Mr. Webb was previously Company Secretary and General Counsel of Kelda
Group plc and Company Secretary of Kalon Group plc.
The Senior Managers listed above, together with Mr. Hirst and Mr. Fisher, form
the Group Leadership Team. The above list does not include Angela Walker, Group
Director, Strategic Marketing and Planning or Angus Fraser, Chief Executive of
Farnell, who resigned on September 27, 2002 and November 12, 2002, respectively.
There are no family relationships between any current director or executive
officer and any other current director or executive officer of the Company.
In connection with the acquisition of Premier in Fiscal 1996, Jack N. Mandel,
Joseph C. Mandel and Morton L. Mandel and certain revocable trusts controlled by
them (collectively, the "Shareholder Parties") and Farnell Electronics PLC
entered into a Shareholders Agreement (the "Shareholders Agreement"), which
became effective upon consummation of the acquisition. The Shareholders
Agreement provides, among other things, that the Shareholder Parties thereto
will be entitled to present two candidates for nomination as directors to the
Company's Board of Directors. The Shareholders Agreement further provides that,
for any such time as the aggregate beneficial ownership of Voting Securities (as
defined in the Shareholders Agreement) of the Shareholder Parties and the
Related Parties (as defined in the Shareholders Agreement) (together, the
"Reference Group") represents less than 12.5% of the Total Voting Power (as
defined in the Shareholders Agreement) all on a fully-diluted basis, such number
of candidates will be reduced to one. If at any time the aggregate beneficial
ownership of Voting Securities of the Reference Group represents less than 5% of
the Total Voting Power, all on a fully-diluted basis, the Shareholder Parties
will no longer have any entitlements to present candidates for nomination. As of
April 1, 2003, the aggregate beneficial ownership of voting securities of the
Reference Group was below the 5% threshold.
COMPENSATION
General. The Remuneration Committee of the Premier Farnell Board is comprised
entirely of non-executive directors. The Committee makes recommendations to the
Board on the Group's framework of executive compensation and its cost and
determines the specific remuneration packages for executive directors and
certain executive officers. The remuneration of the non-executive directors is
determined by the Board as a whole.
The components of the Company's remuneration packages for executive directors
and executive officers include salary, performance-related bonuses, various
employee share schemes, and pension arrangements. The annual bonus scheme is
linked to achievement of financial performance and individual targets.
Performance targets are reviewed by the Remuneration Committee at the
commencement of each Fiscal Year.
For Fiscal 2002, the aggregate compensation (including salary, fees and bonuses,
but excluding share scheme awards, pensions and other benefits) paid by Premier
Farnell to all directors and executive
37
officers as a group for all services in all capacities was L3,228,802.
This figure includes compensation paid to Ms. Walker and Messrs. Mandel,
Sullivan and Fraser, who are identified above.
The following table sets forth the remuneration in pounds sterling of individual
executive and non-executive directors of Premier Farnell for Fiscal 2002:
OTHER
EMOLUMENTS
SALARY ANNUAL INCLUDING TOTAL PENSION
OR FEES BONUS BENEFITS EMOLUMENTS CONTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------
(IN L000)
EXECUTIVE
John R. Hirst 356 225 25 606 262
Andrew C. Fisher 235 116 18 369 87
NON-EXECUTIVE
Sir Malcolm Bates (Chairman) 100 - - 100 -
Sir Robert Horton 35 - - 35 -
William B. Korb (1) 1 - - 1 -
Michael Lester 28 - - 28 -
Morton L. Mandel (2) 10 - - 10 -
Cary J. Nolan 26 - - 26 -
D. John S. Roques 28 - - 28 -
Patrick F. Sullivan (2) 10 - - 10 -
- ---------------------------------------------------------------------------------------------------------------
Total 829 341 43 1,213 349
- ---------------------------------------------------------------------------------------------------------------
(1) Appointed January 21, 2003
(2) Resigned June 12, 2002
PENSION CONTRIBUTIONS
The final salary section of the Premier Farnell UK Pension Scheme (the "UK
Scheme") was closed to new entrants during 1998. Employees who were entitled to
final salary benefits as members of the UK Scheme at December 31, 1998 now
receive benefits through a combination of final salary benefits funded by the UK
Scheme and the Premier Farnell Corp. Master Pension Plan (the "US Plan"). In
addition, contributions are made to a new money purchase arrangement within the
UK Scheme. Employees joining the UK Scheme since January 1, 1999 are entitled to
money purchase benefits only, and the UK Scheme is no longer "contracted out".
Mr. Hirst and Mr. Fisher are each entitled to a combination of final salary and
money purchase benefits under the arrangements set out above up to the limit of
the Inland Revenue earnings cap (currently L97,200). Company contributions
payable into the money purchase arrangement on their behalf amount to 18.5% of
the earnings cap for Mr. Hirst and 14.3% of the earnings cap for Mr. Fisher,
with each making an employee contribution equal to 3% of the earnings cap.
The Company makes further contributions on behalf of Mr. Hirst and Mr. Fisher to
unapproved schemes, determined by reference to the excess of their salaries over
the earnings cap. The cost to the
38
Company of these further contributions was L244,161 (2001:L142,840) for Mr.
Hirst and L72,697 (2001:L60,888) for Mr. Fisher.
The following table sets out the final salary pension benefits accruing to
executive directors.
ADDITIONAL FINAL
FINAL SALARY SALARY PENSION TRANSFER VALUE TRANSFER VALUE
PENSION EARNED DURING THE OF FINAL SALARY OF FINAL SALARY (B-A) -
ACCRUED AS AT YEAR INCLUDING BENEFITS AS AT BENEFITS AS AT DIRECTOR'S
FEBRUARY 2, INFLATION (EXCLUDING FEBRUARY 3, 2002 FEBRUARY 2, 2003 CONTRIBUTIONS
2003 (1) INFLATION) (2) (3) (A) (3) (B) (4)
- ----------------------------------------------------------------------------------------------------------
L p.a. L p.a. L L L
John R. Hirst 6,030 1,172 (1,089) 50,319 42,328 (7,991)
Andrew C. Fisher 18,382 1,400 (1,111) 135,523 96,861 (38,662)
- ----------------------------------------------------------------------------------------------------------
(1) The accrued final salary pension shown at February 2, 2003 is the combined
figure for the UK Scheme and the US Plan accruals and is the amount that the
executive director would be entitled to from normal retirement age if he
left service at the end of the year.
(2) The increase in final salary pension during the year is the increase over
the figure disclosed for Fiscal 2001.
(3) All transfer values have been calculated on the basis of actuarial advice.
The transfer values of the accrued entitlement represent the value of assets
that the UK Scheme would need to transfer to another pension provider on
transferring the UK Scheme's liability in respect of the executive
director's final salary pension benefit. Such values do not represent sums
payable to individual executive directors and therefore they cannot be added
meaningfully to annual remuneration.
(4) The table above shows transfer values at the beginning and the end of the
year. The decrease in transfer value is related to the substantial decline
in equity markets. Members' contributions paid during the year were paid
into the money purchase arrangement within the UK Scheme and as such are not
included in the transfer value.
- ----------------
OUTSTANDING OPTIONS
As of May 1, 2003, the Company had an aggregate of 7,373,818 options for
Ordinary Shares outstanding under all share option schemes of the Company, at
exercise prices ranging from 153p to 688p and with expiration dates ranging from
May 2003 to October 2012. As of May 1, 2003, the directors and executive
officers as a group (17 persons) held 1,998,464 such options for Ordinary Shares
(of which 716,810 were granted in Fiscal 2002) at exercise prices ranging from
153p to 688p and with expiration dates ranging from May 2003 to October 2012.
The following table shows, as of May 1, 2003, information with respect to
options to acquire Ordinary Shares issued under the Company's various option
schemes and held by those individually
39
named directors as to whom such information is otherwise made publicly
available. Shares awarded under the Company's Long Term Incentive Plan are shown
on a separate table below.
NUMBER OF
SHARES UNDER
OPTION EXERCISE PRICE EXERCISE PERIOD
- -----------------------------------------------------------------------------------------------------------------
John R. Hirst 300,000 305p July 2001 to July 2008
70,000 192p March 2002 to March 2009
125,000 (1) 153p October 2005 to October 2012
- -----------------------------------------------------------------------------------------------------------------
Andrew C. Fisher 30,000 682p May 2000 to May 2007
57,856 551p May 1998 to May 2005
73,000 192p March 2002 to March 2009
75,000 (1) 153p October 2005 to October 2012
- ----------------
(1) Granted in Fiscal 2002.
LONG TERM INCENTIVE PLAN
The following table shows, as of May 1, 2003, information with respect to awards
of Ordinary Shares made under the Company's Long Term Incentive Plan for the
directors as to whom such information is otherwise made publicity available. As
of May 1, 2003, the directors and executive officers as a group (17 persons)
held 910,676 options (539,894 granted in Fiscal 2002) under the Long Term
Incentive Plan.
NUMBER OF SHARES END OF PERFORMANCE
GRANTED PERIOD
- -----------------------------------------------------------------------------------------
John R. Hirst 95,541 January 2004
94,964(1) January 2005
- -----------------------------------------------------------------------------------------
Andrew C. Fisher 63,964 January 2004
61,870(1) January 2005
- ------------------------------------
(1) Granted in Fiscal 2002.
40
BOARD PRACTICES
Directors may be appointed by the shareholders at a general meeting or by the
Board itself, provided that any director appointed by the Board is required to
retire from office (but is eligible to stand for reappointment by the
shareholders) at the Annual General Meeting of the Company next following his
appointment. Directors are also required to retire at least every three years
and may stand for reappointment at the Annual General Meeting for that year.
Subject to the provisions of the Companies Act of 1985, as amended by the
Companies Act of 1989 (the "Companies Act"), the Board may from time to time
appoint one or more directors to an executive office on such terms and for such
period as it may determine.
In accordance with the Company's policy, each of Mr. Hirst and Mr. Fisher have
service contracts with the Company which are terminable by either the Company
and the executive director on 12 months' notice. Mr. Hirst's contract allows the
Company to make a payment in lieu of notice and Mr. Fisher's contract contains
provisions entitling him to a payment equal to 12 months' salary and benefits in
the event of early termination. The Company's policy is generally not to include
this type of provision and to endeavor to minimize any payment on early
termination by insisting on mitigation of any loss. The provisions in Mr.
Fisher's contract were agreed as part of the reduction in his notice period from
24 months during 2001.
AUDIT COMMITTEE
The Audit Committee consists of Mr. John Roques (Chairman), Sir Malcolm Bates,
Mr. Michael Lester and Mr. Cary Nolan. All members of the Audit Committee are
non-executive directors and are considered to be independent. The primary role
of the Audit Committee is to keep under review the Group's financial and other
systems and controls and its financial reporting procedures. In fulfilling this
role, the Audit Committee receives and reviews work carried out by the internal
and external auditors and their findings. The Company's internal audit
department operates pursuant to an annual program developed in consultation with
the Audit Committee, as well as covering specific matters arising during the
year. The Audit Committee also keeps the scope and cost effectiveness of both
the internal audit function and the external audit under review.
REMUNERATION COMMITTEE
The Remuneration Committee consists of Mr. Michael Lester (Chairman), Sir
Malcolm Bates, Mr. Cary Nolan, Mr. John Roques and Mr. William Korb. All members
of the Remuneration Committee are non-executive directors and are considered to
be independent. The Chief Executive attends meetings of the Remuneration
Committee to discuss the performance of other executives and to make proposals
where necessary, but is not present when his own position is discussed. The
Remuneration Committee makes recommendations to the Board on the Group's
framework of executive remuneration and its cost. The Remuneration Committee
determines the specific remuneration packages for executive directors and the
other senior executives who form the Group Leadership Team.
41
EMPLOYEES
As of February 2, 2003, the total number of employees was 4,976, consisting of
3,984 for the Marketing and Distribution Division, 948 for the Industrial
Products Division and 44 for the executive office. Of the total number of
employees, 2,022 were in North America, 1,947 were in the UK and 1,007 were
elsewhere throughout the world.
The average number of employees for Fiscal 2000, Fiscal 2001 and Fiscal 2002 are
included in Note 6 to the Consolidated Financial Statements of Premier Farnell,
which are included at Part III in this Annual Report.
The disposal of the D-A Lubricant business on June 28, 2002 reduced the number
of employees in the Industrial Products Division by approximately 100, all of
whom were based in North America.
As of February 2, 2003, approximately 170 employees at the Akron Brass US
facilities were covered by collective bargaining agreements. Approximately 13 of
those employees are covered by a collective bargaining agreement which expires
in October 2003. Management intends to negotiate a new agreement with the
bargaining unit representing such employees. There can be no assurance that the
parties will complete the negotiation of a new agreement prior to the expiration
of the current agreement. As required by national legislation, the Company
complies with a number of national collective agreements across mainland Europe.
SHARE OWNERSHIP
This paragraph and the following table are based on the most recent information
provided to Premier Farnell under the Companies Act and may not represent the
beneficial ownership of such persons under the rules of the Securities and
Exchange Commission. As of May 1, 2003, the total amount of Ordinary Shares
beneficially owned by the directors and executive officers as a group (17
persons) was 2,622,584 Ordinary Shares, which was 0.72% of the Ordinary Shares
outstanding on May 1, 2003 (362,438,230 Ordinary Shares). Included in the number
of Ordinary Shares held by the directors and executive officers as a group are
2,322,998 shares held by the Group's US pension plans over which Mr. Costello
shares voting and dispositive power by virtue of his role on the Pension
Advisory Committee of such plans. This also includes options to purchase 20,000
Ordinary Shares at an exercise price of 356p with an expiration date of May 2003
and 43,586 Ordinary Shares that were owned by the spouses of certain of the
directors and executive officers on that date. As of May 1, 2003, no Preference
Shares were owned by the directors and executive officers as a group. The
following table details the number of Ordinary Shares owned by the executive and
non-executive directors of the Company as of May 1, 2003:
42
NAME ORDINARY SHARES (1) PERCENT OF CLASS
---- ------------------- ----------------
Sir Malcolm Bates 35,000 *
Andrew C. Fisher 80,000 *
John R. Hirst 66,050 *
Sir Robert Horton 13,000 *
William B. Korb 10,000 *
Michael Lester 30,000 *
Cary J. Nolan 7,000 *
D. John S. Roques 10,000 *
- ----------------------
* Indicates beneficial ownership of less than 1% of the Ordinary Shares of the
Company outstanding on May 1, 2003.
(1) Based on the total number of Ordinary Shares of the Company outstanding on
May 1, 2003 (362,438,230 Ordinary Shares).
BRIEF DESCRIPTION OF SHARE OPTION SCHEMES AND LONG TERM INCENTIVE PLAN
General. Premier Farnell operates two share option schemes, the Savings Related
Share Option Scheme and the Executive Share Option Scheme 2003 (the "2003 Option
Scheme"), as well as a Long Term Incentive Plan, each of which is summarized
below.
Overall limits govern the number of shares which can be issued under options
granted or awards made under the option schemes and the Long Term Incentive
Plan. These limits provide that: the number of shares issued or issuable
pursuant to options granted or awards made in the preceding 10 years under all
option schemes and the Long Term Incentive Plan cannot exceed 10% of the
Company's issued share capital; the number of shares issued or issuable pursuant
to options granted or awards made in the preceding 10 years under the Company's
executive share option schemes (the Approved Scheme (as defined below), the
Unapproved Scheme (as defined below) and the 2003 Option Scheme) and the Long
Term Incentive Plan cannot exceed 5% of the Company's issued share capital; and
the number of shares issued or issuable pursuant to options granted or awards
made in the preceding 5 years under all option schemes and the Long Term
Incentive Plan cannot exceed 5% of the Company's issued share capital.
In each case, the period of years referred to is that immediately preceding a
proposed grant of options or award of shares and the Company's issued share
capital is that which is outstanding at the time of the proposed grant or award.
Executive Share Option Scheme 2003. The 2003 Option Scheme was approved by
shareholders at the Company's Annual General Meeting in June 2003. The 2003
Option Scheme replaced, for options granted after its adoption, an executive
share option scheme approved by Inland Revenue adopted in June 2001 (the
"Approved Scheme") and an executive share option scheme, which did not qualify
for the same UK tax benefits as the Approved Scheme, adopted in June 1996 (the
43
"Unapproved Scheme"), the terms of which are identical in all material respects
to the 2003 Option Scheme, except as provided below under "Executive Share
Option Scheme 2003 - Performance conditions." The Approved Scheme replaced the
Company's expired Inland Revenue approved executive option scheme (the "Original
Scheme"). No further option grants will be made under the Approved Scheme, the
Unapproved Scheme or the Orginal Scheme.
Eligibility. All employees and full time executive directors of the Company and
its subsidiaries who are required to devote substantially the whole of their
working time to the business of the Group are eligible to be granted options
under the 2003 Option Scheme, at the discretion of the Remuneration Committee of
the Board ("the Committee").
Grant of Options. Options to acquire Ordinary Shares may normally only be
granted during the period of six weeks following the approval of the 2003 Option
Scheme by shareholders and thereafter within six weeks after the announcement by
the Company of its results for any period, or any day on which the Committee
determines that exceptional circumstances justify a grant. No payment is
required for the grant of an option.
Options entitle the option holder to acquire Ordinary Shares at a price per
Ordinary Share determined by the Committee. The exercise price of options is not
less than the higher of the average middle market quotations of an Ordinary
Share on the business day immediately preceding the date of grant and the
nominal value of an Ordinary Share.
Performance Conditions. Exercise of grants under the 2003 Option Scheme will be
subject to a performance condition. This condition for the first year in which
options are granted will be that the growth in the Company's earnings per share
over the three consecutive financial years starting with the year of grant
exceeds the growth in the Retail Price Index ("RPI") over the same period by at
least 9%. At this level of performance half of the options granted would be
exercisable. Exercise of all options granted will require that the Company's
earnings per share growth exceeds RPI over the period by at least 15%, with a
sliding scale for performance between 9% and 15%. If the performance condition
is not met over this three year period, options may also be exercised if the
Company's earnings per share growth exceeds RPI by a minimum of 12% over the
four financial years starting with the year of grant. The same sliding scale for
exercise will apply for performance between 12% and 20%. If the performance
target is not met by the fourth year, the relevant options will lapse.
Options granted to participants under the Approved Scheme and Unapproved Scheme
are not normally exercisable unless a specified performance condition has been
satisfied. Under the terms of the Approved and Unapproved Schemes, options
granted after March 13, 2001 may not be exercised unless the growth in the
Company's earnings per share over a period of three consecutive financial years
exceeds the growth in the RPI over the same period by at least 9%. For options
granted under these schemes after June 20, 1996, but before March 14, 2001,
exercise is subject to the growth in earnings per share over three consecutive
years exceeding the growth in RPI over the same period by at least 6%. For
options granted under these schemes before June 20, 1996, earnings per share
growth over three consecutive years must match the growth in RPI over the same
period before options can be exercised.
44
Options granted under the Original Scheme after June 1991 are subject to a
performance target requiring the percentage growth in the Company's annualized
earnings per share over any consecutive three years to exceed the growth in the
RPI over the same period. Options granted under the Original Scheme after June
1996 are subject to a performance target requiring the percentage growth in
earnings per share over any consecutive three years to exceed the growth in the
RPI over the same period by at least 6%.
Exercise of Options. Options may normally be exercised between the third and
tenth anniversaries of the date of grant, at the end of which period they will
lapse. They will generally only be exercisable if the performance conditions
that apply to them have been satisfied.
General. Options are not transferable and may only be exercised by the persons
to whom they were granted or their personal representatives. Ordinary Shares
allotted or transferred under the above referenced option schemes will rank pari
passu with Ordinary Shares then outstanding (except in respect of entitlements
arising prior to the date of allotment).
Savings Related Share Option Schemes. In 1994, the Company's shareholders
approved the introduction of a Savings Related Share Option Scheme for UK
employees (the "UK Scheme"), approved by the UK Inland Revenue. At the same
time, the introduction of a Savings Related Share Option Scheme for overseas
employees (the "Overseas Scheme"), based on the UK Scheme but not approved by
the UK Inland Revenue, was also approved by the Company's shareholders. On June
20, 1996, the Company's shareholders authorized the directors to establish a
separate Savings Related Share Option Scheme for US employees (the "US Scheme").
Under the UK Scheme, all full-time employees in the UK with at least one year of
continuous service are eligible to apply for options under invitations which may
be made following the announcement of the Company's final or interim results. In
order to be granted an option, a participant must take out a savings contract
under which he contributes between L5 and L250 per month, at present rates, for
a minimum specified period of three or five years. Options are granted with
respect to Ordinary Shares having an aggregate exercise price equal to the total
savings, plus a bonus paid at the end of the savings period, under the related
savings contract.
The price per share payable on the exercise of options granted under the UK
Scheme is not less than 80% of the market value of Ordinary Shares on the day
prior to the date on which invitations to apply for options are issued or, if
greater, the nominal value of such shares. Options, which are not transferable,
may normally be exercised during the six-month period following completion of
the related savings contract, using the repayment of the savings together with
the bonus. Options may be exercised earlier in certain prescribed circumstances,
but then only to the extent that Ordinary Shares can be acquired with savings
made under the related savings contract.
The Overseas Scheme and the US Scheme do not contain provisions required to
obtain UK Inland Revenue approval, but in all other material respects
incorporate the relevant terms of the UK Scheme. Provisions are included in the
Overseas Scheme and the US Scheme to permit the grant of options on special
terms in order to conform with or take advantage of any relevant applicable
legislation, for example, in relation to taxation, securities or exchange
control. These provisions, however, do not enable options to be granted on more
favorable terms than those granted under the UK Scheme.
45
Long Term Incentive Plan. Only executive directors and senior executives who
work full-time for the Group are eligible to participate in the Long Term
Incentive Plan (the "Plan").
Operation of the Plan. The Plan is operated in conjunction with an employee
discretionary trust known as the Premier Farnell Executive Trust ("the Trust").
The Trust acquires and holds Ordinary Shares and ADRs required to satisfy awards
under the Plan. Existing Ordinary Shares may be acquired on the London Stock
Exchange or in the form of Ordinary ADRs on the New York Stock Exchange.
Additionally, new Ordinary Shares may be issued by the Company. The Trust is
constituted by a trust deed between the Company and an independent corporate
trustee ("the Trustee").
The Plan is supervised by the Committee. Under the Plan, awards may be made by
the Trustee, in its absolute discretion, to eligible employees recommended by
the Committee. The Committee also recommends to the Trustee the number of
Ordinary Shares that should be comprised in each award. Typically, awards may
only be made within the period of 42 days after the approval of the Plan by the
Company's shareholders and thereafter following the announcement by the Company
of its results for any period (or, in exceptional circumstances, at such other
time as the Committee determines to be appropriate). In connection with the
amendment of the Plan, at the Annual General Meeting on June 11, 2003,
shareholders approved an amendment to the Plan that allows the granting of
awards within the 42-day period following any amendment to the Plan that is
approved by shareholders. Awards are made for no monetary consideration. No
awards may be made more than ten years after the adoption of the Plan.
The Ordinary Shares required to satisfy participants' entitlements under the
Plan are either existing Ordinary Shares (held by the Trust) or newly issued
Ordinary Shares. The Plan participant will have no dividend or voting rights in
respect of these shares until they are released to him. The Company and any
relevant subsidiaries provide sufficient funds, by way of gift, to the Trustee
to enable it to fulfill its obligations under the Plan.
Participants' Entitlements. The maximum number of Ordinary Shares for which an
award may be granted to an eligible employee in any financial year (calculated
by reference to the market value of those Ordinary Shares at the date of the
award) shall not exceed 100% of the participant's base salary. Awards are made
annually, provided this is justified by corporate and individual performance.
Benefits under the Plan are not pensionable.
Performance Conditions. Each award under the Plan is subject to performance
conditions that will determine how many (if any) of the Ordinary Shares under
the award will be released to the participant after the three-year performance
period.
The main performance condition compares the growth in the Company's total
shareholder return ("TSR") over a three-year period to that of the companies in
the FTSE mid-250 index (excluding investment trusts) at the start of the
performance period. TSR is the aggregate of share price growth and dividends
paid (assuming that such dividends are reinvested in Ordinary Shares during the
three-year period). A performance period is a period of three consecutive years.
For grants of awards made on or before June 11, 2003, the base share price used
for TSR comparison purposes is the average share price for the twelve months
prior to the start of the performance period. The base price is
46
compared to the share price three years later determined by the average share
price for the twelve months prior to the end of the three-year period. For
grants of awards made after June 11, 2003, the base share price used for TSR
comparison purposes will be the average share price for the three months prior
to the start of the performance period and will be compared to the average share
price for the three months prior to the end of the three-year performance
period.
The Company's ranking among the comparator companies determines the percentage
of the Ordinary Shares under an award, which a participant can acquire. If the
ranking is in the top quartile of the comparator group, 100% of the Ordinary
Shares under the award can be acquired. If the ranking is at the median, only
20% of the Ordinary Shares can be acquired. If the ranking is between the median
and the top quartile, the number of Ordinary Shares is calculated on a sliding
scale between 20% and 100%. Where performance over the three-year period does
not reach the median ranking, the relevant award lapses and there is no
re-testing of performance.
In addition to the TSR performance condition, Ordinary Shares can only be
released under an award if the Committee is satisfied that the underlying
performance of the Company during the performance period justifies the release.
Subject to these conditions, Ordinary Shares under an award may be released at
any time after the end of the relevant performance period but before the tenth
anniversary of the date of award.
An award is not transferable and any release may be received only by the person
to whom the award is made (or, in the case of death, his personal
representatives).
In the event of a variation of the Company's Ordinary Share capital, the number
of Ordinary Shares subject to an award may be adjusted by the Trustee in such
manner as it sees fit.
A US-based participant will be entitled to receive a proportional number of
Ordinary ADRs in place of Ordinary Shares released pursuant to an award.
47
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
The following table provides information, as of May 1, 2003, except as otherwise
noted below, with respect to each person or institution that is known to Premier
Farnell to be a beneficial owner of more than three percent of any class of
Premier Farnell's voting securities.
2002 2001 2000
IDENTITY OF PERSON AMOUNT PERCENT OF AMOUNT PERCENT OF AMOUNT PERCENT OF
OR GROUP OWNED (1) CLASS (2) OWNED (1) CLASS (3) OWNED (1) CLASS (4)
-------- --------- --------- --------- --------- --------- ---------
AXA Investment Managers
UK Limited 26,524,384 7.32% 26,524,384 7.35% 21,468,976 7.89%
Prudential plc 22,210,668 6.12% 22,210,668 6.16% 19,573,962 7.19%
Scottish Widows 17,283,109 4.77% -- -- -- --
The Capital Group
Companies Inc 18,374,013 5.07% -- -- -- --
Standard Life Group 14,447,029 3.99% 4,447,029 4.00% -- --
HBOS plc 14,334,788 3.95% 17,527,078 4.86% -- --
Royal and Sun
Alliance Group plc 13,400,906 3.69% 13,400,906 3.71% -- --
Legal and General plc 11,110,693 3.06% 11,382,624 3.15% -- --
- ------------------
(1) Refers to Ordinary Shares of 5p each. The Ordinary Shares represent the
only class of Premier Farnell securities, which, in the ordinary course,
has voting rights in the election of directors.
(2) Based on the total number of Ordinary Shares outstanding on May 1, 2003
(362,438,230 Ordinary Shares).
(3) As reported in the Company's Annual Report on Form 20-F for Fiscal Year
2001.
(4) As reported in the Company's Annual Report on Form 20-F for Fiscal Year
2000.
48
As of May 1, 2003, 9,927,299, Ordinary Shares (including those held through
Ordinary ADSs) were held by approximately 1,528 holders (including Ordinary ADR
holders) with registered addresses in the United States, representing
approximately 2.7% of the outstanding Ordinary Shares. At the same date,
4,846,883 Ordinary ADSs (each representing 2 Ordinary Shares) were held by 1,471
registered Ordinary ADR holders in the United States.
As of May 1, 2003, 1,301,743 Preference Shares (including those held through
Preference ADSs) were held by approximately 1,298 holders (including Preference
ADR holders) with registered addresses in the United States, representing
approximately 17.18% of the outstanding Preference Shares. At the same date,
1,301,736 Preference ADSs were held by 1,297 registered Preference ADR holders
in the United States.
In calculating the number of registered shareholders, Ordinary and Preference
ADSs representing Ordinary Shares and Preference Shares, respectively, are held
of record by the Depositary's nominee, and considered as one shareholder of
record. Further, since certain of the Company's Ordinary Shares, Ordinary ADSs,
Preference Shares and Preference ADSs are held by nominees, the above numbers of
holders may not be representative of the number of beneficial owners in the
United States or of the total number of Ordinary and Preference Shares held by
them.
As far as is known to Premier Farnell, it is not directly or indirectly owned or
controlled by another corporation or by any government.
RELATED PARTY TRANSACTIONS
In addition to the enhanced conversion right under the Special Conversion Right,
Preference Shareholders were also given the opportunity, pursuant to a sale
arrangement operated by Cazenove & Co. Ltd. ("Cazenove") as agent, to sell a
proportion of the Ordinary Shares received on conversion of the Preference
Shares at a fixed price of 313 pence per Ordinary Share (the "Sale
Transaction"). Mr. Morton Mandel entered into an agreement with Cazenove
pursuant to which Mr. Mandel, members of his family and certain trusts
associated or connected with Mr. Mandel or his family (the "Mandel Holders")
agreed, subject to shareholder approval of the Special Conversion Right and Sale
Transaction, to convert a certain number of Preference Shares and to sell
pursuant to the Sale Agreement the Ordinary Shares issued upon such conversion.
Shareholder approval was obtained, and pursuant to the terms of the Sale
Transaction, the Mandel Holders converted 17,780,327 Preference Shares into
81,789,504 Ordinary Shares, which were sold to purchasers identified by
Cazenove. In addition to the Preference Shares converted by the Mandel Holders,
other holders of Preference Shares converted an additional 1,749,743 Preference
Shares pursuant to the Special Conversion Right.
Except with respect to the Special Conversion Right and Sale Transaction, there
have been no material transactions during the period beginning February 3, 2002
to April 1, 2003 to which Premier Farnell or any of its subsidiaries was or is
proposed to be a party and in which any director or executive officer, or any
shareholder identified above or any relative or spouse thereof, is known by the
Company to have had a material direct or indirect interest.
49
There is no significant outstanding indebtedness to the Company by any director
or executive officer or any associate thereof.
ITEM 8. FINANCIAL INFORMATION
See Accompanying Index to Consolidated Financial Statements on page F-1 of this
Annual Report.
LITIGATION
Although the Company is a party to certain ordinary litigation incidental to the
conduct of its business, there are no material pending legal proceedings to
which the Company or any of its subsidiaries is a party or of which any of their
property is the subject.
DIVIDEND POLICY
See "Key Information - Dividends."
SIGNIFICANT CHANGES
The unaudited quarterly financial results of the Company for the period February
3, 2003 to May 4, 2003 appear on pages 3 through 17 of the Report of Foreign
Private Issuer on Form 6-K, furnished to the Securities and Exchange Commission
on May 28, 2003.
ITEM 9. THE OFFER AND LISTING
OFFER AND LISTING DETAILS AND MARKETS
The principal trading market for the Company's Ordinary Shares and Preference
Shares is the London Stock Exchange ("LSE"). The Ordinary Shares and Preference
Shares are sometimes referred to herein collectively as the "Shares".
Trading on the LSE in the Dollar Preference Shares and, on a when issued basis,
in the Sterling Preference Shares commenced in April 1996. The following tables
set forth, for the periods indicated, the reported high and low closing middle
market quotations (which represent an average of bid and asked prices) for the
Ordinary Shares and the Preference Shares on the LSE. The following does not
reflect trading after the daily official close of the LSE for which no official
quotations exist.
50
PENCE PER ORDINARY SHARE
HIGH LOW
---- ---
FISCAL YEAR ENDED
January 31, 1999 417 140
January 30, 2000 510 178
January 28, 2001 537 355
February 3, 2002 399 161
February 2, 2003 356 129
PENCE PER ORDINARY SHARE
HIGH LOW
---- ---
FISCAL 2001 (ENDING FEBRUARY 3, 2002)
First Quarter 399 275
Second Quarter 376 234
Third Quarter 286 161
Fourth Quarter 356 206
FISCAL 2002 (ENDING FEBRUARY 2, 2003)
First Quarter 356 264
Second Quarter 328 182
Third Quarter 193 129
Fourth Quarter 226 168
FISCAL 2003 (ENDING FEBRUARY 1, 2004)
First Quarter 205 132
PENCE PER ORDINARY SHARE
HIGH LOW
---- ---
MONTH
December 2002 222 186
January 2003 211 168
February 2003 173 134
March 2003 180 133
April 2003 205 160
May 2003 201 177
51
POUNDS PER DOLLAR POUNDS PER STERLING
PREFERENCE SHARE PREFERENCE SHARE
HIGH LOW HIGH LOW
---- --- ---- ---
FISCAL YEAR ENDED
January 31, 1999 14.19 10.75 14.19 10.75
January 30, 2000 15.12 11.06 15.12 11.06
January 28, 2001 15.56 12.13 15.44 12.38
February 3, 2002 15.00 11.81 15.00 11.75
February 2, 2003 15.69 11.12 15.69 11.12
POUNDS PER DOLLAR POUNDS PER STERLING
PREFERENCE SHARE PREFERENCE SHARE
FISCAL 2001 (ENDING FEBRUARY 3, 2002)
First Quarter 13.75 12.38 13.75 12.38
Second Quarter 15.00 13.25 15.00 13.31
Third Quarter 13.50 11.94 13.37 11.88
Fourth Quarter 14.00 11.81 13.94 11.75
FISCAL 2002 (ENDING FEBRUARY 2, 2003)
First Quarter 15.69 13.88 15.69 13.88
Second Quarter 15.00 12.25 15.00 12.25
Third Quarter 12.06 11.50 12.06 11.50
Fourth Quarter 12.06 11.25 12.06 11.25
FISCAL 2003 (ENDING FEBRUARY 1, 2004)
First Quarter 12.37 11.37 12.37 11.37
POUNDS PER DOLLAR POUNDS PER STERLING
PREFERENCE SHARE PREFERENCE SHARE
HIGH LOW HIGH LOW
---- --- ---- ---
MONTH
December 2002 12.06 11.62 12.06 11.62
January 2003 12.00 11.56 12.00 11.56
February 2003 11.68 11.37 11.68 11.50
March 2003 12.12 11.37 12.12 11.50
April 2003 12.37 12.02 12.37 11.92
May 2003 12.87 12.25 12.87 12.31
52
Ordinary ADSs, evidenced by Ordinary ADRs, and Dollar Preference ADSs, evidenced
by Dollar Preference ADRs, are outstanding pursuant to American Depositary
Receipt programs established by the Company in April 1996 with the Depositary.
As discussed in "Key Information - Dividends," holders of Dollar Preference
Shares (or Dollar Preference ADSs) may elect a changeover thereof into either
Sterling Preference Shares or American Depositary Shares, each representing one
Sterling Preference Share ("Sterling Preference ADS") and evidenced by American
Depositary Receipts ("Sterling Preference ADRs") under the American Depositary
Receipt programs.
The Ordinary ADSs and the Dollar Preference ADSs have been listed and traded on
the New York Stock Exchange ("NYSE") under the symbols PFP and PFP PR,
respectively, since April 12, 1996. Sterling Preference ADSs are not listed on
the NYSE, although the Company may, but is not obligated to, apply for NYSE
listing of Sterling Preference ADSs in the future if the number of holders of
Dollar Preference ADSs electing to make a changeover into Sterling Preference
ADSs is sufficient to meet NYSE listing requirements.
The following tables set forth, for the periods indicated, the reported high and
low sales prices for the Ordinary ADSs (each representing two Ordinary Shares)
and the Dollar Preference ADSs (each representing one Dollar Preference Share)
as reported on the NYSE composite tape. Fluctuations in the exchange rates
between the pound sterling and the US dollar will affect the dollar equivalents
of the pound sterling price of the Ordinary Shares on the London Stock Exchange
and, as a result, are likely to affect the market prices of the Ordinary ADSs in
the US.
US DOLLARS
PER ORDINARY ADS PER DOLLAR PREFERENCE
ADS
HIGH LOW HIGH LOW
---- --- ---- ---
FISCAL YEAR ENDED
January 31, 1999 14.25 4.75 23.50 15.06
January 30, 2000 16.25 5.69 25.47 15.88
January 28, 2001 15.75 10.38 23.42 17.00
February 3, 2002 12.00 4.58 21.15 16.60
February 2, 2003 10.10 4.25 22.20 17.30
US DOLLARS
PER ORDINARY ADS PER DOLLAR PREFERENCE
ADS
HIGH LOW HIGH LOW
---- --- ---- ---
FISCAL 2001 (ENDING FEBRUARY 3, 2002)
First Quarter 12.00 8.00 19.45 16.90
Second Quarter 10.69 6.65 21.15 18.00
Third Quarter 8.30 4.58 19.10 16.60
Fourth Quarter 10.10 5.90 20.20 16.85
53
US DOLLARS
PER ORDINARY ADS PER DOLLAR PREFERENCE
ADS
HIGH LOW HIGH LOW
---- --- ---- ---
FISCAL 2002 (ENDING FEBRUARY 2, 2003)
First Quarter 10.10 7.35 22.20 18.00
Second Quarter 9.68 5.60 21.75 18.80
Third Quarter 9.95 4.25 18.80 17.30
Fourth Quarter 6.90 5.40 18.75 17.95
FISCAL 2003 (ENDING FEBRUARY 1, 2004)
First Quarter 6.70 4.25 19.25 17.80
US DOLLARS
PER ORDINARY ADS PER DOLLAR PREFERENCE
ADS
HIGH LOW HIGH LOW
---- --- ---- ---
MONTH
December 2002 6.90 5.65 18.90 18.10
January 2003 6.70 5.69 18.75 18.00
February 2003 5.90 4.40 19.75 18.15
March 2003 5.55 4.25 18.40 17.80
April 2003 6.70 5.00 19.00 18.00
May 2003 6.50 5.80 20.00 18.60
ITEM 10. ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
The following description is a summary only and is qualified in its entirety by
reference to the Memorandum and Articles of Association, and any amendments
thereto ("Articles of Association"), which are included as an exhibit hereto.
The Company is registered in England and Wales with Company number 876412.
Clause 4 of the Company's Memorandum of Association provides that its principal
objects are, among other things, to carry on all or any of the businesses of
manufacturer, fitter, installer, maintainer, repairer, factor and merchant of
and dealer in electronic appliances and apparatus.
DIRECTORS
A director who is in any way, whether directly or indirectly, interested in a
transaction with the Company shall declare the nature of his interest at a
meeting of the directors.
54
The Articles of Association provide that a director shall not vote (or be
counted in the quorum at a meeting) in respect of any transaction in which he
has an interest which (together with any interest of a connected person) is a
material interest. There are certain exceptions to this prohibition, which are
set out in detail within the Articles of Association.
With respect to director compensation, the Articles of Association provide for a
fee to be paid to directors, such fee not exceeding L200,000 in the
aggregate (excluding value added tax) per annum, to be divided among the
directors in such proportion and manner as the directors or any committee
authorized for that purpose may agree. The aggregate amount may be increased by
ordinary resolution of the Company. This aggregate figure excludes any
additional or other remuneration to which the directors may be entitled in
accordance with the Articles of Association or as may be authorized by the
directors or any committee authorized by the directors for that purpose.
Additional remuneration may include, but is not limited to, compensation for a
director who holds an executive office or performs any additional duties (such
as a committee member or chairman), pension benefits, annuities, gratuities or
insurance allowances.
The directors may exercise all the powers of the Company to borrow money and to
mortgage or charge all or any part of its undertaking, property and uncalled
capital and to issue debentures and other securities, whether outright or as
collateral security for any debt, liability, or obligation of the Company or of
any third party. The directors shall, in relation to the borrowings of the
Company and its subsidiaries, restrict the borrowings of the Company and
exercise all voting and other rights or powers of control exercisable by the
Company in relation to its subsidiary undertakings (if any) so as to secure
(with regard to subsidiary undertakings, only so far as by such exercise they
can secure) that the aggregate amount remaining undischarged at any time with
respect to all borrowings by the Group (exclusive of any borrowings which are
owed by one Group company to another Group company) will not, without the prior
approval of shareholders by ordinary resolution, exceed the higher of
L750,000,000 or three times the adjusted capital and reserves (as defined in the
Articles of Association).
There is no age limit for directors under the Company's Articles of Association
and a director need not be a shareholder of the Company in order to qualify as a
director.
SHAREHOLDER RIGHTS
The Company has outstanding Ordinary Shares, Dollar Preference Shares and
Sterling Preference Shares, the respective rights of which are summarized below.
Rights Attaching to Ordinary Shares
Voting Rights. Ordinary Shares of the Company are voting shares, subject to
disenfranchisement in the event of (i) non-payment of any call or other sum due
and payable in respect of any share or (ii) any non-compliance with any
statutory notice requiring disclosure of the beneficial ownership of any shares.
On a show of hands, every member who (being an individual) is present in person
or (being a corporation) is present by a representative not being himself a
member, has one vote and on a poll every member present in person by proxy or by
representative has one vote for every share of which he is the holder. In the
case of joint holders, the vote of the person whose name stands first in the
55
register of members and who tenders a vote is accepted to the exclusion of any
votes tendered by any other joint holders.
Dividends. Subject to the rights attached to the Company's Preference Shares,
dividends shall be declared and paid according to the amounts paid up on the
shares in respect of which the dividend is paid, but no amount paid up on a
share in advance of calls shall be treated for these purposes as paid up on the
share. Any dividend payable to a holder of Ordinary Shares which is unclaimed
for a period of 12 years after having become due for payment shall be forfeited
and shall revert to the Company.
Return of Capital. Subject to the rights attached to the Company's Preference
Shares, on a winding up, the surplus assets remaining after payment of all
creditors of the Company will be divided among the members of the Company
according to their respective holdings of shares.
Rights Attaching to Preference Shares
Voting Rights. Each Preference Share entitles the holder to receive notice of,
but does not entitle the holder to attend and vote at, general meetings of the
Company unless (i) the preferential dividend or any part of it is 6 months or
more in arrears; or (ii) the business of the meeting includes the consideration
of a resolution for winding up the Company or for a reduction in the capital of
the Company or any resolution directly or indirectly affecting, modifying or
varying any of the special rights, privileges or restrictions attaching to the
Preference Shares.
Dividends. Holders of Preference Shares are entitled in priority to any payment
of dividends to the holders of Ordinary Shares or deferred shares to a fixed
cumulative preference dividend (the "Preferential Dividend") at the rate of US
$1.35 per annum for every L1 of nominal value for the Dollar Preference Shares
and at the rate of 89.2p per annum for every L1 of nominal value for the
Sterling Preference Shares. The Preferential Dividend accrues from day to day
and is payable semi-annually in arrears in equal amounts on July 26 and January
26 in each year. The Preferential Dividends are payable to holders on the
register at the record date set by the Company's Board of Directors. Holders of
Preference Shares were entitled to receive a one-time payment payable on July
12, 2002 in lieu of the Preferential Dividend in respect of Preference Shares
that were converted pursuant to the Special Conversion Right of either 19.8
pence for each Sterling Preference Share converted or $0.30 for each Dollar
Preference Share converted.
The Preferential Dividend on any Dollar Preference Shares changed over to
Sterling Preference Shares ceases to accrue from the dividend payment date
immediately prior to the changeover date and the Preferential Dividend on such
Sterling Preference Shares accrues from that dividend payment date. Any dividend
payable to a holder of Preference Shares which is unclaimed for a period of 12
years after having become due for payment shall be forfeited and shall revert to
the Company.
A Preference Share does not entitle the holder to any further participation in
the profits of the Company.
Return of Capital. On a winding up, the assets of the Company available for
distribution to its members are applied: first, by paying to each holder of a
Preference Share a sum equal to any arrears
56
and accruals of the Preferential Dividend on that share up to and including the
date of the commencement of the winding up; second, by repaying in respect of
the capital paid up, the sum of US $25 for every L1 of such capital on each
Dollar Preference Share and the sum of L16.518 for every L1 of such capital on
each Sterling Preference Share; third, by repaying the capital paid up on each
Ordinary Share; and fourth, in being divided among the members of the Company
according to their respective holdings of shares, each Preference Share being
treated for this purpose as if converted at the conversion rate then applicable
into fully paid Ordinary Shares immediately prior to the commencement of the
winding up.
Changeover to Sterling Preference Shares. By giving notice to the Company (under
certain limitations as set forth in the Articles of Association), a holder of
Dollar Preference Shares may changeover such shares to Sterling Preference
Shares. Following a changeover, the Dollar Preference Shares are redesignated as
Sterling Preference Shares and the holder ceases to have any right to receive
any payments in respect of those shares from the Company in US dollars.
Conversion to Ordinary Shares. Preference Shares may be converted to Ordinary
Shares at the rate (subject to adjustment in accordance with the Articles of
Association) of 10.3432p in nominal amount of Ordinary Share capital for every
L1 in nominal amount of Preference Share capital (rounded down to the nearest
whole Ordinary Share).
In addition, under the terms of the Special Conversion Right, Preference Shares
were convertible into Ordinary Shares at the rate of 23p in nominal amount of
Ordinary Share capital for every L1 in nominal amount of Preference Share
capital by delivering a conversion notice by the time and date and otherwise in
accordance with the provisions specified in the circular issued by the Company
to shareholders dated April 18, 2002. The right to convert Preference Shares
pursuant to the Special Conversion Right expired on June 24, 2002 for US holders
and June 26, 2002 for UK holders.
At any time, if 75% or more of all the Preference Shares outstanding have been
converted into Ordinary Shares, excluding Preference Shares that have been
converted pursuant to the Special Conversion Right from the calculation of
whether the 75% threshold has been reached by assuming that such Preference
Shares had never been issued nor converted, the Company is entitled (subject to
English law) to give the holders of the Preference Shares which have not been
converted at least 28 days notice in writing to convert. Upon expiration of the
notice, those holders of the Preference Shares shall be treated as having served
a conversion notice on the Company with respect to their Preference Shares and
the previous provisions relating to conversion shall apply.
Redemption. On April 29, 2016, the Company shall (subject to English law) redeem
all of the Preference Shares outstanding on that date. The Company will pay the
sum of US $25 for every L1 of nominal value for each Dollar Preference Share and
L16.518 for every L1 of nominal value for each Sterling Preference Share and all
arrears and accruals of the Preferential Dividend on each such share calculated
up to and including the relevant redemption date.
General Protections. The Articles of Association contain a number of
prohibitions on certain actions that might otherwise be taken by the Company for
so long as any Preference Shares remain capable of being converted into Ordinary
Shares.
57
CHANGES IN SHAREHOLDER RIGHTS
All or any of the rights for any class of shares may from time to time be varied
or abrogated, either with the consent in writing of the holders of not less then
three quarters in nominal value of the issued shares of that class or by
extraordinary resolution passed at a separate general meeting of the holders of
the shares of that class.
Additionally, the Company may, by ordinary resolution, resolve to (i)
consolidate and divide all or any of its share capital into shares of a larger
amount; (ii) subdivide all or part of its share capital into shares of a smaller
amount; (iii) cancel any shares which have not, at the date of the ordinary
resolution, been taken or agreed to be taken by any person and diminish the
amount of its authorized share capital by the amount of the shares so cancelled;
and (iv) increase its share capital. The Company may also purchase its own
shares and, by special resolution, reduce its share capital, any capital
redemption reserve and any share premium account or any other undistributable
reserve.
GENERAL MEETINGS
All general meetings other than annual general meetings are extraordinary
general meetings. The Board may call general meetings and, on the request of
members pursuant to English law, proceed to issue a notice convening an
extraordinary general meeting at the members' requisition.
The Company is obliged to hold a general meeting, as its annual general meeting
in each year and not more than 15 months must elapse between the date of one
annual general meeting of the Company and that of the next.
An annual general meeting and an extraordinary general meeting that is called
for the passing of a special resolution or a resolution requiring the giving of
special notice must be called by not less than 21 days' notice in writing and
all other extraordinary general meetings of the Company must be called by not
less than 14 days' notice in writing. The notice must specify the place and time
of the meeting and the general nature of the business to be transacted.
There are no additional conditions of admission to general meetings of the
Company, except as may be stated above under "Additional Information - Rights
Attaching to Ordinary Shares" and "Additional Information - Rights Attaching to
Preference Shares."
The Company's Articles of Association were amended by resolution passed on June
12, 2002 to allow the Company to communicate electronically with its
shareholders (subject to agreement by individual shareholders and to further
terms and conditions as the directors may decide).
OWNERSHIP OF SHARES
Except for the Board of Directors' discretion to restrict the availability of an
offer of scrip dividends, there are no limitations on the rights of non-resident
or foreign shareholders to own shares in the Company or to hold or exercise
voting rights in respect of such shares.
58
MATERIAL CONTRACTS
On June 14, 2001, a wholly-owned subsidiary of the Company agreed to purchase
the shares of Buck & Hickman Limited and certain related trademarks from Charles
Baynes plc and its affiliates for a total consideration of L66 million,
including costs. The agreement between the parties contains customary
representations and warranties. In addition, the agreement restricts Charles
Baynes plc from engaging in certain activities that compete with the business
acquired by the Company. The transaction closed on July 2, 2001.
The Company has not entered into any material contracts other than contracts
entered into in the ordinary course of business during Fiscal 2002.
EXCHANGE CONTROLS
There are currently no UK laws, decrees or regulations restricting the import or
export of capital or affecting the remittance of dividends (except as otherwise
set forth below) or other payments to holders of the Shares who are
non-residents of the UK.
TAXATION
UK AND US TAX CONSEQUENCES OF OWNERSHIP OF ADRs AND SHARES
The following is a general summary, under currently applicable law, of the
material US federal income tax consequences and the material UK tax consequences
of the ownership and disposition of ADRs and Shares. It is not intended to be a
complete discussion of all potential tax effects that might be relevant to such
ownership, and it deals only with the taxation of individual citizens or
residents of the US and US domestic corporations, partnerships, estates and
trusts (each, a "US Holder").
US Holders of Ordinary ADRs or Preference ADRs are treated as the owners of the
underlying (i) Ordinary Shares, or (ii) Dollar Preference Shares or Sterling
Preference Shares, respectively, for purposes of the US-UK Double Taxation
Convention relating to Income and Capital Gains (the "Income Tax Convention"),
the US-UK Double Taxation Convention Relating to Estate and Gift Taxes (the
"Estate and Gift Tax Convention") and the Internal Revenue Code of 1986, as
amended (the "Code").
TAXATION OF DIVIDENDS
UK Taxation. The UK does not impose a withholding tax on dividend payments.
Under the recently superseded Income Tax Convention (of December 31, 1975), now
replaced by the current Income Tax Convention (of July 24, 2001), certain US
Holders that are corporate holders were entitled to a repayment of part of the
tax credit to which a UK resident individual would have been entitled in respect
of a dividend. Only 0.278% of the dividend was repayable as a credit. Corporate
holders needed, among other things, to hold (in general terms) 10% or more of
voting stock to be entitled to the repayment.
59
Certain US Holders of ADRs may also have been deemed to have suffered a notional
withholding tax in respect of a UK tax credit attaching to a dividend received.
This notional UK withholding tax may have had US tax benefits. US Holders should
consult a US tax adviser to determine any entitlement to credit for this
notional withholding tax arising in respect of dividends paid at a time when the
December 31,1975 treaty was in force.
The new Income Tax Convention between the US and the UK (of July 24, 2001)
removes entirely any entitlement of US Holders to credit refunds on dividends
paid by the Company on or after May 1, 2003.
US Taxation. A US Holder will realize dividend income for US federal income tax
purposes in an amount equal to the distribution made by Premier Farnell, to the
extent paid out of the current or accumulated earnings and profits of Premier
Farnell as determined under current US federal income tax principles. The amount
included in income to a US Holder will be the US dollar value of the payment
(determined at the spot rate on the date of such payment) regardless of whether
the payment is in fact converted into US dollars. Generally, any gain or loss
resulting from currency exchange fluctuations during the period between the date
of such payment and the date on which the dividend payment is converted into US
dollars for distribution to US Holders of the ADRs will be treated as ordinary
income or loss. Dividends paid to a corporate US Holder will not be eligible for
the dividends received deduction allowed with respect to certain dividends from
US corporations. However, under current law, certain US Holders who are
individuals may be eligible to benefit from a reduced income tax rate on
dividends paid by Premier Farnell in a US Holder's tax year beginning after
December 31, 2002. US Holders who are individuals should consult their US tax
advisers concerning their eligibility for such reduced dividends tax rate.
Subject to certain limitations, any UK withholding tax arising in respect of the
credits on dividends paid before May 1, 2003 should be treated as a foreign
income tax that may be claimed as a deduction from taxable income or as a credit
against the US federal income tax liability of the US Holder. The particular
circumstances of each US Holder will affect such Holder's ability to use the
foreign tax credit. US Holders should consult their own tax advisers about the
availability of any such foreign tax credit.
TAXATION OF CAPITAL GAINS
UK Taxation. US Holders who are not resident or ordinarily resident in the UK
should, generally, not be subject to UK taxation of capital gains realized on
the disposal of their ADRs or Shares unless the ADRs or the Shares are used or
held for the purposes of a trade or vocation carried on in the UK through a
branch or agency or for the purposes of the branch or agency.
US Taxation. A US Holder will recognize gain or loss for US federal income tax
purposes on a sale or other disposition of ADRs or Shares, measured by the
positive or negative difference, respectively, between the amount realized on
such sale or other disposition and the US Holder's tax basis in the ADRs or
Shares being sold or disposed of (generally equal to such US Holder's cost of
acquiring such ADRs or Shares). Such gain or loss will be capital gain or loss
if the ADRs or Shares were held by the US Holder as a capital asset, and will be
long-term capital gain (generally subject, under current law, to lower rates of
taxation if derived by an individual) or loss if held by the US Holder for
60
more than twelve months prior to the sale or disposition. Such gain or loss will
generally be treated as derived from US sources. The deductibility of capital
losses is subject to limitations.
Deposits and withdrawals by US Holders of Shares in exchange for ADRs will not
result in recognition of gain or loss for US federal income tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Premier Farnell, through the Depositary, will comply with all information
reporting and backup withholding requirements applicable to Ordinary Shares,
Preference Shares, Ordinary ADRs or Preference ADRs. A holder of the ADRs or the
Shares may be subject to US backup withholding tax with respect to dividends
paid on, the cash proceeds of a sale or exchange of, or a redemption of such
ADRs or Shares, unless such holder (a) is a corporation or other exempt
recipient and, if required, demonstrates its status as such; or (b) provides a
US taxpayer identification number ("TIN"), certifies that the TIN provided is
correct and that the holder has not been notified by the Internal Revenue
Service ("IRS") that he or she is subject to backup withholding due to
under-reporting of interest or dividends, and otherwise complies with the
applicable requirements of the backup withholding rules. Any amounts withheld
under the backup withholding rules will be allowed as a refund or a credit
against such holder's US federal income tax liability, provided that the
required information is timely furnished to the IRS.
UK ESTATE AND GIFT TAX
The Estate and Gift Tax Convention generally relieves from UK inheritance tax
the transfer of the ADRs or the Shares where the beneficial owner thereof is
domiciled, for the purposes of the Convention, in the US (provided that the
beneficial owner is not a UK national). This will not apply if the ADRs or the
Shares are part of the business property of an individual's permanent
establishment in the UK or are related to a fixed base in the UK of a person
providing independent personal services.
If no relief is given under the Convention, UK inheritance tax may, subject to
certain exemptions and reliefs, be charged on the amount by which the value of
the shareholder's estate is reduced as a result of any transfer by way of gift
or other gratuitous transaction made by him or treated as made by him, during
lifetime or on death. A lifetime transfer which is not made by an individual, to
an individual or to certain types of trust, will usually incur a charge to
inheritance tax; a lifetime transfer made more than 7 years before death by an
individual, to an individual or to such trust will be free of inheritance tax.
In the unusual case where the ADRs or the Shares are subject to both UK
inheritance tax and US federal estate and gift tax, the Convention generally
provides for tax paid in the UK to be credited against tax payable in the US, or
for tax paid in the US to be credited against tax payable in the UK, based on
priority rules set forth in the Convention.
UK STAMP DUTY AND STAMP DUTY RESERVE TAX
UK Stamp Duty is payable in respect of certain documents, including transfers of
Shares, and UK Stamp Duty Reserve Tax is imposed upon certain transactions in
securities. Transfers under the CREST system (for paperless transfer of shares)
will result in a charge to UK Stamp Duty Reserve
61
Tax and not UK Stamp Duty. A transfer or sale of the Ordinary Shares or
Preference Shares would generally result in UK Stamp Duty at the rate of 0.5% of
the consideration or, if an unconditional agreement to transfer such shares is
not completed by a duly stamped transfer document, for UK Stamp Duty Reserve Tax
at the rate of 0.5% of the consideration. Payment of UK Stamp Duty Reserve Tax
will, generally, shelter any liability for UK Stamp Duty on a subsequent
document of transfer with regard to the same transfer.
A deposit of Shares with a depositary or a transfer of Shares to a provider of
clearance services would normally give rise to a UK Stamp Duty charge or UK
Stamp Duty Reserve Tax at the rate of 1.5%.
No UK Stamp Duty Reserve Tax should be payable on any transfer of (or agreement
to transfer) an Ordinary ADR or a Preference ADR. No UK Stamp Duty should be
payable on any transfer of an Ordinary ADR or Preference ADR, provided that any
instrument of transfer is not executed in or taken into the UK.
A transfer of Ordinary Shares or Preference Shares from the Depositary to the
holder of the Ordinary ADR or Preference ADR may attract a fixed stamp duty
charge of L5.00 on the consideration for or value of the Shares.
UNLESS OTHERWISE STATED THEREIN THE SUMMARY OF US AND UK TAX CONSEQUENCES SET
FORTH ABOVE IS BASED ON THE INCOME TAX CONVENTION AND ESTATE AND GIFT TAX
CONVENTION, US LAW, UK LAW AND UK INLAND REVENUE PRACTICE, ALL AS THEY EXIST AS
OF THE DATE OF THIS ANNUAL REPORT. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS
THAT MAY BE RELEVANT TO PREMIER FARNELL SHAREHOLDERS IN LIGHT OF THEIR
PARTICULAR CIRCUMSTANCES. IN PARTICULAR, IT DOES NOT ADDRESS THE CONSEQUENCES TO
PREMIER FARNELL SHAREHOLDERS RESIDENT OR DOMICILED IN THE UK OR DOING BUSINESS
IN THE UK. SHAREHOLDERS ARE ENCOURAGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM.
DOCUMENTS ON DISPLAY
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934. In accordance with these requirements, the Company files
reports and other information with the Securities and Exchange Commission. These
materials, including this Annual Report with the exhibits thereto, are available
to the public over the Internet at the Commission's website http://www.sec.gov
and may be read and copied at the Commission's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on
the Public Reference Room by calling the Commission in the United States at
1-800-SEC-0330.
62
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK MANAGEMENT
The Group is exposed to a number of different market risks including interest
rates and foreign currency exchange rates. The Group has established policies
and procedures to monitor and manage the exposures arising from volatility in
these markets, with derivative instruments being entered into when considered
appropriate by management.
INTEREST RATE RISK
In Fiscal 1996, the Group incurred over $800 million of indebtedness as a result
of the acquisition of Premier. Since that time, the Group's indebtedness has
been significantly reduced and it has replaced a portion of its remaining
indebtedness with $310 million of privately placed fixed rate debt. This fixed
rate debt comprises $155 million of 7.0% notes repayable in June 2003 and $155
million of 7.2% notes repayable in June 2006.
Since the year-end, the Group has raised $225 million (L137 million) of new
funding in the private placement market. This consists of $66 million of 7-year
notes and $159 million of 10-year notes at fixed interest rates of 5.3% and 5.9%
respectively. This funding was drawn down on June 13, 2003 and has been arranged
principally to refinance the 7.0% senior notes repayable on June 17, 2003 and
for other general corporate purposes.
The Group has bilateral facilities committed until July 2006 of L125 million
($205 million), which carry a LIBOR based floating rate of interest. As of
February 2, 2003, L44 million was borrowed under these facilities (February 3,
2002: L37 million).
As most of the Group's current borrowings are subject to a fixed rate of
interest, there is likely to be no significant impact to the Group's interest
charge over the next 12 months as a result of future changes in market interest
rates.
The following commentary and tables provide information concerning the Group's
financial instruments as of February 2, 2003 that are sensitive to changes in
interest rates.
63
FINANCIAL LIABILITIES
The maturity profile of the Group's borrowings is as follows:
FISCAL 2001 FISCAL 2002
----------- -----------
FIXED FLOATING TOTAL FIXED FLOATING TOTAL
LM LM LM LM LM LM
----- -------- ----- ----- -------- ------
Repayable in the financial year ending:
January 2003 - 23.0 23.0 - - -
January 2004 109.9 - 109.9 94.6 2.7 97.3
January 2005 - - - 0.2 - 0.2
January 2007 109.9 17.0 126.9 94.8 44.0 138.8
Subsequent years - 4.7 4.7 1.5 1.0 2.5
----- ---- ----- ----- ---- -----
219.8 44.7 264.5 191.1 47.7 238.8
===== ==== ===== ===== ==== =====
The Group's borrowings are denominated in US dollars with the exception of the
floating rate debt due prior to January 2007 which, at February 2, 2003, was
denominated in Sterling.
The weighted average interest rate attributable to fixed rate borrowings during
Fiscal 2002 was 7.1% (Fiscal 2001: 7.1%) and the weighted average duration of
fixed rate borrowings was 2.9 years (Fiscal 2001: 3.9 years).
FINANCIAL ASSETS
Cash at bank and on hand as of February 2, 2003 of L29.6 million (February 3,
2002: L28.1 million) relate principally to overnight deposits and current
account balances in various currencies held in trading operations worldwide. All
significant balances earn interest based on local market rates appropriate for
the currency concerned.
64
FAIR VALUE OF FINANCIAL INSTRUMENTS
An analysis of the fair values and book values of the Group's financial
instruments as of February 2, 2003 and February 3, 2002 is provided below:
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
FISCAL 2001 FISCAL 2001 FISCAL 2002 FISCAL 2002
LM LM LM LM
----------------------------------------------------------------
Assets
Cash at bank and in hand 28.1 28.1 29.6 29.6
Debtors due after more than 87.0 87.0 82.2 82.2
one year (pension fund
prepayment)
-----------------------------------------------------------
115.1 115.1 111.8 111.8
-----------------------------------------------------------
Liabilities and derivatives
Due within 1 year (23.0) (23.0) (97.3) (98.6)
Due in more than 1 year (241.5) (248.2) (141.5) (150.0)
Commitments to sell foreign
currency - - - (0.1)
-----------------------------------------------------------
(264.5) (271.2) (238.8) (248.7)
-----------------------------------------------------------
Non-equity interests (486.7) (387.3) (126.7) (89.5)
-----------------------------------------------------------
The fair value of borrowings with a maturity of greater than one year is based
on estimates of the fixed interest rates available as of the Fiscal Year end for
debt of the same remaining maturity.
FOREIGN CURRENCY RISK
The Group hedges transactions primarily related to the purchase and sale of
inventories denominated in foreign currencies through foreign exchange forward
contracts. These contracts reduce currency risk from exchange rate movements
with respect to these transactions and cash flows. Gains and losses are deferred
and accounted for as part of the underlying transactions.
The Group does not hedge profit translation exposure, unless there is a
corresponding cash flow, since such hedges provide only a temporary deferral of
the effect of movements in exchange rates. Similarly, the Group does not
specifically hedge its existing long-term investments in overseas assets. This
has resulted in currency translation differences, amounting to L0.3 million
(loss), L1.3 million (loss) and L3.1 million (gain) in Fiscal 2002, 2001 and
2000, respectively, being credited or charged to reserves in relation to the
translation of overseas assets.
As of February 2, 2003 and February 3, 2002, the gross notional amount of
foreign exchange forward contracts, all of which had maturities of less than one
year, can be analyzed as follows:
65
COMMITMENTS TO SELL FOREIGN CURRENCY
UNRECOGNIZED/DEFERRED
STERLING EQUIVALENT GAINS AND (LOSSES)
--------------------------------------------------------------------
FISCAL 2001 FISCAL 2002 FISCAL 2001 FISCAL 2002
LM LM LM LM
--------------------------------------------------------------------
Euro - 11.6 - (0.1)
Australian Dollars 2.9 2.4 - -
Other Currencies - - - -
--------------------------------------------------------------------
Total 2.9 14.0 - (0.1)
====================================================================
The increase in the gross notional amount of forward foreign exchange contracts
compared to Fiscal 2001 year-end reflects variations in the timing of entering
into contracts.
The fair value of foreign exchange forward contracts is estimated by reference
to the amount of hedging gain (or loss) deferred and generally reflects the
estimated amounts that the Group would receive or pay to terminate the contracts
based on year end rates.
During the financial year, the Group has not used any other financial
instruments to hedge trading foreign exchange rate exposures.
The Group's primary translation exposure relates to the relative values of the
pound sterling and US dollar. Although the US business generates significant US
dollar cash flows, the Group's borrowings are predominantly US dollar
denominated. Following the conversion of a significant proportion of the Group's
US dollar denominated Preference Shares into Ordinary Shares during the year,
the US dollar dividend obligations are substantially reduced. However,
management anticipates that the ongoing US dollar interest obligations and US
dollar trade payments in the UK will continue to preclude the need to enter into
any significant hedging of US dollar cash flows.
At February 2, 2003, the Group had the equivalent of L3.6 million (February 3,
2002: L4.9 million) of (predominantly Euro denominated) net financial assets in
non-functional currencies in relation to which future movements in foreign
currencies could have a limited impact on consolidated profit.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable.
PART II
ITEM 13. DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
Not Applicable.
66
ITEM 15. DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains a set of disclosure controls and procedures designed to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed and reported within the time periods specified in Securities and
Exchange Commission rules and forms. Within the 90-day period prior to the
filing of this Annual Report, an evaluation was carried out under the
supervision and with the participation of the Company's management, including
the Chief Executive and the Finance Director, of the effectiveness of our
disclosure controls and procedures. Based on that evaluation, the Chief
Executive and the Finance Director have concluded that the Company's disclosure
controls and procedures are effective.
Subsequent to the date of their evaluation, there have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls.
ITEM 16. [RESERVED]
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable. See Item 18.
ITEM 18. FINANCIAL STATEMENTS
See Consolidated Financial Statements (including Notes thereto) contained on
pages F-1 through F-63 of this Annual Report.
67
ITEM 19. EXHIBITS
The following documents are filed as a part of this Annual Report:
Exhibit Number Description of Exhibit
- -------------- ----------------------
1.1 Memorandum and Articles of Association, incorporated by reference to the Company's Annual
Report on Form 20-F for the Fiscal Year ended February 3, 2002 (Commission File No. 1-14258)
4.1 Agreement Relating to the Sale and Purchase of Buck & Hickman Limited and Certain Assets of
Roebuck B.V., between Charles Baynes PLC, Roebuck B.V., Farnell Holding Limited and Premier
Farnell plc, dated June 14, 2001, including Schedules 1 through 4 thereto, incorporated by
reference to the Company's Annual Report on Form 20-F for the Fiscal Year ended January 28,
2001 (Commission File No. 1-14258)
4.2 Approved Executive Share Option Scheme 2001, incorporated by reference to the Company's Annual
Report on Form 20-F for the Fiscal Year ended January 28, 2001 (Commission File No. 1-14258)
4.3 Approved Executive Share Option Scheme (Original Scheme), incorporated by reference to the
Company's Annual Report on Form 20-F for the Fiscal Year ended January 28, 1996 (Commission
File No. 1-14258)
4.4 Unapproved Executive Share Option Scheme, incorporated by reference to the Company's Annual
Report on Form 20-F for the Fiscal Year ended January 28, 1996 (Commission File No. 1-14258)
4.5 United States Savings Related Stock Option Plan, incorporated by reference to the Company's
Form S-8 Registration Statement (Registration No. 33-5794)
4.6 UK Savings Related Share Option Scheme, incorporated by reference to the Company's Annual
Report on Form 20-F for the Fiscal Year ended January 28, 1996 (Commission File No. 1-14258)
68
4.7 Overseas Savings Related Share Option Scheme, incorporated by reference to the Company's Annual
Report on Form 20-F for the Fiscal Year ended January 28, 1996 (Commission File No. 1-14258)
4.8 Executive Share Option Scheme 2003
4.9 Long Term Incentive Plan (Premier Farnell Performance Share Plan 2000), as amended on June 11,
2003
4.10 Premier Farnell Corporation 401(k) Retirement Savings Plan, January 1, 2002 Restatement
8.1 List of Subsidiaries
12.1 Shareholders Agreement dated as of January 23, 1996, between Farnell Electronics PLC and Jack
N. Mandel, Joseph C. Mandel, Morton L. Mandel, Jack N. Mandel Revocable Trust, Joseph C. Mandel
Revocable Trust, Morton L. Mandel Revocable Trust, Florence Mandel Revocable Trust and Barbara
A. Mandel Revocable Trust, incorporated by reference to the March 8, 1996 Prospectus/Proxy
Statement contained in the Company's Registration Statement on Form F-4 (Registration No.
33-00690)
99.1 Certification pursuant to 18 U.S. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
69
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Annual Report to be signed on its behalf
by the undersigned thereunto duly authorized.
PREMIER FARNELL PLC
(Registrant)
Date: June 16, 2003 By /s/ STEVEN WEBB
---------------------
STEVEN WEBB
Company Secretary
70
CERTIFICATIONS
I, John R. Hirst, certify that:
1. I have reviewed this annual report on Form 20-F of Premier
Farnell plc;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of the annual report (the "Evaluation
Date"); and
c) Presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or
operation of internal controls which could adversely affect
the registrant's ability to record, process, summarize and
report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
71
6. The registrant's other certifying officer and I have indicated
in this annual report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
/s/ JOHN R. HIRST
---------------------------------------------
John R. Hirst
Chief Executive (principal executive officer)
72
CERTIFICATIONS
I, Andrew C. Fisher, certify that:
1. I have reviewed this annual report on Form 20-F of Premier
Farnell plc;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days
prior to the filing date of the annual report (the "Evaluation
Date"); and
c) Presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or
operation of internal controls which could adversely affect
the registrant's ability to record, process, summarize and
report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
73
6. The registrant's other certifying officer and I have indicated
in this annual report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
/s/ ANDREW C. FISHER
----------------------------------------------
Andrew C. Fisher
Finance Director (principal financial officer)
74
PREMIER FARNELL PLC
CONSOLIDATED FINANCIAL STATEMENTS
PREMIER FARNELL PLC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants F-2
Consolidated Statements of Income F-3
Consolidated Statements of Total Recognized Gains and Losses F-4
Consolidated Balance Sheets F-5
Consolidated Statements of Cash Flows F-6
Consolidated Statements of Changes in Shareholders' Equity F-8
Notes to the Consolidated Financial Statements F-9
F-1
PREMIER FARNELL PLC
REPORT OF INDEPENDENT ACCOUNTANTS
US AUDIT REPORT OF THE INDEPENDENT ACCOUNTANTS TO THE BOARD OF
DIRECTORS AND SHAREHOLDERS OF PREMIER FARNELL PLC.
We have audited the accompanying Consolidated Balance Sheets of Premier
Farnell plc and its subsidiary undertakings as of February 2, 2003 and
February 3, 2002 and the related Consolidated Statements of Income,
Consolidated Statements of Total Recognized Gains and Losses,
Consolidated Statements of Cash Flows, Consolidated Statements of
Changes in Shareholders' Equity and the Notes to the Consolidated
Financial Statements for each of the three years in the period ended
February 2, 2003. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits 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
Premier Farnell plc and its subsidiary undertakings at February 2, 2003
and February 3, 2002 and the results of their operations and their cash
flows for each of the three years in the period ended February 2, 2003
in conformity with accounting principles generally accepted 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. The application of the latter would have
affected the determination of consolidated net income for each of the
three years in the period ended February 2, 2003 and the determination
of the consolidated shareholders' equity at February 2, 2003 and
February 3, 2002 to the extent summarised in note 25 to the
consolidated financial statements.
By /s/ PricewaterhouseCoopers
-------------------------------
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Leeds, United Kingdom
March 19, 2003, except for Note 27 as to which the date is June 16,
2003
F-2
PREMIER FARNELL PLC
CONSOLIDATED STATEMENTS OF INCOME
Year ended
------------------------------------------------------------------
January 28, February 3,
Notes 2001 2002 February 2,
(52 weeks) (53 weeks) 2003
(restated) (restated) (52 weeks)
Lm Lm Lm
------------------------------------------------------------------
NET SALES 2 876.2 806.4 759.0
Cost of sales (498.7) (473.2) (447.0)
------------------------------------------------------------------
GROSS PROFIT 377.5 333.2 312.0
Net operating expenses 2
------------------------------------------------------------------
- - before amortization of goodwill (262.5) (244.8) (229.1)
- - amortization of goodwill - (1.5) (2.6)
------------------------------------------------------------------
Total net operating expenses (262.5) (246.3) (231.7)
OPERATING INCOME 2/4
------------------------------------------------------------------
- - before amortization of goodwill 115.0 88.4 82.9
- - amortization of goodwill - (1.5) (2.6)
------------------------------------------------------------------
Total operating income 115.0 86.9 80.3
Loss on disposal of businesses 3 - (11.0) (4.8)
Net interest payable 5 (12.9) (15.9) (15.7)
------------------------------------------------------------------
INCOME BEFORE TAXES 102.1 60.0 59.8
Taxes on income 7 (30.8) (21.4) (18.2)
------------------------------------------------------------------
NET INCOME 71.3 38.6 41.6
Preference dividends (non-equity) 8 (25.3) (26.1) (10.8)
------------------------------------------------------------------
NET INCOME ATTRIBUTABLE TO
ORDINARY SHAREHOLDERS 46.0 12.5 30.8
==================================================================
NET INCOME PER ORDINARY SHARE 9
Basic 16.9p 4.6p 9.3p
Diluted 16.8p 4.6p 9.3p
NET INCOME PER ORDINARY SHARE BEFORE
AMORTIZATION OF GOODWILL AND DISPOSALS
Basic 16.9p 9.2p 11.2p
Diluted 16.8p 9.2p 11.2p
There is no material difference between the results as disclosed in the
consolidated statements of income and the results on an unmodified historical
cost basis.
All of the Group's net sales and operating income relate to continuing
operations.
The expense classification in the Consolidated Statements of Income has been
restated to reflect the way in which management measure the performance of the
Group. Further details are given in note 1, Statement of Accounting Policies on
page F-9.
The accompanying notes on pages F-9 to F-63 are an integral part of these
consolidated financial statements.
F-3
PREMIER FARNELL PLC
CONSOLIDATED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
Year ended
-------------------------------------------------------
January 28, February 3, February 2,
2001 2002 2003
(52 weeks) (53 weeks) (52 weeks)
Lm Lm Lm
-------------------------------------------------------
Net income for the year 71.3 38.6 41.6
Currency translation adjustments 3.1 (1.3) (0.3)
-------------------------------------------------------
Total recognized gains in the year 74.4 37.3 41.3
===========
Prior year adjustment 16.2 -
-----------------------------------
Total recognized gains since last
Annual Report 53.5 41.3
===================================
The prior year adjustment reflects the adoption of FRS 19, Deferred Tax, with
effect from January 29, 2001. FRS 19 requires deferred tax assets to be
recognized to the extent they are expected to be recoverable. Prior to January
29, 2001, the Group's accounting policy for deferred tax was in accordance with
SSAP No. 15, which required deferred tax assets to be recognized only to the
extent they were expected to be recoverable without replacement by an equivalent
asset. The recognition of deferred tax assets has been accounted for by way of a
prior year adjustment, reducing provisions for liabilities and charges at
January 28, 2001 by L16.2 million (January 30, 2000: L14.7 million). The impact
on the Fiscal 2000 tax charge is not material, the movement reflecting currency
translation.
The accompanying notes on pages F-9 to F-63 are an integral part of these
consolidated financial statements.
F-4
PREMIER FARNELL PLC
CONSOLIDATED BALANCE SHEETS
February 3, February 2,
Notes 2002 2003
Lm Lm
--------------------------------------
FIXED ASSETS
Intangible assets 10 51.1 48.5
Property, plant and equipment 11 114.1 112.9
Investments 12 0.5 0.2
--------------------------------------
165.7 161.6
--------------------------------------
CURRENT ASSETS
Inventories 13 152.9 147.8
Debtors - due within one year 14 132.1 121.8
- due after more than one year 14 87.0 82.2
Cash at bank and in hand 28.1 29.6
--------------------------------------
400.1 381.4
CREDITORS - DUE WITHIN ONE YEAR 15 (168.6) (254.7)
--------------------------------------
NET CURRENT ASSETS 231.5 126.7
--------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 397.2 288.3
CREDITORS - DUE AFTER MORE THAN ONE YEAR 16 (241.5) (141.5)
PROVISIONS FOR LIABILITIES AND CHARGES 17 (44.2) (43.3)
--------------------------------------
111.5 103.5
======================================
CAPITAL AND RESERVES
Called up share capital 18 41.5 25.9
Share premium account 4.4 19.2
Capital redemption reserve - 0.6
Retained earnings 65.6 57.8
--------------------------------------
SHAREHOLDERS' FUNDS 111.5 103.5
======================================
SHAREHOLDERS' FUNDS COMPRISE:
Equity interests (375.2) (23.2)
Non-equity interests 486.7 126.7
--------------------------------------
111.5 103.5
======================================
Non-equity interests reflect the redemption cost of the cumulative convertible
preference shares.
The accompanying notes on pages F-9 to F-63 are an integral part of these
consolidated financial statements.
F-5
PREMIER FARNELL PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
---------------------------------------------
Notes January 28, February 3, February 2,
2001 2002 2003
(52 weeks) (53 weeks) (52 weeks)
Lm Lm Lm
---------------------------------------------
NET CASH INFLOW FROM OPERATING ACTIVITIES 20 112.4 107.1 92.0
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 1.7 1.3 0.6
Interest paid (14.7) (16.9) (16.4)
Dividends paid on preference shares (non-equity) (25.3) (26.1) (10.8)
---------------------------------------------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE (38.3) (41.7) (26.6)
TAXATION PAID (28.3) (27.4) (12.7)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of property, plant and equipment (25.6) (24.8) (24.9)
Sale of property, plant and equipment 4.4 1.3 1.7
Purchase of own shares (0.5) (0.6) -
---------------------------------------------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND (21.7) (24.1) (23.2)
FINANCIAL INVESTMENT
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertaking - (66.0) -
Purchase of minority interest - (0.3) -
Disposal of businesses - 27.5 3.3
---------------------------------------------
NET CASH (OUTFLOW)/INFLOW FROM ACQUISITIONS AND DISPOSALS - (38.8) 3.3
EQUITY DIVIDENDS PAID (24.5) (24.5) (28.1)
---------------------------------------------
CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID RESOURCES AND (0.4) (49.4) 4.7
FINANCING
MANAGEMENT OF LIQUID RESOURCES
Decrease in short term deposits with banks 9.3 16.3 -
FINANCING
Issue of ordinary shares 0.6 0.2 0.7
Purchase of own preference shares - - (8.3)
Preference share conversion costs - - (0.9)
New bank loans 5.0 48.0 29.1
Repayment of bank loans (5.0) (11.0) (23.0)
---------------------------------------------
Net cash inflow/(outflow) from financing 0.6 37.2 (2.4)
---------------------------------------------
INCREASE IN CASH 9.5 4.1 2.3
=============================================
F-6
PREMIER FARNELL PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended
-----------------------------------------
Notes January 28, February 3, February 2,
2001 2002 2003
(52 weeks) (53 weeks) (52 weeks)
Lm Lm Lm
-----------------------------------------
RECONCILIATION OF NET DEBT:
Net debt at beginning of year (160.8) (179.2) (236.4)
Increase in cash 9.5 4.1 2.3
Decrease in short term deposits (9.3) (16.3) -
Increase in debt - (37.0) (6.1)
Exchange movement (18.6) (8.0) 31.0
-----------------------------------------
NET DEBT AT END OF YEAR 20 (179.2) (236.4) (209.2)
-----------------------------------------
The accompanying notes on pages F-9 to F-63 are an integral part of these
consolidated financial statements.
These consolidated statements of cash flows are prepared in accordance with FRS
1 (Revised 1996) which differs in certain respects from the US accounting
standard, SFAS 95 "Statements of Cash Flows". The principal differences are
explained in note 25.
F-7
PREMIER FARNELL PLC
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
5p Share Capital
Ordinary Preference premium redemption Retained
shares shares account reserve earnings Total
Lm Lm Lm Lm Lm Lm
------------------------------------------------------------------------------
Balance at January 30, 2000 13.6 27.9 3.6 - 28.7 73.8
Net income - - - - 71.3 71.3
Ordinary dividends - - - - (24.5) (24.5)
Preference dividends - - - - (25.3) (25.3)
Premium on issue of shares - - 0.6 - - 0.6
Currency translation adjustment - - - - 3.1 3.1
------------------------------------------------------------------------------
Balance at January 28, 2001 13.6 27.9 4.2 - 53.3 99.0
Net income - - - - 38.6 38.6
Ordinary dividends - - - - (24.5) (24.5)
Preference dividends - - - - (26.1) (26.1)
Premium on issue of shares - - 0.2 - - 0.2
Goodwill reinstated on disposal - - - - 25.6 25.6
of businesses
Currency translation adjustment - - - - (1.3) (1.3)
------------------------------------------------------------------------------
Balance at February 3, 2002 13.6 27.9 4.4 - 65.6 111.5
Net income - - - - 41.6 41.6
Ordinary dividends - - - - (32.6) (32.6)
Preference dividends - - - - (10.8) (10.8)
Premium on issue of shares - - 0.7 - - 0.7
Goodwill reinstated on disposal - - - - 2.6 2.6
of businesses
Preference share conversion 4.5 (19.5) 15.0 - - -
Preference share conversion - - (0.9) - - (0.9)
costs
Preference share purchase and - (0.6) - 0.6 (8.3) (8.3)
cancellation
Currency translation adjustment - - - - (0.3) (0.3)
------------------------------------------------------------------------------
Balance at February 2, 2003 18.1 7.8 19.2 0.6 57.8 103.5
==============================================================================
The number of 5p Ordinary shares and preference shares outstanding as at
February 2, 2003 was 362,438,230 and 7,772,221, respectively (February 3, 2002:
272,244,295 and 27,946,255, respectively).
The cumulative goodwill arising on acquisitions of subsidiary undertakings which
are still part of the Group and charged against reserves of the Group amounted
to L1,594.0 million at February 2, 2003. (February 3, 2002: L1,596.6 million).
The cumulative currency translation adjustment included in retained earnings as
at February 2, 2003, February 3, 2002 and January 28, 2001 amounted to L8.1
million credit, L8.4 million credit and L9.7 million credit, respectively.
The accompanying notes on pages F-9 to F-63 are an integral part of these
consolidated financial statements.
F-8
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 STATEMENT OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accounts have been prepared under the historical cost convention
and in accordance with applicable UK accounting standards. A summary of
the more important Group accounting policies, which the Directors
consider to be the most appropriate for the Group and, with the
exception of the expense classification referred to below, have been
applied consistently, is set out below.
Accounts are drawn up to the Sunday nearest to January 31, the
Company's accounting reference date. For Fiscal 2000 (year ended
January 28, 2001) the accounting period was 52 weeks, for Fiscal 2001
(year ended February 3, 2002) the accounting period was 53 weeks and
for Fiscal 2002 (year ended February 2, 2003) the accounting period was
52 weeks.
BASIS OF CONSOLIDATION
The consolidated accounts incorporate the accounts of the Company and
each of its subsidiary undertakings. Results of subsidiary undertakings
acquired or disposed of during the year are consolidated from or up to
the date on which control passes.
EXPENSE CLASSIFICATION
The expense classification in the Consolidated Statements of Income has
been restated to reflect the way in which management measure and
monitor the performance of the Group with respect to gross profit and
operating expenses. Expenses are now classified as follows:
Cost of sales comprises the costs of goods delivered to customers
including the net cost of freight, packaging and inventory adjustments.
Distribution costs represent all operating company expenses including
sales, marketing, product and purchasing, warehousing, information
technology and e-commerce.
Administrative expenses comprise the cost of central head office and
the Group Board.
Management consider that the above classification of costs is the most
appropriate given the nature of the business.
In prior years, distribution costs comprised gross freight costs,
administrative expenses were as defined above, and all other costs were
treated as cost of sales.
The effect of this change on the prior year results is as follows:
As previously Reclassification As restated
reported
Lm Lm Lm
---------------------------------------------------------
Fiscal 2001
Net sales 806.4 - 806.4
Cost of sales (676.6) 203.4 (473.2)
Total net operating expenses (42.9) (203.4) (246.3)
---------------------------------------------------------
Total operating income 86.9 - 86.9
---------------------------------------------------------
Fiscal 2000
Net sales 876.2 - 876.2
Cost of sales (716.0) 217.3 (498.7)
Total net operating expenses (45.2) (217.3) (262.5)
---------------------------------------------------------
Total operating income 115.0 - 115.0
---------------------------------------------------------
F-9
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GOODWILL
Goodwill, comprising the amount by which the consideration for
acquisitions exceeds the fair amount of the net assets acquired, is
capitalized and amortized through the Consolidated Statement of Income
on a straight line basis over its estimated useful life, as follows:
Buck & Hickman: 20 years
As permitted by FRS10, Goodwill and Intangible Assets, goodwill arising
on acquisitions prior to 1998 remains written off against reserves.
Such goodwill would be charged in the Consolidated Statement of Income
on subsequent disposal of the related business.
Goodwill arising on acquisitions is reviewed for impairment in
accordance with FRS10 and FRS11, Impairment of Fixed Assets and
Goodwill, at the end of the first full year after an acquisition and in
other years if events or changes in circumstances indicate that the
carrying value may not be recoverable, any impairment being charged to
the Consolidated Statement of Income.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost or fair value on
acquisition. Interest is not capitalized
With the exception of motor vehicles, which are depreciated on a
reducing balance basis at 25% per annum, depreciation is calculated to
write off the cost or valuation of individual fixed assets from the
time they become operational by equal annual instalments over their
estimated useful lives, which are principally as follows:
Plant and equipment - between 5 and 10 years
Computer hardware and software - between 3 and 5 years
Freehold buildings - 50 years
No depreciation is provided on freehold land.
On retirement or disposal, the cost of the asset disposed and the
related accumulated depreciation are removed from the balance sheet and
any gain or loss is reflected in income.
INVENTORIES
Inventories are stated on a first-in first-out basis at the lower of
cost and net realizable value. Provision is made against slow moving
and obsolete inventory based on analysis of historical data.
CATALOG AND ADVERTISING COSTS
Catalog costs are expensed over the life of the catalog up to a maximum
period of one year. Advertising costs are expensed as incurred.
PENSIONS AND SIMILAR OBLIGATIONS
The Group operates defined benefit and defined contribution schemes.
Pension schemes are accounted for in accordance with SSAP 24.
Accordingly, the expected cost of providing pension benefits under
defined benefit schemes and other post-retirement benefits is amortized
in the Consolidated Statement of Income over the period benefiting from
the employees' services. Costs with respect to defined contribution
schemes are charged to the Consolidated Statement of Income as they
fall due.
The Group has adopted the transitional arrangements of FRS 17,
Retirement Benefits, details of which are given in note 21.
F-10
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEFERRED TAXATION
Full provision is made for deferred taxation resulting from timing
differences between income computed for taxation purposes and income
stated in the financial statements to the extent that there is an
obligation to pay more tax in the future as a result of the reversal of
those timing differences.
Deferred tax assets are recognized to the extent they are expected to
be recoverable.
FOREIGN EXCHANGE
The results of overseas subsidiary undertakings are translated into
pounds sterling at the average exchange rate ruling during the year.
Foreign currency assets and liabilities are translated into sterling at
the rates of exchange ruling at the balance sheet date. Gains or losses
arising in the ordinary course of business are dealt with in arriving
at operating income. Those arising on the translation of the assets and
liabilities of overseas subsidiary undertakings, together with the
exchange differences arising when the Consolidated Statement of Income
is translated at average rates and compared to the rate ruling at the
balance sheet date, are dealt with as movements in reserves.
NET SALES AND REVENUE RECOGNITION
Net sales comprise the value of sales to outside customers, excluding
value-added and sales taxes. Sales are recognized when there is
persuasive evidence that an arrangement exists, delivery of products or
performance of services has occurred, the price is fixed or
determinable and collection is reasonably assured. Provisions for
rebates to customers are provided for in the same period in which the
related sales are recorded. Freight costs are expensed in the cost of
sales line in the Statement of Income.
LEASED ASSETS
Payments under operating leases are charged to the Consolidated
Statement of Income as they fall due.
DERIVATIVE FINANCIAL INSTRUMENTS
Gains and losses on forward foreign exchange contracts, entered into as
hedges of future purchases and sales denominated in foreign currency,
are carried forward and taken to the Consolidated Statement of Income
on maturity to match the underlying transactions.
Amounts payable or receivable in respect of interest rate hedges are
recognized as adjustments to interest payable or receivable over the
life of the hedge. Further details are given in note 23.
LONG TERM INCENTIVE PLAN
The Consolidated Statement of Income includes the costs relating to
the Premier Farnell Performance Share Plan and the Consolidated and
Company balance sheets include the appropriate assets and liabilities
of the plan. Shares in the Company, held by the trust established to
administer the plan, are shown as fixed asset investments and are
amortised over the performance period of the plan to which they
relate. Where options over shares are awarded to executives, the value
of the expected award is amortised on a straight line basis over the
performance period to which the award relates.
F-11
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RISKS AND UNCERTAINTIES AFFECTING OPERATIONS
(I) PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(II) CONCENTRATIONS OF CREDIT RISK
The Group sells products to a wide range of customers and markets and
extends credit based on an evaluation of the customer's financial
condition, generally without requiring collateral. Exposure to losses
on receivables is principally dependent on each customer's financial
condition. The Group monitors its exposure for credit losses and
maintains allowances for anticipated losses.
(III) CURRENCY TRANSACTION AND INTEREST RATE RISK
The impact of currency movements on trading cash flows is managed by
the use of forward contracts. Currency hedging is undertaken up to 12
months forward based on expected currency cash flows.
The Group's borrowings are denominated in US dollars and are
predominantly fixed rate. Further details are given in note 23.
2 SEGMENTAL ANALYSIS
(1) NET SALES AND OPERATING INCOME
BUSINESS SEGMENTS
Net sales - year ended Operating income - year ended
---------------------------------------- ----------------------------------------
January February 3, February January 28, February February
28, 2001 2002 2, 2003 2001 3, 2002 2, 2003
(52 weeks) (53 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks)
Lm Lm Lm Lm Lm Lm
---------------------------------------- ----------------------------------------
Marketing and Distribution
Division
Americas 446.9 373.7 311.6 60.5 38.4 33.0
Europe and Asia Pacific 266.1 314.5 348.6 43.7 40.2 42.2
---------------------------------------- ---------------------------------------
713.0 688.2 660.2 104.2 78.6 75.2
Amortization of goodwill* - - - - (1.5) (2.6)
---------------------------------------- ---------------------------------------
713.0 688.2 660.2 104.2 77.1 72.6
Industrial Products Division 163.2 118.2 98.8 18.6 17.7 15.2
Head Office costs - - - (7.8) (7.9) (7.5)
---------------------------------------- ---------------------------------------
Net sales and operating
income on continuing
operations 876.2 806.4 759.0 115.0 86.9 80.3
======================================== =======================================
* Amortisation of capitalized goodwill is in respect of the acquisition
of Buck & Hickman in Fiscal 2001 (Europe and Asia Pacific segment).
F-12
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Marketing and Distribution Division markets electronic, electrical,
industrial components and products and spares for consumer appliances
and consists of five operations: Newark and MCM, in the Americas and
Farnell, Buck & Hickman and CPC in Europe and Asia Pacific. The
Industrial Products Division produces and distributes high-performance
fire fighting components for the OEM and replacement markets as well as
asphalt and concrete resurfacing products, and distributes repair
products and hand tools for the automotive aftermarket, electrical
connectors and equipment for the industrial maintenance and repair
market and wire and cable harnesses for the automotive and steel
industries.
The above segments have been identified on the basis of the underlying
nature of the business and its customer base and reflect the segments
used internally by senior management for monitoring the business and
making decisions regarding allocation of future resources. With effect
from January 29, 2001, the businesses that formerly comprised the
Appliance Spares Division (MCM and CPC) are being reported as part of
the Marketing and Distribution Division, reflecting a change in the
Group's management reporting structure and the much closer integration
of these businesses with their respective businesses of the Marketing
and Distribution Division. Comparatives for Fiscal 2000 have been
restated accordingly.
There are no revenues or transactions with a single customer that are
10% or more of the Group's revenues.
GEOGRAPHICAL SEGMENTS BY ORIGIN
Net sales - year ended Operating income - year ended
---------------------------------------- ----------------------------------------
January 28, February February 2, January 28, February February
2001 3, 2002 2003 2001 3, 2002 2, 2003
(52 weeks) (53 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks)
Lm Lm Lm Lm Lm Lm
---------------------------------------- ----------------------------------------
Americas 576.1 456.9 375.3 76.1 52.9 45.8
United Kingdom 168.5 215.5 251.6 35.3 34.1 36.4
Rest of World 131.6 134.0 132.1 11.4 9.3 8.2
Head Office costs - - - (7.8) (7.9) (7.5)
Amortization of goodwill* - - - - (1.5) (2.6)
-------------------------------------- -------------------------------------
Net sales and operating
income on continuing
operations 876.2 806.4 759.0 115.0 86.9 80.3
====================================== =====================================
The above segmental analysis includes net sales and operating income in
Fiscal 2001 from the acquisition on July 2, 2001 of Buck & Hickman
(Europe and Asia Pacific segment) of L52.9 million and L3.6 million,
respectively. In Fiscal 2002, Buck & Hickman contributed L96.1 million
of sales and L5.8 million of operating income.
* Amortization of capitalized goodwill is in respect of the acquisition
of Buck & Hickman in Fiscal 2001 (United Kingdom).
The geographical analysis of net sales by destination is not
significantly different from that shown above.
F-13
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) TOTAL ASSETS AND NET ASSETS
Total assets comprise the aggregate of fixed assets and current assets.
Net assets comprise the net of total assets, creditors due within one
year, creditors due after more than one year and provisions for
liabilities and charges.
BUSINESS SEGMENTS
Net assets
----------------------------
February 3, February 2,
2002 2003
Lm Lm
----------------------------
Marketing and Distribution Division
Americas 136.6 123.9
Europe and Asia Pacific 138.7 139.6
-----------------------
275.3 263.5
Industrial Products Division 40.1 25.8
-----------------------
Net operating assets 315.4 289.3
Unallocated assets and liabilities:
Goodwill 51.1 48.5
Net debt (236.4) (209.2)
Other financial assets and liabilities (18.6) (25.1)
-----------------------
Net assets 111.5 103.5
=======================
Total assets
----------------------------
February 3, February 2,
2002 2003
Lm Lm
----------------------------
Marketing and Distribution Division
Americas 148.5 130.7
Europe and Asia Pacific 251.4 262.7
-----------------------
399.9 393.4
Industrial Products Division 60.8 50.7
Head Office (including pension asset) 105.1 98.9
-----------------------
Total assets 565.8 543.0
=======================
The analysis of total assets as at February 3, 2002 has been
reclassified to reflect, more appropriately, the use of assets in the
businesses.
F-14
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) TOTAL ASSETS AND NET ASSETS
GEOGRAPHICAL SEGMENTS
Net assets
----------------------------
February 3, February 2,
2002 2003
Lm Lm
----------------------------
Americas 168.3 116.4
United Kingdom 112.7 132.1
Rest of the World 34.4 40.8
-----------------------
Net operating assets 315.4 289.3
Unallocated assets and liabilities:
Goodwill 51.1 48.5
Net debt (236.4) (209.2)
Other financial assets and liabilities (18.6) (25.1)
-----------------------
Net assets 111.5 103.5
=======================
Total assets
----------------------------
February 3, February 2,
2002 2003
Lm Lm
----------------------------
Americas 294.7 233.1
United Kingdom 207.8 239.0
Rest of the World 63.3 70.9
-----------------------
Total assets 565.8 543.0
=======================
The analysis of total assets as at February 3, 2002 has been
reclassified to reflect, more appropriately, the geographical use of
assets.
F-15
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) PROPERTY, PLANT AND EQUIPMENT
BUSINESS SEGMENTS
Fixed assets
----------------------------
February 3, February 2,
2002 2003
Lm Lm
----------------------------
Marketing and Distribution Division
Americas 40.0 38.9
Europe and Asia Pacific 56.3 61.0
------------------------
96.3 99.9
Industrial Products Division 17.8 13.0
------------------------
Property, plant and equipment 114.1 112.9
========================
The analysis of fixed assets as at February 3, 2002 has been
reclassified to reflect, more appropriately, the use of such assets in
the businesses.
GEOGRAPHICAL SEGMENTS
Fixed assets
----------------------------
February 3, February 2,
2002 2003
Lm Lm
----------------------------
Americas 55.7 50.0
United Kingdom 47.0 49.6
Rest of the World 11.4 13.3
------------------------
Property, plant and equipment 114.1 112.9
========================
The analysis of fixed assets as at February 3, 2002 has been
reclassified to reflect, more appropriately, the geographical use of
such assets.
(4) CAPITAL EXPENDITURE AND DEPRECIATION
Capital expenditure and depreciation by segment are as follows:
Capital expenditure - year ended Depreciation - year ended
------------------------------------- -------------------------------
January February February January February February
28, 2001 3, 2002 2, 2003 28, 2001 3, 2002 2, 2003
Lm Lm Lm Lm Lm Lm
------------------------------------- -------------------------------
Marketing and Distribution Division
Americas 15.3 8.4 11.0 5.5 6.3 5.2
Europe and Asia Pacific 11.2 6.2 13.2 5.6 7.2 9.4
---------------------------------- ----------------------------
26.5 14.6 24.2 11.1 13.5 14.6
Industrial Products Division 3.3 5.4 1.4 3.0 2.2 1.7
---------------------------------- ----------------------------
29.8 20.0 25.6 14.1 15.7 16.3
================================== ============================
F-16
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) NET OPERATING EXPENSES
Year ended
------------------------------------------
January 28, February 3, February 2,
2001 2002 2003
(restated) (restated)
Lm Lm Lm
------------------------------------------
Distribution costs 253.7 236.0 220.5
Administrative expenses 7.8 9.4 10.1
Research and
development expenditure 1.0 0.9 1.1
-------------------------------------
262.5 246.3 231.7
=====================================
Administrative expenses in Fiscal 2002 include amortization of goodwill
of L2.6 million (Fiscal 2001: L1.5 million, Fiscal 2000: Lnil).
Research and development expenditure is charged to income as incurred.
3 LOSS ON DISPOSAL OF BUSINESSES
Year ended
-------------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
-------------------------------------------
(Gain)/loss on net assets sold (net of costs) - (14.6) 2.3
Goodwill previously eliminated against reserves - 25.6 2.6
------------------------------------
Loss on disposal of businesses in the year (note 24) - 11.0 4.9
Deferred consideration received from Fiscal 2001 disposals - - (0.1)
------------------------------------
Loss on disposal of businesses - 11.0 4.8
====================================
FISCAL 2001
On March 30, 2001 the Group sold the automotive and industrial products
distribution business of the Industrial Products Division in North
America to Lawson Products Inc., for a consideration of L24.7 million.
On February 28, 2001 the Group sold Brooks Technology, also part of the
Industrial Products Division, to Fuchs Lubricants, for an initial
consideration of L9.5 million, with further payments depending on
future performance.
Taken together, in Fiscal 2001 these businesses contributed L7.1
million (Fiscal 2000: L53.8 million) of sales and L0.2 million (Fiscal
2000: L0.6 million) of operating profit in the period up to disposal.
No tax charge/credit arose on these business disposals.
FISCAL 2002
On June 28, 2002, the Company sold DA Lubricants, the speciality
lubricants business of the Industrial Products Division in North
America, for a consideration of L4.3 million.
In the period up to disposal, this business contributed L5.4 million
(Fiscal 2001:L15.3 million and Fiscal 2000:L13.5 million) of sales and
incurred an operating loss of L0.1 million (Fiscal 2001:operating
profit L0.4 million and Fiscal 2000:operating profit L0.2 million). The
cash flows from this business in the period up to disposal were not
significant. A tax credit of L0.9 million arose on the disposal.
F-17
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 OPERATING INCOME IS STATED AFTER CHARGING/(CREDITING):
Year ended
-----------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
-----------------------------------------
Amortization of goodwill - 1.5 2.6
Depreciation 14.1 15.7 16.3
Gain on sale of property, plant and equipment (1.9) (1.5) (0.5)
Restructuring costs 1.2 1.6 0.6
Performance Share Plan 0.6 1.2 -
Operating lease rentals:
Plant and machinery 2.6 3.1 3.6
Other 4.5 5.1 6.1
Fees paid to the Group's auditors
Statutory audit 0.4 0.4 0.5
Further assurance services - - 0.1
Tax services 0.2 0.1 0.2
Other non-audit services - - 0.1
Restructuring costs in Fiscal 2000 related to Newark's branch and sales
force reorganisation. Restructuring costs in Fiscal 2001 related to
staff reductions in North America and Europe. Restructuring costs in
Fiscal 2002 related to the closure of a Newark warehouse.
The audit fees and fees for further assurance services paid to the
Group's auditors shown above include L0.1 million (Fiscal 2001 and
Fiscal 2000: L0.1 million) in respect of the Company.
Tax and other fees paid to the Group's auditors are in respect of
assignments carried out on a worldwide basis. It is the Group's policy
to employ PricewaterhouseCoopers LLP on assignments additional to their
statutory duties where their expertise and experience of the Group are
important, or where they are awarded assignments on a competitive
basis. PricewaterhouseCoopers LLP are not engaged in assignments that
are prohibited under rules introduced pursuant to the US Sarbanes-Oxley
Act 2002.
Tax services are in respect of tax compliance and tax advice in a
number of territories.
Other non-audit services provided included L0.1 million (Fiscal 2001
and Fiscal 2000: Lnil) in respect of advice on the implementation of
share option and long term incentive schemes.
In Fiscal 2001, L0.1 million of fees were capitalized as part of the
acquisition of Buck & Hickman. No fees were capitalized in Fiscal 2002
or Fiscal 2000.
5 NET INTEREST PAYABLE
Year ended
-----------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
-----------------------------------------
Interest receivable on short-term deposits (1.7) (1.3) (0.6)
Interest payable on bank overdrafts and loans repayable within
5 years 7.2 17.0 16.2
Interest payable on loans repayable after more than 5 years 7.4 0.2 0.1
-----------------------------------
12.9 15.9 15.7
===================================
F-18
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6 EMPLOYEES
Year ended
--------------------------------------
January February 3, February 2,
28, 2001 2002 2003
Lm Lm Lm
--------------------------------------
STAFF COSTS DURING THE YEAR WERE AS FOLLOWS:
Wages and salaries 140.8 127.3 119.5
Social security costs 21.1 19.7 18.6
Other pension costs (3.5) (5.3) (4.4)
-----------------------------------
158.4 141.7 133.7
===================================
THE AVERAGE NUMBER OF PERSONS EMPLOYED WAS AS FOLLOWS:
Year ended
-----------------------------------------
January 28, February 3, February 3,
2001 2002 2003
Number Number Number
-----------------------------------------
Marketing and Distribution Division
Americas 1,973 1,858 1,654
Europe and Asia Pacific 1,564 2,031 2,306
------------------------------------
3,537 3,889 3,960
Industrial Products Division 2,043 1,243 991
Head Office 50 42 43
------------------------------------
5,630 5,174 4,994
====================================
7 TAXES ON INCOME
Taxes on income charged/(credited) to earnings were as follows:
Year ended
-----------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
-----------------------------------------
UK corporation tax:
Current tax for the year 15.8 11.3 13.5
Current tax in respect of prior years (0.5) (0.3) (0.7)
Overseas corporate tax:
Current tax for the year 16.6 1.4 2.6
Current tax in respect of prior years (0.4) (1.2) 0.1
Deferred taxation:
Current year (1.1) 9.4 3.1
Prior years 0.4 0.8 (0.4)
-----------------------------------
30.8 21.4 18.2
===================================
The taxation charge for Fiscal 2002 is net of a credit of L0.9 million
arising from the disposal of businesses (Fiscal 2001 and Fiscal 2000:
nil).
F-19
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The table below reconciles the UK corporation tax rate applicable in
each year to the effective tax rate obtained by computing the tax
charge as a percentage of income before taxes.
Year ended
-----------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
-----------------------------------------
Income before taxes, goodwill amortization and
loss on disposal of businesses
Americas 25.9 6.7 10.5
United Kingdom 55.7 49.3 44.5
Rest of the World 20.5 16.5 12.2
------------------------------------
102.1 72.5 67.2
====================================
% % %
UK corporation tax rate 30.0 30.0 30.0
Overseas losses not available for Group relief 0.4 0.7 0.9
Excess of overseas tax rates over UK tax rate 2.0 1.5 0.6
Prior year items (0.5) (1.0) (1.4)
Utilization of prior year tax losses (0.9) (0.6) (0.9)
Other (0.8) (1.1) (0.8)
------------------------------------
Tax charge as a percentage of income before taxes,
goodwill amortization and loss on disposal of businesses 30.2 29.5 28.4
====================================
F-20
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8 DIVIDENDS
Year ended
-----------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
-----------------------------------------
PREFERENCE (NON-EQUITY)
Paid July 12.5 13.1 7.5
Paid January 12.8 13.0 3.3
------------------------------------
25.3 26.1 10.8
====================================
ORDINARY (EQUITY)
Interim paid of 4.0p (Fiscal 2001 - 4.0p, Fiscal 2000 - 4.0p) 10.9 10.9 14.5
per share
Final proposed of 5.0p (Fiscal 2001 - 5.0p, Fiscal 2000 - 13.6 13.6 18.1
5.0p) per share
------------------------------------
24.5 24.5 32.6
====================================
9 NET INCOME PER ORDINARY SHARE
Basic net income per ordinary share is based on the net income
attributable to ordinary shareholders for the year and the weighted
average number of ordinary shares in issue during the year, excluding
those shares held by the Premier Farnell Executive Trust (note 12). For
diluted net income per ordinary share, the weighted average number of
ordinary shares in issue is adjusted to assume issue of all dilutive
potential ordinary shares, i.e. those share options granted to
employees where the exercise price is less than the average market
price of the Company's ordinary shares during the year. The cumulative
convertible redeemable preference shares are not dilutive and thus are
not included in the calculation of diluted net income per ordinary
share.
Reconciliations of net income attributable to ordinary shareholders and
the weighted average number of shares used in the calculations are set
out below:
Year ended
-----------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
-----------------------------------------
Net income attributable to ordinary shareholders 46.0 12.5 30.8
Loss on disposal of businesses - 11.0 4.8
Tax attributable to disposal of businesses - - (0.9)
Amortization of goodwill - 1.5 2.6
-------------------------------------
Net income attributable to ordinary shareholders before
disposals and amortization of goodwill 46.0 25.0 37.3
=====================================
BASIC PER ORDINARY SHARE AMOUNT pence pence pence
-------------------------------------
Net income attributable to ordinary shareholders 16.9 4.6 9.3
Loss on disposal of businesses - 4.0 1.4
Tax attributable to disposal of businesses - - (0.3)
Amortization of goodwill - 0.6 0.8
------------------------------------
Net income attributable to ordinary shareholders before
disposals and amortization of goodwill 16.9 9.2 11.2
====================================
DILUTED PER ORDINARY SHARE AMOUNT pence pence pence
------------------------------------
Net income attributable to ordinary shareholders 16.8 4.6 9.3
Loss on disposal of businesses - 4.0 1.4
Tax attributable to disposal of businesses - - (0.3)
Amortization of goodwill - 0.6 0.8
------------------------------------
Net income attributable to ordinary shareholders before
disposals and amortization of goodwill 16.8 9.2 11.2
====================================
F-21
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year ended
-----------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Number Number Number
-----------------------------------------
Weighted average number of shares 271,991,674 271,879,752 331,570,659
Dilutive effect of share options 1,621,651 1,007,168 850,520
-----------------------------------------
Diluted weighted average number of shares 273,613,325 272,886,920 332,421,179
=========================================
NET INCOME PER ORDINARY SHARE
Basic 16.9p 4.6p 9.3p
Diluted 16.8p 4.6p 9.3p
NET INCOME PER ORDINARY SHARE BEFORE AMORTIZATION OF
GOODWILL AND DISPOSALS
Basic 16.9p 9.2p 11.2p
Diluted 16.8p 9.2p 11.2p
Adjusted net income per ordinary share (i.e. before amortization of
goodwill and loss on disposal of businesses) have been provided in
order to facilitate year on year comparison.
10 INTANGIBLE FIXED ASSETS
Goodwill
LM
COST
At February 4, 2002 and February 2, 2003 52.6
----
AMORTIZATION
At February 4, 2002 1.5
Charge for the year 2.6
----
At February 2, 2003 4.1
----
NET BOOK AMOUNT
At February 2, 2003 48.5
====
At February 3, 2002 51.1
====
F-22
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11 PROPERTY, PLANT AND EQUIPMENT
Freehold
land and Plant and
buildings equipment Total
Lm Lm Lm
--------- --------- ------
COST
At January 29, 2001 77.0 128.0 205.0
Additions 2.1 17.9 20.0
Acquisition 1.9 2.9 4.8
Disposals (1.1) (4.8) (5.9)
Businesses sold - (10.7) (10.7)
Currency translation adjustment 1.1 2.6 3.7
---- ----- -----
At February 3, 2002 81.0 135.9 216.9
---- ----- -----
DEPRECIATION
At January 29, 2001 24.8 71.5 96.3
Charge for the year 1.5 14.2 15.7
Disposals (0.8) (4.2) (5.0)
Businesses sold - (6.5) (6.5)
Currency translation adjustment 0.7 1.6 2.3
---- ----- -----
At February 3, 2002 26.2 76.6 102.8
---- ----- -----
Net book amounts at February 3, 2002 54.8 59.3 114.1
==== ===== =====
COST
At February 4, 2002 81.0 135.9 216.9
Additions 0.2 25.4 25.6
Disposals - (9.2) (9.2)
Businesses sold (2.4) (5.5) (7.9)
Currency translation adjustment (5.9) (10.6) (16.5)
---- ----- -----
At February 2, 2003 72.9 136.0 208.9
---- ----- -----
DEPRECIATION
At February 4, 2002 26.2 76.6 102.8
Charge for the year 1.1 15.2 16.3
Disposals - (7.7) (7.7)
Businesses sold (2.0) (4.2) (6.2)
Currency translation adjustment (2.8) (6.4) (9.2)
---- ----- -----
At February 2, 2003 22.5 73.5 96.0
---- ----- -----
Net book amounts at February 2, 2003 50.4 62.5 112.9
==== ===== =====
Plant and equipment at February 2, 2003 includes computer hardware and software
with a cost of L87.0 million (February 3, 2002: L78.8 million) and
accumulated depreciation of L43.2 million (February 3, 2002: L40.3
million).
Capital commitments authorized and contracted at February 2, 2003 amounted to
L3.2 million (February 3, 2002 - L10.6 million).
F-23
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12 INVESTMENTS
Interest in own
shares
Lm
COST
At January 29, 2001 0.5
Additions 0.6
---
At February 3, 2002 1.1
---
AMORTIZATION
At January 29, 2001 0.2
Charge for the year 0.4
---
At February 3, 2002 0.6
---
Net book amount at February 3, 2002 0.5
===
COST
At February 4, 2002 and February 2, 2003 1.1
---
AMORTIZATION
At February 4, 2002 0.6
Charge for the year 0.3
---
At February 2, 2003 0.9
---
Net book amount at February 2, 2003 0.2
===
The Premier Farnell Executive Trust acquires ordinary shares and ADRs
(each ADR representing 2 ordinary shares) in the open market in order
to meet anticipated obligations under the Premier Farnell Performance
Share Plan. The cost of these shares is being amortized over the
performance period of the plan to which they relate. The costs of
administering the plan are charged to the Statement of Income of the
Company. The Trustees have waived the right to receive dividends in
respect of the ordinary shares and ADRs held by the Trust. At February
2, 2003 and February 4, 2002, the Trust held 234,000 ordinary shares
and 35,000 ADRs (representing 70,000 ordinary shares) with a total
nominal value of L15,200. The market value of these shares at February
2, 2003 was L533,000 (February 3, 2002: L835,000).
13 INVENTORIES
February 3, February 2,
2002 2003
Lm Lm
----------- -----------
Raw materials 2.5 1.8
Work in progress 3.8 3.8
Finished goods and goods for resale 146.6 142.2
-------- -----
152.9 147.8
======== =====
F-24
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14 DEBTORS
February 3, February 2,
2002 2003
Lm Lm
----------- -----------
AMOUNTS FALLING DUE WITHIN ONE YEAR:
Gross trade debtors 116.9 108.8
Provisions for doubtful debts (5.3) (4.3)
----- -----
Net trade debtors 111.6 104.5
Other debtors 4.8 5.9
Prepayments and accrued income 15.7 11.4
----- -----
132.1 121.8
===== =====
The bad debt expense for Fiscal 2002, 2001 and
2000 was L2.7 million, L3.2 million and L2.9
million, respectively.
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR:
Pension fund prepayment (note 21) 87.0 82.2
===== =====
15 CREDITORS - DUE WITHIN ONE YEAR
February 3, February 2,
2002 2003
Lm Lm
----------- -----------
Bank overdrafts (unsecured) 3.0 2.7
Unsecured loans (note 16) 20.0 94.6
Trade creditors 33.8 49.3
Income taxes 40.2 43.4
Payroll and other taxes including social security 6.2 5.9
Other creditors 23.8 13.8
Accruals 28.0 26.9
Proposed ordinary dividend 13.6 18.1
----- -----
168.6 254.7
===== =====
F-25
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16 CREDITORS - DUE AFTER MORE THAN ONE YEAR
February 3, February 2,
2002 2003
Lm Lm
----------- -----------
UNSECURED LOANS COMPRISE:
Bank loans 37.0 44.0
7.0% US dollar Guaranteed Senior Notes payable 2003 109.9 94.5
7.2% US dollar Guaranteed Senior Notes payable 2006 109.9 94.5
Other loans 4.7 3.1
----- -----
261.5 236.1
Less: bank loans due within one year (20.0) (94.6)
----- -----
241.5 141.5
===== =====
Bank overdrafts and unsecured loans are repayable as follows:
Within year ending January 2003 23.0 -
Within year ending January 2004 109.9 97.3
Within year ending January 2005 - 0.2
Within year ending January 2007 126.9 138.8
Subsequent years 4.7 2.5
----- -----
264.5 238.8
===== =====
The principal financial covenants in connection with the US Senior
Notes relate to total debt to net worth and maintenance of a minimum
level of net worth. There are also other covenants including, inter
alia, limitations on the ability of the Group to create security
interests, incur guarantees, sell or otherwise dispose of assets,
acquire any interest in the stock, business or assets of another person
and materially change the scope of the business or operations.
Further details on these loans is given in Note 23.
F-26
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17 PROVISIONS FOR LIABILITIES AND CHARGES
February 3, February 2,
2002 2003
Lm Lm
----------- -----------
Deferred taxation 37.7 36.6
Overseas post-retirement obligations 5.0 5.2
Dilapidation costs 1.5 1.5
---- ----
44.2 43.3
==== ====
DEFERRED TAXATION
At beginning of year 27.1 37.7
Charge for the year 10.2 2.7
Currency translation adjustment 0.4 (3.8)
---- ----
At end of year 37.7 36.6
==== ====
The deferred tax charge for the year includes a credit of L0.4 million
(Fiscal 2001: charge of L0.8 million) relating to prior year items.
Deferred tax provisions/(assets) comprise:
February 3, February 2,
2002 2003
Lm Lm
----------- -----------
Excess of tax allowances over depreciation 15.1 13.5
Short-term timing differences (10.4) (7.6)
Pension prepayment 33.0 30.7
----- ----
37.7 36.6
===== ====
No provision has been made for deferred UK taxation and foreign
withholding taxes relating to unremitted earnings of overseas
subsidiaries where remittance of these earnings is not anticipated in
the foreseeable future.
February 3, February 2,
2002 2003
Lm Lm
---------------- -----------
OVERSEAS POST-RETIREMENT OBLIGATIONS (NOTE 21)
At beginning of year 4.8 5.0
Increase in year - 1.0
Currency translation adjustment 0.2 (0.8)
--- ----
At end of year 5.0 5.2
=== ====
DILAPIDATION COSTS
At beginning of year - 1.5
Acquisition (note 24) 1.5 -
--- ----
At end of year 1.5 1.5
=== ====
Provision for dilapidation costs represents the estimated cost of
dilapidation work on leased properties prior to the properties being
vacated at the end of their lease term. The average length of the
remaining lease term on these properties is 13 years.
F-27
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18 CALLED UP SHARE CAPITAL
February 3, February 2,
2002 2003
Nominal value Nominal value
Lm Lm
------------- -------------
AUTHORIZED
ATTRIBUTABLE TO EQUITY INTERESTS
500,000,000 ordinary shares of 5p each (2002 - 429,000,000) 21.5 25.0
ATTRIBUTABLE TO NON-EQUITY INTERESTS
32,000,000 cumulative convertible redeemable preference
shares of L1 each (2002 - 32,000,000) 32.0 32.0
---- ----
53.5 57.0
==== ====
ALLOTTED, CALLED UP AND FULLY PAID
Ordinary shares of 5p each (equity interests)
At February 4, 2002 (272,244,295 shares) 13.6 13.6
Preference share conversion (89,838,310 shares) - 4.5
Allotted under share option schemes (355,625 shares) - -
---- ----
AT FEBRUARY 2, 2003 (362,438,230 SHARES) 13.6 18.1
==== ====
Cumulative convertible redeemable preference shares of
L1 each (non-equity interests)
At February 4, 2002 (27,946,255 shares) 27.9 27.9
Preference share conversion (19,530,070 shares) - (19.5)
Preference share purchase and cancellation (643,964 shares) - (0.6)
---- -----
AT FEBRUARY 2, 2003 (7,772,221 SHARES) 27.9 7.8
==== =====
CAPITAL RESTRUCTURING
On May 13, 2002 shareholders approved a special conversion right which
enabled preference shareholders, for a limited period, to convert their
preference shares into ordinary shares at an enhanced rate of
conversion of 4.6 ordinary shares for each preference share. This
compares to the normal conversion rate of approximately 2.1 ordinary
shares for each preference share. The right to exercise this special
conversion expired on June 24, 2002 for US holders and on June 26, 2002
for UK holders. Holders of preference shares were entitled to receive a
one-time payment in lieu of the preference dividend in respect of those
preference shares converted of 19.8 pence for each sterling preference
share converted or $0.30 for each US preference share converted. Costs
in respect of this restructuring amounted to L0.9 million.
As a result of the special conversion right, 19,530,070 preference
shares were converted into 89,838,310 shares.
In addition, on July 3 and 4, 2002 the Company purchased and cancelled
a total of 643,964 of its own preference shares at a cost of L8.3
million.
F-28
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ALLOTMENTS DURING THE YEAR
FISCAL 2002
On various dates during the year allotments were made under the
Company's Executive Share Option Schemes totaling 355,625 ordinary
shares (nominal value L17,781) for a cash consideration of L655,425.
FISCAL 2001
On various dates during the year allotments were made under the
Company's Executive Share Option Schemes totaling 111,875 ordinary
shares (nominal value L5,594) for a cash consideration of L214,800.
CUMULATIVE CONVERTIBLE REDEEMABLE PREFERENCE SHARES
The rights and restrictions attaching to the US$1.35 cumulative
convertible redeemable preference shares of L1 each (the "US preference
shares") and, following a changeover, 89.2p cumulative convertible
redeemable preference shares of L1 each (the "sterling preference
shares" and, together with the US preference shares, the "preference
shares") are as follows:
1) CURRENCY
Holders of preference shares are entitled to receive a preferential
dividend, a distribution on a winding up and a payment on redemption.
Holders of US preference shares receive such payments in US dollars.
Holders of sterling preference shares receive such payments in
sterling.
2) CHANGEOVER
A holder of US preference shares may serve notice on the Company
requiring that some or all of his US preference shares be changed to
sterling preference shares. As at February 2, 2003, there were
1,320,383 US preference shares and 6,451,838 sterling preference
shares.
3) INCOME
a) Each holder has a right to receive a fixed cumulative
preferential dividend at the rate of US$1.35 per annum for
every L1 of nominal value for the US preference shares and at
the rate of 89.2p per annum for every L1 of nominal value for
the sterling preference shares. Dividends on the US and
sterling preference shares are payable half-yearly in arrears
in equal amounts, on January 26 and July 26.
b) The fixed cumulative preferential dividends payable in respect
of the US preference shares and sterling preference shares are
paid in priority to any dividend payable to the holders of
ordinary shares and in priority to or pari passu with the
holders of any other class of preference shares in the capital
of the Company.
c) If a holder of US preference shares has elected to change over
his US preference shares to sterling preference shares then
the fixed cumulative preferential dividend and any arrears
payable after the changeover date will be paid at the sterling
rate set out in (a) above.
F-29
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4) CONVERSION
a) Each holder of US preference shares and sterling preference
shares is entitled to convert all or any of his fully paid
preference shares into fully paid ordinary shares at the rate
of 10.3432p in nominal amount of ordinary share capital for
every L1 in nominal amount of preference share capital so
converted (the "conversion rate").
b) The preference shares may be converted on any date at the
option of the holder on and from the date of issue up to and
including April 22, 2016.
c) If at any time 75 per cent or more of all the preference
shares have been converted into ordinary shares (but assuming,
for this purpose only, that any preference shares which have
been converted into ordinary shares pursuant to the special
conversion right referred to above had never been issued or
converted) the Company may give written notice to the
remaining holders of US preference shares and sterling
preference shares to convert the remaining US preference
shares and sterling preference shares into ordinary shares.
d) The conversion rate may be subject to adjustment if, inter
alia, the Company makes an issue of ordinary shares by way of
capitalization of profits or reserves, a rights issue or
another offer to ordinary shareholders or if there is a change
of control in the Company following a takeover offer or if a
capital distribution is made.
5) REDEMPTION
The Company shall (subject to any statutory restrictions) on April 29,
2016 redeem all the US preference shares in issue at US$25 for every L1
of nominal value and all the sterling preference shares in issue at
L16.518 for every L1 of nominal value.
6) VOTING
Each preference share entitles the holder to receive notice of but not
to attend or vote at general meetings of the Company, save in limited
circumstances. Subject to being entitled to vote on any resolution,
each holder of preference shares has one vote on a show of hands and on
a poll every such holder has one vote for every ordinary share to which
he would be entitled on conversion of his preference shares.
7) WINDING UP
Subject to the rights attached to any shares issued on any special
terms and conditions, on a return of capital on a winding up of the
Company the assets available for distribution will be applied, first,
in paying to each holder of a preference share any arrears and accruals
of the preferential dividend; second, in paying US$25 for every L1 of
nominal value for the US preference shares and L16.518 for every L1 of
nominal value for the sterling preference shares; third, in repaying
the capital paid up on each ordinary share; and, fourth, in
distributing the remainder rateably among the members of the Company
according to the amounts paid up on their respective holdings of shares
in the Company, each preference share being treated for this purpose as
if converted at the conversion rate applicable into fully paid ordinary
shares immediately prior to the commencement of the winding up.
F-30
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19 SHARE OPTIONS
During Fiscal 2002 the Group operated the Approved Executive Share
Option Scheme, the Unapproved Executive Share Option Scheme (introduced
in Fiscal 1996 following the enactment of the Finance Act 1996 which
placed a limit of L30,000 on the value of shares which can be placed
under option to individuals under the Approved Executive Share Option
Scheme), the Savings Related Share Option Scheme and the Long Term
Incentive Plan.
1) THE APPROVED AND UNAPPROVED EXECUTIVE SHARE OPTION SCHEMES
The Approved and Unapproved Executive Share Option Schemes exist for
directors and senior employees of the Group, under which option holders
may acquire shares in the Group. The option price may not be less than
the market value of a share on the date the option is granted and the
aggregate total option value for any individual is limited to four
times his emoluments.
Options may normally be exercised between the third and tenth
anniversaries of the date of grant, if the performance requirement has
been met and while the participant remains an employee. The performance
target is that for options granted prior to March 14, 2001, over a
three year period the Company's normalized net income per share should
grow by at least 6% in excess of the growth in the Retail Price Index.
For options granted on or after March 14, 2001 the growth rate must be
at least 9%.
The Rules of the Unapproved Executive Scheme provide that no more than
4 million new ordinary shares may at any time be issued under the said
scheme to eligible employees in the US. This amendment was approved and
ratified by shareholders of the Company at the Annual General Meeting
on June 17, 1997.
The number of options outstanding is set out below.
Number of shares (weighted average option price)
------------------------------------------------
Year ended
------------------------------------------------
January 28, February 3, February 2,
2001 2002 2003
----------- ----------- -----------
Outstanding at beginning of year 4,838,555 4,989,501 6,044,284
(318p) (339p) (303p)
Granted 1,132,750 1,453,250 2,634,950
(432p) (197p) (158p)
Exercised (297,928) (111,875) (355,625)
(214p) (192p) (192p)
Lapsed (683,876) (286,592) (796,016)
(399p) (421p) (366p)
--------- --------- ---------
Outstanding at end of year 4,989,501 6,044,284 7,527,593
(339p) (303p) (252p)
========= ========= =========
Exercisable at end of year 67,577 67,577 51,799
========= ========= =========
F-31
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1) THE APPROVED AND UNAPPROVED EXECUTIVE SHARE OPTION SCHEMES (CONTINUED)
The aggregate number of shares covered by options capable of being
exercised under the Executive Share Option Schemes at February 2, 2003
was 7,527,593 the total consideration of L19.0 million being made up as
follows:
NUMBER TOTAL
OF SHARES CONSIDERATION
DATE OF GRANT OUTSTANDING OPTION PRICE LM
----------- ------------ -------------
May 1993 51,799 356p 0.2
May 1995 110,452 551p 0.6
November 1995 10,519 631p 0.1
November 1996 212,398 682p 1.4
November 1996 220,000 688p 1.5
May 1997 65,000 682p 0.4
July 1998 300,000 305p 0.9
March 1999 1,754,875 192p 3.4
July 1999 25,000 245p 0.1
December 1999 45,000 368p 0.2
April 2000 654,350 425p 2.8
June 2000 30,000 468p 0.1
September 2000 65,000 513p 0.3
December 2000 50,000 377p 0.2
July 2001 40,000 249p 0.1
September 2001 1,231,250 193p 2.4
January 2002 29,000 320p 0.1
April 2002 50,000 337p 0.2
October 2002 2,473,250 153p 3.8
December 2002 59,700 199p 0.1
January 2003 40,000 175p 0.1
January 2003 10,000 199p -
--------- --- ----
7,527,593 19.0
========= === ====
Weighted average remaining contractual life 7.7 years
At February 3, 2002, the aggregate number of shares covered by options
capable of being exercised under the Executive Share Option Schemes was
6,044,284 with a total consideration of L18.5 million and the weighted
average remaining contractual life was 7.6 years.
2) SAVINGS RELATED SHARE OPTION SCHEME
Under the UK, US and Overseas Savings Related Share Option Schemes,
employees with at least one year's service who take out a savings
contract may acquire options over ordinary shares in the Group.
For all of the Savings Related Share Option Schemes, the option price
may not be less than 80% of the market value of a share on the date
prior to the date on which invitations to apply are issued. Options may
normally be exercised during the six month period following completion
of the three or five year savings contract.
F-32
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2) SAVINGS RELATED SHARE OPTION SCHEME (CONTINUED)
The number of options outstanding is set out below.
Number of shares (weighted average option price)
------------------------------------------------
Year ended
------------------------------------------------
January 28, February 3, February 2,
2001 2002 2003
----------- ------------ -----------
Outstanding at beginning of year 705,290 225,038 78,557
(527p) (521p) (531p)
Lapsed (480,252) (146,481) (78,557)
(529p) (516p) (531p)
-------- -------- ------
Outstanding at the end of the year 225,038 78,557 -
(521p) (531p) -
======= ======== ======
Exercisable at end of year 187,980 53,854 -
======= ======== ======
At February 3, 2002, the aggregate number of shares covered by options
capable of being exercised under the Savings Related Share Option
Schemes was 78,557 with a total consideration of L0.4 million.
3) PROFIT SHARING SCHEME
The Group operated a profit sharing scheme in the UK, which ceased in
Fiscal 1998, under which an amount not exceeding 5% of UK profit before
tax less 15% of shareholders' funds was paid into the scheme for the
purpose of acquiring ordinary shares for the benefit of UK employees.
Shares were held in the scheme for a minimum of two years and a maximum
of five years before being transferred to eligible employees.
The balance of shares held in the scheme were transferred to the
participating employees on July 2, 1998.
F-33
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4) LONG TERM INCENTIVE PLAN
Under the plan executive Directors and senior executives are awarded
rights to acquire ordinary shares. Each award made under the plan is
subject to performance conditions which will determine how many (if
any) of the shares under the award the participant is entitled to
acquire after the three year performance period. The maximum value of
awards which can be made in any year to a participant is equal to 100
percent of basic salary.
The main performance condition compares the growth of the Company's
total shareholder return (share price growth and reinvested dividends)
over a three year period to that of the companies in the FTSE mid-250
Index (excluding investment trusts). The Company's ranking amongst the
comparator companies determines the percentage of shares which a
participant can acquire. No shares may be acquired where the Company's
ranking is below median and, to acquire the full number of shares
awarded, the Company must rank in the top quartile of the comparator
group.
In addition, shares can only be acquired under any award if the
Remuneration Committee is satisfied that the underlying performance of
the Company during the performance period justifies the exercise of an
award.
The maximum number of shares outstanding under the plan at February 2,
2003 is 1,014,336 comprising:
Market price at At February At February Earliest
Date of award date of award 3, 2002 Awarded Lapsed 2, 2003 exercise date
- ------------- --------------- ----------- ------- -------- ----------- -------------
June 2000 486p 353,034 - (353,034) - -
March 2001 305p 598,082 - (144,108) 453,974 March 2004
March 2002 348p - 640,649 (80,287) 560,362 March 2005
------- ------- -------- ---------
951,116 640,649 (577,429) 1,014,336
------- ------- ------- ---------
5) OVERALL SCHEME LIMITS
Overall limits govern the number of shares which can be issued under
options granted under the schemes. These provide that:
- - The number of shares issued or issuable pursuant to options granted in
the preceding 10 years under all the option schemes cannot exceed 10%
of the Company's issued share capital;
- - The number of shares issued or issuable pursuant to options granted in
the preceding 10 years under the Company's executive share option
schemes (the approved and unapproved share option scheme and the
performance share plan) cannot exceed 5% of the Company's issued share
capital;
- - The number of shares issued or issuable pursuant to options granted in
the preceding 5 years under all the option schemes cannot exceed 5% of
the Company's issued share capital;
In each case the period of years referred to is that immediately
preceding a proposed grant of options and the Company's issued share
capital is that which is outstanding at the time of proposed grant.
F-34
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20 NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
-----------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
------------ ----------- -----------
RECONCILIATION OF OPERATING INCOME TO NET CASH INFLOW FROM
OPERATING ACTIVITIES:
Operating income 115.0 86.9 80.3
Depreciation charge (net of gain on disposals) 12.1 14.1 15.8
Amortization of goodwill - 1.5 2.6
Net pension credit (5.2) (6.7) (6.8)
(Increase)/decrease in inventories (13.3) 9.3 (9.0)
(Increase)/decrease in debtors (12.4) 29.7 0.8
Increase/(decrease) in creditors 16.2 (27.7) 8.3
----- ----- ----
Net cash inflow from operating activities 112.4 107.1 92.0
===== ===== ====
ANALYSIS OF CHANGES IN NET DEBT
Cash at Short Debt due Debt due
bank and term Bank within after one Net
in hand deposits overdrafts one year year cash/(debt)
Lm Lm Lm Lm Lm Lm
-------- -------- ---------- -------- --------- -----------
At January 28, 2001 21.3 16.3 - - (216.8) (179.2)
Increase/(decrease) in cash 7.1 - (3.0) - - 4.1
Decrease in short term deposits - (16.3) - - - (16.3)
Increase in debt - - - (20.0) (17.0) (37.0)
Exchange movement (0.3) - - - (7.7) (8.0)
------ ----- ------- ------ ------ ------
At February 3, 2002 28.1 - (3.0) (20.0) (241.5) (236.4)
Increase in cash 2.0 - 0.3 - - 2.3
Decrease/(increase) in debt - - - 19.9 (26.0) (6.1)
Other changes - - - (98.7) 98.7 -
Exchange movement (0.5) - - 4.2 27.3 31.0
------ ----- ------- ------ ------ ------
At February 2, 2003 29.6 - (2.7) (94.6) (141.5) (209.2)
====== ===== ======= ====== ====== ======
F-35
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21 PENSION COMMITMENTS AND OTHER POST-RETIREMENT OBLIGATIONS
(I) PENSIONS
The Group operates pension plans throughout the world covering the
majority of its employees. These plans are devised in accordance with
local conditions and practices in the countries concerned and include
defined contribution and defined benefit schemes. The assets of the
plans are generally held in separately administered trusts. The
contributions to the plans are assessed in accordance with independent
actuarial advice principally using the projected unit method of
valuation.
The Group's two principal plans operate in the UK and the US. Further
disclosures of these plans are set out below:
UK Plan US Plan
------------- ----------------
Last valuation date April 6, 1999 October 31, 2002
Lm Lm
------------- ----------------
Market value of investments at last valuation date 55.7 112.6
---- -----
Regular pension cost - 2.2
Interest on prepaid asset - (6.9)
Amortization of variation 0.1 (2.2)
---- -----
Total pension cost/(credit) 0.1 (6.9)
==== =====
Level of funding, being the actuarial value of assets expressed
as a percentage of the accrued service liabilities 104% 279%
=== =====
The principal assumptions used in the actuarial valuation of the UK
plan were an average projected investment return of 8.5% per annum,
salary inflation of 6.0% per annum and pension increases of 3.5% per
annum. For the US plan, the principal actuarial assumptions were an
average projected investment return of 8.5% per annum and salary
inflation of 5.0% per annum.
Variations from regular cost are spread over the remaining service
lives of current employees in the plans.
The final salary section of the UK Plan was closed to new entrants in
1998 as a result of which, under the projected unit method, the current
service cost of the scheme will increase as the members of the scheme
approach retirement. Members at that date now receive benefits funded
through a combination of the US Plan and the UK Plan, including
contributions to the money purchase section within the UK Plan.
Employees joining the UK Plan since January 1, 1999 are entitled to
money purchase benefits only.
At February 2, 2003 an asset of L82.2 million (February 3, 2002 - L87.0
million) is included in debtors, representing the excess of the
actuarial value of the assets over the accrued service liabilities of
the US plan.
The April 2002 actuarial valuation of the UK Plan is in the process of
being finalized. This is expected to show a funding level of 94% as a
result of the fall in equity market values. As a consequence, the total
pension cost for the UK Plan, under SSAP 24, for the year ending
February 1, 2004, will be L0.8 million.
Costs recognized in respect of defined contribution benefit plans
amounted to L1.5 million in Fiscal 2000, L1.3 million in Fiscal 2001
and L2.0 million in Fiscal 2002. The increase in Fiscal 2002 arose
principally as a result of the acquisition of Buck & Hickman in Fiscal
2001.
F-36
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DISCLOSURES IN ACCORDANCE WITH FINANCIAL REPORTING STANDARD ("FRS") 17,
RETIREMENT BENEFITS
The following information is provided for disclosure purposes only in
accordance with FRS17. Pension costs have been recognized in these
accounts in line with Statement of Standard Accounting Practice No.24,
Accounting for Pension Costs, as described above.
The financial assumptions at February 2, 2003 used to calculate
liabilities under FRS17 were as follows:
February 3, 2002 February 2, 2003
----------------- ------------------
UK Plan US Plan UK Plan US Plan
% pa % pa % pa % pa
----------------- ------------------
Inflation 2.50 2.50 2.30 2.30
Rate of increase in salaries 4.00 4.00 3.80 3.80
Rate of increase in pensions 2.50 2.50 2.30 2.30
Discount rate 5.75 7.00 5.50 6.50
================= ==================
The market value of assets and the expected rate of return at February
2, 2003 were:
February 3, 2002 February 2, 2003
------------------------------------------ ------------------------------------------
UK Plan US Plan UK Plan US Plan
Long-term Long-term Long-term Long-term
expected expected expected expected
rate of UK Plan rate of US Plan rate of UK Plan rate of US Plan
return Value return Value return Value return Value
% pa Lm % pa Lm % pa Lm % pa Lm
------------------------------------------ ------------------------------------------
Equities 7.9 31.5 7.9 156.6 8.9 25.0 8.9 107.1
Bonds 5.0 21.2 - - 4.5 18.2 - -
Cash - - 4.5 1.8 4.0 0.1 - -
------------------------------------------ ------------------------------------------
Average return/
Total 6.8 52.7 7.9 158.4 7.0 43.3 8.9 107.1
========================================== ==========================================
The funding position at February 2, 2003 in accordance with FRS17 was
as follows:
February 3, 2002 February 2, 2003
------------------------------ -----------------------------
UK Plan US Plan Total UK Plan US Plan Total
Lm Lm Lm Lm Lm Lm
------------------------------ -----------------------------
Total market value of assets 52.7 158.4 211.1 43.3 107.1 150.4
Present value of plan liabilities (61.2) (69.1) (130.3) (58.0) (57.7) (115.7)
----------------------------- ----------------------------
(Deficit)/surplus in the plan (8.5) 89.3 80.8 (14.7) 49.4 34.7
Related deferred tax asset/(liability) 2.6 (33.8) (31.2) 4.4 (18.7) (14.3)
----------------------------- ----------------------------
Net pension (liability)/asset (5.9) 55.5 49.6 (10.3) 30.7 20.4
============================= ============================
F-37
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Analysis of amounts charged to the Consolidated Statement of Income in
respect of defined benefit schemes for the year ended February 2, 2003:
(i) Amounts charged to operating income
UK Plan US Plan Total
Lm Lm Lm
------- ---------------
Current service cost 0.3 2.7 3.0
Past service cost - 0.7 0.7
----- --------------
TOTAL OPERATING CHARGE 0.3 3.4 3.7
----- --------------
(ii) Amounts credited to exceptional items
GAIN ON CURTAILMENTS - 0.3 0.3
----- --------------
(iii) Amounts credited/(charged) to other financial income
Expected return on pension scheme assets 3.5 11.4 14.9
Interest cost on pension scheme liabilities (3.5) (4.4) (7.9)
----- --------------
NET RETURN - 7.0 7.0
===== ==============
Movements in (deficit)/surplus during the year:
UK Plan US Plan Total
Lm Lm Lm
------- ---------------
(Deficit)/surplus at February 4, 2002 (8.5) 89.3 80.8
Current service cost (0.3) (2.7) (3.0)
Past service cost - (0.7) (0.7)
Gain on curtailments - 0.3 0.3
Other finance income - 7.0 7.0
Total loss recognized in the Consolidated Statement of Total Recognized Gains and Losses (5.9) (43.8) (49.7)
----- ---------------
(DEFICIT)/SURPLUS AT FEBRUARY 2, 2003 (14.7) 49.4 34.7
===== ===============
Analysis of amount recognized in the Consolidated Statement of Total
Recognized Gains and Losses:
Year ended February 2, 2003
---------------------------
UK Plan US Plan Total
Lm Lm Lm
------- ---------------
Actual return less expected return on pension scheme assets (10.6) (37.6) (48.2)
Experience gains and losses arising on scheme liabilities 5.2 7.1 12.3
Changes in the assumptions underlying the present value of the scheme (0.5) (2.6) (3.1)
------ ---------------
Actuarial loss recognized in the Consolidated Statement of Total Recognized Gains and Losses (5.9) (33.1) (39.0)
Currency translation adjustment - (10.7) (10.7)
------ ---------------
TOTAL LOSS RECOGNIZED IN THE CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES (5.9) (43.8) (49.7)
====== ===============
F-38
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
History of experience gains and losses:
Year ended February 2, 2003
-------- -----------------
UK Plan US Plan Total
-------- -----------------
Difference between the actual and expected return on scheme
assets:
Amount (Lm) (10.6) (37.6) (48.2)
Percentage of scheme assets 24.5% 35.1% 32.0%
Experience gain on scheme liabilities
Amount (Lm) 5.2 7.1 12.3
Percentage of the present value of scheme liabilities 9.0% 12.3% 10.6%
Actuarial loss recognized in statement of total recognized
gains and losses
Amount (Lm) (5.9) (33.1) (39.0)
Percentage of the present value of scheme liabilities 10.2% 57.4% 33.7%
Reported net assets and profit and loss reserve can be reconciled to
amounts in accordance with FRS17 as follows:
February 3, 2002 February 2, 2003
-----------------------------------------------
Net Retained Net Retained
assets earnings assets earnings
Lm Lm Lm Lm
-----------------------------------------------
As reported 111.5 65.6 103.5 57.8
Pension asset in accordance with SSAP 24 (87.0) (87.0) (82.2) (82.2)
Associated deferred tax liability 33.0 33.0 30.7 30.7
---------------------------------------------
As reported excluding pension asset and associated
deferred tax liability 57.5 11.6 52.0 6.3
Net pension asset in accordance with FRS17 49.6 49.6 20.4 20.4
---------------------------------------------
Amounts in accordance with FRS17 107.1 61.2 72.4 26.7
=============================================
(II) POST-RETIREMENT MEDICAL BENEFITS
In the US, the Group provides unfunded post-retirement medical benefits
to certain US employees. The method of accounting for these obligations
is similar to that used to account for pension obligations. The
principal assumptions used in the most recent actuarial valuation
undertaken at February 2, 2003 were a discount rate of 8.0% per annum
and health care cost inflation of 9.0% per annum decreasing by 0.5%
each year to 5.0% over eight years. At February 2, 2003, the provision
for post-retirement medical benefits based on this valuation was L5.2
million (February 3, 2002: L5.0 million). The post-retirement benefit
charge during the year ended February 2, 2003 was L1.0 million. An
increase in the healthcare cost trend assumption of 1.0% will increase
the aggregate service and interest cost by approximately L60,000 and
the accumulated post retirement obligation by approximately L0.7
million. A decrease in the healthcare cost trend assumption of 1.0%
will decrease the aggregate service and interest cost by approximately
L70,000 and the accumulated post retirement obligation by approximately
L0.6 million.
F-39
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DISCLOSURES IN ACCORDANCE WITH FINANCIAL REPORTING STANDARD ("FRS") 17,
RETIREMENT BENEFITS
The following information is provided for disclosure purposes only in
accordance with FRS17.
The financial assumptions at February 2, 2003 used to calculate
liabilities for post-retirement medical benefits under FRS 17, were as
follows:
Discount rate 8.0%
Medical inflation 9.0% decreasing by 0.5% each year to 5.0% over eight years
Analysis of amounts charged to the profit and loss account in respect
of post-retirement medical benefits for the year ended February 2,
2003:
Year ended
February 2, 2003
Lm
----------------
Amounts charged to operating income - current service cost 0.2
Amounts charged to other finance income - interest cost on liabilities 0.4
----
Movements in deficit during the year:
Obligation at February 4, 2002 (5.3)
Contributions paid 0.4
Current service cost (0.2)
Finance cost (0.4)
Total loss recognised in the Consolidated Statement of Total Recognized
Gains and Losses (0.3)
----
OBLIGATION AT FEBRUARY 2, 2003 (5.8)
----
Analysis of amount recognized in the Consolidated Statement of Total
Recognized Gains and Losses:
Experience loss on liabilities (0.1)
Loss on change of assumptions (1.0)
----
Actuarial loss recognized in the Consolidated Statement of Total Recognized (1.1)
Gains and Losses
Currency translation adjustment 0.8
----
TOTAL LOSS RECOGNIZED IN THE CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED
GAINS AND LOSSES (0.3)
----
History of experience gains and losses:
Experience loss on liabilities (0.1)
Percentage of liabilities 1.7%
Actuarial loss recognized in the Consolidated Statement of Total Recognized
Gains and Losses (1.1)
Percentage of liabilities 19.0%
Had the provision for post-retirement medical benefits been calculated
in accordance with FRS 17, reported net assets and the profit and loss
reserve, as at February 2, 2003, would have been reduced by L0.4
million.
F-40
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22 OPERATING LEASES
The Group has annual commitments under operating leases which expire:
Land and buildings Other assets
------------------------------ ------------------------------
February 3, February 2, February 3, February 2,
2002 2003 2002 2003
Lm Lm Lm Lm
------------------------------ ------------------------------
Within one year 0.8 0.7 0.5 0.9
Between two and five years 3.5 3.2 3.4 2.7
After five years 1.6 1.8 - -
-------------------------- ---------------------------
5.9 5.7 3.9 3.6
========================== ===========================
23 FINANCIAL INSTRUMENTS AND DERIVATIVES
The following detailed disclosures with regard to the use of financial
instruments and derivatives are in accordance with FRS 13 and where
permitted exclude short term trade debtors and creditors.
(1) FOREIGN CURRENCY RISK
The Group hedges transactions primarily related to the purchase and
sale of inventories denominated in foreign currencies through foreign
exchange forward contracts. These contracts reduce currency risk from
exchange rate movements with respect to these transactions and cash
flows. Gains and losses are deferred and accounted for as part of the
underlying transactions.
The Group does not hedge income translation exposure, unless there is a
corresponding cashflow, since such hedges provide only a temporary
deferral of the effects of movements in exchange rates. Similarly,
whilst a significant proportion of the Group's borrowings are
denominated in US dollars, the Group does not specifically hedge all of
its existing long-term investments in overseas assets. This has
resulted in currency translation differences, amounting to L0.3 million
(loss), L1.3 million (loss) and L3.1 million (gain) in the years ended
February 2, 2003, February 3, 2002 and January 28, 2001, respectively,
being charged to reserves in relation to the translation of overseas
assets.
At February 2, 2003 the gross notional amount of foreign exchange
forward contracts, all of which had maturities of less than one year,
totalled L14.0 million (February 3, 2002: L2.9 million) and can be
analyzed as follows:
COMMITMENTS TO SELL FOREIGN CURRENCY
Unrecognized/deferred
Sterling equivalent gains and (losses)
-------------------------------------------------------------
February 3, February 2, February 3, February 2,
2002 2003 2002 2003
Lm Lm Lm Lm
-------------------------------------------------------------
Euro - 11.6 - (0.1)
Australian dollars 2.9 2.4 - -
Other currencies - - - -
---------------------------------------------------------
2.9 14.0 - (0.1)
=========================================================
F-41
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The increase in the gross notional amount of forward foreign exchange
contracts compared to last year end reflects variations in the timing
of entering into contracts.
The fair value of foreign exchange forward contracts is estimated by
reference to the amount of hedging gain (or loss) deferred and
generally reflects the estimated amounts that the Group would receive
or pay to terminate the contracts at the year end based on dealer
quotes. As at February 2, 2003 and February 3, 2002 the fair value of
foreign exchange contracts approximated their carrying value of Lnil.
During the financial year, the Group has not used any other financial
instruments to hedge trading foreign exchange rate exposures.
The Group's primary translation exposure relates to the relative values
of the pound sterling and US dollar. Although the US business generates
significant US dollar trading cash flows, the Group's borrowings are
predominantly US dollar denominated. Following the conversion of a
significant proportion of the Group's US dollar denominated preference
shares into ordinary shares during the year ended February 2, 2003, the
US dollar dividend obligations are substantially reduced. However,
management anticipates that the ongoing US dollar interest obligations
and US dollar trade payments in the UK will continue to preclude the
need to enter into any significant hedging of US dollar cash flows.
At February 2, 2003 the Group had the equivalent of L3.6 million
(February 3, 2002: L4.9 million) of (predominantly Euro denominated)
net financial assets in non-functional currencies in relation to which
future movements in foreign currencies could have a limited impact on
consolidated profit.
(2) INTEREST RATE RISK
The Group finances its operations through a combination of retained
cash flow, equity and non-equity shares and bank borrowings. Procedures
are in place to monitor and manage interest rate risk with derivatives
being entered into when considered appropriate by management.
FINANCIAL LIABILITIES
The maturity profile of the Group's borrowings is as follows:
February 3, 2002 February 2, 2003
--------------------------------- ----------------------------
Fixed Floating Total Fixed Floating Total
Lm Lm Lm Lm Lm Lm
--------------------------------- ----------------------------
Due within one year - 23.0 23.0 94.6 2.7 97.3
Due between one and two years 109.9 - 109.9 0.2 - 0.2
Due between two and five years 109.9 17.0 126.9 94.8 44.0 138.8
Due over five years - 4.7 4.7 1.5 1.0 2.5
--------------------------------- ----------------------------
219.8 44.7 264.5 191.1 47.7 238.8
================================= ============================
The Group's borrowings are denominated in US dollars with the exception
of the floating rate debt due within five years of L46.7 million at
February 2, 2003 which is denominated in sterling.
F-42
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Group has multi currency bilateral bank facilities of L125 million,
which are committed until 2006. The facilities carry a LIBOR based
floating rate of interest. At February 2, 2003, L44 million was drawn
on these facilities (February 3, 2002: L37 million).
The weighted average interest rate attributable to fixed rate
borrowings in Fiscal 2002 was 7.1% (Fiscal 2001: 7.1%) and the weighted
average duration of fixed rate borrowings was 2.9 years (Fiscal 2001:
3.9 years).
The weighted average interest rate on bank overdrafts during the year
ended February 2, 2003 was 4.0% (Fiscal 2001: 4.8%). The weighted
average interest rate on overdrafts as at February 2, 2003 was 4.5%
(February 3, 2002: 5.0%).
Since the year end, the Group has raised $225 million (L137 million) of
new funding in the private placement market, principally in order to
refinance the 7.0% Senior Notes repayable in June 2003. These comprise
$66 million of 7 year private placement notes and $159 million of 10
year private placement notes at fixed interest rates of 5.3% and 5.9%,
respectively.
NON-EQUITY SHARES
A proportion of the Group's share capital is attributable to non-equity
interests, in the form of cumulative convertible redeemable preference
shares.
The rights and restrictions attaching to the preference shares are
described in note 18.
FINANCIAL ASSETS
Cash at bank and in hand of L29.6 million (February 3, 2002: L28.1
million) relate principally to overnight deposits and current account
balances in various currencies held in trading operations worldwide.
All significant balances earn interest based on local market rates
appropriate for the currency concerned.
F-43
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
An analysis of the fair values and book values of the Group's financial
instruments is provided below:
Book value Fair value Book value Fair value
February 3, February 3, February 2, February 2,
2002 2002 2003 2003
Lm Lm Lm Lm
-------------------------------------------------------------
ASSETS
Cash at bank and in hand 28.1 28.1 29.6 29.6
Debtors due after more than one year 87.0 87.0 82.2 82.2
(pension fund prepayment)
----------------------------------------------------------
115.1 115.1 111.8 111.8
----------------------------------------------------------
LIABILITIES AND DERIVATIVES
Due within one year (23.0) (23.0) (97.3) (98.6)
Due in more than one year (241.5) (248.2) (141.5) (150.0)
Commitments to sell foreign currency - - - (0.1)
----------------------------------------------------------
(264.5) (271.2) (238.8) (248.7)
----------------------------------------------------------
----------------------------------------------------------
Non-equity interests (486.7) (387.3) (126.7) (89.5)
==========================================================
The fair value of borrowings is based on estimates of the current fixed
interest rates available for debt of the same remaining maturity.
(4) CREDIT RISK
The Group monitors its position with, and the credit quality of, the
financial institutions which are counterparties to its forward exchange
contracts and interest rate swaps and does not anticipate
non-performance by the counterparties. The Group would not realize a
material loss in the event of non-performance by counterparties. At
February 2, 2003, neither the Group nor the counterparties were
required to collateralise their respective obligations under these
financial instruments.
The Group's trade receivables do not represent significant
concentrations of credit risk at February 2, 2003 due to the wide
variety of customers and markets into which the Group's products are
sold, as well as their dispersion across various geographic areas.
F-44
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24 ACQUISITIONS AND DISPOSALS
(1) ACQUISITION OF BUCK & HICKMAN
On July 2, 2001, the Group acquired Buck & Hickman, a UK catalogue
distributor of industrial products, for a cash consideration, including
costs, of L66.0 million. Details of the acquisition are set out below:
Fair value
Book value Adjustments Fair value
Lm Lm Lm
-------------------------------------------
Property, plant and equipment 4.8 - 4.8
Inventories 10.7 (0.9) 9.8
Debtors 16.7 (0.5) 16.2
Creditors - due within one year (15.9) - (15.9)
Provisions for liabilities and charges - (1.5) (1.5)
---------------------------------------
Net assets acquired 16.3 (2.9) 13.4
=====================
Goodwill 52.6
-----
Cash consideration (including costs) 66.0
=====
The fair value adjustments comprise the alignment of accounting
policies in respect of stock and bad debt provisions and the
establishment of a provision for dilapidation costs in respect of
leased properties.
(2) ACQUISITION OF MINORITY INTEREST
On January 31, 2002, the Group acquired the 10% minority interest in
Farnell Components Pte Limited. Farnell Components (M) SDN BHD and
Farnell Components (HK) Limited for a total cash consideration of L0.3
million.
(3) BUSINESS DISPOSALS
Details of businesses disposed of during the year are given in note 3.
Year ended
-------------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
-------------------------------------------
Property, plant and equipment - 4.2 1.7
Inventories - 7.3 2.1
Debtors - 1.1 1.8
Goodwill previously eliminated against reserves - 25.6 2.6
---------------------------------------
- 38.2 8.2
Net consideration (below) - (27.2) (3.3)
---------------------------------------
Loss on disposal (note 3) - 11.0 4.9
=======================================
Cash consideration - 34.2 4.3
Disposal costs - (7.0) (1.0)
---------------------------------------
Net consideration - 27.2 3.3
=======================================
Disposal costs in Fiscal 2001 include severance and associated costs of
L5.8 million borne by the Group.
F-45
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
The Group accounts are prepared in accordance with UK GAAP which
differs in certain significant respects from US GAAP. A description of
the relevant accounting principles which differ significantly is given
below.
GOODWILL AND OTHER INTANGIBLE ASSETS
Under UK GAAP, prior to the introduction of FRS10 'Goodwill and
Intangible Assets' in 1998 which requires goodwill and intangible
assets to be capitalized and amortized over their estimated useful
economic lives, goodwill arising on acquisitions was permitted to be
written off against retained earnings. Since the introduction of FRS10,
goodwill arising on acquisitions is capitalized and amortized over its
estimated useful economic life which, in the case of Buck & Hickman, is
20 years. Goodwill arising on acquisitions is reviewed for impairment
at the end of the first full year after an acquisition and in other
years if events or changes in circumstances indicate that the carrying
value may not be recoverable.
Under US GAAP, prior to the introduction of FAS 142, 'Goodwill and
Other Intangible Assets', goodwill and other identifiable intangible
assets were capitalized and amortized over their estimated useful
lives. Accordingly, on the acquisition of Premier in April 1996, L596
million of the excess purchase consideration over net asset value was
recorded as a customer list intangible asset with the remaining L1,193
million recorded as goodwill. The customer list was being amortized
over 20 years, and goodwill amortized over 40 years.
On the acquisition of Buck and Hickman in July 2001, L21.3 million of
the excess purchase consideration over net asset value was recorded as
a definite lived customer list intangible asset, L8.2 million
recognized as an indefinite lived intangible asset, with the remaining
L23.1 million recognized as goodwill.
FAS 142 addresses financial accounting and reporting for goodwill and
other intangible assets. The Group adopted FAS 142 prospectively as of
February 4, 2002. FAS 142 requires that goodwill and indefinite lived
intangible assets are no longer amortized, but instead assessed
annually for impairment by applying a fair value based test. Definite
lived intangible assets continue to be amortized over their estimated
useful lives. FAS 142 requires intangible assets to be reassessed as
either definite lived or indefinite lived intangible assets on the date
of adoption of the standard. Accordingly, the Group continued to
recognize the Premier customer list as a definite lived intangible
asset with no change in the estimated useful life. Similarly, the
customer list intangible asset and the trademark intangible asset
recognized on the acquisition of Buck and Hickman continued to be
recognized as definite lived and indefinite lived intangible assets,
respectively, with no change in the estimated useful life of the
customer list.
The impact of adopting FAS 142 has been to cease goodwill amortization
of approximately L31 million per annum, resulting in a goodwill balance
subject to impairment testing of L1,112.9 million as of February 4,
2002.
The Group performed its transitional goodwill impairment test as
required by the standard as of February 4, 2002, being the adoption
date, and on July 31, 2002 being the date the Group has elected for
each subsequent annual impairment test.
Goodwill is tested for impairment based on a two-step test. The first
step requires a comparison of the fair value of each of the Group's
reporting units and the carrying amounts of net assets including
goodwill related to each reporting unit. If the carrying amount exceeds
a unit's fair value, the second step of the impairment test is
performed to measure the amount of impairment loss, if any. As of
February 4, 2002, the Group performed the transitional impairment test
under FAS 142 and compared the carrying amount for each reporting unit
to its fair value, which was determined based on discounted cash flows.
The result of the transitional impairment test was the recognition of
goodwill impairment of L728.0 million as of February 4, 2002, which in
accordance with the transitional provisions of the standard, has been
recorded as a cumulative effect change in accounting principle. The
Group also completed the annual impairment test required by FAS 142 as
of July 31, 2002, which resulted in no impairment charges.
F-46
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The indefinite lived trademark intangible asset was tested for
impairment in accordance with the standard although no impairment was
indicated. As a result of the transitional testing requirements of FAS
142, the Premier customer list definite lived intangible asset was
tested for impairment in accordance with the provisions of FAS 144 as
of February 4, 2002. No impairment losses were identified.
The differing treatment of goodwill under US GAAP may also give rise to
a different profit or loss being recorded in the income statement on
the subsequent disposal of a business.
DEFERRED TAXATION
Under FRS 19, 'Deferred Tax', accounting for deferred tax under UK GAAP
is now largely consistent with US GAAP. The principal difference
recognized in the reconciliation below relates to deferred tax
liabilities provided against intangible assets recorded under US GAAP
on acquisition which are not separately identifiable under UK GAAP and
for which no deferred tax liability is recorded.
INTEREST RATE HEDGING INSTRUMENTS
Under UK GAAP, amounts payable or receivable under an interest rate
hedging swap, which incorporates an embedded written option, are
accounted for over the life of the swap on an accruals basis; whereas,
under US GAAP, the written option element is accounted for separately
from the host contract on the balance sheet at a mark to market
valuation, with changes in this valuation taken to the profit and loss
account as they arise.
PENSION COSTS
The key differences between UK GAAP (SSAP 24) and US GAAP in relation
to defined benefit pension plans are:
- Under UK GAAP, the plan assets are valued using a discounted
income valuation; whereas, under US GAAP, plan assets are
measured at market-related value.
- Under UK GAAP, the effect of variations in cost can be
accumulated at successive valuations and amortized on an
aggregate basis; whereas, under US GAAP, the amortization of
the transitional asset and the costs of past service benefit
improvements are separately tracked, with aggregated gains and
losses amortized only if outside a 10% corridor.
Under US GAAP, an additional liability is required to be recorded when
the accumulated benefit obligation exceeds the fair value of the plan
assets. An intangible asset is recognized when the additional liability
is recorded and is adjusted as the additional liability changes.
However, the recorded intangible asset is limited to the amount of
unrecognized prior service cost (including any unrecognized net
obligation from transition); any excess of the additional liability
over this amount is recorded within the statement of other
comprehensive income. At February 2, 2003, the cumulative amount of
additional liability, recorded within the statement of other
comprehensive income, as there was no unrecognized prior service cost
was, L15.4 million.
CAPITALIZATION OF INTEREST
Under UK GAAP, the Group does not capitalize interest; whereas, under
US GAAP, the estimated amount of interest incurred on capital projects
which are prepared for use over time is included in fixed assets and
depreciated over the lives of the related assets.
F-47
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK BASED COMPENSATION
Under UK GAAP, a compensation cost must be calculated in respect of
share options and long term incentive plans based on the difference
between the share price at the date of the grant and the option/award
price which is recognized over the vesting period; whereas, under US
GAAP, the compensation cost is based on the fair value of the
option/award at the date of grant and is also recognized over the
vesting period.
Under UK GAAP, own shares are carried on the balance sheet and
classified as a fixed asset investment; whereas, under US GAAP, own
shares are offset against shareholders' funds.
Under UK GAAP, a provision is made for the cost of acquiring further
shares on the market where there is an obligation under a Long Term
Incentive Plan; whereas, under US GAAP, no such provision is
recognized.
CUMULATIVE REDEEMABLE PREFERENCE SHARES AND PREFERENCE DIVIDENDS
Under UK GAAP, cumulative convertible redeemable preference shares are
included as shareholders' funds; whereas, under US GAAP, cumulative
convertible redeemable preference shares do not form part of
shareholders' funds when the terms of redemption of such shares are
outside the control of the Company; the dividend thereon is recorded as
a charge against net income.
Under UK GAAP, the special conversion right, which enabled preference
shareholders to convert their preference shares into ordinary shares at
an enhanced rate of conversion, does not affect the Consolidated
Statement of Income or shareholders' funds, with the difference in the
nominal value between the preference shares converted and ordinary
shares issued being credited to the share premium account. Under US
GAAP, FAS 84, "Induced Conversions of Convertible Debt", requires an
expense to be recorded against net income, measured as being the
difference between the fair value of ordinary shares issued pursuant to
the special conversion right and the fair value of ordinary shares
issued pursuant to the original conversion terms.
Under UK GAAP, costs relating to the preference share conversion are
charged against the share premium account; whereas, under US GAAP, such
costs are charged in arriving at net income.
Under UK GAAP, the cost of repurchasing preference shares is treated as
a movement in retained earnings. On cancellation of the shares a
non-distributable reserve is created equivalent to the nominal value of
the shares cancelled. Under US GAAP, as the cumulative convertible
redeemable preference shares are considered to closely resemble debt,
the transaction is considered to be an early extinguishment of debt and
the difference between the cost of repurchasing the shares and the book
value of the debt is recorded as a gain.
FOREIGN EXCHANGE HEDGING TRANSACTIONS
Under UK GAAP, gains or losses arising on foreign exchange forward
contracts taken out in respect of anticipated trading receipts from
overseas subsidiaries may be deferred and recognized at the time of the
trading receipt; whereas, under US GAAP, such gains or losses may only
be deferred when designated and documented as a qualifying hedging
relationship in accordance with FAS 133, 'Accounting for Derivative
Instruments and Hedging Activities'. The Company does not designate
these derivative financial instruments as qualifying hedging
relationships, therefore, these instruments are recorded at their fair
values with gains and losses recorded currently in earnings. The effect
on net income of this difference is, however, not considered
significant.
F-48
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ORDINARY DIVIDENDS
Under UK GAAP, provision is made for dividends in the year in respect
of which they are proposed by the directors, whereas; under US GAAP,
provision for dividends is not made until they are formally declared by
the directors.
EFFECT ON NET INCOME OF DIFFERENCES BETWEEN UK AND US GAAP:
Year ended
-----------------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
-----------------------------------------------
Net income under UK GAAP 71.3 38.6 41.6
US GAAP adjustments:
Amortization of goodwill and definite lived intangible assets (60.6) (62.0) (27.9)
Gain or loss on disposals - 9.5 0.4
Impairment of goodwill in businesses to be sold (7.5) - -
Deferred taxation 9.6 11.2 10.3
Interest rate hedging instruments (1.6) 2.4 -
Pension costs (0.9) (0.2) (1.3)
Capitalization of interest - - 1.6
Stock based compensation (0.3) (0.2) (1.0)
Preference dividends (25.3) (26.1) (10.8)
Preference share induced conversion costs - - (149.5)
Preference share extinguishment gain - - 2.3
-----------------------------------------------
Total US GAAP adjustments (86.6) (65.4) (175.9)
-----------------------------------------------
Loss after tax under US GAAP prior to cumulative effect of
adoption of FAS 142 (15.3) (26.8) (134.3)
Cumulative effect of adoption of FAS 142 - - (728.0)
-----------------------------------------------
Net loss under US GAAP (15.3) (26.8) (862.3)
===============================================
Basic loss per ordinary share ADR under US GAAP*:
Prior to cumulative effect of adoption of FAS 142 and
gain on the extinguishment of preference shares (11.3)p (19.7)p (82.4)p
Cumulative effect of adoption of FAS 142 - - (439.1)p
Preference share extinguishment gain - - 1.4p
-----------------------------------------------
Net loss per ordinary share ADR under US GAAP* (11.3)p (19.7)p (520.1)p
-----------------------------------------------
Diluted loss per ordinary share ADR under US GAAP*:
Prior to cumulative effect of adoption of FAS 142 and gain
on the extinguishment of preference shares (11.2)p (19.6)p (82.2)p
Cumulative effect of adoption of FAS 142 - - (438.0)p
Preference share extinguishment gain - - 1.4p
-----------------------------------------------
Diluted loss per ordinary share ADR under US GAAP* (11.2)p (19.6)p (518.8)p
-----------------------------------------------
* Two Premier Farnell ordinary shares are represented by each ordinary
share ADR.
The net loss for each of the three years relates entirely to continuing
operations.
F-49
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EFFECT ON SHAREHOLDERS' FUNDS OF DIFFERENCES BETWEEN UK AND US GAAP:
February 3, February 2,
2002 2003
Lm Lm
-------------------------------
Shareholders' funds under UK GAAP 111.5 103.5
US GAAP adjustments:
Goodwill and intangible assets 1,543.5 676.3
Property, plant and equipment - 1.6
Deferred income taxes (166.5) (130.9)
Ordinary dividends 13.6 18.1
Pension benefits (8.3) (17.2)
Fixed asset investments (0.5) (0.2)
Stock based compensation 1.3 1.0
Convertible redeemable preference shares (486.7) (126.7)
-------------------------------
Total US GAAP adjustments 896.4 422.0
-------------------------------
Shareholders' funds under US GAAP 1,007.9 525.5
===============================
EITF 00-10, Accounting for Shipping and Handling Fees and Costs, states
that all amounts billed to a customer in a sale transaction related to
shipping and handling, represent revenues earned for the goods provided
and should therefore be classified as revenue. The Consolidated
Statement of Income for the year ended February 2, 2003 includes
amounts billed to customers with respect to shipping and handling costs
of L12.5 million which has been netted off cost of sales (Fiscal 2001:
L12.8 million and Fiscal 2000: L14.4 million).
F-50
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table shows net income under US GAAP for the year ended
February 2, 2003, and pro forma net income as if FAS 142 had been
applied for the years ended February 3, 2002 and January 28, 2001, (ie
to exclude goodwill amortization and indefinite lived intangible asset
amortization).
Year ended
---------------------------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
---------------------------------------------
Net loss as reported under US GAAP (15.3) (26.8) (862.3)
Add back: Goodwill amortization 30.6 31.4 -
Add back: Indefinite lived intangible asset amortization - 0.6 -
---------------------------------------------
Adjusted net income/(loss) under FAS 142 15.3 5.2 (862.3)
---------------------------------------------
BASIC EARNINGS/(LOSS) PER ORDINARY SHARE ADR UNDER US
GAAP*:
As reported under US GAAP (11.3)p (19.7)p (520.1)p
Goodwill amortization 22.6 p 23.1 p -
Indefinite lived intangible asset amortization - 0.4 p -
---------------------------------------------
Adjusted earnings/(loss) under FAS 142 11.3 p 3.8 p (520.1)p
---------------------------------------------
DILUTED EARNINGS/(LOSS) PER ORDINARY SHARE ADR UNDER US
GAAP*:
As reported under US GAAP (11.2)p (19.6)p (518.8)p
Goodwill amortization 22.4 p 23.0 p -
Indefinite lived intangible asset amortization - 0.4 p -
---------------------------------------------
Adjusted earnings/(loss) under FAS 142 11.2 p 3.8 p (518.8)p
---------------------------------------------
* The Premier Farnell ordinary shares are represented by each ordinary
share ADR.
The changes in the carrying amount of goodwill for the year ended
February 2, 2003 measured on a US GAAP basis and allocated by
reportable segment, are as follows:
Marketing &
Marketing and Distribution -
Distribution - Europe and Asia Industrial
Americas Pacific Products Total
Lm Lm Lm Lm
--------------------------------------------------------------------
Balance as of February 4, 2002 984.0 44.4 84.5 1,112.9
Cumulative effect of adoption of FAS 142 (728.0) - - (728.0)
Translation adjustments (43.7) - (3.8) (47.5)
Disposals - - (2.2) (2.2)
--------------------------------------------------------------------
Balance as of February 2, 2003 212.3 44.4 78.5 335.2
--------------------------------------------------------------------
F-51
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following disclosure relates to the Group's definite lived and
indefinite lived intangible assets and has been prepared on a US GAAP
basis:
As of February 3, 2002 As of February 2, 2003
----------------------------------- ------------------------------------
Gross Accumulated Gross Accumulated
carrying amount amortization carrying amount amortization
Lm Lm Lm Lm
----------------------------------- ------------------------------------
Subject to amortization:
Customer lists 659.6 186.1 570.1 188.7
Not subject to amortization:
Trademarks 8.2 - 8.2 -
----------------------------------- ------------------------------------
Total 667.8 186.1 578.3 188.7
----------------------------------- ------------------------------------
Intangible asset amortization expense was L30.5 million for the year
ended February 2, 2003. Amortization expense is estimated to be L30
million for each of the years Fiscal 2003 to Fiscal 2007.
F-52
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The cumulative effects of differences between UK and US GAAP on
significant balance sheet captions are as follows:
US GAAP
UK GAAP adjustments US GAAP
----------------------------------------
Lm Lm Lm
February 3, 2002
Assets
Total current assets (excluding pension asset) 313.1 - 313.1
Goodwill and intangible assets (net) 51.1 1,543.5 1,594.6
Property, plant and equipment (net) 114.1 - 114.1
Fixed asset investments 0.5 (0.5) -
Pension benefits 87.0 (8.3) 78.7
----------------------------------------
Total assets 565.8 1,534.7 2,100.5
----------------------------------------
Liabilities and shareholders' equity
Total current liabilities 168.6 (14.9) 153.7
Long-term debt 241.5 486.7 728.2
Deferred income taxes 37.7 166.5 204.2
Other liabilities 6.5 - 6.5
----------------------------------------
Total liabilities 454.3 638.3 1,092.6
Total shareholders' equity 111.5 896.4 1,007.9
----------------------------------------
Total liabilities and shareholders' equity 565.8 1,534.7 2,100.5
----------------------------------------
Intangible assets at February 3, 2002 of L481.7 million, stated net of
accumulated amortization of L186.1 million, comprise the valuation of
Premier's customer list and the valuation of Buck & Hickman's customer
list and trademarks. Goodwill at February 3, 2002 of L1,112.9 million
is stated net of accumulated amortization of L179.4 million. Property,
plant and equipment at February 3, 2002 of L114.1 million is stated net
of accumulated depreciation of L102.8 million.
F-53
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
US GAAP
UK GAAP adjustments UK GAAP
-------------------------------------------
Lm Lm Lm
February 2, 2003
Assets
Total current assets (excluding pension asset) 299.2 - 299.2
Goodwill and intangible assets (net) 48.5 676.3 724.8
Property, plant and equipment (net) 112.9 1.6 114.5
Fixed asset investments 0.2 (0.2) -
Pension benefits 82.2 (17.2) 65.0
-------------------------------------------
Total assets 543.0 660.5 1,203.5
-------------------------------------------
Liabilities and shareholders' equity
Total current liabilities 254.7 (19.1) 235.6
Long-term debt 141.5 126.7 268.2
Deferred income taxes 36.6 130.9 167.5
Other liabilities 6.7 - 6.7
-------------------------------------------
Total liabilities 439.5 238.5 678.0
Total shareholders' equity 103.5 422.0 525.5
-------------------------------------------
Total liabilities and shareholders' equity 543.0 660.5 1,203.5
-------------------------------------------
Intangible assets at February 2, 2003 of L389.6 million, stated net of
accumulated amortization of L188.7 million, comprise the valuation of
Premier's customer list and the valuation of Buck & Hickman's customer
list and trademarks. Goodwill at February 2, 2003 of L335.2 million is
stated net of accumulated amortization of L160.1 million and net of an
impairment charge under FAS 142 of L728.0 million. The Group adopted
FAS 142 in full on February 4, 2002 and, accordingly, goodwill is no
longer amortized. Property, plant and equipment at February 2, 2003 of
L114.5 million is stated net of accumulated depreciation of L96.1
million.
F-54
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH FLOW INFORMATION
The cash flow statement on pages F-6 and F-7 has been prepared in
conformity with UK GAAP. The principal differences between this
statement and cash flow statements under US GAAP are given below:
Under UK GAAP, cash flows in respect of taxation and returns on
investments and servicing of finance are shown separately in the
statement of cash flows. Under US GAAP, with the exception of dividends
paid on ordinary shares, cash flows in respect of these amounts are
included within operating activities. Dividends paid on ordinary shares
are included within financing activities.
Under UK GAAP, capital expenditure is classified separately. Under US
GAAP it is classified as an investing activity.
Under UK GAAP, movements in short-term investments are not included in
cash but are classified as management of liquid resources. Under US
GAAP, short-term investments with a maturity of three months or less
are included in cash.
Under US GAAP, cash comprises cash in hand and deposits repayable on
demand, less advances from banks repayable on demand. Under UK GAAP
such advances are not set off against cash.
Under US GAAP, the following amounts would be reported:
Year ended
-----------------------------------------
January 28, February 3, February 2
2001 2002 2003
Lm Lm Lm
-----------------------------------------
Net cash provided by operating activities 45.8 38.0 52.7
Net cash used by investing activities (21.2) (62.3) (19.9)
Net cash (used)/provided by financing activities (25.5) 15.1 (30.8)
=========================================
Net movement in cash and cash equivalents (0.9) (9.2) 2.0
Effect of exchange rate changes 2.8 (0.3) (0.5)
Cash and cash equivalents at beginning of year 35.7 37.6 28.1
-----------------------------------------
Cash and cash equivalents at end of the year 37.6 28.1 29.6
=========================================
Reconciliation of cash:
UK GAAP cash balance 37.6 28.1 29.6
Short term deposits (16.3) - -
Short term borrowings - (3.0) (2.7)
-----------------------------------------
US GAAP cash balance 21.3 25.1 26.9
=========================================
F-55
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PENSION DISCLOSURES IN ACCORDANCE WITH SFAS 132
(i) UK Plan
Pension disclosures under SFAS 132 "Employers' Disclosures about
Pensions and Other Post Retirement Benefits " have been developed and
are provided below. The disclosures presented here assumes initial
adoption of SFAS 87, "Employers' Accounting for Pensions", at January
31, 1993.
The principal actuarial assumptions applied in the adoption of SFAS 87
are as follows:
Year ended
----------- --------------------------
January 28, February 3, February 2,
2001 2002 2003
----------- --------------------------
Discount rate 5.75% 5.75% 5.50%
Salary inflation 4.25% 4.00% 3.80%
Investment return 7.25% 6.75% 7.00%
The components of pension expense which arise under SFAS 87 are as
follows:
Year ended
----------- --------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
----------- --------------------------
Service cost 0.4 0.4 0.3
Interest cost 3.1 3.2 3.5
Recognized net actuarial loss - - 0.7
Expected return on plan assets (4.6) (4.4) (3.5)
---- ---- ----
Net periodic pension (income)/expense (1.1) (0.8) 1.0
==== ==== ===
The L1.0 million US GAAP pension expense in Fiscal 2002 (L0.8 million
income in Fiscal 2001 and L1.1 million income in Fiscal 2000) compares
with an expense under UK GAAP of L0.1 million (L0.1 million in Fiscal
2001 and L0.1 million in Fiscal 2000).
F-56
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PENSION DISCLOSURES IN ACCORDANCE WITH SFAS 132
(i) UK Plan (continued)
Year ended
--------------------------
February 3, February 2,
2002 2003
Lm Lm
-------------------------
Change in benefit obligation:
Benefit obligation at beginning of year 59.2 61.4
Service cost 0.4 0.3
Interest cost 3.2 3.5
Actuarial loss/(gain) 1.0 (4.6)
Benefit payments (2.4) (2.3)
---- ----
Benefit obligation at end of year 61.4 58.3
==== ====
Change in plan assets:
Fair value of plan assets at beginning of year 61.0 52.7
Actual return on plan assets (5.9) (7.1)
Benefit payments (2.4) (2.3)
---- ----
Fair value of plan assets at end of year 52.7 43.3
==== ====
Recognition of funded status:
Funded status at year end (8.7) (15.0)
Unrecognized net actuarial loss 11.2 16.5
Unrecognized prior service cost - -
---- ----
Net amount recognized 2.5 1.5
==== ====
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost - -
Accrued benefit liability (5.3) (13.2)
Accumulated other comprehensive income 7.8 14.7
---- ----
2.5 1.5
==== ====
The UK pension scheme invests predominately in equities and gilts on an
index-tracking basis. The UK equity index-tracking fund constitutes 40%
of the pension scheme's investment benchmark and will include a holding
of Premier Farnell shares in the ratio of Premier Farnell's market
capitalization to the market capitalization of the UK FT-Actuaries All
Share Index.
F-57
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PENSION DISCLOSURES IN ACCORDANCE WITH SFAS 132
(ii) US Plans
The principal actuarial assumptions applied are as follows:
Year ended
-----------------------------------------
January 28, February 3, February 2,
2001 2002 2003
-----------------------------------------
Discount rate 7.75% 7.25% 6.75%
Salary inflation 5.00% 5.00% 5.00%
Investment return 9.00% 9.00% 9.00%
The components of pension expense which arise under SFAS 87 are as
follows:
Year ended
----------- --------------------------
January 28, February 3, February 2,
2001 2002 2003
Lm Lm Lm
----------- --------------------------
Service cost 3.2 3.2 2.7
Interest cost 3.3 4.1 4.3
Expected return on plan assets (11.8) (13.9) (13.7)
Amortization of prior service cost 0.2 0.2 0.2
Recognized net actuarial gain (0.5) (0.7) (0.5)
Settlement gain - (0.3) -
Curtailment gain - (1.1) (0.1)
Special termination benefits 2.6 2.9 0.6
---- ---- ----
Net periodic pension benefit (3.0) (5.6) (6.5)
==== ==== ====
The L6.5 million US GAAP pension income in Fiscal 2002 (L5.6 million
in Fiscal 2001 and L3.0 million in Fiscal 2000) compares with income
under UK GAAP of L6.9 million (L6.7 million in Fiscal 2001 and L5.1
million in Fiscal 2000).
Special termination benefits in Fiscal 2000, Fiscal 2001 and Fiscal
2002 related to voluntary early retirement programs offered to selected
employees.
F-58
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PENSION DISCLOSURES IN ACCORDANCE WITH SFAS 132
(ii) US Plans (continued)
Year ended
--------------------------
February 3, February 2,
2002 2003
Lm Lm
----------- -----------
Change in benefit obligation:
Benefit obligation at beginning of year 53.4 66.4
Service cost 3.2 2.7
Interest cost 4.1 4.3
Amendments - 0.4
Actuarial loss 6.8 4.8
Benefit payments (3.6) (3.7)
Curtailment (1.8) (0.3)
Settlements (0.9) (0.6)
Special termination benefits 2.9 0.6
Exchange movement 2.3 (9.9)
----- -----
Benefit obligation at end of year 66.4 64.7
===== =====
Change in plan assets:
Fair value of assets at beginning of year 164.3 151.4
Actual return on plan assets (14.0) (20.5)
Benefit payments (3.6) (3.7)
Settlements (0.9) (0.6)
Exchange movement 5.6 (19.5)
----- -----
Fair value of assets at end of year 151.4 107.1
===== =====
Recognition of funded status:
Funded status at year end 85.0 42.4
Unrecognized net actuarial (gain)/loss (2.3) 35.1
Unrecognized prior service cost 1.3 1.1
----- -----
Net amount recognized 84.0 78.6
===== =====
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost 84.0 79.0
Accrued benefit liability - (1.1)
Accumulated other comprehensive income - 0.7
----- -----
84.0 78.6
===== =====
F-59
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PENSION DISCLOSURES IN ACCORDANCE WITH SFAS 132
(ii) US Plans (continued)
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were L2.6 million , L2.6
million and L1.5 million, respectively, as of February 2, 2003. There
were no US plans where the accumulated benefit obligations were in
excess of plan assets as of February 3, 2002.
At February 2, 2003, the assets of the US Plans included 1,196,354
Premier Farnell ordinary shares and 563,322 Premier Farnell ordinary
share ADRs (each ordinary share ADR is represented by two ordinary
shares), with an aggregate market value of L4.1 million.
FAS 123, ACCOUNTING FOR STOCK BASED COMPENSATION
The total compensation expense under FAS 123, for fiscal years 2002,
2001 and 2000 was L1.0 million, L1.4 million and L0.9 million,
respectively. This compares to a charge under UK GAAP for share options
and incentive schemes of Lnil, L1.2 million and L0.6 million,
respectively. The US GAAP adjustment with respect to FAS123 does not
affect shareholders' funds as the corresponding credit goes to equity
which nets with the debit to retained earnings.
The fair value of the options granted were estimated using the
Black-Scholes option pricing model with the following assumptions:
dividend yield of 5.10% (Fiscal 2001: 5.46%, Fiscal 2000: 2.35%),
volatility of 40.00% (Fiscal 2001: 37.00%, Fiscal 2000: 34.00%),
risk-free investment rate of 4.60% (Fiscal 2001: 4.93%, Fiscal 2000:
5.84%), and an expected term of five years.
FAS 123 was effective for fiscal years beginning after December 15,
1995. The fair value of one option for grants in ordinary shares made
in Fiscal 2000, 2001 and 2002 is as follows:
GRANT DATE EXERCISE PRICE FAIR VALUE OF ONE OPTION
- ---------- -------------- ------------------------
PENCE PENCE
FISCAL 2000:
April 2000 425 129
June 2000 468 156
September 2000 513 177
December 2000 377 106
FISCAL 2001 (WEIGHTED
AVERAGE) 195 42
FISCAL 2002 (WEIGHTED
AVERAGE) 158 43
The weighted average grant date fair value of one share award for
grants in Fiscal 2000, 2001 and 2002 is as follows:
GRANT DATE FAIR VALUE OF ONE SHARE AWARD
- ---------- -----------------------------
PENCE
FISCAL 2000 217
FISCAL 2001 187
FISCAL 2002 215
F-60
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATION
In January 2003, the FASB issued FIN 46. This pronouncement modifies
the framework for determining consolidation of certain entities that
meet the definition of a "variable interest entity". This is met where
the entity either does not have sufficient equity of the appropriate
nature to support its expected losses, or the third party equity
capital lacks certain characteristics which would be expected to be
present within a controlling financial interest.
Entities which do not meet this definition would continue to apply the
voting interest model and the Company would generally consolidate when
it has a controlling financial interest.
Under the variable interest model promulgated by FIN 46, all ownership,
contractual and other pecuniary interests in the entity are evaluated
to determine which of the holders, if any, hold a variable interest
which will absorb the majority of the expected losses, expected
residual returns, or both. This holder is the "primary beneficiary" of
the variable interest entity and would be required to consolidate the
entity.
The provisions of FIN 46 are immediately effective for variable
interest entities created after January 31, 2003.
However, FIN 46 requires disclosures in financial statements issued
after January 31, 2003 about variable interest entities that, when FIN
46 becomes effective, it is reasonably possible that the reporting
entity will consolidate or about which the entity will disclose
information in accordance with FIN 46. The Group has undertaken a
review to identify variable interest entities in which it is the
primary beneficiary or in which it has a significant variable interest.
The Group has concluded that it does not have any interests in variable
interest entities for which it would be either the primary beneficiary
in the arrangement or for which it would have a significant variable
interest.
F-61
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26 NEW ACCOUNTING POLICIES
US GAAP
In August 2001, the FASB issued Statement No. 143, "Accounting for
Asset Retirement Obligations," ("FAS 143"). The Company will adopt FAS
143 on February 3, 2003. Under FAS 143, the fair value of a liability
for an asset retirement obligation covered under the scope of FAS 143
would be recognized in the period in which the liability is incurred,
with an offsetting increase in the carrying amount of the related
long-lived asset. Over time, the liability would be accreted to its
present value, and the capitalized cost would be depreciated over the
useful life of the related asset. Upon settlement of the liability, an
entity would either settle the obligation for its recorded amount or
incur a gain or loss upon settlement. Adoption of FAS 143 is not
expected to have a significant impact on the Group's results of
operations or financial position as of February 3, 2003, as the Group
does not currently have any contractual arrangements under which a
retirement obligation exists.
In April 2002, FAS 145, "Rescission of FAS 4, 44 and 64, Amendment to
FAS 13, and Technical Corrections," was issued. This statement updates,
clarifies and simplifies existing accounting pronouncements. It
rescinds FAS 4, which required all gains and losses from extinguishment
of debt to be aggregated and, if material, classified as an
extraordinary item, net of related taxes. Upon adoption, the criteria
in APB 30 will be used to classify such gains and losses. Gains or
losses on extinguishment of debt that were classified as extraordinary
in prior periods presented that do not meet APB 30 criteria for
classification as extraordinary must be reclassified into earnings from
operations. FAS 145 also rescinds FAS 64, which amended FAS 4 and FAS
44, which established accounting requirements for the transition of the
Motor Carrier Act of 1980. FAS 145 amends FAS 13 to require that
certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. The Company has adopted FAS 145 effective
February 3, 2003 and adoption did not have a significant impact on the
Group's results of operations, financial position or liquidity.
In July 2002, FAS 146, "Accounting for Costs Associated with Exit or
Disposal Activities," was issued. This addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". FAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the
liability is incurred and that an entity's commitment to a plan, by
itself, does not create a present obligation to others that meets the
definition of a liability. FAS 146 is effective prospectively for exit
or disposal activities initiated after December 31, 2002 and the
Company adopted the statement effective February 3, 2003. Adoption did
not have a significant impact on the Group's results of operations,
financial position or liquidity. FAS 146 changes the timing of
liability and expense recognition but not the ultimate amount of those
expenses.
In December 2002, FAS 148 "Accounting for Stock-Based Compensation -
transition and disclosure" was issued which amends transitional and
certain disclosure provisions FAS 123 "Accounting for Stock-Based
Compensation." but does not amend the recognition provisions of FAS
123. FAS 148 provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based
employee compensation. FAS 148 also requires more prominent and more
frequent disclosure in the financial statements about the effects of
stock-based compensation. The Company already accounts for stock-based
compensation in accordance with FAS 123 and therefore adoption of FAS
148 effective February 3, 2003 did not have a significant impact on the
Group's results of operations, financial position or liquidity.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. This Statement amends
and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement is effective
prospectively for contracts entered into or modified after June 30,
2003 and prospectively for hedging relationships designated after June
30, 2003. The Company is currently analyzing the impact of this
Statement but does not believe that on adoption, it will have a
material impact on its results of operations or financial position.
F-62
PREMIER FARNELL PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
US GAAP ( CONTINUED)
In May 2003, the FASB issued SFAS No. 150, Accounting For Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. The Statement improves the accounting for certain financial
instruments that, under previous guidance, issuers could account for as
equity and requires that these instruments be classified as liabilities
in statements of financial position. This Statement is effective
prospectively for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. This statement shall be
implemented by reporting the cumulative effect of a change in an
accounting principle for financial instruments created before the
issuance date of the Statement and still existing at the beginning of
the interim period of adoption. The Company is currently analyzing the
impact of this Statement.
In November 2002, FIN 45 "Guarantor's Accounting and Disclosure
requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," was issued. This Interpretation expands the
guidance of FAS 5, FAS 57, and FAS 107 and incorporates without change
the provisions of FIN 34, which is now superseded. FIN 45 elaborates on
the existing disclosure requirements for most guarantees, including
loan guarantees such as standby letters or credit. It also clarifies
that at the time the Company issues a guarantee, the Company must
recognize an initial liability of the fair value, or market value, of
the obligations it assumes under that guarantee for those guarantees
subject to the recognition provisions of the Interpretation and must
disclose that information in its interim and annual financial
statements. The initial recognition and measurement provisions apply on
a prospective basis to guarantees issued or modified after December 31,
2002, regardless of the guarantor's fiscal year end. Adoption of FIN 45
has not had a significant impact on the Group's results of operations,
financial position or liquidity. The Group has adopted the disclosure
standards, performed a review and determined that there is nothing to
disclose as a result.
In January 2003, FIN 46 "Consolidation of Variable Interest Entities,"
was issued. FIN 46 requires that companies that control another entity
through interests other than voting interests should consolidate the
controlled entity where the Company is considered to be the Primary
Beneficiary to the arrangement or disclose the nature of the interest
in the entity where the Company is considered to have a significant
interest in the entity. FIN 46 applies to variable interest entities
created after January 31, 2003 and to variable interest entities in
which an enterprise obtains an interest after that date. The related
disclosure requirements are effective immediately and are given in Note
25 to these financial statements. Adoption of FIN 46 has not had a
significant impact on the Group's results of operations, financial
position or liquidity.
27 POST BALANCE SHEET EVENTS
On February 27, 2003, the Group announced the rebranding of four
businesses of the Marketing and Distribution Division to demonstrate to
customers and suppliers the close alignment and global collaboration
between these businesses. The new trading names are Newark InOne,
Farnell InOne, BuckHickman InOne, and MCM, an InOne Company. The
one-off cost of the rebranding of L2.4m was charged in the first
quarter of Fiscal 2003.
On March 19, 2003 the Group purchased and cancelled 197,000 preference
shares at a cost of L2.3 million.
Since the end of Fiscal 2002, the Group has raised $225 million (L137
million) of new funding in the private placement market. This consists
of $66 million of 7 year senior notes and $159 million of 10 year
senior notes at fixed interest rates of 5.3% and 5.9%, respectively.
This funding was drawn down on June 13, 2003 and has been arranged
principally in order to refinance the L94.5 million ($155 million) 7.0%
senior notes repayable on June 17, 2003 and for other general corporate
purposes.
F-63
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- --------------------------------------------------------------
1.1 Memorandum and Articles of Association, incorporated by
reference to the Company's Annual Report on Form 20-F for the
Fiscal Year ended February 3, 2002 (Commission File No.
1-14258)
4.1 Agreement Relating to the Sale and Purchase of Buck & Hickman
Limited and Certain Assets of Roebuck B.V., between Charles
Baynes PLC, Roebuck B.V., Farnell Holding Limited and Premier
Farnell plc, dated June 14, 2001, including Schedules 1
through 4 thereto, incorporated by reference to the Company's
Annual Report on Form 20-F for the Fiscal Year ended January
28, 2001 (Commission File No. 1-14258)
4.2 Approved Executive Share Option Scheme 2001, incorporated by
reference to the Company's Annual Report on Form 20-F for the
Fiscal Year ended January 28, 2001 (Commission File No.
1-14258)
4.3 Approved Executive Share Option Scheme (Original Scheme),
incorporated by reference to the Company's Annual Report on
Form 20-F for the Fiscal Year ended January 28, 1996
(Commission File No. 1-14258)
4.4 Unapproved Executive Share Option Scheme, incorporated by
reference to the Company's Annual Report on Form 20-F for the
Fiscal Year ended January 28, 1996 (Commission File No.
1-14258)
4.5 United States Savings Related Stock Option Plan, incorporated
by reference to the Company's Form S-8 Registration Statement
(Registration No. 33-5794)
4.6 UK Savings Related Share Option Scheme, incorporated by
reference to the Company's Annual Report on Form 20-F for the
Fiscal Year ended January 28, 1996 (Commission File No.
1-14258)
A-1
Exhibit
Number Description of Exhibit
- ------- --------------------------------------------------------------
4.7 Overseas Savings Related Share Option Scheme, incorporated by
reference to the Company's Annual Report on Form 20-F for the
Fiscal Year ended January 28, 1996 (Commission File No.
1-14258)
4.8 Executive Share Option Scheme 2003
4.9 Long Term Incentive Plan (Premier Farnell Performance Share
Plan 2000), as amended on June 11, 2003
4.10 Premier Farnell Corporation 401(k) Retirement Savings Plan,
January 1, 2002 Restatement
8.1 List of Subsidiaries
12.1 Shareholders Agreement dated as of January 23, 1996, between
Farnell Electronics PLC and Jack N. Mandel, Joseph C. Mandel,
Morton L. Mandel, Jack N. Mandel Revocable Trust, Joseph C.
Mandel Revocable Trust, Morton L. Mandel Revocable Trust,
Florence Mandel Revocable Trust and Barbara A. Mandel
Revocable Trust, incorporated by reference to the March 8,
1996 Prospectus/Proxy Statement contained in the Company's
Registration Statement on Form F-4 (Registration No. 33-00690)
99.1 Certification pursuant to 18 U.S. Section 1350, as adopted
pursuant to Section 306 of the Sarbanes-Oxley Act of 2002
A-2