SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Information furnished as at May 17, 2000
Intertek Testing Services Limited
(Registrant)
25 Savile Row
London, W1X 1AA
England
(Address of principal executive office)
(Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F)
Form 20-F|X| Form 40-F
(Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934)
Yes No |X|
Schedule of Information contained in this report
Intertek Testing Services Limited financial statements for the three months to
March 31, 2000
1
Intertek Testing Services Limited
Business description
We are a leading international organisation engaged in the testing, inspection
and certification of manufactured goods and commodities. We currently employ
over 8,500 people and operate 459 inspection offices and 228 testing
laboratories worldwide. We are represented in 87 countries. We are organised
into four operating divisions, each focusing on the testing, inspection and
certification of different manufactured goods and commodities.
Caleb Brett is a joint leader in the market for the testing and inspection of
petroleum products and chemicals. Caleb Brett's primary business is providing
independent verification of the quantity and quality of crude oil, petroleum
products and chemicals and, to a lesser extent, agricultural produce.
ETL SEMKO tests and certifies electrical and electronic products,
telecommunication equipment, building products and heating, ventilation and air
conditioning equipment. In the United States and through a 49% investment in
Europe, this division also certifies the quality of management systems to
standards such as ISO 9000.
Labtest is one of the largest international providers of testing and inspection
services for textiles, toys and other consumer products. Through a 50%
investment in China and Taiwan, the division also certifies the quality of
management systems to standards such as ISO 9000.
Foreign Trade Standards ("FTS") provides independent pre-shipment inspection
services to the governments of developing countries to assist them in the
enforcement of customs duties and exchange controls. FTS also provides
inspection and testing services to government standards organisations to ensure
that imports on specified products meet safety and other national standards.
Discontinued operation
Despite extensive restructuring in 1999, the operating results from our minerals
testing division, Bondar Clegg, continued to be unsatisfactory and this division
was discontinued in Q1 00. The Bondar Clegg businesses in North and South
America, Ghana and Mali were sold for L1.5 million. The operations in
Eritrea, Guinea and Burkina Faso were closed during Q1 00 and the companies are
being liquidated. The disposal of fixed assets and inventory in the African
operations generated proceeds of approximately L0.1 million. The Bondar
Clegg head office in Vancouver was closed on March 28, 2000 and the employment
of the personnel was terminated. The operating results for Bondar Clegg up to
the date of cessation are reported as discontinued in our financial statements
and prior periods have been reclassified to show a comparable historic trend.
The costs of closing the operations and the loss on disposal of the Bondar Clegg
businesses are reported as a non-operating exceptional item in our financial
statements. The total loss was L12.1 million including L6.9 million
of goodwill which was previously written off to reserves. The cash cost of
terminating personnel and closing the operations was approximately L0.8
million.
Internet strategy
We believe that the growth of the Internet offers significant opportunities to
grow our business. An increasing number of commodities and products are being
traded via the Internet and on business-to-business ("B2B") and
business-to-consumer ("B2C") sites. We provide testing, inspection and
certification services for many of the commodities and products traded, ensuring
that customers are able to buy products over the Internet reliably and with
confidence. We are working actively with B2B and B2C sites and we are developing
links to customers so that our communications with them are online. We are
investing in information technology systems so that we can offer improved online
services.
We are the world leader or one of the world leaders in the testing, inspection
and certification of products and commodities such as textiles, toys, consumer
goods, electrical goods and products, chemicals and petroleum products. There is
increasing online trading in these products and commodities and our services are
therefore in demand by online traders and online trading sites.
2
Results of operations
The table below shows both revenues by division and by geographic area as well
as operating income before exceptional items by division for the three months to
March 31, 1999 ("Q1 99") and the three months to March 31, 2000 ("Q1 00"). A
detailed discussion of our results and financial condition is given in the
operating and financial review.
Q1 99 Q1 00
Lm Lm
Revenues by division
Caleb Brett 31.1 34.8
ETL SEMKO 21.9 23.1
Labtest 16.5 19.6
Foreign Trade Standards 15.0 10.6
---------- ----------
Continuing operations 84.5 88.1
Discontinued operation 2.6 0.7
---------- ----------
Total 87.1 88.8
========== ==========
Revenues by geographic area
Americas 33.5 38.9
Europe, Africa and Middle East 31.9 26.3
Asia and Far East 19.1 22.9
---------- ----------
Continuing operations 84.5 88.1
Discontinued operation 2.6 0.7
---------- ----------
Total 87.1 88.8
========== ==========
Operating income/(loss) before exceptional items
Caleb Brett 3.0 3.0
ETL SEMKO 2.8 3.6
Labtest 3.5 4.7
Foreign Trade Standards 1.8 0.7
Central (1.0) (1.0)
----------- ----------
Continuing operations 10.1 11.0
Discontinued operation (0.7) (0.7)
----------- ----------
Total 9.4 10.3
=========== ==========
3
Impact of exchange rates
Our financial statements are reported in pounds sterling ("GBP" or "L").
We have 136 subsidiary companies, of which 123 report in currencies other than
GBP. Subsidiaries report in the currency of the country in which they are
domiciled, apart from those based in countries where there is hyperinflation,
which report in their functional currency, which is U.S. dollars. We translate
the results of overseas operations into GBP at the cumulative average exchange
rates for the period, therefore, our results can vary from period to period
because of fluctuations in exchange rates which are unrelated to the underlying
operational performance. The table below shows the growth rates of revenues and
operating income for each division at actual exchange rates for the period and
at comparable exchange rates. The comparable growth rate is the change of one
period over the prior period where both periods are translated into GBP using
the prior period's exchange rates. This reflects the underlying growth in
revenues and operating income without the fluctuations caused by changes in
translation rates. We do not hedge translation rate exposure.
Over 50% of our revenues and the majority of our borrowings, interest payments
and debt repayments are denominated in U.S. dollars or currencies linked to the
U.S. dollar, such as the Hong Kong dollar. Where there is material transaction
exposure from currency rate movements we take out forward foreign exchange
contracts to minimise this exposure.
Growth at actual and comparable exchange rates
Q1 99 Q1 00 Actual Comparable
Lm Lm % %
----------- ------------ ------------- -----------
Revenues
Caleb Brett 31.1 34.8 11.9 11.6
ETL SEMKO 21.9 23.1 5.5 3.7
Labtest 16.5 19.6 18.8 17.6
Foreign Trade Standards 15.0 10.6 (29.3) (30.0)
----------- ----------- ------------- -----------
Continuing operations 84.5 88.1 4.3 3.3
Discontinued operation 2.6 0.7 (73.1) (76.9)
----------- ----------- ------------- -----------
Total 87.1 88.8 2.0 0.9
=========== =========== ============= ===========
Operating income/(loss) before exceptional items
Caleb Brett 3.0 3.0 - (3.3)
ETL SEMKO 2.8 3.6 28.6 25.0
Labtest 3.5 4.7 34.3 31.4
Foreign Trade Standards 1.8 0.7 (61.1) (61.1)
Central (1.0) (1.0) - (10.0)
----------- ----------- ------------- -----------
Continuing operations 10.1 11.0 8.9 6.9
Discontinued operation (0.7) (0.7) - (28.6)
----------- ----------- ------------- -----------
Total 9.4 10.3 9.6 9.6
=========== =========== ============= ===========
The Actual growth rate is the percentage increase or decrease of one period over
the prior period where each period is translated into GBP at the exchange rates
applicable to each of those periods.
The Comparable growth rate is the percentage increase or decrease of one period
over the prior period where both periods are translated into GBP at the exchange
rates applicable to the earlier of the two periods.
4
Management's discussion and analysis of financial condition and results of
operations for the three months to March 31, 2000 compared with three months to
March 31, 1999
Operating and financial review
We set out below a discussion of our operating results and financial condition
for the three months to March 31, 2000 compared to the three months to March 31,
1999, followed by a detailed review of the performance of each division. The
tables below show growth rates of Q1 00 over Q1 99 at actual exchange rates and
at comparable exchange rates. The actual growth rate is the percentage change of
one period over the prior period where each period is translated into GBP using
the exchanges rates applicable in that period. The comparable growth rate is the
percentage change of one period over the prior period where both periods are
translated into GBP using the prior period's exchange rates.
Revenues
Our revenues are derived from our inspection, testing and certification
services. Our main customer base is different in each division. We operate from
87 countries, and in Q1 00 generated 44% of revenues from the Americas (Q1 99:
40%), 30% from Europe, Africa and the Middle East (Q1 99: 38%) and 26% from Asia
and the Far East (Q1 99: 22%). The geographic area represents the location of
our companies, not necessarily the location of our customers. In Q1 00, 35% of
revenues were generated by businesses in the U.S. (Q1 99: 32%), 15% in the U.K.
(Q1 99: 18%) and 12% in Hong Kong (Q1 99: 11%). No other individual country
accounted for more than 10% of revenues. Revenues by geographic area are
summarised below:
Q1 99 Q1 00 Growth/
(decline)
By geographic area Lm Lm Lm
------------ ------------ ------------
Americas 33.5 38.9 5.4
Europe, Africa and Middle East 31.9 26.3 (5.6)
Asia and Far East 19.1 22.9 3.8
------------ ------------ ------------
Total continuing operations 84.5 88.1 3.6
Actual growth 4.3%
Comparable growth 3.3%
------------ ------------ ------------
Revenues from continuing operations grew 4.3% from Q1 99 to Q1 00. Revenues in
Caleb Brett, ETL SEMKO and Labtest grew 11.5% from Q1 99 to Q1 00, whereas
revenues in FTS declined 29.3% from Q1 99 to Q1 00. Revenues in the European
region of ETL SEMKO were depressed in Q1 00 compared to Q1 99 due to the impact
of a change in accounting following a reduction in our shareholding in March
1999 from 50% to 49% in the Quality Management business. These operations are
reported as associates from April 1999 onwards and their revenues are excluded
from our Q1 00 revenues. In Q1 99, these operations reported revenues of
L2.3 million. Excluding the effect of this accounting change, growth in
revenues from continuing operations was 7.2%.
Revenues in FTS declined in Q1 00 compared to Q1 99, largely due to our reduced
share of the Nigerian pre-shipment inspection programme.
The growth in revenues was worldwide but particularly strong in Asia where
revenues grew by 20% due to the continuing increase in demand for textile and
toys testing and the expansion of electrical testing operations.
The decline in revenues in the Europe, Africa, Middle East region in Q1 00 over
Q1 99 was due to the change of control of the European Quality Management
businesses in ETL SEMKO and the reduction in revenues from Nigeria in FTS and
Caleb Brett. In 1999, but after Q1 99, we made some acquisitions in ETL SEMKO
costing a total of L4.3 million and opened some new laboratories in
Labtest and ETL SEMKO all of which have contributed to revenues in Q1 00.
5
Operations in our Bondar Clegg division ceased in Q1 00 and its results to the
date of cessation are reported as a discontinued operation. Its revenues are not
included in the above figures.
Operating costs before exceptional items
Q1 99 Q1 00 Growth
Lm Lm Lm
------------ ------------ ------------
Continuing operations 74.4 77.1 2.7
Actual growth 3.6%
Comparable growth 2.9%
------------ ------------ ------------
Our operating costs principally comprise labour costs, property and equipment
rental, depreciation and laboratory consumables. The increase in operating costs
is lower than the growth in revenues for Q1 00 compared to Q1 99. This is partly
due to cost management and partly due to the faster than average growth of
businesses with higher operating margins, especially textile testing.
Operating income before exceptional items
Q1 99 Q1 00 Growth
Lm Lm Lm
------------ ------------ ------------
Continuing operations 10.1 11.0 0.9
Actual growth 8.9%
Comparable growth 6.9%
Operating margin 12.0% 12.5%
------------ ------------ ------------
Operating income before exceptional items from continuing operations grew 8.9%
from Q1 99 to Q1 00. Operating income in Caleb Brett, ETL SEMKO and Labtest grew
by 21.5% from Q1 99 to Q1 00, while operating income in FTS declined 61.1%
during the same period. Operating income in the European region of ETL SEMKO was
lower in Q1 00 compared to Q1 99 due to the impact of a change in accounting
following the disposal in March 1999, of our controlling interests in our
Quality Management businesses. In Q1 00, we have only included our 49% share of
their operating income compared to 100% in Q1 99. Our share of operating income
in Q1 00 was L0.2 million compared to operating income before minority
interests of L0.5 million in Q1 99. Excluding the effect of this
accounting change, growth in total operating income from continuing businesses
was 11.9%.
We attribute the growth in operating income in Q1 00 over Q1 99 principally to
the continuing increase in volumes of textile testing in Asia, the impact of
acquisitions in ETL SEMKO made in 1999 but after Q1 99 and new laboratories in
ETL SEMKO which were opened after Q1 99.
Operating income in FTS declined in Q1 00 compared to Q1 99 due to the reduced
Nigerian inspection programme.
Our operating margin has continued to improve due to our strategy of expanding
high margin business such as textile testing and our continuing growth in
regions with lower operating costs.
The discontinued Bondar Clegg division generated operating losses of L0.7
million in Q1 00 and in Q1 99. These losses are excluded from the above table.
6
Exceptional income/(costs)
Operating exceptional items Q1 99 Q1 00 Growth/
(decline)
Lm Lm Lm
------------ ------------ ------------
Foreign Trade Standards
Provision against Nigerian invoices (5.1) (1.6) 3.5
Payments from Nigerian government 8.9 - (8.9)
------------ ------------ ------------
Sub total 3.8 (1.6) (5.4)
Restructuring costs (2.0) - 2.0
------------ ------------ ------------
1.8 (1.6) (3.4)
------------ ------------ ------------
Caleb Brett
Provision against Nigerian invoices (0.3) - 0.3
Payments from Nigerian government 0.4 - (0.4)
------------ ------------ ------------
0.1 - (0.1)
------------ ------------ ------------
Total continuing operations 1.9 (1.6) (3.5)
------------ ------------ ------------
Discontinued operation
Environmental EPA - (1.0) (1.0)
------------ ------------ ------------
Total 1.9 (2.6) (4.5)
============ ============ ============
Operating exceptional items - continuing operations
In the past four years we have experienced delays in receiving payments from the
Nigerian government for our work on the Nigerian pre-shipment inspection
programmes. This unpaid debt had a material adverse effect on our working
capital, due to continued delays of the Nigerian government in making payments.
In 1997, we adopted a policy of making full provision against unpaid invoices.
The provision for each period is charged to our profit and loss account as an
exceptional cost and the associated debt is removed from working capital. When
payments are received, they are credited as exceptional income in the period in
which the cash is received. A summary of the provisions and payments for both
FTS and Caleb Brett for Q1 99 and Q1 00 is given above.
In January 1999, we decided to collect inspection fees from exporters before any
inspections were performed for the Nigerian government on the understanding that
these advance payments would be returned to the exporters once we had been paid
for those inspections by the Nigerian government. We collected L5.1
million from exporters in the period January to March 1999 and this amount is
held in our balance sheet as advance payments. On March 31, 1999, the Nigerian
government cancelled its pre-shipment inspection programmes. Revenues for the
existing programmes then ceased and the Nigerian government's debt owed to us on
the old programmes was capped.
At March 31, 2000, the Nigerian government's unpaid debt was L13.0 million
under the old programme. The remaining debt covers invoices for the period
October 1998 to March 1999. If exporter payments are deducted, the debt is
L7.9 million. We have been advised that the new government in Nigeria has
approved its budget for 2000 and we expect the debt to be settled this year.
On September 1, 1999, the new government in Nigeria re-introduced a pre-shipment
inspection programme. We are participating in this new programme but in a much
smaller capacity than the previous programmes. In Q1 00, the new programme
generated revenues of L1.9 million in our FTS division. As of March 31,
2000, no payments had been received from the government in relation to this
revenue, so in accordance with the policy described above, full provision has
been made against these invoices. On May 5, 2000, L1.3 million was
received from the Nigerian government for invoices through January 2000 and this
will be credited to exceptional income in our Q2 00 financial statements.
7
Following the termination of the Nigerian inspection programmes in March 1999,
we restructured the FTS division in Q1 99 at a cost of L2.0 million. Costs
were mostly personnel redundancies and relocation costs.
The oil export-monitoring scheme performed by Caleb Brett was also cancelled by
the Nigerian government on March 31, 1999 and we received payment for the
remaining debt in Q4 99.
Operating exceptional items -discontinued operation
Although the Environmental division ceased operating in August 1998, the EPA
investigation into the data manipulation problems at the Dallas laboratory is
ongoing and we are continuing to incur legal and other costs. We have charged
exceptional costs of L1.0 million in Q1 00 in connection with this
investigation. We are pursuing possible rights of recovery against our former
parent, Inchcape plc, and are seeking to recover costs from our professional
indemnity insurance policy but we have not included a provision for any
potential recovery in our financial statements.
Non-operating exceptional items
Q1 99 Q1 00 (Decline)/
growth
Lm Lm Lm
-------------- -------------- --------------
ETL SEMKO
Proceeds from disposal 3.3 - (3.3)
Less attributable goodwill (1.1) - 1.1
------------ ------------ ------------
Total 2.2 - (2.2)
------------ ------------ ------------
Caleb Brett
Proceeds from disposal - 0.2 0.2
Less attributable goodwill - (0.5) (0.5)
------------ ------------ ------------
Total - (0.3) (0.3)
============ ============ ============
Foreign Trade Standards
Proceeds from disposal - 1.0 1.0
Less net assets - (1.0) (1.0)
Less attributable goodwill - (2.6) (2.6)
------------ ------------ ------------
Total - (2.6) (2.6)
============ ============ ============
Total continuing businesses 2.2 (2.9) (5.1)
Bondar Clegg
Proceeds from disposals - 1.6 1.6
Less net assets - (6.0) (6.0)
Less closure costs - (0.8) (0.8)
Less attributable goodwill - (6.9) (6.9)
------------ ------------ ------------
Total discontinued operations - (12.1) (12.1)
------------ ------------ ------------
Total non-operating exceptional items 2.2 (15.0) (17.2)
============ ============ ============
In Q1 99, we sold a non-core business in the ETL SEMKO division in the U.S. for
net consideration of L3.3 million. After deducting goodwill of L1.1
million, this disposal generated exceptional income of L2.2 million. We
used the sale proceeds from this disposal to prepay our Senior Term loans.
In Q1 00, we sold a loss adjusting business in Caleb Brett Chile for L0.2
million. After deducting goodwill of L0.5 million, this disposal generated
an exceptional loss of L0.3 million.
8
In Q1 00, we sold the technical services business of FTS in the U.S. for its net
asset value of L1.0 million. After deducting goodwill of L2.6
million, this disposal generated an exceptional loss of L2.6 million.
Our Bondar Clegg division ceased operating in Q1 00. The businesses in North and
South America, Ghana and Mali were sold for L1.5 million and we received
L0.1 million for the sale of assets in Africa. We incurred termination and
closure costs of L0.8 million. The disposals and closure of Bondar Clegg
generated a loss of L5.2 million, which, after deducting goodwill of
L6.9 million increased to L12.1 million.
Net interest expense
Q1 99 Q1 00 Growth
Lm Lm Lm
------------ ------------ ------------
Continuing operations 8.1 8.1 -
------------ ------------ ------------
Net interest expense remained level in Q1 00 compared to Q1 99. This was due to
lower interest expense on the Senior Term A loan, due to capital repayments
during 1999 and the partial repayment of the Senior Revolver offset by the
accumulation of capitalised interest on the Parent Subordinated PIK. A detailed
breakdown of the interest figures is given in note 5 to our financial
statements.
Income taxes
Q1 99 Q1 00 Growth
Lm Lm Lm
------------ ------------ ------------
Income tax charge 0.9 1.8 0.9
% of income before exceptional items 72% 82%
------------ ------------ ------------
A tax charge of L1.8 million was made against income in Q1 00 compared to
a charge of L0.9 million in Q1 99. The tax charge represents the liability
expected to arise on the income for the period before exceptional items and
reflects our inability to obtain full relief for our interest charges.
Exceptional items have been tax effected, as appropriate.
9
Operating and financial review by division
We set out below a discussion of the performance of each of our operating
divisions for Q1 00 compared to Q1 99. The operating income by division given
below is before exceptional items.
Caleb Brett
Operating results
Q1 99 Q1 00 Growth/
(decline)
Lm Lm Lm
------------ ------------ ------------
Revenues 31.1 34.8 3.7
Actual growth 11.9%
Comparable growth 11.6%
Operating income 3.0 3.0 -
Actual growth -
Comparable decline (3.3)%
Operating margin 9.6% 8.6%
------------ ------------ ------------
Activity in Caleb Brett is affected by trading volumes of crude oil and
petroleum products. When oil companies increase their inventory levels, the
volume of inspection and testing activity rises but the reverse is true when
inventory levels are static or decrease. The crude oil and petroleum product
stock levels were run down significantly during Q1 00, partly because the price
of crude oil was high and partly because stocks were built up at December 31,
1999 due to fears of disruption which may have been caused by the Year 2000
issue. The oil companies started rebuilding stock levels toward the end of March
2000 and we expect this to continue through Q2 00.
Revenues in Asia increased 33.7% in Q1 00 over Q1 99 largely as a result of a
recovery from the Asian crisis and new testing business in Australia. Revenues
in the Europe, Africa, Middle East region were slightly lower in Q1 00 compared
to Q1 99 due to the cancellation of the oil export-monitoring scheme with the
Nigerian government on March 31, 1999. Revenues associated with this scheme were
approximately L0.5 million in Q1 99. Revenues in the Americas increased in
Q1 00 over Q1 99 due to increased volumes of inspection related testing and free
standing testing.
Caleb Brett won an outsourcing contract with BP Amoco in the U.K. in Q1 00 which
we anticipate will generate annual revenues of about L2.0 million. Our
Canadian operations have also secured a five-year contract in Vancouver for the
sampling and analysis of coal. This new contract is expected to earn revenues of
about L1.0 million in the first year.
In Q1 00, Caleb Brett Americas sold its loss adjusting business in Chile for
L0.2 million. This was a non-core activity with insufficient growth
potential.
Operating income remained flat in Q1 00 compared to Q1 99 and the operating
margin fell, principally due to the loss of income from the oil
export-monitoring scheme in Nigeria and the lower than expected level of
inspection and testing.
10
ETL SEMKO
Operating results
Q1 99 Q1 00 Growth
Lm Lm Lm
------------ ------------ ------------
Revenues 21.9 23.1 1.2
Actual growth 5.5%
Comparable growth 3.7%
Operating income 2.8 3.6 0.8
Actual growth 28.6%
Comparable growth 25.0%
Operating margin 12.8% 15.6%
------------ ------------ ------------
Revenues and operating income increased in all regions, except Europe in Q1 00
compared to Q1 99. The decrease in revenues and operating income in Europe in Q1
00 compared to Q1 99 is caused by the change in accounting treatment resulting
from the change of control of our Quality Management businesses in Sweden and
Germany. In April 1999, we sold our controlling interests in our Quality
Management businesses (primarily ISO 9000 testing) to a company in Germany in
which we have a 49% share. In Q1 00, revenues from these businesses are excluded
from our group revenues whereas in Q1 99 revenues of L2.3 million were
included. Our share of operating income in Q1 00 was L0.2 million compared
to operating income before minority interests of L0.5 million in Q1 99.
The strong U.S. economy fuelled an increase in the market for testing
telecommunications equipment in the U.S. and a high level of household appliance
testing contributed to the increase in Asia.
Acquisitions and new operations commencing after Q1 99 added approximately
L2.0 million to revenues and L0.5 million to operating income in Q1
00. In Q1 00, ETL SEMKO made two small acquisitions in the U.K. and Italy for
consideration of L0.1 million each.
We attribute the improvement in operating margin from 12.8% in Q1 99 to 15.6% in
Q1 00 to higher efficiency in the U.S. and to our strategy of concentrating our
business on sectors with higher margins.
11
Labtest
Operating results
Q1 99 Q1 00 Growth
Lm Lm Lm
------------ ------------ ------------
Revenues 16.5 19.6 3.1
Actual growth 18.8%
Comparable growth 17.6%
Operating income 3.5 4.7 1.2
Actual growth 34.3%
Comparable growth 31.4%
Operating margin 21.2% 24.0%
------------ ------------ ------------
The growth in revenues in Labtest is driven by our business in Asia and to a
lesser extent in Europe. We attribute this growth to a number of factors,
including the continually increasing sourcing of consumer goods from Asia and
developing countries, the faster and more frequent introduction of new products
and a wider range of products.
About 42% of Labtest revenues are derived from textiles testing which has grown
over 31% in Q1 00 compared to Q1 99, and operating income has grown over 53% in
the same period. We attribute the growth in textiles testing to the trend to
source more styles and colour choices to consumers and the increase in the
quality consciousness of buyers.
New laboratories opened after Q1 99 contributed approximately L0.5 million
to revenues in Q1 00 but did not have a significant major impact on operating
income, due to start up costs.
Code of Conduct work is a new sector of inspection in Labtest which commenced
after Q1 99. It contributed a small amount to revenues and operating income in
Q1 00 but we anticpate this to be a growth sector. This work has resulted from
consumers and pressure groups being increasingly concerned about the social and
safety conditions to which workers in developed and developing countries are
subjected. Code of Conduct audit work includes factory inspections, document
review and employee interviews.
12
Foreign Trade Standards
Operating results
Q1 99 Q1 00 Decline
Lm Lm Lm
------------ ------------ ------------
Revenues 15.0 10.6 (4.4)
Actual decline (29.3)%
Comparable decline (30.0)%
Operating income 1.8 0.7 (1.1)
Actual decline (61.1)%
Comparable decline (61.1)%
Operating margin 12.0% 6.6%
------------ ------------ ------------
The figures shown above are before exceptional charges and income.
The decrease in revenues in Q1 00 over Q1 99 was primarily due to our reduced
participation in the Nigerian pre-shipment inspection programme. The old
programme ceased on March 31, 1999 and a new programme started in September
1999. Revenues from Nigeria were L4.0 million lower in Q1 00 compared to
Q1 99. Revenues in Q1 00 were further reduced by the disposal of the technical
services operation in the U.S. in February 2000.
In June 1999, we began a new inspection programme in Argentina which generated
revenues of L0.9 million in Q1 00. In September 1999, we gained a new
contract in the former Soviet Republic of Georgia which generated revenues of
L0.6 million in Q1 00. The inspection programme in Ghana which was
expected to end in December 1999 has been extended until June 2000.
The reduction in operating income in Q1 00 compared to Q1 99 was largely due to
the lower level of pre-shipment inspections in Nigeria.
In March 2000, we acquired the remaining 51% of a company in Bangladesh in which
we already owned 49% for consideration of L0.2 million. Also in March
2000, we were awarded a zone of the Bangladesh pre-shipment inspection programme
which covers imports from Europe and China.
Following the cessation of the old Nigerian pre-shipment programmes, we
restructured the FTS division at a cost of L2.0 million in Q1 99. We have
reported these costs as exceptional operating costs in our financial statements
and they are excluded from operating income in the above table.
Central costs
Operating results Q1 99 Q1 00 Decline
Lm Lm Lm
------------ ------------ ------------
Operating costs (1.0) (1.0) -
Actual growth -
Comparable decline (10.0)%
------------ ------------ ------------
Central costs comprise the costs of our corporate head office in London, our tax
and human resources team in the United States and costs associated with
non-trading holding companies. Principally these costs comprise salaries,
property rental, travel and legal and professional fees.
13
Discontinued operation
Bondar Clegg
Operating results Q1 99 Q1 00 Decline
Lm Lm Lm
------------ ------------ ------------
Revenues 2.6 0.7 (1.9)
Actual decline (73.1)%
Comparable decline (76.9)%
Operating loss (0.7) (0.7) -
------------ ------------ ------------
Despite extensive restructuring in 1999, we were unable to operate this division
at a satisfactory operating margin and therefore it has been discontinued. All
operations were sold or closed by March 31, 2000. The operating loss in Q1 00 to
the date of cessation was L0.7 million.
Effects of U.S. GAAP adjustments on operating income
Our financial statements have been prepared in accordance with U.K. GAAP which
differs in certain significant respects from U.S. GAAP. The most significant
differences between U.S. GAAP and U.K. GAAP are described in note 12 of the
financial statements.
14
Financial condition and liquidity
At March 31, 2000 we had cash of L15.6 million compared to L20.2
million at December 31, 1999.
Our operating activities generated net cash inflow of L8.0 million in Q1
00 compared to L13.9 million in Q1 99. The decrease of L5.9 million
is due to no cash being received from Nigeria in Q1 00 compared to L9.3
million in Q1 99 offset by a lower provision against unpaid Nigerian invoices in
Q1 00 compared to Q1 99. Net cash inflow from operating activities includes
operating income after operating exceptionals, before depreciation and other
non-cash items, as well as working capital movements.
We spent L3.2 million on tangible fixed assets in Q1 00 compared to
L2.1 million in Q1 99. This is mostly expenditure on laboratory and I.T.
equipment.
We spent L0.4 million on acquisitions in Q1 00 compared to L3.6
million in Q1 99. In Q1 00, we received L0.3 million for the disposal of
Bondar Clegg with a further L0.7 million due in Q2 00 and L0.6
million due in 2001 and 2002. We also received L1.0 million in Q1 00 for
the disposal of the technical services division of FTS. In Q1 99, we received
L3.3 million for the disposal of our Compliance Engineering magazine
business.
At March 31, 2000, our total borrowings were L304.6 million less
unamortised debt issuance costs of L9.5 million. The following table gives
a detailed breakdown:
Borrowings December 31, March 31,
1999 2000
Lm Lm
------------ ------------
Senior Subordinated Notes 126.1 127.7
Senior Term Loan A 61.6 61.5
Senior Term Loan B 34.9 34.9
Senior Revolving Credit Facility 10.4 6.5
Parent Subordinated PIK Debentures 70.1 73.3
Other borrowings 0.6 0.7
------------ ------------
Total borrowings 303.7 304.6
Debt issuance costs (10.0) (9.5)
------------ ------------
Net borrowings 293.7 295.1
============ ============
Apart from a small amount of the Revolving Credit Facility, our borrowings are
denominated in currencies other than GBP, which are affected by exchange rate
fluctuations. There were no scheduled repayments of the Senior Subordinated
Notes, Senior Term A or Senior Term B Loans in Q1 00. We repaid L3.9
million on the Senior Revolver in Q1 00, but made further drawings of L9.7
million in April 2000. See subsequent events note.
Additional Parent Subordinated PIK Debentures totalling L2.3 million were
issued in lieu of cash on February 1, 2000 for interest due on the Parent
Subordinated PIK Debentures for the period November 2, 1999 to February 1, 2000.
In Q1 00, we paid interest and finance charges of L2.0 million (Q1 99:
L0.4 million) on our borrowings. The increase is due to interest being
paid quarterly on our Term A and Term B loans from Q1 00 onwards. Previously
interest on these loans was paid in June and December. These figures exclude
interest relating to the Parent Subordinated PIK Debentures which was funded by
further issues of such securities.
15
We paid dividends of L0.7 million to minority shareholders in Q1 00
compared to L0.6 million in Q1 99.
At March 31, 2000 we were owed L15.3 million by the Nigerian government.
Of this total, L13.0 million relates to inspection work carried out in the
period October 1998 to March 1999 under pre-shipment inspection programmes which
are no longer operating. We are holding payments from exporters of L5.1
million as advance payments against this debt. The balance of the debt of
L2.3 million relates to inspection work carried out under the new
programmes which commenced in September 1999. On May 5, 2000, we received
L1.3 million from the Nigerian government for invoices through January
2000 on the new inspection programme.
These debts are 100% provided against in our financial statements, however their
non-payment reduces our operating cash flow and we have used our revolving
credit facility to fund working capital. We are constantly lobbying the Nigerian
government for payment and our latest information is that the payments relating
to the old debt will be received this year.
We anticipate that available cash, cash flows from operations and borrowing
availability under our Revolving Credit Facility will be sufficient to satisfy
our working capital and capital expenditure requirements for at least the next
12 months. However, to the extent that we should desire to increase our
financial flexibility and capital resources or choose or be required to fund
future capital commitments from other sources other than operating cash or from
borrowings under our existing credit facility, we may consider raising
additional capital by increasing the credit facility or through the raising of
additional equity. There can be no assurance, however, that additional capital
will be available to us on acceptable terms, if at all.
Our ability to meet our debt repayments in the longer term will depend upon the
achievement of our business plan. There can be no assurance that we will
generate sufficient cash flow from operations or that future working capital
will be available in an amount sufficient to enable us to service our
indebtedness, or make necessary capital expenditures.
Subject to the provisions under which these Loans were made, and subject to
certain exceptions and applicable law, there are no restrictions on the ability
of: (a) the Company or any of its direct and indirect subsidiaries from paying
dividends or making any other distributions or loans or advances to Intertek
Finance plc or (b) the direct and indirect subsidiaries of the Company from
paying dividends or making any other distributions or loans or advances to the
Company.
16
Investigations by the U.S. Environmental Protection Agency
Two of our subsidiary corporations are currently involved in investigations by
the U.S. Environmental Protection Agency ("EPA"). Details of each investigation
are given below:
Caleb Brett USA, Inc.
In February 1997, Caleb Brett, through its routine quality assurance and quality
control procedures, discovered evidence of false testing results at the Caleb
Brett laboratory in Linden, New Jersey, which involved testing of gasoline to
certain standards set by the EPA.
Caleb Brett promptly reported its findings to the EPA and requested inclusion in
the EPA's Voluntary Disclosure Program. This matter was referred to the U.S.
Department of Justice by the EPA, and civil and criminal investigations are
underway.
In September 1999, the Department of Justice announced that three laboratory
supervisors pleaded guilty to criminal charges that they participated in a
scheme to falsify chemical analyses of gasoline. The Department of Justice also
announced that Caleb Brett is not presently considered a target of this ongoing
investigation.
As part of the co-operation with the EPA, Caleb Brett appointed a Compliance
Director and introduced more stringent compliance protocols which have been
presented to the EPA. These compliance procedures are now fully implemented.
It is not yet possible to estimate the cost of any civil or criminal penalties
arising from this matter. However, on the basis of currently available
information, we consider that the outcome is unlikely to have a material adverse
effect on the financial position, results of operations or future cash flows of
our business. We have notified Inchcape plc of the investigation and are
pursuing possible rights of recovery against Inchcape plc under the Share
Purchase Deed.
Intertek Testing Services Environmental Laboratories, Inc.
In December 1997, Intertek Testing Services Environmental Laboratories, Inc.
("ITS Environmental") discovered certain discrepancies in reported testing
results at its facility in Richardson, near Dallas, Texas ("Dallas"). A further
investigation by the Quality Assurance/Quality Control department of ITS
Environmental revealed that technicians at the Dallas facility had at various
times manually integrated data and improperly calibrated test equipment in a way
that may have skewed the accuracy of the test results that have been reported,
but not necessarily the basic data recorded in the testing equipment.
ITS Environmental promptly reported these discrepancies to the EPA and to
clients. Civil and criminal investigations are under way. A government
investigation at the ITS Environmental facility uncovered evidence of false
reporting beyond that initially discovered and disclosed by ITS Environmental.
In August 1998, ITS Environmental sold its laboratory business in Burlington,
Vermont U.S.A. and St. Helens, U.K. and stopped commercial operations at the
laboratory in Dallas. These actions resulted in the discontinuation of business
at ITS Environmental. This sale has not relieved ITS Environmental of any
liability it may face as a result of these investigations or otherwise.
Since commercial operations discontinued in August 1998, the facility has been
used to reprocess the original data. ITS Environmental developed what it
believed to be an effective data screening and reprocessing method. The
reprocessing effort was aimed at providing clients with data of known quality.
The EPA have advised ITS Environmental that the reprocessing is not acceptable
to the EPA for clean up or compliance purposes. Nevertheless, ITS Environmental
believes that it can establish the scientific integrity of the reprocessing
work.
17
ITS Environmental continues to co-operate fully with the government
investigation. To date, no action has been brought against ITS Environmental by
the EPA. In December 1999, two lawsuits were filed by former customers of ITS
Environmental: -
On December 9, 1999, a complaint was filed in federal court in Chicago, Illinois
against Intertek Testing Services Environmental Laboratories, Inc. seeking
declaratory judgement and damages arising from analyses performed between 1991
and 1997. On December 17, 1999, a complaint was filed in state court in Kansas
City, Missouri, against Intertek Testing Services Limited seeking damages from
improper testing and analysis.
On January 12, 2000, a third complaint was filed in state court in Los Angeles,
California, against Intertek Testing Services Limited and Intertek Testing
Services Environmental Laboratories, Inc. seeking damages arising for improper
testing and analysis and alleging fraud.
All three cases are in the preliminary stages and we are unable to predict the
outcome of these actions. We are unable to estimate the cost of any civil or
criminal penalties arising from this investigation. However, on the basis of
currently available information, we consider that the outcome is unlikely to
have a material adverse effect on our business and our financial position. We
have notified Inchcape plc of the investigation and are pursuing possible rights
of recovery against Inchcape plc under the Share Purchase Deed. Our group
professional indemnity insurance policy may respond at least to legal costs,
civil damages and third party claims. With our broker, we are seeking acceptance
of the loss by the insurer. We have made an initial claim for L1.5 million
for legal costs.
Information Technology
Each of our divisions is responsible for the information technology needed to
serve its clients, including laboratory information management systems,
inspection reporting systems, and order processing and ledger accounting
systems. Other systems requiring global co-ordination, such as accounting
consolidation and e-mail, are managed through our head office.
To date, we have not experienced any material Year 2000 issues and we are not
aware of any material Year 2000 issues experienced by our major suppliers and
customers. We estimate that we spent about L2.0 million in 1999 on
remedial and replacement work for both IT systems and non-IT systems. This
figure includes expenditure on projects where the replacement of a non-compliant
system had been accelerated but excludes operating costs associated with time
spent by employees in the evaluation and implementation process and Year 2000
compliance matters generally.
Euro
On January 1, 1999, eleven of the European Union member states, including seven
countries in which we operate, established fixed conversion rates between their
existing currencies and adopted one common currency, the Euro. The conversion to
the Euro eliminates currency exchange rate risk among the eleven member
countries.
The currencies of the eleven member states remain legal tender in the
participating countries during a three-year transition period from January 1,
1999 through January 1, 2002. Effective January 1, 1999, the Euro is traded on
currency exchanges and is available for non-cash transactions during the
three-year transitional period. Beginning on January 1, 2002, the European
Central Bank will issue Euro-denominated bills and coins for use in cash
transactions. On or before July 1, 2002, the participating countries will
withdraw all bills and coins and use the Euro as their legal currency.
Our operating units affected by the Euro have established plans to address the
issues raised by the conversion. These issues, among others, include such
matters as pricing, continuity of contracts, accounting and financial reporting,
taxation, treasury activities and computer systems. A number of our operating
units in France and Portugal have converted their systems and began reporting in
Euros during Q1 00. We anticipate that the remaining operating units will
convert their local records to the Euro during the three-year transition period.
18
Although we have not identified any immediate problems, we cannot be certain
that the harmonisation of currencies in Europe will not have a material adverse
impact on the operating results, financial position or liquidity of our European
businesses.
Subsequent events
On April 6, 2000, we drew down L3.0 million on the Senior Revolver to
finance working capital. On April 28, 2000 we drew down a further L6.7
million on the Senior Revolver to pay the High Yield Bond interest which was due
on May 1, 2000.
On May 5, 2000, we received L1.3 million from the Nigerian government for
invoices through January 2000 on the new inspection programme which began on
September 1, 1999.
On May 11, 2000, we concluded the sale of our Bondar Clegg companies in Ghana
and Mali to Scientific Services Limited for net proceeds of L1.0 million.
Proceeds of L0.4 million were received in April 2000, L0.3 million
is due in Q2 00 and L0.3 million is deferred until May 2001. The effective
date of sale was March 31, 2000.
19
Intertek Testing Services Limited
Consolidated Statements of Operations
(Unaudited)
------------------------------------
Three months to Three months to
Notes March 31, 1999 March 31, 2000
L000 L000
Revenues 3
Continuing operations 84,523 88,136
Discontinued operations 2,568 676
---------------- ----------------
Group revenues 87,091 88,812
Operating costs (75,873) (81,308)
---------------- ----------------
Group operating income 11,218 7,504
Share of operating profit in associates 11 197
---------------- ----------------
Total operating income 11,229 7,701
----------------------------------------------------------------------------------------------------------------------------------
Operating income/(loss) before exceptional items 3
Continuing operations 10,076 10,957
Discontinued operations (717) (661)
---------------- ----------------
9,359 10,296
Exceptional items credited/(charged) to operating income 4
Continuing operations 1,870 (1,595)
Discontinued operations --- (1,000)
---------------- ----------------
Total operating income 11,229 7,701
---------------- ----------------
Operating income/(loss) after exceptional items
Continuing operations 11,946 9,362
Discontinued operations (717) (1,661)
---------------- ----------------
Total operating income 11,229 7,701
----------------------------------------------------------------------------------------------------------------------------------
Non-operating exceptional items 4
Continuing operations 2,244 (2,959)
Discontinued operations --- (12,109)
---------------- ----------------
Total non-operating exceptional items 2,244 (15,068)
---------------- ----------------
Income/(loss) on ordinary activities before net interest 13,473 (7,367)
Net interest expense 5 (8,069) (8,112)
---------------- ----------------
Income/(loss) before taxation 5,404 (15,479)
Taxation 6 (933) (1,791)
---------------- ----------------
Income/(loss) after taxation 4,471 (17,270)
Minority interests (762) (614)
---------------- ----------------
Net income/(loss) for the group and its share of associates 3,709 (17,884)
================ ================
The accompanying notes on pages F - 5 to F - 28 are an integral part of these
financial statements.
F-1
Intertek Testing Services Limited
Consolidated Balance Sheets
(Unaudited)
------------------------------------
December 31,
Notes 1999 March 31, 2000
L000 L000
ASSETS
Current assets
Cash 11 20,150 15,625
Trade receivables 70,103 69,024
Inventories 2,614 1,564
Other current assets 15,631 18,118
---------------- ----------------
Total current assets 108,498 104,331
Goodwill 15,814 15,474
Property, plant and equipment, net 53,746 52,111
Investments 503 920
---------------- ----------------
Total assets 178,561 172,836
================ ================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Borrowings (including current portion of long term borrowings) 7 15,429 11,688
Accounts payable, accrued liabilities and deferred income 69,477 72,632
Income taxes payable 5,368 5,341
---------------- ----------------
Total current liabilities 90,274 89,661
Long term borrowings 7 278,236 283,440
Provisions for liabilities and charges 6,789 7,408
Minority interests 5,721 5,629
Shareholders' deficit
Ordinary shares 808 808
Redeemable preference shares 105,478 105,478
Shares to be issued 2,793 2,793
Premium in excess of par value 3,635 3,635
Accumulated deficit (315,173) (326,016)
---------------- ----------------
Total shareholders' deficit (202,459) (213,302)
---------------- ----------------
Total liabilities and shareholders' deficit 178,561 172,836
================ ================
The accompanying notes on pages F - 5 to F - 28 are an integral part of these
financial statements.
F-2
Intertek Testing Services Limited
Consolidated Statements of Cash Flows
(Unaudited)
--------------------------------
Three months Three months
to March 31, to March 31,
Notes 1999 2000
L000 L000
Total operating cash inflow 9 13,872 8,030
Returns on investments and servicing of finance 10 (993) (2,751)
Taxation (1,037) (2,249)
Capital expenditure and financial investment 10 (2,017) (3,070)
Acquisitions and disposals 10 (307) 509
-------------- --------------
Cash inflow before financing 9,518 469
Financing 10 (3,360) (4,302)
-------------- --------------
Increase/(decrease) in cash in the period 6,158 (3,833)
-------------- --------------
Reconciliation of net cash flow to movement in net debt 11
Increase/(decrease) in cash in the period 6,158 (3,833)
Cash inflow from increase in debt 3,401 4,302
-------------- --------------
Change in net debt resulting from cash flows 9,559 469
Debt issued in lieu of interest payment (1,960) (2,251)
Acquisitions and disposals --- (728)
Other non-cash movements (478) (506)
Exchange adjustments (7,332) (2,972)
-------------- --------------
Movement in net debt in the period (211) (5,988)
Net debt at the start of the period (279,001) (273,515)
-------------- --------------
Net debt at the end of the period (279,212) (279,503)
============== ==============
The accompanying notes on pages F-5 to F-28 are an integral part of these
financial statements.
F-3
Intertek Testing Services Limited
Consolidated Statements of Total Recognised Gains and Losses
(Unaudited)
--------------------------------
Three months Three months
to March 31, to March 31,
1999 2000
L000 L000
Net income/(loss) from subsidiaries 3,702 (18,045)
Net income from associates 7 161
-------------- --------------
3,709 (17,884)
Exchange adjustments (6,220) (3,001)
-------------- --------------
Total recognised gains and losses (2,511) (20,885)
============== ==============
There is no material difference between income before taxation, and net income
for the financial periods, as stated in the statements of operations and their
historical cost equivalents.
Consolidated Statements of Changes in Shareholders' Deficit
(Unaudited)
----------------------------------------------------------------------------------------------------
Redeemable Premium in
Ordinary preference Shares to be excess of par Accumulated
shares shares issued value deficit Total
L000 L000 L000 L000 L000 L000
Balance at January 1, 1999 336 86,657 2,793 3,018 (314,212) (221,408)
Net income --- --- --- --- 3,709 3,709
Exchange adjustments --- --- --- --- (6,220) (6,220)
-------------- -------------- -------------- -------------- -------------- --------------
Balance at March 31, 1999 336 86,657 2,793 3,018 (316,723) (223,919)
============== ============== ============== ============== ============== ==============
Balance at January 1, 2000 808 105,478 2,793 3,635 (315,173) (202,459)
Net loss --- --- --- --- (17,884) (17,884)
Goodwill adjustments --- --- --- --- 10,042 10,042
Exchange adjustments --- --- --- --- (3,001) (3,001)
-------------- -------------- -------------- -------------- -------------- --------------
Balance at March 31, 2000 808 105,478 2,793 3,635 (326,016) (213,302)
============== ============== ============== ============== ============== ==============
Included in accumulated deficit is L270.2 million relating to goodwill (at
March 31, 1999: L276.2 million). This comprises goodwill of L268.8 written off
to reserves in relation to the acquisition of subsidiaries prior to December
1997 (at March 31, 1999: L275.6 million) and L1.4 million amortised goodwill in
relation to acquisitions from January 1, 1998 (at March 31, 1999: L0.6
million).
The accompanying notes on pages F-5 to F-28 are an integral part of these
financial statements.
F-4
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
1. Basis of presentation
The accompanying consolidated financial statements of the Company and its
subsidiaries at March 31, 2000 and for the three months to March 31, 2000 are
unaudited. In the opinion of the Directors, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of the
financial statements have been included. The results of these periods are not
necessarily indicative of results for the entire year and have been prepared in
conformity with accounting principles generally accepted in the United Kingdom
("U.K. GAAP") and are presented under the historical cost convention. These
principles differ in certain material respects from generally accepted
accounting principles in the United States ("U.S. GAAP") -- see note 12.
For the purpose of these condensed consolidated financial statements, certain
information and disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United
Kingdom have been condensed or omitted. These unaudited statements should be
read in conjunction with the audited financial statements and notes as of and
for the year ended December 31, 1999.
2. Accounting policies
The significant accounting policies adopted by the Company and its subsidiaries
are set out below.
Basis of consolidation
The consolidated financial statements of the Company include the financial
statements of the Company and its subsidiaries.
The acquisition method of accounting has been adopted. Under this method, the
results of subsidiaries acquired or sold are included in the consolidated
statement of income of the Company from, or up to, the date control passes.
The consolidated statements of income of the Company include their respective
shares of income from associated undertakings. The consolidated balance sheets
of the Company includes interests in associates at their respective shares of
the net tangible assets.
Use of estimates
Preparation of financial statements in conformity with U.K. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses for an accounting period. Such estimates and assumptions could
change in the future as more information becomes known or circumstances alter,
such that the group's actual results may differ from the amounts reported and
disclosed in the financial statements.
Foreign currencies
The results of operations and cash flows of overseas subsidiaries and
associated undertakings are translated into sterling at the average of the
month end rates of exchange for the period. Assets and liabilities in foreign
currencies are translated into sterling at closing rates of exchange except
where rates are fixed under contractual arrangements.
The difference between net income/(loss) translated at average and at closing
rates of exchange is included in the statement of total recognised gains and
losses as a movement in shareholders' equity/(deficit). Exchange differences
arising from the retranslation to closing rates of exchange of opening
shareholders' equity, long-term foreign currency borrowings used to finance
foreign currency investments, and foreign currency borrowings that provide a
hedge against shareholders' equity are also reflected as movements in
shareholders' equity/(deficit). All other exchange differences are dealt with
in operations.
F-5
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Accounting policies (continued)
Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost less depreciation, which is
provided, except for freehold land, on a straight line basis over the estimated
useful lives of the assets, mainly at the following annual rates:
Freehold buildings and long leasehold land and buildings 2%
Short leasehold land and buildings term of lease
Plant, machinery and equipment 10% -- 33.3%
Leases
Assets held under capital leases are treated as if they had been purchased at
the present value of the minimum lease payments. This cost is included in
property, plant and equipment, and depreciation is provided over the shorter of
the lease term or the estimated useful life. The corresponding obligations
under these leases are included within borrowings. The finance charge element
of rentals payable is charged to operations to produce a constant rate of
interest. Operating lease rentals are charged to operations on a straight-line
basis over the periods of the leases.
Inventories
Inventories are stated at the lower of cost or net realisable value. Cost
comprises expenditure incurred in the normal course of business in bringing
inventories and work in progress to their present location and condition.
Revenues
Revenues represent the total amount receivable for services provided and goods
sold, excluding sales-related taxes and intra-group transactions. Revenue is
recognised when the relevant service is completed or goods delivered.
Taxation
Deferred taxation is provided using the liability method at current taxation
rates on timing differences to the extent that the directors consider that it
is probable that a liability or asset will crystallise.
Pension benefits
Liabilities under defined contribution pension schemes are charged to
operations when incurred. ITS has a number of defined benefit pension schemes
for which contributions are based on triennial actuarial valuations. Pension
charges in operations have been calculated at a substantially level percentage
of current and expected future pensionable payroll, with variations from
regular cost spread over the expected remaining service lives of employees.
Goodwill and other intangible assets
Purchased goodwill in respect of acquisitions since January 1, 1998 is
capitalised in accordance with the requirements of FRS 10: Goodwill and
Intangible Assets, and is amortised on a straight line bases over its estimated
useful life, which is up to 20 years. Other intangible assets, such as non
compete covenants, are amortised over the term of the agreement, generally
between two to five years. Purchased goodwill in respect of acquisitions before
January 1, 1998 was written off to reserves in the year of acquisition in
accordance with the accounting standard then in force. When a subsequent
disposal occurs any goodwill previously written off to reserves is written back
through the profit and loss account.
Derivative financial instruments
ITS uses various derivative financial instruments to manage its exposure to
foreign exchange and interest rate risks. Derivative financial instruments are
considered hedges if they meet certain criteria. A forward exchange contract is
F-6
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Accounting policies (continued)
Derivative financial instruments (continued)
considered a hedge of an identifiable foreign currency commitment if such
contract is designated as, and is effective as, a hedge of a firm foreign
currency commitment. An interest rate swap agreement is considered a "synthetic
alteration" (and accounted for like a hedge) when the agreement is designated
with a specific liability and it alters the interest rate characteristics of
such liability. An Interest rate cap agreement must also meet the same criteria
as an interest rate swap to be considered hedges of a specific liability.
Derivative financial instruments failing to meet the aforementioned criteria
are accounted for at fair value with the resulting unrealised gains and losses
included in the statement of operations.
Forward exchange contracts. Forward exchange contracts are designated as hedges
of firm foreign currency commitments. Gains and losses on such contracts are
deferred and recognised in income or as an adjustment of the carrying amount
when the hedged transaction occurs.
Interest rate cap agreements. Interest rate cap agreements are accounted for
under the accruals basis. Amounts receivable under the agreement are accrued
when due as a reduction of interest charges. Premiums paid for purchased
interest rate cap agreements are amortised to interest charges over the term of
the caps.
Interest rate swaps. Interest rate swap agreements are designated to change the
interest rate characteristics of floating-rate borrowings. Accordingly, these
agreements are accounted for under the settlement basis. The interest
differential between the amounts received and amount paid is recognised as an
adjustment to interest charges over the term of the swap.
3. Segment information
ITS comprises four divisions which are organised as follows: (1) Caleb Brett,
which tests and inspects crude oil, petroleum products and chemicals and
agricultural produce; (2) ETL SEMKO, which tests and certifies electrical and
electronic products, telecommunication equipment, building products and
heating, ventilation and air conditioning equipment; (3) Labtest, which tests
and inspects textiles, toys and other consumer products and (4) Foreign Trade
Standards, which provides independent pre-shipment inspection services to
governments. The Bondar Clegg businesses, which tested minerals, were sold or
closed by March 31, 2000 and this division is disclosed as a discontinued
operation. Prior period results have been reclassified to reflect this
presentation. The accounting policies of the divisions are the same as those
described in the summary of accounting policies.
Three months to Three months to
March 31, 1999 March 31, 2000
L000 L000
Revenues
Caleb Brett 31,125 34,833
ETL SEMKO 21,911 23,079
Labtest 16,484 19,611
Foreign Trade Standards 15,003 10,613
----------------- -----------------
Total continuing operations 84,523 88,136
Discontinued operation 2,568 676
----------------- -----------------
Total 87,091 88,812
================= =================
F-7
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Segment information (continued)
Three months Three months
to March 31, to March 31,
1999 2000
L000 L000
Operating income/(loss) before exceptional
items
Caleb Brett 3,013 2,981
ETL SEMKO 2,835 3,562
Labtest 3,520 4,680
Foreign Trade Standards 1,800 739
Central (1,092) (1,005)
-------------- --------------
Total continuing operations 10,076 10,957
Discontinued operation (717) (661)
-------------- --------------
Total 9,359 10,296
============== ==============
Operating exceptional items by division
Foreign Trade Standards 1,793 (1,595)
Caleb Brett 77 ---
-------------- --------------
Total continuing operations 1,870 (1,595)
Discontinued operation -- Environmental --- (1,000)
-------------- --------------
Total 1,870 (2,595)
============== ==============
Non-operating exceptional items
ETL SEMKO 2,244 ---
Caleb Brett --- (335)
Foreign Trade Standards --- (2,624)
-------------- --------------
Total continuing operations 2,244 (2,959)
Discontinued operation -- Bondar Clegg --- (12,109)
-------------- --------------
Total 2,244 (15,068)
============== ==============
Revenues by geographic origin
Americas 33,539 38,938
Europe, Africa and Middle East 31,873 26,275
Asia and Far East 19,111 22,923
-------------- --------------
Total continuing operations 84,523 88,136
Discontinued operation 2,568 676
-------------- --------------
Total 87,091 88,812
============== ==============
Revenues from significant countries of
origin
United States 28,209 30,769
United Kingdom 15,349 13,142
Hong Kong 9,318 10,792
Others (each under 10% of total) 31,647 33,433
-------------- --------------
Total continuing operations 84,523 88,136
Discontinued operation 2,568 676
-------------- --------------
Total 87,091 88,812
============== ==============
F-8
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Segment information (continued)
Three months Three months
to March 31, to March 31,
1999 2000
L000 L000
Operating income/(loss) before exceptional
items
Americas 2,549 2,603
Europe, Africa and Middle East 2,513 2,291
Asia and Far East 5,014 6,063
-------------- --------------
Total continuing operations 10,076 10,957
Discontinued operation (717) (661)
-------------- --------------
Total 9,359 10,296
============== ==============
Operating income/(loss) before exceptional
items from significant countries
United States 1,881 2,449
Hong Kong 2,216 2,741
Others (each under 10% of total) 5,979 5,767
-------------- --------------
Total continuing operations 10,076 10,957
Discontinued operation (717) (661)
-------------- --------------
Total 9,359 10,296
============== ==============
Revenues by geographic area of destination
Americas 34,337 38,029
Europe, Africa and Middle East 30,806 26,832
Asia and Far East 19,380 23,275
-------------- --------------
Total continuing operations 84,523 88,136
Discontinued operation 2,568 676
-------------- --------------
Total 87,091 88,812
============== ==============
Revenues from significant destinations
United States 27,200 29,862
Hong Kong 9,149 10,081
United Kingdom 8,286 5,657
Others (each under 10% of total) 39,888 42,536
-------------- --------------
Total continuing operations 84,523 88,136
Discontinued operation 2,568 676
-------------- --------------
Total 87,091 88,812
============== ==============
Unallocated costs
Cash, borrowings and income tax are managed centrally and are therefore not
allocated to the divisions. Interest expense and income and income tax expense
are therefore not allocated to the divisions.
F-9
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
4. Exceptional items
Three months Three months
to March 31, to March 31,
1999 2000
L000 L000
Exceptional credits/(charges) to operating
income:
Continuing operations:
Foreign Trade Standards
Nigeria 3,793 (1,595)
Restructuring (2,000) ---
-------------- --------------
1,793 (1,595)
Caleb Brett -- Nigeria 77 ---
-------------- --------------
Total continuing operations 1,870 (1,595)
Discontinued operation -- Environmental --- (1,000)
-------------- --------------
Total operating exceptional items 1,870 (2,595)
============== ==============
Non-operating exceptional items:
ETL SEMKO -- gain on disposal 2,244 ---
Caleb Brett -- loss on disposal --- (335)
Foreign Trade Standards -- loss on disposal --- (2,624)
-------------- --------------
Total continuing operations 2,244 (2,959)
Discontinued operation -- Bondar Clegg loss
on disposal and closure --- (12,109)
-------------- --------------
Total non-operating exceptional items 2,244 (15,068)
============== ==============
Due to the irregular nature of payments received from the Nigerian government
for inspection work carried out by FTS and Caleb Brett, in 1997, ITS introduced
a policy of making full provision against invoices issued to this client and
only reversing the provision when cash is received. The tax effect of the
exceptional charge to income is nil (period from January 1 to March 31, 1999:
nil).
The exceptional charge to operating income of L2.0 million in respect of FTS
resulted from the restructuring of this division following the termination of
the old inspection programmes in Nigeria. The tax effect of this exceptional
charge to income was L0.1 million.
The exceptional charge to operating income of L1.0 million for the discontinued
Environmental division relates primarily to legal costs for the ongoing
investigation by the Environmental Protection Agency. The tax effect of this
exceptional charge is nil.
In January 2000, the loss adjusting business in Caleb Brett Chile was sold for
proceeds of L0.2 million. This sale resulted in a loss on disposal of L0.3
million after deducting attributable goodwill of L0.5 million which was
previously charged to reserves. The tax effect of this exceptional charge is
nil.
In February 2000, FTS sold its technical services business in the U.S. for its
net book value of L1.0 million. After deducting attributable goodwill of L2.6
million which was previously charged to reserves, the exceptional charge on
this disposal was L2.6 million. The tax effect of this exceptional charge is
nil.
The non-operating exceptional credit of L2.2 million resulted from the disposal
of a non-core activity in the U.S. in the ETL SEMKO division. This credit was
after deducting attributable goodwill of L1.1 million which was previously
charged to reserves, from the disposal proceeds of L3.3 million. The tax effect
of this exceptional credit was nil.
F-10
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
The non-operating exceptional charge of L12.1 million relates to the
discontinuance of the Bondar Clegg division. The Bondar Clegg businesses in
North and South America, Ghana and Mali were sold for L1.6 million and the
businesses in Guinea, Eritrea and Burkina Faso were closed. The cash cost of
terminating personnel and closing the operations was approximately L0.8
million. The net loss of L12.1 million is after charging attributable goodwill
of L6.9 million which was previously written off to reserves. The tax effect of
this exceptional charge is nil.
5. Net interest expense
Three months Three months
to March 31, to March 31,
1999 2000
L000 L000
Interest expense and other charges
Senior Subordinated Notes 3,147 3,252
Parent Subordinated PIK Debentures 1,931 2,272
Senior Term Loan A 1,427 1,190
Senior Term Loan B 747 725
Senior Revolver 281 156
Other borrowings 186 148
Amortisation of debt issuance costs 478 504
-------------- --------------
8,197 8,247
Interest income
On bank balances (128) (135)
-------------- --------------
Net interest expense 8,069 8,112
============== ==============
6. Taxation
The taxation charges on income before taxation and exceptional items for the
three month periods ended March 31, 1999 and March 31, 2000 have been
calculated based on the estimated effective tax rates for the relevant full
years. Exceptional items have been tax effected as appropriate.
7. Borrowings
December 31,
1999 March 31, 2000
L000 L000
Due in less than one year:
Senior Term Loan A 4,726 4,674
Senior Revolver 10,360 6,500
Other borrowings 343 514
-------------- --------------
15,429 11,688
============== ==============
Due in more than one year:
Senior Subordinated Notes 120,921 122,685
Senior Term Loan A 54,728 54,893
Senior Term Loan B 33,723 33,865
Parent Subordinated PIK Debentures 68,609 71,821
Other borrowings 255 176
-------------- --------------
278,236 283,440
============== ==============
F-11
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Borrowings (continued)
Maturity of borrowings:
Senior Senior Parent
Subordinated Term Senior Term Senior Subordinated Other Total
Notes Loan A Loan B Revolver PIK Debentures borrowings borrowings
L000 L000 L000 L000 L000 L000 L000
Due in less than one year --- 5,480 --- 6,500 --- 514 12,494
Due in one to two years --- 26,308 --- --- --- 142 26,450
Due in 2 and 5 years --- 29,756 34,908 --- --- 27 64,691
Due in over 5 years 127,673 --- --- --- 73,329 7 201,009
---------- ------ -------------- ------ ----------------- -------- --------
127,673 61,544 34,908 6,500 73,329 690 304,644
Debt issuance costs (4,988) (1,977) (1,043) --- (1,508) --- (9,516)
---------- ------ -------------- ------ ----------------- -------- --------
122,685 59,567 33,865 6,500 71,821 690 295,128
========== ====== ============== ====== ================= ======== ========
8. Reconciliation of movement in shareholders' deficit
Three months Three months
to March 31, to March 31,
1999 2000
L000 L000
Total recognised gains and losses for the
period (2,511) (20,885)
Goodwill adjustments --- 10,042
-------------- --------------
(2,511) (11,843)
Opening shareholders' deficit (221,408) (202,459)
-------------- --------------
Closing shareholders' deficit (223,919) (213,302)
============== ==============
F-12
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
9. Reconciliation of operating income to operating cash flows
Three months Three months
to March 31, to March 31,
1999 2000
L000 L000
Operating income 11,229 7,701
Depreciation charge 2,851 3,000
Goodwill amortisation 184 248
Loss on sale of fixed assets 33 161
Decrease in inventories 58 14
Increase in receivables and prepayments (1,885) (3,365)
(Decrease)/increase in payables (382) 396
Cash receipts from exporters 3,740 ---
Discontinued operating exceptional
provisions -- Environmental --- 1,000
Decrease in other provisions (1,945) (928)
-------------- --------------
13,883 8,227
Equity income of associates (11) (197)
-------------- --------------
Total operating cash inflow 13,872 8,030
============== ==============
10. Analysis of cash flows
Three months Three months
to March 31, to March 31,
1999 2000
L000 L000
Returns on investment and servicing of
finance
Net interest paid (374) (2,016)
Dividends paid to minorities (619) (735)
-------------- --------------
(993) (2,751)
-------------- --------------
Capital expenditure and financial investment
Purchase of property, plant and equipment (2,050) (3,150)
Sale of property, plant and equipment 33 80
-------------- --------------
(2,017) (3,070)
-------------- --------------
Acquisitions and disposals
Purchase of subsidiary undertakings (3,579) (379)
Sale of subsidiary undertakings 3,272 930
Acquisition provision payments --- (42)
-------------- --------------
(307) 509
-------------- --------------
Financing
Repayment of short term debt --- (3,875)
Repayment of other loans (3,372) (427)
Cash subscribed by minorities 12 ---
-------------- --------------
(3,360) (4,302)
-------------- --------------
F-13
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
11. Analysis of net debt
Debt issued
At Acquisitions in lieu of Other
December 31, and interest non-cash Exchange At March 31,
1999 Cash flow disposals payment changes adjustments 2000
L000 L000 L000 L000 L000 L000 L000
Net cash
Cash in hand and at bank 20,150 (3,833) (728) --- --- 36 15,625
------------ ------------- -------------- ------------- ----------- ------------- -------------
Debt
Debt due within one year (15,429) 4,302 --- --- 165 (726) (11,688)
Debt due after one year (278,236) --- --- (2,251) (671) (2,282) (283,440)
------------ ------------- -------------- ------------- ----------- ------------- -------------
(293,665) 4,302 --- (2,251) (506) (3,008) (295,128)
------------ ------------- -------------- ------------- ----------- ------------- -------------
Total net debt (273,515) 469 (728) (2,251) (506) (2,972) (279,503)
============ ============= ============== ============= =========== ============= =============
12. Summary of differences between U.K. and U.S. GAAP
The consolidated financial statements are prepared in conformity with U.K.
GAAP. These accounting principles differ in certain material respects from U.S.
GAAP. Described below are the material differences between U.K. GAAP and U.S.
GAAP affecting the net income/(loss) and shareholders' equity/(deficit) which
are set forth in the tables that follow.
Goodwill and other intangible assets
Under U.K. GAAP, purchased goodwill in respect of acquisitions before January
1, 1998 was written off to reserves in the year of acquisition. Purchased
goodwill in respect of acquisitions since January 1, 1998 is capitalised in
accordance with the requirements of FRS 10, Goodwill and Intangible Assets.
Other intangible assets, such as non compete covenants, are amortised over the
term of the agreement, generally between two to five years. Positive goodwill
is amortised to nil in equal instalments over its estimated useful life,
generally not exceeding 20 years. Under U.S. GAAP, goodwill and identifiable
intangibles are capitalised and are written off over their estimated useful
lives, generally not exceeding 40 years. U.S. GAAP goodwill and identifiable
intangibles are being written off over periods not exceeding 20 years.
Redeemable preference shares
Under U.K. GAAP, preference shares with mandatory redemption features or
redeemable at the option of the security holders would be classified as a
component of shareholders' equity. U.S. GAAP requires such redeemable
preference shares to be classified as debt and not as shareholders' equity.
Pension costs - defined benefit plans
Under U.K. GAAP, the cost of providing pension benefits is expensed over the
average expected service lives of eligible employees on the basis of a constant
percentage of current and estimated future earnings. Under U.S. GAAP, costs and
surpluses are similarly spread over the remaining service lives but based on
prescribed actuarial assumptions, cost allocation and valuation methods which
differ in certain respects from those used for U.K. GAAP.
As a result of this difference in methodology, the U.S. GAAP pension expense
can be significantly different from that determined under U.K. GAAP and tends
to be more sensitive to changing economic conditions.
F-14
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Summary of differences between U.K. and U.S. GAAP (continued)
Compensated absences
Under U.S. GAAP, compensated absences, being an employee's paid holiday
entitlements, are accrued as earned. U.K. GAAP does not require provision to be
made.
Deferred taxation
Under U.K. GAAP, deferred taxation is accounted for using the liability method
to the extent that it is considered probable that a liability or asset will
crystallise in the foreseeable future. Under U.S. GAAP, deferred taxation is
provided on all temporary differences and carryforwards. Deferred tax assets
are recognised to the extent that it is more likely than not that they will be
realised. Where doubt exists as to whether a deferred tax asset will be
realised, an appropriate valuation allowance is established. In addition,
deferred taxes on other U.S. GAAP differences is provided.
Effect of material differences between U.K. and U.S. GAAP and additional
disclosures
Net income/(loss)
Three months to Three months to
March 31, 1999 March 31, 2000
L000 L000
Net income/(loss) reported under U.K.
GAAP 3,709 (17,884)
Goodwill amortisation (2,911) (1,521)
Covenants not to compete amortisation (3,152) ---
Loss on disposal and closure of
discontinued operation 122 ---
Previously recognised loss on disposal
and closure of discontinued operation --- 11,622
Pensions (53) ---
Compensated absences (97) 152
Deferred taxes --- ---
Tax effect of U.S. GAAP reconciling
adjustments --- ---
---------------- ----------------
Net loss in conformity with U.S. GAAP (2,382) (7,631)
================ ================
Continuing operations (1,485) (5,483)
Discontinued operations (897) (2,148)
---------------- ----------------
Net loss in conformity with U.S. GAAP (2,382) (7,631)
================ ================
F-15
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Summary of differences between U.K. and U.S. GAAP (continued)
(b) Shareholders' deficit
The approximate effects on shareholders' deficit of material differences
between U.K. and U.S. GAAP are as follows:
December 31,
1999 March 31, 2000
L000 L000
Shareholders' deficit reported under U.K.
GAAP (202,459) (213,302)
Goodwill 189,992 186,712
Covenants not to compete --- ---
Redeemable preference shares (105,478) (105,478)
Previously recognised loss on disposal and
closure of discontinued operation (4,990) ---
Pensions 996 996
Compensated absences (787) (630)
-------------- --------------
Shareholders' deficit in conformity with
U.S. GAAP (122,726) (131,702)
============== ==============
The following table reconciles shareholders' deficit under U.S. GAAP:
Shareholders' deficit at beginning of period (94,334) (122,726)
Issue of shares 1,089 ---
Net loss for the period (23,955) (7,631)
Exchange adjustments (5,526) (1,345)
-------------- --------------
Shareholders' deficit at end of period (122,726) (131,702)
============== ==============
(c) Cash flows
The statements of cash flows prepared in accordance with U.K. GAAP present
substantially the same information as that required under U.S. GAAP. Under U.S.
GAAP however, there are certain differences from U.K. GAAP with regard to
classification of items within the cash flow statement and with regard to the
definition of cash.
Under U.K. GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, capital expenditure
and financial investment, acquisitions and disposals, equity dividends paid,
management of liquid resources and financing. Under U.S. GAAP, three categories
of cash flow activity are reported, those being operating activities, investing
activities and financing activities. Cash flows from taxation and returns on
investments and servicing of finance would, with the exception of dividends
paid, be included as operating activities under U.S. GAAP. Capital expenditure
and financial investment, acquisitions and disposals and management of liquid
resources would be included as investing activities. The payment of dividends
would be included under financing activities under U.S. GAAP.
F-16
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Summary of differences between U.K. and U.S. GAAP (continued)
Set out below is a summary of the statements of cash flows under U.S. GAAP.
Three months to Three months to
March 31, 1999 March 31, 2000
L000 L000
Net cash provided by operating activities 13,154 1,871
Net cash used in investing activities (2,315) (4,157)
Net cash used in financing activities (4,003) (135)
-------------- --------------
6,836 (2,421)
Effect of exchange rate changes 135 36
-------------- --------------
Net increase/(decrease) in cash by
continuing operations 6,971 (2,385)
-------------- --------------
Increase/(decrease) in cash by continuing
operations 6,971 (2,385)
Decrease in cash by discontinued operations (678) (2,140)
Cash at beginning of period 16,772 20,150
-------------- --------------
Cash at end of period 23,065 15,625
-------------- --------------
(d) Comprehensive income
The company has adopted SFAS No. 130, "Reporting Comprehensive Income", which
established standards for the reporting and presentation of comprehensive
income/(loss) and its components in a full set of financial statements. The
Company's comprehensive income/(loss) differs from net income only by the
amount of the foreign currency exchange adjustments charged to shareholders'
deficit for the period. Comprehensive income for the three months to March 31,
1999 and the three months to March 31, 2000 is equal to the total recognised
gains and losses shown on the consolidated statement of total recognised gains
and losses. Accumulated other comprehensive losses were L8.8 million and L16.6
million at March 31, 1999 and March 31, 2000, respectively.
13. Subsequent events
On May 5, 2000, we received L1.3 million from the Nigerian government for
invoices through January 2000 on the new inspection programme which began on
September 1, 1999.
On May 11, 2000, we concluded the sale of our Bondar Clegg companies in Ghana
and Mali to Scientific Services Limited for L1.0 million. Proceeds of L0.4
million were received in April 2000, L0.3 million is due by June 2000 and L0.3
million is deferred until May 2001. The effective date of sale was March 31,
2000.
F-17
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
14. Issuer, guarantor and non-guarantor companies
Intertek Finance plc ("the Issuer") is a wholly owned direct subsidiary of the
Company and the Issuer has issued the Notes which are fully and unconditionally
guaranteed on a senior subordinated basis by the Company and certain of its
wholly owned direct subsidiaries: Intertek Testing Services UK Limited, Testing
Holdings USA Inc., Yickson Enterprises Limited, Kite Overseas Holdings BV, ITS
Holding Limited, Testing Holdings Sweden AB, Testing Holdings France EURL,
Testing Holdings Germany GmbH (collectively, the "Guarantor subsidiaries" and,
together with the Company, the "Guarantors"). In addition, each of the
Guarantor's guarantee is itself guaranteed by each other Guarantor, fully and
unconditionally, on a senior subordinated basis. Subject to the provisions of
the agreement under which the loans to finance the acquisition of the business
were made, certain exceptions and applicable law, there are no restrictions on
the ability of:
(a) the Company or any of its direct and indirect subsidiaries from paying
dividends or making any other distributions or loans or advances to the
Issuer or
(b) the direct and indirect subsidiaries of the Company from paying dividends
or making any other distribution or loans or advances to the Company.
Separate financial statements and other disclosures concerning the Issuer and
the Guarantors are not presented because management has determined that they
are not material to the investors. In lieu of the separate guarantor financial
statements, management has presented audited consolidating financial
information. The audited consolidating financial information presented below
has been segregated between (a) the Issuer, (b) the Guarantors and (c) the non-
Guarantor subsidiaries.
F-18
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Statements of Operations
Three months to March 31, 2000
Intertek Non-Guarantor Consolidation Consolidated
Finance plc Guarantors subsidiaries adjustments totals
L000 L000 L000 L000 L000
--------------- --------------- --------------- --------------- ---------------
Total group revenue --- --- 98,194 (9,382) 88,812
Operating income/(costs) 77 (71) (90,696) 9,382 (81,308)
Share of operating profit in associates --- --- 197 --- 197
--------------- --------------- --------------- --------------- ---------------
Operating income/(loss) 77 (71) 7,695 --- 7,701
Non-operating exceptional items --- (5,161) (9,907) --- (15,068)
--------------- --------------- --------------- --------------- ---------------
Income/(loss) before interest 77 (5,232) (2,212) --- (7,367)
Net interest expense 25 (3,825) (4,312) --- (8,112)
--------------- --------------- --------------- --------------- ---------------
Income/(loss) before taxation 102 (9,057) (6,524) --- (15,479)
Taxation (31) 77 (1,837) --- (1,791)
--------------- --------------- --------------- --------------- ---------------
Income/(loss) after taxation 71 (8,980) (8,361) --- (17,270)
Minority interests --- --- (614) --- (614)
Dividends from/(to) group companies --- 562 (562) --- ---
--------------- --------------- --------------- --------------- ---------------
Net income/(loss) 71 (8,418) (9,537) --- (17,884)
=============== =============== =============== =============== ===============
Statements of Operations
Three months to March 31, 1999
Intertek Non-Guarantor Consolidation Consolidated
Finance plc Guarantors subsidiaries adjustments totals
L000 L000 L000 L000 L000
--------------- --------------- --------------- --------------- ---------------
Total group revenue --- --- 102,767 (15,676) 87,091
Operating income/(costs) 52 2 (91,603) 15,676 (75,873)
Share of operating profit in associates --- --- 11 --- 11
--------------- --------------- --------------- --------------- ---------------
Operating income 52 2 11,175 --- 11,229
Non-operating exceptional items --- --- 2,244 --- 2,244
--------------- --------------- --------------- --------------- ---------------
Income before interest 52 2 13,419 --- 13,473
Net interest expense 11 (3,707) (4,373) --- (8,069)
--------------- --------------- --------------- --------------- ---------------
Income/(loss) before taxation 63 (3,705) 9,046 --- 5,404
Taxation (3) 177 (1,107) --- (933)
--------------- --------------- --------------- --------------- ---------------
Income/(loss) after taxation 60 (3,528) 7,939 --- 4,471
Minority interests --- --- (762) --- (762)
Dividends from/(to) group companies --- 508 (508) --- ---
--------------- --------------- --------------- --------------- ---------------
Net income/(loss) 60 (3,020) 6,669 --- 3,709
=============== =============== =============== =============== ===============
F-19
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
March 31, 2000
Intertek Non-Guarantor Consolidation Consolidated
Finance plc Guarantors subsidiaries adjustments totals
L000 L000 L000 L000 L000
--------------- --------------- --------------- --------------- ---------------
ASSETS
Current assets
Cash --- (4,747) 20,372 --- 15,625
Trade receivables --- --- 69,024 --- 69,024
Inventories --- --- 1,564 --- 1,564
Other current assets 131,052 277,587 256,811 (647,332) 18,118
--------------- --------------- --------------- --------------- ---------------
Total current assets 131,052 272,840 347,771 (647,332) 104,331
Goodwill --- --- 15,474 --- 15,474
Property, plant and equipment, net --- --- 52,111 --- 52,111
Investments in subsidiary undertakings --- 332,609 75,894 (408,503) ---
Investments --- --- 920 --- 920
--------------- --------------- --------------- --------------- ---------------
Total assets 131,052 605,449 492,170 (1,055,835) 172,836
=============== =============== =============== =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current liabilities
Borrowings (including current portion of
long term borrowings) --- 11,603 85 --- 11,688
Accounts payable, accrued liabilities and
deferred income 6,935 235,034 477,995 (647,332) 72,632
Income taxes payable 44 (2,740) 8,037 --- 5,341
--------------- --------------- --------------- --------------- ---------------
Total current liabilities 6,979 243,897 486,117 (647,332) 89,661
Long term borrowings 123,825 161,108 (1,493) --- 283,440
Provisions for liabilities and charges --- --- 7,408 --- 7,408
Minority interests --- --- 5,629 --- 5,629
Shareholders' equity/(deficit)
Ordinary shares 50 107,849 203,978 (311,069) 808
Redeemable preference shares --- 105,478 --- --- 105,478
Shares to be issued --- 2,793 --- --- 2,793
Premium in excess of par value --- 27,205 2,884 (26,454) 3,635
Accumulated earnings/(deficit) 198 (42,881) (212,353) (70,980) (326,016)
--------------- --------------- --------------- --------------- ---------------
Total shareholders' equity/(deficit) 248 200,444 (5,491) (408,503) (213,302)
--------------- --------------- --------------- --------------- ---------------
Total liabilities and shareholders'
equity/(deficit) 131,052 605,449 492,170 (1,055,835) 172,836
=============== =============== =============== =============== ===============
F-20
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
December 31, 1999
Intertek Non-Guarantor Consolidation Consolidated
Finance plc Guarantors subsidiaries adjustments totals
L000 L000 L000 L000 L000
--------------- --------------- --------------- --------------- ---------------
ASSETS
Current assets
Cash --- (6,792) 26,942 --- 20,150
Trade receivables --- --- 70,103 --- 70,103
Inventories --- --- 2,614 --- 2,614
Other current assets 130,297 280,446 256,458 (651,570) 15,631
Deferred taxation asset --- --- --- --- ---
--------------- --------------- --------------- --------------- ---------------
Total current assets 130,297 273,654 356,117 (651,570) 108,498
Goodwill --- --- 15,814 --- 15,814
Property, plant and equipment, net --- --- 53,746 --- 53,746
Investments in subsidiary undertakings --- 335,235 74,437 (409,672) ---
Investments --- --- 503 --- 503
--------------- --------------- --------------- --------------- ---------------
Total assets 130,297 608,889 500,617 (1,061,242) 178,561
=============== =============== =============== =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current liabilities
Borrowings (including current portion
of long term borrowings) --- 15,555 (126) --- 15,429
Accounts payable, accrued liabilities
and deferred income 7,964 229,209 483,874 (651,570) 69,477
Income taxes payable 13 (2,564) 7,919 --- 5,368
--------------- --------------- --------------- --------------- ---------------
Total current liabilities 7,977 242,200 491,667 (651,570) 90,274
Long term borrowings 122,094 157,661 (1,519) --- 278,236
Provisions for liabilities and charges --- --- 6,789 --- 6,789
Minority interests --- --- 5,721 --- 5,721
Shareholders' equity/(deficit)
Ordinary shares 50 106,633 205,187 (311,062) 808
Redeemable preference shares --- 105,478 --- --- 105,478
Shares to be issued --- 2,793 --- --- 2,793
Premium in excess of par value --- 27,226 2,863 (26,454) 3,635
Accumulated earnings/(deficit) 176 (33,102) (210,091) (72,156) (315,173)
--------------- --------------- --------------- --------------- ---------------
Total shareholders' equity/(deficit) 226 209,028 (2,041) (409,672) (202,459)
--------------- --------------- --------------- --------------- ---------------
Total liabilities and shareholders'
equity/(deficit) 130,297 608,889 500,617 (1,061,242) 178,561
=============== =============== =============== =============== ===============
F-21
Intertek Testing Services Limited
Notes to The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
Three months to March 31, 2000
Intertek Non-Guarantor Consolidation Consolidated
Finance plc Guarantors subsidiaries adjustments totals
L000 L000 L000 L000 L000
--------------- --------------- --------------- --------------- ---------------
Total operating cash inflow/(outflow) 77 (574) 8,527 --- 8,030
Returns on investments and servicing
of finance 4,328 (2,892) (4,187) --- (2,751)
Taxation --- (88) (2,161) --- (2,249)
Capital expenditure and financial
investment --- --- (3,070) --- (3,070)
Acquisitions and disposals --- (2,054) 2,563 --- 509
--------------- --------------- --------------- --------------- ---------------
Cash inflow/(outflow) before financing 4,405 (5,608) 1,672 --- 469
Financing (4,405) 7,638 (7,535) --- (4,302)
--------------- --------------- --------------- --------------- ---------------
Increase/(decrease) in cash in the
period --- 2,030 (5,863) --- (3,833)
--------------- --------------- --------------- --------------- ---------------
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash in the
period --- 2,030 (5,863) --- (3,833)
Cash inflow/(outflow) from increase in
debt --- 4,406 (104) --- 4,302
--------------- --------------- --------------- --------------- ---------------
Change in net debt resulting from cash
flows --- 6,436 (5,967) --- 469
Debt issued in lieu of interest
payment --- (2,251) --- --- (2,251)
Acquisitions and disposals --- --- (728) --- (728)
Other non-cash movements (145) (200) (161) --- (506)
Exchange adjustments (1,586) (1,435) 49 --- (2,972)
--------------- --------------- --------------- --------------- ---------------
Movement in net debt in the period (1,731) 2,550 (6,807) --- (5,988)
Net debt at the start of the period (122,094) (180,008) 28,587 --- (273,515)
--------------- --------------- --------------- --------------- ---------------
Net debt at the end of the period (123,825) (177,458) 21,780 --- (279,503)
=============== =============== =============== =============== ===============
F-22
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
Three months to March 31, 1999
Intertek Finance Non-Guarantor Consolidation Consolidated
plc Guarantors subsidiaries adjustments totals
L000 L000 L000 L000 L000
--------------- --------------- --------------- --------------- ---------------
Total operating cash inflow/(outflow) 52 (2,770) 16,590 --- 13,872
Returns on investments and servicing
of finance 3,677 (502) (4,168) --- (993)
Taxation --- (94) (943) --- (1,037)
Capital expenditure and financial
investment --- --- (2,017) --- (2,017)
Acquisitions and disposals --- --- (307) --- (307)
--------------- --------------- --------------- --------------- ---------------
Cash inflow/(outflow) before financing 3,729 (3,366) 9,155 --- 9,518
Financing (3,729) 10,023 (9,654) --- (3,360)
--------------- --------------- --------------- --------------- ---------------
Increase/(decrease) in cash in the
period --- 6,657 (499) --- 6,158
--------------- --------------- --------------- --------------- ---------------
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash in the
period --- 6,657 (499) --- 6,158
Cash inflow from increase in debt --- 2,817 584 --- 3,401
--------------- --------------- --------------- --------------- ---------------
Change in net debt resulting from cash
flows --- 9,474 85 --- 9,559
Debt issued in lieu of interest
payment --- (1,960) --- --- (1,960)
Other non-cash movements (144) 398 (732) --- (478)
Exchange adjustments (3,707) (4,501) 876 --- (7,332)
--------------- --------------- --------------- --------------- ---------------
Movement in net debt in the period (3,851) 3,411 229 --- (211)
Net debt at the start of the period (116,251) (187,050) 24,300 --- (279,001)
--------------- --------------- --------------- --------------- ---------------
Net debt at the end of the period (120,102) (183,639) 24,529 --- (279,212)
=============== =============== =============== =============== ===============
F-23
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Statements of Operations
Three months to March 31, 2000
Intertek
Intertek Kite Testing Testing Testing
Testing Testing Overseas ITS Services Holdings Yickson Holdings
Services Holdings Holdings Holding UK Sweden Enterprises France
Ltd USA Inc BV Limited Limited AB Limited EURL
L000 L000 L000 L000 L000 L000 L000 L000
-------- -------- -------- -------- -------- -------- -------- --------
Revenues from continuing operations --- --- --- --- --- --- --- ---
Operating costs (59) --- (3) --- (6) --- (2) (1)
-------- -------- -------- -------- -------- -------- -------- --------
Operating costs from continuing operations (59) --- (3) --- (6) --- (2) (1)
Non-operating exceptional items (837) (4,302) (30) 8 --- --- --- ---
-------- -------- -------- -------- -------- -------- -------- --------
Loss before interest (896) (4,302) (33) 8 (6) --- (2) (1)
Net interest expense (1,932) (302) (80) (35) (825) (457) (56) (29)
-------- -------- -------- -------- -------- -------- -------- --------
Loss before taxation (2,828) (4,604) (113) (27) (831) (457) (58) (30)
Taxation (5) (109) (13) --- 249 --- (2) ---
-------- -------- -------- -------- -------- -------- -------- --------
Loss after taxation (2,833) (4,713) (126) (27) (582) (457) (60) (30)
Dividends from group companies --- 556 6 --- --- --- --- ---
-------- -------- -------- -------- -------- -------- -------- --------
Net loss (2,833) (4,157) (120) (27) (582) (457) (60) (30)
======== ======== ======== ======== ======== ======== ======== ========
Testing
Holdings Guarantor
Germany subsidiaries
GmbH Total
L000 L000
-------- --------
Revenues from continuing operations --- ---
Operating costs --- (71)
-------- --------
Operating costs from continuing operations --- (71)
Non-operating exceptional items --- (5,161)
-------- --------
Loss before interest --- (5,232)
Net interest expense (109) (3,825)
-------- --------
Loss before taxation (109) (9,057)
Taxation (43) 77
-------- --------
Loss after taxation (152) (8,980)
Dividends from group companies --- 562
-------- --------
Net loss (152) (8,418)
======== ========
Statements of Operations
Three months to March 31, 1999
Intertek
Intertek Kite Testing Testing
Testing Testing Overseas ITS Services Holdings Yickson
Services Holdings Holdings Holding UK Sweden Enterprises
Ltd USA Inc BV Limited Limited AB Limited
L000 L000 L000 L000 L000 L000 L000
-------- -------- -------- -------- -------- -------- --------
Revenues from continuing operations --- --- --- --- --- --- ---
Operating income/(costs) 14 --- 1 --- (8) --- (4)
-------- -------- -------- -------- -------- -------- --------
Operating income/(loss) from continuing operations 14 --- 1 --- (8) --- (4)
Net interest expense (1,933) (134) (85) --- (817) (533) (39)
-------- -------- -------- -------- -------- -------- --------
Loss before taxation (1,919) (134) (84) --- (825) (533) (43)
Taxation --- (56) --- --- 245 --- (10)
-------- -------- -------- -------- -------- -------- --------
Loss after taxation (1,919) (190) (84) --- (580) (533) (53)
Dividends from group companies --- 508 --- --- --- --- ---
-------- -------- -------- -------- -------- -------- --------
Net (loss)/income (1,919) 318 (84) --- (580) (533) (53)
======== ======== ======== ======== ======== ======== ========
Testing Testing
Holdings Holdings Guarantor
France Germany subsidiaries
EURL GmbH Total
L000 L000 L000
-------- -------- ---------
Revenues from continuing operations --- --- ---
Operating income/(costs) (1) --- 2
-------- -------- --------
Operating income/(loss) from continuing operations (1) --- 2
Net interest expense (32) (134) (3,707)
-------- -------- --------
Loss before taxation (33) (134) (3,705)
Taxation --- (2) 177
-------- -------- --------
Loss after taxation (33) (136) (3,528)
Dividends from group companies --- --- 508
-------- -------- --------
Net (loss)/income (33) (136) (3,020)
======== ======== ========
F-24
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
March 31, 2000
Intertek
Intertek Kite Testing Testing
Testing Testing Overseas ITS Services Holdings
Services Holdings Holdings Holding UK Sweden
Ltd USA Inc BV Limited Limited AB
L000 L000 L000 L000 L000 L000
-------- -------- -------- -------- -------- --------
ASSETS
Current assets
Cash (5,771) --- 17 993 --- ---
Other current assets 77,571 99,371 2,011 3,902 --- 2,036
-------- -------- -------- -------- -------- --------
Total current assets 71,800 99,371 2,028 4,895 --- 2,036
Investments in subsidiary undertakings 128,624 97,493 5,229 3,902 64,418 24,109
-------- -------- -------- -------- -------- --------
Total assets 200,424 196,864 7,257 8,797 64,418 26,145
======== ======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion of long term borrowings) 6,500 --- 260 490 1,058 437
Accounts payable, accrued liabilities and deferred income 39,025 103,927 3,659 2,158 19,441 2,036
Income taxes (receivable)/payable (743) (830) --- (2) (1,236) ---
-------- -------- -------- -------- -------- --------
Total current liabilities 44,782 103,097 3,919 2,646 19,263 2,473
Long term borrowings 71,821 --- 2,860 2,722 31,783 20,014
Shareholders' equity
Ordinary shares 808 98,172 1,281 3,864 --- 1,786
Redeemable preference shares 105,478 --- --- --- --- ---
Shares to be issued 2,793 --- --- --- --- ---
Premium in excess of par value 3,635 --- --- --- 22,709 ---
Accumulated (deficit)/earnings (28,893) (4,405) (803) (435) (9,337) 1,872
-------- -------- -------- -------- -------- --------
Total shareholders' equity/(deficit) 83,821 93,767 478 3,429 13,372 3,658
-------- -------- -------- -------- -------- --------
Total liabilities and shareholders' equity 200,424 196,864 7,257 8,797 64,418 26,145
======== ======== ======== ======== ======== ========
Testing Testing
Yickson Holdings Holdings Guarantor
Enterprises France Germany subsidiaries
Limited EURL GmbH Total
L000 L000 L000 L000
-------- -------- -------- ---------
ASSETS
Current assets
Cash 1 13 --- (4,747)
Other current assets 91,602 911 183 277,587
-------- -------- -------- --------
Total current assets 91,603 924 183 272,840
Investments in subsidiary undertakings --- 3,296 5,538 332,609
-------- -------- -------- --------
Total assets 91,603 4,220 5,721 605,449
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion of long term borrowings) 2,858 --- --- 11,603
Accounts payable, accrued liabilities and deferred income 61,447 2,751 590 235,034
Income taxes (receivable)/payable 10 205 (144) (2,740)
-------- -------- -------- --------
Total current liabilities 64,315 2,956 446 243,897
Long term borrowings 27,394 --- 4,514 161,108
Shareholders' equity
Ordinary shares --- 823 1,115 107,849
Redeemable preference shares --- --- --- 105,478
Shares to be issued --- --- --- 2,793
Premium in excess of par value 51 --- 810 27,205
Accumulated (deficit)/earnings (157) 441 (1,164) (42,881)
-------- -------- -------- --------
Total shareholders' equity/(deficit) (106) 1,264 761 200,444
-------- -------- -------- --------
Total liabilities and shareholders' equity 91,603 4,220 5,721 605,449
======== ======== ======== ========
F-25
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
December 31, 1999
Intertek
Intertek Kite Testing Testing
Testing Testing Overseas ITS Services Holdings
Services Holdings Holdings Holding UK Sweden
Ltd USA Inc BV Limited Limited AB
L000 L000 L000 L000 L000 L000
-------- -------- -------- -------- -------- --------
ASSETS
Current assets
Cash (7,573) --- 7 773 --- ---
Other current assets 82,624 99,354 2,068 3,964 --- 2,036
-------- -------- -------- -------- -------- --------
Total current assets 75,051 99,354 2,075 4,737 --- 2,036
Investments in subsidiary undertakings 128,624 99,774 5,420 3,820 64,418 24,109
-------- -------- -------- -------- -------- --------
Total assets 203,675 199,128 7,495 8,557 64,418 26,145
======== ======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion of long term borrowings) 10,360 --- 265 488 1,171 436
Accounts payable, accrued liabilities and deferred income 37,132 103,261 3,694 2,041 18,673 1,637
Income taxes (receivable)/payable (743) (868) --- (2) (987) ---
-------- -------- -------- -------- -------- --------
Total current liabilities 46,749 102,393 3,959 2,527 18,857 2,073
Long term borrowings 68,609 --- 2,923 2,679 31,706 19,950
Shareholders' equity
Ordinary shares 808 96,953 1,313 3,782 --- 1,786
Redeemable preference shares 105,478 --- --- --- --- ---
Shares to be issued 2,793 --- --- --- --- ---
Premium in excess of par value 3,635 --- --- --- 22,709 ---
Accumulated (deficit)/earnings (24,397) (218) (700) (431) (8,854) 2,336
-------- -------- -------- -------- -------- --------
Total shareholders' equity/(deficit) 88,317 96,735 613 3,351 13,855 4,122
-------- -------- -------- -------- -------- --------
Total liabilities and shareholders' equity 203,675 199,128 7,495 8,557 64,418 26,145
======== ======== ======== ======== ======== ========
Testing Testing
Yickson Holdings Holdings Guarantor
Enterprises France Germany subsidiaries
Limited EURL GmbH Total
L000 L000 L000 L000
-------- -------- -------- ---------
ASSETS
Current assets
Cash 1 --- --- (6,792)
Other current assets 89,442 958 --- 280,446
-------- -------- -------- --------
Total current assets 89,443 958 --- 273,654
Investments in subsidiary undertakings --- 3,390 5,680 335,235
-------- -------- -------- --------
Total assets 89,443 4,348 5,680 608,889
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion of long term borrowings) 2,835 --- --- 15,555
Accounts payable, accrued liabilities and deferred income 59,484 2,796 491 229,209
Income taxes (receivable)/payable 8 221 (193) (2,564)
-------- -------- -------- --------
Total current liabilities 62,327 3,017 298 242,200
Long term borrowings 27,175 --- 4,619 157,661
Shareholders' equity
Ordinary shares --- 847 1,144 106,633
Redeemable preference shares --- --- --- 105,478
Shares to be issued --- --- --- 2,793
Premium in excess of par value 51 --- 831 27,226
Accumulated (deficit)/earnings (110) 484 (1,212) (33,102)
-------- -------- -------- --------
Total shareholders' equity/(deficit) (59) 1,331 763 209,028
-------- -------- -------- --------
Total liabilities and shareholders' equity 89,443 4,348 5,680 608,889
======== ======== ======== ========
F-26
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
Three months to March 31, 2000
Intertek
Intertek Kite Testing Testing
Testing Testing Overseas ITS Services Holdings
Services Holdings Holdings Holding UK Sweden
Ltd USA Inc BV Limited Limited AB
L000 L000 L000 L000 L000 L000
-------- -------- -------- -------- -------- --------
Total operating cash outflow (552) --- (5) (8) (6) ---
Returns on investments and servicing of finance 136 (2,710) (17) 150 (752) (324)
Taxation (5) (61) (13) --- --- ---
Acquisitions and disposals (1,300) (788) 26 8 --- ---
-------- -------- -------- -------- -------- --------
Cash (outflow)/inflow before financing (1,721) (3,559) (9) 150 (758) (324)
Financing 3,523 3,559 20 54 758 324
-------- -------- -------- -------- -------- --------
Increase in cash in the period 1,802 --- 11 204 --- ---
-------- -------- -------- -------- -------- --------
Reconciliation of net cash flow to movement in net debt
Increase in cash in the period 1,802 --- 11 204 --- ---
Cash inflow from increase in debt 3,875 --- --- --- 531 ---
-------- -------- -------- -------- -------- --------
Change in net debt resulting from cash flows 5,677 --- 11 204 531 ---
Debt issued in lieu of interest payment (2,251) --- --- --- --- ---
Other non-cash movements (30) --- (12) (10) (72) (66)
Exchange adjustments (946) --- 79 (19) (423) 1
-------- -------- -------- -------- -------- --------
Movement in net debt in the period 2,450 --- 78 175 36 (65)
Net debt at the start of the period (86,542) --- (3,181) (2,394) (32,877) (20,386)
-------- -------- -------- -------- -------- --------
Net debt at the end of the period (84,092) --- (3,103) (2,219) (32,841) (20,451)
-------- -------- -------- -------- -------- --------
Testing Testing
Yickson Holdings Holdings Guarantor
Enterprises France Germany subsidiaries
Limited EURL GmbH Total
L000 L000 L000 L000
-------- -------- -------- ---------
Total operating cash outflow (2) (1) --- (574)
Returns on investments and servicing of finance 698 --- (73) (2,892)
Taxation --- (9) --- (88)
Acquisitions and disposals --- --- --- (2,054)
-------- -------- -------- --------
Cash (outflow)/inflow before financing 696 (10) (73) (5,608)
Financing (696) 23 73 7,638
-------- -------- -------- --------
Increase in cash in the period --- 13 --- 2,030
-------- -------- -------- --------
Reconciliation of net cash flow to movement in net debt
Increase in cash in the period --- 13 --- 2,030
Cash inflow from increase in debt --- --- --- 4,406
-------- -------- -------- --------
Change in net debt resulting from cash flows --- 13 --- 6,436
Debt issued in lieu of interest payment --- --- --- (2,251)
Other non-cash movements --- --- (10) (200)
Exchange adjustments (242) --- 115 (1,435)
-------- -------- -------- --------
Movement in net debt in the period (242) 13 105 2,550
Net debt at the start of the period (30,009) --- (4,619) (180,008)
-------- -------- -------- --------
Net debt at the end of the period (30,251) 13 (4,514) (177,458)
-------- -------- -------- --------
F-27
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
Three months to March 31, 1999
Intertek
Intertek Kite Testing Testing
Testing Testing Overseas ITS Services Holdings
Services Holdings Holdings Holding UK Sweden
Ltd USA Inc BV Limited Limited AB
L000 L000 L000 L000 L000 L000
-------- -------- -------- -------- -------- --------
Total operating cash (outflow)/inflow (2,762) --- 5 --- (8) ---
Returns on investments and servicing of finance (2,351) 495 (107) --- --- ---
Taxation --- (56) --- --- --- ---
-------- -------- -------- -------- -------- --------
Cash (outflow)/inflow before financing (5,113) 439 (102) --- (8) ---
Financing 11,870 (439) --- --- 10 ---
-------- -------- -------- -------- -------- --------
Increase/(decrease) in cash in the period 6,757 --- (102) --- 2 ---
-------- -------- -------- -------- -------- --------
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the period 6,757 --- (102) --- 2 ---
Cash inflow from increase in debt 2,817 --- --- --- --- ---
-------- -------- -------- -------- -------- --------
Change in net debt resulting from cash flows 9,574 --- (102) --- 2 ---
Debt issued in lieu of interest payment (1,960) --- --- --- --- ---
Other non-cash movements (29) --- (9) (3) 401 (66)
Exchange adjustments (1,911) --- 180 (115) (1,638) 6
-------- -------- -------- -------- -------- --------
Movement in net debt in the period 5,674 --- 69 (118) (1,235) (60)
Net debt at the start of the period (80,725) --- (3,732) (3,405) (36,525) (21,201)
-------- -------- -------- -------- -------- --------
Net debt at the end of the period (75,051) --- (3,663) (3,523) (37,760) (21,261)
-------- -------- -------- -------- -------- --------
Testing Testing
Yickson Holdings Holdings Guarantor
Enterprises France Germany subsidiaries
Limited EURL GmbH Total
L000 L000 L000 L000
-------- -------- -------- ---------
Total operating cash (outflow)/inflow (2) (3) --- (2,770)
Returns on investments and servicing of finance 1,491 (30) --- (502)
Taxation (20) (18) --- (94)
-------- -------- -------- --------
Cash (outflow)/inflow before financing 1,469 (51) --- (3,366)
Financing (1,469) 51 --- 10,023
-------- -------- -------- --------
Increase/(decrease) in cash in the period --- --- --- 6,657
-------- -------- -------- --------
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the period --- --- --- 6,657
Cash inflow from increase in debt --- --- --- 2,817
-------- -------- -------- --------
Change in net debt resulting from cash flows --- --- --- 9,474
Debt issued in lieu of interest payment --- --- --- (1,960)
Other non-cash movements 118 --- (14) 398
Exchange adjustments (1,270) --- 247 (4,501)
-------- -------- -------- --------
Movement in net debt in the period (1,152) --- 233 3,411
Net debt at the start of the period (36,295) --- (5,167) (187,050)
-------- -------- -------- --------
Net debt at the end of the period (37,447) --- (4,934) (183,639)
-------- -------- -------- --------
F-28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant certifies that it meets all of the requirements for filing on Form
6-K and has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorised.
INTERTEK TESTING SERVICES LIMITED
(Registrant)
- -------------------------------------------------------------------------------
By: /s/ WILLIAM SPENCER
Name: William Spencer
Title: Director
Date: May 17, 2000
F-29