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 November 16, 1998
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 nine months ended
September 30, 1998
Pages 1 - 52
INTERTEK TESTING SERVICES LIMITED
RESULTS BY OPERATION
((pound) in thousands)
The following tables set forth, for the nine months ended September 30, 1997
(the "1997 Period"), the nine months ended September 30, 1998 (the "1998
Period"), the three months ended September 30, 1997 (the "1997 Quarter") and the
three months ended September 30, 1998 (the "1998 Quarter") revenues and
operating income for the major divisions of Intertek Testing Services Limited
(the "Company") and its subsidiaries (collectively the "Group" or "ITS"), as
well as revenues by geographic area, expressed in thousands of pounds sterling,
except for percentages. The geographic area relates to the area where the
operation is located, not the location of the clients. Overhead costs for the
central head office and non-operating holding companies ("Central Costs") are
allocated to divisions in proportion to their share of total revenues.
January 1, 1997 January 1, 1998
to to
September 30, 1997 September 30, 1998
-----------------------------------------
Revenues by Division:
Consumer Goods 41,813 46,241
Conformity Assessment 63,715 64,124
Caleb Brett 80,466 90,213
Foreign Trade Supervision 39,116 47,063
Minerals 19,744 13,026
----------------------------------------
Continuing operations 244,854 260,667
Discontinued operations 12,079 5,517
----------------------------------------
----------------------------------------
Total 256,933 266,184
----------------------------------------
----------------------------------------
Operating Income/(Loss) before exceptional items:
Consumer Goods 9,305 11,713
Conformity Assessment 6,488 7,705
Caleb Brett 6,822 8,826
Foreign Trade Supervision 3,321 4,553
Minerals 3,383 359
----------------------------------------
Continuing operations 29,319 33,156
Discontinued operations (1,355) (2,463)
----------------------------------------
----------------------------------------
Total 27,964 30,693
----------------------------------------
----------------------------------------
Revenue by Geographical Area:
Americas 106,688 111,342
Europe, Africa and Middle East 81,845 92,594
Asia and Far East 56,321 56,731
----------------------------------------
Continuing operations 244,854 260,667
Discontinued operations 12,079 5,517
----------------------------------------
----------------------------------------
Total 256,933 266,184
----------------------------------------
----------------------------------------
January 1, 1997 January 1, 1998
to to
September 30, 1997 September 30, 1998
----------------------------------------
Total revenues 256,933 266,184
Less : share of joint ventures' revenue -- (806)
----------------------------------------
Group revenues 256,933 265,378
Operating costs (229,951) (250,122)
Share of operating profit / (loss) in investments 73 (15)
----------------------------------------
Operating income 27,055 15,241
- ---------------------------------------------------------------------------------------------------------
Operating income before exceptional items 27,964 30,693
Exceptional items charged against income (909) (15,452)
----------------------------------------
27,055 15,241
- ---------------------------------------------------------------------------------------------------------
2
INTERTEK TESTING SERVICES LIMITED
RESULTS BY OPERATION
((pound) in thousands)
July 1, 1997 July 1, 1998
to to
September 30, 1997 September 30, 1998
-------------------------------------------
Revenues by Division:
Consumer Goods 14,346 16,193
Conformity Assessment 22,637 21,653
Caleb Brett 27,882 32,455
Foreign Trade Supervision 14,942 16,828
Minerals 6,198 4,053
------------------------------------------
Continuing operations 86,005 91,182
Discontinued operations 3,620 817
------------------------------------------
------------------------------------------
Total 89,625 91,999
------------------------------------------
------------------------------------------
Operating Income/(Loss) before exceptional items:
Consumer Goods 2,825 4,069
Conformity Assessment 2,443 2,271
Caleb Brett 2,713 2,350
Foreign Trade Supervision 1,481 1,563
Minerals 880 (102)
------------------------------------------
Continuing operations 10,342 10,151
Discontinued operations (573) (712)
------------------------------------------
------------------------------------------
Total 9,769 9,439
------------------------------------------
------------------------------------------
Revenue by Geographical Area:
Americas 37,671 37,995
Europe, Africa and Middle East 28,198 32,834
Asia and Far East 20,136 20,353
------------------------------------------
Continuing operations 86,005 91,182
Discontinued operations 3,620 817
------------------------------------------
------------------------------------------
Total 89,625 91,999
------------------------------------------
------------------------------------------
July 1, 1997 July 1, 1998
to to
September 30, 1997 September 30, 1998
------------------------------------------
Total revenues 89,625 91,999
Less : share of joint ventures' revenue -- (150)
------------------------------------------
Group revenues 89,625 91,849
Operating costs (85,731) (84,511)
Share of operating profit / (loss) in investments 29 (17)
------------------------------------------
Operating income 3,923 7,321
- -----------------------------------------------------------------------------------------------------------
Operating income before exceptional items 9,769 9,439
Exceptional items charged against income (5,846) (2,118)
------------------------------------------
3,923 7,321
- -----------------------------------------------------------------------------------------------------------
3
Results of Operations at Prior Year exchange rates
Although for the purposes of reporting obligations, the Accounts of the Group
are reported in pounds sterling, over 50% of the Group's revenues are
denominated in U.S. dollars or currencies linked to the U.S. dollar, such as the
Hong Kong dollar. The Group's borrowings, interest payments and debt repayments
are also denominated mainly in U.S. dollars and Hong Kong dollars. Each of the
Group's 145 subsidiaries worldwide prepares financial statements in the currency
most appropriate to its business, usually the currency of the country in which
such subsidiary is domiciled. Where material transaction exposure from currency
rate movements exists, appropriate forward foreign exchange contracts are
undertaken to minimise this exposure. A translation exposure exists to the
extent that the consolidated accounts of the Group are shown in pounds sterling.
It is not the Group's policy to hedge this exposure.
The results of overseas operations are translated into pounds sterling at the
cumulative average exchange rates for the period. Therefore, the comparison of
ITS's results between Periods can be affected by fluctuations in exchange rates
which are unrelated to the underlying operational performance of its businesses.
The following table sets forth, for the periods indicated, the growth rates of
revenues and operating income of ITS's main business divisions at actual
exchange rates for the period and at prior year exchange rates for the period.
Growth Rates at Actual and Prior Year Exchange Rates
January 1, 1997 January 1, 1998 % change
to to
September 30, 1997 September 30, 1998
------------------ ------------------ --------------------
(pound)' 000 % (pound)'000 % Actual Prior
rates year
(1) rates
(2)
Revenues:
Consumer Goods 41,813 16 46,241 17 10.6 18.6
Conformity Assessment 63,715 25 64,124 24 0.6 4.2
Caleb Brett 80,466 31 90,213 34 12.1 20.3
Foreign Trade Supervision 39,116 15 47,063 18 20.3 23.0
Minerals 19,744 8 13,026 5 (34.0) (27.9)
------- --- ------- --- ----- -----
Continuing operations 244,854 95 260,667 98 6.5 12.4
Discontinued operations 12,079 5 5,517 2 (54.3) (53.6)
------- --- ------- --- ----- -----
------- --- ------- --- ----- -----
Total 256,933 100 266,184 100 3.6 9.3
------- --- ------- --- ----- -----
------- --- ------- --- ----- -----
Operating Income/(Loss) before exceptional items:
Consumer Goods 9,305 34 11,713 38 25.9 38.7
Conformity Assessment 6,488 23 7,705 25 18.8 23.2
Caleb Brett 6,822 24 8,826 29 29.4 48.2
Foreign Trade Supervision 3,321 12 4,553 15 37.1 48.9
Minerals 3,383 12 359 1 (89.4) (88.0)
------- --- ------- --- ----- -----
Continuing operations 29,319 105 33,156 108 13.1 24.0
Discontinued operations (1,355) (5) (2,463) (8) (81.8) (86.5)
------- --- ------- --- ----- -----
------- --- ------- --- ----- -----
Total 27,964 100 30,693 100 9.8 21.0
------- --- ------- --- ----- -----
------- --- ------- --- ----- -----
(1) Represents percentage change over the 1997 Period where the 1997 Period is
translated using cumulative average exchange rates for the period January
1, 1997 to September 30, 1997 and the 1998 Period is translated using
cumulative average exchange rates for the period January 1, 1998 to
September 30, 1998.
(2) Represents percentage change over the 1997 Period where the 1997 Period and
the 1998 Period have been translated using cumulative average exchange
rates for the period January 1, 1997 to September 30, 1997.
4
Growth Rates at Actual and Prior Year Exchange Rates
July 1, 1997 July 1, 1998 % change
to to
September 30, 1997 September 30, 1998
------------------ ------------------ --------------------
(pound)' 000 % (pound)'000 % Actual Prior
rates year
(3) rates
(4)
Revenues:
Consumer Goods 14,346 16 16,193 18 12.9 19.4
Conformity Assessment 22,637 25 21,653 23 (4.3) (1.4)
Caleb Brett 27,882 31 32,455 36 16.4 24.6
Foreign Trade Supervision 14,942 17 16,828 18 12.6 15.1
Minerals 6,198 7 4,053 4 (34.6) (29.4)
------- --- ------- --- ----- -----
Continuing operations 86,005 96 91,182 99 6.0 11.3
Discontinued operations 3,620 4 817 1 (77.4) (77.2)
------- --- ------- --- ----- -----
------- --- ------- --- ----- -----
Total 89,625 100 91,999 100 2.6 7.7
------- --- ------- --- ----- -----
------- --- ------- --- ----- -----
Operating Income/(Loss) before exceptional items:
Consumer Goods 2,825 29 4,069 43 44.1 55.1
Conformity Assessment 2,443 25 2,271 23 (7.1) (4.2)
Caleb Brett 2,713 28 2,350 25 (13.4) (0.4)
Foreign Trade Supervision 1,481 15 1,563 17 5.5 17.3
Minerals 880 9 (102) (1) (111.6) (113.5)
------- --- ------- --- ----- -----
Continuing operations 10,342 106 10,151 107 (1.8) 6.8
Discontinued operations (573) (6) (712) (7) (24.3) (28.2)
------- --- ------- --- ----- -----
------- --- ------- --- ----- -----
Total 9,769 100 9,439 100 (3.4) 5.5
------- --- ------- --- ----- -----
------- --- ------- --- ----- -----
(3) Represents percentage change over the 1997 Quarter where the 1997 Quarter
is translated using cumulative average exchange rates for the period July
1, 1997 to September 30, 1997 and the 1998 Quarter is translated using
cumulative average exchange rates for the period July 1, 1998 to September
30, 1998.
(4) Represents percentage change over the 1997 Quarter where the 1997 Quarter
and the 1998 Quarter have been translated using cumulative average exchange
rates for the period July 1, 1997 to September 30, 1997.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
General
Business Description
The Group has 461 offices and 214 laboratories and operates in 86 countries. It
is comprised of five functioning divisions, each focusing on a different area of
laboratory testing, inspection and certification. From January 1, 1998, the
Quality Systems Division was sub divided into Consumer Goods and Conformity
Assessment.
In a press release dated July 17, 1998, ITS announced its decision to close its
Environmental Testing Division. In August 1998, ITS Environmental sold its
laboratory business in Burlington, Vermont and St. Helens, U.K. and stopped
commercial operations at the laboratory in Dallas Texas. These actions
effectively resulted in the discontinuation of business at ITS Environmental.
Previously, Foreign Trade Supervision ("FTS"), Minerals and Environmental
Testing were included within Other Divisions. Environmental Testing is now shown
as Discontinued Operations, and FTS and Minerals are shown separately. The
divisional analyses for prior periods have been restated to allow a meaningful
comparison.
Consumer Goods. Consumer Goods is focussed principally on the testing and
inspection of textiles, fabrics, footwear, toys and consumer products.
Conformity Assessment. Conformity Assessment concentrates mainly on the testing
and certification of electrical and electronic products, building products,
heating and ventilation and air conditioning equipment. Conformity Assessment
also certifies the quality of management systems to standards such as ISO 9000.
Caleb Brett. Caleb Brett is the joint leader in the market for testing and
inspection of hydrocarbon commodities. Caleb Brett's primary business is
providing independent verification of the quantity and quality of crude oil,
petroleum and chemical products and, to a lesser extent, agricultural produce.
Foreign Trade Supervision. FTS provides preshipment inspection services ("PSI")
to governments to ensure that import duty is properly declared, that goods are
accurately described and comply with legal requirements.
Minerals. Minerals provides a laboratory testing service for samples from
exploration and producing mines, principally of gold but of other metals through
its subsidiary, Bondar Clegg.
Central Overheads. Overhead costs for the central head office and non-operating
companies are allocated to divisions in proportion to their share of total
revenues.
6
Nine Months Ended September 30, 1998 Compared With Nine Months Ended September
30, 1997
Revenues. The Group increased total revenues by 3.6% or (pound)9.3 million, to
(pound)266.2 million in the 1998 Period compared to (pound)256.9 million in the
1997 Period. At prior year exchange rates, revenues increased by 9.3%. Total
revenues from continuing operations increased by 6.5% or (pound)15.8 million to
(pound)260.7 million in the 1998 Period, from (pound)244.9 million in the 1997
Period. At prior year exchange rates, these revenues increased by 12.4%.
Of the (pound)260.7 million revenues in the 1998 Period, (pound)111.3 million
originated in the Americas, (pound)92.6 million in Europe, the Middle East and
Africa and (pound)56.7 million originated in Asia and the Far East. Revenues
from the Americas increased (pound)4.7 million or 4.4% from (pound)106.6 million
in the 1997 Period. Over 80% of these revenues originate in the United States.
Revenues from Europe, the Middle East and Africa increased (pound)10.8 million
or 13.2% from (pound)81.8 million in the 1997 Period. Approximately 60% of these
revenues originate from companies in the U.K. and Sweden. Revenues from Asia and
the Far East increased (pound)0.4 million from (pound)56.3 million in the 1997
Period. Revenues from Hong Kong, which account for over 50% of the total
revenues from Asia and the Far East, increased by (pound)4.1 million whereas
many other countries in this region showed a significant reduction partly as a
result of the Asian crisis and partly because of a devaluation of many Asian
currencies.
Operating Costs. Total operating costs before exceptional items increased
(pound)5.7 million or 2.5% from (pound)229.0 million in the 1997 Period to
(pound)234.7 million in the 1998 Period. There was an increase in the total
operating income to revenues margin ("operating margin") of 0.7% from 10.8% in
the 1997 Period to 11.5% in the 1998 Period. The operating margin on continuing
operations was 12.7% in the 1998 Period and 12.0% in the 1997 Period.
Operating Income before Exceptional Items. Total operating income before
exceptional items increased by 9.8% or (pound)2.7 million to (pound)30.7 million
in the 1998 Period, from (pound)28.0 million in the 1997 Period. At prior year
exchange rates, this operating income increased by 21%. Operating income before
exceptional items for continuing operations increased by 13.1% or (pound)3.9
million to (pound)33.2 million in the 1998 Period, from (pound)29.3 million in
the 1997 Period. At prior year exchange rates, this operating income increased
by 24%.
Operating Exceptional Items
Continuing operations. Due to the irregular nature of the payments received from
one of ITS's West African clients, in April 1997 ITS adopted a policy of making
full provision against all unpaid invoices relating to this client, and income
is only recognised once invoices are paid. In the 1997 Period, payments
totalling (pound)9.4 million were received from this client, settling all
invoices up to the end of January 1997. Invoices totalling (pound)10.3 million
were issued in the 1997 Period, resulting in a net exceptional charge of
(pound)0.9 million in the 1997 Period. In the 1998 Period, payments totalling
(pound)4.7 million were received from this client, settling all invoices up to
August 1997. Invoices from September 1997 to date remain unpaid and full
provision has been made against these invoices. A provision of (pound)16.2
million has been made against unpaid invoices raised in the 1998 Period,
resulting in an exceptional charge of (pound)11.5 million after crediting the
cash received in the 1998 Period. Management have been in continual discussion
with representatives of the client and believe that the outstanding 1997
invoices will be settled before the end of the year, followed by the phased
payment of 1998 invoices.
7
Operating Exceptional Items - continued
Discontinued operations. An exceptional charge of (pound)3.0 million was made in
the period ended June 30, 1998 ("June 1998 Quarter") to provide for the legal
and reprocessing costs being incurred by Environmental Testing, as a result of
the ongoing investigation by the Environmental Protection Agency ("EPA"), into
the data manipulation problems at the Dallas, Texas laboratory. In the 1998
Quarter this charge has been increased by (pound)1.0 million to (pound)4.0
million to reflect management's revised estimate of the future legal and
reprocessing costs likely to be incurred by the continuing investigation.
Operating Income. Total operating income after operating exceptional items was
(pound)15.2 million in the 1998 Period compared to (pound)27.1 million in the
1997 Period, a decrease of (pound)11.9 million or 43.9%. Operating income after
operating exceptional items, for continuing operations was (pound)21.7 million
in the 1998 Period compared to (pound)28.4 million in the 1997 Period, a
decrease of (pound)6.7 million or 23.6%.
Non-operating exceptional items. During the June 1998 Quarter, a provision of
(pound)2.4 million was made for the loss on disposal of fixed assets expected to
arise following the closure of the Environmental Division. In August 1998,
substantially all the business and assets of the Environmental operations in
Burlington, Vermont, U.S.A. and St. Helens, U.K. and certain assets in Dallas,
were sold at their book value of (pound)2.0 million. As a result of the sale,
the expected loss on disposal of fixed assets has been reduced by (pound)1.9
million to (pound)0.5 million.
An exceptional charge of (pound)4.4 million was made in the June 1998 Quarter
relating to the operating costs associated with the closure of the Environmental
Testing Division. This charge included full provision for all outstanding lease
obligations and staff redundancies as well as the cost of continuing to store
data for clients of Environmental Testing. Following the sale of part of the
Environmental business in the 1998 Quarter, (pound)2.3 million of this provision
is no longer required and the provision has been reduced to (pound)2.1 million
and reclassified as non - operating.
Net Interest Expense. Net interest expense was (pound)23.5 million in the 1998
Period and (pound)22.4 million in the 1997 Period. The increase of (pound)1.1
million is due to an additional cost of (pound)0.6 million attributable to the
Parent Subordinated PIK Debentures and (pound)0.5 million due to the increased
use of the revolving credit facility and other borrowings.
Net Loss before Taxes. The loss before taxes and minority interests was
(pound)10.7 million in the 1998 Period compared to net income of (pound)4.7
million in the 1997 Period, a decrease in income of (pound)15.4 million.
Income Taxes. A taxation charge of (pound)4.3 million was made against income in
the 1998 Period compared to (pound)3.2 million in the 1997 Period. The taxation
charges on income before taxation and exceptional items for the 1997 Period and
1998 Period have been calculated based on the estimated effective tax rates for
the relevant full years. Exceptional items have been tax effected as
appropriate.
Net Loss After Minority Interests. The net loss after minority interests was
(pound)17.0 million for the 1998 Period, compared to (pound)0.8 million in the
1997 Period, an increase in net loss of (pound)17.8 million.
8
Consumer Goods. Consumer Goods saw an increase in revenues of (pound)4.4
million, or 10.6% to (pound)46.2 million in the 1998 Period from (pound)41.8
million in the 1997 Period. At prior year exchange rates, Consumer Goods
increased its revenues by 18.6%. The increase in Consumer Goods revenues is
due to a growing market and was assisted by expansion into new territories.
Operating Income in Consumer Goods increased (pound)2.4 million, or 25.9% to
(pound)11.7 million in the 1998 Period from (pound)9.3 million in the 1997
Period. At prior year exchange rates, Consumer Goods increased its operating
income by 38.7%. This increase was due to additional business as well as
productivity improvements.
Conformity Assessment. Conformity Assessment increased its revenues
(pound)0.4 million, or 0.6% to (pound)64.1 million in the 1998 Period from
(pound)63.7 million in the 1997 Period. At prior year exchange rates,
Conformity Assessment increased its revenues by 4.2%. There has been growth
in the electrical safety, telecom and building materials testing sectors,
partly due to the strong economy in the United States. Despite the negative
impact of further harmonisation of standards in certain countries and a
further movement towards self declaration in place of third party
certification, electro-magnetic compatibility testing ("EMC") has stabilised
at a level below the spike in 1996.
Conformity Assessment operating income increased (pound)1.2 million, or 18.8%
to (pound)7.7 million in the 1998 Period from (pound)6.5 million in the 1997
Period. At prior year exchange rates, Conformity Assessment increased its
operating income by 23.2%. The increase in operating margin follows overhead
reductions made in late 1997 to respond to the reduced volume of EMC testing
work.
Caleb Brett. Caleb Brett increased its revenues (pound)9.7 million, or 12.1%,
to (pound)90.2 million in the 1998 Period from (pound)80.5 million in the
1997 Period. At prior year exchange rates, Caleb Brett increased its revenues
by 20.3%. The Group attributes these results to an increase in market share,
particularly in the inspection and testing of chemicals, and in the 1998
Period there was also an increase in the volume of outsourced work, whereby
oil companies have handed over the management of their laboratories or
subcontracted oil sample testing to Caleb Brett. The growth in revenues is
also due to the completion of the following acquisitions by Caleb Brett in
the 1998 Period.
Acquisitions
Month Country Consideration
(pound) millions
March 1998 Australia 0.2
April 1998 Belgium 3.6
June 1998 Norway 6.6
July 1998 Australia 0.8
August 1998 India 0.2
September 1998 Chile 0.4
----
Total Consideration 11.8
----
9
These businesses were acquired to establish Caleb Brett in new territories
which expands the network and increases market share. They have contributed
revenues of (pound)3.3 million in the 1998 Period since the date of
acquisition..
Caleb Brett increased its operating income by (pound)2.0 million, or 29.4%,
to (pound)8.8 million in the 1998 Period from (pound)6.8 million in the 1997
Period. At prior year exchange rates, Caleb Brett increased its operating
income by 48.2%. Operating income has increased in each geographic region.
The Americas have benefited from strong demand for oil and also from a small
acquisition made towards the end of 1997. Latin America and Europe have
benefited from reducing the cost base in 1997 and increased market share.
Asia has seen an overall contraction in the market due to the Asian crisis
and a decline in the value of currencies, although some operations performed
well, such as Australia and Korea.
Foreign Trade Supervision. Revenues for FTS increased (pound)8.0 million, or
20.3%, to (pound)47.1 million in the 1998 Period from (pound)39.1 million in
the 1997 Period. At prior year exchange rates, FTS revenues increased by
23.0%. This revenue increase was due to new and expanded preshipment
inspection ("PSI") programs.
Operating Income before exceptional items, from FTS increased (pound)1.3
million or 37.1% to (pound)4.6 million in the 1998 Period from (pound)3.3
million in the 1997 Period. At prior year exchange rates, this income
increased by 48.9%. This was due to the increase in work performed.
Minerals. Revenues for Minerals decreased by (pound)6.7 million or 34.0% to
(pound)13.0 million compared to (pound)19.7 million in the 1997 Period. At
prior year exchange rates, Minerals revenues decreased by 27.9%. The
reduction in revenues in Minerals is mainly due to the gold price, which was
at a 17 year low, as well as the reduced investment in mining stocks which
has been attributed in part to the discovery of fraudulent practices by
Bre-X, which in turn have resulted in a reduction in the level of exploration
activity by mining companies in 1998.
Operating income from Minerals decreased by (pound)3.0 million or 89.4% to
(pound)0.4 million compared to (pound)3.4 million in the 1997 Period.
Restructuring costs have been incurred in the 1998 Period to reduce the cost
base to match the reduced revenues.
10
Three Months Ended September 30, 1998 Compared With Three Months Ended
September 30, 1997
Revenues. The Group increased total revenues by 2.6% or (pound)2.4 million,
to (pound)92.0 million in the 1998 Quarter compared to (pound)89.6 million in
the 1997 Quarter. At prior year exchange rates, revenues increased by 7.7%.
Total revenues from continuing operations increased by 6.0% or (pound)5.2
million to (pound)91.2 million in the 1998 Quarter, from (pound)86.0 million
in the 1997 Quarter. At prior year exchange rates, these revenues increased
by 11.3%.
Of the (pound)91.2 million revenues in the 1998 Quarter, (pound)38.0 million
originated in the Americas, (pound)32.9 million in Europe, the Middle East
and Africa and (pound)20.3 million originated in Asia and the Far East.
Revenues from the Americas increased (pound)0.5 million or 1.3% from
(pound)37.5 million in the 1997 Quarter. Revenues from Europe, the Middle
East and Africa increased (pound)4.6 million or 16.3% from (pound)28.3
million in the 1997 Quarter. This increase is partly due to the acquisitions
made by Caleb Brett in the 1998 Quarter, which generated revenues of
(pound)3.3 million. Revenues from Asia and the Far East increased (pound)0.3
million or 1.5% from (pound)20.1 million in the 1997 Quarter.
Operating Costs. Total operating costs before exceptional items increased
(pound)2.5 million or 3.1% from (pound)79.9 million in the 1997 Quarter to
(pound)82.4 million in the 1998 Quarter. There was a decrease in the total
operating margin of 0.6% from 10.9% in the 1997 Quarter to 10.3% in the 1998
Quarter. The operating margin on continuing operations was 11.1% in the 1998
Quarter and 12.0% in the 1997 Quarter.
The total operating costs in the 1998 Quarter include some one-off expenses
which management consider were higher than normal. For example, in the
central overheads, (which are allocated to the five divisions in proportion
to revenues), there was some (pound)0.6 million of costs incurred due to
management restructuring. Other restructuring costs were incurred in Caleb
Brett and Minerals.
Operating Income before Exceptional Items. Total operating income before
exceptional items decreased by 3.4% or (pound)0.4 million to (pound)9.4
million in the 1998 Quarter from (pound)9.8 million in the 1997 Quarter. At
prior year exchange rates, this operating income increased by 5.5%. Operating
income before exceptional items, for continuing operations decreased by 1.8%
or (pound)0.1 million to (pound)10.2 million in the 1998 Quarter, from
(pound)10.3 million in the 1997 Quarter. At prior year exchange rates, this
operating income increased by 6.8%.
The operating income in the 1998 Quarter has suffered from the one - off
operating costs referred to above. Apart from this, although the ITS business
has benefited from the increase in exports from Asia, the movements in the
currencies there have depressed operating income in pounds sterling made in
some Asian countries and the Caleb Brett Division has seen reduced shipments
of petroleum and petroleum products to Asia.
11
Operating Exceptional Items
Continuing operations. Due to the irregular nature of the payments received
from one of ITS's West African clients, in April 1997 ITS adopted a policy of
making full provision against all unpaid invoices relating to this client,
and income is only recognised once invoices are paid. No payments were
received from this client in the 1997 or 1998 Quarters, resulting in
exceptional charges of (pound)5.8 million in the 1997 Quarter and (pound)5.5
million in the 1998 Quarter.
Discontinued operations. An exceptional charge of (pound)3.0 million was made
in the period ended June 30, 1998 ("June 1998 Quarter") to provide for the
legal and reprocessing costs which may be incurred by Environmental Testing,
as a result of the ongoing investigation by the Environmental Protection
Agency ("EPA"), into the data manipulation problems at the Dallas, Texas
laboratory. In the 1998 Quarter this charge has been increased by (pound)1.0
million to (pound)4.0 million to reflect management's revised estimate of the
future legal and reprocessing costs likely to be incurred by the continuing
investigation. The provision of (pound)4.3 million made in the June 1998
Quarter for the loss on closure of Environmental Testing has been
reclassified as non -operating costs, resulting in an exceptional credit of
(pound)3.3 million in the 1998 quarter.
Operating Income. Total operating income after operating exceptional items
was (pound)7.3 million in the 1998 Quarter compared to operating income of
(pound)3.9 million in the 1997 Quarter, an increase of (pound)3.4 million.
Non-operating exceptional items. During the June 1998 Quarter, a provision of
(pound)2.4 million was made for the loss on disposal of fixed assets expected
to arise following the closure of the Environmental Division. In August 1998,
substantially all the business and assets of the Environmental operations in
Burlington, Vermont, U.S.A. and St. Helens, U.K. and certain of the assets in
Dallas, were sold at their book value (pound)2.0 million. As a result of the
sale, the expected loss on disposal of fixed assets has been reduced by
(pound)1.9 million to (pound)0.5 million in the 1998 Quarter.
As explained above, the charge of (pound)4.3 million for the closure costs of
the Environmental division has been reclassified as a non - operating
exceptional charge in the 1998 Quarter. Following the sale outlined above
part of this provision is no longer required resulting in a net charge for
the 1998 Quarter of (pound)2.0 million.
Net Interest Expense. Net interest expense was (pound)7.9 million in the 1998
Quarter and (pound)7.3 million in the 1997 Quarter. The increase of
(pound)0.6 million is due to an additional cost of (pound)0.3 million
attributable to the Parent Subordinated PIK Debentures and (pound)0.3 million
due to the increased use of the revolving credit facility and other
borrowings.
Net Loss before Taxes. The loss before taxes and minority interests was
(pound)(0.7) million in the 1998 Quarter compared to a net loss of
(pound)(3.4) million in the 1997 Quarter, a decrease in net loss of
(pound)2.7 million.
Income Taxes. A taxation charge of (pound)1.6 million was made against income
in the 1998 Quarter compared to (pound)1.5 million in the 1997 Quarter. The
taxation charges on income before taxation and exceptional items for the 1997
Quarter and 1998 Quarter have been calculated based on the estimated
effective tax rates for the relevant full years. Exceptional items have been
tax effected as appropriate.
Net Loss After Minority Interests. The net loss after minority interests for
the 1998 Quarter was (pound)2.8 million, compared to (pound)5.6 million net
loss in the 1997 Quarter, an increase in net loss of (pound)2.8 million.
12
Consumer Goods. Consumer Goods saw an increase in revenues of (pound)1.9
million, or 12.9% to (pound)16.2 million in the 1998 Quarter from (pound)14.3
million in the 1997 Quarter. At prior year exchange rates, Consumer Goods
increased its revenues by 19.4%. The increase was due to higher exports which
ITS tests, particularly in textiles.
Operating Income in Consumer Goods increased (pound)1.3 million, or 44.1% to
(pound)4.1 million in the 1998 Quarter from (pound)2.8 million in the 1997
Quarter. At prior year exchange rates, Consumer Goods increased its operating
income by 55.1%. The increase was due to additional business as well as
productivity improvements.
Conformity Assessment. Conformity Assessment decreased its revenues by
(pound)1.0 million, or 4.3%, to (pound)21.7 million in the 1998 Quarter from
(pound)22.6 million in the 1997 Quarter. At prior year exchange rates,
Conformity Assessment decreased its revenues by 1.4%. This decrease was
attributable to the downturn in the semi - conductor manufacturing market
where ITS has a strong testing presence. Other testing activities showed a
small increase over the 1997 Quarter.
Conformity Assessment operating income decreased (pound)0.1 million, or 7.1%
to (pound)2.3 million in the 1998 Quarter from (pound)2.4 million in the 1997
Quarter. At prior year exchange rates, Conformity Assessment decreased its
operating income by 4.2%. This decrease was attributable to the reduced
revenues related to semi - conductor testing and restructuring costs.
Caleb Brett. Caleb Brett increased its revenues (pound)4.6 million, or 16.4%,
to (pound)32.5 million in the 1998 Quarter from (pound)27.9 million in the
1997 Quarter. At prior year exchange rates, Caleb Brett increased its
revenues by 24.6%. Acquisitions accounted for (pound)3.3 million of the
increase.
Caleb Brett's operating income decreased (pound)0.3 million, or 13.4%, to
(pound)2.4 million in the 1998 Quarter from (pound)2.7 million in the 1997
Quarter. At prior year exchange rates, Caleb Brett decreased its operating
income by 0.4%. There were one off costs relating to the restructuring of the
operation in Belgium and the hurricanes in the Gulf of Mexico and the
Caribbean which reduced operating income. In Asia, the level of business has
declined due to reduced demand for petroleum and petroleum products.
Foreign Trade Supervision. Revenues for FTS increased (pound)1.9 million, or
12.6%, to (pound)16.8 million in the 1998 Quarter from (pound)14.9 million in
the 1997 Quarter. At prior year exchange rates, FTS revenues increased by
15.1%. This was due to new and expanded PSI programs. Operating Income from
FTS increased by (pound)0.1 million, or 5.5%, to (pound)1.6 million in the
1998 Quarter from (pound)1.5 million in the 1997 Quarter. At prior year
exchange rates, FTS operating income increased by 17.3%.
Minerals. Revenues for Minerals decreased(pound)2.1 million, or 34.6%,
to(pound)4.1 million in the 1998 Quarter from(pound)6.2 million in the 1997
Quarter.
Operating Income from Minerals decreased (pound)1.0 million, or 111.6%, to a
loss of (pound)(0.1) million in the 1998 Quarter from a profit of (pound)0.9
million in the 1997 Quarter. There were substantial restructuring costs in
the 1998 Quarter.
13
Subsequent Events
On November 1, 1998, a French testing company was purchased for approximately
(pound)1.7 million. This company will form part of the Caleb Brett division.
Investigations by the U.S. Environmental Protection Agency
Two of ITS's 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. This matter has been
referred to the U.S. Department of Justice by the EPA, and civil and criminal
investigations are underway.
Caleb Brett requested inclusion in the EPA's Voluntary Disclosure Program.
Under this program it may be possible to foreclose criminal, but not civil
penalties.
As part of the co-operation with the EPA, Caleb Brett has introduced more
stringent compliance protocols which are being presented to the EPA for
review and comment.
It is not yet possible to estimate the cost of any civil or criminal
penalties arising from this matter. Rights of recovery against Inchcape plc,
under the Share Purchase Deed are being actively pursued.
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.
ITS Environmental has requested inclusion in the EPA's Voluntary Disclosure
Program. Under this program it may be possible to foreclose criminal but not
civil penalties. If the actions of ITS Environmental that were disclosed to
the EPA are found to qualify for the immunities available under its Voluntary
Disclosure Program, the protection of this program may not extend to improper
actions subsequently discovered.
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 effectively resulted in the
discontinuation of business at ITS Environmental.
14
Although commercial operations have been discontinued in Dallas, the facility
will be used to reprocess the original data. During the past few months, ITS
Environmental has been developing an effective data reprocessing method. This
effort should provide clients with data of known quality.
In the June 1998 Period, a provision of (pound)3.0 million was made to cover
reprocessing costs and associated legal costs to the end of 1998. The
reprocessing work is currently expected to continue past the end of 1998, and
a further provision of (pound)1.0 million has been made in the 1998 Quarter,
to cover reprocessing costs and associated legal costs in future periods. The
level of this provision will be further reviewed in December 1998.
ITS Environmental continues to co-operate fully with the government
investigation but, at this time, it is not possible to estimate the cost of
any civil or criminal penalties arising from this matter. Rights of recovery
against Inchcape plc, under the Share Purchase Deed are being actively
pursued.
Information Technology - Year 2000
State of Readiness. The date change from 1999 to 2000 may impair the function
of the Group's internal computer network and related systems, its testing
equipment and any other system or device in which the year is represented by
two digits rather than by four. A full review has been undertaken for all
major IT systems to ensure they will operate effectively in the Year 2000. It
is expected that the modifications identified in that review will have been
completed by August 1999.
Other equipment such as laboratory equipment and telephones, are being
reviewed and it is expected that this review will have been completed by
December 1998. An estimate will then be finalised for any identified remedial
work that may be required.
Certain key customers and suppliers have been contacted to establish their
state of readiness. This liaison process is ongoing.
Costs. The total cost (both revenue and capital) of remedial and replacement
work for both IT systems and non-IT systems is currently estimated at
(pound)1.4 million in 1998 and (pound)2.8 million in 1999. These estimates
have been calculated in accordance with SEC Guidelines, which require the
full cost of projects to be disclosed as estimated Year 2000 costs, where the
replacement of a non-compliant system has been accelerated.
Risks. No reasonably likely worst case Year 2000 scenarios have been
identified at this time, pending the completion of the reviews of non-IT
systems and discussions with customers and suppliers. There can be no
assurance that the Group's efforts (or the efforts of its customers and
suppliers) will be successful in limiting the vulnerability of the Group's
systems and equipment to the problems associated with the transition to the
Year 2000, or that, if such problems occur, they will not have a material
adverse effect on the Group before they can be resolved. However, management
presently believes that it is unlikely that the failure of any individual
system, will have a material effect on the operation of the ITS group. The
businesses within the ITS group are varied and widely dispersed
geographically in the event of a systems breakdown at a particular site, work
can usually be transferred to another site in ITS.
Contingency Plans. As no reasonably likely worst case scenarios have yet been
identified that will have a material impact on Group results, no contingency
plans have been established at this time.
15
General
The 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 to the Consolidated Financial Statements of the Group included herein.
Exchange Rates
Exchange rates used for translating local currencies into pounds sterling for
the main currencies in which the Group operates are shown in the following
table.
Revenues and Operating Income for the 1997 Period have been translated into
pounds sterling using the cumulative average exchange rate for the nine months
to September 30, 1997. Revenues and Operating Income for the 1998 Period have
been translated into pounds sterling using the cumulative average exchange rate
for the nine months to September 30, 1998.
Revenues and Operating Income for the 1997 Quarter have been translated into
pounds sterling using the cumulative average exchange rate for the three
months to September 30, 1997. Revenues and Operating Income for the 1998
Quarter have been translated into pounds sterling using the cumulative
average exchange rate for the three months to September 30, 1998.
Exchange rates to pounds sterling used for translation of income and costs at
cumulative average rate
- ----------------------------- ----------------- ----------------- ------------------ -----------------
Three months Nine months Three months Nine months
to to to to
September 30, September 30, September 30, September 30,
1997 1997 1998 1998
- ----------------------------- ----------------- ----------------- ------------------ -----------------
- ----------------------------- ----------------- ----------------- ------------------ -----------------
U.S. Dollar 1.64 1.63 1.66 1.66
- ----------------------------- ----------------- ----------------- ------------------ -----------------
- ----------------------------- ----------------- ----------------- ------------------ -----------------
Hong Kong Dollar 12.7 12.6 12.9 12.9
- ----------------------------- ----------------- ----------------- ------------------ -----------------
- ----------------------------- ----------------- ----------------- ------------------ -----------------
Swedish Kroner 12.8 12.4 13.3 13.1
- ----------------------------- ----------------- ----------------- ------------------ -----------------
- ----------------------------- ----------------- ----------------- ------------------ -----------------
German Deutschmark 2.94 2.80 2.94 2.96
- ----------------------------- ----------------- ----------------- ------------------ -----------------
To remove the effects of currency exchange rate movements when comparing the
Revenues and Operating Income for the 1997 and 1998 Periods, the 1998 Period
results on page 4 are shown at the cumulative average exchange rates for the
nine months to September 30, 1998 as well as the cumulative average exchange
rates for the nine months to September 30, 1997.
To remove the effects of currency exchange rate movements when comparing the
Revenues and Operating Income for the 1997 and 1998 Quarters, the 1998
Quarter's results on page 5 are shown at the cumulative average exchange
rates for the three months to September 30, 1998 as well as the cumulative
average exchange rates for the three months to September 30, 1997.
16
Financial Condition and Liquidity
At September 30, 1998, ITS had cash and cash equivalents of(pound)25.4
million compared to(pound)25.2 million at December 31, 1997.
ITS reported net cash inflow from operating activities of (pound)21.6 million
in the 1998 Period and (pound)32.8 million in the 1997 Period. 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. The reduction in net cash inflow from operating
activities of (pound)11.2 million is largely attributable to the increase in
exceptional charges related to the West African client referred to earlier.
This accounts for (pound)10.3 million of the reduction.
Expenditure on tangible fixed assets amounted to (pound)8.6 million in the
1998 Period and (pound)7.6 million in the 1997 Period. ITS's investment in
tangible fixed assets was primarily in laboratory equipment and information
technology.
During the 1998 Period, the cash outflow on acquisitions was (pound)8.7
million. An additional (pound)3.1 million of consideration is deferred, until
certain financial targets are achieved. The majority of the deferred
consideration is expected to be paid in early 1999.
At September 30, 1998, ITS had total borrowings of (pound)299.1 million less
unamortised debt issuance costs of (pound)11.3 million. ITS drew down
(pound)11.0 million on its Revolving Credit Facility to finance acquisitions
and working capital in the 1998 Period. At September 30, 1998, (pound)10.7
million of this facility remains unutilised The borrowings comprise
(pound)119.4 million Senior Subordinated Notes, (pound)11.0 million Senior
Revolver, (pound)75.3 million Senior Term A Loans, (pound)35.0 million Senior
Term B Loans, (pound)56.7 Parent Subordinated PIK Debentures and (pound)1.6
million other borrowings. Loan repayments on capital during the period were
(pound)2.4 million on the Senior Term A Loans.
In the 1998 Period ITS paid interest of (pound)6.3 million on the Senior
Subordinated Notes, (pound)3.8 million on the Senior Term A Loans, (pound)1.6
million on the Senior Term B loans, (pound)5.2 million on the Parent
Subordinated PIK Debentures and (pound)0.1 million on other borrowings and
received interest of (pound)0.5 million on bank balances. The interest on the
Parent Subordinated PIK Debentures covered the periods from November 8, 1997
to February 1, 1998, February 2, 1998 to May 1, 1998 and May 2, 1998 to
August 1, 1998 and was funded by further issues of Parent Subordinated PIK
Debentures on February 1, 1998, May 1, 1998 and August 1, 1998.
ITS paid dividends of(pound)1.3 million to minority shareholders in the 1998
Period and(pound)0.9 million the 1997 Period.
Subsequent Event
ITS repaid (pound)3.8 million of the Senior Revolver on October, 1. On
October 30, a further (pound)6.8 million was drawn under this facility to
fund acquisitions and to pay interest of (pound)6.3 million on the Senior
Subordinated Notes which fell due on November 1.
17
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 Intertek Finance plc, (the issuer
of the Senior Subordinated Notes) 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.
Euro Conversion
On January 1, 1999, the Euro will be adopted as the national currency of 11
European Union member states. The Euro will be used as a non-cash
transactional currency for a three year transition period. The accountants
responsible for the European companies in ITS attended a conference in
September to discuss such matters as pricing, continuity of contracts,
accounting and financial reporting, competitive implications, tax, treasury
activities and computer systems. ITS anticipates that it will be prepared to
conduct business in the Euro as of the effective date however, although no
immediate problems have been identified, there can be no assurance that the
harmonisation of currencies in Europe will not have a material adverse impact
on the results of operations, financial position, or liquidity of its
European businesses.
18
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
((pound) in thousands)
(Unaudited)
----------------------------------------------------
Period from Period from
January 1, 1997 January 1, 1998
to to
September 30, 1997 September 30, 1998
----------------------------------------------------
Notes
Revenue
Continuing operations and share of joint ventures 3 244,854 260,667
Discontinued operations 3 12,079 5,517
Less: share of joint ventures' revenue -- (806)
--------- -----------
Group Revenue 256,933 265,378
Operating costs (229,951) (250,122)
--------------- ---------------
Group operating income 26,982 15,256
Share of operating profit in:
Joint ventures -- (82)
Associates 73 67
----------- -----------
73 (15)
--------------- ---------------
Total operating income 27,055 15,241
Operating income/(loss) before exceptional items
Continuing operations 3 29,319 33,156
Discontinued operations 3 (1,355) (2,463)
Exceptional items charged against operating income
Continuing operations 4 (909) (11,452)
Discontinued operations 4 -- (4,000)
--------------- ---------------
27,055 15,241
Non-operating exceptional items 4 -- (2,539)
---------------
---------------
Income on ordinary activities before net interest 27,055 12,702
Net interest expense
Group (22,362) (23,450)
Joint ventures (8) 1
Associates -- --
----------- -----------
5 (22,370) (23,449)
--------------- ---------------
--------------- ---------------
Income/(loss) before taxation 4,685 (10,747)
Taxation 6 (3,246) (4,333)
--------------- ---------------
--------------- ---------------
Income/(loss) after taxation 1,439 (15,080)
Minority interests (2,253) (1,872)
--------------- ---------------
--------------- ---------------
Net loss for the group and its share of
associates and joint ventures (814) (16,952)
--------------- ---------------
--------------- ---------------
The accompanying notes on pages F-7 to F-34 are an integral part of these
financial statements.
F-1
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
((pound) in thousands)
(Unaudited)
----------------------------------------------------
Period from Period from
July 1, 1997 July 1, 1998
to to
September 30, 1997 September 30, 1998
----------------------------------------------------
Revenue
Continuing operations and share of joint ventures 86,005 91,182
Discontinued operations 3,620 817
Less: share of joint ventures' revenue -- (150)
----------- -----------
Group Revenue 89,625 91,849
Operating costs (85,731) (84,511)
--------------- ---------------
Group operating income 3,894 7,338
Share of operating profit in:
Joint ventures -- (44)
Associates 29 27
----------- -----------
29 (17)
--------------- ---------------
Total operating income 3,923 7,321
Operating income/(loss) before exceptional items
Continuing operations 10,342 10,151
Discontinued operations (573) (712)
Exceptional items (charged against) / credited to
operating income
Continuing operations (5,846) (5,510)
Discontinued operations -- 3,392
--------------- ---------------
3,923 7,321
Non-operating exceptional items -- (89)
--------------- ---------------
Income on ordinary activities before net interest 3,923 7,232
Net interest expense
Group (7,281) (7,906)
Joint ventures -- --
Associates -- --
----------- -----------
(7,281) (7,906)
--------------- ---------------
Loss before taxation (3,358) (674)
Taxation (1,457) (1,607)
--------------- ---------------
Loss after taxation (4,815) (2,281)
Minority interests (785) (559)
--------------- ---------------
Net loss for the group and its share of
associates and joint ventures (5,600) (2,840)
--------------- ---------------
--------------- ---------------
The accompanying notes on pages F-7 to F-34 are an integral part of these
financial statements.
F-2
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED BALANCE SHEETS
((pound) in thousands)
(Unaudited)
--------------------------------------------------------
December 31, September 30,
1997 1998
--------------------------------------------------------
Notes
ASSETS
Current assets
Cash and cash equivalents 11 25,153 25,377
Trade receivables 60,483 65,949
Inventories 2,650 3,093
Other current assets 12,063 18,374
Deferred taxation asset 286 350
-------------- ---------------
Total current assets 100,635 113,143
Goodwill - 10,266
Property, plant and equipment, net 44,460 43,100
Investments Investments in joint ventures:
Share of gross assets -- 319
Share of gross liabilities -- (187)
------------- --------------
-- 132
Investments in associates 184 140
------------- --------------
184 272
-------------- ---------------
Total assets 145,279 166,781
-------------- ---------------
-------------- ---------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Borrowings (including current portion of long term 7
Borrowings) 5,268 18,125
Accounts payable, accrued liabilities and deferred
Income 60,019 77,298
Income taxes payable 3,323 2,821
-------------- ---------------
Total current liabilities 68,610 98,244
Long term borrowings 7 272,036 269,634
Provisions for liabilities and charges 7,095 11,349
Minority interests 4,304 4,159
Shareholders' deficit
Ordinary shares 318 318
Redeemable preference shares 81,815 86,675
Shares to be issued 2,793 2,793
Premium in excess of par value 2,857 3,026
Retained deficit (294,549) (309,417)
-------------- ---------------
Total shareholders' deficit 8 (206,766) (216,605)
-------------- ---------------
Total liabilities and shareholders' deficit 145,279 166,781
-------------- ---------------
-------------- ---------------
The accompanying notes on pages F-7 to F-34 are an integral part of these
financial statements.
F-3
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
((pound) in thousands)
(Unaudited)
----------------------------------
Period from Period from
January 1, 1997 January 1, 1998
to to
September 30, September 30,
1997 1998
(restated)
----------------------------------
Notes
Cash inflow from operating activities 9 32,754 21,619
Returns on investments and servicing of finance 10 (17,110) (17,805)
Taxation (5,137) (4,467)
Capital expenditure and financial investment 10 (7,486) (8,536)
Acquisitions and disposals 10 (7,095) (7,318)
----------------------------------
Cash outflow before financing (4,074) (16,507)
Financing 10 5,017 18,738
----------------------------------
Increase in cash in the period 943 2,231
----------------------------------
Reconciliation of net cash flow
to movement in net debt 11
Increase in cash in the period 943 2,231
Debt issued in lieu of interest payment (4,660) (5,097)
Change in net debt resulting from cash flows 1,234 (8,385)
Other non-cash movements (1,591) (2,383)
Exchange adjustments (13,263) 3,403
----------------------------------
Movement in net debt in the period (17,337) (10,231)
Net debt at the start of the period (235,390) (252,151)
----------------------------------
Net debt at the end of the period (252,727) (262,382)
----------------------------------
----------------------------------
The accompanying notes on pages F-7 to F-34 are an integral part of these
financial statements.
F-4
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
((pound) in thousands)
(Unaudited)
---------------------------------
Period from Period from
January 1, January 1,
1997 to 1998 to
September 30, September 30,
1997 1998
---------------------------------
Net loss (814) (16,952)
Exchange adjustments (13,784) 2,084
---------------- -------------
Total recognised gains and losses (14,598) (14,868)
---------------- -------------
---------------- -------------
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.
The accompanying notes on pages F-7 to F-34 are an integral part of these
financial statements.
F-5
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
((pound) in thousands)
(Unaudited)
-------------------------------------------------------------------------------
Ordinary Redeemable Shares to Premium in Retained Total
shares preference be issued excess of deficit
shares par value
-------------------------------------------------------------------------------
Balance at January 1, 1997 318 81,815 2,793 2,857 (286,664) (198,881)
Net loss -- -- -- -- (814) (814)
Exchange adjustments -- -- -- -- (13,784) (13,784)
----- --------- ------- ------- ---------- ----------
Balance at September 30, 1997 318 81,815 2,793 2,857 (301,262) (213,479)
----- --------- ------- ------- ---------- ----------
----- --------- ------- ------- ---------- ----------
Balance at January 1, 1998 318 81,815 2,793 2,857 (294,549) (206,766)
Net loss -- -- -- -- (16,952) (16,952)
Issue of shares -- 4,860 -- 169 -- 5,029
Exchange adjustments -- -- -- -- 2,084 2,084
----- --------- ------- ------- ---------- ----------
Balance at September 30, 1998 318 86,675 2,793 3,026 (309,417) (216,605)
----- --------- ------- ------- ---------- ----------
----- --------- ------- ------- ---------- ----------
Included in Retained deficit is (pound)265,884 which represents goodwill written
off to reserves prior to December 1997 (at September 30, 1997: (pound)293,176).
The accompanying notes on pages F-7 to F-34 are an integral part of these
financial statements.
F-6
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
1. Basis of preparation
The accompanying consolidated financial statements of the Company and its
subsidiaries at September 30, 1998, and for the nine months ended September 30,
1997 and 1998, and the three months ended September 30, 1997 and 1998 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 therein. 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 thereto as
of, and for the year ended December 31, 1997.
2. Accounting policies
The significant accounting policies adopted by the Company are as follows:
Basis of consolidation and combination
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
statements of income of the Company from, or up to, the date control passes.
The consolidated statements of income of the Company include shares of income
from associated undertakings. The consolidated balance sheets of the Company
include 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 translated at average and at closing rates of
exchange is included in the statement of total recognized gains and losses as a
movement in shareholders' equity. 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.
All other exchange differences are dealt with in operations.
F-7
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
2. 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%
Permanent diminutions in value of individual properties below cost are charged
to operations; however deficits which the Directors consider to be temporary in
nature, are recognised in the revaluation reserve and may be offset against
other surpluses.
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
recognized 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. Other
post-retirement benefits are accounted for on a similar basis to defined benefit
pension schemes.
Goodwill
Purchased goodwill arising on consolidation in respect of acquisitions before
January 1, 1998 when FRS 10 Goodwill and intangible assets was adopted, was
written off to reserves in the year of acquisition. When a subsequent disposal
occurs any goodwill previously written off to reserves is written back through
the profit and loss account. Purchased goodwill arising on consolidation in
respect of acquisitions since January 1, 1998 is capitalised. Positive goodwill
is amortised to nil by equal annual instalments over its estimated useful life,
generally not exceeding 20 years.
F-8
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
2. Accounting policies (continued)
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
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 income.
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.
Changes in presentation of financial information
FRS 1 "Cash flow statements" has been revised in 1996 to change the format for
reporting cash flows. The revised format has been adopted in preparing these
financial statements. The comparative figures have been restated accordingly.
F-9
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
3. Segment Information
ITS comprises five divisions which are organised as follows: (1) Consumer Goods,
which tests textiles, fabrics, footwear, toys and consumer products; (2)
Conformity Assessment, which tests and certifies electrical and electronic
products, building products, heating and ventilation and air conditioning
equipment. (3) Caleb Brett, which tests crude oil, petroleum, chemical and
agricultural products; (4) Foreign Trade Supervision, which provides preshipment
inspection services to governments; (5) Minerals, which analyses metals. The
Environmental Testing division which operated principally in the US and the UK
was closed in August 1998 and is now disclosed as discontinued operations. The
accounting policies of the divisions are the same as those described in the
summary of accounting policies.
----------------- ------------------
By division Period from Period from
January 1, 1997 January 1, 1998
to to
September 30,1997 September 30, 1998
----------------- ------------------
Revenues
Consumer Goods 41,813 46,241
Conformity Assessment 63,715 64,124
Caleb Brett 80,466 90,213
Foreign Trade Supervision 39,116 47,063
Minerals 19,744 13,026
---------------- -----------------
Continuing operations 244,854 260,667
Discontinued operations 12,079 5,517
---------------- -----------------
Total 256,933 266,184
---------------- -----------------
Operating income/(loss) before exceptional items
Consumer Goods 9,305 11,713
Conformity Assessment 6,488 7,705
Caleb Brett 6,822 8,826
Foreign Trade Supervision 3,321 4,553
Minerals 3,383 359
---------------- -----------------
Continuing operations 29,319 33,156
Discontinued operations (1,355) (2,463)
---------------- -----------------
Total 27,964 30,693
---------------- -----------------
Operating Exceptional items
Foreign Trade Supervision (909) (9,974)
Caleb Brett -- (1,478)
---------------- -----------------
Continuing operations (909) (11,452)
Discontinued operations -- (4,000)
---------------- -----------------
Total (909) (15,452)
---------------- -----------------
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-10
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
3. Segment Information (continued)
----------------- ------------------
Period from Period from
January 1, 1997 January 1, 1998
to to
September 30,1997 September 30, 1998
----------------- ------------------
Revenues by geographic origin
Americas 106,688 111,342
Europe, Africa and Middle East 81,845 92,594
Asia and Far East 56,321 56,731
---------------- -----------------
Continuing operations 244,854 260,667
Discontinued operations 12,079 5,517
---------------- -----------------
Total 256,933 266,184
---------------- -----------------
Revenues from significant countries of origin
United States 80,487 89,832
United Kingdom 38,707 42,594
Hong Kong 25,094 29,193
Others (each under 10% of total) 100,566 99,048
---------------- -----------------
Continuing operations 244,854 260,667
Discontinued operations 12,079 5,517
---------------- -----------------
Total 256,933 266,184
---------------- -----------------
Operating income/(loss) before exceptional items by
geographic origin
Americas 10,820 7,679
Europe, Africa and Middle East 6,492 8,291
Asia and Far East 12,007 17,186
---------------- -----------------
Continuing operations 29,319 33,156
Discontinued operations (1,355) (2,463)
---------------- -----------------
Total 27,964 30,693
---------------- -----------------
Operating income/(loss) before exceptional items
from significant countries
United States 8,728 7,270
Hong Kong 5,753 7,854
United Kingdom 1,306 2,634
Others (each under 10% of total) 13,532 15,398
---------------- -----------------
Continuing operations 29,319 33,156
Discontinued operations (1,355) (2,463)
---------------- -----------------
Total 27,964 30,693
---------------- -----------------
F-11
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
3. Segment Information (continued)
----------------- ------------------
Period from Period from
January 1, 1997 January 1, 1998
to to
September 30,1997 September 30, 1998
----------------- ------------------
Revenues by geographic area of destination
Americas 104,273 107,231
Europe, Africa and Middle East 84,260 96,705
Asia and Far East 56,321 56,731
---------------- -----------------
Continuing operations 244,854 260,667
Discontinued operations 12,079 5,517
---------------- -----------------
Total 256,933 266,184
---------------- -----------------
Revenues from significant destination countries
United States 78,072 85,721
Hong Kong 25,094 29,193
United Kingdom 17,975 27,523
Others (each under 10% of total) 123,713 118,230
---------------- -----------------
Continuing operations 244,854 260,667
Discontinued operations 12,079 5,517
---------------- -----------------
Total 256,933 266,184
---------------- -----------------
F-12
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
4. Exceptional items
-----------------------------------
Period from Period from
January 1, 1997 January 1, 1998
to to
September 30, September 30,
1997 1998
-----------------------------------
Exceptional items charged against operating income:
Operating exceptional charges:
Foreign Trade Supervision (909) (9,974)
Caleb Brett -- (1,478)
-----------------------------------
Continuing operations (909) (11,452)
Discontinued operations - Legal and reprocessing costs -- (4,000)
-----------------------------------
(909) (15,452)
-----------------------------------
Non-Operating exceptional charge:
Loss on disposal of fixed assets -- `(458)
Loss on closure -- (2,081)
-----------------------------------
Discontinued operations -- (2,539)
-----------------------------------
ITS provides foreign trade supervision services to a major client in West
Africa. At a meeting of the board of directors held on April 27, 1997, a
decision was taken to provide against all unpaid invoices relating to this
client. The exceptional charge to operating income in respect of Foreign Trade
Supervision relate to this West African client. The tax effect of this
exceptional item to income is a credit of (pound)3,092 (period from January 1,
1997 to September 30, 1997: tax credit of (pound)282).
ITS also provides testing services in its Caleb Brett division to this major
client in West Africa. In view of the accounting policy followed for this client
in the Foreign Trade Supervision division, all unpaid invoices relating to this
client in the Caleb Brett division have also been provided against. The tax
effect of this exceptional item to income is a credit of (pound)458.
The exceptional charge of (pound)4,000 relates to the legal and reprocessing
costs which may be incurred by Environmental Testing, as a result of the ongoing
investigation by the Environmental Protection Agency into the data manipulation
problems at the Dallas, Texas laboratory. It is not possible to estimate the
cost to ITS of any civil or criminal penalties resulting from the falsification
of test results therefore no provision has been made for these costs.
The non-operating exceptional charge of (pound)458 relates to the expected loss
on disposal of fixed assets arising from the closure of the Environmental
Testing Division.
On August 20, 1998 substantially all the business and assets of the
Environmental operations in the United States and St. Helen's in the United
Kingdom were sold at their book value of (pound)1,965 (subject to post closing
price adjustments). The exceptional charge of (pound)2,081 relates to the
non-operating costs associated with the closure of the Environmental Testing
Division. This charge includes full provision for all outstanding lease
obligations and staff redundancies as well as the cost of continuing to store
data for clients of Environmental Testing.
F-13
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
5. Net interest expense
-----------------------------------
Period from Period from
January 1, 1997 January 1, 1998
to to
September 30, September 30,
1997 1998
-----------------------------------
Interest payable and other charges:
Senior Subordinated Notes 9,563 9,227
Parent Subordinated PIK Debentures 4,814 5,327
Senior Term Loan A 5,315 5,227
Senior Term Loan B 2,337 2,336
Senior Revolver -- 342
Other borrowings 21 108
Amortisation of debt issuance costs 1,591 1,452
-----------------------------------
Interest payable 23,641 24,019
Interest receivable:
On bank balances (1,271) (570)
-----------------------------------
22,370 23,449
-----------------------------------
6. Taxation
The taxation charges on income before taxation and exceptional items for the
nine month periods ended September 30, 1997 and September 30, 1998 have been
calculated based on the estimated effective tax rates for the relevant full
years. Exceptional items have been tax effected as appropriate.
F-14
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
7. Borrowings
-----------------------------------
December September 30,
31, 1997 1998
-----------------------------------
Due in less than one year:
Senior Term Loan A 4,438 6,039
Senior Revolver -- 10,992
Other borrowings 830 1,094
-----------------------------------
5,268 18,125
-----------------------------------
-----------------------------------
December 31, September 30,
1997 1998
-----------------------------------
Due in more than one year:
Senior Subordinated Notes 116,517 114,724
Senior Term Loan A 70,547 65,628
Senior Term Loan B 34,136 33,735
Parent Subordinated PIK Debentures 50,791 54,994
Other borrowings 45 553
-----------------------------------
272,036 269,634
-----------------------------------
Maturity of borrowings:
-------------------------------------------------------------------------------------------------
Senior Senior Senior Senior Parent Bank loans, Total
Subordinated Revolver Term Term Subordinated capital leases borrowings
Notes Loan A Loan B PIK and other
Debentures borrowings
-------------------------------------------------------------------------------------------------
Due in less than one year -- 10,992 6,862 -- -- 1,094 18,948
Due in 2-5 years -- -- 68,480 -- -- 542 69,022
Due in over 5 years 119,412 -- -- 35,008 56,661 11 211,092
-------------------------------------------------------------------------------------------------
119,412 10,992 75,342 35,008 56,661 1,647 299,062
Fees (4,688) -- (3,675) (1,273) (1,667) -- (11,303)
-------------------------------------------------------------------------------------------------
114,724 10,992 71,667 33,735 54,994 1,647 287,759
-------------------------------------------------------------------------------------------------
F-15
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
8. Reconciliation of movement in shareholders' deficit
-----------------------------------
Period from Period from
January 1, 1997 January 1, 1998
to to
September 30, September 30,
1997 1998
-----------------------------------
Total recognised gains and losses for the period (14,598) (14,868)
Issue of shares -- 5,029
Opening shareholders' deficit (198,881) (206,766)
-----------------------------------
Closing shareholders' deficit (213,479) (216,605)
-----------------------------------
9. Reconciliation of operating profit to operating cash flows
-----------------------------------
Period from Period from
January 1, 1997 January 1, 1998
to to
September 30, September 30,
1997 1998
-----------------------------------
Operating profit 26,982 12,717
Depreciation charge 9,369 8,400
Goodwill amortisation -- 188
Loss on sale of fixed assets 1,087 636
Decrease/(increase) in inventories 91 (599)
Increase in receivables and prepayments (5,698) (12,748)
Increase in payables 3,769 8,561
(Decrease)/increase in provisions (2,846) 4,464
-----------------------------------
Net cash inflow from operating activities 32,754 21,619
-----------------------------------
Net cash inflow from continuing operating activities 33,865 22,118
Net cash outflow from discontinued operating activities (1,111) (499)
-----------------------------------
Total net cash inflow from operating activities 32,754 21,619
-----------------------------------
F-16
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
10. Analysis of cash flows
-----------------------------------
Period from Period from
January 1, 1997 January 1, 1998
to to
September 30, September 30,
1997 1998
-----------------------------------
Returns on investment and servicing of finance
Net interest paid (16,212) (16,552)
Dividends received from associates -- 59
Dividends paid to minorities (898) (1,312)
-----------------------------------
(17,110) (17,805)
-----------------------------------
Capital expenditure and financial investment
Purchase of property, plant and equipment (7,585) (8,603)
Sale of property, plant and equipment 99 67
-----------------------------------
(7,486) (8,536)
-----------------------------------
Acquisitions and disposals
Purchase of subsidiary undertakings (2,178) (8,702)
Sale of business -- 1,965
Acquisition provision payments (4,917) (581)
-----------------------------------
(7,095) (7,318)
-----------------------------------
Financing
Issue of share capital -- 5,029
Issue of long term debt 4,660 5,097
Issue of short term debt -- 10,992
Repayment of other loans 357 (2,380)
-----------------------------------
5,017 18,738
-----------------------------------
F-17
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
11. Analysis of net debt
-----------------------------------------------------------------------------------
At Cash flow Debt issued Other Exchange At
January 1, in lieu of non-cash adjustments September
1998 interest changes 30, 1998
payment
-----------------------------------------------------------------------------------
Net cash
Cash in hand and at bank 25,153 2,231 -- (159) (1,848) 25,377
-----------------------------------------------------------------------------------
Debt
Debt due within one year (5,268) (8,612) -- (4,396) 151 (18,125)
Debt due after one year (272,036) -- (5,097) 2,399 5,100 (269,634)
-----------------------------------------------------------------------------------
(277,304) (8,612) (5,097) (1,997) 5,251 (287,759)
-----------------------------------------------------------------------------------
Total net debt (252,151) (6,381) (5,097) (2,156) 3,403 (262,382)
-----------------------------------------------------------------------------------
F-18
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
12. Summary of differences between U.K. and U.S. GAAP
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United Kingdom ("U.K.
GAAP"). These accounting principles differ in certain material respects
from accounting principles generally accepted in the United States ("U.S.
GAAP"). Described below are the material differences between U.K. GAAP and
U.S. GAAP affecting the net income/(loss) and shareholders' deficit which
are set forth in the tables that follow.
Goodwill and other intangible assets
Under U.K. GAAP, purchased goodwill arising on consolidation in respect of
acquisitions before January 1, 1998 when FRS 10 Goodwill and intangible
assets was adopted, was written off to reserves in the year of acquisition.
Purchased goodwill arising on consolidation in respect of acquisitions since
January 1, 1998 is capitalised. Positive goodwill is amortised to nil by
equal annual instalments over its estimated useful life. 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 not to be classified within shareholders' deficit.
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, Statement of Financial Accounting Standards (SFAS) No. 87, "Employers'
Accounting for Pensions", requires that pension costs be determined based on
a comparison of the projected benefit obligation with the market value of the
underlying plan assets and other unrecognised gains and losses assessed on an
actuarial basis.
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.
Compensated absences
Under U.S. GAAP, compensated absences, being an employee's paid holiday
entitlements, are accrued as earned. For companies that do not allow
employees to carry compensated absences over from one year to the next, no
accrual is required. 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 recognized 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 are provided. No U.S.
adjustment is presented in the reconciliation because the directors have
established a valuation allowance for the unrecorded deferred tax assets.
F-19
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
12. Summary of differences between U.K. and U.S. GAAP (continued)
Effect of material differences between U.K. and U.S. GAAP and additional
disclosures
(a) Net loss
The approximate effects on net loss of material differences between U.K. and
U.S. GAAP are as follows:
-----------------------------------
Period from Period from
January 1, 1997 January 1, 1998
to to
September 30, September 30,
1997 1998
-----------------------------------
Net loss reported under U.K. GAAP (814) (16,952)
Goodwill amortisation (9,228) (9,749)
Covenants not to compete amortisation (9,999) (9,398)
Pensions 111 (99)
Compensated absences 379 (215)
-----------------------------------
Net loss reported under U.S. GAAP (19,551) (36,413)
-----------------------------------
Continuing operations (18,304) (26,753)
Discontinued operations (1,247) (9,660)
-----------------------------------
Net loss reported under U.S. GAAP (19,551) (36,413)
-----------------------------------
The closure of the Environmental Division is treated as discontinued
operations under U.S. GAAP.
(b) Shareholders' deficit
The approximate effects on shareholders' deficit of material differences
between U.K. and U.S. GAAP are as follows:
-----------------------------------
December 31, September 30,
1997 1998
-----------------------------------
Shareholders' deficit reported under U.K. GAAP (206,766) (216,605)
Goodwill 217,498 200,323
Covenants not to compete 21,796 12,236
Redeemable preference shares (81,815) (86,844)
Pensions 1,207 1,108
Compensated absences (408) (624)
-----------------------------------
Shareholders' deficit reported under U.S. GAAP (48,488) (90,406)
-----------------------------------
-----------------------------------
The following table reconciles shareholders' deficit under U.S. GAAP:
-----------------------------------
Year ended Period from
December January 1, 1998
31, 1997 to
September 30,
1998
-----------------------------------
Shareholders' deficit at beginning of period (5,263) (48,488)
Net loss for the period (28,096) (36,413)
Exchange adjustments (15,129) (5,505)
-----------------------------------
Shareholders' deficit at end of period (48,488) (90,406)
-----------------------------------
F-20
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
12. Summary of differences between U.K. and U.S. GAAP (continued)
(c) Cash flows
The statements of cash flow 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
be included as operating activities under U.S. GAAP. Capital expenditure and
financial investment, acquisitions and disposals would be included as
investing activities. The payment of dividends would be included under
financing activities under U.S. GAAP.
Set out below is a summary of the statements of cash flows under U.S. GAAP:
-----------------------------------
Period from Period from
January 1, 1997 January 1,
to 1998 to
September 30, September 30,
1997 1998
(restated)
-----------------------------------
Net cash inflow from operating activities 11,279 457
Net cash outflow from investing activities (14,581) (15,870)
Net cash inflow from financing activities 4,119 17,485
-----------------------------------
Net increase in cash and cash equivalents under U.S. GAAP 817 2,072
Effect of exchange rate changes 196 (1,848)
-----------------------------------
Net increase in cash under U.K. GAAP 1,013 224
-----------------------------------
F-21
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
13. 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 unaudited financial
information. The unaudited financial information presented below has been
segregated between (a) the Issuer, (b) the Guarantors and (c) the
non-Guarantor subsidiaries.
F-22
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
13. Issuer, guarantor and non-guarantor companies (continued)
Statements of Operations
Period from January 1 to September 30, 1998
---------------------------------------------------------------------
Intertek Guarantors Non Consolidation Consolidated
Finance plc -Guarantor adjustments totals
subsidiaries
---------------------------------------------------------------------
Revenues: group and share of joint ventures -- -- 314,243 (48,059) 266,184
Less: share of joint ventures' revenues -- -- (806) -- (806)
---------------------------------------------------------------------
Revenues from continuing operations -- -- 313,437 (48,059) 265,378
Operating costs 66 92 (298,339) 48,059 (250,122)
---------------------------------------------------------------------
Operating income from continuing operations 66 92 15,098 -- 15,256
Share of operating profit in:
Joint ventures -- -- (82) -- (82)
Associates -- -- 67 -- 67
---------------------------------------------------------------------
Total operating income 66 92 15,083 -- 15,241
Non-operating exceptional items -- -- (2,539) -- (2,539)
---------------------------------------------------------------------
Income on ordinary activities before net 66 92 12,544 -- 12,702
interest
Net interest payable (14) (17,954) (5,481) -- (23,449)
---------------------------------------------------------------------
Income/(loss) before taxation 52 (17,862) 7,063 -- (10,747)
Taxation (103) 611 (4,841) -- (4,333)
---------------------------------------------------------------------
Income/(loss) after taxation (51) (17,251) 2,222 -- (15,080)
Minority interest -- -- (1,872) -- (1,872)
Dividends from group companies -- 169 (169) -- --
---------------------------------------------------------------------
Net income/(loss) (51) (17,082) 181 -- (16,952)
---------------------------------------------------------------------
---------------------------------------------------------------------
Statements of Operations
Period from July 1 to September 30, 1998
---------------------------------------------------------------------
Intertek Guarantors Non Consolidation Consolidated
Finance plc -Guarantor adjustments totals
subsidiaries
---------------------------------------------------------------------
Revenues: group and share of joint ventures -- -- 109,982 (17,983) 91,999
Less: share of joint ventures' revenues -- -- (150) -- (150)
---------------------------------------------------------------------
Revenues from continuing operations -- -- 109,832 (17,983) 91,849
Operating costs 68 (4) (102,558) 17,983 (84,511)
---------------------------------------------------------------------
Operating income from continuing operations 68 (4) 7,274 -- 7,338
Share of operating profit in:
Joint ventures -- -- (44) -- (44)
Associates -- -- 27 -- 27
---------------------------------------------------------------------
Total operating income 68 (4) 7,257 -- 7,321
Non-operating exceptional items -- -- (89) -- (89)
---------------------------------------------------------------------
Income on ordinary activities before net 68 (4) 7,168 -- 7,232
interest
Net interest payable (56) (6,106) (1,744) -- (7,906)
---------------------------------------------------------------------
Income/(loss) before taxation 12 (6,110) 5,424 -- (674)
Taxation (2) 210 (1,815) -- (1,607)
---------------------------------------------------------------------
Income/(loss) after taxation 10 (5,900) 3,609 -- (2,281)
Minority interest -- -- (559) -- (559)
Dividends from group companies -- -- -- -- --
---------------------------------------------------------------------
Net income/(loss) 10 (5,900) 3,050 -- (2,840)
---------------------------------------------------------------------
---------------------------------------------------------------------
F-23
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
13. Issuer, guarantor and non-guarantor companies (continued)
Statements of Operations
Period from January 1 to September 30, 1997
------------------------------------------------------------------
Intertek Guarantors Non- Consolidation Consolidated
Finance plc Guarantor adjustments totals
subsidiaries
------------------------------------------------------------------
Revenues: group and share of joint ventures -- -- 289,814 (32,881) 256,933
Less: share of joint ventures' revenues -- -- -- -- --
------------------------------------------------------------------
Revenues from continuing operations -- -- 289,814 (32,881) 256,933
Operating costs 347 987 (264,166) 32,881 (229,951)
------------------------------------------------------------------
Operating income from continuing operations 347 987 25,648 -- 26,982
Share of operating profit in:
Joint ventures -- -- -- -- --
Associates -- -- 73 -- 73
------------------------------------------------------------------
Income on ordinary activities before net 347 987 25,721 -- 27,055
interest
Net interest payable 400 (17,812) (4,958) -- (22,370)
------------------------------------------------------------------
Income/(loss) before taxation 747 (16,825) 20,763 -- 4,685
Taxation (127) 808 (3,927) -- (3,246)
------------------------------------------------------------------
Income/(loss) after taxation 620 (16,017) 16,836 -- 1,439
Minority interest -- -- (2,253) -- (2,253)
Dividend from group companies -- 2,581 (2,581) -- --
------------------------------------------------------------------
Net income/(loss) 620 (13,436) 12,002 -- (814)
------------------------------------------------------------------
------------------------------------------------------------------
Period from July 1 to September 30, 1997
------------------------------------------------------------------
Intertek Guarantors Non- Consolidation Consolidated
Finance plc Guarantor adjustments totals
subsidiaries
------------------------------------------------------------------
Revenues: group and share of joint ventures -- -- 105,715 (16,090) 89,625
Less: share of joint ventures' revenues -- -- -- -- --
------------------------------------------------------------------
Revenues from continuing operations -- -- 105,715 (16,090) 89,625
Operating costs (327) 157 (101,651) 16,090 (85,731)
------------------------------------------------------------------
Operating income from continuing operations (327) 157 4,064 -- 3,894
Share of operating profit in:
Joint ventures -- -- -- -- --
Associates -- -- 29 -- 29
------------------------------------------------------------------
Income on ordinary activities before net (327) 157 4,093 -- 3,923
interest
Net interest payable 432 (5,548) (2,165) -- (7,281)
------------------------------------------------------------------
Income/(loss) before taxation 105 (5,391) 1,928 -- (3,358)
Taxation (122) 48 (1,383) -- (1,457)
------------------------------------------------------------------
Income/(loss) after taxation (17) (5,343) 545 -- (4,815)
Minority interest -- -- (785) -- (785)
Dividends from group companies -- 2,581 (2,581) -- --
------------------------------------------------------------------
Net income/(loss) (17) (2,762) (2,821) -- (5,600)
------------------------------------------------------------------
------------------------------------------------------------------
F-24
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
13. Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
September 30, 1998
---------------------------------------------------------------
Intertek Guarantors Non- Consolidation Consolidated
Finance plc Guarantor adjustments totals
subsidiaries
---------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents 16 (1,084) 26,445 -- 25,377
Trade receivables -- -- 65,949 -- 65,949
Inventories -- -- 3,093 -- 3,093
Other current assets 120,111 142,786 231,308 (475,831) 18,374
Deferred tax -- -- 350 -- 350
---------------------------------------------------------------
Total current assets 120,127 141,702 327,145 (475,831) 113,143
Goodwill -- -- 10,266 -- 10,266
Property, plant and equipment, net -- -- 43,100 -- 43,100
Investments in subsidiary undertakings -- 387,365 71,306 (458,671) --
Other investments -- -- 272 -- 272
---------------------------------------------------------------
Total assets 120,127 529,067 452,089 (934,502) 166,781
---------------------------------------------------------------
---------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current liabilities
Borrowings
(including current portion of long term -- 17,031 1,094 -- 18,125
borrowings)
Accounts payable, accrued liabilities and deferred 5,100 209,865 338,164 (475,831) 77,298
income
Income taxes payable 406 (3,389) 5,804 -- 2,821
---------------------------------------------------------------
Total current liabilities 5,506 223,507 345,062 (475,831) 98,244
Long term borrowings 114,724 154,357 553 -- 269,634
Provisions for liabilities and charges -- -- 11,349 -- 11,349
Minority interests -- -- 4,159 -- 4,159
Shareholders' equity/(deficit)
Ordinary shares 50 99,849 224,817 (324,398) 318
Redeemable preference shares -- 86,675 -- -- 86,675
Shares to be issued -- 2,793 -- -- 2,793
Premium in excess of par value -- 26,693 3,812 (27,479) 3,026
Retained (deficit)/earnings (153) (64,807) (137,663) (106,794) (309,417)
---------------------------------------------------------------
Total shareholders' equity/(deficit) (103) 151,203 90,966 (458,671) (216,605)
---------------------------------------------------------------
Total liabilities and shareholders' equity/(deficit) 120,127 529,067 452,089 (934,502) 166,781
---------------------------------------------------------------
---------------------------------------------------------------
F-25
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
13. Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
December 31, 1997
---------------------------------------------------------------
Intertek Guarantors Non- Consolidation Consolidated
Finance plc Guarantor adjustments totals
subsidiaries
---------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents 15 (537) 25,675 -- 25,153
Trade receivables -- -- 60,483 -- 60,483
Inventories -- -- 2,650 -- 2,650
Other current assets 120,006 228,622 193,466 (530,031) 12,063
Deferred taxation asset -- -- 286 -- 286
---------------------------------------------------------------
Total current assets 120,021 228,085 282,560 (530,031) 100,635
Property, plant and equipment, net -- -- 44,460 -- 44,460
Investments in subsidiary undertakings -- 389,550 311,978 (701,528) --
Other investments -- -- 184 -- 184
---------------------------------------------------------------
Total assets 120,021 617,635 639,182 (1,231,559) 145,279
---------------------------------------------------------------
---------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current liabilities
Borrowings
(including current portion of long term -- 4,438 830 -- 5,268
borrowings)
Accounts payable, accrued liabilities and deferred 3,389 264,755 321,906 (530,031) 60,019
income
Income taxes payable 242 (3,628) 6,709 -- 3,323
---------------------------------------------------------------
Total current liabilities 3,631 265,565 329,445 (530,031) 68,610
Long term borrowings 116,517 155,474 45 -- 272,036
Provisions for liabilities and charges -- -- 7,095 -- 7,095
Minority interests -- -- 4,304 -- 4,304
Shareholders' equity/(deficit)
Ordinary shares 50 101,739 267,499 (368,970) 318
Redeemable preference shares -- 81,815 -- -- 81,815
Shares to be issued -- 2,793 -- -- 2,793
Premium in excess of par value -- 26,494 8,456 (32,093) 2,857
Retained (deficit)/earnings (177) (16,245) 22,338 (300,465) (294,549)
---------------------------------------------------------------
Total shareholders' equity/(deficit) (127) 196,596 298,293 (701,528) (206,766)
---------------------------------------------------------------
Total liabilities and shareholders' equity/(deficit) 120,021 617,635 639,182 (1,231,559) 145,279
---------------------------------------------------------------
---------------------------------------------------------------
F-26
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
13. Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
Period from January 1 to September 30, 1998
---------------------------------------------------------------
Intertek Guarantors Non-Guarantor Consolidation Consolidated
Finance plc subsidiaries adjustments totals
---------------------------------------------------------------
Cash inflow from operating activities (2,006) (6,063) 29,688 -- 21,619
Returns on investments and servicing of finance 1,946 (12,742) (7,009) -- (17,805)
Taxation 61 880 (5,408) -- (4,467)
Capital expenditure and financial investment -- -- (8,536) -- (8,536)
Acquisitions and disposals -- (1,133) (6,185) -- (7,318)
--------------------------------------------------------------
Cash inflow/(outflow) before financing 1 (19,058) 2,550 -- (16,507)
Financing -- 18,511 227 -- 18,738
--------------------------------------------------------------
Increase/(decrease) in cash in the period 1 (547) 2,777 -- 2,231
--------------------------------------------------------------
Reconciliation of net cash flow to movement in net
debt
Increase/(decrease) in cash in the period 1 (547) 2,777 -- 2,231
Debt issued in lieu of interest payment -- (5,097) -- -- (5,097)
Change in net debt resulting from cash flows -- (8,385) -- -- (8,385)
Other non-cash movements (352) (1,266) (765) -- (2,383)
Exchange movements 2,145 3,272 (2,014) -- 3,403
--------------------------------------------------------------
Movement in net debt in the period 1,794 (12,023) (2) -- (10,231)
Net debt at the start of the period (116,502) (160,449) 24,800 -- (252,151)
--------------------------------------------------------------
Net debt at the end of the period (114,708) (172,472) 24,798 -- (262,382)
--------------------------------------------------------------
F-27
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
13. Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
Period from January 1 to September 30, 1997
(restated)
-------------------------------------------------------------
Intertek Guarantors Non- Consolidation Consolidated
Finance Guarantor adjustments totals
plc subsidiaries
-------------------------------------------------------------
Cash inflow from operating activities 529 11,958 20,267 -- 32,754
Returns on investments and servicing of finance (1,059) (15,880) (171) -- (17,110)
Taxation -- -- (5,137) -- (5,137)
Capital expenditure and financial investment -- -- (7,486) -- (7,486)
Acquisitions and disposals -- (8,555) 1,460 -- (7,095)
-------------------------------------------------------------
Cash inflow/(outflow) before financing (530) (12,477) 8,933 -- (4,074)
Financing 546 4,660 (189) -- 5,017
-------------------------------------------------------------
Increase/(decrease) in cash in the period 16 (7,817) 8,744 -- 943
--------------------------------------------------------------
Reconciliation of net cash flow to movement in net
debt
Increase/(decrease) in cash in the period 16 (7,817) 8,744 -- 943
Debt issued in lieu of interest payment -- (4,660) -- -- (4,660)
Change in net debt resulting from cash flows -- -- 1,234 -- 1,234
Other non-cash movements (506) 3,110 (4,195) -- (1,591)
Exchange movements (7,374) (6,452) 563 -- (13,263)
-------------------------------------------------------------
Movement in net debt in the period (7,864) (15,819) 6,346 -- (17,337)
Net debt at the start of the period (111,457) (157,383) 33,450 -- (235,390)
-------------------------------------------------------------
Net debt at the end of the period (119,321) (173,202) 39,796 -- (252,727)
-------------------------------------------------------------
F-28
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
((pound) in thousands)
13. Issuer, guarantor and non-guarantor companies (continued)
Statements of Operations
Period from January 1 to September 30, 1998
---------------------------------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson Testing Testing Guarantor
Testing Holdings Overseas Holding Testing Holdings Enterpris Holdings Holdings subsidiaries
Service USA Holdings Limited Services Sweden AB Limited France Germany Total
Ltd Inc BV UK EURL GmbH
Limited
---------------------------------------------------------------------------------------------
Revenues from continuing operations -- -- -- -- -- -- -- -- -- --
Operating costs 75 -- 7 (6) 30 (5) (9) -- -- 92
---------------------------------------------------------------------------------------------
Operating (loss)/income from
continuing Operations 75 -- 7 (6) 30 (5) (9) -- -- 92
Net interest (payable)/receivable (5,403) (7,669) (166) 15 (2,763) (1,545) (2) (45) (376) (17,954)
---------------------------------------------------------------------------------------------
(Loss)/income before taxation (5,328) (7,669) (159) 9 (2,733) (1,550) (11) (45) (376) (17,862)
Taxation (8) (103) -- (4) 742 -- -- (16) -- 611
---------------------------------------------------------------------------------------------
(Loss)/income after taxation (5,336) (7,772) (159) 5 (1,991) (1,550) (11) (61) (376) (17,251)
Dividends from group companies -- 169 -- -- -- -- -- -- -- 169
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net (loss)/income (5,336) (7,603) (159) 5 (1,991) (1,550) (11) (61) (376) (17,082)
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Period from July 1 to September 30, 1998
---------------------------------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson Testing Testing Guarantor
Testing Holdings Overseas Holding Testing Holdings Enterpris Holdings Holdings subsidiaries
Service USA Holdings Limited Services Sweden AB Limited France Germany Total
Ltd Inc BV UK EURL GmbH
Limited
---------------------------------------------------------------------------------------------
Revenues from continuing operations -- -- -- -- -- -- -- -- -- --
Operating costs (28) -- 3 (5) 30 (1) (3) -- -- (4)
---------------------------------------------------------------------------------------------
Operating income/(loss) from
continuing Operations (28) -- 3 (5) 30 (1) (3) -- -- (4)
Net interest (payable)/receivable (1,822) (2,332) (78) 35 (925) (766) (33) (15) (170) (6,106)
---------------------------------------------------------------------------------------------
(Loss)/income before taxation (1,850) (2,332) (75) 30 (895) (767) (36) (15) (170) (6,110)
Taxation (8) -- -- (14) 228 -- 4 -- -- 210
---------------------------------------------------------------------------------------------
Net (loss)/income (1,858) (2,332) (75) 16 (667) (767) (32) (15) (170) (5,900)
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
F-29
13. Issuer, guarantor and non-guarantor companies (continued)
Statements of Operations
Period from January 1 to September 30, 1997
---------------------------------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson Testing Testing Guarantor
Testing Holdings Overseas Holding Testing Holdings Enterpris Holdings Holdings subsidiaries
Service USA Holdings Limited Services Sweden AB Limited France Germany Total
Ltd Inc BV UK EURL GmbH
Limited
---------------------------------------------------------------------------------------------
Revenues from continuing operations -- -- -- -- -- -- -- -- -- --
Operating costs 885 126 (13) -- -- -- (1) (10) -- 987
--------------------------------------------------------------------------------------------
Operating (loss)/income from 885 126 (13) -- -- -- (1) (10) -- 987
continuing Operations
Net interest (payable)/receivable (4,814) (8,199) (209) (52) (2,786) (1,489) 55 -- (318) (17,812)
---------------------------------------------------------------------------------------------
(Loss)/income before taxation (3,929) (8,073) (222) (52) (2,786) (1,489) 54 (10) (318) (16,825)
Taxation -- (46) -- 20 843 -- (9) -- -- 808
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
(Loss)/income after taxation (3,929) (8,119) (222) (32) (1,943) (1,489) 45 (10) (318) (16,017)
Dividends from group companies -- -- -- -- -- 2,581 -- -- -- 2,581
---------------------------------------------------------------------------------------------
Net (loss)/income (3,929) (8,119) (222) (32) (1,943) 1,092 45 (10) (318) (13,436)
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Period from July 1 to September 30, 1997
---------------------------------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson Testing Testing Guarantor
Testing Holdings Overseas Holding Testing Holdings Enterpris Holdings Holdings subsidiaries
Service USA Holdings Limited Services Sweden AB Limited France Germany Total
Ltd Inc BV UK EURL GmbH
Limited
---------------------------------------------------------------------------------------------
Revenues from continuing operations -- -- -- -- -- -- -- -- -- --
Operating costs (216) 47 (3) 65 264 -- (7) 7 -- 157
---------------------------------------------------------------------------------------------
Operating income/(loss) from (216) 47 (3) 65 264 -- (7) 7 -- 157
continuing Operations
Net interest (payable)/receivable (1,571) (2,798) (62) 96 (891) (293) 37 -- (66) (5,548)
---------------------------------------------------------------------------------------------
(Loss)/income before taxation (1,787) (2,751) (65) 161 (627) (293) 30 7 (66) (5,391)
Taxation -- (91) -- (101) 243 -- (3) -- -- 48
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
(Loss)/income after taxation (1,787) (2,842) (65) 60 (384) (293) 27 7 (66) (5,343)
Dividends from group companies -- -- -- -- -- 2,581 -- -- -- 2,581
---------------------------------------------------------------------------------------------
Net (loss)/income (1,787) (2,842) (65) 60 (384) 2,288 27 7 (66) (2,762)
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
F-30
13. Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
September 30, 1998
---------------------------------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson Testing Testing Guarantor
Testing Holdings Overseas Holding Testing Holdings Enterpris Holdings Holdings subsidiaries
Service USA Holdings Limited Services Sweden AB Limited France Germany Total
Ltd Inc BV UK EURL GmbH
Limited
---------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents (1,111) -- 4 1 1 1 1 -- 19 (1,084)
Other current assets 59,218 143 1,888 3,136 116 2,616 75,669 -- -- 142,786
---------------------------------------------------------------------------------------------
Total current assets 58,107 143 1,892 3,137 117 2,617 75,670 -- 19 141,702
Investments in subsidiary
undertakings 130,665 147,421 6,888 3,538 64,418 24,648 -- 3,586 6,201 387,365
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Total assets 188,772 147,564 8,780 6,675 64,535 27,265 75,670 3,586 6,220 529,067
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current
portion of long term borrowings) 10,992 -- 321 287 2,037 483 2,911 -- -- 17,031
Accounts payable, accrued
liabilities and Deferred income 38,383 107,159 3,960 63 12,421 3,055 40,807 2,765 1,252 209,865
Income taxes (receivable)/payable (1,481) (429) -- 10 (1,501) -- 12 -- -- (3,389)
---------------------------------------------------------------------------------------------
Total current liabilities 47,894 106,730 4,281 360 12,957 3,538 43,730 2,765 1,252 223,507
Long term borrowings 54,994 -- 3,585 3,189 34,829 21,029 31,750 -- 4,981 154,357
Shareholders' equity
Ordinary shares 318 91,820 1,436 3,503 -- 1,826 -- 928 18 99,849
Redeemable preference shares 86,675 -- -- -- -- -- -- -- -- 86,675
Shares to be issued 2,793 -- -- -- -- -- -- -- -- 2,793
Premium in excess of par value 3,026 -- -- -- 22,709 -- 48 -- 910 26,693
Retained (deficit)/earnings (6,928) (50,986) (522) (377) (5,960) 872 142 (107) (941) (64,807)
---------------------------------------------------------------------------------------------
Total shareholders' equity 85,884 40,834 914 3,126 16,749 2,698 190 821 (13) 151,203
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity 188,772 147,564 8,780 6,675 64,535 27,265 75,670 3,586 6,220 529,067
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
F-31
13. Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
December 31, 1997
------------------------------------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson Testing Testing Guarantor
Testing Holdings Overseas Holding Testing Holdings Enterpris Holdings Holdings subsidi-
Services USA Holdings Limited Services Sweden AB Limited France Germany aries
Ltd Inc BV UK Limited EURL GmbH Total
------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents (559) -- -- 1 2 -- -- -- 19 (537)
Other current assets 118,686 28,295 1,883 4,107 33 3,808 71,810 -- -- 228,622
------------------------------------------------------------------------------------------------
Total current assets 118,127 28,295 1,883 4,108 35 3,808 71,810 -- 19 228,085
Investments in subsidiary
undertakings 130,656 150,069 5,549 3,804 64,418 25,604 -- 3,459 5,991 389,550
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Total assets 248,783 178,364 7,432 7,912 64,453 29,412 71,810 3,459 6,010 617,635
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current
portion of long term
borrowings) -- -- 218 200 1,494 411 2,115 -- -- 4,438
Accounts payable, accrued
liabilities and deferred
income 116,335 96,336 2,537 732 7,325 2,661 35,276 2,660 893 264,755
Income taxes
(receivable)/payable (1,970) (58) -- 6 (1,039) -- 12 (56) -- (3,628)
------------------------------------------------------------------------------------------------
Total current liabilities 114,365 95,755 2,755 938 7,780 3,072 37,403 2,604 893 265,565
Long term borrowings 50,791 -- 3,647 3,410 36,630 21,963 34,282 -- 4,751 155,474
Shareholders' equity
Ordinary shares 318 93,469 1,376 3,767 -- 1,896 -- 896 17 101,739
Redeemable preference shares 81,815 -- -- -- -- -- -- -- -- 81,815
Shares to be issued 2,793 -- -- -- -- -- -- -- -- 2,793
Premium in excess of par value 2,857 -- -- -- 22,709 -- 49 -- 879 26,494
Retained earnings/(deficit) (4,156) (10,860) (346) (203) (2,666) 2,481 76 (41) (530) (16,245)
------------------------------------------------------------------------------------------------
Total shareholders' equity 83,627 82,609 1,030 3,564 20,043 4,377 125 855 366 196,596
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity 248,783 178,364 7,432 7,912 64,453 29,412 71,810 3,459 6,010 617,635
------------------------------------------------------------------------------------------------
F-32
13. Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
Period from January 1 to September 30, 1998
-------------------------------------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson Testing Testing Guarantor
Testing Holdings Overseas Holding Testing Holdings Enterpris Holdings Holdings subsidi-
Services USA Holdings Limited Services Sweden AB Limited France Germany aries
Ltd Inc BV UK Limited EURL GmbH Total
-------------------------------------------------------------------------------------------------
Cash Flow Statement
Net cash inflow/(outflow)
from operating Activities (17,465) 6,827 1,360 127 2,248 1,155 (524) 13 196 (6,063)
Returns on investments and
servicing of finance (4,685) (6,865) (122) (3) (1,681) (943) 1,807 (54) (196) (12,742)
Taxation received/(paid) 489 38 32 -- 280 -- -- 41 -- 880
Acquisitions and disposals (9) -- (1,124) -- -- -- -- -- -- (1,133)
-------------------------------------------------------------------------------------------------
(21,670) -- 146 124 847 212 1,283 -- -- (19,058)
Financing 21,118 -- (142) (124) (848) (211) (1,282) -- -- 18,511
-------------------------------------------------------------------------------------------------
Increase/(decrease) in cash (552) -- 4 -- (1) 1 1 -- -- (547)
-------------------------------------------------------------------------------------------------
Reconciliation of net cash flow
to movement in net debt
Increase/(decrease) in cash
in the period (552) -- 4 -- (1) 1 1 -- -- (547)
Debt issued in lieu of interest
payment (5,097) -- -- -- -- -- -- -- -- (5,097)
Change in net debt resulting
from cash flows (10,992) -- 142 124 848 211 1,282 -- -- (8,385)
Other non-cash movements (82) -- (42) (233) (289) (184) (373) -- (63) (1,266)
Exchange movements 976 -- (143) 243 699 835 828 -- (166) 3,272
-------------------------------------------------------------------------------------------------
Movement in net debt in the
period (15,747) -- (39) 134 1,257 863 1,738 -- (229) (12,023)
Net debt at the start of the
period (51,350) -- (3,863) (38,122) (22,374) (36,398) -- (4,733) (160,449) (3,609)
-------------------------------------------------------------------------------------------------
Net debt at the end of the
period (67,097) -- (3,902) (3,475) (36,865) (21,511) (34,660) -- (4,962) (172,472)
-------------------------------------------------------------------------------------------------
F-33
13. Issuer, guarantor and non-guarantor companies (continued)
Statements of Cash Flows
Period from January 1 to September 30, 1997
(restated)
----------------------------------------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson Testing Testing Guarantor
Testing Holdings Overseas Holding Testing Holdings Enterpris Holdings Holdings subsidi-
Services USA Holdings Limited Services Sweden AB Limited France Germany aries
Ltd Inc BV UK Limited EURL GmbH Total
----------------------------------------------------------------------------------------------------
Cash Flow Statement
Net cash inflow from
operating activities 2,262 3,533 154 104 1,925 843 2,925 -- 212 11,958
Returns on investments and
servicing of finance (6,130) (3,533) (156) (163) (1,921) (843) (2,922) -- (212) (15,880)
Taxation -- -- -- -- -- -- -- -- -- --
Acquisitions and disposals (8,555) -- -- -- -- -- -- -- -- (8,555)
----------------------------------------------------------------------------------------------------
(12,423) -- (2) (59) 4 -- 3 -- -- (12,477)
Financing 4,660 -- -- -- -- -- -- -- -- 4,660
----------------------------------------------------------------------------------------------------
Increase in cash (7,763) -- (2) (59) 4 -- 3 -- -- (7,817)
----------------------------------------------------------------------------------------------------
Reconciliation of net cash
flow to movement in net debt
Increase in cash in the period (7,763) -- (2) (59) 4 -- 3 -- -- (7,817)
Debt issued in lieu of
interest payment (4,660) -- -- -- -- -- -- -- -- (4,660)
Cash inflow from increase
in debt -- -- -- -- -- -- -- -- -- --
Other non-cash movements 2,740 -- 102 24 142 (91) 216 -- (23) 3,110
Exchange movements (2,984) -- 317 (239) (2,447) 1,067 (2,546) -- 380 (6,452)
----------------------------------------------------------------------------------------------------
Movement in net debt in
the period (12,667) -- 417 (274) (2,301) 976 (2,327) -- 357 (15,819)
Net debt at the start of
the period (43,915) -- (4,474) (3,524) (37,600) (24,806) (37,754) -- (5,310) (157,383)
----------------------------------------------------------------------------------------------------
Net debt at the end of
the period (56,582) -- (4,057) (3,798) (39,901) (23,830) (40,081) -- (4,953) (173,202)
----------------------------------------------------------------------------------------------------
F-34
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: November 16, 1998