<PAGE>
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 August 13, 1999
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 six months to
June 30, 1999
Pages 1 - 39
<PAGE>
INTERTEK TESTING SERVICES LIMITED
GENERAL
BUSINESS DESCRIPTION
Intertek Testing Services Limited (the "Company") and its subsidiaries
(collectively "ITS") is a leading international group engaged in the testing,
inspection and certification of manufactured goods and commodities. At June 30,
1999, ITS had 229 testing laboratories and 493 inspection offices in 83
countries.
ITS is comprised of five operating divisions, each focusing on the testing,
inspection and certification of manufactured goods and commodities. A
description of each of the divisions is given below. In this report, the
divisions are described by the well established trade names under which they
operate. The Environmental Testing Division ("Environmental"), which focused on
the analysis of water, soil and air samples for toxic substances, was
discontinued in August 1998.
CALEB BRETT Provides independent verification of the quantity and quality of
crude oil, petroleum products and chemicals and, to a lesser extent,
agricultural produce. It is a joint leader in the market for testing and
inspecting petroleum and chemicals.
ETL SEMKO tests and certifies electrical and electronic products, building
products, heating and ventilation and air conditioning equipment to ensure they
meet with applicable safety and performance standards. ETL SEMKO also certifies
the quality of management systems to standards such as ISO 9000. This division
was previously known as Conformity Assessment. The new name represents the
combined trade names of ETL in North America and SEMKO in Sweden.
LABTEST Is one of the largest international providers of testing and inspection
services of textiles, toys, household goods and other consumer products. This
division was previously referred to as Consumer Goods. Labtest is the trade name
under which the division has operated for many years.
FOREIGN TRADE STANDARDS ("FTS") provides inspection and testing services to
government standards organisations to ensure that imports of specified products
meet their safety and other national standards. FTS also provides independent
pre-shipment inspection ("PSI") services to the governments of developing
countries to assist them in the enforcement of customs duties and exchange
controls.
BONDAR CLEGG provides a laboratory testing service of minerals exploration
samples and samples from producing mines, principally of gold but also of
copper, zinc and other minerals. This division was previously referred to as
Minerals. Bondar Clegg is the trade name of the division.
2
<PAGE>
RESULTS OF OPERATIONS
The following tables show for the six months to June 30, 1998 ("HY 98"), the six
months to June 30, 1999 ("HY 99"), the three months to June 30, 1998 ("Q2 98")
and the three months to June 30, 1999 ("Q2 99"), revenues and operating income
by the major divisions of ITS, as well as revenues by geographic area, expressed
in thousands of pounds sterling ("L000"), except for percentages.
Geographic area relates to the area where each ITS operation is located, not the
location of our clients. Overhead costs for the central head office and
non-operating holding companies ("Central Costs") are allocated to operating
divisions in proportion to their share of total revenues.
<TABLE>
HY 98 HY 99
L000 L000
<S> <C> <C>
REVENUES BY DIVISION
Caleb Brett 57,758 64,662
ETL SEMKO 42,471 43,676
Labtest 30,048 37,229
Foreign Trade Standards 30,235 27,526
Bondar Clegg 8,973 5,631
------------------------------------
CONTINUING OPERATIONS 169,485 178,724
Discontinued operation 4,700 -
------------------------------------
------------------------------------
TOTAL 174,185 178,724
------------------------------------
------------------------------------
OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS
Caleb Brett 6,476 6,040
ETL SEMKO 5,435 5,868
Labtest 7,644 10,366
Foreign Trade Standards 2,990 2,637
Bondar Clegg 460 (1,322)
------------------------------------
CONTINUING OPERATIONS 23,005 23,589
Discontinued operation (1,751) -
------------------------------------
TOTAL 21,254 23,589
------------------------------------
------------------------------------
REVENUES BY GEOGRAPHIC AREA
Americas 73,387 73,526
Europe, Africa and Middle East 59,720 61,061
Asia and Far East 36,378 44,137
-----------------------------------
CONTINUING OPERATIONS 169,485 178,724
Discontinued operation 4,700 -
------------------------------------
TOTAL 174,185 178,724
------------------------------------
------------------------------------
TOTAL REVENUES 174,185 178,724
Operating costs (165,611) (147,741)
Share of operating (loss)/profit from associates (654) 226
------------------------------------
OPERATING INCOME 7,920 31,209
------------------------------------
------------------------------------
- ------------------------------------------------------------------------------------------------------
OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS
Continuing operations 23,005 23,589
Discontinued operation (1,751) -
------------------------------------
21,254 23,589
EXCEPTIONAL ITEMS (CHARGED)/CREDITED TO OPERATING INCOME
Continuing operations (5,942) 7,620
Discontinued operation (7,392) -
------------------------------------
OPERATING INCOME AFTER EXCEPTIONAL ITEMS 7,920 31,209
- ------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Q2 98 Q2 99
L000 L000
<S> <C> <C>
REVENUES BY DIVISION
Caleb Brett 29,766 33,537
ETL SEMKO 21,426 21,765
Labtest 16,817 20,745
Foreign Trade Standards 16,030 12,523
Bondar Clegg 4,897 3,063
------------------------------------
CONTINUING OPERATIONS 88,936 91,633
Discontinued operation 2,090 -
------------------------------------
TOTAL 91,026 91,633
------------------------------------
------------------------------------
OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS
Caleb Brett 3,595 3,416
ETL SEMKO 3,138 3,308
Labtest 5,248 7,053
Foreign Trade Standards 1,600 1,026
Bondar Clegg 467 (573)
------------------------------------
CONTINUING OPERATIONS 14,048 14,230
Discontinued operation (803) -
------------------------------------
TOTAL 13,245 14,230
------------------------------------
------------------------------------
REVENUES BY GEOGRAPHIC AREA
Americas 37,997 38,649
Europe, Africa and Middle East 30,641 28,430
Asia and Far East 20,298 24,554
------------------------------------
CONTINUING OPERATIONS 88,936 91,633
Discontinued operation 2,090 -
------------------------------------
TOTAL 91,026 91,633
------------------------------------
------------------------------------
TOTAL REVENUES 91,026 91,633
Operating costs (90,779) (71,868)
Share of operating (loss)/profit from associates (353) 215
------------------------------------
OPERATING (LOSS)/INCOME (106) 19,980
------------------------------------
------------------------------------
- ------------------------------------------------------------------------------------------------------
OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS
Continuing operations 14,048 14,230
Discontinued operation (803) -
------------------------------------
13,245 14,230
EXCEPTIONAL ITEMS (CHARGED)/CREDITED TO OPERATING INCOME
Continuing operations (5,959) 5,750
Discontinued operation (7,392) -
------------------------------------
OPERATING (LOSS)/INCOME AFTER EXCEPTIONAL ITEMS (106) 19,980
- ------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
RESULTS OF OPERATIONS AT COMPARABLE EXCHANGE RATES
Although for the purposes of reporting obligations, the accounts of ITS are
reported in pounds sterling ("GBP" or "L"), over 50% of ITS' revenues are
denominated in U.S. dollars ("USD") or currencies linked to the U.S. dollar,
such as the Hong Kong dollar ("HKD"). ITS' borrowings, interest payments and
debt repayments are also denominated mainly in USD and HKD. Each of ITS' 150
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 ITS are shown in GBP. It is not ITS' policy to hedge
this exposure.
The results of overseas operations are translated into GBP at the cumulative
average exchange rates ("CAR") for the period. Therefore, the comparison of ITS'
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' main business divisions at actual exchange
rates for the period and at prior year ("comparable") exchange rates for the
period.
<TABLE>
<CAPTION>
GROWTH RATES AT ACTUAL AND COMPARABLE EXCHANGE RATES
------------------------- ------------------------ -------------------------
HY 98 HY 99 % GROWTH
Lm % Lm % Actual Comparable
------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Caleb Brett 57.8 33 64.7 36 11.9 12.1
ETL SEMKO 42.5 24 43.7 25 2.8 1.9
Labtest 30.0 17 37.2 21 24.0 23.3
Foreign Trade Standards 30.2 18 27.5 15 (8.9) (10.3)
Bondar Clegg 9.0 5 5.6 3 (37.8) (34.4)
------------ ------------ ------------ ----------- ------------ ------------
CONTINUING OPERATIONS 169.5 97 178.7 100 5.4 5.1
Discontinued operation 4.7 3 - - (100.0) (100.0)
------------ ------------ ------------ ----------- ------------ ------------
TOTAL 174.2 100 178.7 100 2.6 2.3
------------ ------------ ------------ ----------- ------------ ------------
------------ ------------ ------------ ----------- ------------ ------------
OPERATING INCOME/(LOSS)
BEFORE EXCEPTIONAL ITEMS:
Caleb Brett 6.5 30 6.0 25 (7.7) (6.2)
ETL SEMKO 5.4 26 5.9 25 9.3 7.4
Labtest 7.6 36 10.4 44 36.8 35.5
Foreign Trade Standards 3.0 14 2.6 11 (13.3) (16.7)
Bondar Clegg 0.5 2 (1.3) (5) (360.0) (360.0)
------------ ------------ ------------ ----------- ------------ ------------
CONTINUING OPERATIONS 23.0 108 23.6 100 2.6 1.7
Discontinued operation (1.7) (8) - - (100.0) (100.0)
------------ ------------ ------------ ----------- ------------ ------------
TOTAL 21.3 100 23.6 100 10.8 10.4
------------ ------------ ------------ ----------- ------------ ------------
------------ ------------ ------------ ----------- ------------ ------------
</TABLE>
The Actual percentage growth represents the percentage increase or decrease of
one period over the prior period where each period is translated into GBP at the
CAR applicable to each of those periods.
The Comparable percentage growth represents the percentage increase or decrease
of one period over the prior period where both periods are translated into GBP
at the CAR applicable to the earlier of the two periods.
5
<PAGE>
<TABLE>
<CAPTION>
GROWTH RATES AT ACTUAL AND COMPARABLE EXCHANGE RATES
------------------------- ------------------------ -------------------------
Q2 98 Q2 99 % GROWTH
Lm % Lm % Actual Comparable
------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Caleb Brett 29.8 33 33.5 36 12.4 12.4
ETL SEMKO 21.4 24 21.8 24 1.9 0.5
Labtest 16.8 18 20.7 23 23.2 22.0
Foreign Trade Standards 16.0 18 12.5 14 (21.9) (23.1)
Bondar Clegg 4.9 5 3.1 3 (36.7) (34.7)
------------ ------------ ------------ ----------- ------------ ------------
CONTINUING OPERATIONS 88.9 98 91.6 100 3.0 2.4
Discontinued operation 2.1 2 - - (100.0) (100.0)
------------ ------------ ------------ ----------- ------------ ------------
TOTAL 91.0 100 91.6 100 0.7 0.0
------------ ------------ ------------ ----------- ------------ ------------
------------ ------------ ------------ ----------- ------------ ------------
OPERATING INCOME/(LOSS)
BEFORE EXCEPTIONAL ITEMS:
Caleb Brett 3.6 27 3.4 24 (5.6) (2.8)
ETL SEMKO 3.1 24 3.3 23 6.5 6.5
Labtest 5.2 39 7.1 50 36.5 34.6
Foreign Trade Standards 1.6 12 1.0 7 (37.5) (37.5)
Bondar Clegg 0.5 4 (0.6) (4) (220.0) (200.0)
------------ ------------ ------------ ----------- ------------ ------------
CONTINUING OPERATIONS 14.0 106 14.2 100 1.4 1.4
Discontinued operation (0.8) (6) - - (100.0) (100.0)
------------ ------------ ------------ ----------- ------------ ------------
TOTAL 13.2 100 14.2 100 7.6 7.6
------------ ------------ ------------ ----------- ------------ ------------
------------ ------------ ------------ ----------- ------------ ------------
</TABLE>
The Actual percentage growth represents the percentage increase or decrease of
one period over the prior period where each period is translated into GBP at the
CAR applicable to each of those periods.
The Comparable percentage growth represents the percentage increase or decrease
of one period over the prior period where both periods are translated into GBP
at the CAR applicable to the earlier of the two periods.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATING AND FINANCIAL REVIEW
A discussion of ITS' financial condition and results of operations for Q2 98
compared to Q2 99 and HY 98 compared to HY 99 is given below, followed by a
detailed review of the performance of each division.
<TABLE>
<CAPTION>
REVENUES
Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS 88.9 91.6 2.7 169.5 178.7 9.2
Actual growth % 3.0 5.4
Comparable growth % 2.4 5.1
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
Revenues in Q2 99 were impacted by the termination of the Nigerian inspection
programmes on March 31, 1999. This accounted for a decrease in revenues of
L4.0 million in Q2 99 compared to Q2 98. Excluding Nigeria, revenues
increased L6.7 million in Q2 99 compared to Q2 98 and L13.2 million in HY
99 compared to HY 98. Revenues in Caleb Brett, ETL SEMKO and Labtest all
increased in Q2 99 and HY 99 compared to the same periods in 1998.
The Environmental Testing division was sold in August 1998, and its revenues
of L2.1 million for Q2 98 and L4.7 million for HY 98 are excluded from
the above table.
<TABLE>
<CAPTION>
REVENUES BY GEOGRAPHIC AREA
Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Americas 38.0 38.6 0.6 73.4 73.5 0.1
Europe, Africa and Middle East 30.6 28.4 (2.2) 59.7 61.1 1.4
Asia and Far East 20.3 24.6 4.3 36.4 44.1 7.7
----------- ----------- ------------ ----------- ------------ -----------
TOTAL CONTINUING OPERATIONS 88.9 91.6 2.7 169.5 178.7 9.2
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
The decrease in revenues in Q2 99 compared to Q2 98 in the Europe, Africa,
Middle East Region is due to the termination of the Nigerian inspection
programmes. The Labtest division that is predominantly based in Asia and the Far
East is largely responsible for the growth in revenues in that region.
<TABLE>
<CAPTION>
OPERATING COSTS BEFORE EXCEPTIONAL ITEMS
Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS 74.9 77.4 2.5 146.5 155.1 8.6
Actual growth % 3.3 5.9
Comparable growth % 2.5 5.7
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
From January 1, 1998, ITS adopted Financial Reporting Standard 10 in relation to
goodwill arising on acquisitions. This has resulted in an increase in operating
costs of L0.4 million in HY 99, of which L0.2
7
<PAGE>
million was incurred in Q2 99, for goodwill amortisation that was largely
attributable to the acquisitions undertaken by Caleb Brett after March 1998.
The cost reduction programme in Bondar Clegg continued, and restructuring
costs of approximately L0.3 million were incurred in HY 99, of which L0.1
million was incurred in Q2 99. Several new laboratories were opened in HY 99,
mainly in Labtest, and start up costs have been incurred in advance of
revenues being generated. In Caleb Brett, additional costs have been incurred
in HY 99 to integrate acquisitions made in 1998 and 1999 into the ITS group.
<TABLE>
<CAPTION>
OPERATING INCOME BEFORE EXCEPTIONAL ITEMS
Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS 14.0 14.2 0.2 23.0 23.6 0.6
Actual growth % 1.4 2.6
Comparable growth % 1.4 1.7
Operating margin % 15.7 15.5 (0.2) 13.6 13.2 (0.4)
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
Labtest, and to a lesser extent, ETL SEMKO, were the main contributors to the
growth in operating income in Q2 99 over Q2 98 and HY 99 over HY 98. This was
partly offset by a small decrease in the operating income of Caleb Brett in
Asia. Operating income growth in Q2 99 has suffered from the loss of the
Nigerian inspection programmes in FTS and Caleb Brett and a decline of the
Bondar Clegg division. Excluding the impact of the loss of operating income
from Nigeria, growth in operating income was L0.9 million in Q2 99 over Q2
98 and L1.3 million in HY 99 over HY 98.
The discontinued Environmental Testing division generated operating losses of
L0.8 million in Q2 98 and L1.7 million in HY 98. These losses are
excluded from the above table.
EXCEPTIONAL INCOME/(COSTS)
<TABLE>
<CAPTION>
OPERATING EXCEPTIONAL ITEMS
Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
FTS
Provision against Nigerian invoices (4.7) (2.3) 2.4 (9.4) (7.4) 2.0
Payments from Nigerian government - 7.1 7.1 4.7 16.0 11.3
Sub total (4.7) 4.8 9.5 (4.7) 8.6 13.3
Restructuring costs - (0.1) (0.1) - (2.1) (2.1)
----------- ---------- ----------- ----------- ---------- -----------
(4.7) 4.7 9.4 (4.7) 6.5 11.2
----------- ---------- ----------- ----------- ---------- -----------
CALEB BRETT
Provision against Nigerian invoices (1.2) (0.1) 1.1 (1.2) (0.4) 0.8
Payments from Nigerian government - 1.1 1.1 - 1.5 1.5
----------- ---------- ----------- ----------- ---------- -----------
(1.2) 1.0 2.2 (1.2) 1.1 2.3
----------- ---------- ----------- ----------- ---------- -----------
----------- ---------- ----------- ----------- ---------- -----------
DISCONTINUED OPERATION (7.4) - 7.4 (7.4) - 7.4
----------- ---------- ----------- ----------- ---------- -----------
TOTAL (COSTS)/INCOME (13.3) 5.7 19.0 (13.3) 7.6 20.9
----------- ---------- ----------- ----------- ---------- -----------
</TABLE>
In April 1997, due to the irregular nature at that time of the payments received
from the Nigerian Government for the PSI programmes in the FTS division, ITS
adopted a policy of making full provision against all unpaid invoices relating
to this client, and income is now recognised once
8
<PAGE>
payments are received. Theamount of invoices raised, provisions
established and payments received by FTS and Caleb Brett in each of the
periods under review are set out above.
In addition to the L7.1 million and L1.1 million payments received from
the Nigerian Government in Q2 99, a further L3.3 million was received in
July 1999. These payments settled all invoices up to and including September
1998. The total debt from Nigeria, net of exporter receipts, is currently
L8.9 million and this is fully provided against. Receipts from exporters
which amounted to L4.7 million are held as payments in advance in the
balance sheet and will be repaid to exporters when the Nigerian Government
pays ITS in respect of the shipments concerned.
Following the termination of the PSI programmes in Nigeria, the FTS division was
restructured at a cost of L0.1 million in Q2 99 and L2.1 million in
HY 99.
<TABLE>
<CAPTION>
NON-OPERATING EXCEPTIONAL ITEMS
Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
---------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ETL SEMKO
Proceeds from disposals - 0.2 0.2 - 3.5 3.5
Less attributable goodwill - - - - (1.1) (1.1)
---------- ---------- ----------- ---------- ----------- ----------
Total - 0.2 0.2 - 2.4 2.4
DISCONTINUED OPERATION (2.4) - 2.4 (2.4) - 2.4
---------- ---------- ----------- ---------- ----------- ----------
TOTAL NON-OPERATING EXCEPTIONAL ITEMS (2.4) 0.2 2.6 (2.4) 2.4 4.8
---------- ---------- ----------- ---------- ----------- ----------
</TABLE>
ETL SEMKO disposed of a non-core activity in the U.S. in February 1999 for a
net consideration of L3.3 million. After deducting goodwill of L1.1
million, this disposal generated an exceptional credit of L2.2 million in
Q1 99. The disposal proceeds of L3.3 million were used to prepay ITS'
Senior Term A Loan in June 1999.
In Q2 99, ETL SEMKO sold 51% of its Quality Management business in Sweden for
L0.2 million. This generated an exceptional profit of L0.2 million.
The disposal proceeds of L0.2 million will be used to prepay ITS' Senior
Term A Loan in December 1999.
<TABLE>
<CAPTION>
NET INTEREST EXPENSE
Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS 8.1 8.2 0.1 15.5 16.3 0.8
Actual growth % 1.2 5.2
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
The increase in net interest expense in HY 99 compared to HY 98 is due to the
accumulation of capitalised interest on the Parent Subordinated PIK Debentures
and interest on loans originating in certain of the companies acquired in 1998,
offset by a reduction in interest on the Senior Term A Loans caused by the
repayment of capital.
9
<PAGE>
<TABLE>
<CAPTION>
INCOME TAXES
Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<C> <C> <C> <C> <C> <C>
INCOME TAX CHARGE 2.4 4.4 2.0 2.7 5.3 2.6
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
The tax charges for Q2 98, HY 98, Q2 99 and HY 99 were calculated by applying to
those periods the estimated tax rate for the full year concerned before
adjusting for exceptional items. The estimated tax rate for the full year 1999
is higher than what was the estimated tax rate for the full year 1998 and is
similar to what was the final tax rate for the full year 1998. Exceptional items
have been tax effected as appropriate.
10
<PAGE>
OPERATING AND FINANCIAL REVIEW BY DIVISION
A discussion of the performance of each of the operating divisions for Q2 98
compared to Q2 99 and HY 98 compared to HY 99 is given below. The operating
income by division given below is before exceptional items.
<TABLE>
<CAPTION>
CALEB BRETT
OPERATING RESULTS Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES 29.8 33.5 3.7 57.8 64.7 6.9
Actual growth % 12.4 11.9
Comparable growth % 12.4 12.1
OPERATING INCOME 3.6 3.4 (0.2) 6.5 6.0 (0.5)
Actual growth % (5.6) (7.7)
Comparable growth % (2.8) (6.2)
Operating margin % 12.1 10.1 (2.0) 11.2 9.3 (1.9)
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
Revenues in Q2 99 and HY 99 increased over the same periods in 1998. This is
mainly due to the acquisitions made during the latter part of 1998 which
accounted for L2.2 million of the increase in Q2 99 over Q2 98 and
L4.3 million of the increase in HY 99 over HY 98. In HY 98, the demand for
petroleum inspection and testing was higher than in HY 99 because oil companies
increased their inventories while the oil price was low. In Q1 99, the oil
companies maintained high inventories and the demand for testing and inspection
services was therefore lower than in prior periods. Demand has increased in Q2
99 as inventories have been sold down and cargo movements have increased,
following the increase in the price of oil. The cancellation of an oil export
monitoring scheme by the Nigerian Government on March 31, 1999 resulted in the
loss of revenues and operating income in Q2 99.
The reduction in operating income in Q2 99 compared to Q2 98 and HY 99 compared
to HY 98 was largely attributable to developments in the Asia Pacific region.
There was a reduction in hydrocarbon inspection and testing and in surveys of
damaged cargo due to reduced activity in the region and because of the ban on
transhipping cargo into China from Hong Kong. There has also been some severe
price competition. Caleb Brett has responded to these conditions by reducing
costs in the countries affected. New laboratories were opened in Singapore and
the Philippines in Q2 99 and additional start up costs were incurred. Caleb
Brett also incurred additional costs to integrate the acquisitions made in 1998
and 1999 into the ITS group.
Caleb Brett completed a small infill acquisition in Australia at a cost of
L0.1 million in HY 99.
11
<PAGE>
ETL SEMKO
<TABLE>
<CAPTION>
OPERATING RESULTS Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES 21.4 21.8 0.4 42.5 43.7 1.2
Actual growth % 1.9 2.8
Comparable growth % 0.5 1.9
OPERATING INCOME 3.1 3.3 0.2 5.4 5.9 0.5
Actual growth % 6.5 9.3
Comparable growth % 6.5 7.4
Operating margin % 14.5 15.1 0.6 12.7 13.5 0.8
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
In Q2 99, the Quality Management businesses (primarily ISO 9000) owned 100% by
ITS in Sweden and 51% in Germany were sold to a company in Germany in which ITS
has a 49% share. The change in management control resulting from this
transaction has led to a change in the accounting treatment of these businesses.
Prior to Q2 99, the revenues and operating income from these businesses were
included within the ITS Group revenues and operating income. From Q2 99 onwards,
revenues are excluded from the group revenues and ITS' share of the operating
income is reported as income from associates. Because of this change in
accounting, revenues in Europe are L1.2 million lower in Q2 99 compared to
Q2 98. In addition, the disposal of the Compliance Engineering magazine business
in Q1 99 has resulted in reduced revenues in both Europe and the United States
in Q2 99 and HY 99 compared to Q2 98 and HY 98. Despite these changes, ETL SEMKO
reported increased revenues and operating income in Q2 99 compared to Q2 98 and
HY 99 compared to HY 98. This is attributable to increased conformity assessment
testing in the telecom and building materials markets in the U.S. and increasing
business in Europe and Asia.
In HY 99, ITS bought the remaining 50% share of GS3, the semi-conductor business
in the U.S., from its joint venture partner at a cost of L0.6 million. In
Q2 99, ITS completed the acquisition of a new business in Germany at cost of
L0.5 million. The new electrical testing facility which opened in Taiwan
in Q1 99 has recently been fully accredited in that country to carry out
electrical safety and electro magnetic compatibility ("EMC") work.
In July 1999, ETL SEMKO completed the acquisition of the electrotechnical safety
and EMC testing business of ERA Technology Ltd in the U.K. for a net
consideration of L1.4 million. The acquisition was carried out in
conjunction with the British Electrotechnical Approvals Board ("BEAB"), which is
a consumer product safety certification body in the U.K. The new business will
be merged with ITS' existing electrotechnical, gas and EMC testing business in
the U.K. to create a market-leading testing and certification facility in the
U.K. BEAB has a 20% stake in this U.K. business.
12
<PAGE>
LABTEST
<TABLE>
<CAPTION>
OPERATING RESULTS Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES 16.8 20.7 3.9 30.0 37.2 7.2
Actual growth % 23.2 24.0
Comparable growth % 22.0 23.3
OPERATING INCOME 5.2 7.1 1.9 7.6 10.4 2.8
Actual growth % 36.5 36.8
Comparable growth % 34.6 35.5
Operating margin % 31.0 34.3 3.3 25.3 28.0 2.7
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
The strong growth in Labtest continued with increased revenues and operating
income in Q2 99 and HY 99 over the comparable periods in 1998. Textile testing
continued to expand and new textile testing laboratories were opened in France,
San Francisco and India in HY 99. The growth in textile testing is due to
increased sourcing by American and European retailers from Asia and developing
country manufacturers, a greater demand for new designs and buyers becoming more
quality conscious. Toys testing increased in Asia in Q2 99 over Q2 98 due to the
commencement of two significant testing programmes which began in March 1999 for
Star Wars toys and Teenie Beanie Babies for McDonalds. Additional premises are
being leased in Taiwan in response to our increasing business.
One of Labtest's largest textile customers, accounting for about 2% of revenues
of this division, has indicated that it will be undertaking a cost cutting
exercise in 1999. This customer plans to develop an in-house testing programme
and this action could reduce the volume of testing carried out by ITS. There has
been no impact in Q2 99.
FOREIGN TRADE STANDARDS
<TABLE>
<CAPTION>
OPERATING RESULTS Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES 16.0 12.5 (3.5) 30.2 27.5 (2.7)
Actual growth % (21.9) (8.9)
Comparable growth % (23.1) (10.3)
OPERATING INCOME 1.6 1.0 (0.6) 3.0 2.6 (0.4)
Actual growth % (37.5) (13.3)
Comparable growth % (37.5) (16.7)
Operating margin % 10.0 8.0 (2.0) 9.9 9.5 (0.4)
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
The standards testing programme with the Saudi Arabian Standards Organisation
continued to grow. Revenues from that programme increased L0.9 million in
HY 99 over HY 98.
The decrease in revenues and operating income in Q2 99 compared to Q2 98 was
due to the termination of the PSI programmes in Nigeria on March 31, 1999.
Although the programmes ceased on March 31, 1999, revenues totalling L2.7
million were invoiced in April and May 1999. The Nigerian programmes
generated revenues of L8.5 million in HY 99 compared to L11.3 million in
HY 98. Full year 1998 revenues totalled L24.2 million from these
programmes. The FTS division was restructured
13
<PAGE>
in HY 99 at a cost of L2.1 million. These costs are reported as exceptional
and are not included in the operating income in the table above.
When the Nigerian Government terminated the PSI programmes on March 31, 1999, it
replaced them with a destination inspection scheme in which ITS chose not to
participate. This scheme has not been successful and the new democratically
elected Nigerian Government has announced that new PSI programmes will commence
on September 1, 1999. The terms and conditions of the new programmes have not
yet been agreed and ITS' participation in the new programmes is currently under
consideration.
The existing PSI programme in Ghana will cease towards the end of 1999. FTS has
tendered for the replacement destination inspection programme, but the outcome
of this tender is not certain. The Ghanaian programme generated revenues of
L1.7 million in HY 99.
This division has new business with the former Soviet republic of Georgia, which
will start up in the second half of 1999.
BONDAR CLEGG
<TABLE>
<CAPTION>
OPERATING RESULTS Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES 4.9 3.1 (1.8) 9.0 5.6 (3.4)
Actual growth % (36.7) (37.8)
Comparable growth % (34.7) (34.4)
OPERATING INCOME/(LOSS) 0.5 (0.6) (1.1) 0.5 (1.3) (1.8)
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
The demand for minerals testing remains extremely depressed due to the low
price of gold. A new phosphate testing contract in Saudi Arabia was gained in
Q2 99, which will commence in Q3 99 and is expected to generate revenues of
L0.7 million per annum. Laboratories in Missoula, U.S. and Eritrea were
closed in Q2 99. Restructuring costs of L0.1 million were incurred in Q2 99
in addition to the L0.2 million incurred in Q1 99. The future of Bondar
Clegg is under review by ITS management.
DISCONTINUED OPERATION
<TABLE>
<CAPTION>
OPERATING RESULTS Q2 98 Q2 99 GROWTH HY 98 HY 99 GROWTH
Lm Lm Lm Lm Lm Lm
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES 2.1 - (2.1) 4.7 - (4.7)
OPERATING LOSS (0.8) - 0.8 (1.7) - 1.7
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
The Environmental Testing division was sold in August 1998 for L1.9
million. After restructuring costs, a loss of L1.4 million was incurred as
a non-operating exceptional charge.
14
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 1999, ITS had cash of L26.8 million compared to cash of
L16.8 million at December 31, 1998.
ITS reported cash inflow from operating activities of L32.1million in HY 99
and L14.1 million in HY 98 - an increase of L18.0 million. 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 increase in net cash inflow from operating
activities in HY 99 is primarily attributable to the payments received from
the Nigerian Government of L17.5 million and payments from Nigerian
exporters of L4.7 million offset by L2.1 million of restructuring costs.
Expenditure on tangible fixed assets amounted to L5.2 million in HY 99 and
L5.4 million in HY 98. ITS' investment in tangible fixed assets was
primarily in laboratory equipment and information technology.
On April 26, 1999, ITS completed an equity offer which raised L20.0
million. The cash is being used to fund acquisitions and working capital. ITS
also amended the banking arrangements with effect from April 26, 1999. The
amendments provided, among other things, for delayed repayment of the Senior
Term A Loans. However, ITS will apply some of the cash received from the
Nigerian Government and some of the proceeds from disposals to repay the
Senior Term A Loans earlier than required.
ITS reported cash outflow on acquisitions of L4.1 million in HY 99 and
L7.2 million in HY 98. Cash outflow in HY 99 included the payment of L2.8
million for deferred consideration on an acquisition made in 1998, and L1.3
million for acquisitions made in HY 99. ITS received L3.3 million for the
disposal of its Compliance Engineering magazine business in HY 99 and L0.2
million for the disposal of its controlling share in ETL SEMKO's Quality
Assurance business in July 1999.
At June 30, 1999, ITS had total borrowings of L295.3 million less
unamortised debt issuance costs of L10.0 million. The following table sets
forth an analysis of borrowings:
<TABLE>
<CAPTION>
BORROWINGS December 31, 1998 June 30, 1999
Lm Lm
----------------------- ----------------
<S> <C> <C>
Senior Subordinated Notes 120.9 127.7
Senior Term Loan A 73.7 70.4
Senior Term Loan B 35.1 35.9
Senior Revolving Credit Facility 16.3 3.3
Parent Subordinated PIK Debentures 59.2 66.7
Other borrowings 1.4 1.3
----------------------- ----------------
TOTAL BORROWINGS 306.6 305.3
Debt issuance costs (10.8) (10.0)
----------------------- ----------------
NET BORROWINGS 295.8 295.3
----------------------- ----------------
----------------------- ----------------
</TABLE>
In HY 99, ITS paid net interest of L11.1 million, comprising L6.4 million
for the Senior Subordinated Notes, L2.9 million for Senior Term Loan A,
L1.4 million for Senior Term Loan B and L0.4 million on the Revolving
Credit Facility and other borrowings. The interest of L4.0 million on the
Parent Subordinated PIK Debentures covered the periods November 8, 1998 to
February 1, 1999 and February 2, 1999 to May 1, 1999 and was funded by
further issues of Parent Subordinated PIK Debentures on February 1, 1999 and
May 1, 1999.
Apart from a small amount of the Revolving Credit Facility, all the
borrowings are denominated in currencies other than GBP so the outstanding
amount in GBP is affected by exchange rate fluctuations. The apparent
increases in the amount of Senior Subordinated Notes and the Senior Term B
Loan outstanding are caused by currency fluctuations. In addition to the
scheduled Senior Term Loan A capital repayments of L3.4 million which were
made on June 15,1999, the proceeds of L3.3 million received from the
disposal of the Compliance Engineering magazine business were used to prepay
the Senior Term A Loans, making total Term A Loan repayments of L6.7
million in Q2 99. In accordance
15
<PAGE>
with the amended Senior Facility Agreement, L5.0 million of the
payments received from the Nigerian Government and the proceeds received from
the disposal of ETL SEMKO's Quality Management business will be used to
prepay the Senior Term Loans on December 15, 1999. Repayments of L13.2
million were made in Q2 99 against the Revolving Credit Facility leaving
L20.8 million available to draw.
ITS paid dividends of L1.4 million to minority shareholders in HY 99 and
L0.4 million in HY 98.
Subject to the provisions of the agreement under which the loans to finance the
acquisition of the business were made, and subject to certain exceptions and
applicable law, there are no restrictions on the ability of: (a) the Company or
any of its direct and indirect subsidiaries from paying dividends or making any
other distributions or loans or advances to Intertek Finance plc, the issuer of
the Senior Subordinated Notes or (b) the direct and indirect subsidiaries of the
Company from paying dividends or making any other distributions or loans or
advances to the Company.
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 ITS.
EXCHANGE RATES
Exchange rates used for translating local currencies into GBP for significant
currencies in which ITS operates are shown in the following table.
<TABLE>
<CAPTION>
CUMULATIVE AVERAGE EXCHANGE RATES USED TO TRANSLATE INCOME AND COSTS INTO GBP
Three months to Six months to Three months to Six months to
June 30, 1998 June 30,1998 June 30, 1999 June 30, 1999
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
U.S. Dollar 1.66 1.66 1.61 1.63
Hong Kong Dollar 12.9 12.8 12.5 12.6
Swedish Kroner 12.9 13.0 13.5 13.3
------------------ ----------------- ----------------- -----------------
</TABLE>
Revenues and operating income for HY 98 have been translated into GBP using the
cumulative average exchange rate for the six months to June 30, 1998. Revenues
and operating income for HY 99 have been translated into GBP using the
cumulative average exchange rate for the six months to June 30, 1999.
Revenues and operating income for Q2 98 have been translated into GBP using the
cumulative average exchange rate for the three months to June 30, 1998. Revenues
and operating income for Q2 99 have been translated into GBP using the
cumulative average exchange rate for the three months to June 30, 1999.
To remove the effects of currency exchange rate movements when comparing the
revenues and operating income for different periods, the results on pages 5 and
6 show the percentage growth of Q2 99 over Q2 98 and HY 99 over HY 98 at both
actual exchange rates and comparable exchange rates.
Because the value of the GBP has weakened against the U.S. Dollar and against
the Hong Kong Dollar, the growth in revenues and operating profit at actual
exchange rates is higher than the growth at comparable exchange rates.
16
<PAGE>
INVESTIGATIONS BY THE U.S. ENVIRONMENTAL PROTECTION AGENCY
Two of ITS' 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 appointed a Compliance
Director and introduced more stringent compliance protocols which have been
presented to the EPA. These compliance procedures are now fully implemented.
It is not yet possible to estimate the cost of any civil or criminal penalties
arising from this matter, however, on the basis of currently available
information, the directors consider that the outcome is unlikely to have a
material effect on the financial position of ITS. Possible rights of recovery
against Inchcape plc under the Share Purchase Deed are being 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 resulted in the discontinuation of business
at ITS Environmental. This sale has not relieved ITS Environmental of any
liability it may face as a result of these investigations or otherwise.
Although commercial operations have been discontinued in Dallas, the facility is
being used to reprocess the original data. During the past few months, ITS
Environmental has developed what ITS Environmental believes to be an effective
data screening and reprocessing method. The reprocessing effort is aimed at
providing clients with data of known quality. The EPA have advised ITS that the
reprocessing is not acceptable to the EPA for clean-up or compliance purposes.
Nevertheless, ITS Environmental believes that it can establish the scientific
integrity of the reprocessing work.
17
<PAGE>
ITS Environmental continues to co-operate fully with the government
investigation. To date, no action has been brought against ITS Environmental by
the EPA or any other party. At this time, it is not possible to estimate the
cost of any civil or criminal penalties arising from this matter. However, on
the basis of currently available information, the directors consider that the
outcome is unlikely to have a material effect on the financial position of ITS.
Possible rights of recovery against Inchcape plc under the Share Purchase Deed
are being pursued.
INFORMATION TECHNOLOGY
STATE OF READINESS
The date change from 1999 to 2000 may impair the function of ITS' 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. The review is complete and ITS expects
that the modifications identified in that review will be completed by September
1999.
ITS has established a Year 2000 team made up of the members of ITS' IT Steering
Committee to cover (i) internal systems, (ii) test equipment and facilities,
(iii) suppliers and (iv) legal issues. ITS' IT Steering Committee reports
regularly to the ITS Board.
To date, ITS has contacted approximately 3,000 of its customers in connection
with Year 2000 issues. All key subcontractors and suppliers are being audited by
ITS under its Year 2000 programme. ITS has also implemented procedures to access
the Year 2000 readiness of its key suppliers. These procedures include testing
of critical components and obtaining confirmation from key suppliers. ITS
currently expects its key subcontractors and suppliers will be Year 2000
compliant in all material respects by Q3 99.
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 L2.0 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
There can be no assurance that ITS' efforts (or the efforts of its customers and
suppliers) will be successful in limiting the vulnerability of the ITS 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
ITS 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 ITS. In the event of a systems breakdown at a
particular site, work can usually be transferred to another site in ITS.
CONTINGENCY PLANS
ITS currently believes that the most reasonably likely worst case scenario is
that there will be some localised disruptions of systems that will affect
individual business processes, facilities or supplies for a short time rather
than systemic or long-term problems affecting its business operations as a
whole. Through its contingency planning, ITS will continue to identify systems,
or other aspects of its business or that of its suppliers, that it believes
would be most likely to experience Year 2000 problems, as well as those business
operations in which a localised disruption could have the potential for causing
a wider problem by interrupting the flow of products, materials or data to other
operations. ITS' contingency planning will focus on minimising the scope and
duration of any disruptions by
18
<PAGE>
having sufficient personnel, inventory and other resources in place to permit
a flexible, real-time response to specific problems as they may arise at
individual locations around the world.
EURO
On January 1, 1999, eleven of the European Union member states, including seven
countries where ITS operations are located, established fixed conversion rates
between their existing countries and adopted one common currency, the Euro. The
conversion to the Euro eliminates currency exchange rate risk among the eleven
member countries.
The currencies of the eleven member states remain legal tender in the
participating countries during a three year transition period from January 1,
1999 through January 1, 2002. Effective January 1, 1999 the Euro is traded on
currency exchanges and is available for non-cash transactions during the three
year transitional period. Beginning on January 1, 2002, the European Central
Bank will issue Euro-denominated bills and coins for use in cash transactions.
On or before July 1, 2002 the participating countries will withdraw all bills
and coins and use the Euro as their legal currency.
ITS' operating units affected by the Euro have established plans to address the
issues raised by the conversion. These issues, amongst others, include such
matters as pricing, continuity of contracts, accounting and financial reporting,
taxation, treasury activities and computer systems. ITS anticipates that the
operating units will convert their local records to the Euro during the three
year transition period.
At this time, 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.
SUBSEQUENT EVENTS
On July 7, 1999, ITS received L3.3 million from the Nigerian Government in
settlement of FTS invoices through to September 1998.
In July 1999, ETL SEMKO completed the acquisition of the electrotechnical safety
and EMC testing business of ERA Technology Ltd in the U.K. for a net
consideration of L1.4 million.
19
<PAGE>
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
-----------------------------------
NOTES Six months Six months to
to June 30, June 30,
1998 1999
L000 L000
-----------------------------------
<S> <C> <C> <C>
REVENUES
Continuing operations 169,485 178,724
Discontinued operation 4,700 -
-----------------------------------
GROUP REVENUES 3 174,185 178,724
Operating costs (165,611) (147,741)
-----------------------------------
GROUP OPERATING INCOME 8,574 30,983
Share of operating (loss)/profit in associates (654) 226
-----------------------------------
TOTAL OPERATING INCOME 7,920 31,209
- --------------------------------------------------------------------------------------------------------------------
Operating income/(loss) before exceptional items
Continuing operations 23,005 23,589
Discontinued operation (1,751) --
-----------------------------------
3 21,254 23,589
Exceptional items (charged)/credited to operating income 4
Continuing operations (5,942) 7,620
Discontinued operation (7,392) --
-----------------------------------
TOTAL OPERATING INCOME 7,920 31,209
- --------------------------------------------------------------------------------------------------------------------
NON-OPERATING EXCEPTIONAL ITEMS 4 (2,450) 2,410
-----------------------------------
INCOME ON ORDINARY ACTIVITIES BEFORE NET INTEREST 5,470 33,619
Net interest expense 5 (15,543) (16,259)
-----------------------------------
(LOSS)/INCOME BEFORE TAXATION (10,073) 17,360
Taxation 6 (2,726) (5,300)
-----------------------------------
(LOSS)/INCOME AFTER TAXATION (12,799) 12,060
Minority interests (1,313) (1,523)
-----------------------------------
NET (LOSS)/INCOME FOR THE GROUP AND ITS SHARE OF ASSOCIATES (14,112) 10,537
===================================
</TABLE>
The accompanying notes on pages F-6 to F-30 are an integral part of these
financial statements.
F-1
<PAGE>
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
-----------------------------------
Three months Three months
to June 30, to June 30,
1998 1999
L000 L000
-----------------------------------
<S> <C> <C>
REVENUES
Continuing operations 88,936 91,633
Discontinued operation 2,090 -
-----------------------------------
GROUP REVENUES 91,026 91,633
Operating costs (90,779) (71,868)
-----------------------------------
GROUP OPERATING INCOME 247 19,765
Share of operating (loss)/profit in associates (353) 215
-----------------------------------
TOTAL OPERATING (LOSS)/INCOME (106) 19,980
- --------------------------------------------------------------------------------------------------------------------
Operating income/(loss) before exceptional items
Continuing operations 14,048 14,230
Discontinued operation (803) -
-----------------------------------
13,245 14,230
Exceptional items (charged)/credited to operating income
Continuing operations (5,959) 5,750
Discontinued operation (7,392) -
-----------------------------------
TOTAL OPERATING (LOSS)/INCOME (106) 19,980
- --------------------------------------------------------------------------------------------------------------------
NON-OPERATING EXCEPTIONAL ITEMS (2,450) 166
-----------------------------------
(LOSS)/INCOME ON ORDINARY ACTIVITIES BEFORE NET INTEREST (2,556) 20,146
Net interest expense (8,142) (8,190)
-----------------------------------
(LOSS)/INCOME BEFORE TAXATION (10,698) 11,956
Taxation (2,384) (4,367)
-----------------------------------
(LOSS)/INCOME AFTER TAXATION (13,082) 7,589
Minority interests (599) (761)
-----------------------------------
NET (LOSS)/INCOME FOR THE GROUP AND ITS SHARE OF ASSOCIATES (13,681) 6,828
===================================
</TABLE>
The accompanying notes on pages F-6 to F-30 are an integral part of these
financial statements.
F-2
<PAGE>
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
---------------------------------
NOTES December 31, June 30,
1998 1999
L000 L000
---------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 11 16,772 26,826
Trade receivables 67,516 71,413
Inventories 3,662 3,687
Other current assets 15,241 18,265
Deferred taxation asset 1,348 1,357
---------------------------------
TOTAL CURRENT ASSETS 104,539 121,548
Goodwill 13,074 13,616
Property, plant and equipment, net 45,951 46,954
Investments 231 997
---------------------------------
TOTAL ASSETS 163,795 183,115
---------------------------------
---------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Borrowings (including current portion of long term borrowings) 7 22,209 9,266
Accounts payable, accrued liabilities and deferred income 70,952 73,849
Income taxes payable 5,368 7,550
---------------------------------
TOTAL CURRENT LIABILITIES 98,529 90,665
Long term borrowings 7 273,564 286,056
Provisions for liabilities and charges 8,518 4,603
Minority interests 4,592 4,565
SHAREHOLDERS' DEFICIT
Ordinary shares 336 808
Redeemable preference shares 86,657 105,478
Shares to be issued 2,793 2,793
Premium in excess of par value 3,018 3,635
Retained deficit (314,212) (315,488)
---------------------------------
TOTAL SHAREHOLDERS' DEFICIT 8 (221,408) (202,774)
---------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT 163,795 183,115
---------------------------------
---------------------------------
</TABLE>
The accompanying notes on pages F-6 to F-30 are an integral part of these
financial statements.
F-3
<PAGE>
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
-----------------------------------
NOTES Six months to Six months to
June 30, 1998 June 30, 1999
L000 L000
-----------------------------------
<S> <C> <C> <C>
Total operating cash inflow 9 14,146 32,084
Returns on investments and servicing of finance 10 (11,791) (12,519)
Taxation (2,227) (2,485)
Capital expenditure and financial investment 10 (5,303) (5,144)
Acquisitions and disposals 10 (7,453) (863)
-----------------------------------
Cash (outflow)/inflow before financing (12,628) 11,073
Financing 10 9,754 15
-----------------------------------
(DECREASE)/INCREASE IN CASH IN THE PERIOD (2,874) 11,088
-----------------------------------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
(DECREASE)/INCREASE IN CASH IN THE PERIOD (2,874) 11,088
Cash (outflow)/inflow from increase in debt (10,395) 19,910
-----------------------------------
Change in net debt resulting from cash flows (13,269) 30,998
Debt issued in lieu of interest payment (3,389) (4,013)
Acquisitions and disposals - (1,587)
Other non-cash movements (645) (960)
Exchange adjustments (170) (13,933)
-----------------------------------
Movement in net debt in the period (17,473) 10,505
Net debt at the start of the period (252,151) (279,001)
-----------------------------------
NET DEBT AT THE END OF THE PERIOD (269,624) (268,496)
-----------------------------------
-----------------------------------
</TABLE>
The accompanying notes on pages F-6 to F-30 are an integral part of these
financial statements.
F-4
<PAGE>
INTERTEK TESTING SERVICES LIMITED
CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
(Unaudited)
------------------------------------
Six months Six months
to June 30, 1998 to June 30, 1999
L000 L000
------------------------------------
<S> <C> <C>
Net (loss)/income (14,112) 10,537
Exchange adjustments (1,457) (11,813)
------------------------------------
TOTAL RECOGNISED GAINS AND LOSSES (15,569) (1,276)
------------------------------------
</TABLE>
There is no material difference between income before taxation, and net income
for the financial periods, as stated in the statements of operations and their
historical cost equivalents.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
(Unaudited)
-----------------------------------------------------------------------------------
Ordinary Redeemable Shares to be Premium in Retained Total
shares preference issued excess of deficit
shares par value
L000 L000 L000 L000 L000 L000
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 318 81,815 2,793 2,857 (294,549) (206,766)
Net loss - - - - (14,112) (14,112)
Exchange adjustments - - - - (1,457) (1,457)
-----------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 318 81,815 2,793 2,857 (310,118) (222,335)
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1999 336 86,657 2,793 3,018 (314,212) (221,408)
Net income - - - - 10,537 10,537
Issue of shares 472 18,821 - 617 - 19,910
Exchange adjustments - - - - (11,813) (11,813)
-----------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 808 105,478 2,793 3,635 (315,488) (202,774)
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
Included in Retained deficit is L282.1 million which represents goodwill
written off to reserves prior to December 1997 (June 30, 1998: L270.5
million).
The accompanying notes on pages F-6 to F-30 are an integral part of these
financial statements.
F-5
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The accompanying consolidated financial statements of the Company and its
subsidiaries at June 30, 1999, for the six months to June 30, 1999 and for the
three months to June 30, 1999 are unaudited. In the opinion of the Directors,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the financial statements have been included. The results of
these periods are not necessarily indicative of results for the entire year and
have been prepared in conformity with accounting principles generally accepted
in the United Kingdom ("U.K. GAAP") and are presented under the historical cost
convention. These principles differ in certain material respects from generally
accepted accounting principles in the United States ("U.S. GAAP") - see note 12.
For the purpose of these condensed consolidated financial statements, certain
information and disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United
Kingdom have been condensed or omitted. These unaudited statements should be
read in conjunction with the audited financial statements and notes as of and
for the year ended December 31, 1998.
2. ACCOUNTING POLICIES
The significant accounting policies adopted by the Company are as follows:
BASIS OF CONSOLIDATION
The consolidated financial statements of the Company include the financial
statements of the Company and its subsidiaries.
The acquisition method of accounting has been adopted. Under this method, the
results of subsidiaries acquired or sold are included in the consolidated
statement of income of the Company from, or up to, the date control passes.
The consolidated statements of income of the Company include their respective
shares of income from associated undertakings. The consolidated balance sheet of
the Company includes interests in associates at their respective shares of the
net tangible assets.
USE OF ESTIMATES
Preparation of financial statements in conformity with U.K. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses for an accounting period. Such estimates and assumptions could change
in the future as more information becomes known or circumstances alter, such
that the group's actual results may differ from the amounts reported and
disclosed in the financial statements.
FOREIGN CURRENCIES
The results of operations and cash flows of overseas subsidiaries and associated
undertakings are translated into sterling at the average of the month end rates
of exchange for the period. Assets and liabilities in foreign currencies are
translated into sterling at closing rates of exchange except where rates are
fixed under contractual arrangements.
The difference between net income/(loss) translated at average and at closing
rates of exchange is included in the statement of total recognised gains and
losses as a movement in shareholders' equity/(deficit). Exchange differences
arising from the retranslation to closing rates of exchange of opening
shareholders' equity, long-term foreign currency borrowings used to finance
foreign currency investments, and foreign currency borrowings that provide a
hedge against shareholders' equity are also reflected as movements in
shareholders' equity/(deficit). All other exchange differences are dealt with in
operations.
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:
<TABLE>
<S> <C>
Freehold buildings and long leasehold land and buildings............ 2%
Short leasehold land and buildings.................................. term of lease
Plant, machinery and equipment...................................... 10% - 33.3%
</TABLE>
F-6
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES (CONTINUED)
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 and work in progress are stated at the lower of cost or net
realisable value. Cost comprises expenditure incurred in the normal course of
business in bringing inventories and work in progress to their present location
and condition.
REVENUES
Revenues represent the total amount receivable for services provided and goods
sold, excluding sales-related taxes and intra-group transactions. Revenue is
recognised when the relevant service is completed or goods delivered.
TAXATION
Deferred taxation is provided using the liability method at current taxation
rates on timing differences to the extent that the directors consider that it is
probable that a liability or asset will crystallise.
PENSION BENEFITS
Liabilities under defined contribution pension schemes are charged to operations
when incurred. ITS has a number of defined benefit pension schemes for which
contributions are based on triennial actuarial valuations. Pension charges in
operations have been calculated at a substantially level percentage of current
and expected future pensionable payroll, with variations from regular cost
spread over the expected remaining service lives of employees.
GOODWILL
Purchased goodwill in respect of acquisitions since 1 January 1998 is
capitalised in accordance with the requirements of FRS 10: Goodwill and
Intangible Assets, and is amortised on a straight line basis over its estimated
useful life, which is up to 20 years. Purchased goodwill in respect of
acquisitions before 1 January 1998 was written off to reserves in the year of
acquisition in accordance with the accounting standard then in force. When a
subsequent disposal occurs any goodwill previously written off to reserves is
written back through the profit and loss account.
DERIVATIVE FINANCIAL INSTRUMENTS
ITS uses various derivative financial instruments to manage its exposure to
foreign exchange and interest rate risks. Derivative financial instruments are
considered hedges if they meet certain criteria. A forward exchange contract is
considered a hedge of an identifiable foreign currency commitment if such
contract is designated as, and is effective as, a hedge of a firm foreign
currency commitment. An interest rate swap agreement is considered a "synthetic
alteration" (and accounted for like a hedge) when the agreement is designated
with a specific liability and it alters the interest rate characteristics of
such liability. An interest rate cap agreement must also meet the same criteria
as an interest rate swap to be considered hedges of a specific liability.
Derivative financial instruments failing to meet the aforementioned criteria are
accounted for at fair value with the resulting unrealised gains and losses
included in the statement of operations.
FORWARD EXCHANGE CONTRACTS. Forward exchange contracts are designated as hedges
of firm foreign currency commitments. Gains and losses on such contracts are
deferred and recognised in income or as an adjustment of the carrying amount
when the hedged transaction occurs.
INTEREST RATE CAP AGREEMENTS. Interest rate cap agreements are accounted for
under the accruals basis. Amounts receivable under the agreement are accrued
when due as a reduction of interest charges. Premiums paid for purchased
interest rate cap agreements are amortised to interest charges over the term of
the caps.
INTEREST RATE SWAPS. Interest rate swap agreements are designated to change the
interest rate characteristics of floating-rate borrowings. Accordingly, these
agreements are accounted for under the settlement basis. The interest
differential between the amounts received and amount paid is recognised as an
adjustment to interest charges over the term of the swap.
F-7
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. SEGMENT INFORMATION
ITS comprises five divisions which are organised as follows: (1) Caleb Brett,
which tests and inspects crude oil, petroleum, chemical and agricultural
products; (2) ETL SEMKO, which tests and certifies electrical and electronic
products, building products, heating and ventilation and air conditioning
equipment; (3) Labtest, which tests textiles, fabrics, footwear, toys and
consumer products; (4) Foreign Trade Standards, which provides standards testing
and preshipment inspection work to governments and (5) Bondar Clegg, which
analyses minerals. The Environmental Testing division which operated principally
in the US and UK was sold in August 1998 and is disclosed as a discontinued
operation. The accounting policies of the divisions are the same as those
described in the summary of accounting policies.
<TABLE>
<CAPTION>
--------------- ----------------
Six months to Six months to
June 30, June 30,
1998 1999
L000 L000
--------------- ----------------
<S> <C> <C>
REVENUES
Caleb Brett 57,758 64,662
ETL SEMKO 42,471 43,676
Labtest 30,048 37,229
Foreign Trade Standards 30,235 27,526
Bondar Clegg 8,973 5,631
--------------- ----------------
TOTAL CONTINUING OPERATIONS 169,485 178,724
Discontinued operation 4,700 -
--------------- ----------------
TOTAL 174,185 178,724
--------------- ----------------
OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS
Caleb Brett 6,476 6,040
ETL SEMKO 5,435 5,868
Labtest 7,644 10,366
Foreign Trade Standards 2,990 2,637
Bondar Clegg 460 (1,322)
--------------- ----------------
TOTAL CONTINUING OPERATIONS 23,005 23,589
Discontinued operation (1,751) -
--------------- ----------------
TOTAL 21,254 23,589
--------------- ----------------
OPERATING EXCEPTIONAL ITEMS BY DIVISION
Caleb Brett (1,160) 1,092
Foreign Trade Standards (4,782) 6,528
--------------- ----------------
Total continuing operations (5,942) 7,620
Discontinued operation (7,392) -
--------------- ----------------
TOTAL (13,334) 7,620
--------------- ----------------
NON-OPERATING EXCEPTIONAL ITEMS
ETL SEMKO - 2,410
Discontinued operation (2,450) -
---------------- ----------------
TOTAL (2,450) 2,410
---------------- ----------------
</TABLE>
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-8
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
-------------- ---------------
Six months to Six months to
June 30, June 30,
1998 1999
L000 L000
-------------- ---------------
<S> <C> <C>
REVENUES BY GEOGRAPHIC ORIGIN
Americas 73,387 73,526
Europe, Africa and Middle East 59,720 61,061
Asia and Far East 36,378 44,137
-------------- ---------------
Total continuing operations 169,485 178,724
Discontinued operation 4,700 -
-------------- ---------------
TOTAL 174,185 178,724
-------------- ---------------
REVENUES FROM SIGNIFICANT COUNTRIES OF ORIGIN
United States 55,574 59,135
United Kingdom 27,501 29,019
Hong Kong 18,806 19,000
Others (each under 10% of total) 67,604 71,570
---------------- -----------------
TOTAL CONTINUING OPERATIONS 169,485 178,724
Discontinued operation 4,700 -
---------------- -----------------
TOTAL 174,185 178,724
---------------- -----------------
OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS
Americas 6,430 5,128
Europe, Africa and Middle East 5,711 5,135
Asia and Far East 10,864 13,326
---------------- ---------------
TOTAL CONTINUING OPERATIONS 23,005 23,589
Discontinued operation (1,751) -
---------------- ---------------
TOTAL 21,254 23,589
---------------- ---------------
OPERATING INCOME/(LOSS) BEFORE EXCEPTIONAL ITEMS
FROM SIGNIFICANT COUNTRIES
United States 5,277 4,518
United Kingdom 1,355 613
Hong Kong 4,744 6,010
Others (each under 10% of total) 11,629 12,448
---------------- ---------------
TOTAL CONTINUING OPERATIONS 23,005 23,589
Discontinued operation (1,751) -
---------------- ---------------
TOTAL 21,254 23,589
---------------- ---------------
</TABLE>
F-9
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
--------------- ---------------
Six months to Six months to
June 30, June 30,
1998 1999
L000 L000
-------------- ---------------
<S> <C> <C>
REVENUES BY GEOGRAPHIC DESTINATION
Americas 70,517 75,769
Europe, Africa and Middle East 62,590 58,717
Asia and Far East 36,378 44,238
-------------- ---------------
TOTAL CONTINUING OPERATIONS 169,485 178,724
Discontinued operation 4,700 -
-------------- ---------------
TOTAL 174,185 178,724
-------------- ---------------
REVENUES FROM SIGNIFICANT DESTINATION COUNTRIES
United States 52,704 58,476
United Kingdom 17,762 9,504
Hong Kong 18,806 18,621
Others (each under 10% of total) 80,213 92,123
---------------- -----------------
TOTAL CONTINUING OPERATIONS 169,485 178,724
Discontinued operation 4,700 -
---------------- -----------------
TOTAL 174,185 178,724
---------------- -----------------
</TABLE>
4. EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
-------------- ---------------
Six months to Six months to
June 30, June 30,
1998 1999
L000 L000
-------------- ---------------
<S> <C> <C>
EXCEPTIONAL ITEMS (CHARGED)/CREDITED TO OPERATING INCOME
Foreign Trade Standards
Nigeria (4,782) 8,629
Restructuring - (2,101)
-------------- ---------------
(4,782) 6,528
Caleb Brett (1,160) 1,092
-------------- ---------------
TOTAL CONTINUING OPERATIONS (5,942) 7,620
Discontinued operation (7,392) -
-------------- ---------------
TOTAL OPERATING EXCEPTIONAL ITEMS (13,334) 7,620
-------------- ---------------
NON-OPERATING EXCEPTIONAL ITEMS
ETL SEMKO - gain on disposals - 2,410
Discontinued operation - loss on disposal of fixed assets (2,450) -
-------------- ---------------
TOTAL NON-OPERATING EXCEPTIONAL ITEMS (2,450) 2,410
-------------- ---------------
</TABLE>
Due to the irregular nature of payments received from the Nigerian
Government for pre-shipment inspection work carried out by FTS in 1997, ITS
adopted a policy of making full provision against invoices issued to this
client and only reversing the provision when cash is received. The
exceptional credit of L8.6 million for FTS comprises cash received in the six
months to June 30, 1999 of L16.0 million less invoices generated in the six
months to June 30, 1999 of L7.4 million. The tax effect of the exceptional
credit to income is nil (period from January 1 to June 30, 1998: tax charge
of nil).
The exceptional charge to operating income of L2.1 million in respect of FTS
is a result of restructuring this division following the termination of the
PSI programmes in Nigeria. The tax effect of this exceptional charge is nil.
F-10
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
EXCEPTIONAL ITEMS (CONTINUED)
Caleb Brett also provided testing services to the Nigeria Government. Caleb
Brett has also adopted the policy of making full provision against invoices
issued to Nigeria and only reversing the provision when cash is received. The
exceptional credit of L1.1 million for Caleb Brett comprises cash received in
the six months to June 30, 1999 of L1.5 million less invoices generated in
the six months to June 30, 1999 of L0.4 million. The tax effect of the
exceptional credit to income is nil (period from January 1 to June 30, 1998:
tax charge of nil).
ETL SEMKO disposed of a non-core activity in the U.S., which generated an
exceptional credit of L2.2 million. This credit was after deducting
attributable goodwill of L1.1 million from the disposal proceeds of L3.3
million. The tax effect of this exceptional credit is nil.
ETL SEMKO sold 51% of its Quality Management business in Sweden for L0.2
million. This generated an exceptional profit of L0.2 million. The tax effect
of this exceptional credit is nil.
5. NET INTEREST EXPENSE
<TABLE>
<CAPTION>
-------------- ---------------
Six months to Six months to
June 30, June 30,
1998 1999
L000 L000
-------------- ----------------
<S> <C> <C>
INTEREST EXPENSE AND OTHER CHARGES
Senior Subordinated Notes 6,093 6,392
Parent Subordinated PIK Debentures 3,478 3,994
Senior Term Loan A 3,728 2,868
Senior Term Loan B 1,534 1,495
Senior Revolver 115 355
Other borrowings 155 519
Amortisation of debt issuance costs 852 957
-------------- ---------------
INTEREST EXPENSE 15,955 16,580
INTEREST INCOME
On bank balances (412) (321)
-------------- ---------------
NET INTEREST EXPENSE 15,543 16,259
-------------- ---------------
</TABLE>
6. TAXATION
The taxation charges on income before taxation and exceptional items for the six
month periods ended June 30, 1998 and June 30, 1999 have been calculated based
on the estimated effective tax rates for the relevant full years. Exceptional
items have been tax effected as appropriate.
F-11
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. BORROWINGS
<TABLE>
<CAPTION>
---------------------------------
December 31, June 30,
1998 1999
L000 L000
---------------------------------
<S> <C> <C>
DUE IN LESS THAN ONE YEAR
Senior Term Loan A 4,821 4,924
Senior Revolver 16,333 3,300
Other borrowings 1,055 1,042
---------------------------------
TOTAL DUE IN LESS THAN ONE YEAR 22,209 9,266
---------------------------------
DUE IN MORE THAN ONE YEAR
Senior Subordinated Notes 116,257 123,386
Senior Term Loan A 65,302 62,272
Senior Term Loan B 34,053 34,940
Parent Subordinated PIK Debentures 57,568 65,147
Other borrowings 384 311
---------------------------------
TOTAL DUE IN MORE THAN ONE YEAR 273,564 286,056
---------------------------------
</TABLE>
MATURITY OF BORROWINGS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Senior Senior Senior Senior Parent Other Total
Subordinated Term Term Revolver Subordinated borrowings borrowings
Notes Loan A Loan B PIK Debentures
L000 L000 L000 L000 L000 L000 L000
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Due in less than one year - 5,742 - 3,300 - 1,042 10,084
Due in one to two years - 24,185 - - - 156 24,341
Due in 2 to 5 years - 40,480 35,855 - - 146 76,481
Due in over 5 years 127,673 - - - 66,736 9 194,418
---------------------------------------------------------------------------------------------
127,673 70,407 35,855 3,300 66,736 1,353 305,324
Debt issuance costs (4,287) (3,211) (915) - (1,589) - (10,002)
---------------------------------------------------------------------------------------------
NET BORROWINGS 123,386 67,196 34,940 3,300 65,147 1,353 295,322
---------------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
-------------- ----------------
Six months to Six months to
June 30, June 30,
1998 1999
L000 L000
-------------- ---------------
<S> <C> <C>
Total recognised gains and losses for the period (15,569) (1,276)
Issue of ordinary share capital - 1,089
Issue of redeemable preference shares - 18,821
Opening shareholders' deficit (206,766) (221,408)
-------------- ---------------
CLOSING SHAREHOLDERS' DEFICIT (222,335) (202,774)
-------------- ---------------
</TABLE>
9. RECONCILIATION OF OPERATING INCOME TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------
Six months Six months
to June 30, to June 30,
1998 1999
L000 L000
----------------------------------
<S> <C> <C>
Operating income 7,920 31,209
Depreciation charge 5,764 5,692
Goodwill amortisation 31 385
Loss on sale of fixed assets 318 92
(Increase)/decrease in inventories (477) 80
Increase in receivables and prepayments (6,433) (6,509)
Increase in payables 395 101
Cash payments from exporters - 4,755
Increase/(decrease) in other provisions 6,630 (3,495)
----------------------------------
14,148 32,310
Equity income of associates (2) (226)
----------------------------------
TOTAL OPERATING CASH INFLOW 14,146 32,084
----------------------------------
</TABLE>
F-13
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. ANALYSIS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------
Six months Six months
to June 30, to June 30,
1998 1999
L000 L000
----------------------------------
<S> <C> <C>
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Net interest paid (11,348) (11,102)
Dividends paid to minorities (443) (1,417)
----------------------------------
TOTAL RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (11,791) (12,519)
----------------------------------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of property, plant and equipment (5,374) (5,206)
Sale of property, plant and equipment 71 62
----------------------------------
TOTAL CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (5,303) (5,144)
----------------------------------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings (7,228) (4,052)
Acquisition provision payments (225) -
Sale of business - 3,189
----------------------------------
TOTAL ACQUISITIONS AND DISPOSALS (7,453) (863)
----------------------------------
FINANCING
Issue/(repayment) of short term debt 13,036 (13,204)
Issue of ordinary shares - 1,089
Issue of redeemable preference shares - 18,821
Repayment of other loans (3,282) (6,706)
Cash subscribed by minorities - 15
----------------------------------
TOTAL FINANCING 9,754 15
-----------------------------------
</TABLE>
11. ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
At January 1, Cash flow Acquisitions Debt issued Other Exchange At June 30,
1999 and disposals in lieu of non-cash adjustments 1999
interest changes
payment
L000 L000 L000 L000 L000 L000 L000
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET CASH
Cash in hand and at bank 16,772 11,088 (1,587) - - 553 26,826
--------------------------------------------------------------------------------------------------
DEBT
Debt due within one year (22,209) 19,910 - - (5,549) (1,418) (9,266)
Debt due after one year (273,564) - - (4,013) 4,589 (13,068) (286,056)
--------------------------------------------------------------------------------------------------
(295,773) 19,910 - (4,013) (960) (14,486) (295,322)
--------------------------------------------------------------------------------------------------
TOTAL NET DEBT (279,001) 30,998 (1,587) (4,013) (960) (13,933) (268,496)
--------------------------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP
The consolidated financial statements are prepared in conformity with U.K.
GAAP. These accounting principles differ in certain material respects from
U.S. GAAP. Described below are the material differences between U.K. GAAP
and U.S. GAAP affecting the net income/(loss) and shareholders'
equity/(deficit) which are set forth in the tables that follow.
GOODWILL AND OTHER INTANGIBLE ASSETS
Under U.K. GAAP, purchased goodwill in respect of acquisitions since January 1,
1998 is capitalised in accordance with the requirements of FRS 10, Goodwill and
intangible assets. Purchased goodwill in respect of acquisitions before January
1, 1998 was written off to reserves in the year of acquisition. Positive
goodwill is amortised to nil over equal instalments over its estimated useful
life, generally not exceeding 20 years. Under U.S. GAAP, goodwill and
identifiable intangibles are capitalised and are written off over their
estimated useful lives, generally not exceeding 40 years. U.S. GAAP goodwill and
identifiable intangibles are being written off over periods not exceeding 20
years.
REDEEMABLE PREFERENCE SHARES
Under U.K. GAAP, preference shares with mandatory redemption features or
redeemable at the option of the security holders would be classified as a
component of shareholders' equity. U.S. GAAP requires such redeemable preference
shares not to be classified as shareholders' equity.
PENSION COSTS -- DEFINED BENEFIT PLANS
Under U.K. GAAP, the cost of providing pension benefits is expensed over the
average expected service lives of eligible employees on the basis of a constant
percentage of current and estimated future earnings. Under U.S. GAAP, 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 provided using the liability method to the
extent that it is considered probable that a liability or asset will crystallise
in the foreseeable future. Under U.S. GAAP, deferred taxation is provided on all
temporary differences and carryforwards. Deferred tax assets are recognised to
the extent that it is more likely than not that they will be realised. Where
doubt exists as to whether a deferred tax asset will be realised, an appropriate
valuation allowance is established. In addition, deferred taxes on other U.S.
GAAP differences is provided.
F-15
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 INCOME/(LOSS)
<TABLE>
<CAPTION>
---------------- -----------------
Six months to Six months to
June 30, June 30,
1998 1999
L000 L000
---------------- -----------------
<S> <C> <C>
NET (LOSS)/INCOME REPORTED UNDER U.K. GAAP (14,112) 10,537
Goodwill amortisation (6,874) (6,015)
Goodwill write off on disposals - (1,028)
Amortisation of goodwill on disposal - 141
Covenants not to compete amortisation (6,265) (6,381)
Pensions (66) (53)
Compensated absences (206) (155)
---------------- -----------------
NET LOSS IN CONFORMITY WITH U.S. GAAP (27,523) (2,954)
---------------- -----------------
Continuing operations (18,840) (2,954)
Discontinued operation (8,683) -
---------------- -----------------
NET LOSS IN CONFORMITY WITH U.S. GAAP (27,523) (2,954)
---------------- -----------------
</TABLE>
(b) SHAREHOLDERS' DEFICIT
The approximate effect on shareholders' deficit of material differences
between U.K. and U.S. GAAP are as follows:
<TABLE>
<CAPTION>
---------------- -----------------
December 31, June 30,
1998 1999
L000 L000
---------------- -----------------
<S> <C> <C>
SHAREHOLDERS' DEFICIT REPORTED UNDER U.K. GAAP (221,408) (202,774)
Goodwill 204,136 206,790
Covenants not to compete 9,286 3,271
Redeemable preference shares (86,656) (105,478)
Pensions 994 941
Compensated absences (686) (841)
---------------- -----------------
SHAREHOLDERS' DEFICIT IN CONFORMITY WITH U.S. GAAP (94,334) (98,091)
---------------- -----------------
The following table reconciles shareholders' deficit under U.S. GAAP:
SHAREHOLDERS' DEFICIT AT BEGINNING OF PERIOD (46,465) (94,334)
Issue of shares 179 1,089
Net loss for the period (45,239) (2,954)
Exchange adjustments (2,809) (1,892)
---------------- -----------------
SHAREHOLDERS' DEFICIT AT END OF PERIOD (94,334) (98,091)
---------------- -----------------
</TABLE>
F-16
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP (CONTINUED)
(c) CASH FLOWS
The statements of cash flows prepared in accordance with U.K. GAAP present
substantially the same information as that required under U.S. GAAP. Under U.S.
GAAP however, there are certain differences from U.K. GAAP with regard to
classification of items within the cash flow statement and with regard to the
definition of cash.
Under U.K. GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, capital expenditure
and financial investment, acquisitions and disposals, equity dividends paid,
management of liquid resources and financing. Under U.S. GAAP, three categories
of cash flow activity are reported, those being operating activities, investing
activities and financing activities. Cash flows from taxation and returns on
investments and servicing of finance would, with the exception of dividends
paid, be included as operating activities under U.S. GAAP. Capital expenditure
and financial investment, acquisitions and disposals and management of liquid
resources would be included as investing activities. The payment of dividends
would be included under financing activities under U.S. GAAP.
Set out below is a summary of the statements of cash flows under U.S. GAAP.
<TABLE>
<CAPTION>
---------------- -----------------
Six months to Six months to
June 30, June 30,
1998 1999
L000 L000
---------------- -----------------
<S> <C> <C>
Net cash (used in)/provided by operating activities (253) 19,192
Net cash used in investing activities (12,660) (7,594)
Net cash provided by/(used in) financing activities 9,754 (2,362)
---------------- -----------------
(3,159) 9,236
Effect of exchange rate changes (1,450) 553
---------------- -----------------
NET (DECREASE)/INCREASE IN CASH BY CONTINUING OPERATIONS (4,609) 9,789
---------------- -----------------
(Decrease)/increase in cash by continuing operations (4,609) 9,789
Increase in cash by discontinued operation 285 265
---------------- -----------------
(4,324) 10,054
Cash at beginning of period 25,153 16,772
---------------- -----------------
CASH AT END OF PERIOD 20,829 26,826
---------------- -----------------
</TABLE>
(d) COMPREHENSIVE INCOME
The company has adopted SFAS No. 130, "Reporting Comprehensive Income", which
established standards for the reporting and presentation of comprehensive
income/(loss) and its components in a full set of financial statements. The
Company's comprehensive income/(loss) differs from net income only by the amount
of the foreign currency exchange adjustments charged to shareholders' deficit
for the period. Comprehensive income for the six months to June 30, 1998 and the
six months to June 30, 1999 is equal to the total recognised gains and losses
shown on the consolidated statement of total recognised gains and losses.
Accumulated other comprehensive losses were L5.0 million and L14.4
million at June 30, 1998 and June 30, 1999, respectively.
F-17
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 Guarantor's
guarantee is itself guaranteed by each other Guarantor, fully and
unconditionally, on a senior subordinated basis. Subject to the provisions of
the agreement under which the loans to finance the acquisition of the business
were made, certain exceptions and applicable law, there are no restrictions on
the ability of: (a) the Company or any of its direct and indirect subsidiaries
from paying dividends or making any other distributions or loans or advances to
the Issuer or (b) the direct and indirect subsidiaries of the Company from
paying dividends or making any other distribution or loans or advances to the
Company.
Separate financial statements and other disclosures concerning the Issuer and
the Guarantors are not presented because management has determined that they are
not material to the investors. In lieu of the separate guarantor financial
statements, management has presented audited consolidating financial
information. The audited consolidating financial information presented below has
been segregated between (a) the Issuer, (b) the Guarantors and (c) the
non-Guarantor subsidiaries.
F-18
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
STATEMENTS OF OPERATIONS
Six months to June 30, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Intertek Guarantors Non-Guarantor Consolidation Consolidated
Finance plc subsidiaries adjustments totals
L000 L000 L000 L000 L000
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL GROUP REVENUES - - 208,228 (29,504) 178,724
Operating income/(costs) 139 57 (177,441) 29,504 (147,741)
Equity income of associated companies - - 226 - 226
-------------------------------------------------------------------
OPERATING INCOME 139 57 31,013 - 31,209
Non-operating exceptional items - (1,032) 3,442 - 2,410
-------------------------------------------------------------------
INCOME/(LOSS) BEFORE INTEREST 139 (975) 34,455 - 33,619
Net interest receivable/(payable) 37 (7,422) (8,874) - (16,259)
-------------------------------------------------------------------
INCOME/(LOSS) BEFORE TAXATION 176 (8,397) 25,581 - 17,360
Taxation (53) 736 (5,983) - (5,300)
-------------------------------------------------------------------
INCOME/(LOSS) AFTER TAXATION 123 (7,661) 19,598 - 12,060
Minority interests - - (1,523) - (1,523)
Dividends from/(to) group companies - 514 (514) - -
-------------------------------------------------------------------
NET INCOME/(LOSS) 123 (7,147) 17,561 - 10,537
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
STATEMENTS OF OPERATIONS
Three months to June 30, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Intertek Guarantors Non-Guarantor Consolidation Consolidated
Finance plc subsidiaries adjustments totals
L000 L000 L000 L000 L000
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL GROUP REVENUES - - 105,461 (13,828) 91,633
Operating income/(costs) 87 55 (85,838) 13,828 (71,868)
Equity income of associated companies - - 215 - 215
-------------------------------------------------------------------
OPERATING INCOME 87 55 19,838 - 19,980
Non-operating exceptional items - (1,032) 1,198 - 166
-------------------------------------------------------------------
INCOME/(LOSS) BEFORE INTEREST 87 (977) 21,036 - 20,146
Net interest receivable/(payable) 26 (3,715) (4,501) - (8,190)
-------------------------------------------------------------------
INCOME/(LOSS) BEFORE TAXATION 113 (4,692) 16,535 - 11,956
Taxation (50) 559 (4,876) - (4,367)
-------------------------------------------------------------------
INCOME/(LOSS) AFTER TAXATION 63 (4,133) 11,659 - 7,589
Minority interests - - (761) - (761)
Dividends from/(to) group companies - 6 (6) - -
-------------------------------------------------------------------
NET INCOME/(LOSS) 63 (4,127) 10,892 - 6,828
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
F-19
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
STATEMENTS OF OPERATIONS
Six months to June 30, 1998
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Intertek Guarantors Non-Guarantor Consolidation Consolidated
Finance plc subsidiaries adjustments totals
L000 L000 L000 L000 L000
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL GROUP REVENUES - - 204,261 (30,076) 174,185
Operating (costs)/income (2) 96 (195,781) 30,076 (165,611)
Equity income of associated companies - - (654) - (654)
-------------------------------------------------------------------
OPERATING (LOSS)/INCOME (2) 96 7,826 - 7,920
Non-operating exceptional items - - (2,450) - (2,450)
-------------------------------------------------------------------
(LOSS)/INCOME BEFORE INTEREST (2) 96 5,376 - 5,470
Net interest receivable/(payable) 42 (11,848) (3,737) - (15,543)
-------------------------------------------------------------------
INCOME/(LOSS) BEFORE TAXATION 40 (11,752) 1,639 - (10,073)
Taxation (101) 401 (3,026) - (2,726)
-------------------------------------------------------------------
LOSS AFTER TAXATION (61) (11,351) (1,387) - (12,799)
Minority interests - - (1,313) - (1,313)
Dividends from/(to) group companies - 169 (169) - -
-------------------------------------------------------------------
NET LOSS (61) (11,182) (2,869) - (14,112)
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
STATEMENTS OF OPERATIONS
Three months to June 30, 1998
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Intertek Guarantors Non-Guarantor Consolidation Consolidated
Finance plc subsidiaries adjustments totals
L000 L000 L000 L000 L000
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL GROUP REVENUES - - 107,831 (16,805) 91,026
Operating income/(costs) - 136 (107,720) 16,805 (90,779)
Equity income of associated companies - - (353) - (353)
-------------------------------------------------------------------
OPERATING INCOME/(LOSS) - 136 (242) - (106)
Non-operating exceptional items - - (2,450) - (2,450)
-------------------------------------------------------------------
INCOME/(LOSS) BEFORE INTEREST - 136 (2,692) - (2,556)
Net interest receivable/(payable) 21 (6,053) (2,110) - (8,142)
-------------------------------------------------------------------
INCOME/(LOSS) BEFORE TAXATION 21 (5,917) (4,802) - (10,698)
Taxation (49) 142 (2,477) - (2,384)
-------------------------------------------------------------------
LOSS AFTER TAXATION (28) (5,775) (7,279) - (13,082)
Minority interests - - (599) - (599)
-------------------------------------------------------------------
NET LOSS (28) (5,775) (7,878) - (13,681)
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
BALANCE SHEETS
June 30, 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------
Intertek Guarantors Non-Guarantor Consolidation Consolidated
Finance plc subsidiaries adjustments totals
L000 L000 L000 L000 L000
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 6 662 26,158 - 26,826
Trade receivables - - 71,413 - 71,413
Inventories - - 3,687 - 3,687
Other current assets 127,060 269,374 257,215 (635,384) 18,265
Deferred taxation asset - - 1,357 - 1,357
-------------------------------------------------------------------
TOTAL CURRENT ASSETS 127,066 270,036 359,830 (635,384) 121,548
Goodwill - - 13,616 - 13,616
Property, plant and equipment, net - - 46,954 - 46,954
Investments in subsidiary undertakings - 339,134 64,619 (403,753) -
Other investments - - 997 - 997
-------------------------------------------------------------------
TOTAL ASSETS 127,066 609,170 486,016 (1,039,137) 183,115
-------------------------------------------------------------------
-------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current liabilities
Borrowings (including current portion of
long term borrowings) - 8,694 572 - 9,266
Accounts payable, accrued liabilities and deferred 3,604 225,302 480,327 (635,384) 73,849
income
Income taxes payable (30) (3,977) 11,557 - 7,550
-------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,574 230,019 492,456 (635,384) 90,665
Long term borrowings 123,386 164,043 (1,373) - 286,056
Provisions for liabilities and charges - - 4,603 - 4,603
Minority interests - - 4,565 - 4,565
SHAREHOLDERS' EQUITY/(DEFICIT)
Ordinary shares 50 108,150 189,912 (297,304) 808
Redeemable preference shares - 105,478 - - 105,478
Shares to be issued - 2,793 - - 2,793
Premium in excess of par value - 27,269 819 (24,453) 3,635
Retained earnings/(deficit) 56 (28,582) (204,966) (81,996) (315,488)
-------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) 106 215,108 (14,235) (403,753) (202,774)
-------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) 127,066 609,170 486,016 (1,039,137) 183,115
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
F-21
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
BALANCE SHEETS
December 31, 1998
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Intertek Guarantors Non-Guarantor Consolidation Consolidated
Finance plc subsidiaries adjustments totals
L000 L000 L000 L000 L000
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 6 (6,691) 23,457 - 16,772
Trade receivables - - 67,516 - 67,516
Inventories - - 3,662 - 3,662
Other current assets 122,087 257,595 216,069 (580,510) 15,241
Deferred taxation asset - - 1,348 - 1,348
--------------------------------------------------------------------
TOTAL CURRENT ASSETS 122,093 250,904 312,052 (580,510) 104,539
Goodwill - - 13,074 - 13,074
Property, plant and equipment, net - - 45,951 - 45,951
Investments in subsidiary undertakings - 332,581 71,226 (403,807) -
Other investments - - 231 - 231
--------------------------------------------------------------------
TOTAL ASSETS 122,093 583,485 442,534 (984,317) 163,795
--------------------------------------------------------------------
--------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
CURRENT LIABILITIES
Borrowings (including current portion of
long term borrowings) - 21,154 1,055 - 22,209
Accounts payable, accrued liabilities
and deferred income 5,723 204,430 441,309 (580,510) 70,952
Income taxes payable (83) (3,119) 8,570 - 5,368
--------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,640 222,465 450,934 (580,510) 98,529
Long term borrowings 116,257 159,205 (1,898) - 273,564
Provisions for liabilities and charges - - 8,518 - 8,518
Minority interests - - 4,592 - 4,592
SHAREHOLDERS' EQUITY/(DEFICIT)
Ordinary shares 50 100,962 196,398 (297,074) 336
Redeemable preference shares - 86,657 - - 86,657
Shares to be issued - 2,793 - - 2,793
Premium in excess of par value - 26,702 761 (24,445) 3,018
Retained earnings/(deficit) 146 (15,299) (216,771) (82,288) (314,212)
--------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) 196 201,815 (19,612) (403,807) (221,408)
--------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) 122,093 583,485 442,534 (984,317) 163,795
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
F-22
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
STATEMENTS OF CASH FLOWS
Six months to June 30, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Intertek Guarantors Non-Guarantor Consolidation Consolidated
Finance plc subsidiaries adjustments totals
L000 L000 L000 L000 L000
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total operating cash inflow/(outflow) 139 (2,729) 34,674 - 32,084
Returns on investments and servicing of finance 2,237 (3,180) (11,576) - (12,519)
Taxation - (95) (2,390) - (2,485)
Capital expenditure and financial investment - - (5,144) - (5,144)
Acquisitions and disposals - (1,315) 452 - (863)
----------------------------------------------------------------------
CASH INFLOW/(OUTFLOW) BEFORE FINANCING 2,376 (7,319) 16,016 - 11,073
Financing (2,376) 14,676 (12,285) - 15
----------------------------------------------------------------------
INCREASE IN CASH IN THE PERIOD - 7,357 3,731 - 11,088
----------------------------------------------------------------------
----------------------------------------------------------------------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
INCREASE IN CASH IN THE PERIOD - 7,357 3,731 - 11,088
Cash inflow from increase in debt - 19,629 281 - 19,910
----------------------------------------------------------------------
Change in net debt resulting from cash flows - 26,986 4,012 - 30,998
Debt issued in lieu of interest payment - (4,013) - - (4,013)
Acquisitions and disposals - - (1,587) - (1,587)
Other non-cash movements (289) (998) 327 - (960)
Exchange movements (6,840) (7,000) (93) - (13,933)
----------------------------------------------------------------------
MOVEMENT IN NET DEBT IN THE PERIOD (7,129) 14,975 2,659 - 10,505
NET DEBT AT THE START OF THE PERIOD (116,251) (187,050) 24,300 - (279,001)
----------------------------------------------------------------------
NET DEBT AT THE END OF THE PERIOD (123,380) (172,075) 26,959 - (268,496)
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
F-23
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
STATEMENTS OF CASH FLOWS
Six months to June 30, 1998
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Intertek Guarantors Non-Guarantor Consolidation Consolidated
Finance plc subsidiaries adjustments totals
L000 L000 L000 L000 L000
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total operating cash (outflow)/inflow 45 (2,731) 16,832 -- 14,146
Returns on investments and servicing of finance (105) (4,117) (7,569) -- (11,791)
Taxation 61 472 (2,760) -- (2,227)
Capital expenditure and financial investment -- (1,090) (4,213) -- (5,303)
Acquisitions and disposals -- -- (7,453) -- (7,453)
------------------------------------------------------------------------
CASH (OUTFLOW)/INFLOW BEFORE FINANCING 1 (7,466) (5,163) -- (12,628)
Financing -- 8,705 1,049 -- 9,754
------------------------------------------------------------------------
INCREASE/(DECREASE) IN CASH IN THE PERIOD 1 1,239 (4,114) -- (2,874)
------------------------------------------------------------------------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
INCREASE/(DECREASE) IN CASH IN THE PERIOD 1 1,239 (4,114) -- (2,874)
Cash (outflow)/inflow from increase in debt -- (8,697) (1,698) -- (10,395)
------------------------------------------------------------------------
Change in net debt resulting from cash flows 1 (7,458) (5,812) -- (13,269)
Debt issued in lieu of interest payment -- (3,389) -- -- (3,389)
Other non-cash movements -- 5,394 (6,039) -- (645)
Exchange movements -- 932 (1,102) -- (170)
------------------------------------------------------------------------
MOVEMENT IN NET DEBT IN THE PERIOD 1 (4,521) (12,953) -- (17,473)
NET DEBT AT THE START OF THE PERIOD (116,736) (168,245) 32,830 -- (252,151)
------------------------------------------------------------------------
NET DEBT AT THE END OF THE PERIOD (116,735) (172,766) 19,877 -- (269,624)
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
STATEMENTS OF OPERATIONS
Six months to June 30, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson
Testing Holdings Overseas Holding Testing Holdings Enterprises
Services USA Holdings Limited Services Sweden Limited
Ltd Inc BV UK Ltd AB
L000 L000 L000 L000 L000 L000 L000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from continuing operations -- -- -- -- -- -- --
Operating income/(costs) 111 -- (8) -- (36) -- (9)
-----------------------------------------------------------------------
Operating income/(loss) from
continuing operations 111 -- (8) -- (36) -- (9)
Non-operating exceptional items (1,032) -- -- -- -- -- --
-----------------------------------------------------------------------
Loss before interest (921) -- (8) -- (36) -- (9)
Net interest (payable)/receivable (3,926) (271) (160) 12 (1,655) (1,058) (70)
-----------------------------------------------------------------------
(Loss)/income before taxation (4,847) (271) (168) 12 (1,691) (1,058) (79)
Taxation -- 248 -- (6) 507 -- (11)
-----------------------------------------------------------------------
(Loss)/income after taxation (4,847) (23) (168) 6 (1,184) (1,058) (90)
Dividends from group companies -- 514 -- -- -- -- --
-----------------------------------------------------------------------
Net (loss)/income (4,847) 491 (168) 6 (1,184) (1,058) (90)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<CAPTION>
---------------------------------
Testing Testing Guarantor
Holdings Holdings subsidiaries
France Germany Total
EURL GmbH
L000 L000 L000
---------------------------------
<S> <C> <C> <C>
Revenues from continuing operations -- -- --
Operating income/(costs) (1) -- 57
---------------------------------
Operating income/(loss) from
continuing operations (1) -- 57
Non-operating exceptional items -- -- (1,032)
---------------------------------
Loss before interest (1) -- (975)
Net interest (payable)/receivable (62) (232) (7,422)
---------------------------------
(Loss)/income before taxation (63) (232) (8,397)
Taxation -- (2) 736
---------------------------------
(Loss)/income after taxation (63) (234) (7,661)
Dividends from group companies -- -- 514
---------------------------------
Net (loss)/income (63) (234) (7,147)
---------------------------------
---------------------------------
</TABLE>
STATEMENTS OF OPERATIONS
Three months to June 30, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson
Testing Holdings Overseas Holding Testing Holdings Enterprises
Services USA Holdings Limited Services Sweden Limited
Ltd Inc BV UK Ltd AB
L000 L000 L000 L000 L000 L000 L000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from continuing operations -- -- -- -- -- -- --
Operating income/(costs) 97 -- (9) -- (28) -- (5)
-----------------------------------------------------------------------
Operating income/(loss) from
continuing operations 97 -- (9) -- (28) -- (5)
Non-operating exceptional items (1,032) -- -- -- -- -- --
-----------------------------------------------------------------------
(Loss)/income before interest (935) -- (9) -- (28) -- (5)
Net interest (payable)/receivable (1,993) (137) (75) 12 (838) (525) (31)
-----------------------------------------------------------------------
(Loss)/income before taxation (2,928) (137) (84) 12 (866) (525) (36)
Taxation -- 304 -- (6) 262 -- (1)
-----------------------------------------------------------------------
(Loss)/income after taxation (2,928) 167 (84) 6 (604) (525) (37)
Dividends from group companies -- 6 -- -- -- -- --
-----------------------------------------------------------------------
Net (loss)/income (2,928) 173 (84) 6 (604) (525) (37)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<CAPTION>
---------------------------------
Testing Testing Guarantor
Holdings Holdings subsidiaries
France Germany Total
EURL GmbH
L000 L000 L000
---------------------------------
<S> <C> <C> <C>
Revenues from continuing operations -- -- --
Operating income/(costs) -- -- 55
---------------------------------
Operating income/(loss) from
continuing operations -- -- 55
Non-operating exceptional items -- -- (1,032)
---------------------------------
(Loss)/income before interest -- -- (977)
Net interest (payable)/receivable (30) (98) (3,715)
---------------------------------
(Loss)/income before taxation (30) (98) (4,692)
Taxation -- -- 559
---------------------------------
(Loss)/income after taxation (30) (98) (4,133)
Dividends from group companies -- -- 6
---------------------------------
Net (loss)/income (30) (98) (4,127)
---------------------------------
---------------------------------
</TABLE>
F-25
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
STATEMENTS OF OPERATIONS
Six months to June 30, 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson
Testing Holdings Overseas Holding Testing Holdings Enterprises
Services USA Holdings Limited Services Sweden Limited
Ltd Inc BV UK Ltd AB
L000 L000 L000 L000 L000 L000 L000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from continuing operations -- -- -- -- -- -- --
Operating income/(costs) 103 -- 4 (1) -- (4) (6)
-----------------------------------------------------------------------
Operating income/(loss) from
continuing operations 103 -- 4 (1) -- (4) (6)
Net interest (payable)/receivable (3,581) (5,337) (88) (20) (1,838) (779) 31
-----------------------------------------------------------------------
(Loss)/income before taxation (3,478) (5,337) (84) (21) (1,838) (783) 25
Taxation -- (103) -- 10 514 -- (4)
(Loss)/income after taxation (3,478) (5,440) (84) (11) (1,324) (783) 21
Dividends from group companies -- 169 -- -- -- -- --
-----------------------------------------------------------------------
Net (loss)/income (3,478) (5,271) (84) (11) (1,324) (783) 21
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<CAPTION>
---------------------------------
Testing Testing Guarantor
Holdings Holdings subsidiaries
France Germany Total
EURL GmbH
L000 L000 L000
---------------------------------
<S> <C> <C> <C>
Revenues from continuing operations -- -- --
Operating income/(costs) -- -- 96
---------------------------------
Operating income/(loss) from
continuing operations -- -- 96
Net interest (payable)/receivable (30) (206) (11,848)
---------------------------------
(Loss)/income before taxation (30) (206) (11,752)
Taxation (16) -- 401
---------------------------------
(Loss)/income after taxation (46) (206) (11,351)
Dividends from group companies -- -- 169
---------------------------------
Net (loss)/income (46) (206) (11,182)
---------------------------------
---------------------------------
</TABLE>
STATEMENTS OF OPERATIONS
Three months to June 30, 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson
Testing Holdings Overseas Holding Testing Holdings Enterprises
Services USA Holdings Limited Services Sweden Limited
Ltd Inc BV UK Ltd AB
L000 L000 L000 L000 L000 L000 L000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from continuing operations -- -- -- -- -- -- --
Operating income/(costs) 138 -- 1 (1) -- (2) --
-----------------------------------------------------------------------
Operating income/(loss) from
continuing operations 138 -- 1 (1) -- (2) --
Net interest (payable)/receivable (1,906) (2,683) (53) (22) (923) (328) 15
-----------------------------------------------------------------------
(Loss)/income before taxation (1,768) (2,683) (52) (23) (923) (330) 15
Taxation -- (67) -- 11 254 -- (1)
-----------------------------------------------------------------------
Net (loss)/income (1,768) (2,750) (52) (12) (669) (330) 14
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<CAPTION>
---------------------------------
Testing Testing Guarantor
Holdings Holdings subsidiaries
France Germany Total
EURL GmbH
L000 L000 L000
---------------------------------
<S> <C> <C> <C>
Revenues from continuing operations -- -- --
Operating income/(costs) -- -- 136
---------------------------------
Operating income/(loss) from
continuing operations -- -- 136
Net interest (payable)/receivable (15) (138) (6,053)
---------------------------------
(Loss)/income before taxation (15) (138) (5,917)
Taxation (55) -- 142
---------------------------------
Net (loss)/income (70) (138) (5,775)
---------------------------------
---------------------------------
</TABLE>
F-26
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
BALANCE SHEETS
June 30, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson
Testing Holdings Overseas Holding Testing Holdings Enterprises
Services USA Holdings Limited Services Sweden Limited
Ltd Inc BV UK Ltd AB
L000 L000 L000 L000 L000 L000 L000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash 644 -- 7 1 3 1 6
Other current assets 72,554 96,249 2,015 4,684 578 4,407 88,193
-----------------------------------------------------------------------
Total current assets 73,198 96,249 2,022 4,685 581 4,408 88,199
Investments in subsidiary undertakings 129,808 101,029 5,633 3,902 64,418 24,834 --
-----------------------------------------------------------------------
Total assets 203,006 197,278 7,655 8,587 64,999 29,242 88,199
-----------------------------------------------------------------------
-----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion
of long term borrowings) 3,300 -- 268 454 1,093 428 3,151
Accounts payable, accrued liabilities
and deferred income 43,821 99,682 3,548 1,706 17,531 4,638 51,283
Income taxes (receivable)/payable (1,148) (879) -- 11 (1,790) -- 4
-----------------------------------------------------------------------
Total current liabilities 45,973 98,803 3,816 2,171 16,834 5,066 54,438
Long term borrowings 65,147 -- 3,238 2,956 33,079 20,988 33,737
Shareholders' equity
Ordinary shares 808 98,172 1,376 3,864 -- 1,839 --
Redeemable preference shares 105,478 -- -- -- -- -- --
Shares to be issued 2,793 -- -- -- -- -- --
Premium in excess of par value 3,635 -- -- -- 22,709 -- 52
Retained (deficit)/earnings (20,828) 303 (775) (404) (7,623) 1,349 (28)
-----------------------------------------------------------------------
Total shareholders' equity 91,886 98,475 601 3,460 15,086 3,188 24
-----------------------------------------------------------------------
Total liabilities and shareholders'
equity 203,006 197,278 7,655 8,587 64,999 29,242 88,199
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<CAPTION>
---------------------------------
Testing Testing Guarantor
Holdings Holdings subsidiaries
France Germany Total
EURL GmbH
L000 L000 L000
---------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash -- -- 662
Other current assets 694 -- 269,374
---------------------------------
Total current assets 694 -- 270,036
Investments in subsidiary undertakings 3,560 5,950 339,134
---------------------------------
Total assets 4,254 5,950 609,170
---------------------------------
---------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion
of long term borrowings) -- -- 8,694
Accounts payable, accrued liabilities
and deferred income 2,871 222 225,302
Income taxes (receivable)/payable (17) (158) (3,977)
---------------------------------
Total current liabilities 2,854 64 230,019
Long term borrowings -- 4,898 164,043
Shareholders' equity
Ordinary shares 889 1,202 108,150
Redeemable preference shares -- -- 105,478
Shares to be issued -- -- 2,793
Premium in excess of par value -- 873 27,269
Retained (deficit)/earnings 511 (1,087) (28,582)
---------------------------------
Total shareholders' equity 1,400 988 215,108
---------------------------------
Total liabilities and shareholders'
equity 4,254 5,950 609,170
---------------------------------
---------------------------------
</TABLE>
F-27
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
BALANCE SHEETS
December 31, 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson
Testing Holdings Overseas Holding Testing Holdings Enterprises
Services USA Holdings Limited Services Sweden Limited
Ltd Inc BV UK Ltd AB
L000 L000 L000 L000 L000 L000 L000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash (6,824) -- 123 1 3 1 5
Other current assets 72,775 92,703 1,856 4,042 576 4,342 80,514
-----------------------------------------------------------------------
Total current assets 65,951 92,703 1,979 4,043 579 4,343 80,519
Investments in subsidiary undertakings 128,624 95,617 5,983 3,510 64,418 24,466 --
-----------------------------------------------------------------------
Total assets 194,575 188,320 7,962 7,553 64,997 28,809 80,519
-----------------------------------------------------------------------
-----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion
of long term borrowings) 16,333 -- 260 232 1,629 383 2,317
Accounts payable, accrued liabilities
and deferred income 38,458 96,133 3,295 1,197 13,621 3,423 44,095
Income taxes (receivable)/payable (1,148) (536) -- 4 (1,283) -- 12
-----------------------------------------------------------------------
Total current liabilities 53,643 95,597 3,555 1,433 13,967 3,806 46,424
Long term borrowings 57,568 -- 3,595 3,174 34,899 20,819 33,983
Shareholders' equity
Ordinary shares 336 92,913 1,463 3,476 -- 1,812 --
Redeemable preference shares 86,657 -- -- -- -- -- --
Shares to be issued 2,793 -- -- -- -- -- --
Premium in excess of par value 3,018 -- -- -- 22,709 -- 49
Retained (deficit)/earnings (9,440) (190) (651) (530) (6,578) 2,372 63
-----------------------------------------------------------------------
Total shareholders' equity/(deficit) 83,364 92,723 812 2,946 16,131 4,184 112
-----------------------------------------------------------------------
Total liabilities and shareholders'
equity 194,575 188,320 7,962 7,553 64,997 28,809 80,519
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<CAPTION>
---------------------------------
Testing Testing Guarantor
Holdings Holdings subsidiaries
France Germany Total
EURL GmbH
L000 L000 L000
---------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash -- -- (6,691)
Other current assets 787 -- 257,595
---------------------------------
Total current assets 787 -- 250,904
Investments in subsidiary undertakings 3,652 6,311 332,581
---------------------------------
Total assets 4,439 6,311 583,485
---------------------------------
---------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion
of long term borrowings) -- -- 21,154
Accounts payable, accrued liabilities
and deferred income 2,887 1,321 204,430
Income taxes (receivable)/payable -- (168) (3,119)
---------------------------------
Total current liabilities 2,887 1,153 222,465
Long term borrowings -- 5,167 159,205
Shareholders' equity
Ordinary shares 944 18 100,962
Redeemable preference shares -- -- 86,657
Shares to be issued -- -- 2,793
Premium in excess of par value -- 926 26,702
Retained (deficit)/earnings 608 (953) (15,299)
---------------------------------
Total shareholders' equity/(deficit) 1,552 (9) 201,815
---------------------------------
Total liabilities and shareholders'
equity 4,439 6,311 583,485
---------------------------------
---------------------------------
</TABLE>
F-28
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
STATEMENTS OF CASH FLOWS
Six months to June 30, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson
Testing Holdings Overseas Holding Testing Holdings Enterprises
Services USA Holdings Limited Services Sweden Limited
Ltd Inc BV UK Ltd AB
L000 L000 L000 L000 L000 L000 L000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total operating cash (outflow)/inflow (2,680) -- (2) (1) (36) -- (8)
Returns on investments and servicing
of finance (436) 163 (208) (98) (1,558) (828) 18
Taxation paid -- (56) -- -- -- -- (20)
Acquisitions (1,184) -- (8) -- -- -- --
-----------------------------------------------------------------------
CASH (OUTFLOW)/INFLOW BEFORE FINANCING (4,300) 107 (218) (99) (1,594) (828) (10)
Financing 11,768 (107) 107 99 1,594 828 10
-----------------------------------------------------------------------
INCREASE/(DECREASE) IN CASH 7,468 -- (111) -- -- -- --
-----------------------------------------------------------------------
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET DEBT
INCREASE/(DECREASE) IN CASH 7,468 -- (111) -- -- -- --
Cash inflow from increase in debt 13,059 -- 150 213 4,536 228 1,443
-----------------------------------------------------------------------
Change in net debt resulting from
cash flows 20,527 -- 39 213 4,536 228 1,443
Debt issued in lieu of interest payment (4,013) -- -- -- -- --
Other non-cash movements 7 -- (30) (21) (164) (762) --
Exchange adjustments (3,599) -- 224 (196) (2,016) 320 (2,030)
-----------------------------------------------------------------------
Movement in net debt in the period 12,922 -- 233 (4) 2,356 (214) (587)
Net debt at start of period (80,725) -- (3,732) (3,405) (36,525) (21,201) (36,295)
-----------------------------------------------------------------------
NET DEBT AT END OF PERIOD (67,803) -- (3,499) (3,409) (34,169) (21,415) (36,882)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<CAPTION>
---------------------------------
Testing Testing Guarantor
Holdings Holdings subsidiaries
France Germany Total
EURL GmbH
L000 L000 L000
---------------------------------
<S> <C> <C> <C>
Total operating cash (outflow)/inflow (2) -- (2,729)
Returns on investments and servicing
of finance (29) (204) (3,180)
Taxation paid (17) (2) (95)
Acquisitions (123) -- (1,315)
---------------------------------
Cash (outflow)/inflow before financing (171) (206) (7,319)
Financing 171 206 14,676
---------------------------------
Increase/(decrease) in cash -- -- 7,357
---------------------------------
Reconciliation of net cash flow to
movement in net debt
INCREASE/(DECREASE) IN CASH -- -- 7,357
Cash inflow from increase in debt -- -- 19,629
---------------------------------
Change in net debt resulting from
cash flows -- -- 26,986
Debt issued in lieu of interest payment -- -- (4,013)
Other non-cash movements -- (28) (998)
Exchange adjustments -- 297 (7,000)
---------------------------------
Movement in net debt in the period -- 269 14,975
Net debt at start of period -- (5,167) (187,050)
---------------------------------
NET DEBT AT END OF PERIOD -- (4,898) (172,075)
---------------------------------
---------------------------------
</TABLE>
F-29
<PAGE>
INTERTEK TESTING SERVICES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ISSUER, GUARANTOR AND NON-GUARANTOR COMPANIES (CONTINUED)
STATEMENTS OF CASH FLOWS
Six months to June 30, 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Intertek Testing Kite ITS Intertek Testing Yickson
Testing Holdings Overseas Holding Testing Holdings Enterprises
Services USA Holdings Limited Services Sweden Limited
Ltd Inc BV UK Ltd AB
L000 L000 L000 L000 L000 L000 L000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total operating cash (outflow)/inflow (10,180) 1,120 1,245 149 2,506 996 1,266
Returns on investments and servicing
of finance (172) (1,100) (32) (23) (1,840) (779) 36
Taxation received/(paid) 257 (19) -- -- 195 -- --
Capital expenditure and financial
investment (8) (1) -- -- -- -- --
-----------------------------------------------------------------------
CASH (OUTFLOW)/INFLOW BEFORE FINANCING (10,103) -- 132 126 861 217 1,302
Financing 11,341 -- (128) (126) (863) (217) (1,302)
-----------------------------------------------------------------------
INCREASE/(DECREASE) IN CASH 1,238 -- 4 -- (2) -- --
-----------------------------------------------------------------------
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET DEBT
INCREASE/(DECREASE) IN CASH 1,238 -- 4 -- (2) -- --
Cash (outflow)/inflow from increase
in debt (11,341) -- 136 126 863 217 1,302
-----------------------------------------------------------------------
Change in net debt resulting from
cash flows (10,103) -- 140 126 861 217 1,302
Debt issued in lieu of interest payment (3,389) -- -- -- -- -- --
Other non-cash movements -- -- 199 157 1,272 956 2,534
Exchange adjustments -- -- 41 5 -- 533 302
-----------------------------------------------------------------------
Movement in net debt in the period (13,492) -- 380 288 2,133 1,706 4,138
Net debt at start of period (53,099) -- (4,103) (3,814) (39,567) (23,404) (39,206)
-----------------------------------------------------------------------
NET DEBT AT END OF PERIOD (66,591) -- (3,723) (3,526) (37,434) (21,698) (35,068)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<CAPTION>
---------------------------------
Testing Testing Guarantor
Holdings Holdings subsidiaries
France Germany Total
EURL GmbH
L000 L000 L000
---------------------------------
<S> <C> <C> <C>
Total operating cash (outflow)/inflow (38) 205 (2,731)
Returns on investments and servicing
of finance (1) (206) (4,117)
Taxation received/(paid) 39 -- 472
Capital expenditure and financial
investment -- -- (1,090)
---------------------------------
CASH (OUTFLOW)/INFLOW BEFORE FINANCING -- (1) (7,466)
Financing -- -- 8,705
---------------------------------
INCREASE/(DECREASE) IN CASH -- (1) 1,239
---------------------------------
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET DEBT
INCREASE/(DECREASE) IN CASH -- (1) 1,239
Cash (outflow)/inflow from increase
in debt -- -- (8,697)
---------------------------------
Change in net debt resulting from
cash flows -- (1) (7,458)
Debt issued in lieu of interest payment -- -- (3,389)
Other non-cash movements -- 276 5,394
Exchange adjustments -- 51 932
---------------------------------
Movement in net debt in the period -- 326 (4,521)
Net debt at start of period -- (5,052) (168,245)
---------------------------------
NET DEBT AT END OF PERIOD -- (4,726) (172,766)
---------------------------------
---------------------------------
</TABLE>
F-30
<PAGE>
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: August 13, 1999
