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 14, 2000
Intertek Testing Services Limited
(Registrant)
25 Savile Row
London, W1S 2ES
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, 2000
1
<PAGE>
Intertek Testing Services Limited
Business description
We are a leading international organisation engaged in the testing, inspection
and certification of manufactured goods and commodities. We currently employ
around 9,000 people and operate 471 inspection offices and 236 testing
laboratories in 91 countries. We are organised into four operating divisions,
each focusing on the testing, inspection and certification of different
manufactured goods and commodities.
Caleb Brett is a world leader providing independent assessment of crude oil,
petroleum products, chemicals and agricultural produce. Caleb Brett's customers
include oil and chemical companies and traders in hydrocarbons, chemicals and
agricultural products.
ETL SEMKO provides testing, certification, supervision and other services to
manufacturers, importers, distributors and retailers. ETL SEMKO tests and
certifies telecommunications and information technology equipment, consumer
electronics and heating, ventilation and air conditioning equipment, medical
and building products, semiconductors, commercial food equipment and industrial
machinery. In the United States and through a 49% investment in Europe, ETL
SEMKO also provides ISO 9000 and ISO 14000 certification and related services.
Labtest is one of the largest international providers of testing and inspection
services for textiles, footwear, toys and other consumer products. Through a
50% investment in China and Taiwan, Labtest also certifies the quality of
management systems to standards such as ISO 9000 and ISO 14000. Labtest's
customers are retailers, importers and manufacturers. This division also has a
100% investment in a Risk Analysis and Management ("RAM") service, allowing
retailers and manufacturers to minimise the risks associated with their
products.
Foreign Trade Standards ("FTS") helps governments, standards bodies and customs
departments to check that import duty is properly declared and paid, and that
imports of specified products comply with their safety and other standards. FTS
inspects, and where appropriate, tests products and commodities in the country
of export before they are shipped. FTS also provides a training service for
customs officers.
Discontinued operation. Despite extensive restructuring in 1999, the operating
results from our minerals testing division, Bondar Clegg, continued to be
unsatisfactory and operations in this division ceased in Q1 00. The Bondar
Clegg businesses in North and South America, Ghana and Mali were sold for L1.5
million. The operations in Eritrea, Guinea and Burkina Faso were closed during
Q1 00 and the companies are being liquidated. The disposal of fixed assets and
inventory in the African operations generated proceeds of approximately L0.1
million. The Bondar Clegg head office in Vancouver was closed on March 28, 2000
and the employment of the personnel was terminated. The operating results for
Bondar Clegg up to the date of cessation are reported as discontinued in our
financial statements and prior periods have been reclassified to show a
comparable historic trend. The costs of closing the operations and the loss on
disposal of the Bondar Clegg businesses are reported as a non-operating
exceptional item in our financial statements. The total loss was L12.2 million
including L6.9 million of goodwill which was previously written off to
reserves. The cash cost of terminating personnel and closing the operations was
approximately L0.9 million.
Internet strategy. We believe that the growth of the Internet offers
significant opportunities to grow our business. An increasing number of
commodities and products are being traded via the Internet and on business-to-
business ("B2B") and business-to-consumer ("B2C") sites. We provide testing,
inspection and certification services for many of the commodities and products
traded, ensuring that customers are able to buy products over the Internet
reliably and with confidence. We are working actively with B2B and B2C sites
and we are developing links to customers so that our communications with them
are online. We are investing in information technology systems so that we can
offer improved online services.
We are the world leader or one of the world leaders in the testing, inspection
and certification of products and commodities such as textiles, toys, consumer
goods, electrical goods and products, chemicals and petroleum products. There
is increasing online trading in these products and commodities and our services
are therefore in demand by online traders and online trading sites.
2
<PAGE>
Results of operations
The tables below show both revenues by division and by geographic area as well
as operating income before exceptional items by division for the six months to
June 30, 1999 ("HY 99"), the six months to June 30, 2000 ("HY 00"), the three
months to June 30, 1999 ("Q2 99") and the three months to June 30, 2000 ("Q2
00"). A detailed discussion of our results and financial condition is given in
the operating and financial review.
<TABLE>
<CAPTION>
HY 99 HY 00
Lm Lm
-------------- --------------
<S> <C> <C>
Revenues by division
Caleb Brett 64.7 74.3
ETL SEMKO 43.7 48.7
Labtest 37.2 44.3
Foreign Trade Standards 27.5 21.5
-------------- --------------
Continuing operations 173.1 188.8
Discontinued operation 5.6 0.7
-------------- --------------
Total 178.7 189.5
============== ==============
Revenues by geographic area
Americas 70.3 82.3
Europe, Africa and Middle East 60.0 54.2
Asia and Far East 42.8 52.3
-------------- --------------
Continuing operations 173.1 188.8
Discontinued operation 5.6 0.7
-------------- --------------
Total 178.7 189.5
============== ==============
Operating income/(loss) before exceptional
items
Caleb Brett 6.8 7.8
ETL SEMKO 6.4 7.6
Labtest 10.8 12.9
Foreign Trade Standards 3.0 1.6
Central (2.2) (2.4)
-------------- --------------
Continuing operations 24.8 27.5
Discontinued operation (1.2) (0.7)
-------------- --------------
Total 23.6 26.8
============== ==============
</TABLE>
3
<PAGE>
Results of operations
<TABLE>
<CAPTION>
Q2 99 Q2 00
Lm Lm
-------------- --------------
<S> <C> <C>
Revenues by division
Caleb Brett 33.6 39.5
ETL SEMKO 21.8 25.6
Labtest 20.7 24.7
Foreign Trade Standards 12.5 10.8
-------------- --------------
Continuing operations 88.6 100.6
Discontinued operation 3.0 ---
-------------- --------------
Total 91.6 100.6
============== ==============
</TABLE>
Revenues by geographic area
<TABLE>
<CAPTION>
<S> <C> <C>
Americas 36.8 43.3
Europe, Africa and Middle East 28.1 28.0
Asia and Far East 23.7 29.3
-------------- --------------
Continuing operations 88.6 100.6
Discontinued operation 3.0 ---
-------------- --------------
Total 91.6 100.6
============== ==============
</TABLE>
Operating income/(loss) before exceptional items
<TABLE>
<CAPTION>
<S> <C> <C>
Caleb Brett 3.8 4.8
ETL SEMKO 3.6 4.0
Labtest 7.3 8.2
Foreign Trade Standards 1.2 0.9
Central (1.2) (1.4)
-------------- --------------
Continuing operations 14.7 16.5
Discontinued operation (0.5) ---
-------------- --------------
Total 14.2 16.5
============== ==============
</TABLE>
4
<PAGE>
Impact of exchange rates
Our financial statements are reported in pounds sterling ("GBP" or "L"). We
have 135 subsidiary companies, of which 122 report in currencies other than
GBP. Subsidiaries report in the currency of the country in which they are
domiciled, apart from those based in countries where there is hyperinflation,
which report in their functional currency, which is U.S. dollars. We translate
the results of overseas operations into GBP at the cumulative average exchange
rates for the period, therefore, our results can vary from period to period
because of fluctuations in exchange rates which are unrelated to the underlying
operational performance. The table below shows the growth rates of revenues and
operating income for each division at actual exchange rates for the period and
at comparable exchange rates. The comparable growth rate is the change of one
period over the prior period where both periods are translated into GBP using
the prior period's exchange rates. This reflects the underlying growth in
revenues and operating income without the fluctuations caused by changes in
translation rates. We do not hedge translation rate exposure.
Over 50% of our revenues and the majority of our borrowings, interest payments
and debt repayments are denominated in U.S. dollars or currencies linked to the
U.S. dollar, such as the Hong Kong dollar. Where there is material transaction
exposure from currency rate movements we take out forward foreign exchange
contracts to minimise this exposure.
Growth at actual and comparable exchange rates
<TABLE>
<CAPTION>
HY 99 HY 00 Actual Comparable
Lm Lm % %
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Caleb Brett 64.7 74.3 14.8 14.1
ETL SEMKO 43.7 48.7 11.4 8.7
Labtest 37.2 44.3 19.1 16.4
Foreign Trade Standards 27.5 21.5 (21.8) (22.9)
-------------- -------------- -------------- --------------
Continuing operations 173.1 188.8 9.1 7.3
Discontinued operation 5.6 0.7 (87.5) (87.5)
-------------- -------------- -------------- --------------
Total 178.7 189.5 6.0 4.4
============== ============== ============== ==============
</TABLE>
Operating income/(loss) before exceptional items
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Caleb Brett 6.8 7.8 14.7 13.2
ETL SEMKO 6.4 7.6 18.8 17.2
Labtest 10.8 12.9 19.4 15.7
Foreign Trade Standards 3.0 1.6 (46.7) (46.7)
Central (2.2) (2.4) (9.1) (9.1)
-------------- -------------- -------------- --------------
Continuing operations 24.8 27.5 10.9 8.5
Discontinued operation (1.2) (0.7) 41.7 41.7
-------------- -------------- -------------- --------------
Total 23.6 26.8 13.6 11.0
============== ============== ============== ==============
</TABLE>
The Actual growth rate is the percentage increase or decrease of one period
over the prior period where each period is translated into GBP at the exchange
rates applicable to each of those periods.
The Comparable growth rate is the percentage increase or decrease of one period
over the prior period where both periods are translated into GBP at the
exchange rates applicable to the earlier of the two periods.
5
<PAGE>
Growth at actual and comparable exchange rates
<TABLE>
<CAPTION>
Q2 99 Q2 00 Actual Comparable
Lm Lm % %
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Caleb Brett 33.6 39.5 17.6 16.4
ETL SEMKO 21.8 25.6 17.4 13.8
Labtest 20.7 24.7 19.3 15.5
Foreign Trade Standards 12.5 10.8 (13.6) (14.4)
-------------- -------------- -------------- --------------
Continuing operations 88.6 100.6 13.5 11.2
Discontinued operation 3.0 --- (100.0) (100.0)
-------------- -------------- -------------- --------------
Total 91.6 100.6 9.8 7.5
============== ============== ============== ==============
</TABLE>
Operating income/(loss) before exceptional items
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Caleb Brett 3.8 4.8 26.3 26.3
ETL SEMKO 3.6 4.0 11.1 11.1
Labtest 7.3 8.2 12.3 8.2
Foreign Trade Standards 1.2 0.9 (25.0) (25.0)
Central (1.2) (1.4) (16.7) (16.7)
-------------- -------------- -------------- --------------
Continuing operations 14.7 16.5 12.2 10.2
Discontinued operation (0.5) --- 100.0 60.0
-------------- -------------- -------------- --------------
Total 14.2 16.5 16.2 14.1
============== ============== ============== ==============
</TABLE>
The Actual growth rate is the percentage increase or decrease of one period
over the prior period where each period is translated into GBP at the exchange
rates applicable to each of those periods.
The Comparable growth rate is the percentage increase or decrease of one period
over the prior period where both periods are translated into GBP at the
exchange rates applicable to the earlier of the two periods.
6
<PAGE>
Management's discussion and analysis of financial condition and results of
operations
Operating and financial review
We set out below a discussion of our operating results and financial condition
for the three months to June 30, 2000 compared to the three months to June 30,
1999 and the six months to June 30, 2000 compared to the six months June 30,
1999, followed by a detailed review of the performance of each division. The
tables below show growth rates of Q2 00 over Q2 99 and HY 00 over HY 99 at
actual exchange rates and at comparable exchange rates. The actual growth rate
is the percentage change of one period over the prior period where each period
is translated into GBP using the exchange rates applicable in that period. The
comparable growth rate is the percentage change of one period over the prior
period where both periods are translated into GBP using the prior period's
exchange rates.
Revenues
<TABLE>
<CAPTION>
Q2 99 Q2 00 Growth HY 99 HY 00 Growth
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Continuing operations 88.6 100.6 12.0 173.1 188.8 15.7
Actual growth 13.5% 9.1%
Comparable growth 11.2% 7.3%
============ ============ ============ ============ ============ ============
</TABLE>
At comparable rates, revenues from continuing operations grew by 11.2% in Q2 00
over Q2 99. The increase was 13.5% at actual rates due to translation gains
arising from the strength of the USD and currencies linked to the USD, against
GBP. Caleb Brett, ETL SEMKO and Labtest all contributed to this increase with
particularly strong growth in textiles and toys testing in Asia and petroleum
testing in the United States. At comparable rates, revenues in these three
divisions increased by 15.4% in Q2 00 over Q2 99 and at actual rates they
increased by 18.1%. FTS revenues decreased by L1.7 million in Q2 00 compared to
Q2 99 due to our reduced share of the Nigerian pre-shipment inspection
programme and the disposal of our technical services operation in February
2000.
At comparable rates, revenues from continuing operations grew by 7.3% in HY 00
over HY 99. The increase was 9.1% at actual rates. Revenues from Caleb Brett,
ETL SEMKO and Labtest increased by 13.0% at comparable rates in HY 00 over HY
99, and by 14.9% at actual rates. Revenues in ETL SEMKO in HY 99 included L2.3
million from our Quality Management operations in Europe. We sold our
controlling interest in these operations in March 1999 so their revenues are
excluded from April 1999 onwards. FTS revenues decreased by L7.9 million in HY
00 compared to HY 99 due to our reduced share of the Nigerian pre-shipment
inspection programme and the disposal of our technical services operation in
February 2000.
Revenues by geographic area at actual exchange rates were as follows:
By geographic area
<TABLE>
<CAPTION>
Growth/ Growth/
Q2 99 Q2 00 (decline) HY 99 HY 00 (decline)
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Americas 36.8 43.3 6.5 70.3 82.3 12.0
Europe, Africa and Middle East 28.1 28.0 (0.1) 60.0 54.2 (5.8)
Asia and Far East 23.7 29.3 5.6 42.8 52.3 9.5
------------ ------------ ------------ ------------ ------------ ------------
Total continuing operations 88.6 100.6 12.0 173.1 188.8 15.7
============ ============ ============ ============ ============ ============
</TABLE>
The increase in revenues in the Americas in both Q2 00 over Q2 99 and HY 00
over HY 99 was primarily due to strong growth in Caleb Brett and ETL SEMKO in
the United States. Revenues in this
7
<PAGE>
region in Q2 00 and HY 00 also benefited from currency translation gains caused
by the strength of the USD against GBP.
The decrease in revenues in the Europe, Africa and Middle East region in Q2 00
over Q2 99 and HY 00 over HY 99 was due to the change in accounting in ETL
SEMKO caused by the sale of our controlling interest in the Quality Management
operations in Europe and reduced revenues from the Nigeria pre-shipment
inspection programmes. Excluding these factors, revenues increased L2.2 million
in HY 00 compared to HY 99 and L1.6 million in Q2 00 compared to Q2 99. The
increase in HY 00 and Q2 00 was driven by a new outsourcing contract in Caleb
Brett and an acquisition in ETL SEMKO offset by reductions due to the strength
of GBP against the Euro.
The increase in revenues in Q2 00 over Q2 99 and HY 00 over HY 99 in Asia and
the Far East region was due to further strong growth in textiles and toys
testing in Labtest and growth in Caleb Brett and ETL SEMKO. Revenues in Q2 00
and HY 00 also benefited from currency translation gains as the HKD reflected
the strength of the USD against GBP.
Operating costs before exceptional items
<TABLE>
<CAPTION>
Q2 99 Q2 00 Growth HY 99 HY 00 Growth
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Continuing operations 73.9 84.1 10.2 148.3 161.3 13.0
Actual growth 13.8% 8.8%
Comparable growth 11.4% 7.1%
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
Our operating costs principally comprise labour costs, property and equipment
rental, depreciation and laboratory consumables. At comparable rates, operating
costs have increased in line with revenues.
Operating income before exceptional items
<TABLE>
<CAPTION>
Q2 99 Q2 00 Growth HY 99 HY 00 Growth
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Continuing operations 14.7 16.5 1.8 24.8 27.5 2.7
Actual growth 12.2% 10.9%
Comparable growth 10.2% 8.5%
Operating margin 16.6% 16.4% 14.3% 14.6%
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
At comparable rates, operating income from continuing operations grew by 10.2%
in Q2 00 over Q2 99. The increase was 12.2% at actual rates due to translation
gains arising from the strength of the USD and currencies linked to the USD,
against GBP. Caleb Brett, ETL SEMKO and Labtest all reported increases in Q2 00
over Q2 99 with continued growth in textiles and toys testing in Asia, a new
outsourcing agreement with B.P. Amoco in the U.K which commenced in March 2000,
and the expansion of telecommunications testing in Europe and the U.S. At
comparable rates, operating income in these three divisions increased by 14.1%
in Q2 00 over Q2 99 and by 16.5% at actual rates. Operating income from FTS was
L0.3 million lower in Q2 00 than Q2 99 due to the reduced Nigerian contract and
the disposal of the technical services division.
At comparable rates, operating income from continuing operations grew by 8.5%
in HY 00 over HY 99. The increase was 10.9% at actual rates. Operating income
from Caleb Brett, ETL SEMKO and Labtest increased by 18.8% at actual rates and
16.1% at comparable rates in HY 00 over HY 99. Operating income from FTS was
L1.4 million lower in HY 00 than HY 99 due to Nigeria and the technical
services division.
8
<PAGE>
Exceptional income/(costs)
Operating exceptional items
<TABLE>
<CAPTION>
Growth/ Growth/
Q2 99 Q2 00 (decline) HY 99 HY 00 (decline)
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Foreign Trade Standards
Provision against Nigerian invoices (2.3) (0.9) 1.4 (7.4) (2.5) 4.9
Payments received 7.1 1.3 (5.8) 16.0 1.3 (14.7)
------------ ------------ ------------ ------------ ------------ ------------
Sub total 4.8 0.4 (4.4) 8.6 (1.2) (9.8)
Restructuring costs (0.1) --- 0.1 (2.1) --- 2.1
------------ ------------ ------------ ------------ ------------ ------------
4.7 0.4 (4.3) 6.5 (1.2) (7.7)
------------ ------------ ------------ ------------ ------------ ------------
Caleb Brett
Provision against Nigerian invoices (0.1) --- 0.1 (0.4) --- 0.4
Payments received 1.1 --- (1.1) 1.5 --- (1.5)
------------ ------------ ------------ ------------ ------------ ------------
1.0 --- (1.0) 1.1 --- (1.1)
------------ ------------ ------------ ------------ ------------ ------------
Total continuing operations 5.7 0.4 (5.3) 7.6 (1.2) (8.8)
------------ ------------ ------------ ------------ ------------ ------------
Discontinued operation
Environmental EPA --- (1.0) (1.0) --- (2.0) (2.0)
------------ ------------ ------------ ------------ ------------ ------------
Total 5.7 (0.6) (6.3) 7.6 (3.2) (10.8)
============ ============ ============ ============ ============ ============
</TABLE>
Operating exceptional items -- continuing operations
In the past four years we have experienced delays in receiving payments from
the Nigerian government for our work on the Nigerian pre-shipment inspection
programmes. This unpaid debt had a material adverse effect on our working
capital, due to continued delays of the Nigerian government in making payments.
In 1997, we adopted a policy of making full provision against unpaid invoices.
The provision for each period is charged to our profit and loss account as an
exceptional cost and the associated debt is removed from working capital. When
payments are received, they are credited as exceptional income in the period in
which the cash is received. A summary of the provisions and payments for both
FTS and Caleb Brett is given above.
In January 1999, we decided to collect inspection fees from exporters before
any inspections were performed for the Nigerian government on the understanding
that these advance payments would be returned to the exporters once we had been
paid for those inspections by the Nigerian government. We collected L5.3
million from exporters in the period January to March 1999 and this amount is
held in our balance sheet as advance payments. On March 31, 1999, the Nigerian
government cancelled its pre-shipment inspection programmes. Revenues for the
existing programmes then ceased and the Nigerian government's debt owed to us
on the old programmes was capped.
At June 30, 2000, the Nigerian government's unpaid debt was L13.6 million under
the old programme for invoices for the period October 1998 to March 1999. If
exporter payments are deducted, the debt is L8.3 million. We have been advised
that the new government in Nigeria has approved its budget for 2000 and we
expect the debt to be settled this year.
On September 1, 1999, the new government in Nigeria re-introduced a pre-
shipment inspection programme. We are participating in this new programme but
in a much smaller capacity than the previous programmes. In HY 00, the new
programme generated revenues of L2.9 million in our FTS division. In Q2 00,
L1.3 million was received from the Nigerian government for invoices through
January 2000. This was credited to exceptional income as shown above.
9
<PAGE>
Following the termination of the Nigerian inspection programmes in March 1999,
we restructured the FTS division in HY 99 at a cost of L2.1 million. Costs were
mostly personnel redundancies and relocation costs.
The oil export-monitoring scheme performed by Caleb Brett was also cancelled by
the Nigerian government on March 31, 1999 and we received payment for the
remaining debt in Q4 99.
Operating exceptional items -- discontinued operation
Although the Environmental division ceased operating in August 1998, the EPA
investigation into the data manipulation problems at the Dallas laboratory is
ongoing and we are continuing to incur legal and other costs. We have charged
an additional L1.0 million of exceptional costs in Q2 00 in connection with
this investigation, making a total charge of L2.0 million for HY 00. We are
pursuing possible rights of recovery against our former parent, Inchcape plc,
and are seeking to recover costs from our professional indemnity insurance
policy but we have not included a provision for any potential recovery in our
financial statements.
Non-operating exceptional items
<TABLE>
<CAPTION>
Growth/ Growth/
Q2 99 Q2 00 (decline) HY 99 HY 00 (decline)
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)
------------ ------------ ------------ ------------ ------------ ------------
Caleb Brett
Proceeds from disposal --- --- --- --- 0.2 0.2
Less attributable goodwill --- --- --- --- (0.5) (0.5)
------------ ------------ ------------ ------------ ------------ ------------
Total --- --- --- --- (0.3) (0.3)
------------ ------------ ------------ ------------ ------------ ------------
Foreign Trade Standards
Proceeds from disposal --- --- --- --- 1.0 1.0
Less net assets --- (0.1) (0.1) --- (1.1) (1.1)
Less attributable goodwill --- --- --- --- (2.6) (2.6)
------------ ------------ ------------ ------------ ------------ ------------
Total --- (0.1) (0.1) --- (2.7) (2.7)
------------ ------------ ------------ ------------ ------------ ------------
Total continuing businesses 0.2 (0.1) (0.3) 2.4 (3.0) (5.4)
------------ ------------ ------------ ------------ ------------ ------------
Bondar Clegg
Proceeds from disposals --- --- --- --- 1.5 1.5
Less net assets --- 0.1 0.1 --- (5.9) (5.9)
Less closure costs --- (0.1) (0.1) --- (0.9) (0.9)
Less attributable goodwill --- --- --- --- (6.9) (6.9)
------------ ------------ ------------ ------------ ------------ ------------
Total discontinued operations --- --- --- --- (12.2) (12.2)
------------ ------------ ------------ ------------ ------------ ------------
Total non-operating items 0.2 (0.1) (0.3) 2.4 (15.2) (17.6)
============ ============ ============ ============ ============ ============
</TABLE>
10
<PAGE>
The exceptional income in ETL SEMKO for HY 99 is made up of L2.2 million for
the sale of the CE Magazine in the United States and L0.2 million for the
disposal of 51% of our Quality Management business in Sweden. We used the sale
proceeds from these disposals to prepay our Senior Term loans.
The exceptional loss of L0.3 million in Caleb Brett in HY 00 was for the
disposal of a loss adjusting business in Chile.
The exceptional loss of L2.7 million in FTS in HY 00 related to the disposal of
the technical services business of FTS in the United States.
The Bondar Clegg division ceased operating in Q1 00. The businesses in North
and South America, Ghana and Mali were sold for L1.5 million and we received
L0.1 million for the sale of assets in Africa. We incurred termination and
closure costs of L0.8 million in Q1 00 and L0.1 million in Q2 00. The disposals
and closure of Bondar Clegg generated a loss of L5.3 million, which, after
deducting goodwill of L6.9 million increased to L12.2 million.
Net interest expense
<TABLE>
<CAPTION>
Q2 99 Q2 00 Growth HY 99 HY 00 Growth
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
Continuing operations 8.2 9.1 0.9 16.3 17.2 0.9
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
The increase in interest expense in Q2 00 over Q2 99 and HY 00 over HY 99 is
primarily due to the capitalised interest on the Parent Subordinated PIK
debentures. A detailed breakdown of the interest figures is given in note 5 to
our financial statements.
Income taxes
<TABLE>
<CAPTION>
Q2 99 Q2 00 Decline HY 99 HY 00 Growth
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income tax charge 4.4 3.8 (0.6) 5.3 5.6 0.3
% of income before exceptional items 73.3% 51.4% 72.6% 58.3%
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
A tax charge of L3.8 million was made against income in Q2 00 making a total
charge of L5.6 million for HY 00. The Internal Revenue Service in the United
States is currently auditing our Federal Tax Return for 1996 and the tax charge
of L3.8 million included a provision of L1.0 million for additional tax that
may arise. The tax charge as a percentage of income before exceptional items
has reduced to 51.4% in Q2 00 from 73.3% in Q2 99 and to 58.3% in HY 00 from
72.6% in HY 99. We attribute the reduced tax rate in Q2 00 and HY 00 to the
increased taxable income generated in countries with lower tax rates and to the
use of tax losses in countries with higher tax rates.
11
<PAGE>
Operating and financial review by division
We set out below a discussion of the performance of each of our operating
divisions for Q2 00 compared to Q2 99 and HY 00 compared to HY 99. The
operating income by division given below is before exceptional items.
Caleb Brett
Operating results
<TABLE>
<CAPTION>
Q2 99 Q2 00 Growth HY 99 HY 00 Growth
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 33.6 39.5 5.9 64.7 74.3 9.6
Actual growth 17.6% 14.8%
Comparable growth 16.4% 14.1%
Operating income 3.8 4.8 1.0 6.8 7.8 1.0
Actual growth 26.3% 14.7%
Comparable growth 26.3% 13.2%
Operating margin 11.3% 12.2% 10.5% 10.5%
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
Revenues in Caleb Brett increased L5.9 million or 16.4% at comparable rates in
Q2 00 over Q2 99. Activity in Caleb Brett is affected by trading volumes of
crude oil and petroleum products. When oil companies increase their inventory
levels, the volume of inspection and testing activity rises but the reverse is
true when inventory levels are static or decrease. The crude oil and petroleum
product stock levels were run down significantly during Q1 00, partly because
the price of crude oil was high and partly because stocks were built up at
December 31, 1999 to deal with any problems which may have been caused by the
Year 2000 issue. The oil companies started rebuilding stock levels toward the
end of March 2000 and this has continued through Q2 00. As a result, volumes of
inspection and testing have increased.
Revenues in North America increased in Q2 00 over Q2 99, primarily due to an
increase in market share, price increases in the United States and a new coal
sampling and analysis contract in Canada which commenced in Q1 00. Revenues in
Europe in Q2 00 suffered from a reduction in agricultural inspections due to
the non-continuance of a short term EEC food aid programme. This reduction was
partially offset by the revenues from a new outsourcing agreement with B.P.
Amoco Oil Analytical Technology in the United Kingdom which commenced in March
2000. Under this agreement, Caleb Brett have formed an alliance with B.P. Amoco
whereby Caleb Brett provides analytical testing and other services to B.P.
Amoco Oil and other members of the B.P. Amoco group. The expertise of Caleb
Brett and B.P. Amoco will be combined in a new centre for excellence which is
due to be set up by Caleb Brett on September 1, 2000. Revenues in Asia
continued to grow well, aided by acquisitions made in 1999 and the minerals
testing work which was transferred from the discontinued Bondar Clegg division.
Operating income grew faster than revenues in Q2 00 compared to Q2 99, largely
due to the new B.P. Amoco outsourcing agreement. During Q2 00, B.P. Amoco
retained the costs of operating their analytical testing facility so we had the
benefit of increased revenues without the associated operating costs. Once the
new testing facility opens in Q3 00 and the B.P. personnel and assets have been
transferred to ITS, our operating costs will increase and margins will be
reduced. The new coal contract in Canada also contributed to the increased
operating margin in Q2 00.
At comparable rates, revenues for HY 00 increased by 14.1% over HY 99. At
actual rates, the increase was 14.8%. In HY 00, approximately 60% of revenues
were generated in the American and Asian regions which benefited from currency
translation gains and 40% of revenues were in the European region which
suffered currency translation losses.
The increase in revenues in HY 00 over HY 99 was attributable to the increase
in market share in the United States and Canada, the B.P. outsourcing contract
in the United Kingdom, expansion in West
12
<PAGE>
Africa and Asia offset by the reduction in the food aid programme and the
cessation of the Nigerian oil export monitoring scheme on March 31, 1999.
Operating income increased L1.0 million or 13.2% at comparable rates in HY 00
over HY 99. The operating margin remained steady at 10.5%. The increased
operating income generated by the new coal and outsourcing contacts was offset
by lower income from the food aid programme and the cessation of the Nigerian
oil export monitoring scheme.
In Q1 00, Caleb Brett sold a small loss adjusting business in Chile for L0.2
million. This was a non-core activity with insufficient growth potential.
In Q2 00, Caleb Brett acquired two small businesses in Iran and Norway at a
cost of L0.4 million and L0.2 million respectively.
ETL SEMKO
Operating results
<TABLE>
<CAPTION>
Q2 99 Q2 00 Growth HY 99 HY 00 Growth
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 21.8 25.6 3.8 43.7 48.7 5.0
Actual growth 17.4% 11.4%
Comparable growth 13.8% 8.7%
Operating income 3.6 4.0 0.4 6.4 7.6 1.2
Actual growth 11.1% 18.8%
Comparable growth 11.1% 17.2%
Operating margin 16.5% 15.6% 14.6% 15.6%
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
Revenues in ETL SEMKO grew by L3.8 million or 13.8% at comparable rates in Q2
00 over Q2 99.
In the Americas the increase was largely attributable to expansion of the
testing and certification of telecommunications equipment. In June 2000, The
Federal Communications Commission ("FCC") in the United States designated ETL
SEMKO, Americas as a Telecommunications Certification Body. This allows us to
test and certify information technology and telecommunications equipment to FCC
requirements. We have used this accreditation to streamline the approval
process for our manufacturing clients which should lead to additional revenue
opportunities for our clients and ourselves. American revenues in Q2 00 also
benefited from the acquisition of Integral Sciences, Inc which was completed in
November 1999.
European and Asian revenues increased in Q2 00 due to the expansion of electro
magnetic compatibility testing in Sweden and Taiwan, and the growth of business
in the United Kingdom and Germany were helped by acquisitions made in 1999.
Operating income in Q2 00 increased by L0.4 million in line with revenues
although operating margins have been slightly reduced due to the cost of
integrating the acquisitions and increased goodwill amortisation.
At comparable rates, revenues for HY 00 increased by 8.7% over HY 99. At actual
rates the increase was 11.4%. The American and Asian regions, which accounted
for approximately 80% of revenues in HY 00, benefited from currency translation
gains in HY 00 due to the strength of the USD and dollar related currencies
against GBP. The European region suffered currency translation losses due to
the strength of GBP against the Euro and other European currencies.
The increase in revenues in HY 00 over HY 99 was largely due to the impact of
acquisitions made in 1999 and growth in telecommunications testing. Revenues in
HY 99 included L2.3 million from our Quality Management operations in Europe.
In March 1999 we sold our controlling interest in these
13
<PAGE>
operations and reduced our holding from 51% to 49% as a result of which
revenues from these operations are excluded from our group revenues from April
1, 1999. Without this change in accounting, ETL SEMKO revenues would have
increased by L7.3 million or 16.7% at actual rates in HY 00 over HY 99.
Operating income increased L1.2 million or 17.2% at comparable rates in HY 00
over HY 99. The operating margin increased by 1.0% in HY 00 over HY 99.
Operating income in HY 99 included 100% of the operating income from our
European Quality Management operations. From April 1, 1999 only 49% of Quality
Management income was included in our group income. Without this change in
accounting, operating income would have increased L1.7 million or 26.5% at
actual rates in HY 00 over HY 99. Operating income in HY 00 benefited from
improved efficiency in Asia, particularly in Hong Kong where operating income
has increased over 120% in HY 00 over HY 99 and operating margin increased from
15% to 28%.
In Q1 00 we acquired the assets of a small laboratory in Italy from Electrolux
for L0.1 million. This laboratory carries out Electro Magnetic Compatibility
testing providing us with a facility in the fast growing Italian market and
strengthening our existing relationship with Electrolux.
In Q1 00 we acquired the Radio Communications Testing operation of ERA
Technology in the United Kingdom for L0.1 million. This operation was merged
into our existing facility at Leatherhead and will help us to penetrate the
mobile telephone handset testing market in the United Kingdom. Capital
expenditure of L1.0 is required to upgrade the testing facility and equipment.
Labtest
Operating results
<TABLE>
<CAPTION>
Q2 99 Q2 00 Growth HY 99 HY 00 Growth
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 20.7 24.7 4.0 37.2 44.3 7.1
Actual growth 19.3% 19.1%
Comparable growth 15.5% 16.4%
Operating income 7.3 8.2 0.9 10.8 12.9 2.1
Actual growth 12.3% 19.4%
Comparable growth 8.2% 15.7%
Operating margin 35.3% 33.2% 29.0% 29.1%
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
Revenues in Labtest grew by L4.0 million or 15.5% at comparable rates in Q2 00
over Q2 99.
The growth in revenues in Labtest is driven by our business in Asia and to a
lesser extent in Europe. The growth is wholly organic and we attribute it to a
number of factors, including the continually increasing sourcing of consumer
goods from Asia and developing countries.
About 40% of Labtest revenues are derived from textiles testing which has grown
21% in Q2 00 compared to Q2 99. We attribute the growth in textiles testing to
the trend to source more styles and colour choices to consumers, the increase
in the quality consciousness of buyers which leads to more comprehensive
testing and technological advances in the development of new fibres. The volume
of toys testing has also continued to grow, with revenues 23% higher in Q2 00
compared to Q2 99.
14
<PAGE>
Code of Conduct work which is a new sector of inspection in Labtest added L0.7
million to revenues in Q2 00 and is continuing to expand. This work has
resulted from consumers and pressure groups being increasingly concerned about
the social and safety conditions to which workers in developed and developing
countries are subjected. Code of Conduct audit work includes factory
inspections, document review and employee interviews.
Operating income in Labtest grew by L0.9 million or 8.2% at comparable rates in
Q2 00 over Q2 99 and 12.8% at actual rates. Operating income from textiles,
toys and code of conduct work increased in Q2 00 over Q1 00.
At comparable rates, revenues for HY 00 increased by 16.4% over HY 99. At
actual rates the increase was 19.1%. As the Labtest business is predominantly
in Asia, revenues and operating income in HY 00 and Q2 00 have benefited from
currency translation gains due to the strength of the Hong Kong Dollar against
GBP.
Revenues from textiles and toys testing increased L5.2 million in HY 00 over HY
99 and Code of Conduct revenues increased by L1.2 million.
Operating income increased L2.1 million or 15.7% at comparable rates in HY 00
over HY 99 and the operating margin remained steady at around 29%.
Foreign Trade Standards
<TABLE>
<CAPTION>
Operating results Q2 99 Q2 00 Decline HY 99 HY 00 Decline
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 12.5 10.8 (1.7) 27.5 21.5 (6.0)
Actual decline (13.6)% (21.8)%
Comparable decline (14.4)% (22.9)%
Operating income 1.2 0.9 (0.3) 3.0 1.6 (1.4)
Actual decline (25.0)% (46.7)%
Comparable decline (25.0)% (46.7)%
Operating margin 9.6% 8.3% 10.9% 7.4%
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
Revenues in FTS decreased by L1.7 million or 14.4% at comparable rates in Q2 00
over Q2 99. This decrease was due to our reduced participation in the Nigerian
pre-shipment inspection programme and the sale of our technical services
operation in the United States. Revenues from other FTS work increased by L1.5
million in HY 00 over HY 99. The new pre-shipment inspection programmes in
Bangladesh, which started in March 2000, the former Soviet Republic of Georgia,
which started in August 1999, and Argentina which started in June 1999, all
contributed to results in Q2 00. The volume of inspections carried out for the
Saudi Arabian Standards Authority also increased in Q2 00 over Q2 99.
Operating income decreased by L0.3 million or 25% in Q2 00 over Q2 99 due to
the reduction in inspections from Nigeria and the sale of the technical
services operation.
Revenues in HY 00 decreased by L6.0 million or 22.9% at comparable rates. At
actual rates, the decrease was 21.8%. The decrease was due to the reduction in
inspections from Nigeria and the sale of the technical services operation.
Operating income decreased by L1.4 million or 46.7% in HY 00 over HY 99 for
reasons explained above.
15
<PAGE>
The pre-shipment inspection programme in Ghana ceased in March 2000 but our
involvement was extended to June 2000 to facilitate the transition to a
destination inspection scheme. Revenues from Ghana have reduced substantially
this year and will cease in Q3 00. Revenues from Ghana were L1.7 million in HY
00 and L1.0 million in HY 99. We are actively involved in the tender process
for a number of new programmes, with the expectation of winning at least one
significant contract in the year 2000.
Following the cessation of the old Nigerian pre-shipment inspection programmes,
we restructured the FTS division at a cost of L2.1 million in HY 99. We have
reported these costs as exceptional operating costs in our financial statements
and they are excluded from operating income in the above table.
Central costs
<TABLE>
<CAPTION>
Q2 99 Q2 00 Increase HY 99 HY 00 Increase
Lm Lm Lm Lm Lm Lm
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operating costs 1.2 1.4 0.2 2.2 2.4 0.2
Actual decline 16.7% 9.1%
Comparable decline 16.7% 9.1%
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
Central costs comprise the costs of our corporate head office in London, our
tax and human resources team in the United States and costs associated with
non-trading holding companies. Principally these costs comprise salaries,
property rental, travel and legal and professional fees. The increase in costs
in Q2 00 includes increased investment in e-commerce.
Effects of U.S. GAAP adjustments on operating income
Our financial statements have been prepared in accordance with U.K. GAAP which
differs in certain significant respects from U.S. GAAP. The most significant
differences between U.S. GAAP and U.K. GAAP are described in note 12 of the
financial statements.
16
<PAGE>
Financial condition and liquidity
At June 30, 2000 we had cash of L19.9 million compared to L20.2 million at
December 31, 1999.
Our operating activities generated net cash inflow of L23.5 million in HY 00
compared to L32.1 million in HY 99. Cash received from the Nigerian government
was L1.3 million in HY 00 compared to L17.5 million received in HY 99.
Excluding the impact of Nigeria, cash generated by operating activities
increased by L7.6 million in HY 00 over HY 99. Net cash inflow from operating
activities includes operating income after operating exceptionals, before
depreciation and other non-cash items, as well as working capital movements.
We spent L8.7 million on tangible fixed assets in HY 00 compared to L5.1
million in HY 99. This is mostly expenditure on laboratory and I.T. equipment.
The increase of L3.5 million is mostly in the ETL SEMKO division where L1.0
million was invested in upgrading the testing facilities of the newly acquired
Radio Communications Testing business in the United Kingdom, L1.9 million was
spent on acquiring two new EMC testing chambers in the United States, the
facility in Atlanta was relocated at a cost of L0.3 million and a new fire test
facility was opened in Lexington at a cost of L0.3 million.
We spent L0.9 million on acquisitions in HY 00 compared to L4.1 million in HY
99. In HY 00, we received L2.4 million for the disposal of Bondar Clegg, the
technical services division of FTS and the Caleb Brett loss adjusting business
in Chile. The closure of Bondar Clegg cost L0.9 million in termination payments
and we are due to receive further consideration of L0.4 million in 2001 and
2002. In HY 99, we received L3.2 million for the disposal of our Compliance
Engineering magazine business and our controlling share of ETL SEMKO's Quality
Management business.
At June 30, 2000, our total borrowings were L328.6 million less unamortised
debt issuance costs of L9.1 million. The following table gives a detailed
breakdown:
Borrowings
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
Lm Lm
------------ ------------
<S> <C> <C>
Senior Subordinated Notes 126.1 134.4
Senior Term Loan A 61.6 61.6
Senior Term Loan B 34.9 36.2
Senior Revolving Credit Facility 10.4 16.4
Parent Subordinated PIK Debentures 70.1 79.8
Other borrowings 0.6 0.2
------------ ------------
Total borrowings 303.7 328.6
Debt issuance costs (10.0) (9.1)
------------ ------------
Net borrowings 293.7 319.5
============ ============
</TABLE>
Apart from a small amount of the Revolving Credit Facility, our borrowings are
denominated in currencies other than GBP, which are affected by exchange rate
fluctuations. In HY 00, we made scheduled repayments of L3.3 million of our
Senior Term A Loans and repaid L0.4 million of other loans. There were no
scheduled repayments of the Senior Subordinated Notes and Senior Term B Loans
in HY 00. We drew L6.0 million on the Senior Revolver in HY 00 to fund
acquisitions and working capital.
17
<PAGE>
Additional Parent Subordinated PIK Debentures totalling L4.6 million were
issued in lieu of cash for interest due on the Parent Subordinated PIK
Debentures for the periods set out below.
Issue of Parent Subordinated PIK Debentures
<TABLE>
<CAPTION>
Periods of interest Lm
------------
<S> <C>
November 2, 1999 to February 1, 2000 2.3
February 2, 2000 to May 1, 2000 2.3
------------
Total 4.6
============
</TABLE>
In HY 00, we paid interest and finance charges of L11.2 million (HY 99: L11.1
million) on our borrowings. These figures exclude interest relating to the
Parent Subordinated PIK Debentures which was funded by further issues of such
securities.
We paid dividends of L2.0 million to minority shareholders in HY 00 compared to
L1.4 million in HY 99.
At June 30, 2000 we were owed L15.6 million by the Nigerian government. Of this
total, L13.6 million relates to inspection work carried out in the period
October 1998 to March 1999 under pre-shipment inspection programmes which are
no longer operating. We are holding payments from exporters of L5.3 million as
advance payments against this debt. The balance of the debt of L2.0 million
relates to inspection work carried out under the new programmes for the period
February to June 2000. These debts are 100% provided against in our financial
statements, however their non-payment reduces our operating cash flow and we
have used our revolving credit facility to fund working capital. We are
constantly lobbying the Nigerian government for payment and our latest
information is that the payments relating to the old debt will be received this
year.
We anticipate that available cash, cash flows from operations and borrowing
availability under our Revolving Credit Facility will be sufficient to satisfy
our working capital and capital expenditure requirements for at least the next
12 months. However, to the extent that we should desire to increase our
financial flexibility and capital resources or choose or be required to fund
future capital commitments from sources other than operating cash or from
borrowings under our existing credit facility, we may consider raising
additional capital by increasing the credit facility or through the raising of
additional equity. There can be no assurance, however, that additional capital
will be available to us on acceptable terms, if at all.
Our ability to meet our debt repayments in the longer term will depend upon the
achievement of our business plan. There can be no assurance that we will
generate sufficient cash flow from operations or that future working capital
will be available in an amount sufficient to enable us to service our
indebtedness, or make necessary capital expenditures.
In order to purchase the business from Inchcape plc, we raised finance in the
form of Senior Subordinated Notes, Senior Term Loans and Parent Subordinated
PIK Debentures. Subject to the provisions under which these Loans were made,
and subject to certain exceptions and applicable law, there are no restrictions
on the ability of: (a) the Company or any of its direct and indirect
subsidiaries from paying dividends or making any other distributions or loans
or advances to Intertek Finance plc or (b) the direct and indirect subsidiaries
of the Company from paying dividends or making any other distributions or loans
or advances to the Company.
18
<PAGE>
Investigations by the U.S. Environmental Protection Agency
Two of our subsidiary corporations are currently involved in investigations by
the U.S. Environmental Protection Agency ("EPA"). Details of each investigation
are given below:
Caleb Brett USA, Inc. -- Linden, New Jersey
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 who referred the matter
to the U.S. Department of Justice. Civil and criminal investigations are
underway.
In September 1999, the Department of Justice announced that three laboratory
supervisors pleaded guilty to criminal charges that they participated in a
scheme to falsify chemical analyses of gasoline. The Department of Justice
initially announced that Caleb Brett was not considered a target of this
ongoing investigation. Recently, Caleb Brett have been advised by the
government that it is a target of the environmental investigation and Caleb
Brett USA expects that a criminal charge will be filed against it.
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. Caleb Brett is presently in negotiations with the
U.S. government to resolve this matter and on the basis of currently available
information, we consider that the outcome is unlikely to have a material
adverse effect on our business and financial position. We have notified
Inchcape plc of the investigation and are pursuing possible rights of recovery
against Inchcape plc under the Share Purchase Deed.
Intertek Testing Services Environmental Laboratories, Inc.
In December 1997, Intertek Testing Services Environmental Laboratories, Inc.
("ITS Environmental") discovered certain discrepancies in reported testing
results at its facility in Richardson, near Dallas, Texas ("Dallas"). A further
investigation by the Quality Assurance/Quality Control department of ITS
Environmental revealed that technicians at the Dallas facility had at various
times manually integrated data and improperly calibrated test equipment in a
way that may have skewed the accuracy of the test results that have been
reported, but not necessarily the basic data recorded in the testing equipment.
ITS Environmental promptly reported these discrepancies to the EPA and to
clients. Civil and criminal investigations are under way. A government
investigation at the ITS Environmental facility uncovered evidence of false
reporting beyond that initially discovered and disclosed by ITS Environmental.
In August 1998, ITS Environmental sold its laboratory business in Burlington,
Vermont U.S.A. and St. Helens, U.K. and stopped commercial operations at the
laboratory in Dallas. These actions resulted in the discontinuation of business
at ITS Environmental. This sale has not relieved ITS Environmental of any
liability it may face as a result of these investigations or otherwise.
After commercial operations ceased in August 1998, the facility was used to
reprocess the original data. The reprocessing is complete and the facility is
now closed. ITS Environmental developed what it believed to be an effective
data screening and reprocessing method. The reprocessing effort was aimed at
providing clients with data of known quality. The EPA have advised ITS
Environmental that the reprocessing is not acceptable to the EPA for clean up
or compliance purposes. Nevertheless, ITS Environmental believes that it can
establish the scientific integrity of the reprocessing work.
19
<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.
On December 9, 1999, a complaint was filed in federal court in Chicago,
Illinois against Intertek Testing Services Environmental Laboratories, Inc.
seeking declaratory judgement and damages arising from analyses performed
between 1991 and 1997. On December 17, 1999, a complaint was filed in state
court in Kansas City, Missouri, against Intertek Testing Services Limited
seeking damages from improper testing and analysis. On January 12, 2000, a
third complaint was filed in state court in Los Angeles, California, against
Intertek Testing Services Limited and Intertek Testing Services Environmental
Laboratories, Inc. seeking damages arising for improper testing and analysis
and alleging fraud.
All three cases are in the preliminary stages and we are unable to predict the
outcome of these actions. We are unable to estimate the cost of any civil or
criminal penalties arising from this investigation. However, on the basis of
currently available information, we consider that the outcome is unlikely to
have a material adverse effect on our business and our financial position. We
have notified Inchcape plc of the investigation and are pursuing possible
rights of recovery against Inchcape plc under the Share Purchase Deed. Our
group professional indemnity insurance policy may respond at least to legal
costs, civil damages and third party claims. With our broker, we are seeking
acceptance of the loss by the insurer. We have made initial claims for L2.5
million for legal costs.
Information Technology
Each of our divisions is responsible for the information technology needed to
serve its clients, including laboratory information management systems,
inspection reporting systems, and order processing and ledger accounting
systems. Other systems requiring global co-ordination, such as accounting
consolidation and e-mail, are managed through our head office.
To date, we have not experienced any material Year 2000 issues and we are not
aware of any material Year 2000 issues experienced by our major suppliers and
customers. We estimate that we spent approximately L2.0 million in 1999 on
remedial and replacement work for both IT systems and non-IT systems. This
figure includes expenditure on projects where the replacement of a non-
compliant system had been accelerated but excludes operating costs associated
with time spent by employees in the evaluation and implementation process and
Year 2000 compliance matters generally.
Euro
On January 1, 1999, eleven of the European Union member states, including seven
countries in which we operate, established fixed conversion rates between their
existing currencies and adopted one common currency, the Euro. The conversion
to the Euro eliminates currency exchange rate risk among the eleven member
countries.
The currencies of the eleven member states remain legal tender in the
participating countries during a three-year transition period from January 1,
1999 through January 1, 2002. Effective January 1, 1999, the Euro is traded on
currency exchanges and is available for non-cash transactions during the three-
year transitional period. Beginning on January 1, 2002, the European Central
Bank will issue Euro-denominated bills and coins for use in cash transactions.
On or before July 1, 2002, the participating countries will withdraw all bills
and coins and use the Euro as their legal currency.
Our operating units affected by the Euro have established plans to address the
issues raised by the conversion. These issues, among others, include such
matters as pricing, continuity of contracts, accounting and financial
reporting, taxation, treasury activities and computer systems. A number of our
operating units in France and Portugal have converted their systems and began
reporting in Euros during Q1 00. We anticipate that the remaining operating
units will convert their local records to the Euro during the three-year
transition period.
20
<PAGE>
Although we have not identified any immediate problems, we cannot be certain
that the harmonisation of currencies in Europe will not have a material adverse
impact on the operating results, financial position or liquidity of our
European businesses.
21
<PAGE>
Intertek Testing Services Limited
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Unaudited)
--------------------------------
Six months to Six months to
June 30, June 30,
1999 2000
Notes L000 L000
-------------- --------------
<S> <C> <C> <C>
Revenues
Continuing operations 173,093 188,773
Discontinued operations 5,631 685
-------------- --------------
Group revenues 3 178,724 189,458
Operating costs (147,741) (166,222)
-------------- --------------
Group operating income 30,983 23,236
Share of operating profit in associates 226 392
-------------- --------------
Total operating income 31,209 23,628
-----------------------------------------------------------------------------------------------------------------------------------
Operating income/(loss) before exceptional items
Continuing operations 24,843 27,512
Discontinued operations (1,254) (699)
-------------- --------------
3 23,589 26,813
Exceptional items credited/(charged) to operating income
Continuing operations 4 7,620 (1,185)
Discontinued operations 4 --- (2,000)
-------------- --------------
Total operating income 31,209 23,628
-------------- --------------
Operating income/(loss) after exceptional items
Continuing operations 32,463 26,327
Discontinued operations (1,254) (2,699)
-------------- --------------
Total operating income 31,209 23,628
-----------------------------------------------------------------------------------------------------------------------------------
Non-operating exceptional items
Continuing operations 4 2,410 (3,016)
Discontinued operations 4 --- (12,170)
-------------- --------------
Total non-operating exceptional items 2,410 (15,186)
-------------- --------------
Income on ordinary activities before net interest 33,619 8,442
Net interest expense 5 (16,259) (17,185)
-------------- --------------
Income/(loss) before taxation 17,360 (8,743)
Taxation 6 (5,300) (5,574)
-------------- --------------
Income/(loss) after taxation 12,060 (14,317)
Minority interests (1,523) (1,393)
-------------- --------------
Net income/(loss) for the group and its share of associates 10,537 (15,710)
============== ==============
</TABLE>
The accompanying notes on pages F-6 to F-31 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,
1999 2000
L000 L000
-------------- --------------
<S> <C> <C>
Revenues
Continuing operations 88,570 100,637
Discontinued operations 3,063 9
-------------- --------------
Group revenues 91,633 100,646
Operating costs (71,868) (84,914)
-------------- --------------
Group operating income 19,765 15,732
Share of operating profit in associates 215 195
-------------- --------------
Total operating income 19,980 15,927
--------------------------------------------------------------------------------
Operating income/(loss) before exceptional
items
Continuing operations 14,767 16,555
Discontinued operations (537) (38)
-------------- --------------
14,230 16,517
Exceptional items credited/(charged) to
operating income
Continuing operations 5,750 410
Discontinued operations --- (1,000)
-------------- --------------
Total operating income 19,980 15,927
-------------- --------------
Operating income/(loss) after exceptional
items
Continuing operations 20,517 16,965
Discontinued operations (537) (1,038)
-------------- --------------
Total operating income 19,980 15,927
--------------------------------------------------------------------------------
Non-operating exceptional items
Continuing operations 166 (57)
Discontinued operations --- (61)
-------------- --------------
Total non-operating exceptional items 166 (118)
-------------- --------------
Income on ordinary activities before net
interest 20,146 15,809
Net interest expense (8,190) (9,073)
-------------- --------------
Income before taxation 11,956 6,736
Taxation (4,367) (3,783)
-------------- --------------
Income after taxation 7,589 2,953
Minority interests (761) (779)
-------------- --------------
Net income for the group and its share of
associates 6,828 2,174
============== ==============
</TABLE>
The accompanying notes on pages F-6 to F-31 are an integral part of these
financial statements.
F-2
<PAGE>
Intertek Testing Services Limited
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
--------------
December 31, June 30,
1999 2000
Notes L000 L000
-------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash 11 20,150 19,901
Trade receivables 70,103 73,711
Inventories 2,614 1,697
Other current assets 15,631 21,465
-------------- --------------
Total current assets 108,498 116,774
Goodwill 15,814 16,192
Property, plant and equipment, net 53,746 56,455
Investments 503 797
-------------- --------------
Total assets 178,561 190,218
============== ==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Borrowings (including current portion of long term borrowings) 7 15,429 24,960
Accounts payable, accrued liabilities and deferred income 69,477 74,466
Income taxes payable 5,368 6,737
-------------- --------------
Total current liabilities 90,274 106,163
Long term borrowings 7 278,236 294,567
Provisions for liabilities and charges 6,789 7,054
Minority interests 5,721 5,340
Shareholders' deficit
Ordinary shares 808 808
Redeemable preference shares 105,478 105,478
Shares to be issued 2,793 2,793
Premium in excess of par value 3,635 3,635
Accumulated deficit (315,173) (335,620)
-------------- --------------
Total shareholders' deficit (202,459) (222,906)
-------------- --------------
Total liabilities and shareholders' deficit 178,561 190,218
============== ==============
</TABLE>
The accompanying notes on pages F-6 to F-31 are an integral part of these
financial statements.
F-3
<PAGE>
Intertek Testing Services Limited
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
--------------------------------
Six months to Six months to
June 30, 1999 June 30, 2000
Notes L000 L000
-------------- --------------
<S> <C> <C> <C>
Total operating cash inflow 9 32,084 23,517
Returns on investments and servicing of finance 10 (12,519) (13,253)
Taxation (2,485) (4,777)
Capital expenditure and financial investment 10 (5,144) (8,686)
Acquisitions and disposals 10 (863) 586
-------------- --------------
Cash inflow/(outflow) before financing 11,073 (2,613)
Financing 10 15 2,339
-------------- --------------
Increase/(decrease) in cash in the period 11,088 (274)
-------------- --------------
Reconciliation of net cash flow to movement in net debt 11
Increase/(decrease) in cash in the period 11,088 (274)
Cash inflow/(outflow) from movement in debt 19,910 (2,249)
-------------- --------------
Change in net debt resulting from cash flows 30,998 (2,523)
Debt issued in lieu of interest payment (4,013) (4,606)
Acquisitions and disposals (1,587) (728)
Other non-cash movements (960) (1,011)
Exchange adjustments (13,933) (17,243)
-------------- --------------
Movement in net debt in the period 10,505 (26,111)
Net debt at the start of the period (279,001) (273,515)
-------------- --------------
Net debt at the end of the period (268,496) (299,626)
============== ==============
</TABLE>
The accompanying notes on pages F-6 to F-31 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 to Six months to
June 30, 1999 June 30, 2000
L000 L000
-------------- --------------
<S> <C> <C>
Net income/(loss) from subsidiaries 10,451 (15,656)
Net income/(loss) from associates 86 (54)
-------------- --------------
10,537 (15,710)
Exchange adjustments (11,813) (14,779)
-------------- --------------
Total recognised gains and losses (1,276) (30,489)
============== ==============
</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)
---------------------------------------------------------------------------------------------------
Redeemable Premium in
Ordinary preference Shares to be excess of par Accumulated
shares shares issued value deficit Total
L000 L000 L000 L000 L000 L000
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
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)
============= ============= ============= ============= ============= =============
Balance at January 1, 2000 808 105,478 2,793 3,635 (315,173) (202,459)
Net loss --- --- --- --- (15,710) (15,710)
Goodwill adjustments --- --- --- --- 10,042 10,042
Exchange adjustments --- --- --- --- (14,779) (14,779)
------------- ------------- ------------- ------------- ------------- -------------
Balance at June 30, 2000 808 105,478 2,793 3,635 (335,620) (222,906)
============= ============= ============= ============= ============= =============
</TABLE>
Included in accumulated deficit is L282.6 million relating to goodwill (at June
30, 1999: L282.9 million). This comprises goodwill of L280.9 written off to
reserves in relation to the acquisition of subsidiaries prior to December 1997
(at June 30, 1999: L282.1 million) and L1.7 million amortised goodwill in
relation to acquisitions from January 1, 1998 (at June 30, 1999: L0.8 million).
The accompanying notes on pages F-6 to F-31 are an integral part of these
financial statements.
F-5
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
1. Basis of presentation
The accompanying consolidated financial statements of the Company and its
subsidiaries at June 30, 2000, for the six months to June 30, 2000 and for the
three months to June 30, 2000 are unaudited. In the opinion of the Directors,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the financial statements have been included. The results
of these periods are not necessarily indicative of results for the entire year
and have been prepared in conformity with accounting principles generally
accepted in the United Kingdom ("U.K. GAAP") and are presented under the
historical cost convention. These principles differ in certain material
respects from generally accepted accounting principles in the United States
("U.S. GAAP") -- see note 12.
For the purpose of these condensed consolidated financial statements, certain
information and disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United
Kingdom have been condensed or omitted. These unaudited statements should be
read in conjunction with the audited financial statements and notes as of and
for the year ended December 31, 1999.
2. Accounting policies
The significant accounting policies adopted by the Company and its subsidiaries
are set out below.
Basis of consolidation
The consolidated financial statements of the Company include the financial
statements of the Company and its subsidiaries.
The acquisition method of accounting has been adopted. Under this method, the
results of subsidiaries acquired or sold are included in the consolidated
statement of income of the Company from, or up to, the date control passes.
The consolidated statements of income of the Company include their respective
shares of income from associated undertakings. The consolidated balance sheets
of the Company includes interests in associates at their respective shares of
the net tangible assets.
Use of estimates
Preparation of financial statements in conformity with U.K. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses for an accounting period. Such estimates and assumptions could
change in the future as more information becomes known or circumstances alter,
such that the group's actual results may differ from the amounts reported and
disclosed in the financial statements.
Foreign currencies
The results of operations and cash flows of overseas subsidiaries and
associated undertakings are translated into sterling at the average of the
month end rates of exchange for the period. Assets and liabilities in foreign
currencies are translated into sterling at closing rates of exchange except
where rates are fixed under contractual arrangements.
The difference between net income/(loss) translated at average and at closing
rates of exchange is included in the statement of total recognised gains and
losses as a movement in shareholders' equity/(deficit). Exchange differences
arising from the retranslation to closing rates of exchange of opening
shareholders' equity, long-term foreign currency borrowings used to finance
foreign currency investments, and foreign currency borrowings that provide a
hedge against shareholders' equity are also reflected as movements in
shareholders' equity/(deficit). All other exchange differences are dealt with
in operations.
F-6
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Accounting policies (continued)
Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost less depreciation, which is
provided, except for freehold land, on a straight line basis over the estimated
useful lives of the assets, mainly at the following annual rates:
<TABLE>
<CAPTION>
<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>
Leases
Assets held under capital leases are treated as if they had been purchased at
the present value of the minimum lease payments. This cost is included in
property, plant and equipment, and depreciation is provided over the shorter of
the lease term or the estimated useful life. The corresponding obligations
under these leases are included within borrowings. The finance charge element
of rentals payable is charged to operations to produce a constant rate of
interest. Operating lease rentals are charged to operations on a straight-line
basis over the periods of the leases.
Inventories
Inventories are stated at the lower of cost or net realisable value. Cost
comprises expenditure incurred in the normal course of business in bringing
inventories and work in progress to their present location and condition.
Revenues
Revenues represent the total amount receivable for services provided and goods
sold, excluding sales-related taxes and intra-group transactions. Revenue is
recognised when the relevant service is completed or goods delivered.
Taxation
Deferred taxation is provided using the liability method at current taxation
rates on timing differences to the extent that the directors consider that it
is probable that a liability or asset will crystallise.
Pension benefits
Liabilities under defined contribution pension schemes are charged to
operations when incurred. ITS has a number of defined benefit pension schemes
for which contributions are based on triennial actuarial valuations. Pension
charges in operations have been calculated at a substantially level percentage
of current and expected future pensionable payroll, with variations from
regular cost spread over the expected remaining service lives of employees.
Goodwill and other intangible assets
Purchased goodwill in respect of acquisitions since January 1, 1998 is
capitalised in accordance with the requirements of FRS 10: Goodwill and
Intangible Assets, and is amortised on a straight line bases over its estimated
useful life, which is up to 20 years. Other intangible assets, such as non
compete covenants, are amortised over the term of the agreement, generally
between two to five years. Purchased goodwill in respect of acquisitions before
January 1, 1998 was written off to reserves in the year of acquisition in
accordance with the accounting standard then in force. When a subsequent
disposal occurs any goodwill previously written off to reserves is written back
through the profit and loss account.
Derivative financial instruments
ITS uses various derivative financial instruments to manage its exposure to
foreign exchange and interest rate risks. Derivative financial instruments are
considered hedges if they meet certain criteria. A forward exchange contract is
F-7
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Accounting policies (continued)
Derivative financial instruments (continued)
considered a hedge of an identifiable foreign currency commitment if such
contract is designated as, and is effective as, a hedge of a firm foreign
currency commitment. An interest rate swap agreement is considered a "synthetic
alteration" (and accounted for like a hedge) when the agreement is designated
with a specific liability and it alters the interest rate characteristics of
such liability. An Interest rate cap agreement must also meet the same criteria
as an interest rate swap to be considered hedges of a specific liability.
Derivative financial instruments failing to meet the aforementioned criteria
are accounted for at fair value with the resulting unrealised gains and losses
included in the statement of operations.
Forward exchange contracts. Forward exchange contracts are designated as hedges
of firm foreign currency commitments. Gains and losses on such contracts are
deferred and recognised in income or as an adjustment of the carrying amount
when the hedged transaction occurs.
Interest rate cap agreements. Interest rate cap agreements are accounted for
under the accruals basis. Amounts receivable under the agreement are accrued
when due as a reduction of interest charges. Premiums paid for purchased
interest rate cap agreements are amortised to interest charges over the term of
the caps.
Interest rate swaps. Interest rate swap agreements are designated to change the
interest rate characteristics of floating-rate borrowings. Accordingly, these
agreements are accounted for under the settlement basis. The interest
differential between the amounts received and amount paid is recognised as an
adjustment to interest charges over the term of the swap.
3. Segment information
ITS comprises four divisions which are organised as follows: (1) Caleb Brett,
which tests and inspects crude oil, petroleum products and chemicals and
agricultural produce; (2) ETL SEMKO, which tests and certifies electrical and
electronic products, telecommunication equipment, building products and
heating, ventilation and air conditioning equipment; (3) Labtest, which tests
and inspects textiles, toys and other consumer products and (4) Foreign Trade
Standards, which provides independent pre-shipment inspection services to
governments. The Bondar Clegg businesses, which tested minerals, were sold or
closed by March 31, 2000 and this division is disclosed as a discontinued
operation. Prior period results have been reclassified to reflect this
presentation. The accounting policies of the divisions are the same as those
described in the summary of accounting policies.
<TABLE>
<CAPTION>
Six months to Six months to
June 30, June 30,
1999 2000
L000 L000
-------------- --------------
<S> <C> <C>
Revenues
Caleb Brett 64,662 74,344
ETL SEMKO 43,676 48,694
Labtest 37,229 44,286
Foreign Trade Standards 27,526 21,449
-------------- --------------
Total continuing operations 173,093 188,773
Discontinued operation 5,631 685
-------------- --------------
Total 178,724 189,458
============== ==============
</TABLE>
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,
1999 2000
L000 L000
-------------- --------------
<S> <C> <C>
Operating income/(loss) before exceptional
items
Caleb Brett 6,821 7,763
ETL SEMKO 6,395 7,634
Labtest 10,819 12,915
Foreign Trade Standards 2,970 1,628
Central (2,162) (2,428)
-------------- --------------
Total continuing operations 24,843 27,512
Discontinued operation (1,254) (699)
-------------- --------------
Total 23,589 26,813
============== ==============
Operating exceptional items by division
Foreign Trade Standards 6,528 (1,185)
Caleb Brett 1,092 ---
-------------- --------------
Total continuing operations 7,620 (1,185)
Discontinued operation -- Environmental --- (2,000)
-------------- --------------
Total 7,620 (3,185)
============== ==============
Non -- operating exceptional items
ETL SEMKO 2,410 ---
Caleb Brett --- (331)
Foreign Trade Standards --- (2,685)
-------------- --------------
Total continuing operations 2,410 (3,016)
Discontinued operation -- Bondar Clegg --- (12,170)
-------------- --------------
Total 2,410 (15,186)
============== ==============
Revenues by geographic origin
Americas 70,285 82,312
Europe, Africa and Middle East 59,998 54,224
Asia and Far East 42,810 52,237
-------------- --------------
Total continuing operations 173,093 188,773
Discontinued operation 5,631 685
-------------- --------------
Total 178,724 189,458
============== ==============
Revenues from significant countries of
origin
United States 58,873 64,166
United Kingdom 29,019 27,054
Hong Kong 19,000 25,841
Others (each under 10% of total) 66,201 71,712
-------------- --------------
Total continuing operations 173,093 188,773
Discontinued operation 5,631 685
-------------- --------------
Total 178,724 189,458
============== ==============
</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,
1999 2000
L000 L000
-------------- --------------
<S> <C> <C>
Operating income/(loss) before exceptional
items
Americas 6,182 7,017
Europe, Africa and Middle East 5,482 4,821
Asia and Far East 13,179 15,674
-------------- --------------
Total continuing operations 24,843 27,512
Discontinued operation (1,254) (699)
-------------- --------------
Total 23,589 26,813
============== ==============
Operating income/(loss) before exceptional
items from significant countries
United States 4,711 5,556
Hong Kong 6,010 8,176
Others (each under 10% of total) 14,122 13,780
-------------- --------------
Total continuing operations 24,843 27,512
Discontinued operation (1,254) (699)
-------------- --------------
Total 23,589 26,813
============== ==============
Revenues by geographic area of destination
Americas 72,719 81,063
Europe, Africa and Middle East 57,179 54,870
Asia and Far East 43,195 52,840
-------------- --------------
Total continuing operations 173,093 188,773
Discontinued operation 5,631 685
-------------- --------------
Total 178,724 189,458
============== ==============
Revenues from significant destinations
United States 58,214 62,776
Hong Kong 18,621 23,558
Others (each under 10% of total) 96,258 102,439
-------------- --------------
Total continuing operations 173,093 188,773
Discontinued operation 5,631 685
-------------- --------------
Total 178,724 189,458
============== ==============
</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-10
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
4. Exceptional items
<TABLE>
<CAPTION>
Six months to Six months to
June 30, June 30,
1999 2000
L000 L000
-------------- --------------
<S> <C> <C>
Exceptional credits/(charges) to operating
income:
Continuing operations:
Foreign Trade Standards
Nigeria 8,629 (1,185)
Restructuring (2,101) ---
-------------- --------------
6,528 (1,185)
Caleb Brett -- Nigeria 1,092 ---
-------------- --------------
Total continuing operations 7,620 (1,185)
Discontinued operation -- Environmental --- (2,000)
-------------- --------------
Total operating exceptional items 7,620 (3,185)
============== ==============
Non-operating exceptional items:
ETL SEMKO -- gain on disposal 2,410 ---
Caleb Brett -- loss on disposal --- (331)
Foreign Trade Standards -- loss on disposal --- (2,685)
-------------- --------------
Total continuing operations 2,410 (3,016)
Discontinued operation -- Bondar Clegg loss
on disposal and closure --- (12,170)
-------------- --------------
Total non-operating exceptional items 2,410 (15,186)
============== ==============
</TABLE>
Due to the irregular nature of payments received from the Nigerian government
for inspection work carried out by FTS and Caleb Brett, in 1997, ITS introduced
a policy of making full provision against invoices issued to this client and
only reversing the provision when cash is received. The tax effect of the
exceptional charge to income is nil (period from January 1 to June 30, 1999:
nil).
The exceptional charge to operating income of L2.1 million in respect of FTS in
HY 99 resulted from the restructuring of this division following the
termination of the old inspection programmes in Nigeria. The tax effect of this
exceptional charge to income was L0.1 million.
The exceptional charge to operating income of L2.0 million for the discontinued
Environmental division relates primarily to legal costs for the ongoing
investigation by the Environmental Protection Agency. The tax effect of this
exceptional charge is nil.
In January 2000, the loss adjusting business in Caleb Brett Chile was sold for
proceeds of L0.2 million. This sale resulted in a loss on disposal of L0.3
million after deducting attributable goodwill of L0.5 million which was
previously charged to reserves. The tax effect of this exceptional charge is
nil.
In February 2000, FTS sold its technical services business in the United States
for L1.0 million which resulted in a loss of L0.1 million. After deducting
attributable goodwill of L2.6 million which was previously charged to reserves,
the exceptional charge on this disposal was L2.7 million. The tax effect of
this exceptional charge is nil.
The non-operating exceptional credit of L2.4 million in HY 00 resulted from the
disposal of a non-core activity in the United States in the ETL SEMKO division.
This credit was after deducting attributable goodwill of L1.1 million which was
previously charged to reserves, from the disposal proceeds of L3.5 million. The
tax effect of this exceptional credit was nil.
The non-operating exceptional charge of L12.2 million relates to the
discontinuance of the Bondar Clegg division. The Bondar Clegg businesses in
North and South America, Ghana and Mali were sold for L1.6 million and the
businesses in Guinea, Eritrea and Burkina Faso were closed. The cash cost of
terminating personnel and closing the operations was approximately L0.9
million. The net loss of L12.2 million is after charging attributable goodwill
of L6.9 million which was previously written off to reserves. The tax effect of
this exceptional charge is nil.
F-11
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
5. Net interest expense
<TABLE>
<CAPTION>
Six months to Six months to
June 30, June 30,
1999 2000
L000 L000
-------------- --------------
<S> <C> <C>
Interest expense and other charges
Senior Subordinated Notes 6,392 6,677
Parent Subordinated PIK Debentures 3,994 4,701
Senior Term Loan A 2,868 2,492
Senior Term Loan B 1,495 1,515
Senior Revolver 355 419
Other borrowings 432 314
Foreign exchange losses 87 269
Amortisation of debt issuance costs 957 1,011
-------------- --------------
16,580 17,398
Interest income
On bank balances (321) (213)
-------------- --------------
Net interest expense 16,259 17,185
============== ==============
</TABLE>
6. Taxation
The taxation charges on income before taxation and exceptional items for the
six month periods ended June 30, 1999 and June 30, 2000 have been calculated
based on the estimated effective tax rates for the relevant full years.
Exceptional items have been tax effected as appropriate.
7. Borrowings
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
L000 L000
-------------- --------------
<S> <C> <C>
Due in less than one year:
Senior Term Loan A 4,726 8,398
Senior Revolver 10,360 16,400
Other borrowings 343 162
-------------- --------------
15,429 24,960
============== ==============
Due in more than one year:
Senior Subordinated Notes 120,921 129,586
Senior Term Loan A 54,728 51,414
Senior Term Loan B 33,723 35,226
Parent Subordinated PIK Debentures 68,609 78,289
Other borrowings 255 52
-------------- --------------
278,236 294,567
============== ==============
</TABLE>
F-12
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Borrowings (continued)
Maturity of borrowings:
<TABLE>
<CAPTION>
Parent
Senior Subordinated
Subordinated Senior Term Senior Term Senior PIK Other Total
Notes Loan A Loan B Revolver Debentures borrowings borrowings
L000 L000 L000 L000 L000 L000 L000
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Due in less than one year --- 9,151 --- 16,400 --- 162 25,713
Due in one to two years --- 36,884 --- --- --- 23 36,907
Due in 2 and 5 years --- 15,593 36,222 --- --- 23 51,838
Due in over 5 years 134,437 --- --- --- 79,766 6 214,209
------------ ------------ ------------ ------------ ------------ ------------ ------------
134,437 61,628 36,222 16,400 79,766 214 328,667
Debt issuance costs (4,851) (1,816) (996) --- (1,477) --- (9,140)
------------ ------------ ------------ ------------ ------------ ------------ ------------
129,586 59,812 35,226 16,400 78,289 214 319,527
============ ============ ============ ============ ============ ============ ============
</TABLE>
8. Reconciliation of movement in shareholders' deficit
<TABLE>
<CAPTION>
Six months to Six months to
June 30, June 30,
1999 2000
L000 L000
-------------- --------------
<S> <C> <C>
Total recognised gains and losses for the
period (1,276) (30,489)
Issue of ordinary share capital 1,089 ---
Issue of redeemable preference shares 18,821 ---
Goodwill adjustments --- 10,042
-------------- --------------
18,634 (20,447)
Opening shareholders' deficit (221,408) (202,459)
-------------- --------------
Closing shareholders' deficit (202,774) (222,906)
============== ==============
</TABLE>
F-13
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
9. Reconciliation of operating income to operating cash flows
<TABLE>
<CAPTION>
Six months to Six months to
June 30, June 30,
1999 2000
L000 L000
-------------- --------------
<S> <C> <C>
Operating income 31,209 23,628
Depreciation charge 5,692 6,106
Goodwill amortisation 385 501
Loss on sale of fixed assets 92 208
Decrease/(increase) in inventories 80 (33)
Increase in receivables and prepayments (6,509) (9,316)
Increase in payables 101 2,468
Cash receipts from exporters 4,755 ---
Discontinued operating exceptional
provisions -- Environmental --- 2,000
Decrease in other provisions (3,495) (1,907)
-------------- --------------
32,310 23,655
Equity income of associates (226) (392)
Less dividends received from associates --- 254
-------------- --------------
Total operating cash inflow 32,084 23,517
============== ==============
</TABLE>
10. Analysis of cash flows
<TABLE>
<CAPTION>
Six months to Six months to
June 30, June 30,
1999 2000
L000 L000
-------------- --------------
<S> <C> <C>
Returns on investment and servicing of
finance
Net interest paid (11,102) (11,230)
Dividends paid to minorities (1,417) (2,023)
-------------- --------------
(12,519) (13,253)
-------------- --------------
Capital expenditure and financial investment
Purchase of property, plant and equipment (5,206) (8,770)
Sale of property, plant and equipment 62 84
-------------- --------------
(5,144) (8,686)
-------------- --------------
Acquisitions and disposals
Purchase of subsidiary undertakings (4,052) (873)
Sale of subsidiary undertakings 3,189 1,503
Acquisition provision payments --- (44)
-------------- --------------
(863) 586
-------------- --------------
Financing
(Repayment)/issue of short term debt (13,204) 5,941
Repayment of other loans (6,706) (3,692)
Issue of ordinary shares 1,089 ---
Issue of redeemable preference share 18,821 ---
Cash subscribed by minorities 15 90
-------------- --------------
15 2,339
============== ==============
</TABLE>
F-14
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
11. Analysis of net debt
<TABLE>
<CAPTION>
Debt issued
Acquisitions in lieu of Other non-
At December and interest cash Exchange At June 30,
31, 1999 Cash flow disposals payment changes adjustments 2000
L000 L000 L000 L000 L000 L000 L000
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash
Cash in hand and at bank 20,150 (274) (728) --- --- 753 19,901
----------- ----------- ----------- ----------- ----------- ----------- -----------
Debt
Debt due within one year (15,429) (2,249) --- --- (3,884) (3,398) (24,960)
Debt due after one year (278,236) --- --- (4,606) 2,873 (14,598) (294,567)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(293,665) (2,249) --- (4,606) (1,011) (17,996) (319,527)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total net debt (273,515) (2,523) (728) (4,606) (1,011) (17,243) (299,626)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
12. Summary of differences between U.K. and U.S. GAAP
The consolidated financial statements are prepared in conformity with U.K.
GAAP. These accounting principles differ in certain material respects from U.S.
GAAP. Described below are the material differences between U.K. GAAP and U.S.
GAAP affecting the net income/(loss) and shareholders' equity/(deficit) which
are set forth in the tables that follow.
Goodwill and other intangible assets
Under U.K. GAAP, purchased goodwill in respect of acquisitions before January
1, 1998 was written off to reserves in the year of acquisition. Purchased
goodwill in respect of acquisitions since January 1, 1998 is capitalised in
accordance with the requirements of FRS 10, Goodwill and Intangible Assets.
Other intangible assets, such as non compete covenants, are amortised over the
term of the agreement, generally between two to five years. Positive goodwill
is amortised to nil in equal instalments over its estimated useful life,
generally not exceeding 20 years. Under U.S. GAAP, goodwill and identifiable
intangibles are capitalised and are written off over their estimated useful
lives, generally not exceeding 40 years. U.S. GAAP goodwill and identifiable
intangibles are being written off over periods not exceeding 20 years.
Redeemable preference shares
Under U.K. GAAP, preference shares with mandatory redemption features or
redeemable at the option of the security holders would be classified as a
component of shareholders' equity. U.S. GAAP requires such redeemable
preference shares to be classified as debt and not as shareholders' equity.
Pension costs -- defined benefit plans
Under U.K. GAAP, the cost of providing pension benefits is expensed over the
average expected service lives of eligible employees on the basis of a constant
percentage of current and estimated future earnings. Under U.S. GAAP, costs and
surpluses are similarly spread over the remaining service lives but based on
prescribed actuarial assumptions, cost allocation and valuation methods which
differ in certain respects from those used for U.K. GAAP.
As a result of this difference in methodology, the U.S. GAAP pension expense
can be significantly different from that determined under U.K. GAAP and tends
to be more sensitive to changing economic conditions.
F-15
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Summary of differences between U.K. and U.S. GAAP (continued)
Compensated absences
Under U.S. GAAP, compensated absences, being an employee's paid holiday
entitlements, are accrued as earned. U.K. GAAP does not require provision to be
made.
Deferred taxation
Under U.K. GAAP, deferred taxation is accounted for using the liability method
to the extent that it is considered probable that a liability or asset will
crystallise in the foreseeable future. Under U.S. GAAP, deferred taxation is
provided on all temporary differences and carryforwards. Deferred tax assets
are recognised to the extent that it is more likely than not that they will be
realised. Where doubt exists as to whether a deferred tax asset will be
realised, an appropriate valuation allowance is established. In addition,
deferred taxes on other U.S. GAAP differences is provided.
Effect of material differences between U.K. and U.S. GAAP and additional
disclosures
(a) Net income/(loss)
<TABLE>
<CAPTION>
Six months Six months
to June 30, to June 30,
1999 2000
L000 L000
----------- -----------
<S> <C> <C>
Net income/(loss) reported under U.K. GAAP 10,537 (15,710)
Goodwill amortisation (6,015) (6,311)
Covenants not to compete amortisation (6,381) ---
Loss on disposal and closure of discontinued
operation (887) ---
Previously recognised loss on disposal and closure
of discontinued operation --- 11,622
Pensions (53) ---
Compensated absences (155) 43
Deferred taxes --- ---
Tax effect of U.S. GAAP reconciling adjustments --- ---
----------- -----------
Net loss in conformity with U.S. GAAP (2,954) (10,356)
=========== ===========
Continuing operations (1,397) 4,513
Discontinued operations (1,557) (14,869)
----------- -----------
Net loss in conformity with U.S. GAAP (2,954) (10,356)
=========== ===========
</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)
(b) Shareholders' deficit
The approximate effects on shareholders' deficit of material differences
between U.K. and U.S. GAAP are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
L000 L000
----------- -----------
<S> <C> <C>
Shareholders' deficit reported under U.K. GAAP (202,459) (222,906)
Goodwill 189,992 191,940
Covenants not to compete --- ---
Redeemable preference shares (105,478) (105,478)
Previously recognised loss on disposal and closure
of discontinued operation (4,990) ---
Pensions 996 996
Compensated absences (787) (759)
----------- -----------
Shareholders' deficit in conformity with U.S. GAAP (122,726) (136,207)
=========== ===========
</TABLE>
The following table reconciles shareholders' deficit under U.S. GAAP:
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholders' deficit at beginning of period (94,334) (122,726)
Issue of shares 1,089 ---
Net loss for the period (23,955) (10,356)
Exchange adjustments (5,526) (3,125)
----------- -----------
Shareholders' deficit at end of period (122,726) (136,207)
=========== ===========
</TABLE>
(c) Cash flows
The statements of cash flows prepared in accordance with U.K. GAAP present
substantially the same information as that required under U.S. GAAP. Under U.S.
GAAP however, there are certain differences from U.K. GAAP with regard to
classification of items within the cash flow statement and with regard to the
definition of cash.
Under U.K. GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, capital expenditure
and financial investment, acquisitions and disposals, equity dividends paid,
management of liquid resources and financing. Under U.S. GAAP, three categories
of cash flow activity are reported, those being operating activities, investing
activities and financing activities. Cash flows from taxation and returns on
investments and servicing of finance would, with the exception of dividends
paid, be included as operating activities under U.S. GAAP. Capital expenditure
and financial investment, acquisitions and disposals and management of liquid
resources would be included as investing activities. The payment of dividends
would be included under financing activities under U.S. GAAP.
F-17
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Summary of differences between U.K. and U.S. GAAP (continued)
Set out below is a summary of the statements of cash flows under U.S. GAAP.
<TABLE>
<CAPTION>
Six months Six months
to June 30, to June 30,
1999 2000
L000 L000
----------- -----------
<S> <C> <C>
Net cash provided by operating activities 22,008 2,104
Net cash used in investing activities (7,506) (7,228)
Net cash (used in)/provided by financing
activities (3,490) 1,035
----------- -----------
11,012 (4,089)
Effect of exchange rate changes 553 753
----------- -----------
Net increase/(decrease) in cash by continuing
operations 11,565 (3,336)
----------- -----------
Increase/(decrease) in cash by continuing
operations 11,565 (3,336)
(Decrease)/increase in cash by discontinued
operations (1,511) 3,087
Cash at beginning of period 16,772 20,150
----------- -----------
Cash at end of period 26,826 19,901
----------- -----------
</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,
1999 and the six months to June 30, 2000 is equal to the total recognised gains
and losses shown on the consolidated statement of total recognised gains and
losses. Accumulated other comprehensive losses were L14.4 million and L28.4
million at June 30, 1999 and June 30, 2000, respectively.
F-18
<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 of the
Guarantor's guarantee is itself guaranteed by each other Guarantor, fully and
unconditionally, on a senior subordinated basis. Subject to the provisions of
the agreement under which the loans to finance the acquisition of the business
were made, certain exceptions and applicable law, there are no restrictions on
the ability of:
(a) the Company or any of its direct and indirect subsidiaries from paying
dividends or making any other distributions or loans or advances to the
Issuer or
(b) the direct and indirect subsidiaries of the Company from paying dividends
or making any other distribution or loans or advances to the Company.
Separate financial statements and other disclosures concerning the Issuer and
the Guarantors are not presented because management has determined that they
are not material to the investors. In lieu of the separate guarantor financial
statements, management has presented audited consolidating financial
information. The audited consolidating financial information presented below
has been segregated between (a) the Issuer, (b) the Guarantors and (c) the non-
Guarantor subsidiaries.
F-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, 2000
<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 revenue --- --- 208,948 (19,490) 189,458
Operating costs --- (158) (185,554) 19,490 (166,222)
Share of operating profit in associates --- --- 392 --- 392
-------------- -------------- -------------- -------------- --------------
Operating (loss)/income --- (158) 23,786 --- 23,628
Non-operating exceptional items --- (6,366) (8,820) --- (15,186)
-------------- -------------- -------------- -------------- --------------
(Loss)/income before interest --- (6,524) 14,966 --- 8,442
Net interest expense 525 (8,033) (9,677) --- (17,185)
-------------- -------------- -------------- -------------- --------------
Income/(loss) before taxation 525 (14,557) 5,289 --- (8,743)
Taxation (72) 215 (5,717) --- (5,574)
-------------- -------------- -------------- -------------- --------------
Income/(loss) after taxation 453 (14,342) (428) --- (14,317)
Minority interests --- --- (1,393) --- (1,393)
Dividends from/(to) group companies --- 918 (918) --- ---
-------------- -------------- -------------- -------------- --------------
Net income/(loss) 453 (13,424) (2,739) --- (15,710)
============== ============== ============== ============== ==============
</TABLE>
Statements of Operations
Three months to June 30, 2000
<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 revenue --- --- 110,754 (10,108) 100,646
Operating costs (77) (87) (94,858) 10,108 (84,914)
Share of operating profit in associates --- --- 195 --- 195
-------------- -------------- -------------- -------------- --------------
Operating (loss)/income (77) (87) 16,091 --- 15,927
Non-operating exceptional items --- (1,205) 1,087 --- (118)
-------------- -------------- -------------- -------------- --------------
(Loss)/income before interest (77) (1,292) 17,178 --- 15,809
Net interest expense 500 (4,208) (5,365) --- (9,073)
-------------- -------------- -------------- -------------- --------------
Income/(loss) before taxation 423 (5,500) 11,813 --- 6,736
Taxation (41) 138 (3,880) --- (3,783)
-------------- -------------- -------------- -------------- --------------
Income/(loss) after taxation 382 (5,362) 7,933 --- 2,953
Minority interests --- --- (779) --- (779)
Dividends from/(to) group companies --- 356 (356) --- ---
-------------- -------------- -------------- -------------- --------------
Net income/(loss) 382 (5,006) 6,798 --- 2,174
============== ============== ============== ============== ==============
</TABLE>
F-20
<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 revenue --- --- 208,228 (29,504) 178,724
Operating income/(costs) 139 57 (177,441) 29,504 (147,741)
Share of operating profit in associates --- --- 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 expense 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 revenue --- --- 105,461 (13,828) 91,633
Operating income/(costs) 87 55 (85,838) 13,828 (71,868)
Share of operating profit in associates --- --- 215 --- 215
-------------- -------------- -------------- -------------- --------------
Operating income 87 55 19,838 --- 19,980
Non-operating exceptional items --- (1,032) 1,198 --- 166
-------------- -------------- -------------- -------------- --------------
Income before interest 87 (977) 21,036 --- 20,146
Net interest expense 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-21
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
June 30, 2000
<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 --- (4,351) 24,252 --- 19,901
Trade receivables --- --- 69,024 --- 69,024
Inventories --- --- 1,697 --- 1,697
Other current assets 139,492 304,143 294,881 (712,364) 26,152
-------------- -------------- -------------- -------------- --------------
Total current assets 139,492 299,792 389,854 (712,364) 116,774
Goodwill --- --- 16,192 --- 16,192
Property, plant and equipment, net --- --- 56,455 --- 56,455
Investments in subsidiary undertakings --- 338,896 69,607 (408,503) ---
Investments --- --- 797 --- 797
-------------- -------------- -------------- -------------- --------------
Total assets 139,492 638,688 532,905 (1,120,867) 190,218
============== ============== ============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current liabilities
Borrowings (including current portion of
long term borrowings) --- 25,181 (221) --- 24,960
Accounts payable, accrued liabilities and
deferred income 8,251 255,214 523,365 (712,364) 74,466
Income taxes payable/(receivable) 85 (3,247) 9,899 --- 6,737
-------------- -------------- -------------- -------------- --------------
Total current liabilities 8,336 277,148 533,043 (712,364) 106,163
Long term borrowings 130,736 165,428 (1,597) --- 294,567
Provisions for liabilities and charges --- --- 7,054 --- 7,054
Minority interests --- --- 5,340 --- 5,340
Shareholders' equity/(deficit)
Ordinary shares 50 113,354 198,473 (311,069) 808
Redeemable preference shares --- 105,478 --- --- 105,478
Shares to be issued --- 2,793 --- --- 2,793
Premium in excess of par value --- 27,221 2,868 (26,454) 3,635
Accumulated earnings/(deficit) 370 (52,734) (212,276) (70,980) (335,620)
-------------- -------------- -------------- -------------- --------------
Total shareholders' equity/(deficit) 420 196,112 (10,935) (408,503) (222,906)
-------------- -------------- -------------- -------------- --------------
Total liabilities and shareholders'
equity/(deficit) 139,492 638,688 532,905 (1,120,867) 190,218
============== ============== ============== ============== ==============
</TABLE>
F-22
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
December 31, 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 --- (6,792) 26,942 --- 20,150
Trade receivables --- --- 70,103 --- 70,103
Inventories --- --- 2,614 --- 2,614
Other current assets 130,297 280,446 256,458 (651,570) 15,631
Deferred taxation asset --- --- --- --- ---
-------------- -------------- -------------- -------------- --------------
Total current assets 130,297 273,654 356,117 (651,570) 108,498
Goodwill --- --- 15,814 --- 15,814
Property, plant and equipment, net --- --- 53,746 --- 53,746
Investments in subsidiary undertakings --- 335,235 74,437 (409,672) ---
Investments --- --- 503 --- 503
-------------- -------------- -------------- -------------- --------------
Total assets 130,297 608,889 500,617 (1,061,242) 178,561
============== ============== ============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY/
(DEFICIT)
Current liabilities
Borrowings (including current portion of
long term borrowings) --- 15,555 (126) --- 15,429
Accounts payable, accrued liabilities and
deferred income 7,964 229,209 483,874 (651,570) 69,477
Income taxes payable/(receivable) 13 (2,564) 7,919 --- 5,368
-------------- -------------- -------------- -------------- --------------
Total current liabilities 7,977 242,200 491,667 (651,570) 90,274
Long term borrowings 122,094 157,661 (1,519) --- 278,236
Provisions for liabilities and charges --- --- 6,789 --- 6,789
Minority interests --- --- 5,721 --- 5,721
Shareholders' equity/(deficit)
Ordinary shares 50 106,633 205,187 (311,062) 808
Redeemable preference shares --- 105,478 --- --- 105,478
Shares to be issued --- 2,793 --- --- 2,793
Premium in excess of par value --- 27,226 2,863 (26,454) 3,635
Accumulated earnings/(deficit) 176 (33,102) (210,091) (72,156) (315,173)
-------------- -------------- -------------- -------------- --------------
Total shareholders' equity/(deficit) 226 209,028 (2,041) (409,672) (202,459)
-------------- -------------- -------------- -------------- --------------
Total liabilities and shareholders'
equity/(deficit) 130,297 608,889 500,617 (1,061,242) 178,561
============== ============== ============== ============== ==============
</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, 2000
<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 (outflow)/inflow --- (336) 23,853 --- 23,517
Returns on investments and servicing of
finance (144) (5,293) (7,816) --- (13,253)
Taxation --- (409) (4,368) --- (4,777)
Capital expenditure and financial
investment --- --- (8,686) --- (8,686)
Acquisitions and disposals --- (1,718) 2,304 --- 586
-------------- -------------- -------------- -------------- --------------
Cash (outflow)/inflow before financing (144) (7,756) 5,287 --- (2,613)
Financing 144 10,146 (7,951) --- 2,339
-------------- -------------- -------------- -------------- --------------
Increase/(decrease) in cash in the period --- 2,390 (2,664) --- (274)
-------------- -------------- -------------- -------------- --------------
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash in the period --- 2,390 (2,664) --- (274)
Cash (outflow)/inflow from increase in
debt --- (2,628) 379 --- (2,249)
-------------- -------------- -------------- -------------- --------------
Change in net debt resulting from cash
flows --- (238) (2,285) --- (2,523)
Debt issued in lieu of interest payment --- (4,606) --- --- (4,606)
Acquisitions and disposals --- --- (728) --- (728)
Other non-cash movements (292) (371) (348) --- (1,011)
Exchange adjustments (8,350) (9,737) 844 --- (17,243)
-------------- -------------- -------------- -------------- --------------
Movement in net debt in the period (8,642) (14,952) (2,517) --- (26,111)
Net debt at the start of the period (122,094) (180,008) 28,587 --- (273,515)
-------------- -------------- -------------- -------------- --------------
Net debt at the end of the period (130,736) (194,960) 26,070 --- (299,626)
============== ============== ============== ============== ==============
</TABLE>
F-24
<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 adjustments (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-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, 2000
<TABLE>
<CAPTION>
Intertek
Intertek Testing Testing
Testing Holdings USA Kite Overseas ITS Holding Services UK
Services Ltd Inc Holdings BV Limited Limited
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations --- --- --- --- ---
Operating costs (139) --- (6) --- ---
-------------- -------------- -------------- -------------- --------------
Operating costs from continuing
operations (139) --- (6) --- ---
Non-operating exceptional items (1,973) (4,371) (30) 8 ---
-------------- -------------- -------------- -------------- --------------
(Loss)/income before interest (2,112) (4,371) (36) 8 ---
Net interest expense (4,092) (685) (164) (51) (1,713)
-------------- -------------- -------------- -------------- --------------
Loss before taxation (6,204) (5,056) (200) (43) (1,713)
Taxation (9) (122) (16) --- 366
-------------- -------------- -------------- -------------- --------------
Loss after taxation (6,213) (5,178) (216) (43) (1,347)
Dividends from group companies --- 664 254 --- ---
-------------- -------------- -------------- -------------- --------------
Net (loss)/income (6,213) (4,514) 38 (43) (1,347)
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Testing Yickson Testing Testing Guarantor
Holdings Enterprises Holdings Holdings subsidiaries
Sweden AB Limited France EURL Germany GmbH Total
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations --- --- --- --- ---
Operating costs --- (4) (2) (7) (158)
-------------- -------------- -------------- -------------- --------------
Operating costs from continuing
operations --- (4) (2) (7) (158)
Non-operating exceptional items --- --- --- --- (6,366)
-------------- -------------- -------------- -------------- --------------
(Loss)/income before interest --- (4) (2) (7) (6,524)
Net interest expense (952) (95) (59) (222) (8,033)
-------------- -------------- -------------- -------------- --------------
Loss before taxation (952) (99) (61) (229) (14,557)
Taxation --- (4) --- --- 215
-------------- -------------- -------------- -------------- --------------
Loss after taxation (952) (103) (61) (229) (14,342)
Dividends from group companies --- --- --- --- 918
-------------- -------------- -------------- -------------- --------------
Net (loss)/income (952) (103) (61) (229) (13,424)
============== ============== ============== ============== ==============
</TABLE>
Statements of Operations
Three months to June 30, 2000
<TABLE>
<CAPTION>
Intertek
Intertek Testing Testing
Testing Holdings USA Kite Overseas ITS Holding Services UK
Services Ltd Inc Holdings BV Limited Limited
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations --- --- --- --- ---
Operating (costs)/income (80) --- (3) --- 6
-------------- -------------- -------------- -------------- --------------
Operating (loss)/income from continuing
operations (80) --- (3) --- 6
Non-operating exceptional items (1,136) (69) --- --- ---
-------------- -------------- -------------- -------------- --------------
(Loss)/income before interest (1,216) (69) (3) --- 6
Net interest expense (2,160) (383) (84) (16) (888)
-------------- -------------- -------------- -------------- --------------
Loss before taxation (3,376) (452) (87) (16) (882)
Taxation (4) (13) (3) --- 117
-------------- -------------- -------------- -------------- --------------
Loss after taxation (3,380) (465) (90) (16) (765)
Dividends from group companies --- 108 248 --- ---
-------------- -------------- -------------- -------------- --------------
Net (loss)/income (3,380) (357) 158 (16) (765)
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Testing Yickson Testing Testing Guarantor
Holdings Enterprises Holdings Holdings subsidiaries
Sweden AB Limited France EURL Germany GmbH Total
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations --- --- --- --- ---
Operating (costs)/income --- (2) (1) (7) (87)
-------------- -------------- -------------- -------------- --------------
Operating (loss)/income from continuing
operations --- (2) (1) (7) (87)
Non-operating exceptional items --- --- --- --- (1,205)
-------------- -------------- -------------- -------------- --------------
(Loss)/income before interest --- (2) (1) (7) (1,292)
Net interest expense (495) (39) (30) (113) (4,208)
-------------- -------------- -------------- -------------- --------------
Loss before taxation (495) (41) (31) (120) (5,500)
Taxation --- (2) --- 43 138
-------------- -------------- -------------- -------------- --------------
Loss after taxation (495) (43) (31) (77) (5,362)
Dividends from group companies --- --- --- --- 356
-------------- -------------- -------------- -------------- --------------
Net (loss)/income (495) (43) (31) (77) (5,006)
============== ============== ============== ============== ==============
</TABLE>
F-26
<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
Intertek Testing Testing
Testing Holdings USA Kite Overseas ITS Holding Services UK
Services Ltd Inc Holdings BV Limited Limited
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations --- --- --- --- ---
Operating costs 111 --- (8) --- (36)
-------------- -------------- -------------- -------------- --------------
Operating income/(costs) from continuing
operations 111 --- (8) --- (36)
Non-operating exceptional items (1,032) --- --- --- ---
-------------- -------------- -------------- -------------- --------------
Loss before interest (921) --- (8) --- (36)
Net interest expense (3,926) (271) (160) 12 (1,655)
-------------- -------------- -------------- -------------- --------------
(Loss)/income before taxation (4,847) (271) (168) 12 (1,691)
Taxation --- 248 --- (6) 507
-------------- -------------- -------------- -------------- --------------
(Loss)/income after taxation (4,847) (23) (168) 6 (1,184)
Dividends from group companies --- 514 --- --- ---
-------------- -------------- -------------- -------------- --------------
Net (loss)/income (4,847) 491 (168) 6 (1,184)
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Testing Yickson Testing Testing Guarantor
Holdings Enterprises Holdings Holdings subsidiaries
Sweden AB Limited France EURL Germany GmbH Total
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations --- --- --- --- ---
Operating costs --- (9) (1) --- 57
-------------- -------------- -------------- -------------- --------------
Operating income/(costs) from continuing
operations --- (9) (1) --- 57
Non-operating exceptional items --- --- --- --- (1,032)
-------------- -------------- -------------- -------------- --------------
Loss before interest --- (9) (1) --- (975)
Net interest expense (1,058) (70) (62) (232) (7,422)
-------------- -------------- -------------- -------------- --------------
(Loss)/income before taxation (1,058) (79) (63) (232) (8,397)
Taxation --- (11) --- (2) 736
-------------- -------------- -------------- -------------- --------------
(Loss)/income after taxation (1,058) (90) (63) (234) (7,661)
Dividends from group companies --- --- --- --- 514
-------------- -------------- -------------- -------------- --------------
Net (loss)/income (1,058) (90) (63) (234) (7,147)
============== ============== ============== ============== ==============
</TABLE>
Statements of Operations
Three months to June 30, 1999
<TABLE>
<CAPTION>
Intertek
Intertek Testing Testing
Testing Holdings USA Kite Overseas ITS Holding Services UK
Services Ltd Inc Holdings BV Limited Limited
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations --- --- --- --- ---
Operating income/(costs) 97 --- (9) --- (28)
-------------- -------------- -------------- -------------- --------------
Operating income/(loss) from continuing
operations 97 --- (9) --- (28)
Non-operating exceptional items (1,032) --- --- --- ---
-------------- -------------- -------------- -------------- --------------
Loss before interest (935) --- (9) --- (28)
Net interest expense (1,993) (137) (75) 12 (838)
-------------- -------------- -------------- -------------- --------------
(Loss)/income before taxation (2,928) (137) (84) 12 (866)
Taxation --- 304 --- (6) 262
-------------- -------------- -------------- -------------- --------------
(Loss)/income after taxation (2,928) 167 (84) 6 (604)
Dividends from group companies --- 6 --- --- ---
-------------- -------------- -------------- -------------- --------------
Net (loss)/income (2,928) 173 (84) 6 (604)
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Testing Yickson Testing Testing Guarantor
Holdings Enterprises Holdings Holdings subsidiaries
Sweden AB Limited France EURL Germany GmbH Total
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations --- --- --- --- ---
Operating income/(costs) --- (5) --- --- 55
-------------- -------------- -------------- -------------- --------------
Operating income/(loss) from continuing
operations --- (5) --- --- 55
Non-operating exceptional items --- --- --- --- (1,032)
-------------- -------------- -------------- -------------- --------------
Loss before interest --- (5) --- --- (977)
Net interest expense (525) (31) (30) (98) (3,715)
-------------- -------------- -------------- -------------- --------------
(Loss)/income before taxation (525) (36) (30) (98) (4,692)
Taxation --- (1) --- --- 559
-------------- -------------- -------------- -------------- --------------
(Loss)/income after taxation (525) (37) (30) (98) (4,133)
Dividends from group companies --- --- --- --- 6
-------------- -------------- -------------- -------------- --------------
Net (loss)/income (525) (37) (30) (98) (4,127)
============== ============== ============== ============== ==============
</TABLE>
F-27
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
June 30, 2000
<TABLE>
<CAPTION>
Intertek
Intertek Testing Testing
Testing Holdings USA Kite Overseas ITS Holding Services UK
Services Ltd Inc Holdings BV Limited Limited
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash (5,408) --- 10 1,037 ---
Other current assets 90,302 106,787 2,199 4,170 ---
-------------- -------------- -------------- -------------- --------------
Total current assets 84,894 106,787 2,209 5,207 ---
Investments in subsidiary undertakings 128,624 102,658 5,302 4,077 64,418
-------------- -------------- -------------- -------------- --------------
Total assets 213,518 209,445 7,511 9,284 64,418
============== ============== ============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion of
long term borrowings) 16,400 --- 434 614 2,371
Accounts payable, accrued liabilities and
deferred income 44,273 111,869 3,846 2,631 18,663
Income taxes (receivable)/payable (743) (874) --- (2) (1,353)
-------------- -------------- -------------- -------------- --------------
Total current liabilities 59,930 110,995 4,280 3,243 19,681
Long term borrowings 78,289 --- 2,593 2,500 31,677
Shareholders' equity
Ordinary shares 808 103,374 1,299 4,037 ---
Redeemable preference shares 105,478 --- --- --- ---
Shares to be issued 2,793 --- --- --- ---
Premium in excess of par value 3,635 --- --- --- 22,709
Accumulated (deficit)/earnings (37,415) (4,924) (661) (496) (9,649)
-------------- -------------- -------------- -------------- --------------
Total shareholders' equity/(deficit) 75,299 98,450 638 3,541 13,060
-------------- -------------- -------------- -------------- --------------
Total liabilities and shareholders'
equity 213,518 209,445 7,511 9,284 64,418
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Testing Yickson Testing Testing Guarantor
Holdings Enterprises Holdings Holdings subsidiaries
Sweden AB Limited France EURL Germany GmbH Total
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash --- 1 9 --- (4,351)
Other current assets 2,095 97,593 619 378 304,143
-------------- -------------- -------------- -------------- --------------
Total current assets 2,095 97,594 628 378 299,792
Investments in subsidiary undertakings 24,834 --- 3,357 5,626 338,896
-------------- -------------- -------------- -------------- --------------
Total assets 26,929 97,594 3,985 6,004 638,688
============== ============== ============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion of
long term borrowings) 731 4,631 --- --- 25,181
Accounts payable, accrued liabilities and
deferred income 2,825 67,576 2,828 703 255,214
Income taxes (receivable)/payable --- 13 (98) (190) (3,247)
-------------- -------------- -------------- -------------- --------------
Total current liabilities 3,556 72,220 2,730 513 277,148
Long term borrowings 20,115 25,658 --- 4,596 165,428
Shareholders' equity
Ordinary shares 1,839 --- 864 1,133 113,354
Redeemable preference shares --- --- --- --- 105,478
Shares to be issued --- --- --- --- 2,793
Premium in excess of par value --- 54 --- 823 27,221
Accumulated (deficit)/earnings 1,419 (338) 391 (1,061) (52,734)
-------------- -------------- -------------- -------------- --------------
Total shareholders' equity/(deficit) 3,258 (284) 1,255 895 196,112
-------------- -------------- -------------- -------------- --------------
Total liabilities and shareholders'
equity 26,929 97,594 3,985 6,004 638,688
============== ============== ============== ============== ==============
</TABLE>
F-28
<PAGE>
Intertek Testing Services Limited
Notes To The Consolidated Financial Statements
Issuer, guarantor and non-guarantor companies (continued)
Balance Sheets
December 31, 1999
<TABLE>
<CAPTION>
Intertek
Intertek Testing Testing
Testing Holdings USA Kite Overseas ITS Holding Services UK
Services Ltd Inc Holdings BV Limited Limited
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash (7,573) --- 7 773 ---
Other current assets 82,624 99,354 2,068 3,964 ---
-------------- -------------- -------------- -------------- --------------
Total current assets 75,051 99,354 2,075 4,737 ---
Investments in subsidiary undertakings 128,624 99,774 5,420 3,820 64,418
-------------- -------------- -------------- -------------- --------------
Total assets 203,675 199,128 7,495 8,557 64,418
============== ============== ============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion of
long term borrowings) 10,360 --- 265 488 1,171
Accounts payable, accrued liabilities and
deferred income 37,132 103,261 3,694 2,041 18,673
Income taxes (receivable)/payable (743) (868) --- (2) (987)
-------------- -------------- -------------- -------------- --------------
Total current liabilities 46,749 102,393 3,959 2,527 18,857
Long term borrowings 68,609 --- 2,923 2,679 31,706
Shareholders' equity
Ordinary shares 808 96,953 1,313 3,782 ---
Redeemable preference shares 105,478 --- --- --- ---
Shares to be issued 2,793 --- --- --- ---
Premium in excess of par value 3,635 --- --- --- 22,709
Accumulated (deficit)/earnings (24,397) (218) (700) (431) (8,854)
-------------- -------------- -------------- -------------- --------------
Total shareholders' equity/(deficit) 88,317 96,735 613 3,351 13,855
-------------- -------------- -------------- -------------- --------------
Total liabilities and shareholders'
equity 203,675 199,128 7,495 8,557 64,418
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Testing Yickson Testing Testing Guarantor
Holdings Enterprises Holdings Holdings subsidiaries
Sweden AB Limited France EURL Germany GmbH Total
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash --- 1 --- --- (6,792)
Other current assets 2,036 89,442 958 --- 280,446
-------------- -------------- -------------- -------------- --------------
Total current assets 2,036 89,443 958 --- 273,654
Investments in subsidiary undertakings 24,109 --- 3,390 5,680 335,235
-------------- -------------- -------------- -------------- --------------
Total assets 26,145 89,443 4,348 5,680 608,889
============== ============== ============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings (including current portion of
long term borrowings) 436 2,835 --- --- 15,555
Accounts payable, accrued liabilities and
deferred income 1,637 59,484 2,796 491 229,209
Income taxes (receivable)/payable --- 8 221 (193) (2,564)
-------------- -------------- -------------- -------------- --------------
Total current liabilities 2,073 62,327 3,017 298 242,200
Long term borrowings 19,950 27,175 --- 4,619 157,661
Shareholders' equity
Ordinary shares 1,786 --- 847 1,144 106,633
Redeemable preference shares --- --- --- --- 105,478
Shares to be issued --- --- --- --- 2,793
Premium in excess of par value --- 51 --- 831 27,226
Accumulated (deficit)/earnings 2,336 (110) 484 (1,212) (33,102)
-------------- -------------- -------------- -------------- --------------
Total shareholders' equity/(deficit) 4,122 (59) 1,331 763 209,028
-------------- -------------- -------------- -------------- --------------
Total liabilities and shareholders'
equity 26,145 89,443 4,348 5,680 608,889
============== ============== ============== ============== ==============
</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, 2000
<TABLE>
<CAPTION>
Intertek
Intertek Testing Testing
Testing Holdings USA Kite Overseas ITS Holding Services UK
Services Ltd Inc Holdings BV Limited Limited
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total operating cash outflow (286) --- (8) (8) ---
Returns on investments and servicing of
finance 485 (3,376) 26 96 (1,553)
Taxation (9) (73) (16) --- ---
Acquisitions and disposals (1,213) (538) 25 8 ---
-------------- -------------- -------------- -------------- --------------
Cash (outflow)/inflow before financing (1,023) (3,987) 27 96 (1,553)
Financing 3,188 3,987 (23) 116 1,553
-------------- -------------- -------------- -------------- --------------
Increase in cash in the period 2,165 --- 4 212 ---
-------------- -------------- -------------- -------------- --------------
Reconciliation of net cash flow to
movement in net debt
Increase in cash in the period 2,165 --- 4 212 ---
Cash (outflow)/inflow from increase in
debt (5,941) --- 153 268 1,192
-------------- -------------- -------------- -------------- --------------
Change in net debt resulting from cash
flows (3,776) --- 157 480 1,192
Debt issued in lieu of interest payment (4,606) --- --- --- ---
Other non-cash movements (61) --- (24) (20) (161)
Exchange adjustments (5,112) --- 31 (143) (2,202)
-------------- -------------- -------------- -------------- --------------
Movement in net debt in the period (13,555) --- 164 317 (1,171)
Net debt at the start of the period (86,542) --- (3,181) (2,394) (32,877)
-------------- -------------- -------------- -------------- --------------
Net debt at the end of the period (100,097) --- (3,017) (2,077) (34,048)
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Testing Yickson Testing Testing Guarantor
Holdings Enterprises Holdings Holdings subsidiaries
Sweden AB Limited France EURL Germany GmbH Total
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total operating cash outflow (2) (7) (5) (20) (336)
Returns on investments and servicing of
finance (806) 23 --- (188) (5,293)
Taxation --- --- (311) --- (409)
Acquisitions and disposals --- --- --- --- (1,718)
-------------- -------------- -------------- -------------- --------------
Cash (outflow)/inflow before financing (808) 16 (316) (208) (7,756)
Financing 808 (16) 325 208 10,146
-------------- -------------- -------------- -------------- --------------
Increase in cash in the period --- --- 9 --- 2,390
-------------- -------------- -------------- -------------- --------------
Reconciliation of net cash flow to
movement in net debt
Increase in cash in the period --- --- 9 --- 2,390
Cash (outflow)/inflow from increase in
debt 248 1,452 --- --- (2,628)
-------------- -------------- -------------- -------------- --------------
Change in net debt resulting from cash
flows 248 1,452 9 --- (238)
Debt issued in lieu of interest payment --- --- --- --- (4,606)
Other non-cash movements (85) --- --- (20) (371)
Exchange adjustments (623) (1,731) --- 43 (9,737)
-------------- -------------- -------------- -------------- --------------
Movement in net debt in the period (460) (279) 9 23 (14,952)
Net debt at the start of the period (20,386) (30,009) --- (4,619) (180,008)
-------------- -------------- -------------- -------------- --------------
Net debt at the end of the period (20,846) (30,288) 9 (4,596) (194,960)
============== ============== ============== ============== ==============
</TABLE>
F-30
<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
Intertek Testing Testing
Testing Holdings USA Kite Overseas ITS Holding Services UK
Services Ltd Inc Holdings BV Limited Limited
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total operating cash outflow (2,680) --- (2) (1) (36)
Returns on investments and servicing of
finance (436) 163 (208) (98) (1,558)
Taxation --- (56) --- --- ---
Acquisitions (1,184) --- (8) --- ---
-------------- -------------- -------------- -------------- --------------
Cash (outflow)/inflow before financing (4,300) 107 (218) (99) (1,594)
Financing 11,768 (107) 107 99 1,594
-------------- -------------- -------------- -------------- --------------
Increase/(decrease) in cash in the period 7,468 --- (111) --- ---
============== ============== ============== ============== ==============
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash in the period 7,468 --- (111) --- ---
Cash inflow from increase in debt 13,059 --- 150 213 4,536
-------------- -------------- -------------- -------------- --------------
Change in net debt resulting from cash
flows 20,527 --- 39 213 4,536
Debt issued in lieu of interest payment (4,013) --- --- --- ---
Other non-cash movements 7 --- (30) (21) (164)
Exchange adjustments (3,599) --- 224 (196) (2,016)
-------------- -------------- -------------- -------------- --------------
Movement in net debt in the period 12,922 --- 233 (4) 2,356
Net debt at the start of the period (80,725) --- (3,732) (3,405) (36,525)
-------------- -------------- -------------- -------------- --------------
Net debt at the end of the period (67,803) --- (3,499) (3,409) (34,169)
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Testing Yickson Testing Testing Guarantor
Holdings Enterprises Holdings Holdings subsidiaries
Sweden AB Limited France EURL Germany GmbH Total
L000 L000 L000 L000 L000
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total operating cash outflow --- (8) (2) --- (2,729)
Returns on investments and servicing of
finance (828) 18 (29) (204) (3,180)
Taxation --- (20) (17) (2) (95)
Acquisitions --- --- (123) --- (1,315)
-------------- -------------- -------------- -------------- --------------
Cash (outflow)/inflow before financing (828) (10) (171) (206) (7,319)
Financing 828 10 171 206 14,676
-------------- -------------- -------------- -------------- --------------
Increase/(decrease) in cash in the period --- --- --- --- 7,357
============== ============== ============== ============== ==============
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash in the period --- --- --- --- 7,357
Cash inflow from increase in debt 228 1,443 --- --- 19,629
-------------- -------------- -------------- -------------- --------------
Change in net debt resulting from cash
flows 228 1,443 --- --- 26,986
Debt issued in lieu of interest payment --- --- --- --- (4,013)
Other non-cash movements (762) --- --- (28) (998)
Exchange adjustments 320 (2,030) --- 297 (7,000)
-------------- -------------- -------------- -------------- --------------
Movement in net debt in the period (214) (587) --- 269 14,975
Net debt at the start of the period (21,201) (36,295) --- (5,167) (187,050)
-------------- -------------- -------------- -------------- --------------
Net debt at the end of the period (21,415) (36,882) --- (4,898) (172,075)
============== ============== ============== ============== ==============
</TABLE>
F-31
<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 14, 2000
