SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report(date of earliest event reported):February 24,2000
CHESAPEAKE CORPORATION
(Exact Name of Registrant as Specified in Charter)
Virginia 1-3203 54-0166880
-------- ------ -----------
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
1021 East Cary Street, Richmond, VA 23219
-----------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (804)697-1000
Page 1 of 9 pages. Exhibit Index appears on page 2.
Item 7 of the Current Report on Form 8-K dated February 23,
2000, filed by Chesapeake Corporation (the "Company" or
"Chesapeake") on March 8, 2000, is hereby amended to provide the
financial statements of the business acquired and the pro forma
financial information required by Item 7.
Item 7: Financial Statements, Pro Forma Financial Information
and Exhibits.
a) Financial Statements of Business Acquired.
The audited consolidated financial statements of
Boxmore International PLC as of December 31, 1999,
and for the year then ended prepared in accordance
with generally accepted accounting principles in
the United Kingdom are filed herewith as Exhibit
99.1.
b) Pro Forma Financial Information.
Unaudited pro forma condensed consolidated balance
sheet as of December 31, 1999, and unaudited pro
forma condensed consolidated statement of
operations for the year ended December 31, 1999,
are set forth below under the heading Pro Forma
Financial Information.
c) Exhibits.
Number Exhibit
------ -------
99.1 Audited consolidated financial statements
of Boxmore International PLC as of
December 31, 1999, and for the year then
ended.
-2-
PRO FORMA FINANCIAL INFORMATION
On February 24, 2000, Chesapeake Corporation, a Virginia
corporation (the "Company" or "Chesapeake"), completed its
acquisition of substantially all of the outstanding capital shares
of Boxmore International PLC ("Boxmore"), a European specialty
packaging company headquartered in Belfast, Northern Ireland. The
acquisition was effected through a tender offer by Chesapeake UK
Acquisitions II plc ("Chesapeake UK II"), a wholly-owned
subsidiary of Chesapeake, for all of the outstanding capital
shares of Boxmore at a purchase price of (pound)2.65 per share.
The tender offer represented a value of approximately US $315
million for Boxmore's outstanding share capital. Including assumed
debt of approximately US $64 million, the tender offer reflected a
total enterprise value for Boxmore of approximately US $379
million. The offer price was determined through arms-length
negotiations between Chesapeake and Boxmore.
The purchase price for Boxmore's capital shares was paid in
cash of $229.9 million, and $85.2 million in unsecured loan notes
("Loan Notes") issued by Chesapeake UK II and guaranteed by First
Union National Bank, London Branch ("First Union, London"). The
Loan Notes bear interest at a variable rate per annum equal to the
LIBOR rate for six month sterling deposits less one-half of one
percent, are redeemable in whole or part at the option of the
holders on each biannual interest payment date commencing February
28, 2001, and, if not earlier redeemed, mature on February 28,
2005. Under the terms of its current credit facility, Chesapeake
is required to pay First Union, London a two percent loan
guarantee fee on the outstanding loan note balance.
The unaudited pro forma financial statements give effect to
the following:
a) The acquisition of Boxmore accounted for using the purchase
method of accounting and a purchase price equal to US $315.1
million; and
b) The financing of the acquisition as described above.
-3-
The unaudited pro forma consolidated balance sheet presents
the consolidated financial position of Chesapeake assuming the
acquisition of Boxmore had been consummated on December 31, 1999.
The unaudited pro forma consolidated statement of operations for
the year ended December 31, 1999, present the consolidated
results of operations of Chesapeake assuming the acquisition of
Boxmore had been consummated as of January 1, 1999. These
unaudited pro forma financial statements should be read in
conjunction with the historical financial statements of
Chesapeake and Boxmore. The historical financial statements for
Chesapeake are contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1999. The historical
financial statements for Boxmore for the year ended December 31,
1999, are filed herein as Exhibit 99.1.
For pro forma presentation, Boxmore's historical financial
statements have been adjusted for U.S. generally accepted
accounting principles ("US GAAP"). The unaudited pro forma
consolidated balance sheet has been translated into U.S. dollars
at the period end rate of 1.6148 U.S. dollars per pound sterling
and the pro forma consolidated statement of operations has been
translated into U.S. dollars at an average rate of 1.6088 U.S.
dollars per pound sterling for the year ended December 31, 1999.
The unaudited pro forma condensed consolidated balance sheet
and unaudited pro forma condensed consolidated statement of
operations are presented for illustrative purposes only and are
not intended to be indicative of actual results that may have
been achieved had the transactions occurred as of the dates
indicated above nor do they purport to indicate results which may
be attained in the future.
-4-
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(In millions)
(unaudited)
Historical
------------------------
Chesapeake Pro Forma
Corporation Boxmore (1) Adjustments Pro Forma
------------ ----------- ----------- ---------
ASSETS:
Cash and cash equivalents $ 306.6 $ 10.0 $(229.9)(2) $ 86.7
Accounts receivable 170.5 31.4 201.9
Inventory 106.7 18.9 125.6
Other current assets 27.1 4.1 31.2
-------- ------ ------- --------
Total current assets 610.9 64.4 (229.9) 445.4
Property, plant and equipment 355.7 138.2 (1.4)(2) 492.5
Goodwill and intangible assets 296.4 58.0 182.3 (2) 536.7
Other assets 110.2 - 110.2
-------- ------ ------- ---------
Total assets $1,373.2 $260.6 $ (49.0) $1,584.8
======== ====== ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Accounts payable and
accrued expenses $ 228.6 $ 38.5 $ 267.1
Current portion of long-term
debt 91.3 8.7 100.0
-------- ------ ------- --------
Total current liabilities 319.9 47.2 367.1
Long-term debt 224.4 55.3 $ 85.2 (2) 364.9
Other long-term liabilities 60.9 12.8 73.7
Deferred taxes 216.3 11.1 227.4
-------- ------ ------- --------
Total liabilities 821.5 126.4 85.2 1,033.1
Stockholders' equity 551.7 134.2 (134.2)(2) 551.7
-------- ------ ------- --------
Total liabilities and
stockholders' equity $1,373.2 $260.6 $ (49.0) $1,584.8
======== ====== ======= ========
-5-
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(In millions, except per share amounts)
(unaudited)
Historical
------------------------
Chesapeake Pro Forma
Corporation Boxmore (1) Adjustments Pro Forma
------------ ----------- ----------- ---------
Net sales $1,162.0 $202.4 $(7.9)(3) $1,356.5
Costs and expenses:
Cost of products sold 907.2 153.0 (7.9)(3) 1,052.2
(0.1)(4)
Selling, general and
administrative expenses 177.2 30.6 2.6 (2) 210.4
Restructuring/special charges 38.0 - - 38.0
------- ------ ------ --------
Income from operations 39.6 18.8 (2.5) 55.9
Gain on sales of businesses 413.7 - 413.7
Other income, net 10.3 (0.8) 9.5
Interest expense, net (30.4) (3.8) (20.4)(5) (54.6)
------- ------ ------ --------
Income before income taxes 433.2 14.2 (22.9) 424.5
Income tax expense (benefit) 182.4 5.3 (8.4)(6) 179.3
------- ------ ------ --------
Net income $ 250.8 $ 8.9 $(14.5) $ 245.2
======= ====== ====== ========
Earnings per share:
Basic earnings per share $12.48 $12.20
====== ======
Diluted earnings per share $12.29 $12.02
====== ======
-6-
NOTES TO PRO FORMA FINANCIAL INFORMATION
1. The Boxmore historical financial statements presented include
the following US GAAP adjustments:
Change in stockholder's equity as of December 31, 1999:
Business combinations - increase goodwill $49.0
Depreciation of investment properties -
decrease in property, plant and equipment (2.4)
Pension liability (0.8)
Deferred taxes liability (1.0)
-----
Net increase in stockholder's equity $44.8
=====
Change in net income for the year ended
December 31, 1999:
Amortization expense $(3.2)
Stock compensation expense (0.1)
Foreign currency translation gain 0.2
Tax benefit 0.2
-----
Net decrease in net income $(2.9)
=====
2. The following is a calculation of the estimated excess of
consideration over net assets acquired ("goodwill") (in millions):
Total consideration:
Cash on hand $229.9
Loan notes issued 85.2
Less - Historical net book value
of net assets acquired (134.2)
Preliminary purchase accounting adjustments:
Fair value adjustment of property, plant
and equipment 1.4
------
Estimated excess of consideration over net
assets acquired $182.3
======
-7-
NOTES TO PRO FORMA FINANCIAL INFORMATION, Continued
Selling, general and administrative expenses were adjusted to
reflect the amortization of the excess of consideration over
net assets acquired ("goodwill") using a straight-line method
over an assumed life of 40 years. Additionally, Boxmore's
historical goodwill amortization period was adjusted from 20
to 40 years.
3. This adjustment reclassifies outbound freight expense against
net sales to conform to Chesapeake's historical classification.
4. This adjustment reflects a decrease in depreciation resulting
from a $1.4 million decrease in the book value of property, plant
and equipment to reflect the appraised fair value.
5. This adjustment represents net interest on funds used for the
purchase of Boxmore of $229.9 million at a weighted-average
interest rate of 6.0% and interest expense for the Loan Notes of
$85.2 million at a weighted-average interest rate of 7.75%.
6. The effective income tax rate is estimated to be 42% for the
year ended December 31, 1999. The effective rate is consistent
with Chesapeake's historical rate for the year ended December 31,
1999.
In the year ended December 31, 1999, Boxmore incurred
nonrecurring charges of $4.5 ($3.2 million after taxes or $.16
per diluted share) related to asset write-downs. These charges
are included in the historical results of Boxmore presented in
the accompanying unaudited pro forma condensed consolidated
statement of operations and have not been eliminated.
-8-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
CHESAPEAKE CORPORATION
(Registrant)
Date: May 4, 2000 BY: /s/ William T. Tolley
William T. Tolley
Senior Vice President -
Finance & Chief
Financial Officer
-9-
EX 99.1
BOXMORE INTERNATIONAL PLC
REPORT OF INDEPENDENT AUDITORS
To: The Directors
Boxmore International PLC
We have audited the consolidated balance sheet of
Boxmore International PLC as at December 31, 1999, and the
related consolidated profit and loss account and
consolidated statements of total recognised gains and
losses and cash flows for the year ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statement based on our audit.
We conducted our audits in accordance with United
Kingdom auditing standards which do not differ in any
significant respect from United States generally accepted
auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing
the accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Boxmore International
PLC at December 31, 1999, and the consolidated results of
its operations and its consolidated cash flows for the year
then ended in conformity with accounting principles
generally accepted in the United Kingdom.
/s/ Ernst & Young
Belfast, Northern Ireland
May 4, 2000
-1-
Boxmore International PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 1999
1999
Note L000
TURNOVER
Continuing operations 118,065
Acquisition 7,748
------
GROUP TURNOVER 2 125,813
Cost of sales 95,053
------
Gross profit 30,760
Other operating expenses 3 14,261
Exceptional other operating expenses 4 2,569
------
Total other operating expenses 16,830
Amortisation of goodwill 12 157
Continuing operations Ongoing 13,784
------
Acquisition:
Operating profit before goodwill 57
Amortisation of goodwill (68)
------
(11)
------
GROUP OPERATING PROFIT 5 13,773
Share of joint venture operating loss 7 (633)
Other income 8 378
------
13,518
Interest payable 9 2,375
------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 11,143
Tax on profit on ordinary activities 10 3,455
------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 7,688
Minority interest (330)
------
PROFIT FOR THE FINANCIAL YEAR ATTRIBUTABLE
TO MEMBERS OF THE PARENT COMPANY (1) 7,358
Dividend 11 2,677
------
RETAINED PROFIT FOR THE YEAR 27 4,681
------
(1) A description of the significant differences between
accounting principles generally accepted in the United
Kingdom and those generally accepted in the United
States applicable to Boxmore International PLC's profit
for the financial year is given in note 32.
See Notes to the Accounts
-2-
Boxmore International PLC
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 31 December 1999
1999
L000
Profit for the financial year excluding share
of losses of joint venture 7,991
Share of joint venture's loss and pre trading
expenses (633)
------
Profit for the financial year attributable to
members of the parent company 7,358
Currency translation differences (2,160)
Surplus on revaluation of investment property 500
------
Total recognised gains and losses for the year 5,698
------
See Notes to the Accounts.
-3-
Boxmore International PLC
CONSOLIDATED BALANCE SHEET
at 31 December 1999
1999
Notes L000
FIXED ASSETS
Intangible assets 12 5,589
Tangible assets 13 87,051
Investment in joint venture 14 -
--------
92,640
--------
CURRENT ASSETS
Stocks 15 11,678
Debtors 16 21,948
Cash and bank deposits 17 6,234
--------
39,860
CREDITORS: amounts falling due within one year 18 35,966
--------
NET CURRENT ASSETS/(LIABILITIES) 3,894
--------
TOTAL ASSETS LESS CURRENT LIABILITIES 96,534
--------
CREDITORS: amounts falling due after more than
one year 19 34,227
PROVISIONS FOR LIABILITIES AND CHARGES 22 6,247
EQUITY MINORITY INTERESTS 652
--------
41,126
--------
55,408
--------
EQUITY SHAREHOLDERS' FUNDS (1)
Called up share capital 23 7,198
Share premium account 27 636
Revaluation reserve 27 90
Investment property revaluation reserve 27 1,165
Profit and loss account 27 46,319
--------
24 55,408
--------
(1) A description of the significant differences between
accounting principles generally accepted in the United
Kingdom and those generally accepted in the United
States applicable to Boxmore International PLC's equity
shareholders' funds is given in note 32.
See Notes to the Accounts
-4-
Boxmore International PLC
GROUP STATEMENT OF CASH FLOWS
for the year ended 31 December 1999
1999
Notes L000
NET CASH INFLOW FROM OPERATING ACTIVITIES 5 26,648
--------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Rental income received 342
Interest received 37
Interest paid (2,748)
--------
(2,369)
--------
TAXATION
Corporation tax paid (including advance
corporation tax) (2,573)
Overseas tax paid 239
--------
(2,334)
--------
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets (15,277)
Receipts from sales of tangible fixed assets 3,295
Receipt of government grants 843
--------
(11,139)
--------
ACQUISITIONS AND DISPOSALS
Deferred consideration paid (238)
Purchase of subsidiary undertaking 14 (14,091)
Investment in joint venture 14 (64)
--------
(14,393)
--------
EQUITY DIVIDENDS PAID (2,593)
--------
NET CASH OUTFLOW BEFORE FINANCING (6,180)
--------
FINANCING
Issue of share capital in subsidiary 151
Receipts from new long term loan 17 21,377
Long term loans repayment 17 (2,760)
Repayment of capital element of finance leases 17 (2,048)
--------
16,720
--------
INCREASE/(DECREASE) IN CASH 10,540
--------
-5-
Boxmore International PLC
GROUP STATEMENT OF CASH FLOWS
for the year ended 31 December 1999
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
1999
Notes L000
Increase/(decrease) in cash 10,540
Increase in debt financing (16,569)
Decrease in net liquid resources -
------
Change in net debt resulting from cash flows 17 (6,029)
New finance leases 17 (2,360)
Finance leases and loans acquired with
subsidiary 17 (11)
Exchange differences 17 621
------
MOVEMENT IN NET DEBT IN YEAR (7,779)
Net debt at beginning of year 17 (25,588)
------
NET DEBT AT END OF YEAR 17 (33,367)
------
A description of the significant differences between the
cash flow statement presented above and that required
under United States generally accepted accounting
principles is given in note 32.
See Notes to the Accounts
-6-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
1. ACCOUNTING POLICIES
Basis of preparation
The accounts are prepared under the historical cost
convention modified by the revaluation of certain fixed
assets.
The accounts are prepared in accordance with applicable
United Kingdom accounting standards. The true and fair
override provisions of the Companies (Northern Ireland)
Order 1986 have been invoked, see `Investment properties'
below.
Basis of consolidation
The Group accounts consolidate the accounts of Boxmore
International PLC and all its subsidiary undertakings drawn
up to 31 December each year.
Derndruck Verpackungen GmbH and Rexam Pharmaceutical
Packaging have been included in the Group accounts using
the acquisition method of accounting. Accordingly the
consolidated profit and loss account and statement of cash
flows include the results and cash flows of the Derndruck
Verpackungen GmbH for the ten month period from the date of
acquisition, and of Rexam Pharmaceutical Packaging for the
four month period from the date of acquisition.
Entities in which the Group holds an interest on a long
term basis and which are jointly controlled by the Group
and one or more other ventures under a contractual
arrangement are treated as joint ventures. In the Group
accounts, joint ventures are accounted for using the gross
equity method.
Goodwill arising on consolidation
In accordance with FRS10, Goodwill which is the difference
between the amount paid on the acquisition of a business
and the aggregate fair value of its separate net assets,
has been capitalised and is being written off in equal
annual instalments over its estimated economic life.
Prior to 31 December 1997 goodwill arising on acquisitions
was set off directly against reserves. Goodwill previously
eliminated against reserves has not been reinstated on
implementation of FRS 10.
Positive goodwill arising on acquisition since 1 January
1998 is capitalised, classified as an asset on the balance
sheet and amortised on a straight line basis over its
useful economic life up to a presumed maximum of 20 years.
It is reviewed for impairment at the end of the first full
financial year following the acquisition and in other
periods if events or changes in circumstances indicate that
the carrying value may not be recoverable.
If a subsidiary is subsequently sold or closed, any
goodwill arising on acquisition that was written off
directly to reserves or that has not been amortised through
the profit and loss account is taken into account in
determining the profit or loss on sale or closure.
Investment properties
Certain of the Group's properties are held for long-term
investment. Investment properties are accounted for in
accordance with SSAP 19, as follows:
(i) investment properties are revalued annually. The
surplus or deficit on revaluation is transferred to
the revaluation reserve unless a deficit below original
cost, or its reversal, on an individual investment
property is expected to be permanent, in which case it
is recognised in the profit and loss account; and
(ii) no depreciation or amortisation is provided in respect
of freehold investment properties and leasehold investment
properties with over 20 years to run.
-7-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
1. ACCOUNTING POLICIES (CONTINUED)
Although the Companies Order would normally require the
systematic annual depreciation of fixed assets, the
directors believe that this policy of not providing
depreciation or amortisation is necessary in order for the
accounts to give a true and fair view, since the current
value of investment properties, and changes in that current
value, are of prime importance rather than a calculation of
systematic annual depreciation. Depreciation or
amortisation is only one of the many factors reflected in
the annual revaluation, and the amount which might
otherwise have been shown cannot be separately identified
or quantified.
Depreciation
Freehold land is not depreciated. The cost or valuation of
the remaining tangible fixed assets other than investment
properties, is written off by equal quarterly instalments,
over its expected useful life, as follows:
Buildings - 25 - 50 years
Plant and equipment - 5 - 10 years
Computer equipment - 3 - 4 years
Motor vehicles - 4 years
Industrial vehicles - 6 2/3 years
Leased assets
Assets held under leasing arrangements that transfer
substantially all the risks and rewards of ownership to the
Group are capitalised. The capital element of the related
rental obligations is included in creditors. The interest
element (if any) of the rental obligations is charged to
the profit and loss account so as to produce a constant
periodic rate of charge.
Government grants
Capital grants are credited to revenue over the expected
useful lives of the related assets.
Revenue grants are released to profit as the relevant
expenditure is incurred.
Stocks
Stocks are valued at the lower of cost, on a first in first
out basis, and net realisable value after making due
allowance for any obsolete or slow moving items. In the
case of finished goods, cost comprises direct materials,
direct labour and an appropriate proportion of
manufacturing fixed and variable overheads.
Deferred taxation
Provision is made for deferred taxation, using the
liability method, on all timing differences to the extent
that it is probable that the liability will crystallise.
Capitalisation of interest
Interest calculated at the Groups marginal cost of capital
is capitalised for finance costs incurred in respect of
fixed assets up to the point the assets are commissioned.
-8-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
1. ACCOUNTING POLICIES (CONTINUED)
Foreign currencies
Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction or at the contracted
rate if the transaction is covered by a forward exchange
contract. Monetary assets and liabilities denominated in
foreign currencies are retranslated at the rate of exchange
ruling at the balance sheet date or if appropriate at the
forward contract rate. All differences are taken to the
profit and loss account with the exception of differences
on foreign currency borrowings, to the extent that they are
used to finance or provide a hedge against foreign equity
investments, which are taken directly to reserves together
with the exchange difference on the carrying amount of the
related investments.
The accounts of overseas subsidiary undertakings are
translated at the rate of exchange ruling at the balance
sheet date. The exchange difference arising on the
retranslation of opening net assets is taken directly to
reserves. All other translation differences are taken to
the profit and loss account with the exception of
differences on foreign currency borrowings to the extent
that they are used to finance or provide a hedge against
Group equity investments in foreign enterprises, which are
taken directly to reserves together with the exchange
difference on the net investment in these enterprises.
Pension costs
Pension costs are charged on a systematic basis so that the
costs of providing retirement benefits to employees are
evenly matched, so far as is possible, to the service lives
of the employees concerned. Any excess or deficiency of
the actuarial value of assets over the actuarial value of
liabilities of the pension scheme is allocated over the
average remaining service lives of current employees.
2. TURNOVER AND SEGMENTAL ANALYSIS
Turnover represents the amounts derived from the provision
of goods and services which fall within the Group's
ordinary activities, stated net of value added tax.
No analysis of turnover and profit before tax has been
provided because, in the opinion of the directors,
disclosure of this information would be seriously
prejudicial to the interests of the group.
-9-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
3. OTHER OPERATING EXPENSES
1999
L000
Distribution and other costs 2,921
Administration expenses 12,791
------
15,712
Other operating income (1,451)
------
14,261
------
The total figures for continuing operations in 1999 include
the following amounts relating to acquisitions;
distribution and other costs L320,000; administration
expenses L1,354,000 and other operating income L30,000.
Cost of sales includes L6,047,000 relating to acquisitions.
4. EXCEPTIONAL OTHER OPERATING EXPENSES
1999
L000
Write off of investment in joint venture in China 2,067
Write off of investment in Derndruck Verpackungen
GmbH 502
------
2,569
------
5. OPERATING PROFIT
This is stated after charging:
1999
L000
Depreciation of owned assets 7,743
Depreciation of assets held under finance leases 1,458
Auditors' remuneration - audit services
(parent company L9,500) 151
- non audit services 64
Operating lease rentals- - plant, machinery and
motor vehicles 596
- land and buildings 245
------
and after crediting:
Profit on disposal of tangible fixed assets 644
Capital grant release 359
Revenue grants 311
------
-10-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
5. OPERATING PROFIT (CONTINUED)
Reconciliation of operating profit to net cash inflow from
operating activities
1999
L000
Operating profit 13,773
Exceptional other operating expenses 2,569
Depreciation 9,201
Profit on disposal of fixed assets (644)
Capital grant release (359)
Increase in debtors (2,190)
Increase in stocks (1,606)
Increase in creditors 5,747
Amortisation of goodwill 157
------
Net cash inflow from operating activities 26,648
------
-11-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
6. STAFF COSTS
The staff costs of employees, including directors, during
the year were:
1999
L000
Wages and salaries 27,966
Social security costs 3,741
Other pension costs 1,061
------
32,768
------
The average monthly number of employees of the Group,
including directors, during the year was as follows:
1999
No.
Production 1,315
Distribution 88
Administration 233
------
1,636
------
Directors emoluments (including profit related bonus)
1999
L000
Directors' emoluments 700,487
------
Members of defined benefits pension scheme 5
------
The amounts in respect of the highest paid director are as
follows:
1999
L000
Emoluments 228,924
Accumulated total accrued pension at
31 December 1999 36,712
Accumulated total accrued lump sum at
31 December 1999 75,259
------
-12-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
7. SHARE OF JOINT VENTURE OPERATING LOSS
1999
L000
Operating loss and pre-trading expenses written off 633
------
The Group's share of the turnover of the joint venture for
the year ended 31 December 1999 amounted to L366,000. This
information has not been given on the face of the profit
and loss account as the turnover of the joint venture is
not considered material to the Group.
8. OTHER INCOME
1999
L000
Deposit interest income 35
Rental income 343
------
378
------
9. INTEREST PAYABLE
1999
L000
Bank loans and overdraft interest 1,760
Other interest payable 615
------
2,375
------
10. TAX ON PROFIT ON ORDINARY ACTIVITIES
The charge based on the profit for the year comprises:
1999
L000
UK taxation
Current at 30.25% 2,140
Deferred 981
------
3,121
------
Foreign taxation
Current 297
Deferred 151
------
448
------
Adjustment to taxation of prior years (114)
------
3,455
------
-13-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
11. DIVIDENDS
1999
L000
Interim 1.13p per share (net) paid on
1 December 1999 813
Final proposed 2.59p per share (net) paid on
13 January 2000 1,864
------
2,677
------
The final proposed dividend is based on an estimate of
71,980,071 shares in issue.
12. INTANGIBLE ASSETS
Goodwill
L000
Cost:
At 31 December 1998 2,036
Acquisitions 4,346
Exchange adjustment (258)
------
At 31 December 1999 6,124
------
Amortisation
At 31 December 1998 80
Provided during the year 157
Exchange adjustment (10)
Goodwill impairment 308
------
At 31 December 1999 535
------
Net book value at 31 December 1999 5,589
------
Goodwill arising on the acquisition of Rexam Pharmaceutical
Packaging is being amortised evenly over the directors'
estimate of its useful economic life of 20 years.
-14-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
13. TANGIBLE FIXED ASSETS
Leasehold Plant,
Freehold land equipment
land and and Investment and motor
buildings buildings property vehicles Total
L000 L000 L000 L000 L000
Cost or valuation:
At 31 December 1998 19,883 4,659 1,700 91,974 118,216
Exchange adjustment (854) (130) - (3,780) (4,764)
Acquisitions 5,645 - - 4,358 10,003
Additions 1,970 1,477 - 11,505 14,952
Revaluation - - 500 - 500
Disposals (123) - - (4,854) (4,977)
------ ------ ------ ------ ------
At 31 December 1999 26,521 6,006 2,200 99,203 133,930
------ ------ ------ ------ ------
Depreciation:
At 31 December 1998 1,384 501 - 38,910 40,795
Exchange adjustment (149) (12) - (1,982) (2,143)
Charge for year 380 20 - 8,801 9,201
Disposals (25) - - (4,100) (4,125)
------ ------ ------ ------ ------
At 31 December 1999 1,590 509 - 41,629 43,728
------ ------ ------ ------ ------
Capital grants:
At 31 December 1998 1,413 158 - 1,673 3,244
Exchange adjustment (12) (6) - (19) (37)
Additions 71 - - 283 354
Release for year (5) (2) - (352) (359)
Disposals - - - (51) (51)
------ ------ ------ ------ ------
At 31 December 1999 1,467 150 - 1,534 3,151
------ ------ ------ ------ ------
Net book amounts at
31 December 1999 23,464 5,347 2,200 56,040 87,051
------ ------ ------ ------ ------
-15-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
13. TANGIBLE FIXED ASSETS (CONTINUED)
The cost of freehold land included above at 31 December
1999 was L3,652,000 and the cost of long leasehold land at
that date was L460,000.
The net book amount of fixed assets includes L9,352,000 in
respect of leased assets, all of which relates to plant,
equipment and motor vehicles.
Cost or valuation at 31 December 1999 can be analysed as
follows:
Leasehold Plant,
Freehold land equipment
land and and Investment and motor
buildings buildings property vehicles Total
L000 L000 L000 L000 L000
Professional valuation:
December 1999 - - 2,200 - 2,200
December 1988 514 - - - 514
Cost 26,007 6,006 - 99,203 131,216
------ ------ ------ ------ ------
26,521 6,006 2,200 99,203 133,930
------ ------ ------ ------ ------
The freehold and leasehold land and buildings of the Group
were revalued on an open market value for existing use
basis at 31 December 1988 by professional valuers at
L514,000 of which L177,000 relates to the Company.
The investment property was revalued on an open market
value basis at 31 December 1999 by Alexander Kinnaird &
Son, Chartered Surveyors, at L2,200,000.
If they had not been revalued, tangible fixed assets would
have been carried in the balance sheet at 31 December 1999
as follows:
L000
Cost 132,675
Accumulated depreciation and unreleased grant 46,855
------
85,820
------
-16-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
14. FIXED ASSET INVESTMENTS
Share
capital Loans Total
L000 L000 L000
Investment in joint venture undertaking:
At 1 January 1999 30 2,501 2,531
Exchange adjustment - 105 105
Additions - 64 64
Share of loss retained by joint venture - (633) (633)
Write-off of joint venture (note 4) (30) (2,037) (2,067)
------ ------ ------
At 31 December 1999 - - -
------ ------ ------
This information has not been given on the face of the
balance sheet as the total assets and liabilities of the
joint venture are not considered material to the Group.
Details of the joint venture are as follows:
Country of Proportion of
registration (or voting rights
Name of incorporation) Nature of and shares
company and operation Holding business held
Rotam Boxmore British Ordinary Holding company 50% *
Packaging Company Virgin shares (95% of ordinary
Limited Islands shares in Jiangsu
Rotam Boxmore
Packaging Company
Limited)
Jiangsu Rotam People's Ordinary Manufacture and 47.5% **
Boxmore Packaging Republic shares sale of barrier
Company Limited of China protected
extrusion blow
moulded plastic
products
* held by a subsidiary undertaking
** held by a joint venture undertaking
-17-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
14. FIXED ASSET INVESTMENTS (CONTINUED)
Acquisition of subsidiary
On 1 September 1999 the entire shareholding of Rexam
Pharmaceutical Packaging NV Belgium and the remaining trade
and assets of Rexam Pharmaceutical Packaging were acquired.
At 31 December 1999, the directors have only made a
provisional assessment of the fair value of the assets to
the Group.
Net assets at date of acquisition:
Fair
value
Book to
value Revaluation Group
L000 L000 L000
Fixed assets 9,244 659 9,903
Debtors 1,441 - 1,441
Stock 736 (83) 653
Creditors (2,354) - (2,354)
------ ------ ------
Net assets acquired net of bank overdraft 9,067 576 9,643
------ ------ ------
Goodwill arising (note 12) 4,025
------
13,668
------
Satisfied by:
Cash 13,855
Bank balance acquired (187)
------
13,668
------
On acquisition, the land and buildings of Rexam
Pharmaceutical Packaging were revalued to open market value
on an existing use basis.
-18-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
14.FIXED ASSET INVESTMENTS (CONTINUED)
On 28 February 1999, a 51% shareholding of Derndruck
Verpackungen GmbH was acquired.
Net assets at date of acquisition:
Fair
value
Book to
value Revaluation Group
L000 L000 L000
Fixed assets 100 - 100
Debtors 419 - 419
Stock 456 - 456
Creditors (863) - (863)
------ ------ ------
Net assets acquired net of bank overdraft 112 - 112
------ ------ ------
Minority interest (55)
Goodwill arising (note 12) 321
------
378
------
Satisfied by:
Cash 332
Bank overdraft acquired 91
Minority interest in overdraft acquired (45)
------
378
------
Analysis of net cash outflow in respect of both
acquisitions.
1999
L000
Cash consideration 14,187
Bank overdraft acquired (96)
------
14,091
------
Derndruck Verpackungen GmbH earned a profit after tax of
L9,000 and Rexam Pharmaceutical Packaging earned a profit
after tax of L205,000 from the commencement of their
financial year on 1 January 1999 to their respective dates
of acquisition.
-19-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
14. FIXED ASSET INVESTMENTS (CONTINUED)
In the year to 31 December 1998, Derndruck Verpackungen
GmbH earned a loss of L4,000, and Rexam Pharmaceutical
Packaging earned a loss after tax of L426,000.
Rexam Pharmaceutical Packaging contributed L715,000 to the
group's net operating cash flows, received L77,000 in
respect of rental income and grant aid, paid L62,000 in
respect of taxation utilised L56,000 for capital
expenditure and financial investment and generated L29,000
from disposal of fixed assets.
15. STOCKS
1999
L000
Raw materials 3,389
Work in progress 1,684
Finished goods 6,453
Other 152
------
11,678
------
16. DEBTORS
1999
L000
Amounts falling due within one year:
Trade debtors 19,432
Other debtors 1,530
Prepayments and accrued income 986
------
21,948
------
-20-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
17. ANALYSIS OF NET DEBT
Acquisition
At 1 excluding Others At 31
January bank non cash Exchange December
1999 Cashflow overdraft movements differences 1999
L000 L000 L000 L000 L000 L000
Cash at bank
and in hand 12 6,222 - - - 6,234
Bank overdrafts (4,061) 4,318 - - (257) -
------ ------ ------ ------ ------ ------
(4,049) 10,540 - - (257) 6,234
Loans (15,971) (18,617) - - 582 (34,006)
Finance leases (5,568) 2,048 (11) (2,360) 296 (5,595)
------ ------ ------ ------ ------ ------
(25,588) (6,029) (11) (2,360) 621 (33,367)
------ ------ ------ ------ ------ ------
18. CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR:
1999
L000
Current instalments due on loans (note 21) 4,110
Trade creditors 18,346
Corporation tax 1,747
Other taxation and social security 1,865
Obligations under finance leases (note 20) 1,264
Accruals and deferred income 6,770
Dividend 1,864
------
35,966
------
Bank overdrafts are supported by an unlimited inter-company
cross guarantee.
-21-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
19.CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR:
1999
L000
Obligations under finance leases (note 20) 4,331
Loans (note 21) 29,896
------
34,227
------
20. OBLIGATIONS UNDER LEASES
The capital amounts due under finance lease obligations are
as follows:
1999
L000
Amount payable:
Within one year 1,264
Within two to five years 3,025
Within five to ten years 1,306
------
5,595
------
Annual commitments under non-cancellable operating leases
are as follows:
Land and
buildings Other
1999 1999
L000 L000
Operating leases which expire:
Within one year - 1
In two to five years - -
In over five years 204 -
------ ------
204 1
------ ------
-22-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
21. LOANS
1999
L000
Amounts falling due:
In one year or less or on demand 4,110
In more than one year but not more than two years 4,837
In more than two years but not more than five years 22,546
In more than five years 2,513
------
34,006
Less: included in creditors:
amounts falling due within one year 4,110
------
29,896
------
Details of loans not wholly repayable within five years are
as follows:
1999
L000
Unsecured loan of L2,500,000 repayable in 20
quarterly instalments commencing 31 March 2001 -
interest payable at a variable rate 2,500
Unsecured loan of L1,261,500 repayable in 20
quarterly instalments commencing 31 March 2001 -
interest payable at a variable rate 1,262
Unsecured loan of 1,200,000FF repayable in equal
monthly instalments finishing on 20 September
2008 - interest payable at a fixed rate 91
Unsecured loan of 3,000,000FF repayable in equal
monthly instalments finishing on 1 January 2009 -
interest payable at a fixed rate 269
Unsecured loan of 640,000FF repayable in equal
monthly instalments finishing on 1 October 2005 -
interest payable at a fixed rate 6
Unsecured loan advanced to subsidiary undertaking
by its minority shareholder - interest payable
at a variable rate 1,576
------
5,704
------
-23-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
22. PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation
L000
At 1 January 1999 5,129
Exchange adjustment (29)
Charge for the year 1,132
Movement in ACT payable 15
------
At 31 December 1999 6,247
------
The major components of the provision for deferred taxation
and the amounts not provided are as follows:
Not
Provided provided
1999 1999
L000 L000
Accelerated capital allowances 7,081 -
Capital gains rolled over 16 660
Other timing differences (850) -
Revaluation of land and buildings
and plant and equipment - 27
------ ------
6,247 687
------ ------
-24-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
23. CALLED UP SHARE CAPITAL
Number of 1999
shares L000
Authorised:
Ordinary shares of 10p each 100,000,000 10,000
----------- --------
Allotted and fully paid:
Ordinary shares of 10p each 71,980,071 7,198
----------- --------
Options held under the approved and unapproved share option
schemes at 31 December 1999 are given below:
Option price
Date options granted Number of shares per share
5 April 1991 18,000 38.54p
21 April 1993 20,000 118.5p
27 April 1994 200,000 137.25p
27 October 1994 100,000 141.0p
1 May 1995 60,000 141.125p
5 May 1995 60,000 143.0p
27 March 1998 129,363 306.5p
23 November 1998 407,475 127.5p
18 May 1999 431,000 136.5p
In normal circumstances these options may be exercised
between three and ten years after the date of the grant.
-25-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
23. CALLED UP SHARE CAPITAL (CONTINUED)
During the year there were no share options exercised.
Executive Share Option Scheme
The Company has two executive share option schemes (one
approved and one unapproved) by which executive directors
and other executives are able to subscribe for ordinary
shares in the Company. The schemes are administered by the
Remuneration Committee. Options granted under the schemes
are exercisable within a period of ten years from the date
of the grant and entitle the participant to acquire
ordinary shares in the Company at a price determined at the
time the options were granted. The price of the option is
not less than the higher of the nominal value of an
ordinary share and the market value of an ordinary share on
the day on which the option was granted. Options are
normally only exercisable after three years from the date
of a grant by a participant who remains in the Company's
employment. Options may be exercised earlier in certain
circumstances such as death or ceasing employment because
of injury, disability, redundancy, retirement or the sale
of the Company.
Options to subscribe for 431,000 ordinary shares were
granted under the approved scheme during the year ended 31
December 1999. The exercise price of the options granted
is 136.5 pence per ordinary share.
Savings Related Share Option Scheme
The Company introduced a Savings Related Share Option
Scheme in 1996 and reopened the Scheme in 1999. This was
open to all eligible employees. Employees entered into a
savings contract to make monthly contributions over a
period of three or five years, at the end of which time
they have the option to buy ordinary shares of the Company
at a price fixed at the time of grant of the option. The
price of the option is set by the directors and may not be
less than the higher of the nominal value and 80% of the
market value of a Boxmore International share prior to the
grant. In normal circumstances, options may only be
exercised within six months of the third or fifth
anniversary as appropriate of the starting date of the
contract and while the participant remains an employee.
Options may be exercised earlier in special circumstances
such as death or ceasing employment because of injury,
disability, redundancy, retirement or sale of the business.
Long Term Incentive Plan
A Long Term Incentive Plan was approved by members on 11
November 1996. It is an employees' share scheme for
encouraging or facilitating the holding of shares in
Boxmore International by or for the benefit of officers or
employees of the Group. The plan provides for three types
of awards to be made to participating employees at the
discretion of the Remuneration Committee and the Group will
provide funds to the Boxmore International Employee Share
Trust so that the trustees can acquire shares in Boxmore
International in order to satisfy the awards. The shares
will then be held by the trustees for a minimum of three
years from the date of the award although absolute title to
the shares can pass to the employee at any time in the
event of death, redundancy, retirement or change of
control. There are three types of award under this scheme.
Performance awards can be made to selected employees who
meet individual performance objectives over a specified
period of time in the future. Investment awards can be
made by way of allocating a proportion of an annual bonus
plan in the form of shares. Incentive awards can also be
made and these are essentially top-ups for those employees
to whom investment awards have already been made.
No awards under this scheme had been made prior to 31
December 1999.
-26-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
24. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
1999
L000
At 1 January 52,387
Recognised gains and losses for the year 5,698
Dividends (2,677)
-----------
At 31 December 55,408
-----------
25. FUTURE COMMITMENTS
At 31 December 1999 the directors have authorised future
capital expenditure which, without taking account of
Government grants, amounts to:
1999
L000
Contracted 1,381
-----------
26. CONTINGENT LIABILITY
There exists a contingent liability to repay grants
received, if certain conditions are not fulfilled.
Boxmore International PLC has guaranteed certain borrowings
of its Chinese operations by way of letters of credit.
-27-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
27. RESERVES
Investment
property Profit
Revaluation revaluation Capital and loss
reserve reserve reserves account
L000 L000 L000 L000
At 31 December 1998 90 665 636 43,798
Currency translation differences - - - (2,160)
Revaluation - 500 - -
Retained profit for the financial
year - - - 4,681
--------- ------------ -------- ---------
At 31 December 1999 90 1,165 636 46,319
--------- ------------ -------- ---------
Profits retained by the subsidiary undertaking incorporated
in the Republic of Ireland totalling some L10,760,000 would
be subject to UK Corporation Tax (net of double taxation
relief) if repatriated to the Company. No provision has
been made for deferred taxation in respect of these
earnings as it is not the Company's present intention to
repatriate these retained earnings.
The cumulative amount of goodwill written off at 31
December 1999 net of goodwill relating to undertakings
disposed of is L35,986,000. L31,439,000 has been written
off against the merger reserve and L4,547,000 has been
written off against revenue reserves.
-28-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
27. RESERVES (CONTINUED)
Capital reserves
Other Share Total
capital Merger premium capital
reserve reserve account reserves
L000 L000 L000 L000
At 31 December 1999 - - 636 636
------- ------- ------- --------
28. COMMITMENTS TO PENSION FUNDS
The Group operates five final salary schemes which are
funded by the payment of contributions to separately
administered trust funds.
The contributions to the schemes are determined with the
advice of independent qualified actuaries on the basis of
triennial valuations. The latest actuarial assessments of
the pension schemes were prepared between 1995 and 1999
using either the attained age or the projected unit
methods. The market value of the schemes at their most
recent valuation dates were L9,201,000 and the actuarial
value of the assets represented 128% of the liabilities at
the valuation dates, after allowing for expected future
increases in earnings. This overall surplus will be run
off over the average future service life of current
employees. The current funding level of accrued benefits
together with statutory revaluation was 126%.
The assumptions which have the most significant effect on
the results of the valuations are those relating to the
rate of return on investments and the rates of increase in
pay and pensions. It was assumed that the investment
return would be between 1% and 2% per annum higher than the
rate of annual wage and salary increases.
On the above assumptions the total pension cost of the
Group's final salary schemes was L757,000. At 31 December
1999 an accrual of L98,000 representing the excess of the
pension costs over the amounts funded is included in
creditors.
The Group operates five defined contribution schemes, the
assets of which are held separately from those of the Group
in independently administered funds. The pension cost
charge representing contributions payable by the Group to
the defined contribution schemes amounted to L304,000.
-29-
Boxmore International PLC
NOTES TO THE ACCOUNTS
at 31 December 1999
29. RELATED PARTY TRANSACTIONS
During the year, group companies recharged L10,349 in
respect of services provided to Rotam Boxmore Packaging
Company Limited (a joint venture undertaking). During
1999, the group's investment in the joint venture was
increased as noted in note 14.
30. POST BALANCE SHEET CHANGE OF ULTIMATE PARENT COMPANY
On 10 February 2000, Boxmore International PLC was acquired
by Chesapeake UK Acquisitions II plc, which is a wholly
owned subsidiary of Chesapeake UK Holdings Limited, for a
consideration of L191 million. The ultimate parent
undertaking is Chesapeake Corporation, based in Richmond,
Virginia, USA.
31. COMPANIES (NORTHERN IRELAND) ORDER 1986
These accounts are not the Company's statutory accounts
within the meaning of Article 248 of the Companies
(Northern Ireland) Order 1986. Statutory accounts for the
year ended 31 December 1999, on which the auditors have
given an unqualified audit opinion, will be delivered to
the Registrar of Companies for Northern Ireland.
32. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND
US GAAP
The Company's consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in the United Kingdom ("UK GAAP") which differ in
certain respects from those generally accepted in the
United States ("US GAAP").
Set forth below is a summary of the differences between UK
GAAP and US GAAP as they relate to the measurement of
profit for the financial year, cash flows and shareholders'
funds which the Directors believe are significant to
Boxmore.
DEFERRED TAXATION
Under UK GAAP Boxmore provides for deferred taxation using
the partial liability method on all material timing
differences to the extent that it is considered probable
that the liabilities will crystallise in the foreseeable
future.
Under US GAAP deferred taxes should be provided for the tax
effect of all temporary differences between the tax and
book bases of assets and liabilities. Deferred tax assets
are recognised to the extent that it is more likely than
not the benefit will be realised. The probability of
future taxable income as well as tax planning strategies
should be considered in determining the realisability of
deferred tax assets. Net operating loss carry forwards
arising from tax losses are recognised as deferred tax
assets to the extent that it is more likely than not that
such assets will be recovered.
Pensions
Under UK GAAP an actuarial valuation method must be used to
determine annual pension costs. The valuation is normally
performed every three years. The benefit obligation is
discounted at a long-term risk-adjusted rate and the plan
assets are valued on an actuarial basis. The expected cost
of pensions is charged to the profit and loss account so as
to spread the cost of pensions over the expected remaining
service lives of employees.
Under US GAAP annual actuarial valuations must be carried
out for defined benefit pension obligations. The present
value of the benefit obligation is determined using a
current market discount rate such as that of a high
quality, fixed rate debt instrument, and the plan assets
are valued on a market or market-related basis. Actuarial
gains and losses that arise within a prescribed "corridor"
do not have to be amortised. Actuarial gains and losses
outside the corridor are amortised over the average
expected remaining service lives.
-30-
Revaluation of land and buildings
Under UK GAAP periodic revaluations of land and buildings
are allowed provided that the policy is applied
consistently. The related depreciation is calculated on the
revalued amounts where applicable. Any revaluation surplus
or deficit on the revaluation of land and buildings is
taken directly to a revaluation reserve, which is part of
shareholders' funds. Impairments are charged to the profit
and loss account to the extent that they relate to a clear
consumption of economic benefits.
Under US GAAP such revaluations of land buildings are not
permitted and depreciation is provided on the original
cost.
Depreciation
Under UK GAAP no depreciation is provided on certain
freehold properties or leasehold properties with an
unexpired term exceeding 50 years, where the directors of
the company are of the opinion that the properties are
currently well maintained to ensure that the residual
values of such properties are such that the depreciation
would not be significant. Impairment reviews on assets
that are not depreciated are carried out annually. Leases
on property, including land, are depreciated over 50 years
beginning when unexpired lease terms are less than 50
years.
Under US GAAP such assets are depreciated based upon their
historical cost on a straight-line basis over their useful
life, or the term of the lease. Land is not depreciated
unless it is considered to be an insignificant part of a
capital lease that includes both land and buildings
together.
Goodwill
For accounting periods ending before December 23, 1998
goodwill arising from acquisitions was written off directly
to shareholders' funds in the period of acquisition in
accordance with UK GAAP. Negative goodwill was similarly
credited directly to shareholders' funds. Upon the
subsequent disposal of the business, goodwill previously
written off is reinstated and considered in the calculation
of the gain or loss on disposal. For accounting periods
ending on or after December 23, 1998 goodwill arising on
acquisitions is required to be capitalised and amortised
over a period of up to 20 years in accordance with FRS 10.
Under US GAAP goodwill arising from acquisitions is
capitalised and amortised over its estimated useful life up
to a maximum of 40 years. Negative goodwill is applied as
a reduction to the net book value of any fixed assets
acquired. Upon the subsequent disposal of a business,
unamortised goodwill is considered in the calculation of
the gain or loss on disposal.
Current assets and liabilities
Under UK GAAP current assets and liabilities include
amounts which fall due after more than one year. Under US
GAAP such assets would be classified as non current assets.
Provisions for liabilities and other charges under UK GAAP
include amounts due within one year which would be
classified as current liabilities under US GAAP.
Proposed dividends
Under UK GAAP ordinary dividends proposed are provided for
in the year in respect of which they are recommended by the
board of directors. Under US GAAP such dividends are
provided for in the period they are declared by the board
of directors.
Stock based compensation
Under UK GAAP no compensation cost is recorded for qualified
Save As Your Earn stock option plans. Under US GAAP stock
option plans that provide a discount of more than 15% from
the fair market value of the stock are considered
compensatory. For such plans, compensation expense is
calculated as the difference between the market price on
the measurement date and the exercise price of the option.
The measurement date is the date at which both the number
of shares to be received and the option price are known.
Compensation expense is recognised over the participants'
vesting period.
-31-
Investment property
Under UK GAAP investment property is carried at current
market value and are not subject to depreciation. Under US
GAAP such properties are recorded at historical cost, less
accumulated depreciation, with property, plant, and
equipment in the balance sheet, and are depreciated
following the lessor's normal depreciation policy.
Forward foreign exchange contract
Under UK GAAP forward foreign exchange contracts are used
to mitigate risk associated with fluctuations in currency
rates and are treated as hedges. Gains and losses on the
hedging transactions are matched against the corresponding
gains and losses on the underlying foreign currency
transactions.
Under US GAAP the Company's forward foreign exchange
contracts do not qualify for hedge accounting and all
unrealised gains and losses at the year end would be
recognised in net income for the year.
Cash flows
Under UK GAAP cash flow represents increases or decreases
in "cash", which comprises cash in hand and repayable on
demand less overdrafts. Cash flows are presented in the
following categories: (i) operating activities; (ii)
dividends received from associates and joint ventures (iii)
returns on investments and servicing of finance; (iv)
taxation; (v) capital expenditure and financial investment;
(vi) acquisitions and disposals; (vii) equity dividends
paid; (viii) management of liquid resources and (ix)
financing activities.
Under US GAAP cash flow represents increases or decreases
in "cash and cash equivalents", which include short term
highly liquid investments with remaining maturities of less
than 90 days when acquired and exclude overdrafts. Cash
flows are reported in only three categories of operating
activities, investing activities and financing activities.
Cash flows arising from taxation, returns on investments
and servicing of finance would be included as operating
activities under US GAAP. The payment of dividends and
debt issue costs would be included under financing
activities. Movements in bank overdrafts are classified as
a financing activity.
-32-
