<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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) June 16, 2000
HARSCO CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 1-3970 23-1483991
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification
Number)
Camp Hill, Pennsylvania 17001-8888
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (717) 763-7064
1
<PAGE> 2
ITEM 2. Acquisition or Disposition of Assets
On May 16, 2000, Harsco Corporation (the Company) announced that it agreed with
UK-based John Mowlem & Company plc ("Mowlem") that Mowlem would, subject to
obtaining its stockholders' approval, sell to a wholly owned subsidiary of
Harsco, its entire holding in SGB Group plc (SGB), representing 50.96 percent of
the outstanding shares. The Company said it would launch a cash tender offer
through its wholly owned subsidiary, Harsco Investment Limited, to acquire all
of the shares of SGB. SGB is one of Europe's largest suppliers of scaffolding,
forming and related access products and services. SGB also has operations in
North America, the Middle East and the Asia Pacific region. For the year ended
December 31, 1999, SGB recorded sales of (pound sterling) 283 million
(approximately *$429 million).
On May 20, 2000, Harsco Investment Limited issued its offer to the shareholders
of SGB to purchase all of the issued and to be issued share capital for a cash
price of (pound sterling) 2.50 (approximately *$3.79) per share. The total
transaction would value SGB at approximately (pound sterling) 188 million
(approximately *$285 million) for 100 percent of the outstanding shares, plus
the assumption of certain SGB indebtedness, for a total consideration of (pound
sterling) 222 million (approximately *$336 million). The Company has arranged
for a (pound sterling) 190 million syndicated bank credit facility to provide
bridge loan financing for this transaction. This credit facility was initially
underwritten by the Chase Manhattan Bank and subsequently sold to a group of 17
banks. Harsco plans to replace these borrowings with funds from a forthcoming
debt issue.
On June 9, 2000, the Company announced that the shareholders of Mowlem had
approved the acceptance of Harsco's offer for Mowlem's 50.96 percent holding in
SGB. Harsco declared its offer for the remaining issued shares of SGB to be
unconditional as to acceptances.
On June 16, 2000, the Company announced that it had received the last remaining
approvals from British and Dutch regulatory authorities and declared its offer
to acquire SGB wholly unconditional.
With these developments, the Company obtained beneficial ownership of 56.41
percent of SGB's issued shares, which represents the acceptances received from
SGB shareholders as of 12:00 p.m. on June 16, 2000. As of June 30, 2000 the
Company has received acceptances for 94.8 percent of SGB's issued shares. Under
British regulations the Company has the right to compulsorily acquire all
remaining SGB shares outstanding which have yet to be tendered at the expiration
of the requisite notice period. The Company has exercised that right.
As of July 31, 2000 the Company has received acceptances for 98.2 percent of
SGB's issued shares. It is expected that by the end of August 2000 the Company
will be the holder of 100 percent of the issued shares of SGB.
2
<PAGE> 3
The Company consolidated SGB's financial statements effective with the Company's
June 30, 2000 financial statements. SGB's income has been consolidated as of
June 16, 2000.
*Note: Pound sterling amounts are converted to U.S. dollars based upon the
June 30, 2000 published foreign exchange rates. The U.S. dollar amounts
presented vary from the June 9 and June 16 press releases due to
fluctuations in the pound sterling foreign exchange conversion rate.
ITEM 7. Financial Statements, Pro-Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired
Financial statements of SGB Group PLC for the year ended December 31, 1999.
- Report of the Auditors
- Consolidated Profit and Loss Account
- Consolidated Balance Sheet
- Consolidated Cash Flow Statement
- Consolidated Statement of Total Recognised Gains and Losses
- Reconciliation of Movements in Consolidated Equity Shareholders' Funds
- Accounting Policies
- Notes to the Accounts
Unaudited statements of SGB Group PLC for the six months ended June 30, 2000,
and June 30, 1999.
(b) Pro-Forma Financial Information
- Unaudited Pro Forma Condensed Statement of Income for the year ended
December 31, 1999 and the six months ended June 30, 2000
3
<PAGE> 4
(c) Listing of Exhibits filed with Form 8-K/A
<TABLE>
<CAPTION>
Exhibit
Number Data Required Location in 8-K/A
------ ------------- -----------------
<S> <C> <C>
23.1 Consent of Auditors of Acquired June 16, 2000 8-K/A
Company - KPMG Audit Plc
99-1 Press release of Harsco dated June 16, 2000 8-K
May 16, 2000
99-2 Press release of Harsco dated June 16, 2000 8-K
June 9, 2000
99-3 Press release of Harsco dated June 16, 2000 8-K
June 16, 2000
</TABLE>
4
<PAGE> 5
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.
HARSCO CORPORATION
(Registrant)
Date: August 28, 2000 By: /s/ Salvatore D. Fazzolari
-------------------------------------
Salvatore D. Fazzolari
Senior Vice President,
Chief Financial Officer and Treasurer
5
<PAGE> 6
FINANCIAL STATEMENTS AND PRO FORMA
FINANCIAL INFORMATION INDEX
Financial Statements of SGB Group PLC for the Year Ended December 31, 1999
<TABLE>
<S> <C>
Report of the Auditors 2
Consolidated Profit and Loss Account 3
Consolidated Balance Sheet 4
Consolidated Cash Flow Statement 5
Consolidated Statement of Total Recognised Gains and Losses 6
Reconciliation of Movements in Consolidated Equity Shareholders' Funds 6
Accounting Policies 7
Notes to the Accounts 9
Consolidated Profit and Loss Account - for the Six Months Ended
30 June 2000 36
Consolidated Profit and Loss Account - for the Six Months Ended
30 June 1999 37
Pro Forma Financial Information (Unaudited)
Harsco Corporation and Subsidiary Companies and SGB Group PLC
Pro Forma Combined Condensed Financial Information 38
Pro Forma Combined Condensed Statement of Income - For the year 1999 40
Pro Forma Combined Condensed Statement of Income -
Six Months Ended 30 June 2000 41
Notes to Pro Forma Financial Information 42
</TABLE>
- 1 -
<PAGE> 7
REPORT OF THE AUDITORS
TO THE MEMBERS OF SGB GROUP PLC
THE BOARD OF DIRECTORS
SGB GROUP PLC:
We have audited the accompanying consolidated balance sheet of SGB Group PLC and
its subsidiaries as of 31 December 1999, and the related consolidated profit and
loss account, cash flow statement, statement of total recognized gains and
losses and reconciliation of movements in consolidated equity shareholders'
funds for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. We
conducted our audit in accordance with generally accepted auditing standards in
the United Kingdom and the United States. 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 consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of SGB Group PLC. and its subsidiaries as of 31 December
1999, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles in the United
Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected net income for the year ended 31 December 1999 and
stockholders' equity at 31 December 1999 to the extent summarized in Note 25 to
the consolidated financial statements.
KPMG Audit Plc
Registered Auditor
Chartered accountants
London, 6 March 2000
- 2 -
<PAGE> 8
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1999
<TABLE>
<CAPTION>
AFTER BEFORE
EXCEPTIONAL EXCEPTIONAL EXCEPTIONAL
ITEMS ITEMS ITEMS
1999 1999 1999
(POUND (POUND (POUND
NOTE STERLING)m STERLING)m STERLING)m
----- ----- ----- -----
<S> <C> <C> <C> <C>
TURNOVER
Group and share of joint venture 1 282.9 -- 282.9
Less: Share of joint venture (9.5) -- (9.5)
------------------------------------------------------------------------------------------------------------------------------
Group turnover 273.4 -- 273.4
------------------------------------------------------------------------------------------------------------------------------
GROUP OPERATING PROFIT 28.1 -- 28.1
Share of operating profit of joint venture 0.4 0.4
Exceptional items:
- Sale of French operation 0.5 0.5 --
- Goodwill on French disposal previously written off (5.6) (5.6) --
------------------------------------------------------------------------------------------------------------------------------
Net loss on sale of French operations (5.1) (5.1) --
------------------------------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 2 23.4 (5.1) 28.5
Net interest payable 4 (1.9) -- (1.9)
------------------------------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 21.5 (5.1) 26.6
Taxation 5 (8.1) -- (8.1)
------------------------------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 13.4 (5.1) 18.5
Equity minority interests (0.1) -- (0.1)
------------------------------------------------------------------------------------------------------------------------------
PROFIT FOR THE FINANCIAL YEAR 7 13.3 (5.1) 18.4
Dividends paid and proposed 6 (6.6) -- (6.6)
------------------------------------------------------------------------------------------------------------------------------
RETAINED PROFIT FOR THE YEAR 6.7 (5.1) 11.8
------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE (PENCE) 17.7p -- 24.5p
BASIC EARNINGS PER SHARE (PENCE) 17.9p -- 24.8p
DILUTED WEIGHTED AVERAGE NUMBER OF SHARES 8 75.1m -- 75.1m
BASIC WEIGHTED AVERAGE NUMBER OF SHARES 8 74.1m -- 74.1m
</TABLE>
- 3 -
<PAGE> 9
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 1999
<TABLE>
<CAPTION>
1999
(POUND
NOTE STERLING)m
------------------------------------------------------------------------------------------
<S> <C> <C>
FIXED ASSETS
Tangible fixed assets 9 141.9
Investment in joint venture
Share of gross assets 1.5
Share of gross liabilities (0.9)
------------------------------------------------------------------------------------------
9 0.6
Other Investments 9 1.6
------------------------------------------------------------------------------------------
144.1
CURRENT ASSETS
Stocks and work in progress 10 22.0
Debtors 11 80.8
Cash at bank and in hand 19 15.0
------------------------------------------------------------------------------------------
117.8
CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR
External borrowings 19 (46.7)
Creditors 12 (72.0)
------------------------------------------------------------------------------------------
(118.7)
------------------------------------------------------------------------------------------
NET CURRENT (LIABILITIES)/ASSETS (0.9)
TOTAL ASSETS LESS CURRENT LIABILITIES 143.2
CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
External borrowings 19 (2.1)
PROVISIONS FOR LIABILITIES AND CHARGES 13 (14.5)
------------------------------------------------------------------------------------------
NET ASSETS 126.6
------------------------------------------------------------------------------------------
CAPITAL AND RESERVES
Share capital 14 30.0
Share premium account 15 47.8
Revaluation reserve 15 4.0
Other non-distributable reserves 15 --
Profit and loss account 15 44.7
------------------------------------------------------------------------------------------
EQUITY SHAREHOLDERS' FUNDS 126.5
EQUITY MINORITY INTERESTS 16 0.1
------------------------------------------------------------------------------------------
126.6
------------------------------------------------------------------------------------------
</TABLE>
These accounts were approved by the Board on 6 March 2000 and signed on its
behalf by:
R Stokell Chief Executive
S Yapp Finance Director
- 4 -
<PAGE> 10
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1999
<TABLE>
<CAPTION>
YEAR
ENDED
31 DEC
1999
(POUND
NOTE STERLING)m
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 17 35.3
Dividends received from Joint Venture 0.3
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 0.4
Interest paid (1.9)
-------------------------------------------------------------------------------------------------------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE (1.5)
-------------------------------------------------------------------------------------------------------
TAXATION (5.6)
CAPITAL EXPENDITURE
Purchase of fixed assets (57.6)
Sale of fixed assets - land and buildings 0.9
- other 14.4
-------------------------------------------------------------------------------------------------------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE (42.3)
-------------------------------------------------------------------------------------------------------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary and other undertakings --
Purchase of ESOT shares --
Sale of businesses 18 6.1
-------------------------------------------------------------------------------------------------------
NET CASH INFLOW/(OUTFLOW) FROM ACQUISITIONS
AND DISPOSALS 6.1
-------------------------------------------------------------------------------------------------------
Equity dividends paid - final (3.3)
- interim (2.6)
-------------------------------------------------------------------------------------------------------
NET CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID RESOURCES
AND FINANCING (13.6)
-------------------------------------------------------------------------------------------------------
NET CASH INFLOW/(OUTFLOW) FROM THE MANAGEMENT OF
LIQUID RESOURCES 19a 18.3
NET CASH INFLOW FROM FINANCING 19b 1.6
-------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN CASH 6.3
-------------------------------------------------------------------------------------------------------
</TABLE>
- 5 -
<PAGE> 11
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 1999
<TABLE>
<CAPTION>
YEAR
ENDED 31 DEC
1999
(POUND STERLING)m
-------------------------------------------------------------------------------------------------------------------
<S> <C>
Profit for the financial year 13.3
Revaluation of land and buildings --
Currency translation differences on foreign currency net investments taken
directly to reserves (0.9)
--------------------------------------------------------------------------------------------------------------------
TOTAL GAINS AND LOSSES RECOGNISED IN THE YEAR 12.4
--------------------------------------------------------------------------------------------------------------------
</TABLE>
The actual recognised gains and losses in 1999 include a tax charge on currency
translation differences arising on foreign currency borrowings of (pound
sterling) 0.1 million. It is currently the Group's policy to hedge overseas
assets by the use of currency borrowings which amounted to (pound sterling) 40.0
million at 31 December 1999.
There were no material differences between the results shown in the profit and
loss account and the results calculated in the historical cost basis.
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED EQUITY SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED 31 DECEMBER 1999
<TABLE>
<CAPTION>
1999
(POUND
STERLING)m
------------------------------------------------------------------------------------------------------------
<S> <C>
Profit for the financial year 13.3
Dividends (6.6)
------------------------------------------------------------------------------------------------------------
6.7
Fixed asset revaluation --
Goodwill charged to the Profit and Loss Account 5.6
Foreign exchange movements (0.9)
------------------------------------------------------------------------------------------------------------
NET ADDITION TO SHAREHOLDERS' FUNDS 11.4
Opening shareholders' funds 115.1
------------------------------------------------------------------------------------------------------------
Closing shareholders' funds 126.5
------------------------------------------------------------------------------------------------------------
</TABLE>
- 6 -
<PAGE> 12
ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The consolidated accounts of the Group are prepared under the historical cost
convention (modified by the revaluation of certain land and buildings and
investments in subsidiaries) and in accordance with applicable accounting
standards.
BASIS OF PREPARATION
Unless otherwise stated, the acquisition method of accounting has been adopted.
Where subsidiary undertakings are acquired or sold during the year the
consolidated profit and loss account includes the results for the part of the
year for which they were subsidiary undertakings. The Group's share of operating
profits, net interest payable and taxation of joint ventures is separately
included in the Group profit and loss account using the equity accounting
method, based on the latest available audited accounts after appropriate
adjustment to achieve uniformity of accounting policies.
The Company carries its investments in subsidiaries at a valuation equal to the
underlying net asset value of the subsidiary.
FOREIGN CURRENCIES
Assets and liabilities denominated or recorded in foreign currencies are
translated into Sterling at rates of exchange ruling at the balance sheet date.
Trading results are translated at the average rates for the year. Exchange
differences arising on foreign currency net investments are taken directly to
reserves, whereas the exchange differences arising in the ordinary course of
trading are included in the profit and loss account.
The main exchange rates used for translation purposes (other than those subject
to hedging activities or fixed contractual rates) are as follows:
<TABLE>
<CAPTION>
Average rates Year end rates
1999 1999
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Dollar 1.62 1.61
French Franc 9.97 10.55
Dutch Guilder 3.35 3.54
Hong Kong Dollar 12.56 12.53
</TABLE>
TURNOVER
Turnover represents the invoiced value for goods and services supplied during
the year and excludes sales taxes. Turnover from hire of equipment is recognised
on a straight line basis over the period of hire. Turnover from the sale of
equipment is recognised on the date of sale.
TANGIBLE FIXED ASSETS
At 31 December 1998 the Group's UK properties were revalued by Gooch Webster,
Chartered Surveyors on the basis of open market value for existing use and in
accordance with the Royal Institution of Chartered Surveyors' Statement of Asset
Valuation Practice and Guidance Notes. Any impairment loss on revalued fixed
assets caused by the consumption of economic benefits are recognised in the
profit and loss account. Surpluses, and deficits to the extent that reserves
already exist, are taken to non-distributable reserves.
- 7 -
<PAGE> 13
ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION OF TANGIBLE FIXED ASSETS
No depreciation is provided on land. Buildings are depreciated over the lower of
50 years or the life of the lease by equal annual instalments. Vehicles, plant
and machinery are depreciated over a period ranging mainly between 3 and 7 years
with weighting where appropriate to recognise the impact of obsolescence.
Equipment for hire is depreciated to its residual value over a period of between
2 and 20 years by equal annual instalments depending on product type.
LEASES
Assets which are the subject of finance leases together with the corresponding
lease obligations are capitalised. The assets are depreciated as described above
and the finance charge element of each lease payment, representing a constant
interest rate on the reducing obligation is charged to the profit and loss
account. Payments under operating leases are charged to the profit and loss
account in the period to which they refer.
TAXATION
Deferred taxation is accounted for by using the liability method in relation to
timing differences in respect of which there is a reasonable probability that
they will reverse in the foreseeable future without being replaced by similar
differences. No provision is made for taxation arising on distribution of
profits retained by overseas resident subsidiary undertakings.
STOCKS
Stocks are stated at the lower of cost and net realisable value. In determining
the cost of raw materials, consumables and goods purchased for resale, the
weighted average purchase price is used.
PENSION FUNDING
The Company and its subsidiary undertakings operate various pension schemes
financed, with certain exceptions, through separate trustee administered funds.
The expected costs of providing pensions are recognised on a systematic and
rational basis over the expected service lives of current employees, in
accordance with established actuarial practice.
RESEARCH AND DEVELOPMENT
Research and development expenditure is charged to the profit and loss account
in the year in which it is incurred.
GOODWILL
Purchased goodwill (both positive and negative) arising on consolidation in
respect of acquisitions before 1 January 1998, when FRS 10 Goodwill and
intangible assets was adopted, was written off to reserves in the year of
acquisition. When a subsequent disposal occurs any related goodwill previously
written off to reserves is written back through the profit and loss account as
part of the profit or loss on disposal.
Purchased goodwill (representing the excess of the fair value of the
consideration given over the fair value of the separable net assets acquired)
arising on consolidation in respect of acquisitions since 1 January 1998 is
capitalised. Positive goodwill is amortised to nil by equal annual instalments
over its estimated useful life.
Negative goodwill arising on consolidation in respect of acquisitions since 1
January 1998 is included within fixed assets and released to the profit and loss
account in the periods in which the fair values of the non-monetary assets
purchased on the same acquisition are recovered, whether through depreciation or
sale.
- 8 -
<PAGE> 14
NOTES TO THE ACCOUNTS
1 SEGMENTAL INFORMATION
<TABLE>
<CAPTION>
YEAR
ENDED 31 DEC
1999
(POUND STERLING)m
<S> <C>
TURNOVER (i) (ii) (iii)
----------------------------------------------------------------------------------
UK Operations 163.4
Joint Venture - UK Operations 9.5
SGB International 44.4
SGB North Europe 44.3
SGB South Europe 21.3
----------------------------------------------------------------------------------
282.9
----------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST AND TAX (PBIT)
UK Operations 20.0
Joint Venture - UK Operations 0.4
SGB International 6.8
SGB North Europe 3.0
SGB South Europe 1.2
----------------------------------------------------------------------------------
31.4
Central costs (2.9)
----------------------------------------------------------------------------------
PBIT BEFORE EXCEPTIONAL ITEMS 28.5
Exceptional Items (SGB South Europe) (5.1)
----------------------------------------------------------------------------------
PBIT AFTER EXCEPTIONAL ITEMS 23.4
----------------------------------------------------------------------------------
ASSETS EMPLOYED
UK Operations 107.1
Joint Venture - UK Operations 0.6
SGB International 34.7
SGB North Europe 19.3
SGB South Europe 11.6
Centre 4.7
----------------------------------------------------------------------------------
TOTAL ASSETS EMPLOYED 178.0
Net borrowings (33.8)
Taxation and dividends (17.6)
----------------------------------------------------------------------------------
NET ASSETS 126.6
----------------------------------------------------------------------------------
</TABLE>
(i) The operations of the Group comprise only one segmental class of business
being the supply of access and related products and services.
(ii) Turnover by geographical destination is not materially different from
turnover by geographical origin.
(iii) SGB divisions are operated on a geographic basis. SGB Youngman serves the
UK market, SGB North Europe serves Northern Europe (excluding the UK), SGB
South Europe serves France and Belgium and SGB International serves the
rest of the world. Central costs are attributable to the UK head office
operations.
- 9 -
<PAGE> 15
NOTES TO THE ACCOUNTS CONTINUED
2 PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST AND TAX (PBIT)
<TABLE>
<CAPTION>
1999
(POUND STERLING)m
--------------------------------------------------------------------------------------
<S> <C>
Group turnover 273.4
--------------------------------------------------------------------------------------
Change in stocks 4.1
Raw materials and consumables (80.9)
Research and development (0.9)
Staff costs (Note 3) (90.4)
Depreciation (18.1)
Auditors' remuneration:
- audit fees (Company audit fee: (pound sterling) 5,000) (0.5)
- non audit work - UK (fees paid to auditor and its associates) (1.2)
Operating lease charges for plant and machinery (4.7)
Operating lease charges for land and buildings (4.6)
Other operating charges (48.1)
Share of operating profit of joint venture 0.4
--------------------------------------------------------------------------------------
(244.9)
--------------------------------------------------------------------------------------
PBIT before exceptional items 28.5
Exceptional items (5.1)
--------------------------------------------------------------------------------------
PBIT after exceptional items 23.4
--------------------------------------------------------------------------------------
</TABLE>
3 EMPLOYEES
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------------------------------
<S> <C>
The average weekly number of employees, including directors, was: 4,390
</TABLE>
<TABLE>
<CAPTION>
1999
(POUND STERLING)m
---------------------------------------------------------------------------------------
<S> <C>
Payroll costs were:
Wages and salaries 78.1
Social security costs 9.9
Other pension costs (Note 21) 2.4
---------------------------------------------------------------------------------------
90.4
---------------------------------------------------------------------------------------
</TABLE>
- 10 -
<PAGE> 16
NOTES TO THE ACCOUNTS CONTINUED
Details of Directors basic salaries and fees, annual performance related bonuses
and other benefits are shown in the following Table (a) entitled Directors'
Emoluments. Details of share options held by the Directors are shown in Table
(b) and Table (c) outlines the Executive Directors' pension provisions.
The total emoluments of the Directors, excluding pension contributions, during
the financial year to 31 December 1999 were as follows:
Table (a) Directors' Emoluments
<TABLE>
<CAPTION>
Basic salary/ Bonus Other benefits Total
fees 1999 (excl. pension) 1999
1999 1999
(POUND STERLING) (POUND STERLING) (POUND STERLING) (POUND STERLING)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-Executive Directors
K J Minton 80,000 - - 80,000
J C Gains 26,500 - - 26,500
M R B Gatenby 26,500 - - 26,500
P W Harrisson 26,500 - - 26,500
A H Moore 26,500 - - 26,500
Executive Directors
R Stokell 190,000 32,820 12,465 235,285
K L Mansell 135,140 22,612 10,630 168,382
A J Scull 115,500 19,692 10,688 145,880
S Yapp 127,500 22,974 7,565 158,039
-----------------------------------------------------------------------------------------------------------
Total emoluments 754,140 98,098 41,348 893,586
-----------------------------------------------------------------------------------------------------------
</TABLE>
Fees paid to John Mowlem & Company PLC ("Mowlem") in respect of Messrs J C Gains
and A H Moore who are also directors of Mowlem.
- 11 -
<PAGE> 17
NOTES TO THE ACCOUNTS CONTINUED
SHARE OPTIONS
Options over ordinary shares in SGB Group PLC have been granted under The SGB
Group PLC Discretionary Share Option Scheme 1997 ("the 1997 Scheme") in which
the Executive Directors and other senior executives participate. The 1997 Scheme
consists of two parts; Part I, which is approved by the Inland Revenue, and Part
II, which is unapproved. This Scheme grants options at the closing market price
for the business day immediately preceding the date of grant. The exercise of
any options granted under either part of the 1997 Scheme are subject to an
earnings per share condition to ensure that such options may only be exercised
provided that the growth in the Company's earnings per ordinary share has
exceeded the growth in the Retail Price Index by at least 6 per cent over the
period of three consecutive years following the date of the grant of the option.
Options granted under Part I of the 1997 Scheme are normally exercisable between
3 and 10 years from the date of grant and those granted under Part II are
normally exercisable between 3 and 7 years from the date of grant.
Options over the ordinary shares in SGB Group PLC have also been granted under a
UK SAYE Scheme, The SGB Group PLC Sharesave Scheme 1997, in which all eligible
UK employees are invited to participate. This SAYE Scheme grants options at a
maximum discount of 20% to the market price at the time of the grant, which are
normally exercisable after the expiry of 3 years from the date of grant.
The closing mid-market price of the shares as at 31 December 1999 and the
highest and lowest mid-market prices during the financial year were:
<TABLE>
<S> <C> <C>
As at 31 December 1999 263.5 pence
High 315.0 pence (26 May 1999 - 7 June 1999)
Low 179.0 pence (29 January 1999)
</TABLE>
- 12 -
<PAGE> 18
NOTES TO THE ACCOUNTS CONTINUED
The terms of the Schemes that grant options over the Company's shares have been
approved by the shareholders of the Company.
Table (b) - Share options
<TABLE>
<CAPTION>
At 1/1/99 Granted Option
(or date of during At Grant price Exercise
appointment) year 31/12/99 date (pence) Period
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-Executive Directors:
KJ Minton - 4,443* 4,443* 28/10/99 218.0 1/12/02 to 31/5/03
JC Gains - - -
MRB Gatenby 5,954* 5,954* 31/10/97 131.0 1/1/01 to 30/6/01
888* 888* 28/10/99 218.0 1/12/02 to 31/5/03
PW Harrisson 2,232* 2,232* 31/10/97 131.0 1/1/01 to 30/6/01
3,110* 3,110* 28/10/99 218.0 1/12/02 to 31/5/03
AH Moore - -
Executive Directors:
R Stokell 7,442* 7,442* 31/10/97 131.0 1/1/01 to 30/6/01
19,230+ 19,230+ 26/6/97 156.0 26/6/00 to 25/6/07
298,077++ 298,077++ 26/6/97 156.0 26/6/00 to 25/6/04
71,175++ 71,175++ 14/9/99 285.0 14/9/02 to 13/9/06
KL Mansell 7,442* 7,442* 31/10/97 131.0 1/1/01 to 30/6/01
246,153++ 246,153++ 26/6/97 156.0 26/6/00 to 25/6/04
48,350++ 48,350++ 14/9/99 285.0 14/9/02 to 13/9/06
AJ Scull 7,442* 7,442* 31/10/97 131.0 1/1/01 to 30/6/01
201,923++ 201,923++ 26/6/97 156.0 26/6/00 to 25/6/04
42,105++ 42,105++ 14/9/99 285.0 14/9/02 to 13/9/06
S Yapp 5,954* 5,954* 31/10/97 131.0 1/1/2001 to 30/6/01
888* 888* 28/10/99 218.0 1/12/02 to 31/5/03
19,230+ 19,230+ 26/6/97 156.0 26/6/00 to 25/6/07
182,693++ 182,693++ 26/6/97 156.0 26/6/00 to 25/6/04
49,128++ 49,128++ 14/9/99 285.0 14/9/02 to 13/9/06
-------------------------------------------------------------------------------------------------------------------------------
Total 1,003,772 220,087 1,223,859
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Denotes options granted under The SGB Group PLC Sharesave Scheme 1997
+ Denotes options granted under The SGB Group PLC Discretionary Share
Option Scheme 1997 (Part I)
++ Denotes options granted under The SGB Group PLC Discretionary Share
Option Scheme 1997 (Part II)
None of the Directors exercised any options during the year.
- 13 -
<PAGE> 19
NOTES TO THE ACCOUNTS CONTINUED
DIRECTORS' REPORT ON REMUNERATION CONTINUED
TABLE (c) - PENSIONS
<TABLE>
<CAPTION>
Name of Director Total accrued Increase in accrued Transfer value of Directors Company contribution payable for
pension at pension during year increase contribution during the year
31.12.99 period
Note (3) Note (1) Note (2) Note (7)
(POUND STERLING) (POUND STERLING) (POUND STERLING) (POUND STERLING) (POUND STERLING) (POUND STERLING)
SGB Scheme SGB Scheme SGB Scheme SGB Scheme SGB Scheme FURBS
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
R Stokell 9,563 3,034 44,092 12,708 12,759 94,231
KL Mansell 107,345 12,686 214,400 10,070 28,597 -
AJ Scull 4,314 1,731 15,062 7,385 12,759 11,888
S Yapp 7,328 2,675 22,967 8,292 12,759 14,163
--------------- ----------------
66,874 120,282
--------------- ----------------
</TABLE>
1. The increase in accrued pension during the year excludes any increase for
inflation.
2. The transfer value has been calculated on the basis of actuarial advice in
accordance with the Actuarial Guidance Note GN11, less Director's
contributions.
3. The pension entitlement shown is that which would be paid annually on
retirement, based on service to the end of the year, and excludes any
increase for inflation.
4. Members of the scheme have the option to pay Additional Voluntary
Contributions; neither the contributions nor the resulting benefits are
included in the above table.
5. Details of the SGB Scheme and FURBS may be found in Note 21 to the
Accounts.
6. The accrued pension as at 31 December 1998 in respect of Mr R Stokell, the
highest paid Director, was (pound sterling) 6,327.
7. In addition, charges amounting to (pound sterling) 25,491 for Mr Stokell,
(pound sterling) 2,250 for Mr Scull and (pound sterling) 2,547 for Mr Yapp
are included in the 1999 Profit & Loss Account, arising from the late
payment of contributions relating to 1996, 1997 and 1998.
Company contributions to pension schemes totaled (pound sterling) 187,156 made
up of (pound sterling) 66,874 in respect of the SGB Scheme (4 directors) and
(pound sterling) 120,282 in respect of the FURBS (3 directors).
- 14 -
<PAGE> 20
NOTES TO THE ACCOUNTS CONTINUED
DIRECTORS' REPORT ON REMUNERATION CONTINUED
INTERESTS IN THE SHARES OF JOHN MOWLEM & COMPANY PLC
As at the 31 December 1999, Messrs J C Gains and A H Moore were Directors of
John Mowlem & Company PLC ("Mowlem"), the Company's ultimate parent company.
Their interests and those of their families in the ordinary shares of 25 pence
each of Mowlem are disclosed in the Report and Accounts of that company.
The interest of Messrs K J Minton and K L Mansell and their families in the
ordinary shares of 25 pence each of Mowlem are as follows:
<TABLE>
<CAPTION>
31 DECEMBER 1999 1 January 1999
------------------------------------------------------------ ----------------------------------------- -------------------
NUMBER Number
<S> <C> <C>
Ordinary shares of 25 p each in Mowlem:
Mr K J Minton 13,359 537,855
Mr K L Mansell 24,715 6,119
</TABLE>
Mr K J Minton does not hold any share options over the ordinary shares in
Mowlem. The interest of Mr K L Mansell and their families in options over the
ordinary shares of 25 pence each in Mowlem are as follows:
<TABLE>
<CAPTION>
Option
Lapsed (L)/ At 31/12/99 Grant price Exercise
Scheme At 1/1/99 Exercised (E) date (pence) period
during year
----------------------- ---------------- ----------------- --------------- --------------- ------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
MOWLEM EXECUTIVE SHARE
OPTION SCHEME 1985
5,242 5,242 3/5/90 295.67 3/5/93 to 2/5/00
20,571 20,571 7/5/92 157.50 7/5/95 to 6/5/02
18,000 18,000 E* - 28/9/94 102.00 28/9/97 to 27/9/04
----------------------- ---------------- ----------------- --------------- --------------- ------------- ---------------------------
43,813 18,000 25,813
----------------------- ---------------- ----------------- --------------- --------------- ------------- ---------------------------
</TABLE>
* exercised on 1 April 1999. Market price at the date of exercise was 116.5p.
The total gain made by Mr Mansell on the exercise of his Mowlem share options
was (pound sterling) 2,610 (1998: (pound sterling)nil).
MARKET PRICE OF MOWLEM ORDINARY SHARES
The middle market price of a Mowlem ordinary share during the year was in the
range 97.5p to 154.0p, and at 31 December 1999 was 118.0p.
- 15 -
<PAGE> 21
NOTES TO THE ACCOUNTS CONTINUED
4 NET INTEREST PAYABLE
<TABLE>
<CAPTION>
1999
(POUND
STERLING)m
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest payable on bank loans and overdrafts and other loans repayable within
five years (2.3)
Interest receivable 0.4
---------------------------------------------------------------------------------------------------------------------------
Net interest payable (1.9)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
5 TAXATION
<TABLE>
<CAPTION>
1999
(POUND
STERLING)m
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
United Kingdom:
Corporation tax at 30.25% 3.6
Deferred taxation 1.3
---------------------------------------------------------------------------------------------------------------------------
4.9
Overseas taxation 3.1
---------------------------------------------------------------------------------------------------------------------------
The Company and its subsidiary undertakings 8.0
Joint venture 0.1
---------------------------------------------------------------------------------------------------------------------------
8.1
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
6 DIVIDENDS PAID AND PROPOSED
<TABLE>
<CAPTION>
1999
(POUND
STERLING)m
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interim dividend - 3.4p per share (1998: 2.9p per share) 2.6
Final proposed - 5.4p per share (1998: 4.4p per share) 4.0
---------------------------------------------------------------------------------------------------------------------------
6.6
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The final proposed dividend per share is calculated on 75,053,008 shares
although it is recognised that the ESOT has waived its right to dividends on the
913,209 shares it holds.
7 PROFIT ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY
The profit for the financial year dealt with in the accounts of the parent
company is (pound sterling) 8.0m. As permitted by Section 230 of the Companies
Act 1985, the Company has not presented its own profit and loss account.
- 16 -
<PAGE> 22
NOTES TO THE ACCOUNTS CONTINUED
8 EARNINGS PER SHARE
The calculation of earnings per share has been prepared in accordance with
FRS14, Accounting for Earnings per Share, and is based on profit before
exceptional items attributable to shareholders of (pound sterling) 18.4 million.
Earnings after exceptionals were (pound sterling) 13.3 million.
The weighted average number of shares has been calculated as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------------------------------------------- -----------------
<S> <C>
Weighted average shares in issue 75,028,374
Less weighted average ESOT shares not ranking for dividend (913,209)
----------------------------------------------------------------------------------------------------------- -----------------
Weighted average shares used for basic earnings per share 74,115,165
Adjustment for share options granted but not yet exercised 979,963
----------------------------------------------------------------------------------------------------------- -----------------
Weighted average shares used for diluted earnings per share 75,095,128
----------------------------------------------------------------------------------------------------------- -----------------
</TABLE>
9 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
GROUP Owned Leased
vehicles, vehicles,
Land and plant and plant and Equipment
buildings machinery machinery For hire Total
(POUND STERLING)m (POUND STERLING)m (POUND STERLING)m (POUND STERLING)m (POUND STERLING)m
----------------------------------- ------------------- ------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
COST OR VALUATION
At 1 January 1999 28.4 33.0 4.5 149.6 215.5
Currency translation (0.2) (0.2) (0.2) (3.3) (3.5)
Additions 6.3 3.3 1.8 46.2 57.6
Disposals (4.3) (5.8) - (18.8) (28.9)
----------------------------------- ------------------- ------------------ ----------------- ----------------- ------------------
At 31 December 1999 30.2 30.7 6.1 173.7 240.7
----------------------------------- ------------------- ------------------ ----------------- ----------------- ------------------
DEPRECIATION
At 1 January 1999 (5.3) (22.1) (2.3) (69.0) (98.7)
Currency translation 0.2 - - 1.8 2.0
Reclassification - 1.6 (1.6) - -
Disposals 1.7 4.5 - 9.8 16.0
Depreciation provided during the
year (0.7) (2.7) (0.2) (14.5) (18.1)
----------------------------------- ------------------- ------------------ ----------------- ----------------- ------------------
At 31 December 1999 (4.1) (18.7) (4.1) (71.9) (98.8)
----------------------------------- ------------------- ------------------ ----------------- ----------------- ------------------
NET BOOK VALUE
31 DECEMBER 1999 26.1 12.0 2.0 101.8 141.9
----------------------------------- ------------------- ------------------ ----------------- ----------------- ------------------
</TABLE>
The capital value of powered access equipment held under operating leases at 31
December 1999 was (pound sterling) 23.0 million.
The above analysis includes freehold land at cost or valuation not subject to
depreciation of (pound sterling) 13.8 million.
- 17 -
<PAGE> 23
NOTES TO THE ACCOUNTS CONTINUED
9 TANGIBLE FIXED ASSETS CONTINUED
At 31 December 1998 the Group's UK properties were revalued by Gooch Webster,
Chartered Surveyors on the basis of open market value for existing use and in
accordance with the Royal Institution of Chartered Surveyors' Statement of Asset
Valuation Practice and Guidance Notes
THE NET BOOK VALUE OF LAND AND BUILDINGS COMPRISES:
<TABLE>
<CAPTION>
1999
(POUND
STERLING)m
------
<S> <C>
Freehold 22.8
Long leasehold 1.7
Short leasehold 1.6
------
26.1
------
</TABLE>
PARTICULARS RELATING TO REVALUED ASSETS ARE GIVEN BELOW:
<TABLE>
<CAPTION>
1999
(POUND
STERLING)m
------
<S> <C>
Analysis of land and buildings:
Cost 10.8
1998 valuation 19.4
------
30.2
------
</TABLE>
If land and buildings had not been revalued, they would have been included at
the following book values:
<TABLE>
<CAPTION>
1999
(POUND
STERLING)m
------
<S> <C>
Cost 27.4
Depreciation thereon (4.8)
------
Historical cost net book value 22.6
------
</TABLE>
GROUP
FIXED ASSET INVESTMENTS - JOINT VENTURE:
<TABLE>
<CAPTION>
1999
(POUND
STERLING)m
------
<S> <C>
SALAMIS SGB LIMITED
At 1 January 0.6
Share of profit after tax 0.3
Dividends received (0.3)
------
At 31 December 0.6
------
</TABLE>
OTHER INVESTMENTS
During 1998 the Company established an Employee Share Ownership Trust (ESOT)
details of which are given in note 14 to the Accounts. As at 31 December 1999
the ESOT had purchased 913,209 SGB Group PLC ordinary shares with a cost of
(pound sterling) 1.6 million at prices ranging from 153 pence to 180 pence per
share.
- 18 -
<PAGE> 24
10 STOCKS AND WORK IN PROGRESS
<TABLE>
<CAPTION>
1999
(POUND
STERLING)m
------
<S> <C>
Raw materials and consumables 2.9
Work in progress 2.8
Finished goods and goods for resale 16.3
------
22.0
------
</TABLE>
11 DEBTORS
<TABLE>
<CAPTION>
1999
(POUND
STERLING)m
------
<S> <C>
Falling due within one year:
Trade debtors
- third parties 60.5
- John Mowlem & Company PLC 0.8
------
61.3
Assets held for resale 8.2
Other debtors 2.5
Prepayments and accrued income 8.8
------
80.8
Falling due after one year:
Trade debtors --
------
Total debtors 80.8
------
</TABLE>
Assets held for resale are powered access equipment acquired which had not been
placed under operating leases by 31 December 1999.
- 19 -
<PAGE> 25
NOTES TO THE ACCOUNTS CONTINUED
12 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1999
(POUND STERLING)m
------------------------------------------------------------------------------------
<S> <C>
Trade creditors
- third parties (31.4)
- John Mowlem & Company PLC (0.2)
------------------------------------------------------------------------------------
(31.6)
- Corporation tax (4.0)
- Other taxation and social security (6.5)
- Financial instruments including bills of exchange (0.7)
- Powered Access equipment creditors (10.3)
- Other creditors (5.5)
- Accruals and deferred income (9.4)
- Dividends payable (4.0)
------------------------------------------------------------------------------------
(72.0)
------------------------------------------------------------------------------------
</TABLE>
13 PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
1999
(POUND STERLING)m
--------------------------------------------------------------------------------
<S> <C>
Deferred taxation:
Accelerated capital allowances (6.0)
Other timing differences 0.3
Overseas deferred tax (3.9)
--------------------------------------------------------------------------------
(9.6)
Pension provision (Note 21) --
Other (4.9)
--------------------------------------------------------------------------------
(14.5)
--------------------------------------------------------------------------------
</TABLE>
Movements on provisions during the year were as follows:
<TABLE>
<CAPTION>
Deferred
Tax Pensions Other Total
(POUND STERLING)m (POUND STERLING)m (POUND STERLING)m (POUND STERLING)m
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At 1 January 1999 (7.3) (1.8) (5.7) (14.8)
Net charge for the year (2.3) -- -- (2.3)
Utilised -- 1.8 0.8 2.6
--------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 1999 (9.6) -- (4.9) (14.5)
--------------------------------------------------------------------------------------------------------
</TABLE>
Other provisions include insurance and property dilapidation provisions.
The full potential liability to deferred tax is as follows:
<TABLE>
<CAPTION>
1999
(POUND STERLING)m
--------------------------------------------------------------------------------
<S> <C>
Accelerated capital allowances (UK and Overseas) (10.2)
Other timing differences (UK and Overseas) (0.5)
--------------------------------------------------------------------------------
(10.7)
--------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE> 26
NOTES TO THE ACCOUNTS CONTINUED
14 SHARE CAPITAL
<TABLE>
<CAPTION>
1999
Number (POUND STERLING)
--------------------------------------------------------------------------------
<S> <C> <C>
Authorised:
Ordinary shares of 40p each 100,000,000 40,000,000
Allotted, issued and fully paid: 75,053,008 30,021,203
</TABLE>
SHARE OPTION SCHEMES
The Company operates a Sharesave Scheme (The SGB Group PLC Sharesave Scheme
1997) which is savings-related and enables those eligible to participate to
invest up to a maximum permitted level of (POUND STERLING)250 per month. In
addition, a Discretionary Share Option Scheme (The SGB Group PLC Discretionary
Share Option Scheme 1997 (Parts I and II)) provides share options for Executive
Directors and other senior executives.
<TABLE>
<CAPTION>
Sharesave Discretionary Total
Scheme Scheme
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at 31 December 1998 542,363 2,072,243 2,614,606
Granted 482,890 575,395 1,058,285
Exercised (14,269) (35,000) (49,269)
Lapsed (72,345) (142,435) (214,780)
-------------------------------------------------------------------------------------------------------------
OUTSTANDING AT 31 DECEMBER 1999 938,639 2,470,203 3,408,842
-------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Total number of
Options outstanding
Scheme Date of grant Option price Exercise period At 31 December 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sharesave 31/10/97 131.0p 1/1/01 - 30/6/01 461,346
---------------------------------------------------------------------------------------------------------------------
28/10/99 218.0p 1/12/02 - 31/5/03 477,293
---------------------------------------------------------------------------------------------------------------------
938,639
---------------------------------------------------------------------------------------------------------------------
Discretionary Part I (Approved) 26/6/97 156.0p 26/6/00 - 25/6/07 38,460
22/10/97 165.5p 22/10/00 - 21/10/07 95,000
21/9/98 171.5p 21/9/01 - 20/9/08 134,984
29/3/99 230.0p 29/3/02 - 28/3/09 46,086
14/9/99 285.0p 14/9/02 - 13/9/09 135,526
Discretionary Part II (Unapproved) 26/6/97 156.0p 26/6/00 - 25/6/04 1,413,142
22/10/97 165.5p 22/10/00 - 21/10/04 105,000
21/9/98 171.5p 21/9/01 - 20/9/05 118,222
29/3/99 230.0p 29/3/02 - 28/3/06 85,218
14/9/99 285.0p 14/9/02 - 13/9/06 298,565
---------------------------------------------------------------------------------------------------------------------
2,470,203
---------------------------------------------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE> 27
NOTES TO THE ACCOUNTS CONTINUED
14 SHARE CAPITAL CONTINUED
EMPLOYEE SHARE OWNERSHIP TRUST (ESOT)
During 1998 the Company established an Employee Share Ownership Trust (ESOT) to
acquire SGB Group PLC shares from the market to satisfy current and future
requirements of the Company's share option schemes. Funding is provided to the
ESOT by the Company. The ESOT's administrative costs are charged to the Profit
and Loss Account of the Company. The assets of the ESOT are recognised as assets
of the Company within these accounts. The ESOT has waived its rights to
dividends but must be paid a minimum dividend of 0.01 pence per share. At 31
December 1999 the ESOT held 913,209 SGB Group PLC ordinary shares of which
818,601 shares were specifically under options to employees. The remaining
94,608 uncommitted shares had a market value at 31 December 1999 of (POUND
STERLING)0.2 million. The 913,209 shares held by the ESOT were purchased at
prices ranging from 153 pence per share to 180 pence per share.
15 RESERVES
<TABLE>
<CAPTION>
Share Other non Profit
Premium Revaluation distributable and loss
Account reserve reserves account Total
(POUND (POUND (POUND (POUND (POUND
STERLING)m STERLING)m STERLING)m STERLING)m STERLING)m
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GROUP
At 1 January 1999 47.8 4.4 0.2 32.7 85.1
Retained profit for the year -- -- -- 6.7 6.7
Goodwill charged to the profit and loss account -- -- -- 5.6 5.6
Transfers between reserves -- (0.4) (0.2) 0.6 --
Currency translation and related tax credit -- -- -- (0.9) (0.9)
------------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 1999 47.8 4.0 -- 44.7 96.5
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The cumulative amount of goodwill written off to reserves at 31 December 1999,
net of goodwill relating to subsidiary undertakings disposed of, amounts to
(POUND STERLING)4.9 million.
16 MINORITY INTERESTS
<TABLE>
<CAPTION>
1999
(POUND STERLING)m
--------------------------------------------------------------------------------
<S> <C>
Minority interests on 1 January 1999 0.1
Share of profits and losses 0.1
Dividends and other payments (0.1)
--------------------------------------------------------------------------------
Minority interests on 31 December 1999 0.1
--------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE> 28
NOTES TO THE ACCOUNTS CONTINUED
17 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
1999
(POUND STERLING)m
--------------------------------------------------------------------------------
<S> <C>
Group operating profit 28.1
Depreciation 18.1
Revaluation deficit charged to profit and loss account --
Profit on disposal of fixed assets (5.6)
(Increase)/decrease in stock 0.1
Increase in debtors (11.3)
Increase in creditors 8.5
Decrease in provisions (2.6)
--------------------------------------------------------------------------------
Net cash inflow from operating activities 35.3
--------------------------------------------------------------------------------
</TABLE>
18 BUSINESS DISPOSALS
<TABLE>
<CAPTION>
1999
(POUND STERLING)m
--------------------------------------------------------------------------------
<S> <C>
Disposal of business
Net assets disposed of:
Land and buildings 2.5
Other fixed assets 0.7
Stock 3.3
Creditors (0.7)
Goodwill 5.6
Loss on disposal (5.1)
--------------------------------------------------------------------------------
6.3
--------------------------------------------------------------------------------
Satisfied by:
Cash proceeds 6.1
Deferred consideration 0.2
--------------------------------------------------------------------------------
6.3
--------------------------------------------------------------------------------
</TABLE>
19(a) ANALYSIS OF NET BORROWINGS
<TABLE>
<CAPTION>
Currency
At translation At
1 Jan 1999 Cash flow movement 31 Dec 1999
(POUND STERLING)m (POUND STERLING)m (POUND STERLING)m (POUND STERLING)m
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash at bank and in hand 6.0 6.3 -- 12.3
Overdrafts (3.1) -- -- (3.1)
--------------------------------------------------------------------------------------------------------
2.9 6.3 -- 9.2
--------------------------------------------------------------------------------------------------------
Debt due after one year (45.9) 41.6 2.2 (2.1)
Debt due within one year (0.4) (43.2) -- (43.6)
--------------------------------------------------------------------------------------------------------
(46.3) (1.6) 2.2 (45.7)
--------------------------------------------------------------------------------------------------------
Liquid resources 21.0 (18.3) -- 2.7
--------------------------------------------------------------------------------------------------------
Net borrowings (22.4) (13.6) 2.2 (33.8)
--------------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE> 29
NOTES TO THE ACCOUNTS CONTINUED
19 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
1999
19(b) NET CASH INFLOW/(OUTFLOW) FROM FINANCING (POUND STERLING)m
----------------------------------------------------------------------------------------------------------
<S> <C>
Drawdown under(POUND STERLING)60m multi-currency revolving facility (0.4)
Other borrowing movements
- under one year 43.2
- more than one year (41.0)
Capital element of finance lease rental payments (0.2)
----------------------------------------------------------------------------------------------------------
As per consolidated cash flow statement 1.6
----------------------------------------------------------------------------------------------------------
19(c) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS AND DEBT
Net (decrease)/increase in cash 6.3
Net cash (outflow)/inflow from decrease in debt and lease financing (1.6)
Net cash (inflow)/outflow from increase in liquid resources (18.3)
----------------------------------------------------------------------------------------------------------
Change in net debt resulting from cash flows (13.6)
Effect of currency translation changes on net debt 2.2
----------------------------------------------------------------------------------------------------------
Movement in net funds and debt (11.4)
Net borrowings at 1 January 1999 (22.4)
----------------------------------------------------------------------------------------------------------
NET BORROWINGS AT 31 DECEMBER 1999 (33.8)
----------------------------------------------------------------------------------------------------------
19(d) CASH AND DEPOSITS
CASH AT BANK AND IN HAND
Short term deposits 2.7
Bank and cash balances 12.3
----------------------------------------------------------------------------------------------------------
15.0
----------------------------------------------------------------------------------------------------------
Sterling 7.7
Other Currencies 7.3
----------------------------------------------------------------------------------------------------------
15.0
----------------------------------------------------------------------------------------------------------
</TABLE>
Cash at bank and in hand includes cash in hand and deposits repayable on demand
with any financial institution.
Deposits are repayable on demand if they can be withdrawn at any time without
notice and without penalty or if a maturity or period of notice of not more than
24 hours or one working day has been agreed.
Cash includes cash in hand and deposits denominated in foreign currencies.
The Group includes in liquid resources term bank deposits of less than one year.
-24-
<PAGE> 30
NOTES TO THE ACCOUNTS CONTINUED
20 FINANCIAL INSTRUMENTS
This is the first year of disclosure under FRS 13 and no comparatives are
disclosed as permitted by that standard.
Group operations are financed through a combination of shareholders funds and
net borrowings, principally comprising bank and revolving credit facilities.
<TABLE>
<CAPTION>
1999
(POUND STERLING)m
------------------------------------------------------------------------------------
<S> <C>
OTHER CURRENCIES
Revolving Credit Facility:
US Dollar 14.6
Euro 18.0
Hong Kong Dollar 2.9
Singapore Dollar 3.5
Swedish Kroner 0.6
Danish Kroner 1.4
------------------------------------------------------------------------------------
41.0
------------------------------------------------------------------------------------
US Dollar Short Term Borrowings 2.6
US Dollar Overdrafts 0.4
French Franc Finance Lease Obligations 1.7
Dutch Guilder Finance Lease Obligations 0.4
Dutch Guilder Overdrafts 2.3
Other Overdrafts 0.4
------------------------------------------------------------------------------------
48.8
------------------------------------------------------------------------------------
NET DEBT
Gross Borrowings 48.8
Cash and short term deposits (15.0)
------------------------------------------------------------------------------------
Net Debt 33.8
------------------------------------------------------------------------------------
REPAYMENT ANALYSIS
Less than one year or on demand 46.7
In more than one year but less than two years 0.5
In more than two years but less than five years 1.6
------------------------------------------------------------------------------------
48.8
------------------------------------------------------------------------------------
SECURITY ANALYSIS
Secured 2.1
Unsecured 46.7
------------------------------------------------------------------------------------
48.8
------------------------------------------------------------------------------------
INTEREST RATE PROFILE
At fixed rates 2.1
At variable rates 46.7
------------------------------------------------------------------------------------
48.8
------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE> 31
NOTES TO THE ACCOUNTS CONTINUED
20 FINANCIAL INSTRUMENTS Continued
The weighted average interest rate of the fixed rate financial liabilities is
4.8% fixed for an average of 4 years.
The floating rate financial liabilities are subject to interest rates referenced
to LIBOR. The drawings under the revolving credit facility at 31 December 1999
are at a weighted average of 5.09% for a period of five months.
The Group allows a degree of interest rate risk as long as the effects of
changes in rates remain within acceptable parameters.
As at 31 December 1999 the Group had a committed multi-currency revolving
facility of (POUND STERLING)60 million of which (POUND STERLING)41.1 million was
utilised. In addition the Group has facilities in the UK of (POUND STERLING)3.0
million and in its overseas operations of (POUND STERLING)12.2 million.
Amounts drawn under the revolving credit facility are for periods of less than
one year, and as the facility expires in June 2000, these amounts have been
classified as falling due within one year. The Group has entered into a new
three year (POUND STERLING)72.0 million revolving credit facility in February
2000 to replace the facility existing at the year-end.
The Group operates a foreign exchange hedging policy, whereby 75% of foreign
currency denominated assets are hedged through the use of foreign currency
borrowings. As a result of this policy (POUND STERLING)40.0 million of the
revolving credit facility has been utilised for hedging purposes.
The Group continues to comply with all of its borrowing covenants, none of which
represents a restriction on funding or investment policy in the foreseeable
future.
There is no material difference between book value and the fair value of the
Group's financial assets and financial liabilities as at 31 December 1999.
21 PENSION ARRANGEMENTS
21.1 The Group operates two defined benefit pension schemes. The SGB Group
Staff Pension and Family Security Scheme ("the SGB Scheme" ) is the
larger of the two. The other is the Youngman Group Limited Operatives
Pension and Family Security Scheme ("the Youngman Scheme"). The Group
also makes contributions to funded unapproved retirement benefits
schemes (FURBS) in respect of three executive directors. The total
pension charge in 1999 was (POUND STERLING)2.4 million.
21.2 The assets of the SGB Scheme and the Youngman Scheme are held under
trust separately from those of the Group and invested directly on the
advice of independent professional investment managers. Pension costs
are assessed on the advice of an independent qualified actuary using
the projected unit method.
-26-
<PAGE> 32
NOTES TO THE ACCOUNTS CONTINUED
21 PENSION ARRANGEMENTS Continued
<TABLE>
<CAPTION>
SGB SCHEME YOUNGMAN SCHEME
Actuary G HARMAN, FIA, G HARMAN, FIA,
<S> <C> <C>
William M Mercer Ltd William M Mercer Ltd
Date of last valuation/review 31 December 1999 31 December 1997
Date of next valuation 31 December 2000 31 December 1999
Market value of the schemes' assets (POUND STERLING)165.8m (POUND STERLING)10.3m
Level of funding 115% 100%
Key Assumptions:
Investment return
- Pre-retirement 6.2% 8.5%
- Post-retirement 5.2% 8.5%
General pensionable earnings increases 4.7% 6.5%
Increases in pensions in excess of GMP 3.2%* 4.5%
Increase in equity dividends N/A 4.0%
Average future working lifetime of the active members 11 years 17 years
</TABLE>
The surplus revealed by the valuations is being spread over the average future
service lives of the active members.
* Certain members of the SGB Scheme are guaranteed increases in pensions in
excess of GMP of 4.0%.
-27-
<PAGE> 33
NOTES TO THE ACCOUNTS CONTINUED
22 COMMITMENTS AND CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
Powered
Land and Access
Buildings Equipment Vehicles
1999 1999 1999
(POUND STERLING)m (POUND STERLING)m (POUND STERLING)m
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING LEASE ANNUAL COMMITMENTS
Non-cancellable operating leases
which expire:
Within one year 0.3 -- 0.5
In two to five years 0.6 3.6 4.1
Over five years 3.1 -- --
--------------------------------------------------------------------------------------------------------
4.0 3.6 4.6
--------------------------------------------------------------------------------------------------------
</TABLE>
NOTIONAL CAPITAL OF OPERATING LEASES
The movement in the notional capital value of leased assets not included in
fixed assets is as follows;
<TABLE>
<CAPTION>
Powered
Access
Equipment Vehicles
1999 1999
(POUND STERLING)m (POUND STERLING)m
-------------------------------------
<S> <C> <C>
Brought forward on 1 January 1999 10.8 10.5
Net additions 15.3 4.7
Capital element of lease payments (2.6) (3.6)
Foreign Exchange Movement (0.5) (0.3)
-------------------------------------
CARRIED FORWARD AT 31 DECEMBER 1999 23.0 11.3
-------------------------------------
The interest element of operating lease
payments charged to the Profit and
-------------------------------------
Loss Account was: 0.8 1.1
-------------------------------------
</TABLE>
The notional value of Powered Access equipment under operating leases at 31
December 1999 includes (POUND STERLING)7.5 million of equipment where leases
have not yet been incepted.
The Group has guaranteed (POUND STERLING)107.3 million of facilities (including
leasing facilities) for subsidiary undertakings (including the Revolving Credit
Facility of (POUND STERLING)60 million).
The Group has contingent liabilities arising in the ordinary course of business
from which it is anticipated that no material liabilities will arise.
The Group has also guaranteed borrowings of (POUND STERLING)1.8 million (1998:
(POUND STERLING)1.8 million) of certain of its overseas agents.
-28-
<PAGE> 34
NOTES TO THE ACCOUNTS CONTINUED
23 RELATED PARTY TRANSACTIONS
During the year the Group sold (POUND STERLING)2.4 million of goods and services
to John Mowlem & Company PLC ("Mowlem"), the Group's parent company, on arm's
length terms and on a normal commercial basis. In addition the Group paid (POUND
STERLING)0.1 million to Mowlem being the fees in respect of two non-executive
directors who are also directors of Mowlem.
The Group supplied (POUND STERLING)6.5 million of goods and services to Salamis
SGB Limited, a joint venture company, on normal commercial terms.
At 31 December 1999 the Group had net debtor balances outstanding with Mowlem
and Salamis SGB Limited of (POUND STERLING)0.6 million and (POUND STERLING)nil
respectively.
24 ULTIMATE PARENT COMPANY
John Mowlem & Company PLC, a company incorporated in England and Wales, owns the
majority of the Company's shares and is the ultimate parent company and the
parent undertaking of the largest such group of undertakings for which group
financial statements are drawn. Copies of group financial statements in respect
of John Mowlem & Company PLC may be obtained from the Company Secretary, John
Mowlem & Company PLC, White Lion Court, Swan Street, Isleworth, Middlesex, TW7
6RN.
-29-
<PAGE> 35
NOTES TO THE ACCOUNTS CONTINUED
25 DIFFERENCES BETWEEN UK AND US ACCOUNTING PRINCIPLES
The accompanying Group financial statements included in this report are prepared
in accordance with United Kingdom Generally Accepted Accounting Principles (UK
GAAP). The significant differences between UK GAAP and US Generally Accepted
Accounting Principles (US GAAP) which affect the Group's net income and
shareholders' equity are set out below:
a) Accounting for pension costs
There are five significant differences between UK GAAP and US GAAP in accounting
for pension costs:
(i) SFAS No. 87, "Employers' Accounting for Pensions", requires
that pension plan assets are valued by reference to their fair
or market related values, whereas UK GAAP permits an
alternative measurement of assets, which, in the case of the
main UK retirement plans, is on the basis of the discounted
present value of expected future income streams from the
pension plan assets.
(ii) SFAS No. 87, requires measurements of plan assets and
obligations to be made as at the date of financial statements
or a date not more than three months prior to that date. Under
UK GAAP, calculations may be based on the results of the
latest actuarial valuation.
(iii) SFAS No. 87, mandates a particular actuarial method - the
projected unit credit method - and requires that each
significant assumption necessary to determine annual pension
cost reflects best estimates solely with regard to that
individual assumption. UK GAAP does not mandate a particular
method, but requires that the method and assumptions, taken as
a whole, should be compatible and lead to the actuary's best
estimate of the cost of providing the benefits promised.
(iv) Under SFAS No. 87, a negative pension cost may arise where a
significant unrecognised net asset or gain exists at the time
of implementation. This is required to be amortised on a
straight-line basis over the average remaining service period
of employees. Under UK GAAP, the Group's policy is not to
recognise pension creditors in its financial statements unless
a refund of, or reduction in, contributions is likely.
(v) SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", requires immediate recognition of
previously unrecognised gains or losses when certain events
meeting the definition of a plan settlement or curtailment
occur. Under UK GAAP, such gains or losses are recognised over
the expected service life of the remaining employees.
-30-
<PAGE> 36
NOTES TO THE ACCOUNTS CONTINUED
25 DIFFERENCES BETWEEN UK AND US ACCOUNTING PRINCIPLES Continued
b) Purchase accounting adjustments, including the amortisation and
impairment of goodwill and intangibles
In the Group's financial statements, prepared in accordance with UK GAAP,
goodwill arising on acquisitions accounted for under the purchase method after 1
January 1998 is capitalised and amortised, as it would be in accordance with US
GAAP. Prior to that date such goodwill arising on acquisitions was and remains
eliminated against retained earnings. Values were not placed on intangible
assets. Additionally, UK GAAP requires that on subsequent disposal or closure of
a previously acquired business, any goodwill previously taken directly to
shareholders' equity is then charged in the income statement against the income
or loss on disposal or closure. Under US GAAP all goodwill would be capitalised
in the Group balance sheet and amortised through the income statement over its
estimated life not exceeding 40 years. Also, under US GAAP, it is normal
practice to ascribe fair values to identifiable intangibles. For the purpose of
the adjustments to US GAAP, included below, identifiable intangible assets are
amortised to income over the lower of their estimated lives or 40 years.
Under UK GAAP, goodwill is treated as an asset expressed in the parent company's
reporting currency. Under US GAAP, goodwill relating to foreign subsidiaries is
required to be treated as a foreign currency asset and so retranslated at the
closing rate. The foreign exchange gain or loss arising is charged to equity.
c) Capitalisation of interest
There is no requirement in the UK to capitalise interest and the Group does not
capitalise interest in its Group financial statements. Under US GAAP, SFAS No.
34 "Capitalisation of Interest Cost", requires interest incurred as part of the
cost of constructing fixed assets to be capitalised and amortised over the life
of the asset.
d) Employee share trust arrangements
An employee share trust has been established in order to satisfy share option
schemes. Under UK GAAP the Company's ordinary shares held by the employee share
trust are included at historic net book value in fixed asset investments. Under
US GAAP, such shares are treated as treasury stock and deducted from
shareholders' equity.
e) Ordinary dividends
Under UK GAAP, the proposed dividends on ordinary shares, as recommended by the
directors, are deducted from shareholders' equity and shown as a liability in
the balance sheet at the end of the period to which they relate. Under US GAAP,
such dividends are only deducted from shareholders' equity at the date of
declaration of the dividend.
f) Deferred taxation
Deferred taxation is provided on a full provision basis under US GAAP. Under UK
GAAP no provision is made for deferred taxation unless there is reasonable
evidence that such deferred taxation will be payable in the foreseeable future.
-31-
<PAGE> 37
NOTES TO THE ACCOUNTS CONTINUED
25 DIFFERENCES BETWEEN UK AND US ACCOUNTING PRINCIPLES Continued
g) Revaluation of fixed assets
Under UK GAAP, the Group has revalued the land and buildings in fixed assets,
and the depreciation charge is calculated on the revalued amount. Under US GAAP,
land and buildings are carried at historical cost and depreciation is based on
the historical cost amount.
h) Leases
Under UK GAAP, the accounting treatment for leases is determined in accordance
with SSAP21 'Accounting for leases' and, where appropriate, FRS5 'Accounting for
the substance of transactions'. Under US GAAP, SFAS No.13 has different criteria
for the classification of leases. SFAS No.13 sets out the following rules which
need to be satisfied for a lease to be treated as an operating lease:
- the present value of the minimum lease payments must be less than 90%
of the capital value of the asset
- the lease period must be less than 75% of the useful economic life of
the asset;
- there is no transfer of ownership at the end of the lease period; and
- there is no right to acquire the leased asset at a bargain price.
i) Share options
Under UK GAAP the compensation expense of share options is the difference
between the exercise price and the market price on the date the options were
granted. Under US GAAP the company elected to apply the provisions of APB No.25.
Under APB No.25 the compensation expense is calculated using the intrinsic value
(the difference between the exercise price of the option and the market price of
the stock). Fixed plans measure compensation on the grant date. Variable plans
(i.e. options with performance criteria) are re-measured every period until the
number of shares and exercise price are known. The compensation expense is
recognised over the service period to the vesting date.
j) Push down accounting
Under UK GAAP purchase accounting entries are accounted for in the consolidated
accounts of the parent company. Under US GAAP, any acquisition adjustments,
including goodwill, are pushed down into the accounts of the subsidiary acquired
when more than 95% of the shares are acquired by another entity. The goodwill
arising when the Group was acquired by Mowlem would be capitalised in the
financial statements of the Group.
k) Comprehensive Income
US GAAP requires that all items that are required to be recognised under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Required disclosures have been made in the Group's
financial statements in the statement of total recognised gains and losses and
note 15.
-32-
<PAGE> 38
NOTES TO THE ACCOUNTS CONTINUED
25 DIFFERENCES BETWEEN UK AND US ACCOUNTING PRINCIPLES Continued
l) New US Accounting Standards and pronouncements not yet effective
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was
issued in June 1998. This Standard, as amended by SFAS No.137 and SFAS No. 138,
is effective for fiscal years beginning after 15 June 2000 and requires all
derivatives to be recognised in the balance sheet as either assets or
liabilities and measured at fair value. To implement the standard, all hedging
relationships must be reassessed. The Group has not yet evaluated the likely
impact on its financial statements.
m) Cashflows
In October 1996 the UK Accounting Standards Board issued Financial Reporting
Standard No 1 (Revised 1996), "Cash Flow Statements" (FRS 1 Revised). The
Group's consolidated financial statements comply with the revised standard and
all periods presented conform with the new presentation required.
FRS 1 (Revised)'s objective and principles are similar to those set out in SFAS
No. 95, "Statement of Cash Flows". The principal difference between the
standards is in respect of classification. Under FRS 1 (revised), the Group
presents its cash flows 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. SFAS No. 95 requires only three
categories of cash flow activity being operating, investing and financing.
Cash flows arising from taxation and returns on investments and servicing of
finance under FRS 1 (Revised) would be included as operating activities under
SFAS No. 95, capital expenditure and financial investment would be included as
an investing activity under SFAS No. 95, and equity dividends paid would be
classified as a financing activity under SFAS No. 95.
In addition cash for the purposes of the cash flows under FRS 1 (Revised),
includes bank overdrafts but excludes liquid resources. Under US GAAP bank
overdrafts are classified as borrowings and the movements thereon are included
in financing activities. Liquid resources, with a maturity of three months or
less at the date acquired, are considered to be cash equivalents and the
movements thereon included in the overall cash movement under US GAAP.
A summarised consolidated cash flow under US GAAP is as follows:
<TABLE>
<CAPTION>
1999
(POUND STERLING)million
<S> <C>
Cash inflow from operating activities 28.5
Cash outflow on investing activities (36.2)
Cash outflow from financing activities (4.3)
------
Decrease in cash and cash equivalents (12.0)
Cash and cash equivalents at the beginning of the year 27.0
------
Cash and cash equivalents at the end of the year 15.0
------
</TABLE>
-33-
<PAGE> 39
NOTES TO THE ACCOUNTS CONTINUED
25 DIFFERENCES BETWEEN UK AND US ACCOUNTING PRINCIPLES Continued
The following is a summary of the material adjustments to net income and
shareholders' equity which would have been required if US GAAP had been applied
instead of UK GAAP:
<TABLE>
<CAPTION>
1999
(POUND STERLING)m
<S> <C>
NET INCOME AFTER EXCEPTIONAL ITEMS - UK GAAP 13.3
Adjustments to conform with US GAAP:
Pension expense 1.2
Pushdown accounting entries (2.4)
Amortization of goodwill and intangibles 1.4
Capitalization of interest 0.2
Leases (0.1)
Share option schemes (1.3)
Deferred taxation
Arising on UK GAAP results 0.5
Arising on other US GAAP adjustments (0.4)
Other 0.1
NET INCOME - US GAAP 12.5
Net earnings per Ordinary Share in accordance with US GAAP: Pence
Basic 16.9
Diluted 16.6
Number of shares used in net earnings per Ordinary Share No
Basic 74.1m
Diluted 75.1m
</TABLE>
<TABLE>
<CAPTION>
1999
(POUND STERLING)m
<S> <C>
SHAREHOLDERS' EQUITY, AS SHOWN IN THE GROUP BALANCE SHEETS - UK GAAP 126.5
Adjustments to conform with US GAAP:
Push down accounting entries 40.9
Purchase accounting adjustments, including goodwill and intangibles 2.5
Capitalization of interest 0.2
Leases (0.1)
Pensions 12.4
Employee share trust arrangements (1.6)
Ordinary dividends 4.0
Deferred taxation
Arising on UK GAAP results (1.1)
Arising on other US GAAP adjustments (3.7)
Revaluation of properties (3.3)
SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP 176.7
</TABLE>
-34-
<PAGE> 40
NOTES TO THE ACCOUNTS CONTINUED
PRINCIPAL SUBSIDIARIES AND JOINT VENTURES
The company has the following principal subsidiary or joint venture
undertakings.
<TABLE>
<CAPTION>
Country of Percentage held at Note
incorporation, registration 31 December 1999
and principal operations
<S> <C> <C> <C>
SUBSIDIARY UNDERTAKINGS
Quebeisi SGB LLC United Arab Emirates 49% (i)
SGB (Channel Islands) Limited Jersey 100%
SGB Asia Pacific (M) Sdn Bhd Malaysia 100%
SGB Asia Pacific Limited Hong Kong 100%
SGB Asia Pacific (S) Pte Limited Singapore 100%
SGB Construction Services Inc. USA 100%
SGB France SA France 100%
SGB Geruste und Baugerate GmbH Germany 100%
SGB Investments Limited England 100% (ii)
SGB Kovona A.S. Czech Republic 99.5%
SGB North Europe BV Holland 100%
SGB Services plc England 100% (ii)
SGB Stallningar AB Sweden 100%
Witca SGB Stillads A/S Denmark 100%
JOINT VENTURES
Salamis SGB Limited Scotland 50%
SGB Al-Darwish United WLL Qatar 49%
</TABLE>
Note:
(i) Consolidated on basis of management control.
(ii) Ordinary capital directly held in whole or part by SGB Group PLC.
The principal activities of the Group companies are the manufacture, supply and
hire of a wide range of access and related products and services.
-35-
<PAGE> 41
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 JUNE 2000
(UNAUDITED)
<TABLE>
<CAPTION>
AFTER BEFORE
EXCEPTIONAL EXCEPTIONAL EXCEPTIONAL
ITEMS ITEMS ITEMS
2000 2000 2000
(POUND STERLING)m (POUND STERLING)m (POUND STERLING)m
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TURNOVER
Group and share of joint venture 142.7 -- 142.7
Less: Share of joint venture (4.6) -- (4.6)
-----------------------------------------------------------------------------------------------------------
Group turnover 138.1 -- 138.1
-----------------------------------------------------------------------------------------------------------
GROUP OPERATING PROFIT 3.7 -- 3.7
Share of operating profit of joint venture 0.3 -- 0.3
Exceptional items:
- Cost in defense of takeover (2.6) (2.6) --
-----------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 1.4 (2.6) 4.0
Net interest payable (1.6) -- (1.6)
-----------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (0.2) (2.6) 2.4
Taxation * (1.1) -- (1.1)
-----------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (1.3) (2.6) 1.3
Equity minority interests -- -- --
-----------------------------------------------------------------------------------------------------------
PROFIT FOR THE FINANCIAL YEAR (1.3) (2.6) 1.3
-----------------------------------------------------------------------------------------------------------
</TABLE>
* The income tax provision reflects the nondeductibility of costs incurred by
SGB in defense of the takeover and certain other nondeductible expenses.
The following is a summary of the material adjustments to net income (loss)
which would have been required if US GAAP had been applied instead of UK GAAP
for the six months ended June 30, 2000.
<TABLE>
<CAPTION>
2000
(POUND STERLING)m
-----------------
<S> <C>
NET INCOME (LOSS) AFTER EXCEPTIONAL ITEMS - UK GAAP (1.3)
Adjustments to conform with US GAAP:
Pension expense 2.0
Pushdown accounting entries (1.2)
Capitalization of interest 0.1
Leases (0.2)
Share option schemes (0.1)
-----------------
NET INCOME (LOSS) - US GAAP (0.7)
-----------------
</TABLE>
-36-
<PAGE> 42
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 JUNE 1999
(UNAUDITED)
<TABLE>
<CAPTION>
AFTER BEFORE
EXCEPTIONAL EXCEPTIONAL EXCEPTIONAL
ITEMS ITEMS ITEMS
1999 1999 1999
(POUND STERLING)m (POUND STERLING)m (POUND STERLING)m
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TURNOVER
Group and share of joint venture 136.0 -- 136.0
Less: Share of joint venture (5.3) -- (5.3)
----------------------------------------------------------------------------------------------------------------------------------
Group turnover 130.7 -- 130.7
----------------------------------------------------------------------------------------------------------------------------------
GROUP OPERATING PROFIT 10.5 -- 10.5
Share of operating profit of joint venture 0.2 -- 0.2
Exceptional items:
- Sale of French operation 0.5 0.5 --
- Goodwill on French disposal (5.6) (5.6) --
----------------------------------------------------------------------------------------------------------------------------------
Net loss on sale of French operations (5.1) (5.1) --
----------------------------------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 5.6 (5.1) 10.7
Net interest payable (0.8) -- (0.8)
----------------------------------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 4.8 (5.1) 9.9
Taxation (3.0) -- (3.0)
----------------------------------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 1.8 (5.1) 6.9
Equity minority interests -- -- --
----------------------------------------------------------------------------------------------------------------------------------
PROFIT FOR THE FINANCIAL YEAR 1.8 (5.1) 6.9
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a summary of the material adjustments to net income which would
have been required if US GAAP had been applied instead of UK GAAP for the six
months ended June 30, 1999.
<TABLE>
<CAPTION>
1999
(POUND STERLING)m
-----------------
<S> <C>
NET INCOME AFTER EXCEPTIONAL ITEMS - UK GAAP 1.8
Adjustments to conform with US GAAP:
Pension expense 0.4
Pushdown accounting entries (1.2)
Amortization of goodwill and intangibles 1.4
Share option schemes (0.7)
Deferred taxation 0.2
--------
NET INCOME - US GAAP 1.9
--------
</TABLE>
-37-
<PAGE> 43
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
AND
SGB GROUP PLC
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(Unaudited)
The following unaudited pro forma financial information reflects the combined
results of operations of Harsco Corporation ("Harsco") and SGB Group PLC ("SGB")
as if the June 16, 2000 acquisition of SGB by Harsco had occurred on January 1,
1999 with respect to the information for the year ended December 31, 1999 and
January 1, 2000 with respect to the six months ended June 30, 2000. The results
of operations are derived from Harsco's historical consolidated statement of
operations and SGB's historical consolidated statement of operations after
adjustments for U.S. GAAP.
The pro forma financial information has been prepared on the basis that the
purchase price of approximately $290,000,000 was financed with Harsco current
cash and borrowed funds of approximately $289,000,000 initially underwritten by
the Chase Manhattan Bank and subsequently sold to a group of 17 banks. Harsco
intends to replace the $289,000,000 borrowings with funds from a public debt
issue before the end of the year.
In accordance with generally accepted accounting principles in the United
States, the purchase price of SGB Group PLC has been allocated to the assets
and liabilities of SGB based upon their respective fair values. Such
allocations are based upon preliminary appraisal values and management
estimates and are subject to reclassifications and adjustments in the future.
The purchase price has been allocated as follows:
(in millions)
Working capital, other than cash $ (54.4)
Property, plant and equipment 221.0
Other assets 64.2
Goodwill 85.0
Noncurrent liabilities (58.8)
-------
Purchase price, net of cash received $ 257.0
Harsco management is in the process of finalizing fair value adjustments, asset
write downs, and its plan to exit certain activities of SGB. Estimates of the
associated costs have been included in the operating balance sheet. Management
expects to finalize the plan and the associated estimates by September 30,
2000.
-38-
<PAGE> 44
For purposes of the accompanying pro forma financial information, the pro forma
adjustments have been reflected on an estimated basis using preliminary
information available. No assurance can be given that the pro forma adjustments
will not differ materially from the amounts ultimately determined.
The pro forma financial information presented is for informational purposes only
and is not necessarily indicative of future combined income and financial
position or of what the combined income and financial position would have been
had the SGB acquisition been consummated at the beginning of the respective
periods or as of any date for which pro forma financial information is
presented.
-39-
<PAGE> 45
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(In Thousands, except Per share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma for the Year 1999
---------------------------
Pro Forma
Harsco and
Pro Forma SGB Group PLC
Harsco SGB Group Adjustments Combined
------ --------- ----------- --------
<S> <C> <C> <C> <C>
Total revenues $1,720,811 $ 442,789 $ -- $2,163,600
Total costs and expenses 1,551,075 406,402 (1,502)(a) 1,955,975
----------------------------------------------------------------------------------------------------------------------------------
Profit (loss) from
operations 169,736 36,387 1,502 207,625
Interest expense, net 22,306 3,073 22,757(b) 48,136
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for
income taxes and minority
interest 147,430 33,314 (21,255) 159,489
Provision (credit) for income taxes 51,599 12,937 (8,684)(c) 55,852
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before minority
interest 95,831 20,377 (12,571) 103,637
Minority interest in net income 5,118 162 -- 5,280
----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 90,713 $ 20,215 $ (12,571) $ 98,357
----------------------------------------------------------------------------------------------------------------------------------
Average shares of common stock
outstanding 40,882 40,882
Earnings per common share:
Basic earnings per common share $ 2.22 $ 2.41
Diluted average shares of
common stock outstanding 41,017 41,017
----------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common
share $ 2.21 $ 2.40
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-40-
<PAGE> 46
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(In Thousands, except Per share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma for the Six Months Ended June 30, 2000
------------------------------------------------
Pro Forma
Harsco and
Pro Forma SGB Group PLC
Harsco SGB Group Adjustments Combined
------ --------- ----------- --------
<S> <C> <C> <C> <C>
Total revenues $ 906,612 $ 217,745 $ (17,281)(g) $1,107,076
Total costs and expenses 814,921 213,646 (15,876)(d,g) 1,012,691
--------------------------------------------- ---------- ---------- ---------- ----------
Profit (loss) from
operations 91,691 4,099 (1,405) 94,385
Equity in income (loss) of
affiliates, net (438) (1) 315 (123)
Interest expense, net 13,767 2,517 13,424(e,g) 29,708
--------------------------------------------- ---------- ---------- ---------- ----------
Income (loss) before provision for
income taxes and minority
interest 77,486 1,897 (14,829) 64,554
Provision (credit) for income taxes 27,120 2,977 * (5,781)(f,g) 24,316
--------------------------------------------- ---------- ---------- ---------- ----------
Income (loss) before minority
interest 50,366 (1,080) (9,048) 40,238
Minority interest in net income 1,933 -- (68)(g) 1,865
--------------------------------------------- ---------- ---------- ---------- ----------
Net income (loss) $ 48,433 $ (1,080) $ (8,980) $ 38,373
--------------------------------------------- ---------- ---------- ---------- ----------
Average shares of common stock
outstanding 39,989 39,989
Earnings per common share:
Basic earnings per common share $ 1.21 $ 0.96
Diluted average shares of
common stock outstanding 40,067 40,067
--------------------------------------------- ---------- ---------- ---------- ----------
Diluted earnings per common
share $ 1.21 $ 0.96
--------------------------------------------- ---------- ---------- ---------- ----------
</TABLE>
(1) Equity in income (loss) of affiliates is now separately reported.
Previously, these amounts were included in operating income as other
revenues.
* The income tax provision reflects the nondeductibility of cost incurred by
SGB in defense of the takeover and certain other nondeductible expenses.
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<PAGE> 47
Notes to Pro Forma Financial Information (Unaudited)
A. Statement of Income for the Year Ended December 31, 1999
The SGB income statement data was adjusted to account for the
differences between United Kingdom and United States generally
accepted accounting principles and translated into US dollars
using an average exchange rate for the year 1999 of one pound
sterling equal to $1.6172.
(a) Adjustments to depreciation expense associated with
estimated fair value adjustments related to property, plant
and equipment depreciated over principally seven years on a
straight line basis, $637,000, and net adjustment to
goodwill amortized over thirty years, $865,000.
(b) Adjustment to record interest and debt expense associated
with the money borrowed to purchase SGB. Interest was
assumed at an average rate of 6.2% for the year 1999. If the
assumed interest rate would change by one eighth of one
percent, net income would change by $250,000 for the year
1999.
(c) Adjustment to record the net tax benefit associated with the
temporary difference between book values and tax values of
fixed assets, and goodwill, and the additional interest
expense incurred by the purchase of SGB.
B. Statement of Income for the Six Months ended June 30, 2000
The SGB income statement data was adjusted to account for the
differences between United Kingdom and United States generally
accepted accounting principles and translated into US dollars
using an average exchange rate for the six months ended June 30,
2000 of one pound sterling equal to $1.5733.
(d) Adjustments to depreciation expense associated with
estimated fair value adjustments related to property, plant
and equipment depreciated over principally seven years on a
straight line basis, $310,000, and net adjustment to
goodwill amortized over thirty years, $420,000.
(e) Additional provisions recorded for interest and debt expense
associated with the money borrowed to purchase SGB. Interest
was assumed at an average rate of 6.9% for the six months of
2000. If the assumed interest rate would change by one
eighth of one percent, net income would change by $121,000
for the six months ended June 30, 2000.
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<PAGE> 48
(f) Adjustment to record the net tax benefit associated with the
temporary difference between book values and tax values of
fixed assets, and goodwill, and the additional interest
expense incurred by the purchase of SGB.
(g) Adjustment recorded to remove the effect of consolidating
SGB for the period from June 16, 2000 to June 30, 2000 from
the six-month income statement of Harsco Corporation.
The Pro Forma effect of the adjustments were as follows:
Pro Forma
Adjustments
(in thousands)
--------------
Total revenues $(17,281)
Total Costs and expenses (15,146)
Interest expense, net (337)
Provision for income taxes (618)
Minority interest in net income (68)
-43-
