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B B Holdings Ltd · 20-F · For 3/31/05

Filed On 7/8/05, 2:39pm ET   ·   Accession Number 1193125-5-139547   ·   SEC File 0-19775

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

 7/08/05  B B Holdings Ltd                  20-F        3/31/05   11:1.8M                                   RR Donnelley/FA

Annual Report of a Foreign Private Issuer   —   Form 20-F
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer           HTML   1.33M 
 2: EX-1.3      Amendments to the Articles of Association of        HTML     18K 
                          Carlisle Holdings Limited                              
 4: EX-4.18     Amendment 1, Dated as of September 17, 2004         HTML     49K 
 5: EX-4.19     Amendment 2 Dated as of December 15, 2004           HTML     55K 
 3: EX-4.8      Schedule of Policies and Payments                   HTML     66K 
 6: EX-8        List of Subsidiaries                                HTML     89K 
 7: EX-12.1     Section 302 CEO Certification                       HTML     14K 
 8: EX-12.2     Section 302 CFO Certification                       HTML     14K 
 9: EX-13.1     Section 906 CEO Certification                       HTML      8K 
10: EX-13.2     Section 906 CFO Certification                       HTML      8K 
11: EX-14       Consent of Pricewaterhousecoopers LLP               HTML      7K 


20-F   —   Annual Report of a Foreign Private Issuer
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Table of Contents
"Part I
"Directors, Senior Management and Advisers
"Offer Statistics and Expected Timetable
"Key Information
"Information on the Company
"Operating and Financial Review and Prospects
"Directors, Senior Management and Employees
"Major Shareholders and Related Party Transactions
"Financial Information
"The Offer and Listing
"Additional Information
"Quantitative and Qualitative Disclosures about Market Risk
"Description of Securities other than Equity Securities
"Part Ii
"Defaults, Dividend Arrearages and Delinquencies
"Material Modifications to the Rights of Security Holders and Use of Proceeds
"Controls and Procedures
"Audit Committee Financial Expert
"Code of Ethics
"Principal Accountant Fees and Services
"Exemptions from the Listing Standards for Audit Committees
"Purchases of Equity Securities by the Issuer and Affiliated Purchaser
"Part Iii
"Financial Statements
"Exhibits
"Signature
"Report of Independent Registered Public Accounting Firm
"Consolidated Statements of Income
"Consolidated Balance Sheets
"Consolidated Statements of Changes in Shareholders' Equity
"Consolidated Statements of Cash Flows
"Notes to Consolidated Financial Statements

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  Form 20-F  
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 20-F

 


 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For fiscal year ended March 31, 2005

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 0 - 19775

 


 

CARLISLE HOLDINGS LIMITED

(Exact name of Registrant as Specified in its Charter)

 


 

BELIZE

(Jurisdiction of Incorporation or Organization)

 

PO Box 1764

60 Market Square

Belize City, Belize

Central America

(Address of Principal Executive Offices)

 


 

Securities Registered or to be Registered pursuant to Section 12(b) of the Act:

 

None

 

Securities Registered or to be Registered pursuant to Section 12(g) of the Act:

 

Ordinary Shares each of no par value, each with an accompanying one-third of a Series A Preference Share purchase right

 

Securities for which there is a Reporting Obligation pursuant to Section 15(d) of the Act:

 

None

 


 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.

 

Ordinary Shares of no par value – 62,554,040*

 

* Includes 2,451,576 Shares held by subsidiaries of Carlisle Holdings Limited.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

 

Indicate by check mark which financial statement item the registrant has elected to follow.    ITEM 17  ¨    ITEM 18  x

 



Table of Contents

CARLISLE HOLDINGS LIMITED

 

TABLE OF CONTENTS

 

Description


        Page

PART I
Item      1.    Directors, Senior Management and Advisers    1
Item    2.    Offer Statistics and Expected Timetable    1
Item    3.    Key Information    2
Item    4.    Information on the Company    7
Item    5.    Operating and Financial Review and Prospects    17
Item    6.    Directors, Senior Management and Employees    46
Item    7.    Major Shareholders and Related Party Transactions    50
Item    8.    Financial Information    50
Item    9.    The Offer and Listing    51
Item    10.    Additional Information    52
Item    11.    Quantitative and Qualitative Disclosures about Market Risk    61
Item    12.    Description of Securities other than Equity Securities    61
PART II
Item    13.    Defaults, Dividend Arrearages and Delinquencies    62
Item    14.    Material Modifications to the Rights of Security Holders and Use of Proceeds    62
Item    15.    Controls and Procedures    62
Item    16A.    Audit Committee Financial Expert    62
Item    16B.    Code of Ethics    62
Item    16C.    Principal Accountant Fees and Services    63
Item    16D.    Exemptions from the Listing Standards for Audit Committees    63
Item    16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchaser    63
PART III
Item    17.    Financial Statements*    63
Item    18.    Financial Statements    63
Item    19.    Exhibits    64
Signature    67

* Registrant has responded to Item 18 in lieu of this Item.


Table of Contents

Carlisle Holdings Limited Annual Report on Form 20-F for fiscal year ended March 31, 2005

 

The consolidated financial statements of Carlisle Holdings Limited (“CHL”) and its subsidiaries (together referred to herein as the “Company”) have been prepared in United States dollars (“US dollars” or “$”) in accordance with generally accepted accounting principles in the United States (“US GAAP”).

 

This Annual Report contains translations of certain amounts from various currencies into US dollars. The translations, except where expressly otherwise stated, of foreign currencies have been made at the noon buying rate in New York City for cable transfers in foreign currencies as announced for customs purposes by the Federal Reserve Bank of New York on the date of the information so translated. The translation of Belize dollars into US dollars has been made at a fixed rate of two Belize dollars to every one US dollar. This exchange rate has been fixed by the Government of Belize since 1976.

 

Certain statements in this Annual Report constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements contained herein regarding the consummation and benefits of future acquisitions, as well as expectations with respect to future revenues, operating efficiencies, net income and business expansion, are subject to known and unknown risks, uncertainties and contingencies, many of which are beyond the control of the Company, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Factors that might affect such forward looking statements include, among others, overall economic and business conditions, the demand for the Company’s services, competitive factors, regulatory approvals and the uncertainty of consummation of future acquisitions. Additional factors which may affect the Company’s businesses and performance are set forth in submissions by CHL with the United States Securities and Exchange Commission.

 

PART I

 

Item 1. DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable

 

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable

 

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Item 3. KEY INFORMATION

 

A. Selected Financial Data

 

The selected financial data presented below has been derived from the audited consolidated financial statements of the Company. The information presented below should be read in conjunction with the consolidated financial statements of the Company and the related notes thereto and “Operating and Financial Review and Prospects”.

 

Consolidated income statement and other data

 

Year ended March 31


  

2005

$m


   

2004(i)

$m


   

2003

$m


   

2002

$m


   

2001

$m


 

Service Businesses:

                                        

Net sales

     1,380.0       1,225.6       1,139.5       1,191.0       1,227.3  

Operating income (loss) (ii)(iii)

     8.7       9.9       12.1       1.7       (0.3 )

Financial Services:

                                        

Net interest income

     32.8       31.9       29.8       27.1       20.4  

Operating income (iv)

     30.9       29.9       29.0       26.4       18.8  

Corporate expenses (v)

     (6.0 )     (4.7 )     (6.5 )     (7.3 )     (12.4 )

Total operating income (ii)(iii)(iv)(v)

     33.6       35.1       34.6       20.8       6.1  

Associates (vi)

     5.3       4.2       4.9       3.1       7.3  

Income from continuing operations (ii)(iii)(iv)(v)(vi)

     34.0       34.6       31.3       14.1       2.4  

Income from discontinued operations (vi)

     —         9.7       4.9       9.1       1.1  

Net income (ii)(iii)(iv)(v)(vi)

     34.0       44.3       36.2       23.2       3.5  
    


 


 


 


 


     $

    $

    $

    $

    $

 

Basic earnings per ordinary share:

                                        

Continuing operations

     0.56       0.58       0.53       0.24       0.04  

Discontinued operations

     —         0.16       0.08       0.15       0.02  
    


 


 


 


 


Net income

     0.56       0.74       0.61       0.39       0.06  
    


 


 


 


 


Diluted earnings per ordinary share:

                                        

Continuing operations

     0.56       0.57       0.53       0.24       0.04  

Discontinued operations

     —         0.16       0.08       0.15       0.02  
    


 


 


 


 


Net income

     0.56       0.73       0.61       0.39       0.06  
    


 


 


 


 


Shares used to compute basic earnings per share

     60,254,170       59,896,207       59,225,816       58,907,622       59,185,077  

Shares used to compute diluted earnings per share

     60,800,312       60,323,710       59,225,816       58,907,622       59,316,660  

Shares outstanding, net of treasury shares

     60,102,464       60,085,913       59,395,138       59,056,688       58,753,624  

Dividend paid per ordinary share

   $ 0.15     $ —       $ —       $ —       $ —    

 

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Consolidated balance sheet data

 

At March 31


  

2005

$m


  

2004(i)

$m


  

2003

$m


  

2002

$m


  

2001

$m


Total assets

   1,199.3    1,135.1    1,083.3    1,015.0    988.9

Long-term debt

   15.0    15.0    11.8    70.8    79.5

Total shareholders’ equity

   575.4    545.2    472.3    421.3    397.6
    
  
  
  
  

 

  (i) In April 2004, CHL acquired the entire issued share capital of Ohsea Holdings Limited (“Ohsea”). Ohsea is a holding company, incorporated in the United Kingdom, whose principal asset is its wholly owned investment in Professional Staff Limited (“Professional Staff”), a company incorporated in the United Kingdom, which was acquired by Ohsea in July 2003. Professional Staff and its subsidiaries are a staffing services group based mainly in the United Kingdom and the United States, providing temporary and permanent staff recruitment services.

 

The acquisition of Ohsea has been accounted for by CHL using the “as-if” pooling of interests method of accounting due to the existence of a common controlling shareholder, Lord Ashcroft, KCMG, in both CHL and Ohsea. Lord Ashcroft is the Chairman of CHL. This method of pooling of interests assumes that the combining companies have been merged since their inception (being the time from which Lord Ashcroft held a controlling interest in each entity) and requires that the historical consolidated financial statements of the Company are pooled with those of Ohsea and restated, with a minority interest eliminated for all periods where a non-controlling minority interest existed in the share capital of Ohsea. The non-controlling minority interest in Ohsea was acquired by CHL in April 2004 and was accounted for by CHL using the purchase method. Ohsea acquired Professional Staff in July 2003 and accounted for the acquisition using the purchase method.

 

  (ii) Includes restructuring and other non-recurring items of nil in the year ended March 31, 2005 (2004 – nil; 2003- $1.2 million; 2002 - $5.7 million; 2001 - $3.2 million).

 

  (iii) With effect from April 1, 2001, the Company applied the provisions of Statement of Financial Accounting Standards No. 142 - Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 142 eliminated the requirement to amortize goodwill and initiated an annual review for impairment. Accordingly, goodwill amortization for the year ended March 31, 2005 was nil (2004 – nil; 2003 - nil; 2002 - nil; 2001 - $8.8 million), all arising in the Services Businesses.

 

  (iv) Includes restructuring and other non-recurring items of nil in the year ended March 31, 2005 (2004 – nil; 2003- $1.5 million credit; 2002 - $1.7 million credit; 2001 - nil).

 

  (v) Includes restructuring and other non-recurring items of nil in the year ended March 31, 2005 (2004 – nil; 2003- nil; 2002 - $0.1 million; 2001 - $6.0 million).

 

  (vi) In January 2001, CHL acquired a 23.5 percent interest in Belize Telecommunications Limited (“Belize Telecommunications”). At that time, the Company held a 27.6 percent equity investment in Belize Telecommunications. Accordingly, the Company consolidated Belize Telecommunications as a subsidiary, with a 48.9 percent minority interest. In February 2004, CHL disposed of its entire 52.5 percent interest (increased in November 2001 and November 2003 by 0.6% and 0.8%, respectively, from the 51.1 percent ownership as of January 2001) in Belize Telecommunications. As a result of this disposal, the Company’s share of Belize Telecommunications’ net income up to the date of

 

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disposal has been included in income from discontinued operations for all reporting periods. The net gain on disposal of Belize Telecommunications amounted to $4.7 million and has been included in income from discontinued operations for the year ended March 31, 2004.

 

  (vii) In August 2004, CHL announced a dividend which was satisfied by the transfer of its entire shareholding in its wholly owned subsidiary, Seashell Group Limited, a company incorporated in Belize (“Seashell”), to CHL’s non-United States shareholders. Seashell at that time had a net asset value of approximately £5 million, principally comprising cash and cash equivalents. The dividend amounted to 16.55 ordinary shares in Seashell for each 100 CHL ordinary shares held. CHL’s United States shareholders received cash of $15.22 for each 100 CHL ordinary shares held, being the US dollar equivalent of the £8.28 UK sterling value of the shares in Seashell to which they would otherwise have been entitled. At the time, Seashell’s shares were admitted to trading on the Alternative Investment Market of the London Stock Exchange in the United Kingdom, and Seashell’s primary stated objective was to invest in either a publicly traded or private company which it can, by influencing the management and strategic direction of that company, create value for Seashell shareholders. The total value of the CHL dividend amounted to $9.3 million.

 

B. Capitalization and Indebtedness

 

Not applicable

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable

 

D. Risk Factors

 

Belize

 

Belize has been an independent country since 1981. Prior to its independence, Belize (formerly known as British Honduras) was a colony of Great Britain. Since its independence, Belize has been engaged in a program of developing its industries and economic infrastructure and making improvements in basic social services. Belize is bordered by southern Mexico and by Guatemala, with which a long outstanding territorial dispute remains unresolved, although diplomatic relations were restored between the two countries in 1991. However, Belize has a long history of mostly peaceful coexistence with neighboring countries, and has a stable democracy with successive governments that have encouraged foreign investment.

 

Foreign locations

 

The Company operates in a number of countries, including the United States, the United Kingdom and Belize.

 

The Company operates, and may in the future continue to operate, in certain selected countries in the Central American region with varying histories of political and economic stability. To date, the Company has focused on some of the more stable countries in the region though there can be no assurance that the currently favorable factors affecting these countries will not change.

 

Investment in a developing country, such as Belize, or any of the countries in Central America, can involve certain risks, including possible restrictions on transfers of income or assets, the restriction or elimination of foreign ownership of land or other assets, the restriction or prohibition of the transfer of income or assets outside of the

 

4


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country, or the appropriation of assets not domestically owned. In addition, countries in the region have historically been subject to, among other things, high inflation, difficulties in repatriation of capital, volatile exchange rates and possible unenforceability of contracts which, although CHL believes the region is improving in these areas, can be factors that may materially affect one or more of the Company’s businesses or investments from time to time.

 

Currency fluctuations

 

CHL’s United States operations have no material exposure to currency fluctuations. The Company is susceptible to currency fluctuations between US dollars, the Company’s reporting and functional currency, and UK pounds sterling, the functional currency of CHL’s United Kingdom businesses.

 

CHL’s strategy is to give preference to transactions involving companies with recurring convertible currency revenues or export markets to minimize the risk of restrictions on repatriation or the adverse effects of currency devaluations. CHL’s Belize operations are conducted in Belize currency which has been fixed by the Government of Belize at two Belize dollars to every one US dollar since 1976. There can be no assurance that the Government of Belize will maintain this rate and will not change its policy to allow the exchange rate to fluctuate in the future. A devaluation of the Belizean dollar could have a material adverse effect on the Company’s earnings and CHL’s ability to pay dividends.

 

Preferential markets

 

Belize and certain other countries in Central America enjoy preferential market access to the European Union with regard to banana and sugar exports, and to the United States with regard to citrus, through the Caribbean Basin Initiative. There can be no assurance that the benefits accruing to those countries through these arrangements will not be adversely affected by changes in the European Union market or by the impact of the North American Free Trade Agreement with regard to the Mexican, Canadian and US markets. Any such adverse effect may impact the economic environment of the countries in the region, which may, in turn, adversely affect the Company’s operations.

 

Hurricanes

 

Serious hurricanes have affected Belize in the past, the worst of which were in 1931 and 1961. Less serious hurricanes occurred in 1978, 1998, 2000 and 2001. Depending on the extent of damage, a serious hurricane could have a material adverse effect upon the physical infrastructure of Belize and a consequential effect on the economic stability of Belize. This could, under certain circumstances, lead to increased lending activity to adversely affected businesses and consumers, yet it can also be expected generally to slow economic growth and have an overriding negative effect on the Belizean economy as a whole. Any such negative effect would materially affect the Company and its results of operations.

 

Governmental and regulatory factors

 

Governmental actions concerning the economies of those countries where CHL operates have had and could continue to have a significant effect on private sector entities such as CHL, and on market conditions, prices and returns on equity securities, including those of CHL.

 

The Company’s results of operations and the value of the ordinary shares of CHL may be affected by inflation, currency devaluation, interest rates, changes in Government policy (including foreign investment policy and taxation), social instability and other political, economic or diplomatic developments in or affecting Belize or other countries in which the Company operates. CHL cannot provide assurance that future developments in the Belizean or other relevant economies, over which CHL has no control, may not adversely affect the Company’s operations.

 

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Table of Contents

In 1990 an investment agreement was concluded between the Government of Belize and CHL (the “Investment Agreement”), which was evidenced, in part, through the subsequent enactment of Part XI of the International Business Companies Act, 1990 of Belize, as amended (the “IBC Act”). CHL benefits substantially from the Investment Agreement and from its special status under the IBC Act. Specifically, CHL is exempt from all forms of taxes and duties in Belize for a period of 30 years. This period expires on April 30, 2020, but may be extended by the Minster of Finance of Belize. CHL may also issue shares to residents of Belize and make loans to its subsidiaries in Belize without obtaining exchange control permission.

 

There can be no assurance that the Government of Belize will not further modify, amend, repeal or enact rules, regulations or laws, including retroactive amendments, that will eliminate or curtail the benefit of these various concessions and rights.

 

There can be no assurance that the Government of Belize, nor any other government in countries in which the Company invests or operates, will not further modify, amend, repeal or enact rules, regulations or laws, including retroactive amendments, that will eliminate or curtail the benefit of the various concessions and rights applicable to the Company’s businesses and investments.

 

As an international business company under the IBC Act, CHL is deemed to be non-resident in Belize for exchange control purposes. Accordingly, there are no limitations currently in effect on the rights of non-residents of Belize to hold, transfer or vote shares in CHL. There can be no assurance, however, that the Government of Belize will not further modify, amend, repeal or enact rules, regulations or laws that will impose restrictions on the rights of non-Belizean investors to hold, transfer or vote shares in CHL.

 

Performance of businesses and investments

 

Facilities and Staffing Services:

 

CHL is planning to develop and expand the Facilities Services and Staffing Services divisions by a combination of organic growth and, in the medium term, selective acquisitions of businesses in existing or related activities. Neither Division is dependent on any material individual customer, unusually competitive conditions, or other factors, other than normal market and general economic conditions. As a result of the current economic environments in both the United States and the United Kingdom, growth in organic sales revenues and margins in certain areas of its operations have proved difficult to achieve. This environment may continue, dependent upon general economic and market conditions. Whilst the Company is actively managing this overall situation, principally through pricing and cost control measures, it is currently unclear as to what effect these overall market and economic conditions may have on the Company’s future operating and financial performance.

 

Financial Services:

 

The Belize Bank Limited (the “Bank”) currently anticipates that its loan portfolio will continue to grow, although not necessarily at the same rate as in the past. As a result of this increase, the Bank’s historic loan loss experience may not be indicative of its future loan loss experience. As the Bank’s loan portfolio continues to grow, the Bank believes that loan losses will increase. Nevertheless, the Bank has adopted policies and procedures to deal with expected losses and to adjust its allowance for loan losses accordingly. The allowance for loan losses is believed by the Bank to be adequate to cover all known losses and any losses inherent in its loan portfolio.

 

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Under regulations governing the Bank, the Central Bank of Belize (the “Central Bank”) is empowered, at any time, to revoke a banking license or impose or vary terms and conditions to which the license is subject on grounds set out in the regulations. There can be no assurance that the banking license granted to the Bank will not be cancelled or that conditions will not be attached to it in the future.

 

Regional investment:

 

The businesses of Grupo Agroindustrial CB, S.A. and related companies (together known as “NUMAR”) are subject to economic factors and conditions which CHL, due to the non-controlling nature of the Company’s equity investment, is not in a position to address directly other than through CHL’s active board participation. Furthermore, the performance of NUMAR is affected by world demand and supply conditions for edible oils, weather and crop factors and general economic and market conditions in Costa Rica and other countries in which NUMAR operates.

 

Terrorism

 

Terrorist acts or acts of war (wherever located around the world) may cause harm, damage or disruption to the employees, facilities, customers or suppliers of CHL and its subsidiaries and associates, which could have a material adverse effect on the Company’s earnings and financial position. The terrorist attacks that took place in the United States in September 2001 have created, and may continue to create, many economic and political uncertainties, some of which may adversely impact the Company’s businesses and resultant earnings. The long-term effects on the Company’s businesses of these, and any subsequent events, are unknown. The potential for future terrorist attacks, any national and international responses to such attacks, and other acts of hostility or war have created, and may continue to create, many economic and political uncertainties, which could adversely affect the Company’s businesses and earnings, in ways that cannot presently be predicted. In addition, as a multi-national company, with significant operations located in the United States and in the United Kingdom, the Company may be impacted by actions against the United States and the United Kingdom. The Company is principally uninsured against losses and interruptions caused by terrorist acts and acts of war.

 

Controlling shareholder

 

CHL’s major shareholder is Lord Ashcroft, KCMG, Chairman of CHL, who as of May 31, 2005 beneficially owned and controlled 44,120,884 ordinary shares of CHL (70.5 percent of the issued and outstanding ordinary shares of CHL). CHL’s constitutional documents do not provide for cumulative voting in the election of directors. Consequently, as a result of his beneficial ownership, Lord Ashcroft controls CHL and retains the power to elect all of its directors and to determine the outcome of any action requiring shareholder approval.

 

Item 4. INFORMATION ON THE COMPANY

 

A. History and Development of the Company

 

CHL was incorporated in Belize in January 1987 as a general business corporation, and reincorporated in May 1990 as an international business company under the IBC Act. The liability of the members of CHL is limited.

 

CHL is currently engaged in three service businesses - Facilities Services principally operating in the United States and the United Kingdom; Staffing Services operating in the United Kingdom, the Republic of Ireland and the United States; and Financial Services principally operating in Belize.

 

CHL also continues to hold a significant equity investment in NUMAR.

 

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In January 2001, CHL acquired from Lord Ashcroft a 23.5 percent interest in Belize Telecommunications. At that time, the Company held a 27.6 percent equity investment in Belize Telecommunications. Accordingly, the Company consolidated Belize Telecommunications as a subsidiary with a 48.9 percent minority interest. In November 2001 and November 2003, CHL increased its interest in Belize Telecommunications to 51.7 percent and 52.5 percent, respectively, with, respectively, a 48.3 percent and 47.5 percent minority interest.

 

In February 2004, CHL disposed of its entire 52.5 percent interest in Belize Telecommunications.

 

In April 2004, CHL acquired the entire issued share capital of Ohsea – see Item 7.B - Related Party Transactions.

 

The registered office of CHL is located at PO Box 1764, 60 Market Square, Belize City, Belize, Central America, telephone +501-227-7178, facsimile +501-227-4443. The Company’s principal subsidiary in the United States is OneSource Holdings, Inc. which maintains offices at 1600 Parkwood Circle, Suite 400, Atlanta, Georgia, 30339, telephone 770-308-5566.

 

B. Business Overview

 

Business strategy

 

CHL’s main priority remains that of building shareholder value.

 

CHL remains committed to a strategy of development and growth both organically and, in the medium term, through selective acquisitions in both the Facilities Services and the Staffing Services divisions. CHL considers that the markets in which the Facilities Services and Staffing Services divisions of CHL operate are large and highly fragmented and that considerable opportunities exist for consolidation within these markets and within these service sectors generally, both in the United States and Europe.

 

CHL considers that there are opportunities to use the critical mass of both the Facilities Services and the Staffing Services divisions to develop and grow through organic growth and, in the medium term, through selective acquisitions. CHL’s strategy for these businesses is to group services, where appropriate, to meet customers’ different demands and to provide flexible, broadly based service packages to its customers. CHL believes that this business development strategy will enhance the recurring revenue base of both divisions.

 

CHL considers that there are a number of ways to deliver strong performance, including improving customer retention; ensuring that existing services meet the highest standards; marketing higher margin services across the large, established customer base; adding selective acquisitions in the medium term to leverage the customer base; of each division; and leveraging technology to improve efficiency.

 

While these businesses operate in competitive markets, with limited barriers to entry, CHL is confident that its established management is well positioned to further develop its business operations organically and to take advantage of opportunities to acquire complementary businesses within the support services sector.

 

CHL’s strategy with respect to its Financial Services business is to maintain and develop the Bank’s dominant position as the leading and largest banking institution in Belize and to provide an increasing complement of financial and non-financial products and services to individuals, corporations and other customers. The Bank, either directly or through other affiliates, intends to accomplish this through increased commercial and consumer lending, the introduction of new products and services, including internet banking, the offering of non-credit fee-generating administrative services and continued cost and service efficiencies. CHL intends to continue to expand its financial services business in line with economic growth and to enhance market share for particular products and services.

 

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CHL’s strategy with regard to its equity investment in NUMAR is to maximize shareholder value either by continuing to hold the investment for the medium to long-term or by taking advantage of any divestment opportunities that may arise and which would allow CHL to redeploy the disposal proceeds and achieve a higher return on the shareholders’ funds employed. CHL will continue to monitor this investment in order to achieve capital appreciation, cash flow and an advantageous exit route - which may include a private sale or a public offering.

 

Industry overview - Facilities Services

 

The provision of facilities services is divided between in-house provided services and contracted-out (outsourced) services. The proportion of the market represented by each varies from country to country based on local conditions. CHL believes that the market for contracted-out services has been growing and will continue to grow as companies and public institutions seek to reduce their administrative and overhead costs by outsourcing their non-core business operations to contractors such as the Company.

 

The outsourced facilities services industry, principally the commercial, institutional and industrial building services market, is highly fragmented with many small, local suppliers in geographical sub-markets and few providers operating either nationally or internationally.

 

Business description - Facilities Services

 

The Facilities Services division operates in the United States through OneSource Holdings, Inc. (“OneSource”) and in the United Kingdom principally through Carlisle Cleaning Services Limited and Carlisle Facilities Services Limited both trading under the name Carlisle Facilities Services (“Carlisle Facilities”).

 

OneSource is a leading provider of outsourced facilities services, principally providing cleaning and value added building maintenance and support services to commercial, institutional and industrial facilities throughout the United States. Carlisle Facilities provides specialized contract cleaning and ancillary support services and specialist security services, principally manned guarding, to businesses principally in the retail, transport and public sectors. within the United Kingdom.

 

OneSource has approximately 30,700 employees providing janitorial, landscaping, general repair and maintenance, and other specialized services for more than 10,200 commercial, institutional and industrial clients. Carlisle Facilities employs approximately 3,630 people who provide contract cleaning and support services and more than 1,050 officers as a leading provider of manned guards for retail and anti-terrorist security, at 860 sites throughout the United Kingdom.

 

At March 31, 2005, the Facilities Services division has approximately $940 million in annual revenues, of which approximately 90 percent are generated from commercial cleaning services, such as janitorial services, interior construction clean-up, restroom cleaning, recycling, trash removal, window cleaning, blind and drapery maintenance, carpet and floor care, and hygiene and kitchen deep cleans.

 

In certain areas, the Company also offers its customers other services such as landscape management, metal and marble restoration, maintenance, pest control, engineering, aviation, speciality cleaning and manned guarding.

 

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The Company provides cleaning services to substantially all types of commercial buildings including office buildings, large retail establishments, industrial plants, institutional buildings, government buildings, large residential buildings, hotels, educational institutions, airports, banks, theaters, warehouses, health institutions, railway stations, trains, buses, public buildings and facilities and shopping malls.

 

The Facilities Services division is not dependent on any material individual customer, group of customers, industry or geographical sector, unusually competitive conditions, or other factors, other than normal market and general economic conditions.

 

The majority of customer contracts are obtained by competitive bidding. Contracts are typically written for an initial period of between one to three years and many have automatic renewal clauses. However, contracts are usually subject to termination by either party on the giving of 30 days’ notice. Most contracts are obtained through direct negotiations with the customer; however there is an increasing trend for major contracts to be put out for tender. CHL believes that this trend provides it with increasing opportunities for additional business because leading vendors are customarily invited to bid for major contracts. The cleaning and building facility services business is very price competitive and operating margins are typically lower than the division’s other business services.

 

The strategic focus of the Facilities Services division is on the development and marketing of high quality, customer-oriented outsourced services that are provided by well-motivated and trained employees to achieve and maintain the leading market position for its services. CHL expects both the level of service and service offerings to increase, as the market for outsourcing facilities services expands.

 

Industry overview - Staffing Services

 

The business of recruiting and providing temporary and contract staff across all sectors of the economy in the United Kingdom, together with permanent recruitment, is estimated by CHL at approximately $40 billion. The UK market is recognized as the largest in Europe and second largest in the world behind the United States.

 

In overall terms, over 90 percent of the market derives from temporary and contract staff recruitment services, with the balance being permanent placement services. The United Kingdom market is highly fragmented with over 10,500 companies operating in the UK sector in 2004.

 

Business description - Staffing Services

 

The Staffing Services division operates principally in the United Kingdom, the Republic of Ireland and the United States and provides temporary and permanent staff recruitment services as well as managed staffing services across a range of marketplaces.

 

The division operates as Carlisle Staffing Services with a brand and presence in the market for Professional Services, Office and Industrial Services, Public Services, Human Resources Services and the Scientific and Telecoms/Technology markets.

 

In April 2004, CHL acquired Ohsea, giving the Company a presence in the scientific and telcoms/technology markets.

 

The Staffing Services division is not dependent on any material individual client, group of clients, industry or geographical sector, unusually competitive conditions, or other factors, other than normal market and general economic and legislative conditions.

 

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At March 31, 2005, the Staffing Services division had approximately $430 million in annual revenues. Temporary and contract staffing services account for over 90 percent of the division’s revenues, with permanent placement staffing services accounting for the balance. The temporary and contract staffing revenues generated from the placement of temporary and contract staff is a source of business which CHL considers to be less susceptible to the effects of recession with long-term managed resourcing contracts also offering greater future revenue visibility. The remaining revenues, which are derived from permanent placements, can be more susceptible to the effects of recession.

 

The Staffing Services division serves more than 5,000 clients and is responsible for the placement of more than 9,000 contracted temporary personnel per week. The division operates from more than 80 locations and trades under a number of recognized brand names in each of its defined markets.

 

The Staffing Services division’s principal strengths are recognized and respected brand names, a reputation for quality of service, an experienced management team, experienced operational staff, a presence across several service sectors, a wide range of clients, a good geographical spread of offices, and a tight focus on productivity and cost controls.

 

The strategic focus of the Staffing Services division is to continue to expand its geographic and sector penetration, to increase its activities in existing and new specialist areas and to develop in the growing markets for outsourced human resource management services. The Staffing Services division is pursuing a strategy that includes investment in and development of its current businesses combined with a selective acquisition strategy in the medium term to increase the size and scale of services within existing markets served and to enter new speciality sectors.

 

Business description - Financial Services

 

Financial Services are provided principally through the Company’s ownership of the Bank, the largest, full service commercial and retail banking operation in Belize with a head office in Belize City and twelve branches. The Bank’s branch network is located in each of the six regions of Belize. The principal operations of the Bank are commercial lending, consumer lending, deposit-taking and related banking activities. In addition, other CHL affiliates provide a range of other financial and related services including company formation and related accounting and administrative services, plus company registration services.

 

Commercial lending

 

The Bank provides commercial loans for short-term financing and working capital purposes. These loans are mainly collateralized, repayable on demand and are made to a wide range of corporations and commercial enterprises, primarily small to medium-sized businesses with annual sales of less than $2.5 million and to certain larger Belizean businesses. Most commercial loans are variable rate loans based on the Bank’s prime rate and typically have maturities ranging from one to ten years. As these loans are generally repayable on demand, the Bank is generally protected against liquidity constraints. In addition, as the loans are granted on a variable rate basis, the Bank is protected against interest rate risk. The 20 largest commercial borrowers represented approximately 41 percent of the Bank’s total loan portfolio at March 31, 2005.

 

Under Belizean law, there are no restrictions on the extent to which the Bank may extend credit to companies or businesses engaged in any particular sector of the economy, though approval of the Central Bank is required for any lending to one customer which exceeds 25 percent of the Bank’s equity.

 

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Consumer lending

 

The Bank conducts its consumer lending business through its network of branch offices, which is the largest of any financial institution in Belize. The Bank offers collateralized and non-collateralized personal financing, mostly for consumer items. The Bank makes its credit decisions based upon both the credit history of the individual borrower and the existence of supporting collateral. Approximately 48 percent in value of consumer loans are covered by collateral.

 

Consumer loans are comprised principally of consumer installment loans, which are repayable on demand, with fixed interest terms, and are generally subject to a maximum amount of $25,000. In practice, consumer loans typically have maturity terms of up to five years.

 

The loss rate in the consumer loan portfolio is normally higher than other loans, offsetting to some extent the higher yields obtained from these loans. The Bank continues to monitor the risks associated with both collateralized and non-collateralized personal credits through personal knowledge of the client, careful monitoring of payment histories and a thorough credit review prior to loan disbursement.

 

Other lending

 

Other lending comprises residential mortgage loans and commercial mortgage loans including construction loans. Although technically granted on a demand basis, mortgage loans generally have maturities of up to 10 to 15 years with variable interest rates. Residential loans are primarily to higher net worth individuals and are generally granted in amounts not greater than 60 percent of the appraised fair market value of the property.

 

Deposit-taking and funding

 

The Bank currently offers several types of deposit accounts including demand deposits, savings deposits and term deposits. Demand deposits pay no interest other than to a few selected customers. Savings deposits pay semi-annual interest of 5 percent or 6 percent per annum depending on the balance maintained, and are repayable on demand. The Central Bank mandates that a minimum rate of 4.5 percent per annum must be paid on ordinary savings deposits. Term deposits (certificates of deposit), which require a minimum deposit of $2,500, have various rates of interest and provide for a penalty upon early withdrawal.

 

Most deposits are denominated in Belizean dollars, but the Bank also offers foreign currency deposit accounts (mainly US dollars). Rates on foreign currency demand and term deposits are based on international market rates. There is no deposit insurance system in effect in Belize.

 

The Bank funds itself primarily through deposits. Savings accounts and term deposits represent approximately 66 percent of the Bank’s total liabilities. The Bank has Belize’s largest deposit base with approximately 58,900 savings and demand accounts. At March 31, 2005, the Bank held an approximate 43 percent share of the Belizean banking system’s total deposits, an approximate 37 percent share of total Belizean dollar deposits and an approximate 83 percent share of foreign currency deposits according to the Central Bank. In each of these deposit markets, the Bank is believed to hold the leading market share of all financial institutions operating in Belize.

 

Other activities

 

The Bank also derives income from foreign exchange transactions related to trade, and from various customer service and letter of credit fees, credit card fees, safe deposit boxes, point of sale machines, ATM and other fee-based services.

 

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International operations

 

In May 1999, through a subsidiary of the Bank, the Company opened a banking operation in the Turks and Caicos Islands. Except for this investment, the Bank does not operate any branches abroad or hold any investments in offshore banking affiliates. The Bank engages in international transactions by providing international drafts and money orders, telegraphic fund transfers, American Express traveler’s checks, documentary collections and letters of credit. The Bank facilitates international transactions through its correspondent banking relationships with certain major US and Canadian banks.

 

Risk controls

 

The Bank’s lending practices are sustained by its credit analysis standards, which include strict application of standard credit analysis techniques. Applications for credit facilities are subject to a strict credit review procedure, with any loan over $125,000 requiring approval of the credit committee of the Bank. The Bank has established general loan policies and ongoing analysis techniques for (i) evaluation of credit, (ii) lending limits to a single customer or economic group, (iii) maximum terms of loans, (iv) collateral requirements for certain types of loans and their valuation, (v) economic sector performance, and (vi) continuing detailed monitoring, review and management of the loan portfolio.

 

Non-accrual loan portfolio

 

Non-accrual loans are comprised principally of loans 90 days or more past due as well as certain loans which are current but uncertain as to the ability of the borrower to fully comply with the loan terms. At March 31, 2005, the Bank’s non-accrual loans as a percentage of total loans represented 4.1 percent.

 

Allowance for loan losses

 

The Bank’s management calculates its loan loss provision for a given period based on a loan-by-loan review giving consideration to, among other factors, actual loan loss experience, the present and prospective condition of the relevant borrower and its related industry, general economic conditions prevailing at the time and estimated recovery from any assets held as collateral or recovery from litigation. At March 31, 2005, the allowance for loan losses as a percentage of total loans was 1.5 percent, and as a percentage of non-accrual loans was 36.9 percent.

 

The Bank’s policy with regard to collection procedures is to contact the borrower upon an installment of principal or interest becoming past due. In the event payment is not forthcoming as a result of written notice or personal contact, legal action is commenced. Belize law facilitates legal proceedings for collections. The legal process depends on the type of security collateralizing the loan. Typically real estate is sold by public auction and other assets are sold by either public auction or private treaty. For a non-collateralized loan, judgment is obtained from the court and personal assets of the customer seized.

 

Investment in NUMAR

 

The Company has a 23.4 percent equity interest in NUMAR. NUMAR owns edible oil processing and distribution operations and palm seed plantations principally in Costa Rica, where they are market leaders in edible oils, margarine, industrial oils and animal feed. The operations are fully integrated. NUMAR’s plantations now encompass more than 62,000 acres of African palm plantations principally in Southeast Costa Rica.

 

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NUMAR is a local market leader in its main product areas and is expected to continue to take advantage of international market opportunities and further consolidate market strength, particularly through product and positioning improvement and new product introductions. CHL currently anticipates that the Company’s ultimate exit strategy will either be a private sale or a listing of NUMAR on an international stock exchange.

 

Discontinued operations

 

During the year ended March 31, 2004 the Company owned a 52.5 percent interest in Belize Telecommunications. Belize Telecommunications is a licensed provider of local, national and long distance telecommunication services to residential and commercial customers in Belize. In February 2004, CHL disposed of its entire 52.5 percent interest in Belize Telecommunications and this business has been classified as a discontinued operation for all reporting periods.

 

Competition

 

Facilities Services

 

CHL believes that the facilities services sector is highly competitive, and that such competition is based primarily on price and quality of service. Customers keep the performance, quality and price competitiveness of their contractors under continuous review.

 

The Company’s competitors include a large number of regional and local companies located in major cities throughout the United States and the United Kingdom together with a small number of national and international providers.

 

Staffing Services

 

CHL considers that the staffing services sector is highly competitive, and that such competition is primarily based on service and price.

 

The Staffing Services division competes with a certain number of national providers and a significant number of smaller regional and local providers.

 

Financial Services

 

The Bank competes domestically with The Bank of Nova Scotia, Atlantic Bank Limited, First Caribbean International Bank (Barbados) Ltd. and Alliance Bank of Belize Limited. The rates paid by banks on deposits, the rates charged by banks on loans, the products sold, the services provided and the bank’s reputation each affect the competitive position of a bank. Although the Bank benefits by operating from a wider network of branches within Belize than any of its competitors, The Bank of Nova Scotia and First Caribbean International Bank (Barbados) Ltd. are members of major international banking networks which are of a greater size and net worth than CHL and which provide international support for their Belizean operations.

 

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Regulation

 

Regulation of Carlisle Holdings Limited

 

Prior to May 1990, CHL was organized under the Companies Act of Belize as a general business corporation. In 1990, with the adoption of the IBC Act, CHL became an international business company.

 

As an international business company, CHL is entitled to certain benefits, the most important of which are exemption from income tax in Belize, the right to pay dividends free from income tax in Belize and to be deemed non-resident in Belize for Belizean exchange control purposes.

 

An international business company is required to maintain a registered office and appoint a registered agent in Belize. The Bank acts as registered agent to a number of international business companies including CHL.

 

In addition to the above, the IBC Act permitted the grant of special status under the IBC Act which was granted to CHL in May 1990. The grant of this special status confers a number of additional taxation and other benefits upon CHL and its subsidiaries. Specifically, CHL is permitted to own an interest in real property in Belize and manage funds belonging to residents of Belize. CHL is also exempted from all forms of taxes and duties in Belize for a period of 30 years, expiring April 30, 2020 (which period may be extended by the Minister of Finance of Belize), may issue shares to residents of Belize and make loans to its subsidiaries in Belize without obtaining exchange control permission, is permitted to pay dividends with no Belizean local tax and is deemed to be non-Belizean for the purposes of domestic foreign exchange regulations.

 

Regulation of Financial Services

 

The Belize Bank Limited

 

The Bank’s business in Belize is governed by the Banks and Financial Institutions Act, 1995 of Belize (“BFIA”) and is supervised by the Minister of Finance of Belize and by the Central Bank. The BFIA came into effect in January 1996 replacing the Banking Act of Belize which had previously regulated the Bank’s business. Any financial institution which carries on a banking business in or from Belize must obtain a banking license and conduct its business in accordance with the requirements of the BFIA. The BFIA requirements relate, among other things, to maintenance of capital and reserves by a licensed financial institution, maintenance of a reserve fund, minimum holdings of approved liquid assets, submission of returns and accounts to the Central Bank, disclosure of financial information, the production of books, and powers of investigation by the Central Bank. The Central Bank also conducts a regular inspection and review of the operations of each licensed financial institution in Belize, which takes place approximately once every 18 to 24 months.

 

Capital requirements and reserves

 

The BFIA requires commercial banks, such as the Bank, to maintain shareholder’s equity at a minimum of 9 percent of the Bank’s total risk weighted assets. The BFIA also requires commercial banks to maintain an amount equivalent to 20 percent of average deposit liabilities in the form of approved liquid assets, principally Government of Belize securities, balances with the Central Bank and deposits with other banks. An amount equivalent to 7 percent of average deposit liabilities must also be maintained as a non-interest-bearing deposit with the Central Bank.

 

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The following table sets forth the key ratio requirements of the BFIA and the actual ratios of the Bank at March 31, 2005 and at June 30, 2005:

 

     Minimum
required


    Actual
ratio
March 31,
2005


    Actual
ratio
June 30,
2005


 

Shareholder’s equity: Total risk weighted assets

   9.0 %   23.9 %   25.4 %

Average liquid assets: Average deposits

   20.0 %   30.5 %   26.8 %

Central Bank balance: Average deposits

   7.0 %   7.2 %   8.1 %

 

On May 1, 2005, the average liquid assets and Central Bank balance requirements were increased by the BFIA from 20.0% and 7.0%, respectively, at March 31, 2005, to 21.0% and 8.0%, respectively.

 

Under the BFIA, the Central Bank, with the approval of the Minister of Finance of Belize, is empowered, at any time, to revoke a banking license or impose or vary terms and conditions to which the license is subject on grounds set out in the BFIA. These grounds include contravention of the BFIA or regulations thereunder, failure to comply with a directive of the Central Bank and the inadequacy of the licensee’s assets in meeting its liabilities. While CHL and the Bank believe their relationships with the Central Bank are good, there can be no assurance that the banking license granted to the Bank will not be cancelled or that conditions will not be attached to it in the future.

 

Regulation of investment in NUMAR

 

The Company’s investment in NUMAR is subject to the regulatory environment in Costa Rica and the countries in which those companies operate. The Government of Costa Rica enforces price regulation in relation to certain key commodities in the edible oils market. The pricing of regulated commodities may be adjusted, upwards or downwards, by the Government of Costa Rica at any time, although the practice of the relevant Ministry has been to indicate to producers prior to each year, after discussions, the Government’s intentions in relation to relevant price regulation for that year.

 

Trademarks

 

The Company believes that it owns or is licensed to use all corporate names, trade names, trademarks, service marks, copyrights, patents and trade secrets which are material to the Company’s operations.

 

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C. Organizational Structure

 

CHL is the parent company of the group and, through its subsidiaries, provides strategic management for the Company and coordinates the Company’s activities. CHL also provides centralized controlling, treasury, and service functions to the Company, as well as communications, capital markets and investor relation functions. CHL’s operating activities are organized into three business units, each of which is responsible for managing its own day-to-day business. The following table sets forth the name and country of incorporation of each of the subsidiaries (which are 100 percent owned) which serves as a parent company within the business unit.

 

Company


   Country

Facilities Services:

    

OneSource Holdings, Inc.

   USA

Carlisle Cleaning Services Holdings (UK) plc

   UK

Carlisle Facilities Group (UK) plc

   UK

Staffing Services:

    

Carlisle Staffing Services Holdings Limited

   UK

Financial Services:

    

The Belize Bank Limited

   Belize

 

D. Property, Plant and Equipment

 

Belize

 

The Bank’s branch network consists of 12 branches, of which nine are located in properties owned by the Bank and three in properties leased by the Bank. The Bank also owns four other properties in Belize used as offices and managers’ residences.

 

United States and United Kingdom

 

In the United States, the Company owns two properties and rents or leases approximately 95 properties that are utilized in the management and administrative functions of the operations. In the United Kingdom, the Company rents or leases approximately 88 properties that are utilized in the management and administrative functions of the operations.

 

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

Introduction

 

In April 2004, CHL acquired the entire issued share capital of Ohsea. Ohsea is a holding company, incorporated in the United Kingdom, whose principle asset is its wholly owned investment in Professional Staff, a company incorporated in the United Kingdom, which was acquired by Ohsea in July 2003. Professional Staff and its subsidiaries are a staffing services group based mainly in the United Kingdom and the United States, providing temporary and permanent staff recruitment services.

 

The acquisition of Ohsea has been accounted for by CHL using the “as-if” pooling of interests method of accounting due to the existence of a common controlling shareholder, Lord Ashcroft, KCMG, in both CHL and

 

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Ohsea. This method of pooling of interests assumes that the combining companies have been merged since their inception (being the time from which Lord Ashcroft held a controlling interest in each entity) and requires that the historical consolidated financial statements of the Company are pooled with those of Ohsea and restated, with a minority interest eliminated for all periods where a non-controlling minority interest existed in the share capital of Ohsea. The non-controlling minority interest in Ohsea was acquired by CHL in April 2004 and was accounted for by CHL using the purchase method. Ohsea acquired Professional Staff in July 2003 and accounted for the acquisition using the purchase method. Further details are set out in notes 1, 3, 14, and 26 to the consolidated financial statements.

 

In February 2004, CHL disposed of its entire 52.5 percent interest in Belize Telecommunications and this business has been classified as a discontinued operation for all reporting periods. Further details are set out in note 8 to the consolidated financial statements.

 

During the year, the Company was engaged in three service businesses: Facilities Services principally operating in the United States and the United Kingdom; Staffing Services principally operating in the United Kingdom, United States and the Republic of Ireland; and Financial Services principally operating in Belize.

 

Facilities Services:

 

The Facilities Services division operates in the United States under the name OneSource, and in the United Kingdom under the names Carlisle Cleaning Services Limited and Carlisle Facilities Services Limited both trading under the name Carlisle Facilities Services.

 

OneSource is a leading provider of outsourced facilities services, principally providing cleaning and value added building maintenance and support services to commercial, institutional and industrial facilities throughout the United States. Carlisle Facilities Services provides specialized contract cleaning and ancillary support services and specialist security services, principally manned guarding, to businesses principally in the retail, transport and public sectors in the United Kingdom.

 

Staffing Services:

 

The Staffing Services division, principally through Carlisle Staffing plc, a company incorporated in the United Kingdom, and Professional Staff, operates in the United Kingdom, the Republic of Ireland and the United States under a number of different brand names. The division provides temporary and permanent staff recruitment services as well as managed staffing services across a range of marketplaces.

 

Financial Services:

 

Financial Services are provided principally through the Bank, a full service commercial and retail banking operation in Belize.

 

Associates:

 

CHL’s equity investment comprises 23.4 percent of NUMAR, which has interests in agro-processing and distribution operations principally in Costa Rica.

 

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Discontinued operations:

 

Until February 2004, Telecommunication Services were provided principally through Belize Telecommunications, which is a licensed provider of local, national and long distance telecommunication services in Belize. In February 2004, CHL disposed of its entire 52.5 percent interest in Belize Telecommunications.

 

The information presented below should be read in conjunction with the consolidated financial statements of the Company and the related notes thereto.

 

Operating Results

 

Year ended March 31


  

2005

$m


   

2004(i)

$m


   

2003

$m


 

Service Businesses

                  

Net sales

   1,380.0     1,225.6     1,139.5  

Cost of sales

   (1,181.5 )   (1,052.3 )   (976.6 )

Selling, general and administrative expenses

   (189.8 )   (163.4 )   (149.6 )

Restructuring and other non-recurring items

   —       —       (1.2 )
    

 

 

Operating income - Service Businesses

   8.7     9.9     12.1  
    

 

 

Financial Services

                  

Interest income

   48.0     43.9     39.0  

Interest expense

   (15.2 )   (12.0 )   (9.2 )
    

 

 

Net interest income

   32.8     31.9     29.8  

Provision for loan losses

   (1.1 )   (0.7 )   (0.7 )

Net non-interest expense

   (0.8 )   (1.3 )   (1.6 )

Restructuring and other non-recurring items

   —       —       1.5  
    

 

 

Operating income - Financial Services

   30.9     29.9     29.0  
    

 

 

Corporate expenses

   (6.0 )   (4.7 )   (6.5 )
    

 

 

Total operating income

   33.6     35.1     34.6  

Associates

   5.3     4.2     4.9  

Interest income

   1.5     1.0     0.2  

Interest expense

   (3.4 )   (4.0 )   (5.8 )
    

 

 

Income before income taxes

   37.0     36.3     33.9  

Income taxes

   (1.0 )   (0.9 )   (1.6 )
    

 

 

Income after income taxes

   36.0     35.4     32.3  

Minority interests

   (2.0 )   (0.8 )   (1.0 )
    

 

 

Income from continuing operations

   34.0     34.6     31.3  

Income from discontinued operations

   —       9.7     4.9  
    

 

 

Net income

   34.0     44.3     36.2  
    

 

 


(i) Restated for as-if pooling of interests with Ohsea.

 

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Facilities Services operations

 

Year ended March 31


  

2005

$m


   

2004

$m


   

2003

$m


 

Net sales

   943.5     904.4     917.2  

Cost of sales

   (837.1 )   (806.2 )   (812.6 )

Gross profit

   106.4     98.2     104.6  

Selling, general and administrative expenses

   (99.7 )   (91.2 )   (101.1 )
    

 

 

     6.7     7.0     3.5  

Restructuring and other non-recurring items

   —       —       (0.9 )
    

 

 

Operating income

   6.7     7.0     2.6  
    

 

 

Gross margin percentage

   11.3 %   10.9 %   11.4 %

Operating margin percentage

   0.7 %   0.8 %   0.3 %

 

Sales in fiscal 2005 compared with fiscal 2004 increased by $39.1 million (4.3 percent), principally due to the positive net effect of new contracts won and lost in a price competitive market.

 

Sales in fiscal 2004 compared with fiscal 2003 decreased by $12.8 million (1.4 percent), principally due to the closure or winding down in early 2003 of certain under-performing, non-core businesses in the United States and the net effect of new contracts won and lost in a price competitive market.

 

Gross margin percentage (comprising gross profit as a percentage of net sales) increased to 11.3 percent in fiscal 2005 compared to 10.9 percent in fiscal 2004, due principally to more efficient management of labor related costs and other direct costs of sale.

 

Gross margin percentage declined to 10.9 percent in fiscal 2004 compared to 11.4 percent in fiscal 2003, due principally to increased labor and related costs and competitive downward pressure on sales revenues.

 

Selling, general and administrative expenses increased in fiscal 2005 compared with fiscal 2004, principally due to investment in support of the achieved growth in revenues and an increase in personnel costs and timing of settlement of certain liabilities.

 

Selling, general and administrative expenses declined in fiscal 2004 compared with fiscal 2003, principally due to further efficiencies achieved at both corporate and field level following the implementation of back office system improvements in fiscal 2003.

 

Details of restructuring and other non-recurring items are more fully described in note 5 to the consolidated financial statements.

 

As a result of the current economic environments in both the United States and the United Kingdom, the division is facing downward pressure on sales revenues and margins, which may continue dependent upon general economic and market conditions. The Company is actively managing this situation with a primary focus on four key business elements, which include customer retention, labor cost control, receivables management and overhead cost reductions.

 

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Staffing Services operations

 

Year ended March 31


  

2005

$m


   

2004

$m


   

2003

$m


 

Net sales

   436.5     321.2     222.3  

Cost of sales

   (344.4 )   (246.1 )   (164.0 )
    

 

 

Gross profit

   92.1     75.1     58.3  

Selling, general and administrative expenses

   (90.1 )   (72.2 )   (48.5 )
    

 

 

     2.0     2.9     9.8  

Restructuring and other non-recurring items

   —       —       (0.3 )
    

 

 

Operating income

   2.0     2.9     9.5  
    

 

 

Gross margin percentage

   21.1 %   23.4 %   26.2 %

Operating margin percentage

   0.5 %   0.9 %   4.3 %

 

Sales in fiscal 2005 compared with fiscal 2004 increased by $115.3 million. Net sales included the sales of Ohsea for the nine months ended March 31, 2004 and for the twelve months ended March 31, 2005. The improved sales performance in fiscal 2005 also reflected an increase in revenues resulting from organic growth and a favorable effect of the average exchange rate compared to fiscal 2004

 

Sales in fiscal 2004 compared with fiscal 2003 increased by $98.9 million. This was principally due to the acquisition by Ohsea of Professional Staff in July 2003 which accounted for $99.2 million of the increase. The underlying business performance remained flat which reflected a net decline in revenues, principally due to general market and economic conditions, offset by a favorable average exchange rate compared with fiscal 2003.

 

Gross margin percentage declined to 21.1 percent in fiscal 2005 compared to 23.4 percent in fiscal 2004, principally due to the effect of competition affecting personnel costs and fee income together with a decline in permanent placements as a result of economic conditions.

 

Gross margin percentage declined to 23.4 percent in fiscal 2004 compared to 26.2 percent in fiscal 2003, principally due to the effect of competition affecting personnel costs and fee income together with a decline in permanent placements as a result of economic conditions.

 

Selling, general and administrative expenses increased in fiscal 2005 compared with fiscal 2004 principally due to costs incurred in developing new business and achieving growth in sales, the inclusion of Ohsea for a twelve month period in fiscal 2005 compared with a nine month period in fiscal 2004, together with certain costs of integration.

 

Selling, general and administrative expenses increased in fiscal 2004 compared with fiscal 2003 principally due to the effects of the acquisition of Ohsea in July 2003 together with costs incurred in developing new business. Disciplined cost control measures, a focus on improving productivity ratios remain a high priority.

 

With a few niche exceptions, demand for both temporary labor and contract workers and permanent placements has been depressed, making growth in organic sales revenues and margins a challenge. Dependent upon general economic and market conditions this trend may continue. Disciplined cost control measures and a focus on improving productivity ratios remain a high priority.

 

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Table of Contents

Financial Services operations

 

Year ended March 31


  

2005

$m


   

2004

$m


   

2003

$m


 

Net income

   48.0     43.9     39.0  

Interest expense

   (15.2 )   (12.0 )   (9.2 )
    

 

 

Net interest income

   32.8     31.9     29.8  

Provision for loan losses

   (1.1 )   (0.7 )   (0.7 )
    

 

 

Net interest income after provision for loan losses

   31.7     31.2     29.1  

Non-interest income

   10.0     8.8     7.5  

Non-interest expense

   (10.8 )   (10.1 )   (9.1 )
    

 

 

     30.9     29.9     27.5  

Restructuring and other non-recurring items

   —       —       1.5  
    

 

 

Operating income

   30.9     29.9     29.0  
    

 

 

 

The components of the Bank’s interest income are as follows:

 

Year ended March 31


  

2005

$m


    

2004

$m


    

2003

$m


Interest and fees on loans

   45.9      42.5      37.5

Interest on deposits with banks (i)

   0.6      0.3      0.4

Interest on Government of Belize and other securities (ii)

   1.5      1.1      1.1
    
    
    
     48.0      43.9      39.0
    
    
    

(i) Primarily consists of deposits with correspondent banks located in the United States.
(ii) Primarily consists of Government of Belize securities held by the Bank.

 

The increases in interest income in fiscal 2005 and fiscal 2004 were primarily the result of increases in the average volume of the Bank’s portfolio of loans. The average volume of the Bank’s loan portfolio for fiscal 2005 was $343.2 million, a 15.4 percent increase over the fiscal 2004 average balance of $297.4 million, which in turn represented a 15.9 percent increase over the fiscal 2003 average balance of $256.5 million.

 

Interest income on deposits with banks increased in fiscal 2005 by $0.3 million compared to fiscal 2004 reflecting an increase in the average yield on deposits held with correspondent banks from 0.9 percent in fiscal 2004 to 1.4 percent in fiscal 2005.

 

Interest income on deposits with banks declined in fiscal 2004 by $0.1 million compared to fiscal 2003 reflecting a decrease in the average yield on deposits held with correspondent banks from 1.0 percent in fiscal 2003 to 0.9 percent in fiscal 2004.

 

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Table of Contents

As a matter of policy, the Bank seeks to maximize returns on funds not otherwise disbursed as loans and the Bank expects in the future to continue to place under-utilized funds in government securities and with other banks as appropriate.

 

The components of the Bank’s interest expense are as follows:

 

Year ended March 31


  

2005

$m


  

2004

$m


  

2003

$m


Interest on deposits

   12.6    11.8    9.2

Interest on short-term debt

   1.2    —      —  

Interest on long-term debt

   1.4    0.2    —  
    
  
  
     15.2    12.0    9.2
    
  
  

 

The Bank’s interest expense increased in fiscal 2005 compared with fiscal 2004, due primarily to an increased volume of deposits held with the Bank and interest on short-term and long-term debt.

 

The Bank’s interest expense increased in fiscal 2004 compared with fiscal 2003, due primarily to higher average interest rates paid on deposits placed with the Bank from 3.5 percent in fiscal 2003 to 4.0 percent in fiscal 2004 and interest on long-term debt.

 

Year ended March 31


  

2005

$m


  

2004

$m


  

2003

$m


Average balance of Bank’s deposits

   321.1    297.5    266.5

Local deposits

   169.7    168.7    181.3

Foreign deposits

   171.7    137.6    110.0

Total deposits

   341.4    306.3    291.3

Total deposits - Commercial Banking System*

   643.3    535.7    542.2

Number of deposits

   62,000    61,000    58,000

* According to the Central Bank

 

The Bank’s net interest income increased 2.8 percent to $32.8 million in fiscal 2005 from $31.9 million in fiscal 2004. This increase was primarily due to an increased level of interest income offset by an increase in interest expense.

 

The net interest spread and net interest margin declined to 7.6 percent and 8.2 percent, respectively, in fiscal 2005, from 8.8 percent and 9.3 percent, respectively, in fiscal 2004. The reduced spread and margin were largely due to a lower average rate earned on loans and an increased average deposits volume.

 

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Table of Contents

The Bank’s net interest income increased 7.0 percent to $31.9 million in fiscal 2004 from $29.8 million in fiscal 2003. This increase was primarily due to an increased level of interest income offset by an increased level of interest expense.

 

The net interest spread and net interest margin declined to 8.8 percent and 9.3 percent, respectively, in fiscal 2004, from 9.3 percent and 9.8 percent, respectively, in fiscal 2003. The reduced spread and margin were largely due to a lower average rate earned on loans and an increased average deposits balance.

 

The non-accrual loans analysis was as follows:

 

Year ended March 31


  

2005

$m


   

2004

$m


   

2003

$m


 

Non-accrual loan portfolio

   14.1     8.5     7.7  

Provision for loan losses

   1.1     0.7     0.7  

Non-recorded interest

   1.5     1.4     1.1  

Non-accrual loans as % of total loans

   4.1 %   2.7 %   2.9 %

Allowance for loan losses as % of non-accrual loans

   36.9 %   56.5 %   61.0 %

 

Non-accrual loans are comprised principally of loans 90 days or more past due as well as certain loans which are current but where doubt exists as to the ability of the borrower to fully comply with the loan terms. The Bank’s charge-offs were $0.7 million in fiscal 2005; $0.6 million in fiscal 2004 and $0.6 million in fiscal 2003.

 

The Company considers that the allowance for loan losses is adequate to cover any known losses and any losses inherent in its portfolio. The Company’s consideration as to the adequacy of the allowance to provide for probable loan losses is based on a continuing review of the loan portfolio and includes, but is not limited to, consideration of the actual loan loss experience, the present and prospective condition of each borrower and its related industry, general economic conditions prevailing from time to time, and the estimated fair value of the related collateral.

 

Details of non-interest income and non-interest expense are set out in note 6 to the consolidated financial statements.

 

During the year ended March 31, 2000, the Company disposed of its entire 50 percent interest in Belize International Services Limited, a financial and other services operation, for an aggregate initial consideration of $3.0 million. The Company was also entitled to receive deferred consideration of up to $3.6 million, contingent on certain future performance targets of BISL. During fiscal 2003, deferred consideration of $1.5 million was received and classified as part of restructuring and other non-recurring items. No further deferred consideration is receivable on this disposal. Details of restructuring and other non-recurring items are more fully described in note 5 to the consolidated financial statements.

 

The Bank currently anticipates that its loan portfolio will continue to grow, although not necessarily at the same rate as in the past, subject to and dependent on general economic and market conditions. The continuing growth in the demand for loans and the availability of sufficient deposits to fund such demand will depend on the growth of the Belizean economy.

 

24


Table of Contents

Corporate expenses

 

Corporate expenses comprise administrative, legal and general corporate expenses net of other income and include all central costs not directly connected with the operational management of the Company’s businesses that are responsible for their own corporate overheads.

 

Corporate expenses increased in fiscal 2005 to $6.0 million from $4.7 million in fiscal 2004, principally due to an increase in legal and professional fees incurred at the corporate level.

 

Corporate expenses declined in fiscal 2004 to $4.7 million from $6.5 million in fiscal 2003, principally due to disciplined cost control and a decrease in professional fees incurred at the corporate level.

 

Associates

 

The components of the Company’s net equity income from associates are as follows:

 

Year ended March 31


  

2005

$m


  

2004

$m


  

2003

$m


NUMAR

   5.3    4.2    4.9
    
  
  

 

The increase in the net equity income from the Company’s investment in its associate NUMAR in fiscal 2005 compared to fiscal 2004 and 2003 was principally due to the stabilization in the market price for edible oils offset by continued margin pressures within the domestic market.

 

Interest income and interest expense

 

Year ended March 31


  

2005

$m


   

2004

$m


   

2003

$m


 

Interest income

   1.5     1.0     0.2  

Interest expense

   (3.4 )   (4.0 )   (5.8 )

 

Interest income increased in fiscal 2005 compared with fiscal 2004 principally due to an increase in the average level of cash deposits held by the Company in fiscal 2005 and the effects of marginally higher market rates of interest.

 

Interest income increased in fiscal 2004 compared with fiscal 2003 principally due to an increase in the average level of cash deposits held by the Company in fiscal 2004.

 

Interest expense declined in fiscal 2005 compared with fiscal 2004 principally due to a lower level of borrowings which was partially offset by marginally higher rates of interest.

 

Interest expense declined in fiscal 2004 compared with fiscal 2003 principally due to a lower level of borrowings as a result of a reduced working capital requirement and the repayment of long-term debt principally utilizing the disposal proceeds arising on the sale of Belize Telecommunications.

 

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Table of Contents

Income taxes

 

Income taxes relate to federal, state and local tax liabilities incurred in the United States, together with local income taxes in certain non-United States jurisdictions, in particular the United Kingdom and Belize. Taxes at the Bank are applied to interest income and other revenues less interest expense. A portion of net income is not subject to tax by virtue of the Company’s status under the IBC Act.

 

During the year ended March 31, 2004, the Company recorded a $1.0 million US state and local income tax credit comprising a $1.4 million tax repayment arising from a reassessment of the Company’s state tax liabilities and a $0.4 million state and local income tax charge for the year.

 

During the year ended March 31, 2003, the Company recorded a US federal income tax credit of $1.8 million principally relating to repayments of income taxes arising from one-time carry backs of net operating losses arising prior years.

 

See note 7 to the consolidated financial statements for further details of income taxes.

 

Discontinued operations

 

Year ended March 31


  

2005

$m


  

2004

$m


  

2003

$m


Net sales

   —      50.6    55.2

Operating income

   —      16.6    19.2

Net income

   —      9.7    4.9
    
  
  

 

For the year ended March 31, 2004, discontinued operations include approximately ten months of operations of Belize Telecommunications as well as the net gain of $4.7 million arising on disposal.

 

Sales in fiscal 2004 (10 months) amounted to $50.6 million compared with $55.2 million in fiscal 2003 (12 months). Fiscal 2004 benefited from organic growth, principally in the prepaid cellular market and in both national and international usage.

 

Net income remained flat in fiscal 2004 ($5.0 million before the net gain of $4.7 million arising on disposal) compared with $4.9 million in fiscal 2003 principally due to the continued effects of the carrying value and debt related to the GSM network and costs related to the regulatory framework.

 

In February 2004, CHL disposed of its entire 52.5 interest in Belize Telecommunications for an aggregate cash consideration of $57.0 million. The net gain on disposal amounted to $4.7 million.

 

Further details on discontinued operations are set out in note 8 to the consolidated financial statements.

 

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Table of Contents

Effects of inflation

 

Due to the relatively low levels of inflation experienced in fiscal 2005, 2004 and 2003 in the major markets in which the Company operates, inflation did not have a significant effect on the results of the Company in these years.

 

Application of critical accounting policies

 

The preparation of consolidated financial statements in accordance with US GAAP requires management to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

 

The Company considers that the most significant accounting policies that require use of management estimates are as follows:

 

(i) Accounts receivable - estimates of an allowance for doubtful receivables. The key factors used in arriving at this estimate include detailed analysis of individual accounts receivable balances by age and customer, the review of individual customers’ financial viability where necessary and the use of historical trends. The analysis is used to specifically reserve for identified customer balances that are deemed probable as not collectible. This approach has been consistently applied in the past and is currently expected to continue to be prepared on the same basis for the foreseeable future as it has historically provided a materially accurate assessment of the required reserve. At March 31, 2005, total gross trade accounts receivable amounted to $173.2 million, with an allowance for doubtful receivables of $2.4 million (1.4 percent). The equivalent percentage at March 31, 2004 amounted to 1.8 percent ($3.1 million).

 

(ii) Long-lived assets (principally comprising goodwill – March 31, 2005 $400.4 million (2004 - $397.7 million)) - estimates of future cash flows and discount rates associated with goodwill impairments. These are estimated utilizing the Company’s current detailed projections and plans built up from a divisional level, which are both market and organically driven, and current discount rates based on risk weighted average cost of capital. This approach has been consistently applied in the past and is currently expected to continue to be prepared on the same basis for the foreseeable future. Goodwill arises in the Facilities Services and Staffing Services divisions. The accounting estimates relating to asset impairment have been and will continue to be highly susceptible to change from period to period because (a) it requires management to make assumptions based on the latest information available about future revenues and margins over the life of the related assets, (b) it requires the utilization of changing market discount rates, and (c) it is impacted by the continually changing market conditions which are outside of the Company’s control. The impact of recording an impairment loss may have a material adverse effect on the Company’s operating performance and financial position. No impairments were identified during the year ended March 31, 2005.

 

(iii) Insurance reserves - estimated actuarially calculated liabilities and provisions under self-insurance programs that are based upon historical loss experience and recorded at the net present value of the estimated obligations within an actuarial range of exposure. The actuarial assumptions used, including the estimates of claims incurred but not reported (IBNR) and those used by the Company’s actuarial consultants, may differ materially from actual results due, amongst other things, to changing prospective market conditions and historic claims payment patterns not being replicated in the future years. The claims payout period of accrued liabilities typically extends over a number of years during which these factors can change significantly. At March 31, 2005, the provision for insurance reserves amounted to $66.4 million, utilizing an estimated average risk free discount rate of 4.0 percent. The Company principally maintains a $500,000 deductible for workers’ compensation, general liability and

 

27


Table of Contents

automobile liability coverage principally in respect of its Facilities Services operation at OneSource. The Company also has umbrella insurance coverage for certain risk exposures subject to specified limits. The primary estimate made by management is in connection with the IBNR liability, as the provision is based, amongst other things, on past claims history. The actuarial basis for these estimates are historical payouts on claims, industry historical payouts, judgment of consulting actuaries as to certain methods that reflect trends in recent history and various state medical and indemnity requirements in settling claims, such as medical diagnosis, improving or worsening medical condition and changes in laws and statutes. These estimates are highly susceptible to change in the future due to changing market conditions and changes in the processes supporting the self insured liabilities.

 

(iv) Allowance for loan losses - this is based on a continuing review by management of the loan portfolio including, but not limited to, consideration of the actual loan loss experience, the present and prospective condition of each borrower and its related industry, general economic conditions prevailing from time to time, and the estimated fair value of the related collateral. This approach has been consistently applied in the past and is currently expected to continue to be prepared on the same basis for the foreseeable future as it has historically provided a materially accurate assessment of the required reserve. At March 31, 2005, total loans amounted to $342.8 million, of which $14.1 million was classified as non-accrual loans, and the total allowance for loan losses amounted to $5.2 million (comprising 4.1 percent and 36.9 percent, respectively). The equivalent percentages at March 31, 2004 amounted to 2.7 percent and 56.5 percent, respectively. The accounting estimate for loan loss allowances is critical because it requires management to make assumptions about the future ability of the borrower to repay the loan principal and interest and, if in default, the fair value of the related collateral. Both of these factors can be influenced by market conditions that are outside the Company’s control.

 

(v) Revenue recognition - net sales are recognized when the risks and rewards of the underlying services provided and goods supplied have been substantially transferred to the customer. Revenues from services or products are recognized when services are rendered or deliveries are made. Interest income for the Bank is recorded on an accruals basis. When either the collectibility of principal or interest is considered by management to be doubtful or payment of principal or interest is ninety days or more past due, loans are placed on non-accrual status and previously accrued but unpaid interest is charged against current year interest income.

 

(vi) Income taxes - estimates to determine the provision for income taxes, deferred income tax assets and liabilities and any valuation allowances for deferred tax assets. Key factors and circumstances in estimating the provision for income taxes, deferred tax assets and liabilities and valuation allowances include legislative tax law changes,, projections of future profits, tax attributes and statutory tax rates. The use of these measures and this approach have historically provided a materially accurate estimate of income tax liability. In the future, estimates of the income tax provision, deferred tax asset and valuation allowances are reasonably likely to change in the future as a result of the above factors.

 

The selection, deliberation and disclosure of the critical accounting policies have been discussed between senior management of the Company and CHL’s Audit Committee.

 

Recently issued accounting pronouncements

 

The Company has reviewed all recently issued accounting pronouncements and does not consider that their impact has had, or will have when effective, a material effect on the Company’s consolidated financial statements. Further details are set out in note 2 to the consolidated financial statements.

 

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Table of Contents

Liquidity and capital resources

 

Consolidated cash flow information:

 

The net decrease in cash, cash equivalents and due from banks for the year ended March 31, 2005 amounted to $7.4 million, after $0.1 million currency translation adjustments. The components of the decrease were net cash of $35.4 million provided by operating activities and $28.1 million provided by financing activities, offset by $71.0 million utilized by investing activities.

 

The net cash provided by operating activities of $35.4 million was primarily due to adjusted net income of $44.8 million, offset by net movements in working capital of $9.4 million, principally being a net decrease in liabilities, mainly insurance reserves.

 

Net cash utilized by investing activities of $71.0 million was principally due to an increase in interest-bearing deposits with correspondent banks of $15.8 million, an increase in loans to customers of $33.5 million, an increase in Government securities of $9.9 million and purchases of property, plant and equipment of $12.1 million.

 

Net cash provided by financing activities of $28.1 million was principally due to a $35.1 million increase in deposits at the Bank, offset by a $9.3 million dividend paid to shareholders.

 

Service Businesses:

 

Liquid assets available to the Company at March 31, 2005 amounted to $19.9 million represented by cash and cash equivalents. At March 31, 2005, the Company had available but undrawn facilities of $29.0 million under its financing agreements.

 

In March 2004, OneSource entered into a new $55 million collateralized, revolving credit facility which can be used for general working capital purposes and letters of credit up to a maximum of $15 million. The agreement has a term of three years, expiring on March 17, 2007 and is collateralized by a security interest and lien on principally all of OneSource’s assets including accounts receivable. Amounts drawn under the terms of the facility bear interest at LIBOR plus a margin.

 

Under the terms of the facility, OneSource is required to maintain certain financial and other covenants, including restrictions on OneSource’s ability to incur additional indebtedness, limitations on certain payments, restrictions on capital expenditure and certain other financial covenants applicable to OneSource, including a minimum EBITDA level and a minimum fixed charge coverage ratio. Amounts available under the facility are based on a percentage of eligible accounts receivable. At March 31, 2005, $41.8 million was available, of which $26.6 million was drawn together with letters of credit amounting to $5.0. The credit facility has been classified as a current liability because the agreement contains a subjective acceleration clause and the lender also has access to OneSource’s lockbox arrangements.

 

In March 2004, the Company entered into an $11 million, collateralized, short-term bank overdraft facility available to the Company’s operations in the United Kingdom, which could be used for general working capital purposes and letters of credit/guarantees up to a maximum of $1.8 million. In October 2004, this overdraft facility was replaced by a collateralized revolving credit facility of up to $25 million which can be used for general working capital purposes and letters of credit, bonds, guarantees and indemnities up to a maximum of $2.8 million. The agreement has a term of three years, expiring in October 2007 and is collateralized by a security interest and lien on certain of the Company’s United Kingdom assets, including accounts receivable. Amounts drawn under the terms of the facility bear interest at base rate plus a margin. At March 31, 2005, no amounts had been drawn under the facility and $2.4 million had been utilized in the form of certain letters of credit, bonds, guarantees and indemnities arising in the ordinary course of business issued by the bank on behalf of the Company.

 

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Table of Contents

In July 2003, Ohsea and its subsidiaries entered into a $24 million collateralized, revolving credit facility which can be used for general working capital purposes. The agreement has a term of three years, expiring on July 9, 2006 and is collateralized by a security interest and lien on certain of Ohsea’s assets including accounts receivable. Amounts drawn under the terms of the facility bear interest at LIBOR plus a margin. Amounts available under this facility are based on a percentage of eligible accounts receivable. At March 31, 2005, $19.0 million was available of which $16.5 million was drawn.

 

Further details are set out in notes 19 to the consolidated financial statements.

 

The Company believes that the working capital at March 31, 2005, its available borrowing facilities and the current cash flows provided by operating activities will be sufficient for the Company’s normal growth and operating needs, the funding of its capital expenditures budget and the current servicing of its debt.

 

Financial Services:

 

The Bank’s asset and liability management policy is structured in order to ensure that sufficient liquidity is available to meet its funding requirements, to accommodate possible outflows in deposits and capital commitments and to take advantage of any interest rate market opportunities. The Bank’s liquidity position is monitored on a daily basis by its management and independently by the Central Bank based on weekly and monthly reports submitted to the Central Bank.

 

In accordance with the BFIA, as administered by the Central Bank, the Bank maintains a certain percentage of its deposits in approved liquid assets as defined in the BFIA and computed on a monthly average basis. These approved liquid assets are comprised principally of balances with the Central Bank, Government of Belize securities and deposits with other banks. The required percentage was 20 percent of deposits at March 31, 2005. The Bank’s approved liquid assets represented 30.5 percent of deposit liabilities at March 31, 2005.

 

The Bank is also required to maintain an average monthly balance with the Central Bank of 7.0 percent of average deposit liabilities. As this balance is non-interest-bearing, it is the strategy of the Bank to maintain this balance as closely as possible to the minimum requirement and maximize interest-bearing liquid deposits in the form of Government of Belize securities and balances with other banks. The balances with other banks are principally US dollar deposits with correspondent banks in the United States for collateralization of letters of credit and other foreign business of the Bank. The average deposit liabilities at March 31, 2005 were 7.2 percent.

 

The Bank’s primary source of funds is its deposit base, which consists of certificates of deposit, demand deposits, and savings deposits. Total deposits accounted for approximately 94 percent of the Bank’s total liabilities at March 31, 2005.

 

The BFIA also requires commercial banks to maintain shareholder’s equity at a minimum of 9 percent of total risk weighted assets (“capital ratio”). The Bank’s capital ratio at March 31, 2005 was 23.9 percent.

 

30


Table of Contents

The table below presents the Bank’s actual capital and the minimum capital required under the Central Bank’s requirements:

 

At March 31


   2005
$m


   2004
$m


Actual adjusted capital

   62.9    54.7

Minimum capital requirement

   23.6    21.3
    
  

Excess capital

   39.3    33.4
    
  

 

The capital requirement established by the BFIA is based on the risk-based capital guidelines established by the Basle Committee on Banking Regulations and Supervisory Practices.

 

The Bank’s earnings in the last three fiscal years have enabled the Bank to maintain strong capital levels despite loan and asset growth and dividend payments in each of such years.

 

During the year ended March 31, 2004, the Bank issued a five-year, non-collateralized, $15.0 million note payable to Belize Telecommunications. Interest is payable annually at 9.0 percent per annum and the principal amount is repayable in full in November 2008.

 

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Table of Contents

Contractual obligations and commercial commitments

 

Contractual obligations:

 

The table below provides certain information concerning the amounts falling due under the Company’s contractual obligations as of March 31, 2005.

 

     Less than
1 year
$m


   2-3 years
$m


   4-5 years
$m


   More than
5 years
$m


   Total
$m


Bank and acceptance facilities (1)

   3.1    —      —      —      3.1

Revolving credit facilities (2)

   43.1    —      —      —      43.1

Notes payable (3)

   —      —      15.0    —      15.0
    
  
  
  
  

Total on-balance sheet obligations

   46.2    —      15.0    —      61.2
    
  
  
  
  

Letters of credit (4)

   6.8    —      —      —      6.8

Bonds and guarantees (5)

   0.6    —      —      —      0.6

Surety, performance and other bonds (6)

   45.1    —      —      —      45.1

Financial Services commitments to extend credit (7)

   19.9    —      —      —      19.9

Financial Services guarantees and letters of credit (8)

   17.0    4.0    —      —      21.0

Operating leases (9)

   12.8    16.7    6.8    4.7    41.0
    
  
  
  
  

Total

   148.4    20.7    21.8    4.7    195.6
    
  
  
  
  

(1) Represents the Company’s short-term bank and acceptance facilities.
(2) The credit facilities have been classified as a current liability because, (i) the OneSource agreement contains a subjective acceleration change and the lender also has access to OneSource’s lockbox arrangements, and (ii) the United Kingdom agreements have a subjective acceleration clause.
(3) Represents the scheduled maturity of the Bank’s notes payable.
(4) Represents the scheduled maturity of letters of credit issued by financial institutions on behalf of OneSource and operations in the United Kingdom.
(5) Represents the scheduled maturity of bonds and guarantees issued by a financial institution on behalf of the Company’s operations in the United Kingdom.
(6) Represents the scheduled maturity of surety, performance and other bonds issued by the Company, of which $28.3 million related to OneSource’s self-insurance arrangements.
(7) Represents the scheduled maturity of the Bank’s commitments to extend credit to meet customers’ working capital requirements.
(8) Represents the scheduled maturity of letters of credit and guarantees issued by the Bank to guarantee the performance of customers to a third party.
(9) Represents the minimum payments to which the Company is committed under certain operating leases, which relate principally to property and vehicles.

 

Further details of contractual obligations are set out in the notes to the consolidated financial statements.

 

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Table of Contents

OneSource also has certain obligations under its funded, defined benefit pension plan details of which are set out in note 27 to the consolidated financial statements.

 

Commercial commitments:

 

There are no material commercial commitments that the Company could be obligated to pay in the future that are not included in the Company’s consolidated financial statements.

 

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Table of Contents

SELECTED STATISTICAL INFORMATION

 

The following information is included for analytical purposes and includes the combined information of the Bank. This information should be read in conjunction with the consolidated financial statements of the Company and the related notes thereto and “Operating and Financial Review and Prospects”. This information has been prepared from the financial records of the Bank, which have been prepared in accordance with US GAAP.

 

Average Balance Sheets, Interest Earned on Interest-Earning Assets, Interest Paid on Interest-Bearing Liabilities, Net Interest Spread and Margin

 

The following table shows (in US dollars - millions) average daily balances, interest spreads and margins for the Bank’s interest-earning assets and interest-bearing liabilities for the years ended March 31, 2005, 2004 and 2003.

 

     2005

   2004

   2003

     Average
Balance


   Interest
Income/
Expense


  

Avg
Rate

%


   Average
Balance


   Interest
Income/
Expense


  

Avg
Rate

%


   Average
Balance


   Interest
Income/
Expense


  

Avg
Rate

%


Average Interest-Earning Assets

                                            

Deposits with banks

   42.7    0.6    1.41    33.0    0.3    0.91    36.9    0.4    1.08

Government of Belize securities

   15.3    1.5    9.80    11.6    1.0    8.62    11.6    1.0    8.62

Loans(2)

   343.2    45.9    13.37    297.4    42.5    14.29    256.5    37.5    14.62

Other securities

   0.5    —      —      0.5    0.1    20.00    0.5    0.1    20.00
    
  
  
  
  
  
  
  
  
     401.7    48.0    11.95    342.5    43.9    12.82    305.5    39.0    12.77
    
  
  
  
  
  
  
  
  

Non-Interest Earning Assets

                                            

Cash and due from banks

   24.1              23.9              20.2          

Net premises and equipment

   11.2              9.0              6.7          

Other assets

   0.1              1.6              5.3          
    
  
  
  
  
  
  
  
  
     35.4    —      —      34.5    —      —      32.2    —      —  
    
  
  
  
  
  
  
  
  
     437.1    —      —      377.0    —      —      337.7    —      —  
    
  
  
  
  
  
  
  
  

Average Sources of Funding

                                            

Deposits

   321.1    12.6    3.92    297.5    11.8    3.97    266.5    9.2    3.45

Short-term debt

   13.5    1.2    8.89    —      —      —      —      —      —  

Long-term debt

   15.0    1.4    9.33    2.4    0.2    8.33    0.2    —      6.00
    
  
  
  
  
  
  
  
  
     349.6    15.2    4.35    299.9    12.0    4.00    266.7    9.2    3.45
    
  
  
  
  
  
  
  
  

Other liabilities

   14.8    —      —      19.3    —      —      24.10    —      —  

Shareholder’s equity

   72.7    —      —      57.8    —      —      46.90    —      —  
    
  
  
  
  
  
  
  
  
     437.1    —      —      377.0    —      —      337.7    —      —  
    
  
  
  
  
  
  
  
  

Net interest income

   —      32.8    —      —      31.9    —      —      29.8    —  
    
  
  
  
  
  
  
  
  

Net interest spread(3)

             7.57              8.82              9.32
              
            
            

Net interest margin(4)

             8.17              9.31              9.75
              
            
            

(1) Average rate is the nominal rate with no taxable equivalency adjustment.

 

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Table of Contents
(2) Loan amounts are stated before deduction of the allowance for loan losses and include non-accrual loans.
(3) Net interest spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing funding sources.
(4) Net interest margin represents net interest income as a percentage of average interest-earning assets.

 

Changes in Interest Income and Interest Expense: Volume and Rate Analysis

 

The following table allocates changes in the Bank’s interest income and interest expense between changes in the average volume of interest-earning assets and interest-bearing liabilities and changes in their respective nominal interest rates for fiscal 2005 compared to fiscal 2004, for fiscal 2004 compared to fiscal 2003, and for fiscal 2003 compared to fiscal 2002. Volume and rate variances have been calculated based on movements in average balances over the period and changes in nominal interest rates on average interest-earning assets and average interest-bearing liabilities. The net change attributable to changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate.

 

    

Fiscal Year Ended March 31,

2005 vs 2004

Increase (Decrease)

Due to changes in:


   

Fiscal Year Ended March 31,

2004 vs 2003

Increase (Decrease)

Due to changes in:


   

Fiscal Year Ended March 31,

2003 vs 2002

Increase (Decrease)

Due to changes in:


 
     Average
Volume


    Average
Rate


    Increase
(Decrease)


    Average
Volume


   Average
Rate


    Increase
(Decrease)


    Average
Volume


   Average
Rate


    Increase
(Decrease)


 

Interest income (i)

                                                    

Deposits with banks

   0.1     0.2     0.3     —      (0.1 )   (0.1 )   0.1    (0.7 )   (0.6 )

Government of Belize securities

   0.4     0.1     0.5     —      —       —       —      —       —    

Loans

   5.8     (2.4 )   3.4     5.8    (0.8 )   5.0     6.5    (2.2 )   4.3  

Other securities

   (0.1 )   —       (0.1 )   —      —       —       —      —       —    
    

 

 

 
  

 

 
  

 

Total interest income

   6.2     (2.1 )   4.1     5.8    (0.9 )   4.9     6.6    (2.9 )   3.7  
    

 

 

 
  

 

 
  

 

Interest expense

                                                    

Deposits

   0.8     —       0.8     1.1    1.5     2.6     1.3    (0.3 )   1.0  

Short-term debt

   1.2     —       1.2     —      —       —       —      —       —    

Long-term debt

   1.2     —       1.2     0.2    —       0.2     —      —       —    
    

 

 

 
  

 

 
  

 

Total interest expense

   3.2     —       3.2     1.3    1.5     2.8     1.3    (0.3 )   1.0  
    

 

 

 
  

 

 
  

 

Net increase (decrease)

   3.0     (2.1 )   0.9     4.5    (2.4 )   2.1     5.3    (2.6 )   2.7  
    

 

 

 
  

 

 
  

 


(i) Interest income includes loan fees which are not material. There were no adjustments or out of period items.

 

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Table of Contents

Investment Portfolio: Government and Corporate Securities

 

The following table sets out the Bank’s investment in Government and corporate securities.

 

At March 31


   2005
$m


   2004
$m


   2003
$m


Government of Belize treasury notes

   11.6    11.6    11.6

Government of Belize global bonds

   4.5    —      —  

Government of Belize promissory notes

   5.4    —      —  
    
  
  
     21.5    11.6    11.6
    
  
  

 

Government of Belize securities accrue interest at rates between 9 percent and 12 percent per annum.

 

Loan Portfolio

 

The following table analyzes the Bank’s loan portfolio by type of loan. Loans are stated before deduction of the allowance for loan losses.

 

At March 31


   2005
$m


   2004
$m


   2003
$m


   2002
$m


   2001
$m


Commercial, financial and agricultural

   165.2    149.9    116.5    113.8    80.8

Real estate-mortgage:

                        

Residential

   44.8    39.1    39.2    39.5    38.9

Commercial

   91.2    72.5    65.9    31.2    16.4

Real estate-construction

   7.5    13.0    10.5    14.0    10.6

Consumer

   34.1    34.8    37.9    33.9    29.9
    
  
  
  
  
     342.8    309.3    270.0    232.4    176.6
    
  
  
  
  

 

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Table of Contents

Loans by economic activity:

 

The following table analyzes the Bank’s loan portfolio according to the borrowers’ main economic activity. Loans are stated before deduction of the allowance for loan losses.

 

    

March 31

2005


  

March 31

2004


  

March 31

2003


     Loan
portfolio


   % of Loan
portfolio


   Loan
portfolio


   % of Loan
portfolio


   Loan
portfolio


   % of Loan
portfolio


     $m         $m         $m     

Government services

   16.0    4.7    10.2    3.3    4.0    1.5

Utilities

   7.2    2.1    1.3    0.4    5.0    1.9

Agriculture

                             

Sugar

   2.1    0.6    2.4    0.8    2.7    1.0

Citrus

   1.3    0.4    1.6    0.5    3.1    1.1

Grains

   0.2    0.1    0.1    —      0.5    0.2

Banana

   25.4    7.4    22.7    7.3    15.0    5.6

Cattle and dairy

   0.1    —      0.1    —      0.1    —  

Poultry and eggs

   0.5    0.1    0.6    0.2    0.2    0.1

General and miscellaneous

   0.7    0.2    1.0    0.3    0.8    0.3

Marine products

   2.7    0.8    5.9    1.9    5.5    2.0

Forestry

   0.8    0.2    1.1    0.4    0.8    0.3

Manufacturing

                             

Furniture making

   0.1    —      0.1    —      0.1    —  

Agricultural processing

   0.1    —      0.3    0.1    2.5    0.9

Other

   1.2    0.4    1.1    0.4    0.7    0.3

Tourism

   43.9    12.8    40.7    13.2    24.0    8.9

Real estate-construction

   7.5    2.2    13.0    4.2    10.5    3.9

Real estate-mortgage

                             

Residential

   44.8    13.1    39.1    12.6    39.2    14.5

Commercial

   91.2    26.6    72.5    23.4    65.9    24.4

Other

   —      —      —      —      —      —  

Financial institutions

   0.2    0.1    0.4    0.1    0.7    0.3

Distribution

   29.9    8.7    33.3    10.8    30.2    11.2

Professional services

   8.5    2.5    3.5    1.1    3.6    1.3

Transport

                             

Aviation

   9.7    2.8    10.4    3.4    7.6    2.8

Road haulage and passenger

   1.0    0.3    0.9    0.3    0.9    0.3

Water-borne

   0.5    0.1    0.4    0.1    0.2    0.1

Other

   2.2    0.6    1.4    0.5    1.1    0.4

Entertainment

   0.3    0.1    1.5    0.5    0.4    0.1

Mining and exploration

   10.6    3.1    8.9    2.9    6.8    2.5

Consumer loan

                             

Installment

   11.4    3.3    12.7    4.1    14.5    5.4

Other

   22.7    6.7    22.1    7.2    23.4    8.7
    
  
  
  
  
  
     342.8    100.0    309.3    100.0    270.0    100.0
    
  
  
  
  
  

 

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Table of Contents
    

March 31

2002


  

March 31

2001


     Loan
portfolio


   % of Loan
Portfolio


   Loan
portfolio


   % of Loan
portfolio


     $m         $m     

Government services

   0.6    0.3    0.5    0.3

Utilities

   2.3    1.0    2.3    1.3

Agriculture

                   

Sugar

   3.3    1.4    3.3    1.9

Citrus

   13.2    5.7    13.0    7.4

Grains

   0.3    0.1    0.2    0.1

Banana

   13.8    5.9    7.5    4.2

Cattle and dairy

   0.1    —      0.1    0.1

Poultry and eggs

   0.2    0.1    0.2    0.1

General and miscellaneous

   1.1    0.5    1.5    0.8

Marine products

   6.4    2.8    2.4    1.4

Forestry

   0.5    0.2    0.3    0.2

Manufacturing

                   

Furniture making

   —      —      0.1    0.1

Agricultural processing

   1.6    0.7    2.2    1.2

Other

   1.0    0.4    1.2    0.7

Tourism

   15.3    6.6    12.5    7.1

Real estate-construction

   14.0    6.0    10.6    6.0

Real estate-mortgage

                   

Residential

   39.5    17.0    38.9    22.0

Commercial

   27.9    12.0    14.2    8.0

Other

   3.3    1.4    2.2    1.2

Financial institutions

   1.9    0.8    0.7    0.4

Distribution

   27.7    11.9    24.6    13.9

Professional services

   16.3    7.0    5.2    2.9

Transport

                   

Aviation

   2.7    1.2    0.3    0.2

Road haulage and passenger

   1.0    0.4    1.0    0.6

Water-borne

   0.4    0.2    0.3    0.2

Other

   0.4    0.2    0.5    0.3

Entertainment

   0.6    0.3    0.8    0.5

Mining and exploration

   3.1    1.3    0.1    —  

Consumer loan

                   

Installment

   15.2    6.5    15.1    8.6

Other

   18.7    8.1    14.8    8.3
    
  
  
  
     232.4    100.0    176.6    100.0
    
  
  
  

 

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Table of Contents

The following category of loan - Tourism has a concentration that exceeds 10 percent of total loans and which is not otherwise disclosed as a separate category. These include amounts loaned to a multiple number of borrowers engaged in similar economic activities. The Company does not consider that these concentrations provide any significant risk to the Bank. No material amount of these loan concentrations have been identified as potential problem loans or included as non-accrual loans.

 

Maturity composition of the loan portfolio:

 

The following table sets forth the amount of commercial, financial and agricultural loans and real estate construction loans outstanding as of March 31, 2005 which, based on remaining scheduled payments of principal, are due in the periods indicated. Loans are stated before deduction of the allowance for loan losses. As part of the Bank’s credit risk management policy, all demand loans and overdrafts are legally repayable on demand and interest rates can be changed by notice to the customer at any time. The table below reflects maturity schedules for all loans assuming that they run to their full maturity.

 

     Due in
one year
or less
$m


    one year
through
five years
$m


    Due after
five years
$m


    Total
$m


 

Commercial, financial and agricultural

   59.2     35.6     70.4     165.2  

Real estate - construction

   5.9     1.1     0.5     7.5  
    

 

 

 

     65.1     36.7     70.9     172.7  
    

 

 

 

Percentage of total loans

   19.0 %   10.7 %   20.7 %   50.4 %
    

 

 

 

 

Foreign country outstandings:

 

Cross-border outstandings are defined as loans, acceptances, interest-bearing deposits with other banks, other interest-bearing investments and other monetary assets denominated in US dollars or other non-Belizean currency. At March 31, 2005 and 2004, the Bank held interest-bearing deposits with correspondent banks in US dollars in the United States amounting to $50.6 million and $37.5 million, respectively.

 

Interest rate sensitivity:

 

A key component of the Bank’s asset and liability policy is the management of interest rate sensitivity. Interest rate sensitivity is the relationship between market interest rates and net interest income due to repricing characteristics of assets and liabilities. The pricing structure is matched when an equal amount of assets and liabilities are repriced at a given date.

 

The impact of changes in rates is minimized with respect to the Bank because most loans are demand loans and have terms which provide that the Bank may increase or decrease the interest rate at any time by providing a notice of such change to the borrower. The Bank is therefore able to increase its prime rate as well as margins over prime in an environment of increasing interest rates in order to preserve its average spread between loans and interest-bearing liabilities.

 

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Table of Contents

There would be no effect on net income if a one percent increase or decrease in the average rate of interest earned on variable rate loans was accompanied by a similar increase or decrease in the average rate of interest paid on time deposits, assuming savings rates remained unchanged, since the volume of variable rate loans is approximately matched with variable rate funding sources. Historically, however, the average rates paid on variable rate funding sources have varied to a lesser extent than average loan yields and periods of increasing rates during periods of tight liquidity have tended to be accompanied by wider interest spreads against a background of slower growth in lending.

 

The following table sets forth the repricing or maturity characteristics of the Bank’s interest-earning assets and interest-bearing liabilities as of March 31, 2005. The maturity of the loan portfolio below is based upon the fact that all demand loans and overdrafts are legally repayable on demand. It should be noted that interest rates in Belize have historically been relatively stable.

 

     Due in
one year
or less
$m


   

Due after one
year through
five years

$m


    Due after
five years
$m


    Total
$m


 

Interest-earning assets:

                        

Deposits with banks

   55.7     —       —       55.7  

Government of Belize securities

   11.6     5.4     4.5     21.5  

Loans

   321.0     11.7     10.1     342.8  

Other securities

   —       —       0.5     0.5  
    

 

 

 

     388.3     17.1     15.1     420.5  
    

 

 

 

Interest-bearing liabilities:

                        

Deposits

   341.4     —       —       341.4  

Long-term debt

   —       15.0     —       15.0  
    

 

 

 

     341.4     15.0     —       356.4  
    

 

 

 

Asset (liability) gap

   46.9     2.1     15.1     64.1  

Cumulative asset (liability) gap

   46.9     49.0     64.1     64.1  

Cumulative asset (liability) gap as a percentage of total interest-earning assets

   11.2 %   11.7 %   15.2 %   15.2 %

 

The Company does not consider that the asset/liability gap will have a material impact on the management of liquidity and funding.

 

A sensitivity gap statement is not considered necessary as the majority of lending is at floating rates and can be re-priced when required. In most cases there are no constraints on either the timing or level of interest rate changes introduced by the Bank on the loans in its lending portfolio.

 

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Table of Contents

Interest rate sensitivity of outstanding loans:

 

The following table analyzes the interest rate sensitivity of the Bank’s loan portfolio as of March 31, 2005.

 

     $m

Variable rate

   317.8

Fixed rate (consumer loans)

   10.9

Non-accrual loans

   14.1
    
     342.8
    

 

Non-accrual loans:

 

The following table presents the ratio of non-accrual loans to total loans.

 

At March 31


  

2005

$m


   

2004

$m


   

2003

$m


   

2002

$m


   

2001

$m


 

Non-accrual loans

   14.1     8.5     7.7     7.3     10.7  

Total loans

   342.8     309.3     270.0     232.4     176.6  

Non-accrual loans as a percentage of total loans

   4.1 %   2.7 %   2.9 %   3.1 %   6.1 %

 

The interest income which would have been recorded had all non-accrual loans been current in accordance with their terms was approximately $1.5 million, $1.4 million and $1.1 million for the years ended March 31, 2005, 2004 and 2003, respectively. There was no interest income accrued with respect to non-accrual loans.

 

All loans 90 days past due as to principal or interest are included in non-accrual loans. Potential problem loans identified by management are included in non-accrual loans.

 

Non-accrual loans by type of loan have historically been consistent with the composition of the loan portfolio.

 

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Table of Contents

Analysis of the allowance for loan losses:

 

The following table sets forth the activity in the allowance for loan losses for each of the periods referred to below. The Bank’s policy is to charge off loans after all collection procedures have been exhausted or it becomes clear that no payment of principal or interest is likely.

 

Year ended March 31


  

2005

$m


   

2004

$m


   

2003

$m


   

2002

$m


   

2001

$m


 

Balance of allowance at beginning of year

   4.8     4.7     4.6     5.1     5.3  
    

 

 

 

 

Loans charged off:

                              

Commercial, financial and agricultural

   0.3     0.2     0.2     0.6     0.3  

Real estate - mortgage

   0.1     0.1     0.2     0.1     0.2  

Real estate - construction

   —       —       —       —       —    

Consumer

   0.3     0.3     0.2     0.2     0.2  
    

 

 

 

 

     0.7     0.6     0.6     0.9     0.7  
    

 

 

 

 

Additions to allowance charged to expense

   1.1     0.7     0.7     0.4     0.5  
    

 

 

 

 

Balance of allowance at end of year

   5.2     4.8     4.7     4.6     5.1  
    

 

 

 

 

Charge-offs as a % of average loans outstanding

   0.20 %   0.20 %   0.23 %   0.43 %   0.41 %
    

 

 

 

 

 

Recoveries of loans charged-off have been immaterial to date.

 

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Table of Contents

Allocation of the allowance for loan losses:

 

The following table allocates the allowance for loan losses.

 

At March 31


   2005

   2004

  

Amount

$m


   

Loans in each
category to
total loans

%


  

Amount

$m


   

Loans in each
category to
total loans

%


Commercial, financial and agricultural

   2.5     48.2    2.1     48.5

Real estate - mortgage

   1.5     39.7    1.4     36.0

Real estate - construction

   0.1     2.2    0.1     4.2

Consumer

   1.1     9.9    1.2     11.3
    

 
  

 
     5.2     100.0    4.8     100.0
    

 
  

 

Percentage of total loans

   1.5 %        1.6 %    
    

      

   

 

The Bank measures its estimates of impaired loans in accordance with Statement of Financial Accounting Standards No. 114 - Accounting by Creditors for Impairment of a Loan, as amended by Statement of Financial Accounting Standards No. 118 - Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures. Under the Bank’s accounting policy for loan loss provisioning, management evaluates the probability of an impairment loss when a loan is classified as non-accrual. An impairment loss is recognized and fully provided for if the recorded amount of the non-accrual loan exceeds the estimated fair value of the underlying collateral less costs to sell. Substantially all of the Bank’s loan portfolio is fully collateralized. Interest income on impaired loans is recognized only when payments are received and the Company considers that the loan will remain performing.

 

At March 31, 2005 the Bank’s recorded investment in loans in which the Company considers that there was a probability of a loss totaled $6.8 million, with related allowances, after taking into consideration related collateral, of $2.0 million. There were no impaired loans without allowances. The average amount of loans outstanding in which the Company considers there was a probability of loss during the year ended March 31, 2005 was $4.7 million. Interest is not recognized on any loan classified as non-accrual.

 

Outlook for continuing loan growth:

 

The continuing growth in the demand for loans and the availability of sufficient deposits to fund such demand will depend on the continued growth of the Belizean economy.

 

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Table of Contents

Composition of Funds Employed

 

The following table sets forth an analysis of the average funds employed to support the interest-earning assets of the Bank’s operations.

 

Year ended March 31


  

2005

$m


  

2004

$m


  

2003

$m


Term deposits

   184.4    170.9    139.6

Demand deposits

   92.9    83.0    82.9

Savings deposits

   43.8    43.6    44.0
    
  
  

Total deposits

   321.1    297.5    266.5

Short-term debt

   13.5    —      —  

Long-term debt

   15.0    2.4    0.2
    
  
  
     349.6    299.9    266.7
    
  
  

 

The increase in average deposits for the year ended March 31, 2005 was principally due to an average increase of $13.5 million in term deposits. The increase in average deposits for the year ended March 31, 2004 was principally due to an average increase of $31.3 million in term deposits.

 

Average balances and average interest rates on deposits:

 

The following table sets forth the average balances and average interest rates paid on deposits.

 

Year ended March 31


   2005

   2004

   2003

  

Average
balance

$m


  

Average
rate

%


  

Average

balance

$m


  

Average
rate

%


  

Average

balance

$m


  

Average
rate

%


Term deposits

   184.4    5.7    170.9    5.7    139.6    5.2

Interest-bearing demand deposits

   7.1    1.8    15.0    1.8    10.3    1.3

Non-interest bearing demand deposits

   85.8    —      68.0    —      72.6    —  

Savings deposits

   43.8    4.2    43.6    4.3    44.0    4.2
    
  
  
  
  
  
     321.1    4.0    297.5    4.0    266.5    3.5
    
  
  
  
  
  

 

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The following table sets forth the maturity distribution of the Bank’s term deposits of $0.1 million or more.

 

At March 31


  

2005

$m


  

2004

$m


  

2003

$m


3 months or less

   54.0    53.8    67.8

Over 3 and to 6 months

   37.3    13.7    12.1

Over 6 and to 12 months

   55.9    66.3    29.4
    
  
  

Total

   147.2    133.8    109.3
    
  
  

 

Return on Equity and Assets

 

The following table shows an analysis of changes in shareholder’s equity of the Bank.

 

At March 31


  

2005

$m


   

2004

$m


   

2003

$m


 

Balance at beginning of year

   64.3     49.7     42.1  

Net income for the year

   27.1     26.0     24.8  

Cash dividend

   (14.0 )   (11.4 )   (17.2 )
    

 

 

Balance at end of year

   77.4     64.3     49.7  
    

 

 

Average shareholder’s equity as a percentage of average total assets

   16.2 %   15.1 %   13.6 %

Shareholder’s equity as a percentage of deposits at end of year

   22.7 %   21.0 %   17.1 %

Return on assets

   6.2 %   6.9 %   7.3 %

Return on shareholder’s equity

   38.2 %   45.6 %   54.0 %

Earnings retained

   48.3 %   56.2 %   30.6 %

Dividend pay-out ratio

   51.7 %   43.8 %   69.4 %

 

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Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and Senior Management

 

CHL is managed by a board of directors chaired by Lord Ashcroft, KCMG. CHL has established an Executive Committee and an Audit Committee of the board of directors.

 

The current directors of CHL, principal executive officers and operational management of the Company are as follows:

 

Directors:

 

Lord Ashcroft, KCMG (Belizean) - Executive Chairman of CHL since 1987 and Chief Executive Officer since 2001. Formerly Chairman and Chief Executive Officer of ADT Limited (1977 to 1997). Chairman of Trustees for a number of charities – Michael A Ashcroft Foundation, Crimestoppers, Prospect Education (Technology) Trust and currently Assistant Treasurer of the International Democrat Union. He was Belize’s Permanent Representative to the United Nations until April 2000. Former Treasurer of the Conservative and Unionist Party in the United Kingdom from 1998 to 2001. Appointed to the Board of the Conservative and Unionist Party in the United Kingdom in May 2005. In March 2000, he was appointed as a life peer in the British House of Lords and in June 2000 he was awarded a Knighthood (KCMG - Knight Commander of the Order of St. Michael and St. George) for public service to the community and country of Belize. In November 2001, he was invested as Chancellor of Anglia Polytechnic University (APU) in the United Kingdom. Lord Ashcroft is also a British citizen and a Belonger of the Turks and Caicos Islands.

 

Sir Edney Cain (Belizean) - Non-Executive Director of CHL since 1992. Member of the Audit Committee. Sir Edney Cain is now in retirement after a distinguished career in the public service in Belize, which included positions as Financial Secretary to the Government of Belize, Governor of the Central Bank of Belize and Belize High Commissioner to the United Kingdom.

 

David B. Hammond (British) - Non-Executive Deputy Chairman of CHL since 1998. Chairman of the Executive Committee and of the Audit Committee. Mr. Hammond is Chairman of BCA Holdings Limited. He was previously Deputy Chairman of ADT Limited from 1989 to 1996, Director and Chairman of the Audit Committee of American Medical Response Inc. from 1993 to 1997 and Director and Chairman of the Audit Committee of Provant Inc. from 1998 to 2002. Member of the Competition Commission in the United Kingdom from 1995 to 2001. Mr. Hammond, who is a Chartered Accountant, has over 30 years experience in the services industry.

 

Cheryl C. Jones (American) - Director of CHL since 2003. Ms. Jones was appointed Chairman and Chief Executive Officer of OneSource in April 2003. She had previously been Executive Vice-President of OneSource since June 2002 having joined the company as Senior Vice-President in June 2001. Prior to joining OneSource, Ms. Jones served as Senior Vice President of National Linen Service, a subsidiary of National Service Industries, Inc. where she held a variety of senior management positions from 1994 to 2001.

 

Emory R. King (Belizean) - Non-Executive Director of CHL since 1987. Mr. King is now in semi-retirement after a career in insurance and real estate. He is presently involved in publishing, printing and public relations. He is also a Justice of the Peace in Belize.

 

John M. Searle (British) - Non-Executive Director of CHL since 1987. Member of the Audit Committee. Mr. Searle is Chairman and Managing Director of Belize Global Travel Services Limited, which carries on the business of a travel agency and tourism. Mr. Searle is also a Belizean citizen.

 

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Officers:

 

Peter M. R. Gaze (British) - Executive Vice President and Chief Financial Officer of CHL since 1998. Member of the Executive Committee. Mr. Gaze is a Fellow of the Institute of Chartered Accountants in England and Wales, having trained with the international accounting firm of PricewaterhouseCoopers in London. Prior to joining CHL, Mr. Gaze was the Group Financial Controller of ADT Limited from 1990 to 1997.

 

Philip T. Osborne (British) - Company Secretary of CHL since 1993. Mr. Osborne is a Solicitor and a member of the Law Society of England and Wales. Before joining CHL, Mr. Osborne worked as a legal adviser to the London Stock Exchange and The Securities Association in the United Kingdom and for the international law firms of Clifford Chance and S. J. Berwin & Co. He is a member of the Belize Bar and the country representative for Belize of the International Bar Association.

 

Operational Management:

 

Richard J. Bradford (British) - Carlisle (UK and Ireland) - Chief Executive

 

Mr. Bradford joined CHL’s Staffing Services business as Chief Executive in 1997 from Exel plc where he had broad-ranging line management experience in different businesses in a range of roles from Branch Manager to Managing Director. This spanned an 11-year period, during which a significant time was also spent on secondment to McKinsey & Co. In 2001, Mr. Bradford became Chief Executive of the Company’s operations in the UK and Ireland.

 

Philip C. Johnson (British) - Financial Services - President

 

Mr. Johnson has been President of CHL’s Financial Services businesses since 1995. Prior to joining the Company, Mr. Johnson spent over ten years in a variety of commercial roles, including over seven years with Lonrho PLC, having previously qualified as a Chartered Accountant.

 

B. Compensation

 

For the year ended March 31, 2005, the aggregate compensation paid, set aside or accrued by the Company for all directors of CHL and the principal executive officers and operational management of the Company was $2.7 million. Except as noted under Item 6.E below, there are no bonuses or deferred compensation arrangements or stock option or stock appreciation rights plans applicable to directors of CHL, the principal executive officers and operational management of the Company.

 

For additional information concerning compensation arrangements between CHL and Lord Ashcroft, see “Major Shareholders and Related Party Transactions.”

 

C. Board Practices

 

There is no fixed term of office for the directors; the term of each director’s service continues until it is ended by his/her resignation, removal or death. For more information on the length of service of the directors, see Item 6.A above.

 

There are no contracts for the directors’ service with CHL or any of its subsidiaries that provide for benefits upon termination of employment, other than the following: Cheryl Jones has a contract of employment with OneSource which provides for a severance payment equivalent to 12 months’ salary.

 

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The following directors are members of CHL’s Audit Committee: David B. Hammond (Chairman), Sir Edney Cain and John M. Searle.

 

The Audit Committee is charged with providing assistance to CHL’s board of directors in fulfilling their responsibility to the shareholders, potential shareholders, and the investment community relating to corporate accounting, reporting practices of the Company and the quality and integrity of the financial reports of the Company. The Audit Committee currently comprises three members, each an “independent director” within the meaning of Rule 4200 of the Marketplace Rules of the NASDAQ Stock Market. Members are chosen by the board of directors and serve until their successors are duly elected and qualified.

 

CHL has no Remuneration Committee; however, the board of directors has delegated certain authority to an Executive Committee. Subject to any specific direction given to it by the board of directors and to certain matters reserved for decision by the board or any other standing committee of the board, the Executive Committee may generally exercise all the powers and discretions which could otherwise be exercised by the board of directors including the making of decisions regarding the remuneration of officers and directors.

 

In each instance, the Audit Committee and the Executive Committee are restricted in the actions that they may take by Article 94 of CHL’s articles of association which provide, in pertinent part, that the articles of association govern (subject to limited exceptions) the meetings and proceedings of any committee of the board of directors consisting of two or more members.

 

D. Employees

 

The following table shows the breakdown of the approximate number of employees of the Company.

 

At March 31


   2005

   2004

   2003

Facilities Services

   35,380    35,500    36,500

Staffing Services

   970    760    600

Financial Services

   250    260    260
    
  
  
     36,600    36,520    37,360
    
  
  

 

Approximately 30 percent of the employees in the Facilities Services division are represented by trade unions or covered by collective bargaining agreements. None of the Company’s employees in the Staffing Services or Financial Services divisions are represented by trade unions or covered by collective bargaining agreements. The Company considers that relations with employees and their unions are generally good.

 

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E. Share Ownership

 

The following table sets forth certain information regarding the beneficial ownership of CHL’s ordinary shares and share options held as of June 30, 2005 by the current directors of CHL, principal executive officers and operational management of the Company.

 

     Ordinary Shares

    

Share

Options
(Number)


     (Number)

     (%)

    

Lord Ashcroft (i)

   44,120,884      70.5      —  

Sir Edney Cain

   150      —        —  

David B. Hammond

   27,222      0.1      —  

Cheryl C. Jones

   3,863      —        1,000,000

Emory R. King

   37,923      0.1      —  

John M. Searle

   154,294      0.2      —  

Peter M. R. Gaze

   118,628      0.2      —  

Philip T. Osborne

   52,190      0.1      26,700

Richard J. Bradford

   —        —        110,000

Philip C. Johnson

   88,017      0.1      75,000
    
    
    

Total

   44,603,171      71.3      1,211,700
    
    
    

(i) Lord Ashcroft also has an interest in 1,541,041 CHL ordinary shares owned by Strand Associates Limited, a company incorporated in Guernsey, Channel Islands in which he has an interest.
(ii) The 1,211,700 share options set out above have an exercise price in the range of $3.00 to $7.50, and include 211,700 options which are currently exercisable at a weighted average exercise price of $7.50 each.

 

F. Exemption from Certain NASDAQ Corporate Governance Rules

 

CHL as a foreign issuer has been granted exemption by NASDAQ from certain of the corporate governance requirements contained in NASDAQ’s Rules. The provisions from which CHL is exempt are those relating to the requirements for an annual shareholders meeting in NASDAQ Rule 4350(e), for voting rights in NASDAQ Rule 4351, for quorum standards at shareholders meetings in NASDAQ Rule 4350(f) and for proxy solicitation in NASDAQ rule 4350(g). As a result of these exemptions, and as permitted by Belize law, CHL does not hold annual meetings of shareholders, nor solicit proxies for such meetings, and when shareholder a approval of any actions or transaction is required it may be sought and obtained by written consent of CHL’s majority shareholder, Lord Ashcroft, without holding of a shareholder meeting or the solicitation of proxies.

 

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Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. Major Shareholders

 

CHL is not owned or controlled directly or indirectly by any government.

 

As of May 31, 2005, Lord Ashcroft beneficially owned and controlled 44,120,884 ordinary shares of CHL which represented 70.5 percent of the issued and outstanding ordinary shares. To CHL’s knowledge, as of the same date, no other person owned beneficially five percent or more of the ordinary shares of CHL.

 

B. Related Party Transactions

 

(i) CHL and Lord Ashcroft have entered into an agreement relating to the terms upon which Lord Ashcroft’s services as Chairman of CHL are provided to CHL. The agreement continued, unless terminated by Lord Ashcroft upon 90 days’ notice to CHL, until November 1, 2003. Thereafter, it was automatically extended for a rolling period of 12 months unless terminated by either party upon 90 days’ notice to the other party. No such notice has been given. Under this agreement, Lord Ashcroft’s salary is presently $410,000 per annum, reviewable annually, and CHL has agreed to provide him with the use of a suitable motor vehicle and make available to him other benefits generally made available to CHL executives.

 

(ii) In April 2004, CHL acquired the entire issued share capital of Ohsea for an aggregate consideration of approximately $5.2 million. The consideration was satisfied by the issue of 788,220 ordinary shares of CHL, representing approximately 1.3 percent of the enlarged issued share capital of CHL. At the date of the acquisition of Ohsea by CHL, the shareholders of Ohsea included CS Services Limited (a company incorporated in Belize and controlled by Lord Ashcroft), which held 65.9 percent of the issued share capital of Ohsea. Accordingly, 519,526 ordinary shares of CHL were issued to CS Services Limited and 268,694 ordinary shares of CHL were issued to the minority shareholders of Ohsea. Having consulted with a leading European investment banking firm regarding the fairness and reasonableness of the transaction, the independent non-executive directors of CHL unanimously approved the transaction. Further details are set out in notes 1, 3, 14 and 26 to the consolidated financial statements.

 

C. Interests of Experts and Counsel

 

Not applicable

 

Item 8. FINANCIAL INFORMATION

 

See Item 18

 

Legal Matters

 

The Company is a defendant in a number of pending legal and other proceedings incidental to present and former operations, acquisitions and dispositions. The Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on the consolidated results of operations and cash flows or the consolidated financial position of the Company.

 

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Dividend Policy

 

The payment and amount of dividends is determined by the board of directors of CHL, based on factors including, but not limited to, the results of operations, financial condition, cash requirements and future prospects of the Company at the time declaration of a dividend is being considered.

 

The policy of the Company over recent years has been to use surplus cash resources to reduce indebtedness and to finance the Company’s development and expansion in its services divisions. In August 2004, CHL announced a dividend which was satisfied by the transfer of its entire shareholding in its wholly owned subsidiary Seashell to CHL’s non-United States Shareholders. Seashell at the time had a net asset value of approximately £5 million. The dividend amounted to 16.55 ordinary shares in Seashell for each 100 CHL ordinary shares held. CHL’s Untied States shareholders received cash of $15.22 for each 100 CHL ordinary shares held, being the US dollar equivalent of the £8.28 UK sterling value of the shares in Seashell to which they would otherwise have been entitled.

 

Subsequent to year end, in May 2005, CHL announced a dividend which was satisfied by the transfer of its entire shareholdings in Seashell II Limited (“Seashell II”) and Bombshell Limited (“Bombshell”), both wholly owned subsidiaries of CHL and incorporated as International Business Companies in Belize, to CHL’s non-United States shareholders. Seashell II and Bombshell each had a net asset value of $6 million. The dividend amounted to 1.074 ordinary shares in Seashell II and 1.074 ordinary shares in Bombshell for each 10 CHL ordinary shares held. CHL’s United States shareholders received cash of $1.9966 for each 10 CHL ordinary shares held, being the US dollar value of the shares in Seashell II and Bombshell to which they would otherwise have been entitled.

 

Further details of the above dividends are set out in the notes to the consolidated financial statements.

 

The Board of Directors of CHL will keep the future dividend policy of the Company under review.

 

Item 9. THE OFFER AND LISTING

 

A. Offer and Listing Details

 

The Price History tables below set forth the high and low reported prices of CHL’s ordinary shares in US dollars on the NASDAQ National Market in the United States.

 

     High
$


   Low
$


Fiscal 2001

   9.00    3.75

Fiscal 2002

   5.50    1.94

Fiscal 2003

   3.54    1.38

Fiscal 2004

   6.55    2.81

Fiscal 2005

   7.55    5.56

Fiscal 2004:

         

First quarter

   3.85    2.81

Second quarter

   6.50    3.58

Third quarter

   6.52    5.85

Fourth quarter

   6.55    5.59

 

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     High
$


   Low
$


Fiscal 2005:

         

First quarter

   7.55    5.56

Second quarter

   7.39    6.05

Third quarter

   7.24    6.25

Fourth quarter

   7.50    6.60

January 2005

   7.50    6.55

February 2005

   7.22    6.52

March 2005

   7.40    6.60

Fiscal 2006:

         

April 2005

   7.40    6.61

May 2005

   7.25    5.72

June 2005

   6.53    5.65

 

B. Plan of Distribution

 

Not applicable

 

C. Markets

 

The CHL ordinary shares are currently traded in the Over-the-Counter Market and quoted on the NASDAQ National Market in the United States under the symbol “CLHL”, and are also traded on the Alternative Investment Market of the London Stock Exchange in the United Kingdom under the symbol “CLH”.

 

Belize has no exchange or stock market upon which shares in public companies are traded. Shares of CHL and other public companies in Belize are traded either directly by the principals or through intermediaries. Requests for trades in CHL’s ordinary shares from members of the public in Belize are directed to the Bank, which refers the requests to a qualified broker for NASDAQ National Market transactions.

 

D. Selling Shareholders

 

Not applicable

 

E. Dilution

 

Not applicable

 

F. Expenses of the Issue

 

Not applicable

 

Item 10. ADDITIONAL INFORMATION

 

A. Share Capital

 

Not applicable

 

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B. Memorandum and Articles of Association

 

Organization

 

CHL is a company incorporated in Belize under the IBC Act. CHL’s registered agent is The Belize Bank Limited, having its address at PO Box 1764, 60 Market Square, Belize City, Belize, Central America.

 

Objects and Purposes

 

Paragraph 4 of CHL’s memorandum of association sets forth its objects and purposes which are, in summary, to engage in any act or activity that is not prohibited under any law in force at the relevant time in Belize. To that end, CHL’s memorandum of association provides that CHL will have all such powers as are permitted by law in force in Belize which are necessary or conducive to the conduct, promotion or attainment of CHL’s objects.

 

Corporate Governance and Certain Provisions with Respect to Board Members

 

Directors

 

CHL is managed by a board of directors chaired by Lord Ashcroft. CHL has established an Executive Committee and an Audit Committee of the board of directors. The number of directors on the board of CHL may not exceed 15 nor be less than two in number. Each director is appointed by a resolution of the members or a resolution of the board of directors. The directors are not subject to retirement by rotation unless CHL by resolution determines to implement retirement by rotation on an annual basis. Subject to the passing of a resolution to implement retirement by rotation, each director holds office until his term of office is ended by his resignation, removal or death. A director may hold any office or position in CHL in conjunction with his office of director. The memorandum and articles of association of CHL provide for neither any age limit for directors nor any requirement that directors hold shares in CHL. If retirement by rotation were implemented, the directors would be subdivided into three classes, with each class retiring at consecutive general meetings of the shareholders until all then-sitting directors have retired, and thereafter the then-longest serving class of directors would retire at each subsequent general meeting. During any period in which retirement by rotation is in effect, shareholders would be limited to electing to the board a number of new directors not to exceed the number retiring at the applicable general meeting.

 

Article 86 of CHL’s articles of association provides that a director may be a party to, or otherwise interested in, a transaction with CHL or in which CHL is interested, provided that a director with an interest in a contract with CHL or any of its subsidiaries must declare the nature of his interest at the first opportunity in a meeting of CHL’s board of directors, whether that meeting is the meeting to approve entering into the contract or a meeting taking place after the director discovers that he is an interested director. Article 98 provides that a director may not vote or be counted in the quorum at a meeting of the directors in respect of any resolution concerning his own appointment or the terms thereof. So long as at least two directors remain in office, the continuing directors may act but, if less than two directors remain in office, the sole continuing director may act only for the purposes of calling a general meeting for such purposes as he thinks fit and for the purpose of nominating a person or persons for appointment to the board of directors. In the absence of an independent quorum, the directors may vote compensation to other members of their body but may not vote compensation to themselves.

 

Article 88 of CHL’s articles of association provides that the board of directors may exercise all of CHL’s powers to borrow money and to mortgage or charge all or any part of CHL’s property and assets. Articles 92 through 94 of CHL’s articles further provide that the board of directors may delegate its powers to any person for such period of time, and subject to such conditions, as the board of directors sees fit.

 

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Meetings of Shareholders

 

The board of directors may, in its discretion, and will, when so requested in writing by shareholders holding more than fifty percent of the votes of the outstanding voting shares of CHL, convene a general meeting of shareholders. In the event of a written request by shareholders, within twenty-one days of the delivery to the board of directors thereof a general meeting must be convened by the board of directors on a date not more than six months after the date it receives the shareholders’ request. Two or more shareholders present, in person or by proxy, and having the right to attend and vote at the meeting are sufficient for a quorum at the meeting. No shareholder will, unless permitted by the board of directors, be entitled to vote in respect of any share held by such shareholder unless all calls or other sums payable in respect of that share have been paid in full. Decisions as to the validity of a person’s vote(s) are to be made by the chairman at the meeting at which the contested vote is cast.

 

Ordinary Shares and Preference Shares

 

Share Capital; Alteration and Reduction of Capital

 

The authorized share capital of CHL consists of 100,000,000 Ordinary Shares with no par value (or having such par value as may from time to time be assigned to them), as well as 14,000,000 Preference Shares of par value $1.00 per share, or such other par value, if any, as may result from any reorganization of capital in the capital of CHL. From these Preference Shares, the board of directors has authorized the issuance of CHL’s Series A Preference Shares. The special provisions relating to CHL’s Series A Preference Shares are described below under “Special Provisions Regarding Series A Preference Shares and Prospective Holders of a Substantial Number of Shares”.

 

The capital of CHL may be increased by such sums as the board of directors may, by resolution, decide. Specifically, the board of directors may, by resolution:

 

    divide CHL’s shares into several classes and attach to them special rights, privileges or conditions;

 

    combine all or any of CHL’s share capital, including issued shares, into a smaller number of shares of the same class or series;

 

    divide all or any of CHL’s share capital, including issued shares, into a larger number of shares of the same class or series;

 

    increase or reduce the par value of any of CHL’s shares, alter the currency in which any of its shares are denominated and convert any shares with par value into shares without par value (or vice versa);

 

    cancel shares which, at the date of the passing of the relevant resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled; and

 

    change the currency denomination of CHL’s share capital.

 

In addition, either the shareholders or CHL’s board of directors may reduce, in any manner, CHL’s issued share capital or any share premium account. In effecting such a reduction, it is permissible to affect only a part of a class of CHL’s shares.

 

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Dividends

 

Dividends in respect of Ordinary Shares and Preference Shares may be declared by the board of directors of CHL when, as and if, it deems appropriate. Dividends are declared and paid according to the amounts paid up on the shares in respect of which the dividends are paid. Dividends in cash will be declared and paid in US dollars unless the board of directors determines, as to some shareholders resident in a particular territory, that dividends should be declared or paid in a currency other than US dollars, in which case the board of directors may elect to declare or pay a dividend to specified shareholders in such other currency. If a payment of a dividend or other sum payable in respect of a share is left uncashed or is returned to CHL and, after reasonable inquiries, CHL is unable to establish the proper address or account for the named recipient thereof, or if the payment of a dividend is left uncashed or is returned to CHL on two consecutive occasions, CHL shall not be obligated to continue sending dividend payments to the particular recipient until CHL is notified by the shareholder of a new address or account to which payment should be directed. Any dividend or distribution which is unclaimed for a period of two years from the date on which it became payable shall be forfeited and revert to CHL.

 

Special Provisions Regarding Series A Preference Shares and Prospective Holders of a Substantial Number of Shares

 

Pursuant to a Shareholder Rights Agreement, dated December 1997, each Ordinary Share of CHL carries with it one-third of one right (a “Right”) to acquire one-hundredth of a Series A Preference Share in certain circumstances. The terms of the Rights provide that, in the event that a person (including his, her or its affiliates and associates, but excluding Lord Ashcroft and his designated affiliates, associates and transferees) becomes the beneficial owner of 15% or more of the Ordinary Shares of CHL, then each holder of a Right shall be entitled to elect to receive upon exercise of the Right (in lieu of Series A Preference Shares) a to-be-determined number of CHL’s Ordinary Shares at 50% of the then-current market price of CHL’s Ordinary Shares. In the event that, following the date that a person becomes a beneficial owner of 15% of CHL’s outstanding Ordinary Shares, CHL consolidates with or otherwise combines with any other person or entity and CHL is not the continuing or surviving entity, or any person or entity amalgamates or otherwise combines with CHL and, although CHL remains the survivor, the outstanding shares of CHL are changed into or exchanged for stock or securities of CHL or any other person or entity (or cash or any other property), or CHL and/or one or more of its subsidiaries sells or transfers assets or earning power aggregating more than 50% of the assets or earning power of CHL and its subsidiaries taken as a whole to any other person or persons, then the issuer of securities into which CHL’s Ordinary Shares were converted in the merger or other consolidation (if no securities were issued, then the person that survives as a result of the amalgamation) or the person receiving the greatest portion of the assets or earning power transferred pursuant to such transaction, will become liable for the obligations of CHL under the provisions of the Rights which would require issuance to holders of Rights of the Ordinary Shares at half their then-current market price. The foregoing provisions are generally not applicable to acquisitions or dispositions by or for the benefit, directly or indirectly, of Lord Ashcroft or his designated affiliates, associates and transferees. Prior to the happening of certain events specified in the Shareholder Rights Agreement, all (but not less than all) of the Rights are redeemable by CHL at $0.01 per Right. The redemption price for the Rights is subject to adjustment. The Rights terminate upon the sooner to occur of redemption or the close of business on December 5, 2007.

 

Holders of Series A Preference Shares, when issued, would be entitled to quarterly dividends equal to the greater of $1.00 or 100 times the aggregate per-share amount of all non-cash dividends or other distributions (other than dividends payable in Ordinary Shares or pursuant to a subdivision of the outstanding Ordinary Shares) declared on the Ordinary Shares after a to-be-specified time. Series A Preference Shares are entitled to only one vote per share. Upon liquidation, Series A Preference Shares have a $1.00 per share (plus accrued and unpaid dividends and distributions, whether or not declared) preference to all other holders of stock junior to the Series A Preference Shares. Notwithstanding the foregoing, Series A Preference Shares are entitled to receive an aggregate amount per share equal to 100 times the aggregate amount to be distributed per share to holders of Ordinary Shares. Holders of stock ranking on a parity with the Series A Preference Shares are to be entitled to ratable distributions in proportion to the total amounts to which the holders of all such shares are entitled upon liquidation, dissolution or winding up. Series A Preference Shares are neither convertible nor redeemable.

 

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Table of Contents

Voting Rights

 

In the absence of any right or restriction attached to any class of shares from time to time, each share is entitled to one vote. CHL’s articles of association provide that, in the absence of a higher requirement under Belize’s laws applicable to companies or under the articles themselves, matters voted upon by shareholders at a meeting shall be determined by a simple majority vote of the shareholders assembled in the meeting who are entitled to vote upon a matter and do in fact vote upon the matter, while an action consented to in writing by shareholders must be determined by a vote of the absolute majority of the shares entitled to vote on the particular action. Neither CHL’s memorandum and articles of association nor the IBC Act limits the rights of non-resident or foreign shareholders to hold or exercise voting rights with respect to CHL’s securities.

 

Disclosure of Ownership

 

CHL’s articles of association provide that the board of directors may at any time inquire of a person if such person is interested in CHL’s shares. A person’s failure to respond as requested gives rise to the board of directors’ right to suspend for a renewable one-year period, pending a timely response, payment of dividends on, and voting rights of, any shares in which such non-responding person is believed to be interested and as to which no response to the board of directors’ inquiry is timely given.

 

Furthermore, CHL may, by notice in writing, require any person whom the Board of Directors knows or has reasonable cause to believe to be holding shares in CHL upon any trust or otherwise, for the benefit of, or on behalf of any other person (a “Nominee”), to give such further information as may be required by the Board of Directors, including the following:

 

  (i) details of the number of U.S. Holders who are interested in the shares of CHL held by the Nominee; and/or

 

  (ii) particulars of the identity of U.S. Holders who are interested in the shares of CHL held by the Nominee.

 

For this purpose, a U.S. Holder means a person that is resident in the United States.

 

If a Nominee fails to comply with a notice as described above (in whole or in part) the restrictions listed below will apply:

 

The Nominee shall not be entitled in respect of the shares in CHL held by it:

 

  (i) to attend or vote, either personally or by proxy, at any general meeting of CHL: or

 

  (ii) to receive any dividend or other distribution: or

 

  (iii) to transfer or agree to transfer any of those shares or any other rights in them, other than by way of of an exempt transfer. An exempt transfer in relation to any share is a transfer pursuant to (a) a sale of a share on a recognized investment exchange in the United Kingdom to any person other than a U.S. Holder (b) a sale of a share on any stock exchange or inter-dealer quotation system in the U.S (c) a transfer by a Nominee of the shares to the holder of the beneficial interest in those shares or (d) acceptance of a takeover offer.

 

Winding Up

 

In the event CHL is wound up, its articles of association provide that the liquidator may, subject to a shareholders’ resolution approving such action, divide among the shareholders the whole or any part of the company’s assets, with the liquidator retaining the discretion (subject to the applicable shareholders’ resolutions) to treat different shareholders differently, both among and as between the classes and series of CHL’s shares.

 

Redemption; No Sinking Fund or Capital Call

 

While CHL’s right to call shares that are not paid in full is found in its articles of association, it is the IBC Act that specifically provides CHL with a general right of redemption for all shares of CHL. This general right to redeem is limited, in the ordinary course, to redemptions in which holders of shares that are redeemed receive only newly issued shares of equal value, although CHL may also issue shares that carry with them a specific right to be redeemed under such circumstances as may be specified in the resolutions authorizing the issuance of such shares.

 

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CHL may also purchase its own shares when shareholders exercise the right to require CHL to do so pursuant to the exercise of shareholder appraisal rights under the IBC Act. CHL presently has no “sinking fund” provisions relating to any of its securities, nor is any holder of CHL’s presently authorized securities liable, upon payment in full for such securities, for any subsequent capital call by CHL.

 

C. Material Contracts

 

Not applicable

 

D. Exchange Controls

 

CHL is incorporated as an international business company under the IBC Act. Under the IBC Act, CHL is deemed to be non-resident in Belize for exchange control purposes. As a consequence of this status, there are no limitations under the laws of Belize on the rights of non-residents of Belize to hold, transfer or vote shares in CHL. In addition, there are no restrictions on CHL’s ability to issue new shares or pay dividends or other distributions to holders of shares in CHL (including non-residents of Belize).

 

CHL has been granted special status under the IBC Act. By virtue of this special status, residents of Belize are at liberty to purchase shares in CHL and make payment to the seller, wherever resident, in United States dollars without obtaining exchange control permission. All such transactions in United States dollars must be effected through the agency of an approved financial institution which, in the case of CHL, is the Bank. Also, by virtue of this special status, CHL is at liberty to issue shares and make payments to residents of Belize without obtaining exchange control permission.

 

E. Taxation

 

Belize Taxation

 

Under Belize law, no withholding tax will be imposed upon payment of any dividends by CHL and all dividends or other distributions paid by CHL to its shareholders wherever resident are exempt from income tax in Belize.

 

By virtue of CHL being granted special status under the IBC Act, all interest, rents, royalties, compensation and other amounts paid by CHL to non-residents of Belize and any capital gains realized or estate or similar duties payable by non-residents of Belize with respect to shares of CHL are exempt from tax in Belize. Similarly, no stamp duty is payable with respect to instruments transferring shares of CHL or transfers of property to or by CHL. CHL’s tax exemption expires on April 30, 2020 but may be extended by the Minister of Finance of Belize.

 

U.S. Taxation

 

This section briefly describes the material United States federal income tax consequences of owning CHL ordinary shares. It applies to you only if you hold your shares as capital assets for tax purposes. This section does not address special classes of holders, some of who may be subject to other rules, including:

 

  tax-exempt entities;

 

  certain insurance companies;

 

  broker-dealers;

 

  traders in securities that elect to mark to market;

 

  investors liable for alternative minimum tax, investors that actually or constructively own 10 percent or more of the voting stock of CHL, investors that hold shares as part of a straddle or a hedging or conversion transaction; or

 

  investors whose functional currency is not the US dollar.

 

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This section is based on the tax laws of the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, and published rulings and court decisions, as currently in effect. These laws are subject to change, possibly on a retroactive basis.

 

You are a “U.S. holder” if you are a beneficial owner of shares and you are:

 

  a citizen or resident of the United States;

 

  a United States corporation or other entity taxable as a corporation in the United States;

 

  an estate whose income is subject to United States federal income tax regardless of its source, or a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.

 

You are a “non-U.S. holder” if you are a beneficial owner of shares and you do not qualify as a U.S. holder (as described above).

 

This discussion addresses only United States federal income taxation. You should consult your own tax advisor regarding the federal, state, local and other tax consequences of owning and disposing of shares in your particular circumstances.

 

Taxation of Dividends

 

U.S. Holders

 

If you are a U.S. holder, you must include in your gross income any dividend paid by CHL out of its current or accumulated earnings and profits, as these amounts are determined for United States federal income tax purposes. Qualified dividends are subject to a maximum Federal tax rate of 15%. CHL stock must be owned for 60 days in the 120 day period surrounding the ex dividend date in order to qualify for the 15% rate.

 

The dividend must be included in ordinary income in the tax year in which you receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a return of capital to the extent of your basis in the shares and thereafter as capital gain.

 

Dividends will constitute income from sources outside the United States, but generally will be “passive income” or “financial services income” which are treated separately from other types of income for purposes of computing the foreign tax credit allowable to you.

 

Non-U.S. Holders

 

Generally, if you are a non-U.S. holder, dividends paid to you in respect of shares will not be subject to United States federal income tax unless the dividends are effectively connected with your conduct of a trade or business within the United States. The dividends may also be taxable if they are attributable to a permanent establishment that you maintain in the United States, if that is required by an applicable income tax treaty as a condition for subjecting you to United States taxation on a net income basis. In each of these cases you will be taxed in the same manner as a U.S. holder. If you are a corporate non-U.S. holder, effectively connected dividends may, under certain circumstances, also be subject to an additional branch profits tax at a 30 percent rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.

 

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Taxation of Capital Gains

 

U.S. Holders

 

If you are a U.S. holder and sell or otherwise dispose of your shares, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis in your shares. Capital gain of a non-corporate U.S. holder is generally taxed at a maximum rate of 15 percent for property held more than one year if the sale or exchange occurs after May 6, 2003, including installment payments received after that date.

 

Non-U.S. Holders

 

If you are a non-U.S. holder, you will not be subject to United States federal income tax on a gain recognized on the sale or other disposition of your shares unless:

 

  the gain is effectively connected with your conduct of a trade or business in the United States; the gain must also be attributable to a permanent establishment that you maintain in the United States, if that is required by an applicable income tax treaty as a condition for subjecting you to United States taxation on a net income basis; or

 

  you are an individual, you are present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist.

 

If you are a corporate non-U.S. holder, effectively connected gains that you recognize may also, under certain circumstances, be subject to an additional branch profits tax at a 30 percent rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.

 

Backup Withholding and Information Reporting

 

In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements and backup withholding tax at the rate of 28 percent if you are a non-corporate United States person and, you:

 

  fail to provide an accurate taxpayer identification number;

 

  are notified by the Internal Revenue Service that you have failed to report all interest or dividends required to be shown on your federal income tax returns; or

 

  in certain circumstances, fail to comply with applicable certification requirements.

 

Certain corporations and persons that are not United States persons may be required to establish their exemption from information reporting and backup withholding by certifying their status on Internal Revenue Service Form W-8 BEN.

 

If you sell your shares to or through a United States office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless you certify that you are a non-U.S. person, under penalties of perjury, or you otherwise establish an exemption. If you sell your shares through a non-U.S. office of a non-U.S. broker and the sale proceeds are paid to you outside the United States then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup withholding, may apply to a payment of sales proceeds, even if that payment is made to you outside the United States, if you sell your shares through a non-U.S. office of a broker that is a U.S. person or has certain other contacts with the United States.

 

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You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your income tax liability by filing a refund claim with the United States Internal Revenue Service.

 

CHL currently does not believe that it is a PFIC (passive foreign investment company) for U.S. federal income tax purposes. However, that is a matter which must be determined annually as of the close of each fiscal year and therefore is subject to change. If CHL were to become a PFIC, the tax treatment of U.S. holders would change materially. U.S. holders are urged to consult their tax advisors regarding possible consequences of PFIC status.

 

There is no double tax treaty presently in force between Belize and the United States.

 

F. Dividends and Paying Agents

 

Not applicable

 

G. Statements by Experts

 

Not applicable

 

H. Documents on Display

 

CHL is subject to the informational reporting requirements of the United States Securities Exchange Act of 1934 and files reports and other information with the United States Securities and Exchange Commission. You may examine the reports and other information filed by CHL without charge, at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C., 20549, and at the SEC’s regional offices located at Suite 1400, Northwest Atrium Center, 500 West Madison Street (Suite 1400), Chicago, Illinois, 60661-25551, and they may be downloaded from the SEC’s website at www.sec.gov by using the “Search for Company Filings” function.

 

I. Subsidiary Information

 

Not applicable

 

 

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Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company’s consolidated financial statements have been prepared in US dollars. The Company’s United States operations have no material exposure to currency fluctuations. The Company is susceptible to currency fluctuations between US dollars and UK pounds sterling, the operating currency of the Company’s United Kingdom businesses. CHL’s Belize operations are conducted in Belize currency which has been fixed by the Government of Belize at two Belize dollars to every one US dollar. The Company does not hedge against any exchange risk associated with its reporting in US dollars. The results of subsidiaries which account in a functional currency other than US dollars are translated into US dollars at the average rate of exchange for the year (for the year ended March 31, 2005, 1 pound sterling equaled 1.846 US dollars). The assets and liabilities of subsidiaries which account in a functional currency other than US dollars are translated into US dollars at the rate of exchange ruling at the balance sheet date (at March 31, 2005, 1 pound sterling equaled 1.879 US dollars). Currency translation adjustments arising from the use of differing exchange rates from period to period are included as other comprehensive income in shareholders’ equity.

 

The main interest rate risk for the Company’s services businesses arises from any increase in the London Inter-Bank Offered Rate (LIBOR), on which principally all of the Company’s debt obligations are based. At March 31, 2005, this debt amounted to $46.2 million (plus $7.4 million of letters of credit and guarantees), with one month LIBOR at approximately 3.1 percent. Further details are set out in note 19 to the consolidated financial statements.

 

The Bank funds itself principally through deposits. Most deposits are denominated in Belizean dollars. Rates offered vary with the type of deposit account. Demand deposits pay no interest other than to a few selected customers. Savings deposits pay interest at 5 percent to 6 percent per annum depending upon the balance maintained. The Central Bank mandates that a minimum of 4.5 percent per annum must be paid on ordinary savings deposits. Term deposits have various rate of interest. Total deposits as at March 31, 2005 amounted to $341.4 million. The Bank provides commercial loans for short-term financing and working capital purposes. Most commercial loans are variable rate loans based on the Bank’s prime rate, which at March 31, 2005 was 14.5 percent. Consumer and personal lending generally have fixed interest terms. Total loans due as at March 31, 2005 amounted to $342.8 million. Further details are set out in notes 17 and 23 to the consolidated financial statements.

 

The Company is not a party to any financial instrument with off-balance sheet risks related to foreign exchange spot or forward contracts; neither has the Company issued any derivative financial instrument such as interest rate swaps, caps, floors, collars, or currency swaps.

 

Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

Not applicable

 

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PART II

 

Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUINCIES

 

None

 

Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

Not applicable

 

Item 15. CONTROLS AND PROCEDURES

 

In compliance with Section 302 of the United States Sarbanes-Oxley Act of 2002 and the United States Securities Exchange Act of 1934, the Company evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2005, in order to ensure that all material information, both financial and non-financial, required to be disclosed in the CHL Annual Report on Form 20-F for the year ended March 31, 2005 was identified, recorded, processed, summarized and reported to the Company’s senior management within the required timeframe. This evaluation was undertaken under the supervision and with the participation of the Company’s senior management, including CHL’s Chief Executive Officer and Chief Financial Officer. Based on that evaluation, it was concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2005, and that subsequently there have been no significant changes in the Company’s internal controls or in other factors that could affect those controls.

 

The Company will review and evaluate the design and effectiveness of disclosure controls and procedures on an on-going basis and continue to improve controls and procedures over time and correct any deficiencies that may be discovered in the future. The Company’s objectives are to ensure that its senior management has timely access to all material financial and non-financial information concerning the business. Whilst the Company believes that the present design of the disclosure controls and procedures is effective to achieve these objectives, future events affecting the business may cause the Company to significantly modify the disclosure controls and procedures. Further, in designing and evaluating the disclosure controls and procedures, the Company recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving these desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT

 

The board of directors has determined that Mr. David B. Hammond is the ‘audit committee financial expert’ within the meaning of the applicable rules and regulations of the United States Securities and Exchange Commission and the United States Sarbanes-Oxley Act of 2002.

 

Item 16B. CODE OF ETHICS

 

In accordance with the requirements of the United States Sarbanes-Oxley Act of 2002, and in order to maintain the Company’s commitment to the highest standards of professional conduct and integrity, CHL has adopted a code of ethics for the Company’s senior management and financial officers. A copy of the Company’s code of ethics can be obtained by request from the Company Secretary at PO Box 1764, 60 Market Square, Belize City, Belize, Central America.

 

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ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Details of the aggregate fees billed for professional services rendered by the independent accountants, PricewaterhouseCoopers, were as follows:

 

Year ended March 31


  

2005

$m


  

2004

$m


  

2003

$m


Audit fees

   1.1    1.1    1.2

Tax fees (i)

   0.2    0.3    0.3

All other fees (ii)

   0.1    0.2    0.1
    
  
  

Total

   1.4    1.6    1.6
    
  
  

(i) Tax fees principally comprise tax compliance and advisory services.
(ii) Other fees principally comprise services provided in connection with acquisition and disposals and audits of the Company’s pension plan.

 

All non-audit services are pre-approved by the Audit Committee by category or on a case-by-case basis, as appropriate, depending upon the nature of the services and the circumstances, or alternatively meet the detailed criteria of specific pre-approved services, up to an amount per engagement subject to a cumulative limit, and are notified to the Audit Committee.

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

Not applicable

 

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASER

 

Not applicable

 

PART III

 

Item 17. FINANCIAL STATEMENTS

 

See Item 18

 

Item 18. FINANCIAL STATEMENTS

 

Carlisle Holdings Limited

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Statements of Income

 

Consolidated Balance Sheets

 

Consolidated Statements of Changes in Shareholders’ Equity

 

Consolidated Statements of Cash Flows

 

Notes to Consolidated Financial Statements

 

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Item 19. EXHIBITS

 

1.1    Memorandum of Association of Carlisle Holdings Limited effective June 1, 1999. Incorporated by reference to Exhibit 1.1 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
1.2    Articles of Association of Carlisle Holdings Limited effective June 1, 1999. Incorporated by reference to Exhibit 1.2 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
1.3    Amendments to the Articles of Association of Carlisle Holdings Limited effective October 21, 2004.*
2.1    Rights Agreement dated as of December 6, 1997 between Carlisle Holdings Limited and The Belize Bank Limited. Incorporated by reference to Exhibit 2.1 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
2.2    Certificate of Adjusted Purchase Price or Number of Shares dated July 1, 1999 reflecting the effect of the two-for-one stock dividend of May 27, 1999 on the Rights Agreement dated as of December 6, 1997 between Carlisle Holdings Limited and The Belize Bank Limited. Incorporated by reference to Exhibit 2.2 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.1    Employment Agreement dated July 2, 1997 between BHI Corporation (now Carlisle Holdings Limited) and M.A. Ashcroft, as amended by both an agreement by exchange of letters dated May 14, 1999 among Carlisle Holdings Limited (now Blackwood Limited), BHI Corporation (now Carlisle Holdings Limited) and M.A. Ashcroft and a subsequent agreement by exchange of letters dated October 17, 2000 between Carlisle Holdings Limited and M.A. Ashcroft. Incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.2    Payment Agreement effective June 30, 2000, between National Union Fire Insurance. Incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.3    Agreement and Parental Guarantee made as of June 30, 2001 by and between Carlisle Holdings Limited and AIG. Incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.4    Schedule of Policies and Payments effective June 30, 2000 to Payment Agreement effective June 30, 2000 between AIG and OneSource Holdings, Inc. Incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.5    Schedule of Policies and Payments effective June 30, 2001 to Payment Agreement effective June 30, 2001 [sic] between AIG and OneSource Holdings, Inc. Incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.6    Schedule of Policies and Payments effective June 30, 2002 to Payment Agreement effective June 30, 2002 [sic] between AIG and OneSource Holdings, Inc. Incorporated by reference to Exhibit 4.6 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.7    Schedule of Policies and Payments effective June 30, 2003 to Payment Agreement effective June 30, 2003 between AIG and OneSource Holdings, Inc. Incorporated by reference to Exhibit 4.7 to the Company’s Annual Report on Form 20-F filed July 1, 2004.
4.8    Schedule of Policies and Payments effective June 30, 2004 to Payment Agreement effective June 30, 2004 between AIG and OneSource Holdings, Inc.*

 

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4.9    Credit Agreement dated March 30, 2000 among Carlisle Finance, S.A. as Borrower, the Lenders party thereto and The Bank of Nova Scotia as Agent. Incorporated by reference to Exhibit 4.7 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.10    Amendment No. 1, dated as of September 22, 2000, to the Credit Agreement dated March 30, 2000 among Carlisle Finance S.A. as Borrower, the Lenders party thereto and The Bank of Nova Scotia as Agent. Incorporated by reference to Exhibit 4.8 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.11    Amendment No. 2, dated as of November 22, 2000, to the Credit Agreement dated March 30, 2000 among Carlisle Finance S.A. as Borrower, the Lenders party thereto and The Bank of Nova Scotia as Agent. Incorporated by reference to Exhibit 4.9 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.12    Amendment No. 3, dated as of December 22, 2000, to the Credit Agreement dated March 30, 2000 among Carlisle Finance S.A. as Borrower, the Lenders party thereto and The Bank of Nova Scotia as Agent. Incorporated by reference to Exhibit 4.10 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.13    Amendment No. 4, dated as of March 31, 2001, to the Credit Agreement dated March 30, 2000 among Carlisle Finance S.A. as Borrower, the Lenders party thereto and The Bank of Nova Scotia as Agent. Incorporated by reference to Exhibit 4.11 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.14    Amendment No. 5, dated as of February 14, 2002, to the Credit Agreement dated March 30, 2000 among Carlisle Finance (Iceland) Ltd. as Borrower, the Lenders party thereto and The Bank of Nova Scotia as Agent. Incorporated by reference to Exhibit 4.12 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.15    Amendment No. 6, dated as of June 29, 2002, to the Credit Agreement dated March 30, 2000 among Carlisle Finance (Iceland) Ltd. as Borrower, the Lenders party thereto and The Bank of Nova Scotia as Agent. Incorporated by reference to Exhibit 4.13 to the Company’s Annual Report on Form 20-F filed July 3, 2003.
4.16    Amendment No. 7, dated as of December 23, 2003, to the Credit Agreement dated March 30, 2000 among Carlisle Finance (Iceland) Ltd. as Borrower, the Lenders party thereto and The Bank of Nova Scotia as Agent. Incorporated by reference to Exhibit 4.15 to the Company’s Annual Report on Form 20-F filed July 1, 2004
4.17    Credit Agreement dated March 17, 2004 among OneSource Holdings, Inc., Southern Management Co., and the subsidiaries of OneSource Holdings, Inc. party thereto as Borrowers and General Electric Capital Corporation as Lender and Agent. Incorporated by reference to Exhibit 4.16 to the Company’s Annual Report on Form 20-F filed July 1, 2004
4.18    Amendment 1, dated as of September 17, 2004, to the Credit Agreement dated March 17, 2004 among OneSource Holdings, Inc., Southern Management Co., and the subsidiaries of OneSource Holdings, Inc. party thereto as Borrowers and General Electric Capital Corporation as Lender and Agent.*
4.19    Amendment 2, dated as of December 15, 2004, to the Credit Agreement dated March 17, 2004 among OneSource Holdings, Inc., Southern Management Co., and the subsidiaries of OneSource Holdings, Inc. party thereto as Borrowers and General Electric Capital Corporation as Lender and Agent.*

 

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4.20    Share Purchase Deed dated December 9, 2003 between Carlisle Holdings Limited and Government of Belize relating to the sale and purchase of 52.46 per cent. of the issued share capital of Belize Telecommunications Limited. Incorporated by reference to Exhibit 4.17 to the Company’s Annual Report on Form 20-F filed July 1, 2004
4.21    Agreement dated April 30, 2004 between CS Services Limited and the other Sellers named therein and Carlisle Holdings Limited for the sale and purchase of all of the issued share capital of Ohsea Holdings Limited. Incorporated by reference to Exhibit 4.18 to the Company’s Annual Report on Form 20-F filed July 1, 2004
8.    List of subsidiaries.*
12.1    Certifications by the principal executive officer pursuant to Rule 13(a)-14(a).*
12.2    Certifications by the principal financial officer pursuant to Rule 13(a)-14(a).*
13.1    Certifications by the principal executive officer pursuant to Rule 13(a)-14(b) and Section 1350 of Chapter 63 of Title 18 of the United State Code. *
13.2    Certifications by the principal financial officer pursuant to Rule 13(a)-14(b) and Section 1350 of Chapter 63 of Title 18 of the United State Code. *
14.    Consent of PricewaterhouseCoopers LLP (UK) to the incorporation by reference in the Registration Statements on Form S-8 (nos. 333-9178; 333-9828; 333-9830; and 333-9832) of their report relating to the consolidated financial statements of Carlisle Holdings Limited which appears in the Annual Report on Form 20-F for the year ended March 31, 2005.*

* Filed herewith

 

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SIGNATURE

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

 

CARLISLE HOLDINGS LIMITED
(Registrant)

/s/ Peter M R Gaze


Peter M R Gaze
Chief Financial Officer

 

Dated: July 8, 2005

 

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CARLISLE HOLDINGS LIMITED

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm

   F-2

Consolidated Statements of Income

   F-3

Consolidated Balance Sheets

   F-4

Consolidated Statements of Changes in Shareholders’ Equity

   F-6

Consolidated Statements of Cash Flows

   F-8

Notes to Consolidated Financial Statements

   F-11

 

F-1


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CARLISLE HOLDINGS LIMITED

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of Carlisle Holdings Limited

 

We have audited the accompanying consolidated balance sheets of Carlisle Holdings Limited and its subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2005. 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 audits.

 

We conducted our audits of these consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Carlisle Holdings Limited and its subsidiaries as of March 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ PricewaterhouseCoopers LLP

 

PricewaterhouseCoopers LLP

London, United Kingdom

July 8, 2005

 

F-2


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CARLISLE HOLDINGS LIMITED

 

Consolidated Statements of Income

 

          2005     2004     2003  

Year ended March 31


   Notes

   $m

   

(restated)

$m


    $m

 

Service Businesses

                             

Net sales

   4      1,380.0       1,225.6       1,139.5  

Cost of sales

          (1,181.5 )     (1,052.3 )     (976.6 )

Selling, general and administrative expenses

          (189.8 )     (163.4 )     (149.6 )

Restructuring and other non-recurring items

   5      —         —         (1.2 )
         


 


 


Operating income - Service Businesses

   4      8.7       9.9       12.1  
         


 


 


Financial Services

                             

Interest income

          48.0       43.9       39.0  

Interest expense

          (15.2 )     (12.0 )     (9.2 )
         


 


 


Net interest income

          32.8       31.9       29.8  

Provision for loan losses

   17      (1.1 )     (0.7 )     (0.7 )

Net non-interest expense

   6      (0.8 )     (1.3 )     (1.6 )

Restructuring and other non-recurring items

   5      —         —         1.5  
         


 


 


Operating income - Financial Services

          30.9       29.9       29.0  
         


 


 


Corporate expenses

          (6.0 )     (4.7 )     (6.5 )
         


 


 


Total operating income

          33.6       35.1       34.6  

Associates

   13      5.3       4.2       4.9  

Interest income

          1.5       1.0       0.2  

Interest expense

          (3.4 )     (4.0 )     (5.8 )
         


 


 


Income before income taxes

          37.0       36.3       33.9  

Income taxes

   7      (1.0 )     (0.9 )     (1.6 )
         


 


 


Income after income taxes

          36.0       35.4       32.3  

Minority interests

          (2.0 )     (0.8 )     (1.0 )
         


 


 


Income from continuing operations

          34.0       34.6       31.3  

Income from discontinued operations

   8      —         9.7       4.9  
         


 


 


Net income

          34.0       44.3       36.2  
         


 


 


Basic earnings per ordinary share:

   9                         

Continuing operations

        $ 0.56     $ 0.58     $ 0.53  

Discontinued operations

        $ —       $ 0.16     $ 0.08  
         


 


 


Net income

        $ 0.56     $ 0.74     $ 0.61  
         


 


 


Diluted earnings per ordinary share:

   9                         

Continuing operations

        $ 0.56     $ 0.57     $ 0.53  

Discontinued operations

        $ —       $ 0.16     $ 0.08  
         


 


 


Net income

        $ 0.56     $ 0.73     $ 0.61  
         


 


 


 

See accompanying notes which are an integral part of these consolidated financial statements

 

F- 3


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Consolidated Balance Sheets

 

          2005    2004

At March 31


   Notes

   $m

  

(restated)

$m


Assets

              

Service Businesses

              

Current assets:

              

Cash and cash equivalents

        19.9    31.3

Trade accounts receivable - net

   10    170.8    167.6

Other current assets

   11    28.8    29.9
         
  

Total Service Businesses current assets

        219.5    228.8

Property, plant and equipment - net

   12    23.7    24.0

Associates

   13    52.8    47.5

Goodwill - net

   14    400.4    397.7

Other long-term assets

   15    41.6    40.1
         
  

Total Service Businesses assets

        738.0    738.1
         
  

Financial Services

              

Cash, cash equivalents and due from banks

   16    26.9    22.9

Interest-bearing deposits with correspondent banks

        55.8    40.0

Loans - net

   17    337.6    304.5

Other assets

   18    41.0    29.6
         
  

Total Financial Services assets

        461.3    397.0
         
  

Total assets

        1,199.3    1,135.1
         
  

 

See accompanying notes which are an integral part of these consolidated financial statements

 

F-4


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Consolidated Balance Sheets - (continued)

 

          2005     2004  

At March 31


   Notes

   $m

   

(restated)

$m


 

Liabilities and shareholders’ equity

                 

Service Businesses

                 

Current liabilities:

                 

Short-term debt

   19    46.2     49.6  

Accounts payable

        28.3     23.7  

Accrued personnel costs

        49.6     48.6  

Insurance reserves - current portion

   21    18.3     20.3  

Other current liabilities

   20    50.9     48.7  
         

 

Total Service Businesses current liabilities

        193.3     190.9  

Insurance reserves - long-term portion

   21    48.1     48.7  

Other long-term liabilities

   22    13.7     15.2  

Minority interests

        4.1     5.3  
         

 

Total Service Businesses liabilities

        259.2     260.1  
         

 

Financial Services

                 

Deposits

   23    341.4     306.3  

Long-term debt

   24    15.0     15.0  

Other liabilities

        8.3     8.5  
         

 

Total Financial Services liabilities

        364.7     329.8  
         

 

Total liabilities

        623.9     589.9  
         

 

Commitments and contingencies

   25             

Shareholders’ equity:

                 

Share capital (ordinary shares of no par value - 2005 - 62,554,040; 2004 - 62,285,346;

2003 - 61,765,820)

   26    0.6     0.6  

Additional paid-in capital

        313.1     308.9  

Treasury shares

   26    (19.0 )   (17.3 )

Retained earnings

        258.4     233.7  

Cumulative other comprehensive income

        22.3     19.3  
         

 

Total shareholders’ equity

        575.4     545.2  
         

 

Total liabilities and shareholders’ equity

        1,199.3     1,135.1  
         

 

 

See accompanying notes which are an integral part of these consolidated financial statements

 

F-5


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Consolidated Statements of Changes in Shareholders’ Equity

 

    

Share
capital

$m


  

Additional
paid-in
capital

$m


   

Treasury
shares

$m


   

Retained
earnings

$m


   

Cumulative

other compre-

hensive

income (loss)

$m


   

Total

$m


 

At April 1, 2002

   0.6    307.7     (21.3 )   153.2     (18.9 )   421.3  

Net income

   —      —       —       36.2     —       36.2  

Disposal of treasury shares

   —      (1.8 )   2.7     —       —       0.9  

Currency translation adjustments

   —      —       —       —       15.6     15.6  

Minimum pension liability

   —      —       —       —       (1.5 )   (1.5 )

Other movements

   —      (0.2 )   —       —       —       (0.2 )
    
  

 

 

 

 

At March 31, 2003

   0.6    305.7     (18.6 )   189.4     (4.8 )   472.3  

As-if pooling of interests with Ohsea (notes 1 and 3 )

   —      3.8     —       —       —       3.8  

Net income

   —      —       —       44.3     —       44.3  

Purchase of treasury shares

   —      —       (0.1 )   —       —       (0.1 )

Disposal of treasury shares

   —      (0.7 )   1.4     —       —       0.7  

Currency translation adjustments

   —      —       —       —       24.4     24.4  

Minimum pension liability

   —      —       —       —       (0.3 )   (0.3 )

Other movements

   —      0.1     —       —       —       0.1  
    
  

 

 

 

 

At March 31, 2004 (restated)

   0.6    308.9     (17.3 )   233.7     19.3     545.2  

Ordinary shares issued

   —      1.7     —       —       —       1.7  

Net income

   —      —       —       34.0     —       34.0  

Dividend

   —      —       —       (9.3 )   —       (9.3 )

Purchase of treasury shares

   —      2.6     (2.6 )   —       —       —    

Disposal of treasury shares

   —      (0.1 )   0.9     —       —       0.8  

Currency translation adjustments

   —      —       —       —       3.6     3.6  

Minimum pension liability

   —      —       —       —       (0.6 )   (0.6 )
    
  

 

 

 

 

At March 31, 2005

   0.6    313.1     (19.0 )   258.4     22.3     575.4  
    
  

 

 

 

 

 

At March 31, 2005, additional paid-in capital is stated net of a balance comprising interest bearing, collateralized amounts receivable from certain officers of the Company, in respect of ordinary shares in Carlisle Holdings Limited (“CHL”) purchased at market price from CHL satisfied from CHL’s holding of treasury shares and in respect of amounts due on the exercise of CHL share options of nil (2004 - $2.6 million; 2003 - $2.7 million). During the year ended March 31, 2005, the total amount receivable of $2.6 million was settled through the receipt by the Company of 298,072 ordinary shares which have been placed into treasury shares (note 26).

 

Cumulative other comprehensive income (loss) comprises currency translation adjustments (March 31, 2005 - $29.2 million; 2004 - $25.6 million; and 2003 - $1.2 million) and a minimum pension liability (March 31, 2005 - $(6.9) million; 2004 - $(6.3) million; and 2003 - $(6.0) million) (note 27).

 

At March 31, 2005, retained earnings included non-distributable statutory reserves in The Belize Bank Limited and its subsidiaries of $5.2 million (2004 - $4.0 million; 2003 - $3.0 million).

 

See accompanying notes which are an integral part of these consolidated financial statements

 

F-6


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Consolidated Statements of Changes in Shareholders’ Equity - (continued)

 

In August 2004, CHL announced a dividend which was satisfied by the transfer of its entire shareholding in its wholly owned subsidiary, Seashell Group Limited, a company incorporated in Belize (‘Seashell’), to CHL’s non-United States shareholders. Seashell at that time had a net asset value of approximately £5 million, principally comprising cash and cash equivalents. The dividend amounted to 16.55 ordinary shares in Seashell for each 100 CHL ordinary shares held. CHL’s United States shareholders received cash of $15.22 for each 100 CHL ordinary shares held, being the US dollar equivalent of the £8.28 UK sterling value of the shares in Seashell to which they would otherwise have been entitled. At the time, Seashell’s shares were admitted to trading on the Alternative Investment Market of the London Stock Exchange in the United Kingdom, and Seashell’s primary stated objective was to invest in either a publicly traded or private company which it can, by influencing the management and strategic direction of that company, create value for Seashell shareholders. The total value of the CHL dividend amounted to $9.3 million.

 

     2005     2004     2003  

Year ended March 31


   $m

   

(restated)

$m


    $m

 

Comprehensive income (net of tax):

                  

Net income

   34.0     44.3     36.2  

Currency translation adjustments

   3.6     24.4     15.6  

Minimum pension liability

   (0.6 )   (0.3 )   (1.5 )
    

 

 

Total comprehensive income

   37.0     68.4     50.3  
    

 

 

 

See accompanying notes which are an integral part of these consolidated financial statements

 

F-7


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Consolidated Statements of Cash Flows

 

     2005     2004     2003  

Year ended March 31


   $m

   

(restated)

$m


    $m

 

Cash flows from operating activities

                  

Net income

   34.0     44.3     36.2  

Adjustments to reconcile net income to net cash provided by operating activities:

                  

Depreciation

   12.0     23.6     22.6  

Discount amortization on insurance reserves

   3.4     3.4     3.6  

Restructuring and other non-recurring items

   —       —       0.2  

Provision for loan losses

   1.1     0.7     0.7  

Undistributed earnings of associates

   (5.3 )   2.2     (2.3 )

Refinancing costs amortization

   —       0.9     0.9  

Deferred income taxes

   —       0.8     —    

Minority interests net of distributions

   0.3     3.0     3.2  

Gain on disposal of discontinued operations

   —       (4.7 )   —    

Other

   (0.7 )   0.2     (1.0 )

Changes in assets and liabilities:

                  

(Increase) decrease in accounts receivable

   (0.9 )   2.5     33.0  

(Increase) in other assets

   (0.6 )   (2.5 )   (3.3 )

Increase (decrease) increase in accounts payable

   4.2     (3.5 )   (0.1 )

Increase (decrease) in accrued personnel costs

   0.4     (0.2 )   (0.1 )

(Decrease) in insurance reserves

   (6.0 )   (6.8 )   (8.1 )

(Decrease) in other liabilities

   (6.5 )   (2.3 )   (14.4 )
    

 

 

Net cash provided by operating activities

   35.4     61.6     71.1  
    

 

 

 

See accompanying notes which are an integral part of these consolidated financial statements

 

F-8


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Consolidated Statements of Cash Flows - (continued)

 

     2005     2004     2003  

Year ended March 31


   $m

   

(restated)

$m


    $m

 

Cash flows from investing activities

                  

Purchase of property, plant and equipment

   (12.1 )   (18.0 )   (40.6 )

Disposal of property, plant and equipment

   0.3     0.3     1.1  

Acquisition of businesses

   —       (9.3 )   (5.4 )

Disposal of discontinued operations

   —       48.1     —    

(Increase) decrease in interest-bearing deposits

                  

with correspondent banks

   (15.8 )   12.3     (14.7 )

(Increase) in Government securities

   (9.9 )   —       —    

(Increase) in loans to customers

   (33.5 )   (39.3 )   (37.6 )
    

 

 

Net cash (utilized) provided by investing activities

   (71.0 )   (5.9 )   (97.2 )
    

 

 

Cash flows from financing activities

                  

Proceeds from long-term debt

   —       1.0     10.2  

Repayment of long-term debt

   —       (3.0 )   (25.8 )

Debt refinancing costs

   —       —       (0.4 )

Increase (decrease) in short-term debt

   2.3     (7.6 )   (14.0 )

(Increase) in restricted cash deposits

   (0.8 )   (46.6 )   —    

Increase in deposits

   35.1     15.0     58.3  

Net sale of treasury shares

   0.8     0.7     0.9  

Dividend

   (9.3 )   —       —    

Other

   —       (0.3 )   —    
    

 

 

Net cash provided (utilized) by financing activities

   28.1     (40.8 )   29.2  
    

 

 

Currency translation adjustments

   0.1     (0.1 )   0.5  
    

 

 

Net change in cash, cash equivalents and due from banks

   (7.4 )   14.8     3.6  

Cash, cash equivalents and due from banks at beginning of year

   54.2     39.4     35.8  
    

 

 

Cash, cash equivalents and due from banks at end of year

   46.8     54.2     39.4  
    

 

 

Cash - service businesses

   19.9     31.3     13.3  

Cash - financial services

   26.9     22.9     26.1  
    

 

 

     46.8     54.2     39.4  
    

 

 

 

See accompanying notes which are an integral part of these consolidated financial statements

 

F-9


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Consolidated Statements of Cash Flows - (continued)

 

     2005     2004     2003  

Year ended March 31


   $m

   

(restated)

$m


    $m

 

Supplemental cash flow information:

                  

Cash paid for interest

   3.1     6.0     5.8  

Cash paid for income taxes

   1.1     9.7     6.7  

In connection with the acquisition of businesses net liabilities (assets) were assumed as follows:

                  

Goodwill

   0.6     7.7     5.5  

Cash paid (net of cash assumed)

   —       (9.3 )   (5.4 )

Deferred consideration paid

   —       (0.6 )   —    

Ordinary shares issued

   (1.7 )   —       —    
    

 

 

Net (assets) liabilities assumed

   (1.1 )   (2.2 )   0.1  
    

 

 

In connection with the disposal of discontinued operations net assets were disposed of as follows:

                  

Cash received (net of cash transferred)

   —       48.1     —    

Gain on disposal

   —       (4.7 )   —    
    

 

 

Net assets disposed (including goodwill)

   —       43.4     —    
    

 

 

In connection with the disposal of businesses net assets were disposed of as follows:

                  

Loan notes received

   —       —       3.4  

Net assets disposed (including goodwill)

   —       —       (3.4 )
    

 

 

     —       —       —    
    

 

 

 

See accompanying notes which are an integral part of these consolidated financial statements

 

F-10


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Notes to Consolidated Financial Statements

 

Note 1 - Description of business

 

Introduction

 

Carlisle Holdings Limited (“CHL”) is a company incorporated in Belize. CHL is a holding company with no independent business operations or assets other than its investment in its subsidiaries, associates, intercompany balances and holdings of cash and cash equivalents. CHL’s businesses are conducted through its subsidiaries.

 

In April 2004, CHL acquired the entire issued share capital of Ohsea Holdings Limited (“Ohsea”). Ohsea is a holding company, incorporated in the United Kingdom, whose principle asset is its wholly owned investment in Professional Staff Limited (“Professional Staff”), a company incorporated in the United Kingdom, which was acquired by Ohsea in July 2003. Professional Staff and its subsidiaries are a staffing services group based mainly in the United Kingdom and the United States, providing temporary and permanent staff recruitment services.

 

The acquisition of Ohsea has been accounted for by CHL using the “as-if” pooling of interests method of accounting due to the existence of a common controlling shareholder, Lord Ashcroft, KCMG, in both CHL and Ohsea. Lord Ashcroft is the Chairman of CHL. This method of pooling of interests assumes that the combining companies have been merged since their inception (being the time from which Lord Ashcroft held a controlling interest in each entity) and requires that the historical consolidated financial statements of CHL and its subsidiaries (the “Company”) are pooled with those of Ohsea and restated, with a minority interest eliminated for all periods where a non-controlling minority interest existed in the share capital of Ohsea. The non-controlling minority interest in Ohsea was acquired by CHL in April 2004 and was accounted for by CHL using the purchase method. Ohsea acquired Professional Staff in July 2003 and accounted for the acquisition using the purchase method. Further details are set out in notes 3, 14, and 26.

 

Facilities services

 

The Facilities Services division operates in the United States under the name OneSource Holdings, Inc. (“OneSource”), and in the United Kingdom under the names Carlisle Cleaning Services Limited and Carlisle Facilities Services Limited both trading under the name Carlisle Facilities Services.

 

OneSource is a leading provider of outsourced facilities services, principally providing cleaning and value added building maintenance and support services to commercial, institutional and industrial facilities throughout the United States. Carlisle Facilities Services provides specialized contract cleaning and ancillary support services and specialist security services, principally manned guarding, to businesses principally in the retail, transport and public sectors in the United Kingdom.

 

F-11


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Notes to Consolidated Financial Statements

 

Note 1 - Description of business – (continued)

 

Staffing services

 

The Staffing Services division, principally through Carlisle Staffing plc, a company incorporated in the United Kingdom, and Professional Staff, operates in the United Kingdom, the Republic of Ireland and the United States under a number of different brand names. The division provides temporary and permanent staff recruitment services as well as managed staffing services across a range of marketplaces.

 

Financial services

 

Financial services are provided principally through The Belize Bank Limited (the “Bank”), a company incorporated and operating in Belize, as a full service commercial and retail banking operation.

 

Associates

 

CHL’s equity investment comprises 23.4 percent of Grupo Agroindustrial CB, S.A. and related companies (“NUMAR”), which have interests in agro-processing and distribution operations principally in Costa Rica.

 

Discontinued operations

 

In February 2004, CHL disposed of its entire 52.5 percent interest in Belize Telecommunications Limited (“Belize Telecommunications”) (note 8).

 

Discontinued operations comprise the Company’s telecommunication services division. Telecommunication services were provided principally through Belize Telecommunications, a company incorporated in Belize, which is a licensed provider of local, national and long distance telecommunication services in Belize.

 

Note 2 - Summary of significant accounting policies

 

Basis of consolidated financial statements

 

The consolidated financial statements have been prepared in United States dollars in accordance with generally accepted accounting principles in the United States and as described below. The preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States requires management to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These management estimates include, among others, an allowance for doubtful receivables, estimates of future cash flows and discount rates associated with assets, asset impairments, and useful lives for depreciation and amortization, loss contingencies, income taxes and valuation allowances for deferred tax assets, insurance reserves and relevant discount rates, allowance for loan losses, and the determination of discount and other rate assumptions for pension obligations. Actual results could differ materially from those estimates. Certain figures at March 31, 2004 and for the years ended March 31, 2004 and 2003 have been reclassified to conform to the March 31, 2005 presentation.

 

F-12


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Notes to Consolidated Financial Statements

 

Note 2 - Summary of significant accounting policies - (continued)

 

Principles of consolidation

 

The consolidated financial statements incorporate the financial statements of the Company. The Company consolidates companies in which it owns or controls more than fifty percent of the voting shares. The results of subsidiary companies acquired or disposed of during the year are included in the consolidated financial statements from the effective date of acquisition or up to the date of disposal. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Associates

 

For investments in which the Company owns or controls more than twenty percent of the voting shares, and over which it exerts significant influence over operating and financial policies, the equity method of accounting is used in the consolidated financial statements. The investment in associates is shown in the consolidated balance sheets as the Company’s proportion of the underlying net assets of these companies plus any goodwill attributable to the acquisitions less any write-off required for a permanent diminution in value. The consolidated statements of income include the Company’s share of net income of associates.

 

Currency translation

 

The reporting and functional currency of the Company is United States dollars. The results of subsidiaries and associates, which account in a functional currency other than United States dollars, are translated into United States dollars at the average rate of exchange for the year. The assets and liabilities of subsidiaries and associates which account in a functional currency other than United States dollars are translated into United States dollars at the rate of exchange ruling at the balance sheet date. Currency translation adjustments arising from the use of differing exchange rates from period to period are included as other comprehensive income in shareholders’ equity.

 

Gains and losses arising from currency transactions are included in the consolidated statements of income.

 

Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, demand deposits and highly liquid instruments, with an original maturity of three months or less. As a result of the short-term maturity of these financial instruments their carrying value is approximately equal to their fair market value.

 

F-13


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Notes to Consolidated Financial Statements

 

Note 2 - Summary of significant accounting policies - (continued)

 

Property, plant and equipment

 

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided to write off the cost of the assets over their estimated useful lives, using the straight-line method, over the following periods:

 

Buildings    life of building, not exceeding 50 years
Leasehold improvements    term of lease
Machinery and equipment    3 to 15 years
Fixtures, fittings and office equipment    3 to 10 years

 

The carrying value of property, plant and equipment is evaluated periodically in relation to the operating performance and future cash flows of the underlying businesses. Where, in the opinion of the Company, an impairment in the value of property plant and equipment has occurred, the amount of the impairment is recorded in the consolidated statements of income.

 

Repairs and maintenance costs are expensed as incurred. Gains and losses arising on the disposal of property, plant and equipment are included in the consolidated statements of income.

 

Goodwill

 

The goodwill that arises where the acquisition cost of subsidiaries and associates exceeds the fair values attributable to the underlying net assets is capitalized in the consolidated financial statements. Goodwill arising on the acquisition of associates is included in investment in associates. With effect from April 2001, the Company applied the provisions of Statement of Financial Accounting Standards No. 142 - Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 142 eliminated the requirement to amortize goodwill and identifiable assets that have indefinite lives and initiated an annual review for impairment. Prior to adoption of SFAS 142, the Company amortized goodwill on a straight-line basis over its estimated useful life, covering periods not exceeding forty years.

 

The annual goodwill impairment review is carried out at a reporting unit level, which for the Company is considered to be at the segmental and geographical reporting level for each of its three service businesses, as applicable. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair market value. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair market value of a reporting unit’s goodwill with the carrying amount of that goodwill. The aggregate amount of any impairment loss is included in the consolidated statements of income.

 

F-14


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Notes to Consolidated Financial Statements

 

Note 2 - Summary of significant accounting policies - (continued)

 

The implied fair market value of a reporting unit and its related goodwill is measured by the Company principally by reference to present value techniques, comprising discounted cash flows, based on future revenue and margin projections and plans approved by the Company, with the discount rate based on a risk weighted average cost of capital.

 

Income taxes

 

Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the differences between the consolidated financial statements and tax bases of assets and liabilities, using tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

 

Stock-based compensation

 

Stock-based employee compensation is accounted for under the intrinsic value based method of accounting (note 26).

 

Net sales

 

Net sales represent the invoiced value of services provided and goods supplied to outside customers net of sales-related taxes. Revenue from services or products is recognized in the consolidated statements of income as services are rendered or deliveries are made. The nature of the Company’s service businesses is such that revenue is recognized when a written agreement, terms and conditions or an approved customer order is in place and the services have been fully rendered. At that time, pricing is then fixed and determinable. The Company’s procedures require review of a customer’s ability to pay prior to a service provision, at the time of such provision, and at the time of billing, such that collectability is reasonably assured. Revenues derived from telecommunication services (discontinued operations) comprise telephone rental, network access and airtime usage, are billed monthly in arrears, and are recognized in the consolidated financial statements in the month in which the services are provided.

 

Loans and interest income recognition

 

Loans are stated at the principal amount outstanding, net of unearned income and allowance for loan losses. Interest income is recorded on an accruals basis. When either the collectibility of principal or interest is considered doubtful, or payment of principal or interest is ninety days or more past due, loans are placed on non-accrual status and previously accrued but unpaid interest is charged against current year interest income.

 

F-15


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Notes to Consolidated Financial Statements

 

Note 2 - Summary of significant accounting policies - (continued)

 

Allowance for loan losses

 

The Company’s consideration as to the adequacy of the allowance to provide for probable loan losses is based on a continuing review of the loan portfolio and includes, but is not limited to, consideration of the actual loan loss experience, the present and prospective condition of each borrower and its related industry, general economic conditions prevailing from time to time, and the estimated fair value of the related collateral. Loans are charged off against allowance for loan losses when the amounts are deemed to be uncollectible

 

Recently issued accounting pronouncements

 

In January 2003, revised in December 2003, Financial Accounting Standards Board Interpretation No. 46 – ‘Consolidation of Variable Interest Entities’ was issued. This interpretation was effective for fiscal years beginning after June 15, 2003 and provides guidance for identifying a controlling interest in a variable interest entity established by means other than voting interests.

 

In December 2003, SFAS No. 132 (Revised 2003) ‘Employers’ Disclosures about Pensions and Other Postretirement Benefits’ was issued. This statement provides required additional disclosures for pensions and other postretirement benefits.

 

In December 2003, the Medicare Prescription Drug Improvement and Modernatization Act of 2003 became law in the United States, which provides for two new prescription drug benefits under Medicare, as well as certain subsidies. In May 2004, FASB Staff Position 106-2 ‘Accounting and Disclosure Requirements Related to the Act’ was issued.

 

In December 2004, SFAS No. 123 (Revised) – ‘Share Based Payments’ was issued. This statement is generally effective for fiscal years beginning after June 15, 2005 and provides guidance on measuring compensation cost relating to share based payment transactions.

 

The Company does not consider that the impact of these statements and interpretations have had, or will have when effective, a material effect on the Company’s consolidated financial statements.

 

Note 3 - Acquisition of Ohsea

 

In April 2004, CHL acquired the entire issued share capital of Ohsea for an aggregate consideration of approximately $5.2 million. The consideration was satisfied by the issue of 788,220 ordinary shares of CHL representing approximately 1.3 percent of the enlarged issued share capital of CHL. At the date of the acquisition of Ohsea by CHL, the shareholders of Ohsea included CS Services Limited (a company incorporated in Belize and controlled by Lord Ashcroft, KCMG) which held approximately 65.9 percent of the issued share capital of Ohsea. Accordingly, 519,526 ordinary shares of CHL were issued to CS Services Limited and 268,694 ordinary shares of CHL were issued to the minority shareholders of Ohsea (notes 1, 14 and 26). Having consulted with a leading European investment banking firm regarding the fairness and reasonableness of the transaction, the independent non-executive directors of CHL unanimously approved the transaction.

 

F-16


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Notes to Consolidated Financial Statements

 

Note 3 - Acquisition of Ohsea - (continued)

 

Combined are separate results of Carlisle and Ohsea for the periods preceding the transaction was as follows:

 

    

Carlisle
Group

$m


  

Ohsea
Group

$m


   

Adjustments

$m


  

Combined

$m


Year ended March 31, 2004

                    

Net sales

   1,126.4    99.2     —      1,225.6

Net income (loss)

   45.2    (1.3 )   0.4    44.3
    
  

 
  

Year ended March 31, 2003

                    

Net sales

   1,139.5    —       —      1,139.5

Net income

   36.2    —       —      36.2
    
  

 
  

 

Adjustments principally comprise the elimination of the non-controlling minority interest.

 

Note 4 - Segmental analysis

 

The Company is currently engaged in three service businesses, Facilities Services and Staffing Services principally in the United States and in the United Kingdom, and Financial Services principally in Belize, analysis of which is set out below. Net sales in the business and geographical analysis excludes interest income from the Company’s Financial Services division, which arise principally in Belize.

 

Year ended March 31


  

2005

$m


  

2004

$m


  

2003

$m


Business analysis

              

Net sales

              

Facilities Services

   943.5    904.4    917.2

Staffing Services

   436.5    321.2    222.3
    
  
  
     1,380.0    1,225.6    1,139.5
    
  
  

 

F-17


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Notes to Consolidated Financial Statements

 

Note 4 - Segmental analysis - (continued)

 

Year ended March 31


  

2005

$m


   

2004

$m


   

2003

$m


 

Operating income

                  

Facilities Services

   6.7     7.0     2.6  

Staffing Services

   2.0     2.9     9.5  
    

 

 

     8.7     9.9     12.1  

Financial Services

   30.9     29.9     29.0  

Corporate expenses

   (6.0 )   (4.7 )   (6.5 )
    

 

 

     33.6     35.1     34.6  
    

 

 

 

Operating income for the year ended, March 31, 2003 included restructuring and other non-recurring items of $0.3 million credit, of which $0.9 million related to the Facilities Services division, $0.3 million related to the Staffing Services division, and $1.5 million credit related to the Financial Services division (note 5).

 

Year ended March 31


  

2005

$m


  

2004

$m


  

2003

$m


Depreciation

              

Facilities Services

   7.6    8.4    9.9

Staffing Services

   3.6    3.4    2.2
    
  
  
     11.2      11.8      12.1

Financial Services

   0.7    0.8    0.7

Corporate

   0.1    0.1    0.1
    
  
  
     12.0    12.7    12.9

Discontinued operations

   —      10.9    9.7
    
  
  
     12.0    23.6    22.6
    
  
  

 

F-18


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Notes to Consolidated Financial Statements

 

Note 4 - Segmental analysis - (continued)

 

Year ended March 31


  

2005

$m


  

2004

$m


  

2003

$m


Capital expenditures

              

Facilities Services

   8.1    3.8    5.0

Staffing Services

   2.7    1.6    3.0
    
  
  
     10.8    5.4    8.0

Financial Services

   1.3    3.7    2.4

Corporate

   —      —      —  
    
  
  
     12.1    9.1    10.4

Discontinued operations

   —      8.9    30.2
    
  
  
     12.1    18.0    40.6
    
  
  

At March 31


  

2005

$m


  

2004

$m


  

2003

$m


Goodwill

              

Facilities Services

   275.2    276.1    266.0

Staffing Services

   125.2    121.6    101.8
    
  
  
     400.4    397.7    367.8

Discontinued operations

   —      —      0.8
    
  
  
     400.4    397.7    368.6
    
  
  

At March 31


  

2005

$m


  

2004

$m


  

2003

$m


Total assets

              

Facilities Services

   524.7    475.4    419.9

Staffing Services

   152.8    195.0    137.2
    
  
  
     677.5    670.4    557.1

Financial Services

   461.4    397.0    372.9

Associates

   52.8    47.5    49.7

Corporate

   7.6    20.2    2.7
    
  
  
     1,199.3    1,135.1    982.4

Discontinued operations

   —      —      100.9
    
  
  
     1,199.3    1,135.1    1,083.3
    
  
  

 

F-19


Table of Contents

CARLISLE HOLDINGS LIMITED

 

Notes to Consolidated Financial Statements

 

Note 4 - Segmental analysis - (continued)

 

Year ended March 31


  

2005

$m


  

2004

$m


  

2003

$m


 

Geographical analysis

                

Net sales

                

United States

   781.6    780.7    788.7  

United Kingdom

   598.4    444.9    350.8  
    
  
  

     1,380.0    1,225.6    1,139.5  
    
  
  

Operating income

                

United States

   4.3    5.2    (2.1 )

United Kingdom

   4.4    4.7    14.2  

Belize

   24.9    25.2    22.5  
    
  
  

     33.6    35.1    34.6  
    
  
  

Total assets

                

United States

   339.6    354.3    311.5  

United Kingdom

   337.9    316.1    245.6  

Belize

   521.8    464.7    425.3  
    
  
  

     1,199.3    1,135.1    982.4  

Discontinued operations

   —      —      100.9  
    
  
  

     1,199.3    1,135.1    1,083.3