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SECURITIES AND EXCHANGE COMMISSION  FORM 20-F o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDEDDECEMBER
31, 2003
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 333 - 12714 LUCITE
INTERNATIONAL
GROUP HOLDINGS
LIMITED  ENGLAND and WALES
(Jurisdiction of incorporation or organisation) QUEENS GATE, 15-17 QUEENS TERRACE, SOUTHAMPTON SO14 3BP
(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:
NONE Securities for which there is a reporting obligation pursuant to Section 15 (d)
of the Act: 10.25% Senior Secured
Notes due 2010 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: 175,029,700 Ordinary Shares of £1 each 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
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  o
 Indicate by check mark which financial statement items the Registrant has elected to follow: Item 17  o
    
    Item 18  x




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TABLE OF CONTENTS PAGEPRESENTATION OF INFORMATION
    
    
    6PART IITEM 1
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    7ITEM 2
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    7ITEM 3
    
    KEY INFORMATION
    
    
    7A.
    
    SELECTED FINANCIAL DATA
    
    
    7B.
    
    CAPITALISATION AND INDEBTEDNESS
    
    
    8C.
    
    REASONS FOR THE OFFER AND USE OF PROCEEDS
    
    
    8D.
    
    RISK FACTORS
    
    
    9ITEM 4
    
    INFORMATION ON THE COMPANY
    
    
    14A.
    
    HISTORY AND DEVELOPMENT OF THE COMPANY
    
    
    14B.
    
    BUSINESS OVERVIEW
    
    
    14C.
    
    ORGANISATIONAL STRUCTURE
    
    
    20D.
    
    PROPERTY, PLANTS AND EQUIPMENT
    
    
    21ITEM 5
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    22A.
    
    OPERATING RESULTS
    
    
    27B.
    
    LIQUIDITY AND CAPITAL RESOURCES
    
    
    33C.
    
    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
    
    
    35D.
    
    TREND INFORMATION
    
    
    36E.
    
    OFF-BALANCE SHEET ARRANGEMENTS
    
    
    36F.
    
    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
    
    
    37G.
    
    SAFE HARBOUR
    
    
    37
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TABLE OF CONTENTS Cont:- PAGEITEM 6
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    37A.
    
    DIRECTORS AND SENIOR MANAGEMENT
    
    
    37B.
    
    COMPENSATION
    
    
    38C.
    
    BOARD PRACTICES
    
    
    38D.
    
    EMPLOYEES
    
    
    40E.
    
    SHARE OWNERSHIP
    
    
    40ITEM 7
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    42A.
    
    MAJOR SHAREHOLDERS
    
    
    42B.
    
    RELATED PARTY TRANSACTIONS
    
    
    42C.
    
    INTERESTS OF EXPERTS AND COUNSEL
    
    
    43ITEM 8
    
    FINANCIAL INFORMATION
    
    
    43A.
    
    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
    
    
    43B.
    
    SIGNIFICANT CHANGES
    
    
    43ITEM 9
    
    THE OFFER AND LISTING
    
    
    43A.
    
    OFFER AND LISTING DETAILS
    
    
    43B.
    
    PLAN OF DISTRIBUTION
    
    
    43C.
    
    MARKETS
    
    
    43D.
    
    SELLING SHAREHOLDERS
    
    
    44E.
    
    DILUTION
    
    
    44F.
    
    EXPENSES OF THE ISSUE
    
    
    44
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TABLE OF CONTENTS Cont:- PAGEITEM 10
    
    ADDITIONAL INFORMATION
    
    
    44A.
    
    SHARE CAPITAL
    
    
    44B.
    
    MEMORANDUM AND ARTICLES OF ASSOCIATION
    
    
    44C.
    
    MATERIAL CONTRACTS
    
    
    45D.
    
    EXCHANGE CONTROLS
    
    
    45E.
    
    TAXATION
    
    
    45F.
    
    DIVIDENDS AND PAYING AGENTS
    
    
    50G.
    
    STATEMENTS BY EXPERTS
    
    
    50H.
    
    DOCUMENTS ON DISPLAY
    
    
    50I.
    
    SUBSIDIARY INFORMATION
    
    
    50ITEM 11
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    50ITEM 12
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    53PART IIITEM 13
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    53ITEM 14
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    53ITEM 15
    
    CONTROLS AND PROCEDURES
    
    
    53ITEM 16
    
    
    
    
    53A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    53B.
    
    CODE OF ETHICS
    
    
    53C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    54D.
    
    EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTESS
    
    
    54E.
    
    PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    54
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TABLE OF CONTENTS Cont:- PAGEPART IIIITEM 17
    
    FINANCIAL STATEMENTS
    
    
    54ITEM 18
    
    FINANCIAL STATEMENTS
    
    
    54ITEM 19
    
    EXHIBITS
    
    
    54Exhibit 12.1Exhibit 12.2
  5




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PRESENTATION OF INFORMATION The consolidated financial statements and the related notes thereto in this
report have been prepared in accordance with UK generally accepted accounting
principles (UK GAAP). UK GAAP differs in certain material respects from US
generally accepted accounting principles (US GAAP). For a discussion of the
significant differences between UK and US accounting principles with respect to
our consolidated financial statements, see Note 26 to the audited financial
statements at Item 18. Unless the context requires otherwise, the terms Lucite International, the
Company, the group, our, us and we refer to Lucite International
Group Holdings Limited and its subsidiaries as a combined entity. Lucite
International Finance plc is the company that issued the notes registered under
the U.S. Securities Act of 1933. It is a wholly-owned subsidiary of Lucite
International Group Holdings Limited and was formed for the purpose of issuing
and selling securities and making the proceeds of those issues available to us.
The term Lucite International Finance refers to the issuer of the notes. We have not presented separate financial statements for Lucite International
Finance plc or Lucite International Investment Limited because management has
determined that this information is not material to holders of the notes. Market information or other statements presented in this report regarding our
position relative to our competition, including market shares and industry
statistics, are based upon internal company surveys; there can be no assurance
as to the accuracy and completeness of this information. Internal company
surveys reflect our best estimates based upon information we have obtained from
customers or from trade or business organisations or associations or other
sources within the industries in which we compete. Our market data has not been
verified by independent sources. The acquisition of a portion
of ICIs interest in Kaohsuing Monomer Co. Ltd
(KMC) was not completed until September 1, 2001. The historical financial
information included under Selected Financial Data (Item 3A) and Operating
and Financial Review and Prospects (Item 5), therefore includes our interest
in KMC during the twelve months ended December 31, 2000 and the eight months
ended August 31, 2001, on an equity accounting basis. On September 1, 2001, the
Company agreed with ICI to acquire the remaining 51% of the shares of the
majority shareholder. As from September 1, 2001 KMC was fully consolidated into
the results and net assets of the group. Forward-Looking Statements This report includes forward-looking statements based on our current
expectations and projections about future events, including:  
    
    our high degree of leverage and significant debt service obligations
as well as future cash flow and earnings;
    
    our sales growth across our principal businesses and our strategy for
controlling costs, growing margins, increasing manufacturing capacity
and production levels and making capital expenditures;
    
    raw material costs or supply arrangements;
    
    our technological and manufacturing assets and our ability to utilize
them to further increase sales and the profitability of our
businesses;
    
    our ability to retain existing and obtain new customers;
    
    our ability to develop new products and technologies successfully;
    
    the highly competitive nature of the acrylics industries;
    
    risks related to environmental costs, liabilities or claims; and
    
    currency fluctuations. These forward-looking statements are subject to a number of risks and
uncertainties, which could cause our actual results to differ materially from
historical results or those anticipated, some of which are beyond our control.
The words believe, expect, anticipate and similar expressions identify
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. 6




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PART I 
 ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS NOT APPLICABLE 
 ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE NOT APPLICABLE 
 ITEM 3 KEY INFORMATION 
 A. SELECTED FINANCIAL DATA The selected historical financial information in the table below has been
classified between predecessor and successor periods. The predecessor periods
represent the financial periods prior to the acquisition of the acrylics
division of ICI and the successor periods represent the financial periods
subsequent to that acquisition. The table below sets forth selected historical combined (predecessor) and
consolidated financial information for Lucite International as of and for each
of the periods indicated. Our financial statements are prepared in accordance
with UK GAAP, which differs in certain significant respects from US GAAP. For a
discussion of the significant differences between UK and US accounting
principles, you should refer to Note 26 to the audited financial statements.
You should read the data below in conjunction with the Operating and Financial
Review and Prospects (Item 5). Predecessor -Combined
    
    Successor  ConsolidatedFor theperiodNine months
    
    October 1,ended
    
    1999 toSeptember
    
    December
    
    
    
    
    
    Year ended30,
    
    31,
    
    
    
    December 31,In Millions
    
    1999
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003Profit and Loss Account Information:Amounts in accordance with UK GAAP:Group turnover
    
    £
    379
    
    
    £
    118
    
    
    £
    560
    
    
    £
    577
    
    
    £
    582
    
    
    £
    694Cost of sales
    
    
    (283
    )
    
    
    (90
    )
    
    
    (433
    )
    
    
    (458
    )
    
    
    (457
    )
    
    
    (532
    )Gross profit
    
    
    96
    
    
    
    28
    
    
    
    127
    
    
    
    119
    
    
    
    125
    
    
    
    162Net operating expenses (a)(b)
    
    
    (88
    )
    
    
    (28
    )
    
    
    (111
    )
    
    
    (101
    )
    
    
    (98
    )
    
    
    (93
    )Share of operating profit from joint venture
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    Group operating profit including joint venture
    
    
    8
    
    
    
    
    
    
    
    18
    
    
    
    20
    
    
    
    27
    
    
    
    69Net interest payable and similar charges
    
    
    (10
    )
    
    
    (8
    )
    
    
    (40
    )
    
    
    (28
    )
    
    
    (29
    )
    
    
    (37
    )Profit/(loss) on ordinary activities after tax
    
    
    (11
    )
    
    
    (8
    )
    
    
    (12
    )
    
    
    (2
    )
    
    
    
    
    
    
    26Equity minority interest
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (3
    )
    
    
    (4
    )Profit/(loss) for the financial year/period
    
    
    (10
    )
    
    
    (8
    )
    
    
    (12
    )
    
    
    (3
    )
    
    
    (3
    )
    
    
    22Amounts in accordance with US GAAP:Profit/ (loss) for the financial year/period
    
    
    (13
    )
    
    
    (16
    )
    
    
    (8
    )
    
    
    (1
    )
    
    
    1
    
    
    
    15Balance Sheet information (at end of period)Amounts in accordance with UK GAAP:Current assets
    
    
    
    
    
    
    181
    
    
    
    180
    
    
    
    185
    
    
    
    182
    
    
    
    212Total assets
    
    
    
    
    
    
    638
    
    
    
    661
    
    
    
    663
    
    
    
    623
    
    
    
    622Creditors due after more than one year
    
    
    
    
    
    
    (214
    )
    
    
    (370
    )
    
    
    (336
    )
    
    
    (330
    )
    
    
    (332
    )Total debt (net of debt issuance costs)
    
    
    
    
    
    
    331
    
    
    
    369
    
    
    
    344
    
    
    
    343
    
    
    
    340Net assets
    
    
    
    
    
    
    171
    
    
    
    156
    
    
    
    168
    
    
    
    142
    
    
    
    148Share capital
    
    
    
    
    
    
    175
    
    
    
    175
    
    
    
    175
    
    
    
    175
    
    
    
    175Amounts in accordance with US GAAP:Shareholders equity
    
    
    
    
    
    
    163
    
    
    
    172
    
    
    
    170
    
    
    
    145
    
    
    
    137Other Financial Information:Amounts in accordance with UK GAAP:Depreciation and amortisation
    
    
    30
    
    
    
    10
    
    
    
    39
    
    
    
    39
    
    
    
    45
    
    
    
    44Capital expenditure and financial investment
    
    
    (10
    )
    
    
    (7
    )
    
    
    (28
    )
    
    
    (26
    )
    
    
    (28
    )
    
    
    (32
    )
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NOTES TO SELECTED FINANCIAL DATA  (a)
    
    Included in net operating expenses under UK GAAP are exceptional
operating expenses. These expenses consist of restructuring, severance and
relocation costs as follows; £5 million for the nine months ended
September 30, 1999; £3 million for the period October 1, 1999 to December
31, 1999; £14 million for the year ended December 31, 2000, £4m for the
year ended December 31, 2001 and £nil for the years ended December 31,
2002 and December 31, 2003. Further details of these exceptional operating
expenses are included in Note 6 to the consolidated financial statements.
Additionally, the £3 million and £9 million of severance and relocation
cost expensed to the UK GAAP profit and loss account for the period
October 1, 1999 to December 31, 1999 and for the year ended December 31,
2000 respectively has been included in the allocation of the costs of the
acquisition of ICI Acrylics as a liability assumed under US GAAP.(b)
    
    Net operating expenses for the nine months ended September 30, 1999
include ICI allocated central management expenses of £3 million and ICI
allocated pension expenses of £3 million. Exchange Rate Information Our reporting currency is the pound sterling. The following table sets forth,
for the periods and dates indicated, information regarding the average daily
rate for pounds sterling, expressed in dollars per £1.00. These rates were not
used to prepare the financial statements included in this annual report. Month
    
    High
    
    LowFebruary 2004
    
    
    1.90
    
    
    
    1.82January 2004
    
    
    1.85
    
    
    
    1.79December 2003
    
    
    1.79
    
    
    
    1.72November 2003
    
    
    1.72
    
    
    
    1.67October 2003
    
    
    1.70
    
    
    
    1.66September 2003
    
    
    1.66
    
    
    
    1.57
 Year ended December 31,
    
    Average2003
    
    $
    1.632002
    
    
    1.502001
    
    
    1.442000
    
    
    1.511999
    
    
    1.61Nine months ended September 30, 1999
    
    $
    1.61Three months ended December 31, 1999
    
    
    1.62
 On March 29, 2004 the exchange rate for pounds sterling, expressed in dollars
per £1.00, was $1.82 per £1.00 
 B. CAPITALISATION AND INDEBTEDNESS NOT APPLICABLE 
 C. REASONS FOR THE OFFER AND USE OF PROCEEDS NOT APPLICABLE 8




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D. RISK FACTORS Risks Relating to Our Capital Structure Substantial leverage  Our substantial debt could adversely affect our
financial health and prevent us from fulfilling our obligations under the
notes. We have a significant amount of debt following the completion of the
acquisition of ICI Acrylics and related transactions. The following chart shows
total debt and shareholders equity as of December 31, 2003. As ofDecember 31,2003Total debt (net of debt issuance costs)
    
    £340 millionDebt excluding notes (net of senior debt issuance costs)
    
    £167 millionShareholders equity
    
    £133 million
 Our substantial debt could have important consequences to holders of the notes.
For example, it could, amongst other things:  
    
    limit our ability to take advantage of significant business opportunities;
    
    make it more difficult for us to satisfy our obligations with respect to the notes;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    limit our ability to fund future working capital, capital expenditures, any future acquisitions, research, development and
technology process costs and other general business requirements;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
    
    place us at a competitive disadvantage compared to our competitors that have less debt. Control by funds managed by Charterhouse Capital Partners LLP (Charterhouse)
 Our principal investors may have interests that conflict with the interests
of holders of the notes and can take actions that prevent or hinder us from
making payments on the notes. In the event of a conflict of interest between holders of our notes and our
principal investors, their actions could affect our ability to meet our payment
obligations. Charterhouse have invested in the equity of Lucite International
Limited, the holding company that owns Lucite International, and ultimately
control the voting stock of all the companies that together conduct our
business. Charterhouse owns 78% of our common stock. This ownership gives Charterhouse
significant elective control over our operations. Furthermore, Charterhouse
has the power to elect all of the directors of our companies, to change their
management, to approve any changes to their documents and to approve any
mergers. Goodwill  A change in the estimated useful life, or a write-off, of goodwill
could negatively affect operating results and net worth. A change in the estimated useful life of goodwill or the write-off of a portion
of goodwill could negatively affect operating results and net worth. At
December 31, 2003, goodwill totalled £78 million in accordance with U.K. GAAP,
compared to U.K. GAAP net assets of £148 million. We have estimated the useful
life associated with positive goodwill to be 20 years. However, subsequent
changes in the acrylics industry, including competition and advances in
technology, may in the future shorten the estimated useful life of goodwill or
result in the write-off of a portion of goodwill. A shortening of the useful
life or a write-off of a portion of goodwill could further decrease our
earnings or increase our net losses in future periods. 9




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Risks Relating to Business Operations The chemicals industry is variable  Changing market demands and prices may
negatively affect our operating margins and impair our cash flow, which in turn
could affect our ability to make payments due under the notes. Volatility in the chemical industry, market supply and demand and prices for
raw materials may negatively impact our operating margins and cash flow. This,
in turn, may impair our ability to make payments due under the notes. Substantially all of our revenue is attributable to sales of methyl
methacrylate (MMA) and MMA-related products, the prices of which have been
historically variable and sensitive to relative changes in supply and demand,
the availability and price of feedstocks and general economic conditions.
Historically, the markets for some of our products have experienced alternating
periods of tight supply, causing prices and margins to increase, followed by
periods of capacity additions, resulting in oversupply and declining prices and
margins. We do not know if prices will remain firm or decrease. In addition, we
do not know if future growth in demand for MMA and MMA-related products will be
sufficient to alleviate any existing or future conditions of excess industry
capacity or that these conditions will not be sustained or further aggravated
by anticipated or unanticipated capacity additions or other events. See the
risk described under the caption  The significant competition in the chemicals
industry, whether through efforts of new and current competitors, or through
consolidation of existing customers, may adversely affect our competitive
position, sales and overall operations. Further, the prices for a large portion of our raw materials are similarly
variable. Our ability to pass on increases in the cost of raw materials to our
customers is, to a large extent, dependent upon market conditions. There may be
periods of time in which we are not able to recover increases in the cost of
raw materials due to weakness in demand or an oversupply of our products. Our relationship with DuPont is critical to our business and if this
relationship were to cease, our cash flow, margins and competitive position
could be materially and adversely affected. DuPont is our largest supplier and our largest customer and we rely on DuPont
for various manufacturing services. If DuPont were to cease to be our supplier
or were to cease sharing site services with us, our cash flow, margins and
competitive position could be materially and adversely affected. DuPont is our only supplier of hydrocyanic acid (HCN) in the United States.
DuPont produces HCN for its own internal use and we are the only unaffiliated
purchaser of its production. Our current HCN supply contract with DuPont
expires in June 2008 with an evergreen clause thereafter unless terminated by
either party. DuPont is also our largest customer, generating approximately 7% of our total
revenues. Several of our U.S. facilities are located within DuPont chemical
complexes and are operated by DuPont under our direction and we share supplies
and services at those sites with DuPont. International operations  We are exposed to economic downturns and local
business risks in several different countries, particularly in the United
States, and they could adversely affect our profitability. We derive substantial revenues from international operations, particularly the
United States. If there is a further economic downturn in the United States
and/or other countries in which we operate, our profitability may be adversely
affected. Further, our subsidiaries have interests in substantial physical
assets in several countries, including England, France, South Africa, Japan,
Mexico, The Netherlands, Taiwan, Thailand and the United States and our new MMA
facility under construction in China. Accordingly, our business is subject to
risks inherent in international operations and we may experience reduced
profitability from these operations. These risks include:  
    
    political and economic conditions;
    
    differences and unexpected changes in regulatory environments;
    
    varying tax regimes; 10




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
    
    exposure to different legal standards, including insolvency regimes; and
    
    difficulties in staffing and managing operations. Currency fluctuations  Our exposure to currency fluctuation risks in many
countries may adversely affect our turnover and operating margins. Because we generate a significant percentage of our revenues and a
substantially lower percentage of our operating expenses in currencies other
than the pound sterling (including the U.S. dollar), fluctuations in the value
of the pound sterling against other currencies have had in the past, and may
have in the future, a material effect on our turnover and operating margins.
Our products are sold in over 100 countries. The results of operations and the
financial position of these subsidiaries are reported in the relevant foreign
currencies and then translated into pounds sterling at the applicable exchange
rates for inclusion in our combined (predecessor) and consolidated financial
statements. The exchange rates between these currencies and the pound sterling
in recent years have fluctuated significantly and may in the future fluctuate
substantially. In addition, because our financial statements are stated in pounds sterling,
the translation effect of these fluctuations have had in the past, and may have
in the future, a material effect on our business, financial condition or
results of operations and may significantly affect the comparability of our
results between financial periods. For additional related disclosure, see Item
11 under the caption Quantitative and Qualitative Disclosures about Market
Risks. Key suppliers  If we are unable to retain or replace our key suppliers,
especially our external HCN suppliers, each of whom is exclusive in a given
region, our results of operations may be negatively affected. We rely on DuPont in the Americas, BASF in Europe and China Petrochemical
Development Corporation in Taiwan, our three main suppliers of HCN, for all of
the HCN that we obtain from external sources. HCN is crucial to our MMA
manufacturing process; there is only one external HCN supplier for each of our
plants, with no ready alternative supplier. If any of these suppliers is unable
to meet its obligations under present supply agreements, we may not be able to
find alternative suppliers. However, we can invest to produce our own HCN and
contract notice periods provide us with some protection to do so. In addition,
some of the raw materials we use may become unavailable within the geographic
area from which we now source our raw materials and there can be no assurance
that we will be able to obtain suitable and cost effective substitutes. Any
interruption of supply or any price increase of HCN or other raw materials
could disrupt production or reduce our operating margins and thus have a
material adverse effect on our business, financial condition or results of
operations. The significant competition in the chemicals industry, whether through efforts
of new and current competitors, or through consolidation of existing customers,
may adversely affect our competitive position, sales and overall operations. The markets for some of our products are highly competitive. We are exposed to
the competitive characteristics of several different geographic markets and
industries. Because we have business operations in the upstream and downstream
markets, we compete and have competed in the downstream market with many of the
customers who purchase from us. Although this has not been a problem in the
past, this relationship creates the potential for conflicting interests and our
competitive relationship with some of our customers may adversely affect our
sales to those customers. In addition, the methacrylate industry may consolidate further in which case we
may lose customers if the customers merge with competing producers and no
longer require our output. In such a situation, if the customers were large
enough, our sales may be materially and adversely affected. Our principal competitors vary from business to business and range from large
international companies, such as Rohm & Haas, Degussa-Hüels AG (including Rohm
GmbH) and AtoFina, to a large number of smaller regional companies of varying
sizes. 11




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Continued technological innovation and the successful commercial introduction
of products are important for our future growth and our failure in these areas
could negatively impact our profit margins and competitive position. We will have to continue to identify, develop and market innovative products on
a timely basis to replace existing products in order to maintain our profit
margins and our competitive position. All of our businesses experience periodic
technological change and ongoing product improvements and obsolescence of
existing products. Manufacturers periodically introduce new generations of
products or require new technological capacity to develop customised products.
In the past we have benefited from our ability to operate at the forefront of
certain markets and our future growth will depend on our continued ability to
gauge the direction of the commercial and technological progress in all key
markets and upon our ability to successfully develop, manufacture and market
products in these changing markets. Our future growth will depend on our ability to meet the technological and
production requirements involved in producing large quantities of high-purity
chemicals and complex chemical intermediates. For example, we currently use the
acetone cyanohydrin (ACH) process to produce MMA, which may or may not be
more cost-effective than competing processes, such as the isobutylene/tertiary
butyl alcohol process, depending on raw material costs. We may fail in
developing new products and/or technology or in gaining acceptance of these
products by our customers. If we fail to keep pace with the evolving
technological innovations in our markets, then our business, financial
condition and results of operations may be materially and adversely affected. The failure of our trademarks, patents and confidentiality agreements to
protect our intellectual property could adversely affect our business. The failure of our patents, trademarks or confidentiality agreements to protect
our processes, apparatuses, technology, trade secrets or proprietary know-how
could lead to increased competition and thus have a material adverse effect on
our business, financial condition or results of operations. Proprietary
protection of our processes, apparatuses and other technology is important to
our business. We rely upon unpatented proprietary know-how and continuing
technological innovation and other trade secrets to develop and maintain our
competitive position. While it is our policy to enter into confidentiality
agreements with our employees and third parties to protect our intellectual
property, there can be no assurances that our confidentiality agreements will
not be breached, that they will provide meaningful protection for our trade
secrets or proprietary know-how, or that adequate remedies will be available in
the event of an unauthorised use or disclosure of these trade secrets and
know-how. In addition, there can be no assurances that others will not obtain
knowledge of these trade secrets through independent development or other
access by legal means. Our actions to protect our proprietary rights may be insufficient to prevent
others from developing similar products to ours. In addition, the laws of many
foreign countries do not protect our intellectual property rights to the same
extent as the laws of the United States or United Kingdom. Environmental matters  We will have ongoing costs and may have additional
costs, obligations and liabilities. The chemicals business is highly regulated in many countries. Increasingly
stringent regulations govern our manufacturing processes, wastes and emissions
in all of the jurisdictions in which we do business and will continue to
require material ongoing costs. Given the nature of our business, violations of
environmental laws may result in substantial fines, penalties, damages or other
costs, restrictions or civil or criminal sanctions imposed on our operating
activities. In addition, potentially significant expenditures could be
necessary in order to comply with existing or future environmental laws. For
additional related disclosure, see Item 4 under the caption Information on the
Company  Business Overview and Item 5 under the caption Operating and
Financial Review and Prospects. Under some environmental laws, we may be liable for the costs of investigating
and cleaning up environmental contamination on or from our properties or at
off-site locations where, for example, we disposed of or arranged for the
disposal or treatment of hazardous wastes. We are aware that there is or may be
soil or groundwater contamination at some of our facilities resulting from past
operations at these or neighbouring facilities. We may need to remediate soil
and groundwater contaminated with hazardous substances to ensure that they pose
no unacceptable risk to human health and the environment. The acquisition
agreement relating to the acquisition of ICI Acrylics provides for
indemnification of Lucite International Investment Limited by ICI and 12




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specified affiliated companies for some of these environmental liabilities,
costs, and other matters, provided that various requirements and procedures
specified in the acquisition agreement are satisfied. The extent of the
indemnification depends on the nature of the matter being indemnified, the time
from the closing of the acquisition at which the indemnification claim is made,
and other considerations and may be subject to certain deductibles and maximum
amounts, such as an aggregate deductible of £1 million and an aggregate cap of
£94 million, both of which apply to certain claims that would otherwise be
indemnifiable. The indemnity covers historical environmental claims for ten
years from the date of the acquisition provided that notice of a potential
claim is given within that ten-year period. Our costs for any environmental
liabilities may be material and our indemnity from ICI might not sufficiently
cover those liabilities. For additional related disclosure, see Item 4 under
the caption Information on the Company Business OverviewEnvironmental
Regulations. Our operations are subject to hazards, which could result in significant
liability to us. We are not fully insured against all potential hazards incident to our business
and the occurrence of any of these events could result in significant liability
to us. Our operations are subject to the usual hazards associated with chemical
manufacturing and the related storage and transportation of feedstocks,
products and wastes. These hazards can cause personal injury and loss of life,
severe damage to or destruction of property and equipment and environmental
damage, and may result in suspension of operations and the imposition of civil
and criminal liabilities. These hazards include:  
    
    explosions;
    
    fires;
    
    inclement weather;
    
    natural disasters including earthquakes;
    
    mechanical failure;
    
    unscheduled downtime;
    
    transportation interruptions;
    
    remediation; and
    
    chemical spills, discharges or releases of toxic or hazardous
substances or gases and other environmental risks. We may face capacity constraints that would make us unable to meet increased
product demands resulting from our growth and, consequently, our revenues and
profits may suffer. Our future growth and financial performance are dependent, in part, on our
ability to increase our production capacity. During 2003 we have undertaken an
investment to construct and operate a new MMA facility in China producing 100
kilotonnes of MMA a year (see Item 4A History and Development of the Company);
this facility is expected to be on-stream by mid-2005 although there is no
guarantee that the facility will be on-stream and operating to capacity by
mid-2005. We are also currently looking at site options for a new production
facility that would use our newly developed Alpha technology although this may
not be in place in the near term. In addition we also have ongoing plans to
expand the total production capacity of our existing plants through
de-bottlenecking and modernising production technology but some of these
capacity increases will not be in place in the near term. We may not be able to
complete our planned capacity expansion at that time or at all, which could
cause our revenues and profits to suffer. Insurance cover  changes in the insurance market have resulted in the risk
borne by the group increasing. We insure our plant, equipment and other assets for property damage in the
amount of approximately 1.3 billion with an insurance policy, which we
believe to be in accordance with customary industry practices, including
deductibles and coverage amounts. We also carry a business interruption policy
in the amount of 658 million for specified events for up to 18 months (24
months for Beaumont and Memphis). In addition, we 13




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carry third party liability insurance. We remain subject to significant
increased coverage excesses (deductibles) and additional exclusions for risks
such as terrorism and earthquake loss. 
 ITEM 4 INFORMATION ON THE COMPANY 
 A. HISTORY AND DEVELOPMENT OF THE COMPANY Lucite International Group Holdings Limited, known commercially as Lucite
International, was incorporated and registered in England and Wales on August
23, 1999 as a private limited company. Lucite International Finance plc, the
issuer of the notes, is a public limited company incorporated and registered in
England and Wales. It was incorporated on August 24, 1999. During 2003 Lucite International Holdings Limited, a guarantor subsidiary of
Lucite International Group Holdings Limited invested $8 million (£5 million)
into Lucite International China Holdings Limited a company registered in the
UK. Lucite International China Holdings Limited has invested these proceeds
into a wholly owned foreign entity established in China for the purposes of
constructing and operating an MMA facility in China valued at approximately
$100 million. The $8 million was funded from part of the proceeds of an issue
of 50 million 101⁄4% Senior Notes due in 2010 under an indenture dated
June 25, 2003. A further $8 million (£5 million) investment was made in
December 2003 by Lucite International Limited (the parent company of Lucite
International Group Holdings Limited). The remainder of the equity investment
($23 million) will be made during 2004 and 2005 by Lucite International
Holdings Limited, which will result in it holding 80% of the equity with the
other 20% held by Lucite International Limited. The balance of the funding for
the project will come from loans issued by a leading Chinese bank. The registered offices of both companies are located at Queens Gate, 15-17
Queens Terrace, Southampton S014 3BP, United Kingdom and our telephone number
is +44238024-8150. Our agent in the United States is Lucite International,
Inc., which is located at The Lucite® Centre, 7275 Goodlett Farms Parkway,
Cordova, Tennessee, 38018, USA. 
 B. BUSINESS OVERVIEW We are the leading global producer and seller of methacrylate monomers the most
significant of which is MMA, the principal building block of Acrylic materials,
with approximately 25% of the world acrylic monomer market, by volume. We
classify this market as our upstream business. We also have leading positions
in producing and selling acrylic-based sheet materials, polymers, resins and
composites with leading brands such as Perspex® and Lucite®. We classify these
markets as our downstream businesses. We are the only company in the
methacrylates business to have production, research, marketing and selling
facilities in the three principal acrylic markets: the Americas, Europe and
Asia. A network of 17 manufacturing facilities (including the new MMA facility
currently under construction in China), which are located in ten countries
support our upstream and downstream businesses. In 2003, our upstream business
had £418 million in external sales (2002: £308 million) and our downstream
business had £276 million in external sales (2002: £274 million), representing
60% and 40% of our total sales respectively (2002: 54% and 46% respectively).
For additional disclosure regarding our sales, including a description of
revenues in each of our main geographic markets, please see Note 3 to the
financial statements of Lucite International Group Holdings Limited
accompanying this report. Products Upstream Business The principal products of our upstream business are methyl methacrylates, or
MMA, and speciality methacrylates (SpMAs). Approximately 78% of external
sales by our upstream business are attributable to MMA. We also produce a
limited range of high-value SpMAs, which impart specific high performance
properties to its end products, such as gloss and adhesion. We also sell liquid
sodium cyanide mainly in the United Kingdom, which is used to produce
detergents and as an ingredient in pharmaceuticals and agrochemicals. 14




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
    
    MMA.We are the largest producer of MMA in the world.MMA is
produced in liquid form and is the main building block of acrylic
materials. Its commercial value derives from its ability to form
resins and polymers with excellent transparency, colourability,
strength, weatherability and recyclability. MMA in liquid form is used
in a wide range of applications from paints and coatings to lubricants
and textiles. We sell MMA to third party manufacturers and we also
utilize it in our own downstream business. In 2003, we used
approximately 22% of our MMA produced in our own downstream
production.
    
    SpMA.We have a leading position in the SpMAs market in the sectors in
which we operate.SpMAs are usually manufactured by chemically
modifying MMA to achieve specific desirable performance
characteristics in their end uses. The majority of our SpMA production
is used in the surface coating and automotive industry with the
balance being used in the lubricants, inks and adhesives industries. Downstream Business Our downstream business uses the MMA we manufacture to produce and sell
methacrylate-based polymers, resins, sheet and composites in thousands of
variations. Our production knowledge and expertise allows us to manufacture products with a
large variety of aesthetic effects and functional properties for different
customers, markets and applications. Our main downstream product categories are the following:  
    
    Polymers:Polymers consist principally of MMA and are used to provide
clarity, transparency, colourability, impact resistance and
recyclability in end products. Although we focus on higher margin
applications, such as architectural applications, films and optics, we
also supply most of the key application segments, including
automotive, construction, lighting, extrusion and housewares.
    
    Resins:Resins are composed of MMA, SpMAs and other additives to
provide weatherability, formability, gloss, adhesion and toughness in
end uses. Resins are produced in a variety of liquid and solid
formats, including beads. We manufacture only bead resins. In 2003,
we were one of the leading producers of bead resins. We supply most of
the key product areas, including marine and container coatings, inks,
adhesives and electronics.
    
    Acrylic Sheet:Acrylic sheets characteristics of optical
transparency, colour, impact strength and resistance to weathering
make it suitable for a wide range of applications including glazing,
do-it-yourself, transportation, acoustics and lighting. The main
variants for customising acrylic sheet are size, thickness, colour and
surface effects. In baths, kitchens, and spas, we have a leading
global position, with high-quality customers and premier brands in
this market. We invented the acrylic bath concept in the early 1950s
and continue to be the leading designer and innovator of new effects
and functions.
    
    Composites:Composites are manufactured from a selection of MMA,
polymers, aluminium trihydride, quartz and silica. We sell composites
in the form of a liquid dispersion which can then be moulded and cured
at high temperatures for durability and desired aesthetic effects. We
have also developed and taken to market a new cold cure process which
allows us to cure at much lower temperatures, enabling us to compete
with other materials as customers find the process of curing to be
easier and lower cost. We have a leading position in the kitchen sink
market in Europe, and in the bath and vanity basin market in Japan. Many of our downstream products are sold under brand names and trademarks that
are well known globally. Our best-known brands and trademarks include:  
    
    Lucite®, used especially in the bath and spa market. Lucite® was established more than 50 years ago by DuPont and enjoys
particularly high brand recognition in the United States.
    
    Perspex®, a long-established European brand used for signs and corporate imaging.
    
    Lucite® TufCoat® used in architectural capping applications such as sidings for house construction, windows and doors.
    
    Diakon®, a polymer primarily used in Europe in the automotive and appliance industries. 15




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
    
    UltraQuartz®, a new brand that we believe has growth potential in the composites-based kitchen sink market.
    
    Elvacite®, a well-recognised brand in the bead resins industry.
    
    Colacryl, used in dental prostheses and bone cement, significantly that used
in hip replacement surgery. Customers, Sales, Marketing and Distribution Our major customers typically purchase MMA from us under multi-year contracts,
with prices reset periodically based on general market conditions including raw
material prices. Furthermore, most of these contracts grant us the right to
sell a minimum percentage of the customers MMA requirements. Pricing for MMA
is generally related to the market price for acetone and other raw materials as
well as to demand. Customers generally negotiate on the basis of volume
discounts, contract length and global reach. Our customers include some of the largest paints and resins producers in the
world, such as Dupont, Akzo Nobel, Avecia, Rohm and Haas and ICI; LCD flat
panel screen manufacturers such as Chi Mei Optoelectronics; major manufacturers
of kitchen, bath and spa products, such as American Standard; and sheet
producers such as Plaskolite and Barlo. Lucite International has long-standing relationships with many customers across
a wide variety of acrylic end markets. Customers purchase most downstream
products from us with individual customer specifications. Pricing for
downstream products is generally related to demand for the end-use
applications, quality, service innovation and brand needs. For major markets and key product lines, we sell through our global network of
sales and marketing personnel. For our general-purpose sheet, polymer and resin
products and, including sales into developing markets and regions, we often use
independent distributors. Distributors typically manage a range of sheet
products and provide a service, such as selling our products in smaller
quantities and cutting acrylic sheet, to the customers particular
requirements. Our sales force is organised along upstream and downstream
product categories. Manufacturing Process We currently produce MMA using the acetone cyanohydrin three-step process,
commonly referred to in the chemicals industry as the ACH process, which is
used for most of the production in the Americas and Europe. The primary
alternative methacrylate production is the C4 process, a minimum two-step
oxidation of a C4 raw material, favoured by Japanese producers. In 2003, we
produced approximately 575 kilotonnes of MMA, which is an increase of 15% on
last year. We have found that our process of producing MMA is cost-effective, relative to
other processes, especially when low-cost acetone and hydrocyanic acid are
available locally in sufficient quantities. Our method has advantages over the
C4 method in that it achieves greater economies of scale to efficiently
compete. We have patents to produce MMA using methods other than our three-step process:  
    
    We have developed a two-stage process to synthesise MMA from
ethylene, methanol and carbon monoxide, which we refer to as our
Alpha technology and which will enable us to produce MMA at
attractive cost levels and without scale limitation. The pilot of this
technology was commenced in 2001 and was completed at the end of 2002.
We are currently in the process of formalising the design basis and
evaluating production sites to determine the optimum location for the
first commercial Alpha plant.
    
    We purchased patents for an MMA process, which we refer to as our
Beta technology, from Shell in 1997. Applying this process, we have
the ability to convert methyl acetylene propadiene into MMA in a
one-step process. With this technology, we could produce MMA in
quantities from 40 to 50 kilotonnes per year at attractive cost levels We use the continuous and batch processes to manufacture polymers, the batch
process to manufacture resins and continuous cast, cell cast and extruded
processes to manufacture acrylic and other sheet. 16




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Raw Materials and Suppliers We purchase goods and services from a wide range of suppliers. In 2003, the top
ten suppliers accounted for approximately 45% of supplies by value
(2002: 46%).
Prices of each of our raw materials depend on different factors. The pricing of
methanol is very competitive, because it is readily available from a number of
suppliers. The price of HCN has been the least susceptible to fluctuations in
economic conditions, as it is determined by long-term contracts with each of
our three external suppliers. However, the price may be affected by natural gas
prices which have been more volatile over the last few years. The price of
acetone is closely linked to the demand for phenol, as acetone is a by-product
of phenol production. Intellectual Property Rights Proprietary protection of our processes, apparatuses and other technology and
inventions is important to our business. We own approximately 80 patent
families and we have approximately 900 individual granted or pending patent
applications. More than 70 products have been commercialised since 2000. We
also rely upon un-patented proprietary know-how and continuing technological
innovation and other trade secrets to develop and maintain our competitive
position. We believe that branding in the downstream businesses is important and we
currently own over 30 active brands. Our key brands and trademarks include:
Lucite®, Perspex®, Elvacite®, Colacryl®, Diakon®, Asterite®, Prismex® (which we
market under license) and ModenGlas®, for which we have extensive geographical
trademark rights. Competition The MMA business is characterised by a small number of major competitors, most
of whose MMA production is for internal use. We believe that we have the
largest market share and none of our competitors presently has a comparable MMA
production capacity or geographic spread. Our competitors include Rohm & Haas,
Degussa-Hüls AG, Mitsubishi Rayon Co., Ltd., Asahi Kasei, Sumitomo and Atofina.
Moreover, there are only a few volume SpMAs producers, including Rohm & Haas,
Degussa and Mitsubishi Rayon Co., Ltd. The primary factors for competition in
the MMA and SpMAs markets are price, quality, service and reliability of
supply. Competition in the downstream market is fragmented and there are many
non-vertically integrated manufacturers. We compete based on service, product
innovation and price. Relationship with DuPont Since 1993, when our predecessor acquired DuPonts US acrylics business,
including an MMA plant in Beaumont, Texas, an MMA plant and an acrylic
continuous cast sheet plant in Memphis, Tennessee, and an MAA and SpMA plant in
Belle, West Virginia, DuPont has been a major customer of and supplier to our
business. DuPont supplies 100% of our requirement for HCN in the manufacture of
ACH and MMA at our Memphis and Beaumont facilities and 100% of our requirement
for ACH at our Belle facility. All of the HCN we purchase from DuPont is
manufactured at their Memphis and Belle facilities. Our supply contracts with
DuPont extend through June 2008. In addition, DuPont supplies methanol, natural gas and other goods and services
to our Beaumont and Memphis facilities. All of the facilities acquired from
DuPont remain located within shared chemicals complexes. Our facilities rely on
services provided by DuPont pursuant to service agreements. Supplies and
services, which are integral to the complex, are contracted until June 30, 2008
with evergreen clauses thereafter unless terminated by either party.These
supplies and services include utilities, steam, natural gas, nitrogen, plant
protection, water, fire protection and railroads. In addition, DuPont operates
some of our facilities on our behalf, providing all site services and labour.
We believe that we have good relationships with DuPont and currently intend to
continue all of our existing arrangements with DuPont. We supply a range of products, including MMA, methacrylic acid, SpMAs and
resins to DuPont in the United States.Although our contract expired in June
2003 we continue to provide products to DuPont under a letter of intent with
regard to a new three-year contract which we expect to finalise during 2004. 17




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Seasonality Taken as a whole there are no material seasonal factors in business
performance. Environmental Regulations National and international laws regulate the production and marketing of
chemical substances, however every country has its own legal procedures for
registration and import. Laws and regulations in the European Union, the United
States and Japan are most significant to our business. This includes the
European inventory of existing commercial chemical substances, the European
list of notified chemical substances, the U.S. Toxic Substances Control Act and
the chemical list of the Japanese Ministry of Trade and Industry. In the ordinary course of business, we are subject to continual environmental
inspections and monitoring by governmental enforcement authorities. We may
incur substantial costs, including fines, damages and criminal or civil
sanctions, for actual or alleged violations arising under applicable
environmental laws. In addition, our production facilities require operating
permits that are subject to renewal, modification and, in some circumstances,
revocation. Violations of permit requirements can also result in restrictions
or prohibitions on plant operations, substantial fines and civil or criminal
sanctions. Our operations involve the generation, handling, transportation, use
and disposal of numerous hazardous substances. Changes in regulations regarding
the generation, handling, transportation, use and disposal of hazardous
substances could inhibit or interrupt our operations and thus have a negative
impact on our results of operations. From time to time, these operations may
result in violations under environmental laws, including spills or other
releases of hazardous substances to the environment. We could incur material
costs to address catastrophic incidents that may occur as well as to implement
measures to prevent such incidents. In addition, catastrophic incidents could
result in public outrage, which may have a significant negative impact on our
reputation and results of operations. Adverse reactions may be significantly
influenced by public perception of the issues, irrespective of whether actual
or potential significant harm is caused to human health or the environment. Under some environmental laws, we may be jointly and severally liable for the
costs of environmental contamination on or from our properties and at off-site
locations where we dispose or arrange for disposal or treatment of hazardous
wastes. For example, in the United States, under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and similar
state laws, a current owner or operator of real property may be liable for
these costs regardless of whether the owner or operator owned or operated the
real property at the time of the release of the hazardous substances and
regardless of whether the release or disposal was in compliance with law at the
time it occurred. In addition, under the Resource Conservation and Recovery Act
of 1976 and similar state laws, as the holder of permits to treat or store
hazardous wastes, we may, under some circumstances, be required to remediate
contamination at our properties regardless of when the contamination occurred.
Similar laws are being developed or are in effect to varying degrees in other
parts of the world, most notably in the European Union. We cannot assess any
third-party claims that may arise under these laws at the present time. We may also incur costs for capital improvements and general compliance under
applicable environmental laws, including costs to acquire, maintain and repair
pollution control equipment. Capital expenditures are planned, for example,
under national legislation implementing the European Union Directive on
Integrated Pollution Prevention and Control (IPPC). Under this directive, the
majority of our plants will, over the next few years, be required to obtain
IPPC authorisations which will regulate air and water discharges, waste
management and other matters relating to the impact of operations on the
environment, and to conduct site assessments to evaluate environmental
conditions. Although the implementing legislation in most member states is not
yet in effect, it is likely that additional expenditures may be necessary in
some cases to meet the requirements of IPPC authorisations. Capital expenditures and costs and operating expenses relating to environmental
matters will be subject to evolving regulatory requirements and will depend on
the timing of the promulgation and enforcement of specific standards that
impose requirements on our operations. Therefore, we cannot assure you that
material capital expenditures, costs or operating expenses beyond those
currently anticipated will not be required under applicable environmental laws. Our operations are experienced and effective in containing and handling a range
of chemicals that can have serious impacts on human health and the environment
including hydrocyanic acid, sodium cyanide and ammonia. We are aware that there
is or may be soil or groundwater contamination at some of our facilities, 18




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former facilities, and offsite locations resulting from past operations at
these or neighbouring facilities. We may need to remediate soil and groundwater
contaminated with hazardous substances to protect against unacceptable risk to
human health and the environment. We may incur significant costs for any
investigation and remediation. Based on available information, we believe that
the costs we may need to incur to investigate and remediate any contamination
will not have a material adverse effect on our business, financial condition or
results of operations. We have indemnification rights, including indemnities from ICI, for the
facilities transferred in connection with the acquisition and related
transactions. We discuss these rights under Risk Factors  Environmental
matters. We cannot give any assurance that these indemnities will fully cover
the costs of any investigation and remediation that may be required and that we
will not be required to bear some or all of these costs or that these costs
will not be material. Legal Matters On March 25, 2003, the Company received notification that the European
Commission is investigating Lucite International Limited and Lucite
International UK Limited with regard to possible participation in
anti-competitive practices contrary to Article 81 of the Treaty of Rome. Such
investigation is a preliminary step and does not imply that the Company has
engaged in any unlawful activities relating to anti-competitive practices.
There is no strict deadline to complete anti-competitive inquiries and their
duration is determined by the complexity of each case, the exercise of the
rights of defence and by the Commissions procedures. Lucite International
Limited is co-operating fully with the European Commission on these matters.
It is not possible at this stage to estimate what the outcome of this
investigation will be. We are a party to various proceedings instituted by governmental authorities
and others arising under provisions of applicable laws, including environmental
laws. We do not believe that the outcome of any of these matters will have a
material adverse effect on our financial condition or results of operations. 19




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C. ORGANISATIONAL STRUCTURE (ORGANISATIONAL STRUCTURE CHART) A full listing of significant subsidiaries is provided in Note 28 to the
financial statements. 20




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D. PROPERTY, PLANTS AND EQUIPMENT Properties and Manufacturing Facilities We produce our upstream and downstream products at 16 plants in 9 countries
(excluding the new MMA facility in China which is currently under
construction). The following chart provides information regarding the
production capacities of our plants (assuming no shutdowns during the year)
and, unless otherwise noted, we own the plant site and facilities. NominalUpstream Capacity
    
    NominalDownstreamCapacitySite
    
    Products
    
    (in kilotonnes per year)
    
    (in kilotonnes peryear)Beaumont TX (US)
    
    MMA
    
    
    146
    
    
    
    Belle WV (US) (a) (d)
    
    SpMA
    
    
    57
    
    
    
    Billingham (UK)
    
    MMA
    
    
    204
    
    
    
    SpMA
    
    
    41
    
    
    
    Liquid sodium cyanide
    
    
    30
    
    
    
    Polymer
    
    
    
    
    
    
    3Clairvaux (France)
    
    Cast acrylic sheet
    
    
    
    
    
    
    2Darwen (UK)
    
    Cast acrylic sheet
    
    
    
    
    
    
    31Composites
    
    
    
    
    
    
    5Ibaraki (Japan)
    
    Composites
    
    
    
    
    
    
    7Kaohsiung (Taiwan) (b)
    
    MMA
    
    
    96
    
    
    
    Memphis TN (US)
    
    MMA
    
    
    161
    
    
    
    Cast acrylic sheet
    
    
    
    
    
    
    19Monterrey (Mexico) (d)
    
    Extruded acrylic sheet
    
    
    
    
    
    
    6Newton Aycliffe (UK)
    
    Polymers and resins
    
    
    
    
    
    
    3Olive Branch MS (US)
    
    Extruded acrylic sheet
    
    
    
    
    
    
    39Polymers and resins
    
    
    
    
    
    
    39Parkersburg WV (US) (a) (d)
    
    Polymers and resins
    
    
    
    
    
    
    13Presidents Island, Memphis, TN (US)
    
    Polymers and resins
    
    
    
    
    
    
    11Umbogintwini (South Africa)
    
    Cast acrylic sheet
    
    
    
    
    
    
    6Extruded acrylic sheet
    
    
    
    
    
    
    1Rozenburg (Netherlands) (e)
    
    Polymers and resins
    
    
    
    
    
    
    20Bangkok Thailand (c)
    
    Cast acrylic sheet
    
    
    
    
    
    
    8Extruded acrylic sheet
    
    
    
    
    
    
    7Total
    
    
    
    
    735
    
    
    
    220
  (a)
    
    DuPont currently operates these facilities on our behalf pursuant to a
service agreement.(b)
    
    We own approximately 60% and another shareholder owns the remaining 40%
of this facility.(c)
    
    We own 59% of this facility and East Asiatic (Thailand) Co Ltd owns
19.5%.(d)
    
    Plant site and facilities leased by Lucite International.(e)
    
    Site services provided by Huntsman. In late 2003 we invested in a newly formed subsidiary in China. This subsidiary
will be a joint venture between Lucite International Limited and Lucite
International Holdings Limited and will construct and operate a facility
producing MMA for the Chinese market. The facilitys initial capacity will be
approximately 100 kilotonnes per year, compared to our global capacity of
approximately 607 kilotonnes as of December 31, 2003. Our total equity
investment in the facility is expected to be approximately $39 million in cash.
We will also licence certain technology to the joint venture, for which Lucite
International UK Limited (an operating subsidiary of Lucite International Group
Holdings Limited) will receive cash payments totalling approximately $8 million
less 10% withholding tax. These cash payments will be used to repay amounts
previously drawn under our revolving senior credit facility resulting in a net
investment of $32 million in the MMA facility in China. The facility will be
constructed within the Caojing Chemical Industrial park in close proximity to
the SECCO plant (a joint venture between BP and Shanghai Petrochemical
Corporation), which will produce HCN required as feedstock for the facility. We
expect the facility to commence operations in mid-2005. The China investment
will consolidate what we believe to be our market-leading position in that
country by using proven technology to create mainland Chinas first world-scale
MMA plant. The opportunity to invest alongside SECCO will give us a first mover
advantage in the fast growing Chinese MMA market and an ability to strengthen
and expand key customer alliances. 21




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##### Table of Contents



We believe that our plants and facilities are maintained in good condition
and are adequate for our current needs. 
 ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS Overview We have two core operating segments our upstream segment and our downstream
segment. Upstream The upstream segment produces both MMA and SpMAs (monomers), which are the
chemical building blocks for the production of acrylics. These products are
currently manufactured at facilities located in the Americas, Europe and Asia. Approximately 20  25% of our upstream production is used internally in our
downstream business while approximately 75   80% is sold into the merchant
market to manufacturers of paints, coatings, adhesives, sealants, inks and
other acrylic products. The key drivers of the upstream segment include the following:  
    
    the purchase prices of the key raw materials;
    
    ability to pass on raw material price increases through to MMA prices;
    
    downstream demand for monomers from both our own downstream operations
and our external customer base;
    
    industry supply and demand; and
    
    the relative cost-competitiveness of our manufacturing facilities. Raw materials have, during the past five years, accounted for approximately 70
 80% of the cost of monomer production. Acetone constitutes the principal raw
material used in the production of MMA and has been an important factor in
setting our MMA selling prices. Natural gas and ammonia are also important
feedstocks to the production of the intermediate HCN. An increase to key raw material prices such as acetone, natural gas, ammonia
and to a lesser extent methanol can have a large impact on our profitability.
These raw materials during the year ended December 31, 2003 increased to
unprecedented levels, see Item 5A, Operating Results, for further comment.
Historically, we have been able to pass on to our customers most of the changes
in monomer raw material prices although typically there has been a three to six
month lag. Through 2003 material customer contracts were renegotiated in the
United States, which will allow the business to be more responsive to changes
in the supply and demand balance and movements in raw material prices. Downstream demand for monomers from both our own downstream operations and our
external customer base is driven by consumer demand for end-use products and
linked to improvements in living standards. This demand will vary reflecting
the different economic conditions within regions. In times when demand is strong, as it was during 2003, supply becomes tight.
Most major production facilities have already been de-bottlenecked in order to
release additional capacity so spare capacity is not readily available.
Barriers to entry into the market exist due to technology, the lead time to
construct a cost effective manufacturing facility, availability of feedstock
and access to customers. In the year ended December 31, 2003 our business
performance was enhanced compared to the year ended December 31, 2002 due to an
excellent operating performance by the manufacturing facilities and removal of
supply constraints that were experienced during 2002 despite high market prices
of feedstocks. During 2003 we have undertaken an investment to construct and operate a new MMA
facility in China producing 100 kilotonnes of MMA a year; this facility is
expected to be onstream by mid 2005. We are unaware of any other similar
investments in China by competitors and are aware of only two other potential 22




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##### Table of Contents



capacity increases amounting to approximately an additional 185 kilotonnes due
to come on-stream between 2004 and 2008. For these reasons and with year on
year growth it is expected that the current demand position will be sustainable
at least for the medium term. We have found that our process of producing MMA using the ACH process is
cost-effective relative to other processes and achieves greater economies of
scale than the C4 method favoured by Japanese producers. We have also developed
a new patented two-stage process to synthesise MMA from ethylene, methanol and
carbon monoxide which we refer to as our Alpha technology and which will
enable us to produce MMA at attractive cost levels and without scale
limitation. We are currently evaluating a number of production sites to
determine the optimum location for the first commercial Alpha plant. Downstream The downstream segment produces methacrylate materials in various forms, which
include acrylic sheet in a variety of forms, polymers, resins and composites.
These products are manufactured at facilities located in the Americas, Europe
and Asia and are sold in over 100 countries. During 2003 downstream product prices have increased, reflecting higher monomer
(upstream) prices, but competitive price pressure within the sector has
resulted in some margin pressure. Key drivers for the downstream business include:  
    
    economic growth rates because changes in demand for our downstream
products generally follow changes in gross domestic product and
improving living standards. End uses for methacrylate materials span a
wide range of industry sectors including transportation and automotive,
architecture, surface coatings and household appliances and fittings;
    
    demand and margins may vary due to the different economic
conditions in different geographic regions;
    
    the selling price of upstream materials;
    
    branding and product mix; and
    
    the competitive nature of the different market sectors as this will
determine the ability to pass on higher raw material costs within the
selling price. Methacrylate monomers represent approximately 75% to 85% of the cost of raw
materials used in the production of downstream products during 2003; this is an
increase from approximately 65% to 75% during 2002 and 2001 as a result of
higher average MMA prices during 2003. An increase to the selling price of methacrylate monomers can be passed on to
customers depending upon the relative competitiveness of the different market
sectors. In the higher margin or less competitive markets it is easier to pass
on the higher raw material costs than it is in the lower margin or more
competitive markets. Some margin deterioration may therefore occur in these
market sectors when raw material prices are increasing significantly. Product mix is also a key driver of profitability due to the diversity of the
end uses for our product range from medical applications and kitchens,
bathrooms and spa products to retail signage and LCD screens. Each market
sector can vary significantly in its profitability depending upon the end use
of the product. As demand follows changes in gross domestic product and living
standards, the relative mix of products sold will also change to meet this
demand. In times when living standards are improving, the mix will reflect more
of the higher margin products such as kitchen, bathroom and spa products
arising from new house building and home improvement or acrylic resin used in
dental and medical sectors or acrylic polymer used in the architectural
capstock market. This change in product mix will improve the profitability of
the downstream sector. Our strong research and development activities support our innovation and keep
branding a strong feature of our downstream business. Rapid and timely
market-led innovation is vital to sustaining and growing existing branded
market positions as well as developing new brands in new markets. New business
development is 23




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##### Table of Contents



important in order to extend the reach of acrylic material into new markets and
applications and thus increase further growth opportunities. Ongoing cost savings and margin enhancing projects: In addition to specific reorganisation programmes undertaken in Europe and the
United States we have a number of ongoing cost saving and margin enhancing
projects including;  
    
    volume discounts on raw material purchases;
    
    continued focus on higher margin and high value-added specialty products;
    
    efforts to optimise purchased services;
    
    creation of a new subsidiary, Perspex Distribution Limited, established to promote the Perspex brand and increase
customer choice in the United Kingdom; and
    
    More efficient overhaul programmes: for example our MMA facility in Memphis moved from a two to three year overhaul
frequency representing a productivity improvement compared to past periods. Currency Impacts Our operations are conducted in a large number of countries. The results of
operations and the financial position of these operations are reported in the
relevant foreign currencies and then translated into pounds sterling at the
applicable exchange rates for inclusion in our financial statements. The
exchange rates between these currencies and the pound sterling in recent years
have fluctuated significantly and may in the future fluctuate substantially;
this is particularly the case in 2003 for the translation of our
dollar-denominated operations. We generate a significant percentage of our
revenues and a substantially lower percentage of our operating expenses in
currencies other than the pound sterling and so fluctuations in the value of
the pound sterling against other currencies have had in the past, and may have
in the future, a material effect on our turnover and operating margins as
reported in pounds sterling. (See Item 5A, Operating Results, for details of
the currency impact on the year ended December 31, 2003.) Critical accounting policies and use of accounting estimates The accounting policies that have been applied are detailed within Note 1 to
the financial statements. These policies comply with generally accepted
accounting principles applicable in the UK but require some degree of judgement
regarding the estimates and assumptions used to apply them. The application of these assumptions and judgements affects the reported
amounts of profit during the year and the assets and liabilities at the balance
sheet date. Actual results may differ from the estimates calculated using these
assumptions and judgements. Management believes that the following accounting
policies are the critical policies where the assumptions and judgements made
could have a significant impact on the consolidated financial statements.
These critical accounting policies have been discussed and agreed with the
Companys Audit Committee. Impairment of goodwill The calculation for impairment of goodwill uses a discounted cash-flow approach
to value the net assets of the Company. We have calculated this on a regional
upstream and downstream basis as this is how we manage the business. Within the calculation of the value of net assets, we have made estimates to
allow us to split any non product-specific cash flows back to upstream and
downstream products. The calculation requires us to make estimates concerning future cash flow of
the business based on future expected sales prices and future expected feed
stock prices. These estimates are made using long-term forecast information
for the business and are based on our best view of future market conditions.
The chemical industry is however variable and changing market demands and
prices may impact on these future projections of cash 24




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##### Table of Contents



flow. Substantially all of our revenue is attributable to sales of MMA and
MMA-related products, the prices of which have been historically sensitive to
relative changes in supply and demand and the availability and price of
feedstocks. Our ability to pass on higher feedstock prices is to a large extent
dependent upon market conditions and thus impacts on our future cash forecasts. The calculation discounts future cash flow at an appropriate discount rate for
the Company based on the financial structure that we have in place. We have
used an average discount rate of 8% based on the weighted average cost of
capital of a number of companies of similar structure within our industry. We
have conducted a sensitivity review on the numbers calculated and found that a
2% increase in the discount factor does not give rise to any impairment in any
of the segments considered. We have also conducted a sensitivity review on the
future cash flows and found that a 10% reduction in our cash flows as
anticipated in the calculation would not give rise to any impairment in any of
the segments considered. This policy is considered to be a critical accounting policy, as impairment
charges recorded in the profit and loss account would have a significant impact
on net profit. Recognition of revenue Revenue recognition - products with shipping terms For arrangements where we ship goods to our customers it is our business
practice to organise the shipping and arrange the insurance for the products on
behalf of our customer. Our terms of business are such that title to the goods
passes to our customers at the port of loading once the goods have passed the
ships rail. It is at this point that we recognise revenue on those goods as it
is at this point that both title and the risks and rewards of ownership
transfer to our customers. We believe the risks and rewards of ownership transfer to our customers at this
point for the following reasons:  
    
    the insurance document travels with the goods and it is therefore
the holder of the policy that will claim under the policy should a
claim arise. We would therefore never be the holder of the document in
the event the products are lost, damaged or otherwise impaired in
transit;
    
    the insurance terms are such that should there be a claim under the
policy then in all circumstances the claim will be made by our
customers and not by us;
    
    we have no obligation in respect of either the insurance contract
or the sales contract to replace the products should they be lost,
damaged or otherwise impaired in transit;
    
    we have no obligations either under the terms of the insurance
contract or the sales contract to reimburse our customers in the event
that the goods are lost, damaged or otherwise impaired in transit; and
    
    It is our customary business practice not to reimburse our
customers or replace our products in the event that the goods are lost,
damaged or otherwise impaired in transit. We believe that our revenue recognition policy for our shipped products is a
significant accounting policy as a large amount of our revenue is earned in
this way. This policy has been applied consistently in all reporting periods. Depreciation of tangible fixed assets It is our policy to depreciate tangible fixed assets, except land, on a
straight-line basis over the life of the asset. A key assumption in this policy
is the life applied to each class of fixed asset, which will in turn determine
the annual depreciation charge. In deciding the appropriate lives to be
applied to the assets, management takes into account various factors including,
amongst other things, the accumulated experience of the effective asset lives
from historical business operations. Variations in the asset lives used could
impact the earnings of the business through an increase or decrease in
depreciation charge. 25




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##### Table of Contents



Depreciation charged on plant and machinery represents the majority of the
annual depreciation charge. The current policy for plant and machinery is to
capitalise it over 10 to 20 years. The average life of our assets is
approximately 16 years, which we believe to be consistent with industry norms
and conservative given the full programme of revenue and capital maintenance
that we undertake. Based on current plans and usage we do not envisage any
scenario where we would be required to reduce asset lives and hence increase
our depreciation charge. This policy is considered to be a critical accounting policy since the
depreciation charges are a significant component of net profit and so variation
in these charges would have a significant impact on net profit. Pension liabilities The amounts recognised in the financial statements related to pension and other
post-retirement benefits are determined from actuarial valuations. Inherent in
these valuations are assumptions including expected return on plan assets,
discount rates at which the liabilities could be settled at December 31, 2003,
rate of increase in future compensation levels and health care cost trend
rates. These assumptions are updated annually and are disclosed in Note 22 to
the financial statements. The expected long-term rate of return on assets is developed with input from
independent, professionally qualified actuaries who base these assumptions on
broad equity and bond indices. The long-term rate of return assumption used for
determining net periodic pension expense for 2003 was 8.5% for the US Scheme
and 6.6% for the UK scheme. The rates used to determine net periodic pension
expense for 2004 are 8.2% for the US scheme and 6.6% for the UK scheme subject
to any changes from the forthcoming actuarial valuation. These rates have been
discussed with the actuaries and we believe that based on our mix of equities
and bonds and the inflation assumptions used that the rates applied are
appropriate. Future actuarial pension expense will depend on future investment
performance, changes in future discount rates and various other factors related
to the population of participants in the pension plans. The discount rates used for determining future pension obligations are based on
long-term high quality corporate bonds. The discount rate used to value the US
liabilities reduced from 6.75% at December 31, 2002 to 6.25% at December 31,
2003. The discount rate used to value the UK liabilities under SSAP 24 was 4%
at December 31, 2002 and 4% at December 31, 2003. The assumption for the long-term rate of increase in compensation levels
remained at the same level for the US scheme at 4.5% and was increased in line
with inflation for the UK scheme to 2.6%. The fair value of the US scheme assets increased from £28 million at December
31, 2002 to £31 million at December 31, 2003 including adverse exchange
movements of £3 million. The fair value of the UK scheme assets increased from
£47 million at December 31, 2002 to £62 million at December 31, 2003. These
increases in the scheme asset values reflect improving investment performance
during the year ended December 31, 2003. For the UK scheme these are used to
determine the charge under US GAAP but are not relevant for the charge under UK
GAAP. The fair value of the US scheme liabilities remained unchanged from December
31, 2002 at £58 million for December 31, 2003 including favourable exchange
movements of £7 million. The fair value of the UK scheme liabilities increased
from £72 million at December 31, 2002 to £100 million at December 31, 2003.
These increases in the schemes liabilities reflect a deterioration in the AA
bond rate used to discount the liabilities during the year ended December 31,
2003. For the UK scheme these are used to determine the charge under US GAAP
but are not relevant for the charge under UK GAAP. An actuarial valuation of the UK scheme is due to be finalised in early 2004
which will lead to a change in funding into the pension fund for the year ended
December 31, 2004 based on the provisions of SSAP 24. The Company does not
expect significant additional cash contributions to be required for either the
US or the UK plans in 2004. This policy is considered to be critical since changes in pension assumptions
could have a significant impact on the Companys reported net profit. 26




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Deferred tax Deferred tax assets arise from short-term timing differences between the
financial statements and the tax base of the groups assets and liabilities.
The extent to which we recognise deferred tax on losses is dependent on the
assumptions concerning the future taxable profits of the business against which
the losses can be relieved. We have not recognised losses where we do not
believe that we will relieve them within a reasonable time horizon. Net deferred tax assets under UK GAAP amounted to £6 million at December 31,
2003, relating to excess of losses and short term timing differences over
accelerated capital allowances. If we do not make the profits that we expect to
make in the foreseeable future, a re-estimate of recoverable deferred tax
assets will be required and may result in a deferred tax charge of up to £6
million. During the year ended December 31, 2003 under UK GAAP we did not recognise
additional losses generated in the United States of £1.2 million and short-term
timing differences of £4.8 million due to the uncertainty of relieving these
losses within a reasonable time frame. If we had recognised these additional
deferred tax assets our taxation charge would have been £6 million lower for
the year ended December 31, 2003. 
 A. OPERATING RESULTS The results of operations for the year ended December 31, 2001 include our
interest in the results of the Kaohsiung Monomer Company (KMC) on an equity
accounting basis until September 1, 2001. At this date we acquired an
additional shareholding in KMC taking our total shareholding to 60% and have
fully consolidated KMC from this point onwards. The following table shows historical turnover and operating profit for our
principal businesses for the three years ended December 31, 2003. Year endedDecember 31,£ million2001
    
    2002
    
    2003Turnover:Upstream
    
    
    374
    
    
    
    402
    
    
    
    511Downstream
    
    
    298
    
    
    
    274
    
    
    
    276672
    
    
    
    676
    
    
    
    787Interclass eliminations
    
    
    (95
    )
    
    
    (94
    )
    
    
    (93
    )Total turnover
    
    
    577
    
    
    
    582
    
    
    
    694Operating profit:Upstream
    
    
    16
    
    
    
    12
    
    
    
    55Downstream
    
    
    6
    
    
    
    15
    
    
    
    1422
    
    
    
    27
    
    
    
    69Exceptional operating expenses
    
    
    (4
    )
    
    
    
    
    
    
    Share of Joint Venture Earnings
    
    
    2
    
    
    
    
    
    
    
    Total operating profit
    
    
    20
    
    
    
    27
    
    
    
    69
 27




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##### Table of Contents



Year ended December 31, 2003 compared to the year ended December 31, 2002 Turnover Year ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    Year endedDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    December 31,2002
    
    Exchange
    
    Volume/Mix
    
    Price
    
    2003£m
    
    £m
    
    £m
    
    £m
    
    £mTotal turnover
    
    
    582
    
    
    
    (31
    )
    
    
    51
    
    
    
    92
    
    
    
    694Percentage increase/(decrease)
    
    
    
    
    
    
    (5
    %)
    
    
    8
    %
    
    
    16
    %
    
    
    19
    %Upstream turnover (i)
    
    
    402
    
    
    
    (27
    )
    
    
    43
    
    
    
    93
    
    
    
    511Percentage increase/(decrease)
    
    
    
    
    
    
    (7
    %)
    
    
    11
    %
    
    
    23
    %
    
    
    27
    %Downstream turnover (i)
    
    
    274
    
    
    
    (8
    )
    
    
    (8
    )
    
    
    18
    
    
    
    276Percentage increase/(decrease)
    
    
    
    
    
    
    (3
    %)
    
    
    (3
    %)
    
    
    7
    %
    
    
    1
    %
 (i) Upstream and downstream amounts include intra-company sales Turnover for the year ended December 31, 2003 has been affected adversely by
the translation impact of the weaker dollar during the year ended December 31,
2003 (average rate for the year: $1.63 to £1.00) compared to the year ended
December 31, 2002 (average rate for the year: $1.50 to £1.00). Approximately
half of our sales are generated from the US operations with another 20%
generated within Asia where exchange rates are strongly linked to the US
dollar. Demand for methacrylate products has increased during the year ended December
31, 2003 led by strong consumer demand in Asia and to a lesser extent in the
United States and Europe. This has led to improved sales volumes particularly
in the upstream business during the year ended December 31, 2003 where volumes
have increased by approximately 8% compared to the year ended December 31,
2002. Raw material prices have increased to unprecedented levels during the year
ended December 31, 2003 particularly acetone and natural gas. This increase in
raw materials has been passed through to the MMA price subject to the normal
contract lags of between three and six months. The increase in raw materials
coupled with a stronger demand for MMA continued the trend seen in the latter
half of 2002 and has resulted in higher upstream prices for the year ended
December 31, 2003 compared to the year ended December 31, 2002. Improvement in the downstream business volumes (approximately 1% higher volumes
compared to the year ended December 31, 2002) has been offset by product mix
effects during the year ended December 31, 2003 when compared to the year ended
December 31, 2002. Downstream prices have also increased during the year ended December 31, 2003
due to higher feedstock prices. The ability to pass these higher feedstock
prices into downstream products is a function of the relative competitiveness
of each downstream market and time. Although most of the price increases have
been passed on there has been some adverse impact on downstream profitability
during the year ended December 31, 2003. Cost of sales Raw materialYear ended
    
    
    
    
    
    
    
    
    
    prices net of
    
    Year endedDecember 31,
    
    
    
    
    
    
    
    
    
    production
    
    December 31,2002
    
    Exchange
    
    Volume/Mix
    
    cost savings
    
    2003£m
    
    £m
    
    £m
    
    £m
    
    £mTotal cost of sales
    
    
    457
    
    
    
    (29
    )
    
    
    45
    
    
    
    59
    
    
    
    532Percentage increase/(decrease)
    
    
    
    
    
    
    (6
    %)
    
    
    9
    %
    
    
    13
    %
    
    
    16
    %Upstream cost of sales
    
    
    339
    
    
    
    (24
    )
    
    
    34
    
    
    
    59
    
    
    
    408Percentage increase/(decrease)
    
    
    
    
    
    
    (7
    %)
    
    
    10
    %
    
    
    17
    %
    
    
    20
    %Downstream cost of sales
    
    
    212
    
    
    
    (7
    )
    
    
    
    
    
    
    12
    
    
    
    217Percentage increase/(decrease)
    
    
    
    
    
    
    (4
    %)
    
    
    
    
    
    
    6
    %
    
    
    2
    %
 Cost of sales for the year ended December 31, 2003 has been affected favourably
by the translation impact of the weaker dollar during the year ended December
31, 2003 compared to the year ended December 31, 2002. 28




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Approximately half our production is generated from the US operations with
another 20% generated within Asia where exchange rates are strongly linked to
the US dollar. Raw material costs were at unprecedented levels during the year ended December
31, 2003, leading to a large price variance within cost of sales for the
upstream business arising from higher costs of acetone, natural gas and
methanol. The increase in demand for monomers during the year ended December 31, 2003 has
lead to a volume increase in cost of sales for the upstream business as
production is stepped up to meet sales demand. As MMA represents approximately 75% to 85% of the raw material cost for our
downstream business the increased MMA prices during the year ended December 31,
2003 have had an adverse effect on the cost of sales for our downstream
business. Net operating expenses Year endedDecember 31,
    
    
    
    
    
    
    
    
    
    Year ended2002
    
    Exchange
    
    Cost savings
    
    December 31, 2003£m
    
    £m
    
    £m
    
    £mTotal operating expenses
    
    
    98
    
    
    
    (3
    )
    
    
    (2
    )
    
    
    93Percentage increase/(decrease)
    
    
    
    
    
    
    (3
    %)
    
    
    (2
    %)
    
    
    (5
    %)Upstream operating expenses
    
    
    51
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    48Percentage increase/(decrease)
    
    
    
    
    
    
    (4
    %)
    
    
    (2
    %)
    
    
    (6
    %)Downstream operating expenses
    
    
    47
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    45Percentage increase/(decrease)
    
    
    
    
    
    
    (2
    %)
    
    
    (2
    %)
    
    
    (4
    %)
 Operating costs for the year ended December 31, 2003 has been affected
favourably by the translation impact of the weaker dollar during the year ended
December 31, 2003 compared to the year ended December 31, 2002. Cost savings from previous restructuring plans and ongoing cost initiatives in
both the upstream and downstream segments resulted in a net 2% saving in costs
for the year ended December 31, 2003 when compared to December 31, 2002. Net interest payable and other charges £mInterest charged for the year ended December 31, 2002
    
    
    29Exchange movement
    
    
    7Additional interest on 50 million high yield notes
    
    
    2Lower interest on senior debt
    
    
    (1
    )Interest charged for the year ended December 31, 2003
    
    
    37
 There was an adverse foreign exchange movement of £8 million relating to
external debt not hedged by foreign currency assets for the year ended December
31, 2003 compared to a £1 million adverse movement for the year ended December
31, 2002. The issue of 50 million of additional high yield notes during June 2003 has
resulted in an additional approximately £2 million of interest for the year
ended December 31, 2003 compared to the year ended December 31, 2002. Voluntary prepayments made against our senior debt during 2003 from the
proceeds of the 50 million high yield notes issued in June 2003 has
resulted in a lower interest charge on our senior debt for the year ended
December 31, 2003 compared to the year ended December 31, 2002 of approximately
£1 million. 29




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Taxation on Loss on Ordinary Activities The taxation charge on the profit/(loss) on ordinary activities increased by £8
million from a taxation credit of £2 million for the year ended December 31,
2002 to a taxation charge of £6 million for the year ended December 31, 2003.
This is as a result of better trading, particularly in Asia, as tax losses
brought forward in the United States and UK and unutilised capital allowances
in the UK negate the tax charges for these fiscal entities. Equity Minority Interests Equity minority interests increased £1 million from £3 million for the year
ended December 31, 2002 to £4 million for the year ended December 31, 2003.
This is due to an improvement in profit after tax at KMC, our 60% owned
subsidiary in Taiwan, for the year ended December 31, 2003. Year ended December 31, 2002 compared to the year ended December 31, 2001 Turnover Total turnover increased £5 million or 1% from £577 million for the year ended
December 31, 2001 to £582 million for the year ended December 31, 2002. Turnover from upstream operations increased £28 million or 7% from £374 million
for the year ended December 31, 2001 to £402 million for the year ended
December 31, 2002. Turnover from upstream operations in 2002 was increased by
approximately £45 million or 12% compared to 2001 as a result of full
consolidation of KMC from September 1, 2001. Lower average monomer prices in
2002 compared with 2001 led to a £38 million or 10% reduction in upstream
turnover for the year ended December 31, 2002. Currency exchange movements had
a £15 million or 4% adverse impact and increased sales volume had a £24 million
or 6% favourable effect on upstream turnover during the year ended December 31,
2002. The balance of the increase in turnover arises as a result of a
reclassification of sales between the upstream and the downstream businesses of
£12 million or 3% (see comments below). Turnover for downstream operations decreased £24 million or 8% from £298
million for the year to December 31, 2001 to £274 million for the year to
December 31, 2002. This decrease resulted from an increase of £18 million, or
6%, attributable to increased sales volume, which was offset by a decrease of
£10 million, or 3%, due to lower sales prices and a decrease of £11 million, or
4%, due to unfavourable currency exchange movements. The balance of the
decrease in turnover arises as a result of a reclassification of sales between
the upstream and the downstream businesses of £21 million or 7% (see comments
below). Trading operations in a number of territories previously served by ICI
distributors have been classified wholly as downstream during the year ended
December 31, 2001. With effect from January 1, 2002, following the full
consolidation of KMC within the business, we have re-analysed these trading
operations to add clarity to the results. As a result, downstream turnover
decreased for the year ended December 31, 2002 by £15 million (£21 million for
the year ended December 31, 2001) and upstream turnover increased for the year
ended December 31, 2002 by £7 million (£12 million for the year ended December
31, 2001). The resulting change in inter-class eliminations resulted in no
impact on the overall group turnover. Cost of sales Cost of sales decreased £1 million from £458 million for the year ended
December 31, 2001 to £457 million for the year to December 31, 2002. Of this an
increase of £33 million or 7% arose from the full consolidation of KMC from
September 1, 2001. Exchange movements had a favourable impact of approximately
£24 million or 5% on the full year ended December 31, 2002. Lower overall raw
materials costs when taken net of usage efficiencies resulted in a £30 million
or 7% reduction in cost of sales, which has been mostly offset by the impact of
higher sales volumes, which increased approximately £21 million or 5%. Net operating expenses Net operating expenses decreased £3 million or 3% from £101 million for the
year ended December 31, 2001 to £98 million for the year ended December 31,
2002. 30




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This decrease was due to a reduction of £4 million in respect of exceptional
operating expenses and an aggregate positive effect of £4 million due to
savings from restructuring programmes and currency translation of overseas
operations. These factors were partially offset by the £5 million effect of
the full consolidation of KMC from September 1, 2001. Net interest payable and other charges Net interest payable increased by £1 million or 3% from £28 million for the
year ended December 31, 2001 to £29 million for the year ended December 31,
2002. Of this increase £4 million is attributable to adverse foreign exchange
movements relating to external debt not hedged by foreign currency assets.
These effects included a £1 million loss in 2002 versus a £3 million gain in
2001. The balance of £3 million reflects lower interest rates on debt arising
under senior credit facilities, offset by increased borrowings under those
facilities. Taxation on Loss on Ordinary Activities The taxation credit on loss on ordinary activities decreased by £4 million from
£6 million for the year ended December 31, 2001 to £2 million for the year
ended December 31, 2002. The results for the year ended December 31, 2001 have
been re-stated as a result of FRS19 and as a result the 2001 amount reflects a
£5 million deferred tax credit relating to US losses and capital allowances not
previously recognised. During the year ended December 31, 2002 we have decided
not to increase the deferred tax asset for any further losses in the United
States due to the extended time period over which they may be utilised. Equity Minority Interests Equity minority interests increased £2 million from £1 million for the year
ended December 31, 2001 to £3 million for the year ended December 31, 2002 as a
result of consolidating the results of KMC for periods after September 1, 2001. Key financial data excluding the costs of building the new MMA facility in China During the latter part of 2003 Lucite International (China) Chemical Industry
Company Limited was formed as a wholly owned foreign entity for the purpose of
constructing and operating an MMA facility within China (the China project).
The results of Lucite International (China) Chemical Industry Company Limited
have been fully consolidated into the results of Lucite International Group
Holdings Limited for the year ended December 31, 2003. In order to compare data on an historical basis the following is a summary of
key items excluding the costs of the China project: Year ended December 31, 2003 Including new
    
    New China
    
    Excluding newfacility in China
    
    facility
    
    facility in China£m
    
    £m
    
    £mRevenue
    
    
    694
    
    
    
    
    
    
    
    694Operating profit
    
    
    69
    
    
    
    
    
    
    
    69Fixed Assets
    
    
    410
    
    
    
    5
    
    
    
    405Cash
    
    
    30
    
    
    
    6
    
    
    
    24Total Debt
    
    
    340
    
    
    
    
    
    
    
    340Capital expenditure
(cash flow)
    
    
    (32
    )
    
    
    (4
    )
    
    
    (28
    )
 As debt is incurred in Lucite International China Chemical Company Limited this
will be ring-fenced from the remainder of the group and secured solely on the
assets of Lucite International (China) Chemical Company Limited. 31




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Recent US accounting pronouncements On January 17, 2003, the Financial Accounting Standards Board (FASB or the
Board) issued FASB Interpretation No. 46, Consolidation of Variable Interest
Entities (FIN 46), which was amended in December 2003 when the FASB issued
FIN 46-R. Under the interpretation, as amended, certain entities known as
Variable Interest Entities (VIE) must be consolidated by the primary
beneficiary of the entity. The primary beneficiary is generally defined as
having the majority of the risks and rewards arising from the VIE. FIN 46-R
will be effective for the Company from January 1, 2004. The statement is not
expected to have a material impact on the results of operations and financial
position under US GAAP. On November 25, 2002 the FASB issued FASB Interpretation No. 45 (FIN 45 or
the Interpretation), Guarantors Accounting and Disclosure Requirements for
Guarantees of Indebtedness of Others (an interpretation of FASB Statements No.
5, 57 and 107 and rescission of FASB Interpretation No. 34).FIN 45 clarifies
the requirements of FASB Statement No. 5 (FAS 5), Accounting for Contingencies,
relating to a guarantors accounting for, and disclosure of, the issuance of
certain types of guarantees. The Interpretations provisions for initial
recognition and measurement are to be applied on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantors fiscal year end. The guarantors previous accounting for guarantees
that were issued before the date of FIN 45s initial application may be revised
or restated to reflect the effect of the recognition and measurement provisions
of the Interpretation. The Company has adopted the disclosure requirements for
the fiscal year ended December 31, 2003 as disclosed in Note 26(f) to the
financial statements. There was no measurable impact on the financial
statements of the full adoption of FIN 45 for the year ended December 31, 2003. In January 2004, the FASB issued FASB Staff Position (FSP) 106-1, Accounting
and Disclosure Requirements Related to Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act). This FSP addresses the accounting
implications of the newly issued Act to an entity that sponsors a
postretirement health care plan that provides prescription drug benefits. This
Act, signed into law in December 2003 in the United States, introduces a
prescription drug benefit under Medicare as well as a federal subsidy to
sponsors of certain retiree health care benefit plans. The FSP includes an
election to defer accounting for the implications of this new law until
specific authoritative guidance to address the accounting treatment has been
issued. As such, as a result of the absence of such guidance, any measures
included in these financial statements of the accumulated postretirement
benefit obligation (APBO) or net periodic postretirement benefit cost in the
financial statements or accompanying notes do not reflect the effects of the
Act on the plan. Authoritative guidance, when issued, could require a change
in previously reported information. Recent UK accounting pronouncements In November 2000 the ASB issued Financial Reporting Standard No. 17,
Retirement Benefits"(FRS 17). FRS 17 requires pension scheme assets to be
measured at market value and pension scheme liabilities to be measured using
specified actuarial methods using a corporate bond rate. The resulting surplus
or deficit should be immediately recognised in the balance sheet. In the
annual financial statements additional analysis was provided in accordance with
FRS 17 for which disclosure requirements have been implemented progressively
during the previous and current financial years in accordance with the
provisions of that standard. Full implementation of the standard has been
postponed until 2005. International Financial Reporting Standards (IFRS) The European Parliament and Council of the European Union issued a regulation
in 2002 that will require all EU listed companies to prepare their consolidated
financial statements in accordance with IFRS rather than the existing national
GAAP. The regulation takes effect for the accounting periods beginning after
January 1, 2005 and consequently the accounting framework under which the
Company reports will change. The Company will produce its consolidated
financial statements in accordance with IFRS for the year ended December 31,
2005. We are currently evaluating the areas that will be most affected by the
adoption of IFRS, including assessing the impact on our underlying systems and
financial statements and our US GAAP reconciliations. 32




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##### Table of Contents



B. LIQUIDITY AND CAPITAL RESOURCES Sources and uses of liquidity Our main sources are cash are from operating activities and from financing
activities. This liquidity is then used to service our debt by way of interest
payments and principal repayments and to support our capital assets by means of
capital expenditure. Fifty percent (twenty-five percent if our leverage ratio
is below 2.5) of any additional cash generated over and above these
requirements must be applied to repay amounts payable under our Senior Credit
facilities. No cash was paid back to the banks under these terms during the
year ended December 31, 2003 (based on performance for the year ended December
31, 2002) and we believe that no cash is due to be paid back during the year
ended December 31, 2004 based on the year ended December 31, 2003 performance,
subject to the issue of the report on covenant performance for 2003. Operating activities Cash flow provided by operating activities was £94 million for the year ended
December 31, 2003; £57 million for the year ended December 31, 2002 and £83
million for the year ended December 31, 2001. This improvement in cash
generated was attributable to improved profitability as a result of a growth in
demand for methacrylates during the year ended December 31, 2003. This growth
in demand combined with much higher raw material prices has resulted in
significant price increases across the business. Working capital balances
resulted in an outflow of £18 million for the year ended December 31, 2003
versus an outflow of £14 million for the year ended December 31, 2002, mainly
reflecting higher debtors as a direct result of improved sales prices and
increased sales volumes across the business. This is supported by the days
sales outstanding moving to 53 for the year ended December 31, 2003 from 52 for
the year ended December 31, 2002. Management believes that the working capital
position as at December 31, 2003 is adequate to fund operations. Cash generated in our subsidiaries in Taiwan (KMC) and Thailand (Thai Polymer
Company or TPA) is not readily available to the group except by means of
dividends which are subject to local legal restrictions. During 2003 both KMC
and the Asiatic Acrylic Company Limited (owner of 34% of TPA) with local board
approval carried out financial restructuring by means of repayment of some of
their share capital. This amounted to approximately £6 million of cash becoming
available to the group, with an approximately £3 million payment to minorities
maintaining the relative split of investment from the minorities. Financing activities and servicing of debt We continue to have significant cash requirements for debt service. As of
December 31, 2003, we had £170 million (2002: £220 million) outstanding in term
loans and revolving facilities borrowed under our senior credit facilities and
250 million or £178 million (2002: 200 million or £130 million)
aggregate principal amount of notes outstanding. On June 13, 2003 we received
senior bank consent for Lucite International Group Holdings Limited or one of
its subsidiaries to invest up to $24 million in cash (net of $8 million of
technology license payments) into our new company in China. In June 2003 with
senior bank consent the company undertook a refinancing in order to fund this
future investment into China by issuing 50 million of
101⁄4% Senior Notes
under an indenture dated June 25, 2003. The proceeds were used to make a
voluntary repayment of senior debt of £21 million (30 million), £15 million
(20 million) was repaid against the revolving credit facility until
required for investment in China and £1 million (2 million) was paid in
fees for the transaction. During December 2003 £5 million ($8 million) was
drawn against the revolving credit facility and invested into China with the
balance of the investment expected to occur during 2004 and 2005. The
construction of the plant in China will be funded by total equity of $39
million (including $8 million invested by Lucite International Limited) but
also by loans taken out with a leading Chinese Bank for approximately $72
million including planned construction and funding of working capital. As debt
is incurred in the new Chinese subsidiary it will be ring-fenced from the
remainder of the group and secured solely on the assets of the Chinese
subsidiary. The investment in the new China facility is summarised in the table
below. US dollar amounts have been converted at a rate of $1.8 to £1.00 for
2004 and 2005: 33




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##### Table of Contents



Summary of the investment in our new MMA facility in China: Year ended
    
    Years ending DecemberDecember 31,
    
    31,
    
    Total investment in new2003
    
    2004 and 2005
    
    MMA facility in China£m
    
    $m
    
    £m
    
    $m
    
    £m
    
    $mLucite International limited
    
    
    5
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    8Lucite International Holdings
Limited (net of technology
licence fees)
    
    
    5
    
    
    
    8
    
    
    
    9
    
    
    
    16
    
    
    
    13
    
    
    
    24Debt with a leading Chinese Bank
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    72
    
    
    
    40
    
    
    
    72Total investment
    
    
    10
    
    
    
    16
    
    
    
    49
    
    
    
    88
    
    
    
    58
    
    
    
    104
 Based on predicted economic and market conditions we believe that our future
operating performance will be sufficient to service amounts outstanding under
our senior credit facilities, as well as the amounts due under the notes but
will be subject to changes in economic conditions, financial, business and
other factors, many of which are beyond our control. We currently have
additional borrowing facilities up to $51 million (£28 million) less $2 million
of guarantees under our $85 million revolving credit facility. Under the terms of our senior credit facilities our bankers require us to
comply with certain financial covenant ratios based upon our operating
performance (interest cover and cash flow to total debt service ratios) and
our total debt position (leverage ratio). During 2002 our covenant limits
were re-set for the testing period December 31, 2002 to March 31, 2004. In
connection with the amendments to our senior credit facilities and with other
investment opportunities, our parent company, Lucite International Limited
established a £40 million deep discount bond facility with Charterhouse. In
the event of a covenant breach under our senior bank facilities, Lucite
International Limited agreed, upon the request of our senior banks, to borrow
under the deep discount bond facility and to invest the proceeds of such
borrowings in the equity capital of Lucite International Group Holdings
Limited. The amount of the borrowing and equity investment would be the amount
required to remedy the covenant breach. By agreement with the Senior Banking
syndicate £5 million was drawn in December 2003 by Lucite International Limited
and invested into our new facility in China. The remaining £35 million is
un-drawn as at December 31, 2003 as there was no covenant breach during 2003
and the facility will expire 30 days after the issue of the final report on
covenant performance for the year ended December 31, 2003 which we expect to be
issued at the end of April 2004. Based on predicted economic and market
conditions we do not envisage that we will breach any of the covenant ratios in
the foreseeable future but we will be subject to changes in economic
conditions, financial, business and other factors, many of which are beyond our
control. Borrowings under our senior credit facilities bear interest at LIBOR-based
floating rates for varying interest periods. The facility consists of three
term loan facilities for an aggregate £151 million as at December 31, 2003, and
a revolving working capital facility with a maximum commitment of up to £47
million ($85 million) of which £19 million had been drawn at December 31, 2003.
The senior credit facilities impose restrictions on our ability to make capital
expenditures and limit our ability to incur additional indebtedness.
Similarly, the terms of the notes also impose restrictions on the incurrence of
additional debt. The notes are scheduled to be repaid in one instalment on May
15, 2010 of 250 million. However, we may be required to purchase the notes
before that date in the event of a change of control or a material asset sale. Capital Expenditures During the current and prior years our capital expenditure was as follows: Year ended
    
    Year endedDecember 31, 2002
    
    December 31, 2003£m
    
    £mSafety, health and environment
    
    
    4
    
    
    
    4Maintaining asset capacity
    
    
    15
    
    
    
    14Growth projects
    
    
    9
    
    
    
    14Total capital expenditure
    
    
    28
    
    
    
    32
 The capital expenditure on growth projects includes £4 million relating to the
construction of our new MMA facility in China. We currently anticipate that our
capital expenditures will be approximately £34 million through 2004 in respect
of our existing facilities including approximately £6 million to be spent on
safety, 34




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##### Table of Contents



health and the environment (SHE). We anticipate a further approximately £35
million to be spent on the construction of the new MMA facility in China. Commitments for capital expenditure are £10 million, representing amounts that
we have contracted to purchase but have not yet purchased plus expenditure that
we have authorised but not yet contracted for in respect of our existing
facilities plus £47m of authorised expenditure relating to the building of the
new MMA facility in China. Treasury Policies Our policy is to utilise excess cash within the group by paying down against
the revolving credit facility. Any cash that is held locally on a short-term
basis is invested in overnight money markets where appropriate to do so. We
hold cash mainly in US dollars, euros and Sterling and wherever possible we
manage the group cash position to satisfy our US dollar, euro and Sterling
financial commitments. We do not hedge specifically against currency exposure other than to structure
our original debt obligations in currencies that naturally hedge against
movements in our trading cash flows. During the year we reset a portion of the senior debt interest at the
prevailing LIBOR rate as at September 2003. Details of this can be seen in
Note 20 to the financial statements. In some cases we have set the interest
periods for up to nine months in order to fix our interest exposure at
historically low rates. 
 C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. Our Research, Technology and Engineering Group constitutes our research and
development core. Since 1999 we have enhanced our focus on research and
development expenditures. Our investment in 2003 was £9 million on new product
and process technologies (2002: £10 million, 2001: £9 million). Productivity,
measured as ratio of new product sales to new product research cost, has
doubled since 1999. We principally conduct our research and development at our research facilities
located in Wilton, United Kingdom; Memphis, Tennessee; Ibaraki, Japan; Darwen,
United Kingdom; and Newton Aycliffe, United Kingdom. Over 70 scientists and
engineers are engaged at these research facilities in strategic projects to
lower costs of production and to develop new products, processes and product
enhancements. For example, we have developed our Alpha and Beta
technologies, two new low cost MMA production methods that do not use HCN or
acetone as raw materials, and we are also continuing to develop and upgrade our
Omega process, which provides us a significantly more competitive method of
producing HCN synthetically. The Omega technology is operated at the Cassel
works in the United Kingdom and the Alpha process has been fully successfully
piloted at the Wilton facility. Increasing the market for acrylic products We constantly strive toward increasing the market for acrylics through the
development of new product applications, either through our own downstream
operations or in conjunction with strategic partners. During 2003, we spent £5
million on research and development to expand and create downstream
applications for acrylic products. In 2003 sales of new products developed in
the past three years constituted close to 20% of our downstream sales, and
gross margin.
The unique optical properties of acrylic polymer, its colourability and
weatherability, and the ability to manipulate light through it, are foundation
blocks for developing future application opportunities. The following new
product applications are significant areas of focus for the Company:  
    
    Perspex® Alloys Lucite International has developed and patented products based on blending PMMA
with PVC, thereby offering a unique property balance that exploits the
colourability and weatherability of the acrylic and the mechanical and fire
retarding performance of PVC. In strategic partnership with a major US
thermoplastic sheet supplier, an enhanced and unique range of materials will be
made available to customers in 2004. 35




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##### Table of Contents




    
    Capstock products (including Lucite® Tufcoat®) These products are targeted toward architectural capping applications such as
sidings for house construction, windows and doors, due to their outstanding
weathering characteristics, their flexibility and their ability to provide a
wide range of colour and sheen types. In particular they allow manufacturers of
these house-building products to offer much longer consumer guarantees than
conventional paints, wood-finishes or other thermoplastic materials. We
continue to extend the range of materials which can be effectively capped.  
    
    Elvacite® Elvacite® embraces a family of advanced polymer systems with many
performance-enhancing characteristics for marine and container coatings,
electronics, inks and adhesives. Our flexibility to produce materials of novel
architecture and incorporate reactive functionality, have allowed us to develop
leading edge solutions for our customers in their drive to low VOC (Volatile
Organic Compounds) and water based products.  
    
    Light Management Solutions, including the Lux series of products We have developed novel, proprietary technology embodied in the Lux series of
products that provide a wider range of display options along with material and
energy savings. As we extend our light management solutions further we are
developing products for the 3-D signage market. 
 D. TREND INFORMATION Global demand for methacrylates resumed a strong growth trend from mid 1999
through the twelve months ended December 31, 2000. This volume recovery was
associated with generally good economic growth, selling price increases and
increased raw material costs and other input costs. In particular, by the end
of the twelve months ended December 31, 2000 energy costs in the United States
achieved historically high levels. During the twelve months ended December 31, 2001 market demand for
methacrylates declined. This demand was most significant in North America and
was associated with a period of selling price decreases and declining raw
material prices. In particular the three months ended December 31, 2001 was a
period of weak demand in North America and this was reflected in global
markets. One consequence of the weak demand pattern was a decline in selling
prices that extended into the first half of the twelve months ended December
31, 2002. During the second half of the twelve months ended December 31, 2002 demand for
methacrylates recovered very strongly in all markets with significant uplift
driven by demand for new products in Asia. The increase in demand also
coincided with certain supply constraints experienced by both producers of
methacrylates and their raw material suppliers. Selling prices and prices of
raw materials, particularly energy costs, recovered strongly during the second
half of the twelve months ended December 31, 2002. The recovery in demand for methacrylates has continued into 2003 in all markets
with strong consumer demand in particular from Japan and China during the year
ended December 31, 2003. Selling prices continued to recover strongly during
the first half of the year ended December 31, 2003 and were maintained during
the second half of 2003 reflecting higher average raw material costs during the
year ended December 31, 2003. Raw material prices continued to increase to
unprecedented levels during the twelve months ended December 31, 2003,
particularly acetone and natural gas in the United States although we hedge a
portion of our raw material costs against spikes in natural gas prices (see
Item 11  Quantitative and Qualitative Disclosures about Market Risk).
Subsequent to the balance sheet date the market continues to experience strong
demand and price conditions with correspondingly high input prices (notably oil
and natural gas inputs) and some limitations on supply. Downstream product
prices have increased reflecting the higher MMA prices but competitive price
pressure and price lags within the sector meant that some of the increase in
price could not be fully passed on in the year ended December 31, 2003. 
 E. OFF -BALANCE SHEET ARRANGEMENTS We have no off balance sheet arrangements. 36




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##### Table of Contents



F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS Our total committed contracts that will impact on our cash position over the
next five years and thereafter is as follows: Maturity profile£mAfterContractual commitments
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2008
    
    TotalSenior credit facilities
    
    
    12
    
    
    
    12
    
    
    
    13
    
    
    
    69
    
    
    
    45
    
    
    
    19
    
    
    
    170Senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176
    
    
    
    176Finance lease obligations
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    4
    
    
    
    6Non-cancellable purchase
contracts
    
    
    136
    
    
    
    81
    
    
    
    49
    
    
    
    46
    
    
    
    25
    
    
    
    21
    
    
    
    358Total
    
    
    148
    
    
    
    94
    
    
    
    61
    
    
    
    117
    
    
    
    70
    
    
    
    220
    
    
    
    710
 Non-cancellable purchase contracts represent long term contracts to purchase
raw materials most notably acetone (1 to 2 years), HCN (3 to 5 years), methanol
(1 to 2 years) and some utilities. These contracts represent minimum volume
commitments for purchase volumes expected to be used within the normal course
of business. Interest is paid on the senior notes at 10.25%. The current rates applicable to
our senior credit facilities are 2.066% plus a margin for the euro-denominated
debt and 1.321% plus a margin for the US dollar-denominated debt. The margin
ranges from 2% to 3% depending upon the maturity date of the tranche of debt
and may be reduced if the leverage ratio falls below 4.25.
We may be required to purchase the senior notes before the maturity date in the
event of a change of control or a material asset sale. The payment profile of
the senior credit facilities may change if we generate excess cash as defined
under the senior credit facilities agreement in any financial year until
maturity. In the event of generating such excess cash we would be required to
pay up to 50% of the excess cash generated as a prepayment against our senior
credit facilities. 
 G. SAFE HARBOUR The safe harbour provided in Section 21E of the Securities Exchange Act applies
to forward-looking information provided pursuant to item 5 F above. 
 ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 
 A. DIRECTORS AND SENIOR MANAGEMENT Directors and Executive officers of Lucite International Group Holdings Limited The following table sets forth the name, age and principal position of each of
the persons that are directors and executive officers of Lucite International
Group Holdings Limited: Name
    
    Age
    
    PositionIan R Lambert
    
    
    48
    
    
    Chief Executive Officer and DirectorAnnie S Veerman
    
    
    42
    
    
    Chief Financial Officer, Secretary and DirectorJefferson Davis.
    
    
    60
    
    
    President of Lucite International Inc. and VP  Americasregory Liou
    
    
    54
    
    
    VP  Asia Pacific and General Manager, KMCNeil L Sayers
    
    
    50
    
    
    VP  Technology and Manufacturing and DirectorA. Paul Henderson
    
    
    48
    
    
    VP  Europe, Middle East and Africa and Director
 Ian R. Lambertjoined ICI in 1985. In his first two years with ICI he worked in
the Agrochemicals business. In 1989, he became manager of management accounting
for the Engineering Plastics business in the US, before moving to become
controller, ICI Engineering Plastics in 1990. From 1991, he spent three years
as Director of 37




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##### Table of Contents



Finance and IT at ICI Fiberite in Arizona, US, before becoming finance manager,
ICI Materials, in Belgium. Mr. Lambert became financial controller of ICI
Acrylics in 1995 before being appointed to Chief Financial Officer in 1997. On
March 25, 2003 he was appointed Chief Executive Officer. He is a chartered
accountant and has an MA and MPhil from Cambridge University. Annie S Veermanjoined ICI in 1980, and for the first 10 years worked for the
ICI subsidiary Incitec in Australia. In 1989, she moved to the UK as
International Accountant for the Films business. Throughout 1993 she worked in
Belgium on the acquisition of the DuPont acrylics business and the sale of the
ICI Fibres business. Ms. Veerman then moved to ICI Group Headquarters as
Finance Manager, Acquisitions and Planning Department. Her next move was to
Memphis, USA, as Finance and IT Director of the ICI Acrylics business and then
to the Netherlands where, in 1998, she joined the newly acquired business
Uniqema, first as Senior Vice President Commercial (Finance Director) and then
as Procurement Director of Uniqema. Ms. Veerman joined Lucite International on
June 1, 2003. Annie is a Certified Practicing Accountant (Australia) with a
degree in Business Studies and an MBA from Cranfield University. Neil L Sayersjoined ICI in 1974 and worked in a number of manufacturing and
technical roles in the Nylon, Aromatics and Oil Refinery businesses before
joining ICI Acrylics in 1988 as Cassel Site Technical Manager, becoming Site
Manager in 1992. In 1998 he was made responsible for R&D and currently has
responsibility for Manufacturing Excellence, Technology, Safety, Health and
Environment on a global basis. Mr. Sayers has a BSc in Chemical Engineering
from UMIST. A. Paul Hendersonjoined ICI in 1978 and worked in the Petrochemicals Division
fulfilling a number of marketing roles with the Fibre Intermediate and
Aromatics businesses. He joined ICI Fibres in Harrogate in 1990, transferring
to Oestrigen in Germany in 1991 to run the global sales of Nylon Textile
Filament yarns. On the sale of the Nylon business in 1993 he transferred with
the sale to Du Pont as Sales and Marketing Manager for Nylon textiles in
Europe. In 1998 joined Burmah Castrol as European Managing Director for the
speciality wax blending subsiduary, Dussek Campbell. Mr. Henderson joined
Lucite International in March 2001 as Vice President for Europe, Middle East
and Africa. Mr. Henderson has a BA (Hons) in Modern Languages (French and
Spanish) from Manchester University. J. Jefferson Davisjoined ICI Acrylics in 1993 from DuPont. Mr Davis has spent
much of his career in the acrylics industry and has wide experience in both
commercial and operational roles. He was Managing Director of the Lucite
Acrylic Sheet Business before it was transferred to ICI Acrylics ownership in
1994. From 1994 to 1996, Mr. Davis was Manufacturing Director, ICI Acrylics
Inc. and currently has responsibility for world wide Manufacturing and
Technology at Lucite International. Mr. Davis has a BS Textile Engineering from
Georgia Tech. Gregory Lioujoined ICI China in Taiwan in 1975 and has experience in a number
of commercial roles, being Sales Manager, Dulux Paints Taiwan from 1982 to
1984, General Manager of Savlon Pharmaceuticals, 1984 to 1985 and Business
Development Manager for ICI Taiwan from 1985 to 1990. Mr. Liou was Deputy
General Manager of ICI Far East from 1990 to 1994 and then joined the Acrylics
business in 1995 as General Manager, Kaohsiung Monomer Company (KMC). In his
current role, Mr Liou is Vice President Asia Pacific and combines this with his
responsibilities as General Manager, KMC. Mr. Liou is also responsible for our
liaison with Joint Venture partners in APAC. Mr. Liou has an MSc (Agriculture)
from National Taiwan University. 
 B. COMPENSATION For the year ended December 31, 2003, aggregate executive officers and
directors compensation for Lucite International was £1.2 million (2002: £1.2
million). This includes £0.1 million (2002: £0.1 million) that we have paid
into schemes for retirement and similar benefits for our directors and
executive officers for the year ended December 31, 2003. 
 C. BOARD PRACTICES Lucite International Group Holdings Limited is a subsidiary of Lucite
International Limited. Certain of the directors of Lucite International
Limited constitute the Board of Lucite International Group Holdings Limited.
The Boards duty of corporate governance is discharged in conjunction with the
Board of Lucite International Limited. The Board meets on a regular basis to
review performance and business plans of the group. The Board has established
policies for the conduct of the business within the group, including
delegations of Board 38




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authority to directors and members of senior management. In addition, the
Board appoints committees to ensure appropriate oversight of the group
companies operations. Board Committees Our audit committee and remuneration committee have been appointed by the Board
of Lucite International Limited and are remitted to cover the entire Company
including all subsidiaries of Lucite International Group Holdings Limited. Each
committee has operated throughout the year. The audit committee comprises Mr GJ Arbuthnott (Chairman) and Mr PR Shaw. The
committee is responsible for the appointment of auditors and reviews the
suitability and effectiveness of internal control systems and the application
of corporate policies throughout the Company. Geoffrey Arbuthnottis a Director of Charterhouse Capital Partners LLP and
Chairman of Lucite International Limited. An honours graduate in Law from
Edinburgh University and a Chartered Accountant, he joined Charterhouse in 1984
where he has been responsible for the successful investments in Medway Ports,
British Bus and Porterbrook. Mr. Arbuthnott led the investment in Lucite
International for Charterhouse. Peter R. Shawwas appointed a Non-Executive Director of Lucite International
Limited on April 1, 2001. Mr Shaw is a graduate in chemistry with significant
experience in the chemical industry and worked for ICI for 34 years in a number
of senior international positions in Europe and Asia. From 1995 to 2000 Mr Shaw
was ICIs Group Vice President and Head of Mergers and Acquisitions. Our remuneration committee at December 31, 2003 consisted of Mr PR Shaw
(Chairman), Mr GJ Arbuthnott and Mr IR Lambert. The primary function of the remuneration committee is to determine remuneration
and other terms of employment for the directors and senior employees of the
Company having due regard for performance. In setting the remuneration policy the committee considers a number of factors
including:   the salaries and benefits available to senior management in comparable companies   the need to ensure senior management commitment to the continued success of the business by means of incentive schemes. Directors The directors serve for an indefinite term from appointment, subject to removal
by a resolution of shareholders. No director is employed on terms and
conditions other than those applicable to other salaried employees. 39




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D. EMPLOYEES The average number of persons employed (including executive directors but
excluding temporary and contract staff) is as follows: Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003Upstream
    
    
    620
    
    
    
    680
    
    
    
    676Downstream
    
    
    1,367
    
    
    
    1,320
    
    
    
    1,3061,987
    
    
    
    2,000
    
    
    
    1,982Europe
    
    
    854
    
    
    
    828
    
    
    
    811Americas
    
    
    548
    
    
    
    531
    
    
    
    515Asia
    
    
    378
    
    
    
    454
    
    
    
    462Rest of World
    
    
    207
    
    
    
    187
    
    
    
    1941,987
    
    
    
    2,000
    
    
    
    1,982
 December 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003Number of employees at period end
    
    
    2,006
    
    
    
    1,993
    
    
    
    1,995
 Movement in employee numbers during the twelve months ended December 31, 2003
is analysed as follows: Upstream
    
    Downstream
    
    TotalEmployees as at
December 31, 2002
    
    
    673
    
    
    
    1,320
    
    
    
    1,993Movement due to new operations
    
    
    4
    
    
    
    11
    
    
    
    15Net leavers
    
    
    (6
    )
    
    
    (7
    )
    
    
    (13
    )Employees as at
December 31, 2003
    
    
    671
    
    
    
    1,324
    
    
    
    1,995
 Employees are represented locally by a number of labour unions. Management
believes that its relationship with these unions is generally constructive. 
 E. SHARE OWNERSHIP All of the issued share capital of Lucite International Group Holdings Limited
is held directly by Lucite International Limited. Lucite International Finance
plc and the guarantors other than Lucite International Group Holdings Limited
are direct or indirect subsidiaries of Lucite International Group Holdings
Limited. The issued share capital of Lucite International Limited consists of 7,799,999
A Ordinary Shares, 1,850,001 B Ordinary Shares and 350,000 C Ordinary Shares
and 355,854 D Ordinary Shares. In addition, the issued share capital of Lucite
International Limited also includes 174,911,000 A Preference Shares. These
preference shares are not convertible into ordinary shares. The preference
shares do not entitle their holders to vote for the election of directors of,
or on any matters relating to, Lucite International Limited. Under the Articles of Association of Lucite International Limited, A Ordinary
Shares generally have the same voting rights as B Ordinary Shares. However,
some holders of A Ordinary Shares and B Ordinary Shares and Lucite
International Limited have entered into a Subscription and Shareholders
Agreement that imposes limitations on the voting of these shares. See
Subscription and Shareholders Agreement. C Ordinary shares are management
shares and have the same voting rights as B Ordinary shares subject to any
limitations contained in the subscription and shareholder agreement. 40




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The following table sets forth information regarding the ownership of the
Ordinary Shares of Lucite International Limited as at March 31, 2004, by the
following:  
    
    Each person or group known by us to be the owner of more than 5% of the outstanding shares of the Ordinary Shares of Lucite
International Limited; and
    
    All of the directors and officers of Lucite International Limited and Lucite International as a group. Percent ofNumber of
    
    OrdinaryName
    
    Ordinary Shares
    
    SharesCharterhouse Parties(a)
    
    
    7,794,091
    
    
    
    78
    %Shares to be issued employees of Lucite International (b)
    
    
    550,000
    
    
    
    5
    %Directors of Lucite International Limited (d)
    
    
    260,000
    
    
    
    3
    %Directors of Ineos Capital (c) & related parties
    
    
    1,100,000
    
    
    
    11
    %Other
    
    
    295,909
    
    
    
    3
    %
  (a)
    
    Charterhouse Parties means each of Charterhouse, any of its affiliates or subsidiaries, any person or fund managed or advised by any
person in respect of its interest in Charterhouse and any investor in a Charterhouse fund (either in their capacity as investor or as
direct co-investors).(b)
    
    Represents B Ordinary Shares that are currently held by the Lucite International Employee Share Plan.(c)
    
    Represents B Ordinary Shares that are held by the directors of Ineos Capital and related parties.(d)
    
    Represents C Ordinary Shares that are held by the directors
of Lucite International Limited  all directors hold less than 1% of the ordinary share capital of the company. There are also 355,854 of restricted D shares issued to US employees under the terms of the employee share scheme. These shares have no
voting rights and will be redeemed by the company and replaced with ordinary B shares taken from (b) above in the event of Charterhouse
selling all or a substantial portion of its remaining investment in the ordinary shares of Lucite International Limited. For this reason
they have been excluded from the table above. Lucite International Employee Share Plan Our philosophy is that our employees should have the opportunity to participate
in the creation of value for the parts of the business that they can directly
influence. Our principal investors have allocated ordinary shares of Lucite
International Limited as noted in footnotes (b) and (d) to the table above, the
parent company of Lucite International, to management and an employee benefit
trust. We and our principal investors have ensured that all of the management
and employees of Lucite International have had the opportunity to acquire
interests in these shares through the creation of an employee share plan. Under the Lucite International Employee Share Plan, Charterhouse made available
550,000 ordinary one pence shares in the Company to employees (the employee
shares). Shares will be allocated between employees based on business
performance criteria at a future date when Charterhouse sells all or a
substantial portion of its remaining investment in the ordinary shares in
Lucite International Limited. These shares have been put into trust for the
employees. No charge in respect of the grant of options to employees under the
employee share plan has been made in the financial statements due to the
uncertainty of the timing of the sale of Charterhouses investment. The Company has also issued restricted ordinary D shares to the US employees
under the US employee share scheme. These restricted ordinary D shares will be
redeemed by the Company and replaced with ordinary B shares in the event of
Charterhouse selling all or a substantial portion of its remaining investment
in the ordinary shares in Lucite International Limited. Subscription and Shareholder Agreement In October 1999, Lucite International Limited entered into a Subscription and
Shareholder Agreement with its shareholders, including Charterhouse funds (the
Charterhouse Investors) and directors of Ineos Capital Limited (the Ineos
Investors). Charterhouse Investors and Ineos Investors have pre-emptive rights
allowing them to acquire, in proportion to their respective shareholdings, any
shares proposed to be issued by Lucite International Limited. Ineos Investors
cannot transfer, grant, create or dispose of any right or interest in any
shares of Lucite International Limited without the prior written consent of the
Charterhouse Investors, subject to various exceptions. The exceptions include
permitted transfers to family members or, if the Ineos Investor is a company,
to a wholly owned subsidiary. Ineos Investors, however, receive tag-along
rights in cases of transfer of shares by Charterhouse Investors. 41




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Charterhouse Investors and Ineos Investors have agreed not to make, and not to
allow Lucite International to make mergers and acquisitions, share issuances
and other strategic decisions involving Lucite International, without the
consent of a majority of the Charterhouse Investors. The agreement will terminate upon the earliest of (1) the closing of an initial
public offering by Lucite International Limited; (2) all of the Charterhouse
Investors and the Ineos Investors ceasing to hold any shares in Lucite
International Limited; and (3) the sale of the entire issued share capital of
Lucite International Limited to a third party purchaser. The Articles of Association of Lucite International Limited and the
Subscription and Shareholders Agreement provide that the Charterhouse funds,
as the holder of the A Ordinary Shares, are entitled to appoint two directors
of Lucite International Limited. Under the Articles, the presence of at least
one Charterhouse director is required for the transaction of business by the
Board, any committee of the Board must always include at least one Charterhouse
director and any resolution passed by the committee will not be effective
unless at least one Charterhouse director votes in favour of the decision. The
Articles also provide that the Charterhouse funds have a right to appoint the
Chairman of the Board. 
 ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 
 A. MAJOR SHAREHOLDERS The parties who are beneficial owners of 5% or more of the ordinary share
capital of Lucite International Limited, which owns 100% of the ordinary share
capital of Lucite International Group Holdings Limited are set out in item 6. E
Shareholders. 
 B. RELATED PARTY TRANSACTIONS Trading Transactions with Shareholders of the Group For the twelve months ended December 31, 2001Lucite International purchased
management services from Charterhouse and the directors of Ineos Capital in the
amounts of £50,000 and £300,000 respectively plus related travel expenses. Lucite International also purchased certain third party goods and services via
Ineos PLC a company controlled by the directors of Ineos Capital in the amount
of £300,000. Such services included the rental expenses of our Southampton
offices and sundry employee costs in respect of shared services. Lucite International also purchased certain third party goods and services,
consisting mainly of raw materials, from Ineos companies controlled by the
Directors of Ineos Capital, to the value of £11 million. We also sold some
goods and services, relating mainly to shared offices in the United States, to
Ineos companies in an aggregate amount of £2 million. These companies were
acquired by Ineos Capital during 2001 and have been included as related parties
from the date of each acquisition. Prior to their acquisition the companies
have been treated as non-related. Amounts due to and from these companies at December 31, 2001 were £ nil. For the twelve months ended December 31, 2002Lucite International purchased
management services from Charterhouse for the amount of £25,000 plus related
travel expenses. Lucite International also purchased certain third party goods and services,
mainly raw materials, from Ineos companies controlled by the Directors of Ineos
Capital, to the value of £13 million. We also sold some goods and services to
Ineos companies in an aggregate amount of £2 million. As at December 31, 2002 amounts payable to these companies totaled £2 million. For the twelve months ended December 31, 2003Lucite International purchased
management services from Charterhouse for the amount of £27,000 plus related
travel expenses. 42




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Lucite International also purchased certain third party goods and services,
mainly raw materials, from Ineos companies controlled by the Directors of Ineos
Capital, in an aggregate amount of £29 million. We also sold some goods and
services to Ineos companies in an aggregate amount of £2 million. As at December 31, 2003 amounts payable to these companies totaled £2 million. There have been no related party activities with Charterhouse since the
year-end. 
 C. INTERESTS OF EXPERTS AND COUNSEL NOT APPLICABLE 
 ITEM 8 FINANCIAL INFORMATION 
 A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION Financial Statements See Item 18 of this Annual Report. Legal proceedings On March 25, 2003, the Company received notification that the European
Commission is investigating Lucite International Limited and Lucite
International UK Limited with regard to possible participation in
anti-competitive practices contrary to Article 81 of the Treaty of Rome. Such
investigation is a preliminary step and does not imply that the Company has
engaged in any unlawful activities relating to anti-competitive practices.
There is no strict deadline to complete anti-competitive inquiries and their
duration is determined by the complexity of each case, the exercise of the
rights of defence and by the Commissions procedures. Lucite International
Limited is co-operating fully with the European Commission on these matters. We are from time to time involved in various legal proceedings of a nature
considered normal to our business. In the event of adverse outcomes of these
proceedings, we believe that resulting liabilities are either covered by
insurance, guarantee, and established reserves or would not have a material
adverse effect on our financial condition or our results of operations. Dividend distribution policy No dividends have been paid other than payments to minority interests in our
Thai subsidiary, Thai Poly Acrylic plc and to minority interests in our
subsidiary Kaohsuing Monomer Company Ltd. There are no retained earnings available for payment of dividends under UK GAAP
as at December 31, 2003. 
 B. SIGNIFICANT CHANGES There have been no significant changes since December 31, 2003. 
 ITEM 9 THE OFFER AND LISTING 
 A. OFFER AND LISTING DETAILS All of the share capital of Lucite International Group Holdings Limited is
privately held as described elsewhere in this annual report. There is no
public market for the shares of Lucite International Group Holdings Limited. 
 B. PLAN OF DISTRIBUTION NOT APPLICABLE 
 C. MARKETS The
Senior Notes are listed on the Luxembourg Stock Exchange. 43




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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 
 B. MEMORANDUM AND ARTICLES OF ASSOCIATION Our Memorandum and Articles of Association are on file with the Registrar of
Companies for England and Wales under Company Number 3829877. As set forth in
Section 3.1 of our Memorandum of Association, Lucite International Group
Holdings Limited was established to carry on business as a general commercial
company. Directors A director of our Company need not be a shareholder. A director is permitted
to vote at any meeting of the directors or of a committee of the directors on
any resolution concerning a transaction or arrangement to which we may enter
and in which the director has a material interest, provided that the director
has disclosed to the directors the nature and extent of his interest. Each
member of the board of directors is appointed at the annual shareholder
meeting. Share Capital Our share capital consists of a single class of 175,029,700 ordinary shares,
par value £1 each, the entirety of which is owned by our parent company, Lucite
International Limited. The holders of the ordinary shares are entitled to
receive notice of and to attend all meetings of the shareholders and have one
vote for each ordinary share held at all meetings of the shareholders. The
holders of the ordinary shares are entitled to receive dividends as and when
declared from time to time by the directors and to be paid in equal amounts per
share on all ordinary shares at the time outstanding. In the event of the
dissolution, liquidation or winding-up of our Company, the holders of the
ordinary shares are entitled to receive the remaining assets of our Company as
determined by the liquidator. 44




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C. MATERIAL CONTRACTS Indenture, dated as of May 4, 2000, among Lucite International Finance plc, as
issuer, Lucite International Group Holdings Limited, Lucite International
Investment Limited, Lucite International Holdings Limited, and Lucite
International Holdco Limited, each as a guarantor, and The Bank of New York, as
trustee. Pursuant to the terms and conditions of the agreement, Lucite
International Finance issued 200,000,000 of our 101⁄4% Senior Notes due
2010, and we, along with the other guarantors, agreed to guarantee the notes.
In June 2003 a further 50,000,000 of 101⁄4% Senior Notes due 2010 were
issued under an indenture dated June 25, 2003 and we along with the other
guarantors agreed to guarantee the notes. In October 2003 we issued an
additional 200,000,000 of 101⁄4% Senior Notes due 2010 under this
indenture in exchange for the 200,000,000 101⁄4% Senior Notes issued
under the indenture dated May 4, 2000 so that such exchanged notes are fully
fungible with the 50,000,000 of 101⁄4% Senior Notes due 2010 issued June,
2003. Agreement dated September 29, 2000 between Lucite International UK Limited and
BASF Plc. Pursuant to the terms of the agreement Lucite International UK
Limited invested in and on a plant for the manufacture of acetone cyanohydrin
(ACH) on land leased from BASF at Seal Sands, Teesside, England. BASF agreed
to operate the plant on behalf of Lucite International and to supply HCN and
convert HCN to ACH for supply to Lucite International. The agreement is for a
term of 15 years from commencement of plant operations with provision for
negotiated continuation thereafter. Plant operations commenced in September
2002. 
 D. EXCHANGE CONTROLS There are no UK foreign exchange controls currently in force that restrict the
export or import of capital or that affect the remittance of interest,
dividends or other payments to non UK resident holders of the Companys
securities (except as otherwise detailed under Item 10.E Taxation). There
are no limitations imposed by UK law that restrict the right of non UK resident
or non UK citizen owners to hold or vote the securities of the Company. 
 E. TAXATION United States Federal Income Taxation The following summary describes the material United States federal income tax
consequences of the ownership of notes by US holders (as defined below) as of
the date hereof. The discussion set forth below is applicable to US holders (1)
who are residents of the United States for purposes of the current United
Kingdom/United States Income Tax Convention (the Treaty), (2) whose notes are
not, for purposes of the Treaty, effectively connected with a permanent
establishment in the UK and (3) who otherwise qualify for the full benefits of
the Treaty. Except where noted, it deals only with notes held as capital assets
and does not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, tax-exempt entities, life
insurance companies, traders in securities that elect to use a mark-to-market
method of accounting for their securities holdings, persons liable for
alternative minimum tax, persons holding notes as a part of a hedging,
integrated, conversion or constructive sale transaction or a straddle, certain
US expatriates or US holders of notes whose functional currency is not the US
dollar. If a partnership holds the notes, the tax treatment of a partner will
generally depend on the status of the partner and the activities of the
partnership. A partner of a partnership holding the notes should consult tax
advisors. Furthermore, the discussion below is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the Code), and regulations,
rulings and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified so as to result in federal
income tax consequences different from those discussed below. As used in this annual report, a US holder means a beneficial owner of a note
that is (1) a citizen or individual resident of the United States, (2) a
corporation or partnership created or organised in or under the laws of the
United States or any political subdivision, (3) an estate the income of which
is subject to United States federal income taxation regardless of its source or
(4) a trust (X) that is subject to the primary supervision of a court within
the United States and the control of one or more United States persons as
described in section 7701(a)(30) of the Code or (Y) that has a valid election
in effect under applicable United States Treasury Regulations to be treated as
a United States person. 45




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Payments of Interest Interest on a note will generally be taxable to a US holder as ordinary income
at the time it is paid or accrued in accordance with the US holders method of
accounting for United States federal income tax purposes. Interest income on a
note generally will constitute foreign source income and generally will be
considered passive income or financial services income, which are treated
separately from other types of income in computing the foreign tax credit
allowable to US holders under United States federal income tax laws. Because interest payments are made in euro, the following rules will apply.
Cash basis US holders are required to include in income the US dollar value of
the amount received, determined by translating such amount into US dollars at
the spot rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into US dollars. No exchange gain or loss will be
recognised with respect to the receipt of such payment. Accrual basis US holders may determine the amount of income recognised with
respect to such interest payment in accordance with either of two methods.
Under the first method, the US holder will be required to include in income for
each taxable year the US dollar value of the interest that has accrued during
such year, determined by translating such interest at the average rate of
exchange for the period or periods during which such interest accrued. Under
the second method, an accrual basis holder may elect to translate interest
income at the spot rate on the last day of the accrual period (or last day of
the taxable year in the case of an accrual period that straddles the holders
taxable year) or on the date the interest payment is received if such date is
within five days of the end of the accrual period. This election must be
applied consistently to all debt instruments from year to year and may not be
revoked without the consent of the IRS. Upon receipt of an interest payment on
such note (including amounts received upon the disposition of a note
attributable to accrued but unpaid interest), such US holder will recognise
ordinary income or loss in an amount equal to the difference between the US
dollar value of such payment (determined by translating the euro received at
the spot rate for the euro in effect on the date received) and the US dollar
value of the interest income that such US holder has previously included in
income with respect to such payment. Sale, Exchange and Retirement of Notes Upon the sale, exchange, retirement or other taxable disposition of a note, a
US holder will recognise gain or loss equal to the difference between the
amount realised upon the sale, exchange, retirement or other disposition (other
than amounts attributable to accrued and unpaid interest, which will be treated
as a payment of interest for federal income tax purposes) and the US Holders
tax basis in the note. If a US holder receives euros on the sale, exchange,
retirement or other disposition of the note, the amount realised generally will
be based on the spot rate of the euro on the date of the sale, exchange,
retirement or other disposition. If the notes are traded on an established
securities market, a cash basis US holder will determine the US dollar amount
realised by translating the euros received at the spot rate of exchange on the
settlement date of the sale, exchange, retirement or other disposition. An
accrual method taxpayer may elect the same treatment with respect to the
purchase and sale of notes traded on an established securities market, provided
that the election is applied consistently. This election cannot be changed
without the consent of the Internal Revenue Service. A US holders tax basis in a note generally will be the US holders cost of
obtaining the note which, in the case of a US holder that purchased such note
with euros will be the US dollar value of the euros paid for such note
determined at the time of such purchase. Gain or loss recognised by a US holder
on the sale, exchange, retirement or other disposition of a note will generally
be treated as United States source gain or loss. Subject to the foreign
currency rules discussed below, gain or loss recognised in the exchange will be
capital gain or loss and will be long-term capital gain or loss if at the time
of sale, exchange, retirement or other disposition, the note has been held for
more than one year. Capital gains of individuals derived with respect to
capital assets held for more than one year are eligible for reduced rates of
taxation. The deductibility of capital losses is subject to limitations. If a US holder purchased a note with previously owned euros, the US holder will
recognise ordinary exchange gain or loss at the time of purchase attributable
to the difference at the time of purchase, if any, between the US holders tax
basis in such euros and the fair market value of the note in US dollars on the
date of purchase. If the notes are traded on an established securities market
by a cash method taxpayer, euros paid or received are translated into US
dollars at the spot rate on the settlement date of the purchase or sale. An
accrual method taxpayer may elect the same treatment with respect to the
purchase and sale of notes traded on an established 46




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securities market, provided that the election is applied consistently. This
election cannot be changed without the consent of the Internal Revenue Service. Upon the sale, exchange or retirement of a note, a US holder will recognise
exchange gain or loss with respect to the principal amount of such note. For
these purposes, the principal amount of the note is the US holders purchase
price for the note calculated in euros on the date of purchase, and the amount
of exchange gain or loss recognised is equal to the difference between (i) the
US dollar value of the principal amount determined on the date of the sale,
exchange, retirement or other disposition of the note and (ii) the US dollar
value of the principal amount determined on the date such US holder purchased
the note. As discussed above, if the notes are sold on an established
securities market by a cash method taxpayer (or, upon election, an accrual
basis US holder), euros received are translated into US dollars at the spot
rate on the settlement date of the sale. Such gain or loss will be treated as
ordinary income or loss (and will not be treated as interest income or expense,
except to the extent provided in Treasury regulations or administrative
pronouncements of the Internal Revenue Service) and generally will be United
States source gain or loss. The realisation of such gain or loss will be
limited to the amount of overall gain or loss realised on the disposition of a
note. Exchange Gain or Loss with Respect to Foreign Currency A US holders tax basis in euros received as interest on a note will be the US
dollar value thereof at the spot rate in effect on the date the euros are
includible in income. A US holders tax basis in euros received on the sale,
exchange or retirement of a note will be equal to the US dollar value of the
euros, determined at the time of the sale, exchange or retirement. As
discussed above, if the notes are traded on an established securities market, a
cash basis US holder (or, upon election, an accrual basis US holder) will
determine the US dollar value of the euros by translating the euros received at
the spot rate of exchange on the settlement date of the sale, exchange or
retirement. Any gain or loss recognised by a US holder on a sale, exchange or other
disposition of the euros will be ordinary income or loss (and will not be
treated as interest income or expense, except to the extent provided in
Treasury regulations or administrative pronouncements of the Internal Revenue
Service) and generally will be United States source gain or loss. Information Reporting and Backup Withholding In general, information reporting requirements will apply to some payments of
principal and interest on a note and to the proceeds of the sale of a note made
to US holders other than exempt recipients (such as corporations). Backup
withholding will apply to such payments if the US holder fails to provide its
taxpayer identification number or, in the case of interest payments, fails
either to report in full dividend and interest income or to make certain
certifications of exempt status. Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against the US holders United States federal income tax
liability provided the required information is furnished to the Internal
Revenue Service. United Kingdom Taxation The following summary describes the material UK tax consequences of the
ownership of the notes as of the date hereof. Except where noted, it relates
only to the position of persons who are the absolute beneficial owners of notes
as capital assets and may not apply to persons in special situations, such as
dealers in securities or persons who are or become connected with the Issuer
other than through their holding of notes, and (other than in relation to
withholding tax) it deals only with persons who are resident or, in the case of
individuals, resident or ordinarily resident in the UK. Furthermore, the
discussion below is based upon the Issuers understanding of UK tax laws and UK
Inland Revenue practice as of the date hereof; such laws may be repealed,
revoked or modified and such practice may change so as to result in UK tax
consequences different from those discussed below. Persons considering the
purchase, ownership or disposition of notes should consult their own tax
advisers concerning the UK tax consequences in the light of their particular
situations as well as any consequences arising under the law of any other
relevant tax jurisdiction.No representations with respect to the tax
consequences to any particular holder of book-entry interests are made in this
section. 47




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Payments on the Notes No withholding or deduction on account of UK income tax will be required from
payments of principal or, for so long as the notes continue to be in bearer
form and are listed on the Luxembourg Stock Exchange or some other stock
exchange recognised by the UK Inland Revenue from payments of interest:  (a)
    
    where payment is made through a paying agent who is not in the UK; or(b)
    
    where payment is made through a paying agent in the UK and either:  (1)
    
    the beneficial owner of the notes is beneficially
entitled to the interest and is not resident in the UK, or(2)
    
    the notes are held in a recognised clearing
system within the meaning of section 841A of the Income and
Corporation Taxes Act 1988, and, in the case of (b), either any other administrative conditions imposed by
regulations made under the Income and Corporation Taxes Act 1988, as amended
from time to time, have been satisfied or the Inland Revenue has notified the
paying agent in the UK that at least one of the conditions in (b) has been
satisfied. In all other cases, and in particular where paid in respect of the
definitive notes in registered form, interest will (subject to what is said
below) be paid after deduction of income tax at the lower rate (currently 20%)
subject to any direction to the contrary by the UK Inland Revenue under an
applicable double taxation treaty. A holder who is entitled to the protection
of an applicable double taxation treaty may be eligible to recover all or part
of any UK tax withheld from payments of interest to which such holder is
beneficially entitled by making a claim under the treaty on the appropriate
form. Alternatively, a claim may be made to the UK Inland Revenue in advance
of a payment of interest. If the claim is accepted by the UK Inland Revenue,
they may authorise subsequent payments to that holder to be made without
withholding of UK tax or subject to the withholding of tax at a rate that is
less than the lower rate. Where any person in the UK, acting in the course of a trade or profession:  (a)
    
    acts as custodian of the notes, in respect of which he
receives any interest or interest is paid at his direction or with
his consent;(b)
    
    collects or secures payment of or receives interest on the
notes for another person, including the holder; or(c)
    
    otherwise acts for another person in arranging to collect or
secure payment of interest on the notes; (except in any case by means only of clearing a cheque or arranging for the
clearing of a cheque) that person (a collecting agent) is liable to account
for UK income tax at the lower rate (currently 20%) on such interest and is
entitled to deduct an amount from interest or other sums due from him to the
holder unless:  (a)
    
    the note is held in a recognised clearing system and the collecting
agent either:  (1)
    
    pays or accounts for the interest directly or
indirectly to the recognised clearing system; or(2)
    
    is acting as depository for the recognised
clearing system in respect of the Eurobond Note;  (b)
    
    the person beneficially entitled to the interest is either
not resident in the UK and beneficially owns the note or is of a
description prescribed by regulations;(c)
    
    the interest arises to non-UK resident trustees of specified
discretionary or accumulation trusts (where, among other things,
none of the beneficiaries of the trust is resident in the UK);(d)
    
    the person beneficially entitled to the interest is eligible
for specified reliefs from tax in respect of the interest;(e)
    
    the interest falls to be treated as the income of, or of the
government of, a sovereign power or of an international
organisation; or(f)
    
    the note and the interest are beneficially owned by a person
falling into specified categories, or one of other specified
circumstances applies, in each case as prescribed by regulations
made under the Income and Corporation Taxes Act 1988, which would
apply, for example, to notes held under a personal equity plan or
individual savings account, in a pension funds pooling scheme or by
an Inland Revenue-approved superannuation fund. In the case of each of the above exceptions (except (a)(2)), further
administrative conditions imposed by regulations (for instance, as to the
making of a declaration in the required form) may have to be satisfied for the
relevant exception to be available. 48




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Interest on the notes constitutes UK source income for tax purposes and, as
such, may be subject to income tax by direct assessment even where paid without
withholding. However, except for any income tax deducted as described above, a
holder who is not resident for tax purposes in the UK (other than some
trustees) will not be liable to UK tax on interest on the notes unless that
holder is chargeable to income tax or corporation tax on a branch or agency in
the UK through which it carries on a trade, profession or vocation and in
connection with which the interest is received or to which the notes are
attributable. There are exemptions for interest received by specified
categories of agent (such as some brokers and investment managers). The provision relating to additional amounts would not apply if the Inland
Revenue sought to assess directly to UK tax a person entitled to the relevant
interest. Depending on the correct legal analysis of payments made by the guarantor as a
matter of UK tax law, it is possible that payments by the guarantor would be
subject to withholding on account of UK tax, subject to any claim that could be
made under applicable double taxation treaties. Proposed EU Withholding Tax Directive In May 1998, the European Commission presented to the Council of Ministers of
the European Union a proposal to oblige member states to adopt either a
withholding tax system or an information reporting system in relation to
interest, discounts and premiums. Negotiation over the precise form of this
and related proposals are ongoing. It remains unclear whether this proposal
will be adopted and, if it is adopted, whether it will be adopted in its
current form. The withholding tax system would require a paying agent
established in a member state to withhold tax, at a minimum rate of 20%, from
any interest, discount or premium paid to an individual resident in another
member state unless such an individual presents a certificate obtained from the
tax authorities of the member state in which he is resident confirming that
those authorities are aware of the payment due to that individual. The
information reporting system would require a member state to supply to other
member states details of any payment of interest, discount or premium made by
paying agents within its jurisdiction to an individual resident in another
member state. For these purposes, the term paying agent is widely defined and
includes an agent who collects interest, discounts or premiums on behalf of an
individual beneficially entitled thereto. If this proposal is adopted, it will
not apply to payments of interest, discounts and premiums made before January
1, 2003. UK Corporation Tax Payers In general, holders that are within the charge to UK corporation tax will be
charged to tax as income on all profits and gains arising from returns on and
fluctuations in value of the notes broadly in accordance with their authorised
accounting treatment. Such a holder will generally be charged to tax in each
accounting period by reference to interest and any profits and gains (or relief
for any loss) that, in accordance with the holders authorised accounting
method, is applicable to that period. Any gains or losses held by UK resident corporate holders or other specified
holders who are within the charge to UK corporation tax which are attributable
to fluctuations in the value of the US dollar, relative to, in most cases,
sterling, will, subject to reliefs and exclusions contained in the relevant
legislation, be included in the calculation of such holders taxable income on
an accruals basis for each accounting period during which the notes are held. Other UK Tax Payers  Taxation of Chargeable Gains The notes will not be treated by the Inland Revenue as qualifying corporate
bonds within the meaning of section 117 of the Taxation of Chargeable Gains
Act 1992. Accordingly, a disposal by a holder who is UK resident for tax
purposes but who is not within the charge to UK corporation tax may give rise
to a chargeable gain or an allowable loss for purposes of the UK taxation of
chargeable gains. It should be noted that to calculate any chargeable gain arising on a transfer
of a note, sterling values are compared at acquisition and disposal.
Accordingly a chargeable gain may arise on disposal even where the foreign
currency amount obtained is less than, or equal to, the foreign currency paid
to acquire the note. 49




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Other UK Tax Payers  Accrued Income Scheme On a transfer of notes by a holder, any interest which has accrued since the
last interest payment date may be chargeable to tax as income of that holder. Stamp Duty and Stamp Duty Reserve Tax No UK stamp duty or stamp duty reserve tax is payable on the issue of the
global notes. 
 F. DIVIDENDS AND PAYING AGENTS NOT APPLICABLE 
 G. STATEMENT BY EXPERTS NOT APPLICABLE 
 H. DOCUMENTS ON DISPLAY We have filed this Annual Report on Form 20-F with the Securities and Exchange
Commission under the Securities Exchange Act of 1934. Statements made in this
annual report as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to this annual report,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. We are subject to the informational requirements of the Exchange Act and file
reports and other information with the Securities and Exchange Commission.
Reports and other information which we file with the Securities and Exchange
Commission, including this Annual Report on Form 20-F, may be inspected and
copied, at prescribed rates, at the public reference facilities of the
Securities and Exchange Commission at: 450 Fifth Street N.W.Room 1024Washington D.C. 20549
 Copies of this material may also be obtained from the Securities and Exchange
Commissions Internet site at http://www.sec.gov. The Commissions telephone
number is 1-800-SEC-0330. 
 I. SUBSIDIARY INFORMATION NOT APPLICABLE 
 ITEM 11 QUANTITIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK The principal market risks (i.e. the risk of loss arising from adverse changes
in market rates and prices) to which we are exposed are; interest rates on
debt, foreign exchange rates and fluctuations in raw material prices.
We are also exposed to rapid increases in raw material prices that may not be
reflected in our selling prices under the terms of a number of our major
customer contracts. The following risk management discussion and the estimated amounts generated
from analytical techniques are forward looking statements of market risk
assuming certain market conditions occur. Our actual results in the future may
differ materially from those projected results due to actual developments in
the market. 50




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Interest rates Based on variable rate debt levels at December 31, 2003 of £83 million a one
percent change in interest rates would impact net interest expense by
approximately £1 million per annum. Interest rate risk profile of financial liabilities As at December 31, 2002 and 2003 the Company had the following interest rate
profile for financial liabilities, after taking into account the rolling over
of interest rates under current credit agreements used to manage the interest
profile: At December 31, 2002Floating rate
    
    Fixed rate financial
    
    December 31, 2002financial liabilities
    
    liabilities
    
    Total£m
    
    £m
    
    £mCurrencySterling
    
    
    13
    
    
    
    
    
    
    
    13Euro
    
    
    94
    
    
    
    130
    
    
    
    224US Dollars
    
    
    33
    
    
    
    80
    
    
    
    113140
    
    
    
    210
    
    
    
    350Unamortised issue costs
    
    
    (3
    )
    
    
    (4
    )
    
    
    (7
    )Bank and other borrowings
    
    
    137
    
    
    
    206
    
    
    
    343
 At December 31, 2003Floating rate
    
    Fixed rate financial
    
    December 31, 2003financial liabilities
    
    liabilities
    
    Total£m
    
    £m
    
    £mCurrencySterling
    
    
    12
    
    
    
    
    
    
    
    12Euro
    
    
    71
    
    
    
    178
    
    
    
    249US Dollars
    
    
    3
    
    
    
    84
    
    
    
    8786
    
    
    
    262
    
    
    
    348Unamortised issue costs
    
    
    (3
    )
    
    
    (5
    )
    
    
    (8
    )Bank and other borrowings
    
    
    83
    
    
    
    257
    
    
    
    340
 All the groups creditors falling due within one year (other than bank and
other borrowings) are excluded from the above tables either due to the
exclusion of short-term items or because they do not meet the definition of a
financial liability. 51




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Risk Management The following table provides information about the groups financial
instruments that are sensitive to changes in interest rates as of December 31,
2003. For the Companys fixed rate and variable rate debt, the table below
presents principal amounts at December 31, 2003 and weighted average interest
rates by expected maturity date. Variable rates are based on implied forward
rates as of December 31 derived from the zero coupon yield curve as of December
31, 2003. Interest Rate Risk ManagementPrincipal Amount by expected maturity.Fair
    
    FairTotal
    
    Total
    
    value
    
    value12/31
    
    12/31
    
    12/31
    
    12/312004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    2003
    
    2002
    
    2003
    
    2002Fixed rate (USD)
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    Interest rate (fixed)
    
    
    3.31
    %Fixed rate (Euro)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176
    
    
    
    176
    
    
    
    130
    
    
    
    197
    
    
    
    130Interest rate (fixed)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.25
    %Variable rate (USD)
    
    
    
    
    
    
    4
    
    
    
    4
    
    
    
    27
    
    
    
    45
    
    
    
    2
    
    
    
    82
    
    
    
    129
    
    
    
    82
    
    
    
    129Interest rate (variable)
    
    
    
    
    
    
    4.89
    %
    
    
    5.53
    %
    
    
    6.03
    %
    
    
    6.13
    %
    
    
    5.25
    %Variable rate (Euro)
    
    
    8
    
    
    
    8
    
    
    
    8
    
    
    
    43
    
    
    
    
    
    
    
    17
    
    
    
    84
    
    
    
    91
    
    
    
    84
    
    
    
    91Interest rate (variable)
    
    
    4.59
    %
    
    
    5.05
    %
    
    
    5.47
    %
    
    
    5.85
    %
    
    
    
    
    
    
    5.64
    %
 We do not hedge our interest rate exposure in a manner that would entirely
eliminate the effects of changes in market interest rates on our cash flow and
earnings. We have entered into the following interest rate contracts to manage interest
rate risk on our variable rate senior credit facilities. The US
dollar-denominated tranche B debt ($47.9m) and the US dollar-denominated
tranche C debt ($79.8m) have been rolled over under existing credit agreements
at the rate of 3.8075% for the US dollar-denominated tranche B debt and
4.33688% for the US dollar-denominated tranche C debt; both rates are inclusive
of lender margins. Both interest rates are fixed until the end of September
2004 and accordingly these loans are shown as fixed rate financial liabilities
in the tables above. In addition a proportion of the US dollar-denominated
tranche A debt ($3.8m) has been rolled over under existing credit agreements at
a rate of 3.21875% until June 2004 and a further ($18.9m) has been rolled over
under existing credit agreements at a rate of 3.3075% until the end of
September 2004; both rates are inclusive of lender margins and are shown as
fixed rate liabilities in the tables above. In the past we have used interest rates caps to manage our interest rate risk,
the premium related to these caps was fully written off during the year ended
December 31, 2002. Foreign exchange risk management A substantial portion of our revenues is generated in currencies other than our
reporting currency of pounds sterling; in particular, we have net positive cash
inflows in US dollars and euros or euro-determined currencies. As at December 31, 2003 we had no foreign currency contracts options or other
derivatives. To date we have only used foreign currency hedging transactions
for specific cash flows. Our fixed and variable rate borrowings are denominated
in US dollars and euros to provide a hedge against foreign currency movements
but we retain a net exposure to the weakening of the US dollar and the euro
against our reporting currency of pounds sterling. Raw materials risk management During 2003 we have entered into contractual arrangements to hedge a portion of
our raw material prices against spikes in natural gas prices. The contracts
entered into are in the form of swaps, puts and calls, with settlement possible
either way depending upon the floating price of natural gas. The fair value of
the arrangement as at December 31, 2003 equates to an asset of £1.2m when the
strike price of the puts/ calls and 52




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the fixed price of the swaps is compared to the market price of natural gas;
this gain made on the contracts would be taken to operating profit under US
GAAP. Under UK GAAP there is no requirement to value a derivative financial
instrument on the balance sheet and therefore the gain has not been taken
through the profit and loss account under UK accounting. At December 31, 2003 a
volume of 7200 mm Btu was covered by the arrangement covering the period to
October 2004. 
 ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES NOT APPLICABLE 
 PART II 
 ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES NONE 
 ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
HOLDERS AND USE OF PROCEEDS NONE 
 ITEM 15 CONTROLS AND PROCEDURES Internal controls and procedures are evaluated by our Chief Executive Officer
and Chief Financial Officer by means of a cascade process throughout the group.
The cascade process requires all key managers to evaluate the effectiveness of
the internal control framework within their own particular areas of
responsibility and report any weaknesses or breakdown in controls back through
the cascade process. Based on an evaluation, as of a date within 90 days of the filing of this Form
20-F, our Chief Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934) are effective to ensure
that information required to be disclosed in the reports we file or submit
under the Securities Exchange Act of 1934 is reordered, processed, summarised
and reported on a timely basis. There have been no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses. 
 ITEM 16 
 A. AUDIT COMMITTEE FINANCIAL EXPERT Lucite Internationals audit committee does not include a financial expert as
that term is defined in applicable regulations. The members of the Lucite
International audit committee have substantial experience in assessing the
performance of companies and in understanding financial statements, accounting
issues, financial reporting and audit committee functions. However, the board
of directors does not consider any of them to be a financial expert as that
term is defined in applicable regulations. Nevertheless, the board of
directors believes that the members of the Lucite International audit committee
have the necessary expertise and experience to perform the functions required
of the audit committee and, given their respective backgrounds, it would not be
in the best interests of the company to replace any of them with another person
to qualify a member of the audit committee as a financial expert. 
 B. CODE OF ETHICS We currently operate to a code of business conduct and ethics for all
personnel. We intend to update and document this code of ethics to make it
fully consistent with recent guidance issued by the SEC on or before July 1,
2004 and such a code of ethics will be available on request. 53




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##### Table of Contents



C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Year ended December
    
    Year ended December31, 2002
    
    31, 2003£000
    
    £000Audit services fees
    
    
    270
    
    
    
    273Other accounting services fees (a)
    
    
    8
    
    
    
    14Non audit services fees (b)
    
    
    175
    
    
    
    11Taxation fees (c)
    
    
    230
    
    
    
    369Total fees paid to principal accountants
    
    
    683
    
    
    
    667
  a)
    
    Other accounting services fees are in relation to pensions audit
and covenant compliance reportingb)
    
    Non audit services fees are fees in relation to due diligence, bond
issue and support and advice for internal controls scoping and mapping.c)
    
    Taxation fees are fees in respect of tax return preparation,
consultation on tax matters and general tax advice relating to specific
transactions and other tax planning. The Audit Committee pre-approved a list of services that could be rendered by
the principal accountant in 2003 pursuant to pre-approval policies and
procedures established by the Audit Committee. For services other than those
specified, approval would need to be obtained from the Audit Committee prior to
performance of such services. Services provided by the principal accountant
during 2003 were allowable services that were either pre-approved by the Audit
Committee or were provided under contracts in existence at the date of
introduction of our policy and were grandfathered under rule 20-1(e)(1) of
regulation S-X. 
 D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES NOT APPLICABLE 
 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS NOT APPLICABLE 
 PART III 
 ITEM 17 FINANCIAL STATEMENTS The registrant has responded to Item 18 in lieu of responding to this Item. 
 ITEM 18 FINANCIAL STATEMENTS See the Index to Combined and Consolidated Financial Statements accompanying
this report on page F-1. 
 ITEM 19 EXHIBITS ExhibitNo.
    
    Description of Exhibit1.1
    
    Memorandum and Articles of Association of Lucite International Group
Holdings Limited.(1)2.1
    
    Indenture, dated May 4, 2000, among Lucite International Finance plc, the
Company, Lucite International Investment Limited, Lucite International
Holdings Limited and Lucite International Holdco Limited (collectively,
the Registrants) and The Bank of New York, as
trustee.(2)
 54




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2.2
    
    Credit Facilities, dated October 3, 1999, as amended at December 13,
2002, among Lucite International Limited, Deutsche Bank AG London and
Merrill Lynch International.(3)2.3
    
    Intercreditor Deed, dated November 2, 1999, among Lucite International
Limited, Lucite International UK Bondco Limited, Lucite International UK
Finco Limited, Deutsche Bank AG, Merrill Lynch International, the Original
Bridge Lenders and the High Yield Trustee.(4)2.4
    
    Loan Agreement, dated October 21, 1999, between Lucite International UK
Finco Limited and Lucite International UK Bondco Limited.(5)2.5
    
    Amendment Agreement, dated April 28, 2000, to Loan Agreement dated
October 21, 1999, between Lucite International UK Finco Limited and Lucite
International UK Bondco Limited. (6)2.6
    
    Indenture, dated June 25, 2003 among Lucite International Finance plc,
Lucite International Group Holdings Limited, Lucite International
Investment Limited, Lucite International Holdings Limited, Lucite
International Holdco Limited and The Bank of New York (7).4.1
    
    Agreement dated September 29, 2000, between Lucite International UK
Limited and BASF PLC relating to the supply of HCN, the construction and
operation of an ACH plant and toll manufacture of ACH.(8)8.1
    
    List of subsidiaries of Lucite
International Group Holdings Limited.(9)12.1
    
    Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) or
Rule 15d-14(a)(10)12.2
    
    Certification by the Chief Financial Officer pursuant to Rule 13a -14(a)
or Rule 15d-14(a)(10)
 The company has not filed as exhibits hereto documentation relating to any
long-term debt instrument that does not exceed the materiality threshold of 10%
of the total assets of the Company and its subsidiaries on a consolidated
basis. The Company agrees to furnish the SEC with a copy of any such instrument
upon request.   (1)
    
    Incorporated by reference to Exhibit 3.2 to the Companys Registration
Statement on Form F-4, File No. 333-12714, filed with the Securities and
Exchange Commission on October 19, 2000.(2)
    
    Incorporated by reference to Exhibit 4.1 to the Companys Registration
Statement on Form F-4, File No. 333-12714, filed with the Securities and
Exchange Commission on October 19, 2000.(3)
    
    Incorporated by reference to Exhibit 2.2 to the Companys Annual Report
for the year ended December 31, 2002 on Form 20-F, File No 333-12714 filed
with the Securities and Exchange Commission on April 11, 2003.(4)
    
    Incorporated by reference to Exhibit 10.2 to the Companys Registration
Statement on Form F-4, File No. 333-12714, filed with the Securities and
Exchange Commission on October 19, 2000.(5)
    
    Incorporated by reference to Exhibit 10.3 to the Companys Registration
Statement on Form F-4, File No. 333-12714, filed with the Securities and
Exchange Commission on October 19, 2000.(6)
    
    Incorporated by reference to Exhibit 10.4 to the Companys Registration
Statement on Form F-4, File No. 333-12714, filed with the Securities and
Exchange Commission on October 19, 2000.(7)
    
    Incorporated by reference to Exhibit T3C to Lucite International Finance
Plcs Application for Qualification of Indentures under the Trust
Indenture Act of 1939, File No. 022-28691, filed with the Securities and
Exchange Commission on August 6, 2003.(8)
    
    Incorporated by reference to Exhibit 10.5 to the Companys Annual Report
for the year ended December 31, 2001 on Form 20-F, File No. 333-12714,
filed with the Securities and Exchange Commission on April 5, 2002. 55




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(9)
    
    Incorporated by reference to Exhibit 8.1 to the Companys Annual Report
for the year ended December 31, 2002 on Form 20-F, File No 333-12714,
filed with the Securities and Exchange Commission on April 11, 2003.(10)
    
    Filed herewith. 56




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SIGNATURES The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorised the undersigned
to sign this annual report on its behalf. LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED /s/ ANNIE S. VEERMANAnnie S. VeermanChief Financial OfficerApril 1, 2004
 57




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS LUCITE INTERNATIONAL GROUP HOLDINGS LIMITEDReport of independent accountants
    
    
    F-2Consolidated profit and loss accounts for the year ended December 31,
2003, the year ended December 31, 2002 and the year ended December 31,
2001.
    
    
    F-3Consolidated statements of total recognised gains and losses for the year
ended December 31, 2003, the year ended December 31, 2002 and the year
ended December 31, 2001.
    
    
    F-4Consolidated balance sheets as at December 31, 2003 and 2002.
    
    
    F-5Consolidated cash flow statements for the year ended December 31, 2003,
the year ended December 31, 2002 and the year ended December 31, 2001.
    
    
    F-6Reconciliation of movements in equity shareholders funds for the year ended December 31, 2003, the year ended
December 31, 2002 and the year ended December 31, 2001.
    
    
    F-7Notes to the consolidated financial statements.
    
    
    F-8LUCITE INTERNATIONAL HOLDINGS LIMITEDReport of independent accountants
    
    
    F-66Consolidated profit and loss accounts for the year ended December 31,
2003, the year ended December 31, 2002 and the year ended December 31,
2001.
    
    
    F-67Consolidated statements of total recognised gains and losses for the year
ended December 31, 2003, the year ended December 31, 2002 and the year
ended December 31, 2001.
    
    
    F-68Consolidated balance sheets as at December 31, 2003 and 2002.
    
    
    F-69Consolidated cash flow statements for the year ended December 31, 2003,
the year ended December 31, 2002 and the year ended December 31, 2001.
    
    
    F-70Reconciliation of movements in equity shareholders funds for the year ended December 31, 2003,
the year ended December 31, 2002 and the year ended December 31, 2001.
    
    
    F-71Notes to the consolidated financial statements.
    
    
    F-72LUCITE INTERNATIONAL HOLDCO LIMITEDReport of independent accountants
    
    
    F-74Consolidated profit and loss accounts for the year ended December 31,
2003, the year ended December 31, 2002 and the year ended December 31,
2001.
    
    
    F-75Consolidated statements of total recognised gains and losses for the year
ended December 31, 2003, the year ended December 31, 2002 and the year
ended December 31, 2001.
    
    
    F-76Consolidated balance sheets as at December 31, 2003 and 2002
    
    
    F-77Consolidated cash flow statements for the year ended December 31, 2003,
the year ended December 31, 2002 and the year ended December 31, 2001.
    
    
    F-78Reconciliation of movements in equity shareholders funds for the year ended December 31, 2003,
the year ended December 31, 2002 and the year ended December 31, 2001.
    
    
    F-79Notes to the consolidated financial statements
    
    
    F-80




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REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Lucite International Group
Holdings Limited. We have audited the accompanying consolidated balance sheets of Lucite
International Group Holdings Limited (the Company) as of December 31, 2003
and 2002, and the related consolidated profit and loss accounts, consolidated
cash flow statements, consolidated statement of total recognised gains and
losses and reconciliation of movements in shareholders funds for each of the
three years ended December 31, 2003. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 financial position of the Company at
December 31, 2003 and 2002, and the results of its operations and its cash
flows for each of the three years ended December 31, 2003, in conformity with
accounting principles generally accepted in the United Kingdom. Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the
United States of America. The application of the latter would have affected
results of operations for each of the three years ended December 31, 2003 and
consolidated shareholders funds at December 31, 2003 and 2002, to the extent
summarised in Note 26 to the financial statements. PricewaterhouseCoopers LLP
Chartered Accountants
London, EnglandApril 1, 2004 F-2




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED 
 CONSOLIDATED PROFIT AND LOSS ACCOUNT Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003Notes
    
    £m
    
    £m
    
    £mTurnover including share of joint venture
    
    
    
    
    
    
    589
    
    
    
    582
    
    
    
    694Less: share of joint ventures turnover
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    Group turnover
    
    
    3,4
    
    
    
    577
    
    
    
    582
    
    
    
    694Net operating costs before exceptional
operating expenses and amortisation of
intangible fixed assets
    
    
    
    
    
    
    (550
    )
    
    
    (550
    )
    
    
    (620
    )Exceptional operating expenses
    
    
    6
    
    
    
    (4
    )
    
    
    
    
    
    
    Amortisation of goodwill and other
intangible fixed assets
    
    
    10
    
    
    
    (5
    )
    
    
    (5
    )
    
    
    (5
    )Total net operating costs
    
    
    4
    
    
    
    (559
    )
    
    
    (555
    )
    
    
    (625
    )Group operating profit
    
    
    3,4
    
    
    
    18
    
    
    
    27
    
    
    
    69Share of operating profit from joint venture
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Operating profit including joint venture
    
    
    
    
    
    
    20
    
    
    
    27
    
    
    
    69Net interest payable and similar charges
    
    
    8
    
    
    
    (28
    )
    
    
    (29
    )
    
    
    (37
    )Profit/(loss) on ordinary activities before
taxation
    
    
    7
    
    
    
    (8
    )
    
    
    (2
    )
    
    
    32Taxation on profit/(loss) on ordinary
activities
    
    
    9
    
    
    
    6
    
    
    
    2
    
    
    
    (6
    )Profit/(loss) on ordinary activities after
taxation
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    26Equity minority interests
    
    
    
    
    
    
    (1
    )
    
    
    (3
    )
    
    
    (4
    )Profit/(loss) for the financial year
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    22
 Group turnover and group operating profit relate entirely to continuing
operations. There is no difference between the results stated above and their historical
cost equivalents. The accompanying notes are an integral part of these financial statements. F-3




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED 
 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mProfit/(loss) for the financial year
    
    
    (3
    )
    
    
    (3
    )
    
    
    22Currency translation differences on foreign
currency net investments net of translation on
foreign currency borrowings
    
    
    2
    
    
    
    (21
    )
    
    
    (19
    )Total recognised gain/(loss) relating to the year
    
    
    (1
    )
    
    
    (24
    )
    
    
    3
 The accompanying notes are an integral part of these financial statements F-4




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED 
 CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2003 AND 2002 2002
    
    2003Notes
    
    £m
    
    £mFixed assetsIntangible assets
    
    
    10
    
    
    
    89
    
    

    
    83Negative goodwill
    
    
    10
    
    
    
    (6
    )
    
    
    (5
    )Tangible assets
    
    
    11
    
    
    
    358
    
    
    
    332441
    
    
    
    410Current assetsStocks
    
    
    12
    
    
    
    75
    
    
    
    75Debtors
    
    
    13
    
    
    
    96
    
    
    
    107Cash at bank and in hand
    
    
    
    
    
    
    11
    
    
    
    30182
    
    
    
    212Total assets
    
    
    
    
    
    
    623
    
    
    
    622Creditors: amounts falling due within one year
    
    
    14
    
    
    
    (119
    )
    
    
    (115
    )Net current assets
    
    
    
    
    
    
    63
    
    
    
    97Total assets less current liabilities
    
    
    
    
    
    
    504
    
    
    
    507Creditors: amounts falling due after more than one year
    
    
    15
    
    
    
    (330
    )
    
    
    (332
    )Provisions for liabilities and charges
    
    
    18
    
    
    
    (32
    )
    
    
    (27
    )Net assets
    
    
    
    
    
    
    142
    
    
    
    148Shareholders equityCalled up equity share capital
    
    
    19
    
    
    
    175
    
    
    
    175Profit and loss account
    
    
    
    
    
    
    (45
    )
    
    
    (42
    )Total equity shareholders funds
    
    
    
    
    
    
    130
    
    
    
    133Equity minority interests
    
    
    
    
    
    
    12
    
    
    
    15Capital employed
    
    
    
    
    
    
    142
    
    
    
    148
 The accompanying notes are an integral part of these financial statements F-5




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED 
 CONSOLIDATED CASH FLOW STATEMENT Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003Notes
    
    £m
    
    £m
    
    £mNet cash inflow from
operating activities
    
    
    21
    (a)
    
    
    83
    
    
    
    57
    
    
    
    94Returns on investments and
servicing of finance
    
    
    21
    (b)
    
    
    (33
    )
    
    
    (28
    )
    
    
    (33
    )Taxation
    
    
    
    
    
    
    (3
    )
    
    
    (4
    )
    
    
    (4
    )47
    
    
    
    25
    
    
    
    57Capital expenditure and
financial investment
    
    
    21
    (c)
    
    
    (26
    )
    
    
    (28
    )
    
    
    (32
    )Acquisitions and disposalsAcquisition of ICI Acrylics
    
    
    21
    (d)
    
    
    (1
    )
    
    
    
    
    
    
    Other acquisitions
    
    
    21
    (d)
    
    
    5
    
    
    
    
    
    
    
    Net cash inflow /(outflow)
before use of liquid
resources and financing
    
    
    
    
    
    
    25
    
    
    
    (3
    )
    
    
    25Financing
    
    
    21
    (e)
    
    
    (23
    )
    
    
    (5
    )
    
    
    (5
    )Increase/ (decrease) in cash
    
    
    21
    (f)
    
    
    2
    
    
    
    (8
    )
    
    
    20
 The accompanying notes are an integral part of these financial statements F-6




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED 
 RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS FUNDS Profit and lossShare capital
    
    account
    
    Total£m
    
    £m
    
    £mBalance at December 31, 2000
    
    
    175
    
    
    
    (20
    )
    
    
    155Loss for the financial year
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Currency translation adjustment
    
    
    
    
    
    
    2
    
    
    
    2Balance at December 31, 2001
    
    
    175
    
    
    
    (21
    )
    
    
    154Loss for the financial year
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Currency translation adjustment
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )Balance at December 31, 2002
    
    
    175
    
    
    
    (45
    )
    
    
    130Profit for the financial year
    
    
    
    
    
    
    22
    
    
    
    22Currency translation adjustment
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Balance at December 31, 2003
    

    
    175
    
    
    
    (42
    )
    
    
    133
 The dividends payable by our subsidiaries in Taiwan (Kaohsuing Monomer Company)
and Thailand (Thai Poly Acrylic Public Company Limited) are subject to local
legal restrictions. Undistributed profits are, in the main, employed in the
business of our subsidiaries. The undistributed income of the businesses
overseas may be liable to overseas taxes and/or United Kingdom taxation, after
allowing for double taxation relief, if they were to be distributed as
dividends. The cumulative exchange gains and losses on the translation of foreign currency
financial statements into pounds sterling are taken into account in the above
reconciliation of movements in combined net investment and consolidated
shareholders funds. The accompanying notes are an integral part of these financial statements F-7




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS The consolidated financial statements included herein do not comprise the
Companys statutory accounts within the meaning of section 240 of the Companies
Act 1985 of Great Britain. Statutory accounts for the year ended December 31,
2003 have not yet been delivered to the Registrar of the Companies for England
and Wales.  1
    
    Accounting Policies The financial statements have been prepared under the historical cost
convention in accordance with applicable accounting standards in the United
Kingdom. Accounting policies conform with UK Generally Accepted Accounting Principles
(UK GAAP). The principal accounting policies, which have been applied
consistently, are set out below. Basis of consolidation The consolidated financial statements comprise the financial statements of
Lucite International Group Holdings Limited and its subsidiaries. All
inter-company transactions are eliminated, as are any inter-company profits
included in a subsidiary companys profit and loss account, which were not
realised at the balance sheet date. Acquisitions are accounted for using the purchase method of accounting. The
purchase consideration of an investment is allocated to the assets and
liabilities acquired on the basis of fair value at the date of acquisition. Turnover Turnover represents the invoiced value of goods sold to third parties net of
sales discounts and value added taxes. Turnover excludes sales between
entities within the group. Turnover is recognised when the goods are shipped,
when prices are determinable and when collectivity is considered probable. For arrangements where we ship goods to our customers it is our business
practice to organise the shipping and arrange the insurance for the products on
behalf of our customer. Our terms of business are such that title to the goods
passes to our customers at the port of loading once the goods have passed the
ships rail. It is at this point that we recognise revenue on those goods as it
is at this point that both title and the risks and rewards of ownership
transfer to our customers. The pricing for products sold is determined by prevailing market prices (market
contracts and arrangements) or is linked by a formula to published raw material
prices. Shipping and handling costs Shipping and handling costs are recognised as they are incurred. These costs
are reported within distribution costs in the profit and loss account. Goodwill On the acquisition of a business, fair values are attributed to the net assets
acquired. Goodwill arises where the fair value of the consideration given for
a business exceeds such net assets. Goodwill arising on acquisition is
capitalised as an intangible asset and is amortised through the profit and loss
account over a period of 20 years unless it is considered that it has a
materially different useful economic life. Negative goodwill arising in acquisitions is included within fixed assets and
released to the profit and loss in the period in which the fair values of the
non monetary assets purchased on the same acquisition are recovered, whether
through depreciation or sale. F-8




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS- (Continued) Tangible fixed assets Tangible fixed assets are stated at cost less accumulated depreciation. The
book value of each tangible fixed asset is written off to its residual value
over its estimated remaining useful economic life. Reviews are made annually
of the estimated remaining lives of individual productive assets, taking
account of commercial and technological obsolescence as well as normal wear and
tear. Estimated useful economic lives of tangible fixed assets are as follows: Buildings
    
    20-30 yearsPlant and equipment- plant and machinery
    
    10-20 years- computer hardware and software
    
    3-4 years
 Freehold land and assets in the course of construction are not depreciated. Some manufacturing facilities need to be partially or completely overhauled
approximately every two to three years. At the time of the overhaul, the
Company assesses the overhauls impact on the manufacturing facility
considering such factors as the facilitys estimated useful life, capacity and
efficiency. Only costs for major overhauls, which enhance capacity and
efficiency of facilities and/or extend their useful life are capitalised and
amortised over the estimated period until the next major overhaul. Normal
maintenance and repairs of all other plant and equipment are expensed as
incurred. Leased assets Where assets are financed by leasing agreements that give rights approximating
to ownership, (finance leases) the assets are treated as if they had been
purchased outright. The amount capitalised is the present value of the minimum
lease payments payable during the lease term. The corresponding leasing
commitments are shown as amounts payable to the lessor. Depreciation on the
relevant assets is charged to the profit and loss account. Lease payments are analysed between capital and interest components so that the
interest element of the payment is charged to the profit and loss account over
the period of the lease and represents a constant of the balance of capital
repayments outstanding. All other leases are treated as operating leases. Their annual rentals are
charged to the profit and loss account on a straight-line basis over the term
of the lease. Pension costs The pension costs relating to the UK retirement plan are assessed in accordance
with the advice of independent qualified actuaries. The amounts so determined
include the regular cost of providing the benefits under the plan, which should
be a level percentage of current and expected future earnings of the employees
covered under the plan. Variations from the regular pension cost are spread on
a systematic basis over the estimated average remaining service lives of
current employees in the plan. Non-UK subsidiaries recognise the expected cost
of providing pensions on a systematic basis over the average remaining service
lives of employees in accordance with the advice of independent qualified
actuaries. Research and development Research and development expenditure is charged to the profit and loss account
in the year in which it is incurred. The principal components of this
expenditure are: salaries; legal costs relating to patents and trademarks;
administrative costs; contractor fees; and IT-related costs. F-9




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS- (Continued) Stocks Stocks are stated at the lower of cost and net realisable value. The first in,
first out or an average method of valuation is used. In determining cost for
stock valuation purposes, a proportion of labour and overhead expense that
relates to production has been absorbed. Foreign currencies Profit and loss accounts of subsidiary undertakings, which are denominated in
foreign currencies, are translated into Sterling at average exchange rates for
the relevant accounting periods. Assets and liabilities are translated at
exchange rates ruling at the balance sheet date. Exchange differences arising
on the re-translation of the results and net investment in subsidiary
undertakings are taken directly to reserves. Exchange differences on relevant foreign currency loans which are taken out as
a currency hedge against investments in foreign subsidiaries are recorded in
reserves in the consolidated balance sheet to the extent that they are matched
by exchange differences arising on translation of foreign currency net
investment. Exchange differences on all other transactions are included in the
determination of profit or loss for the year. Environmental liabilities The Company is exposed to environmental liabilities relating to its past
operations principally in respect of soil and groundwater remediation costs.
Provisions for these costs are made when expenditure on remedial work is
probable and the cost can be estimated within a reasonable range of possible
outcomes. Taxation The charge for taxation is based on the profit/(loss) for the year and takes
into account taxation deferred because of timing differences between the
treatment of certain items for taxation and for accounting purposes. Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right to
pay less tax in the future have occurred at the balance sheet date. A net
deferred tax asset is regarded as recoverable and therefore recognised only
when, on the basis of all available evidence, it can be regarded as more likely
than not that there will be suitable taxable surpluses from which the future
reversal of the underlying timing differences can be deducted. Deferred tax
balances are not discounted. Fair value of financial instruments The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amount of financial instruments that are
recognised at historical cost amounts. The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:  
    
    Cash and cash equivalents, trade debtors, certain other current
assets, short-term borrowings, and current maturities of long-term
debt: The amounts reported in the consolidated balance sheets
approximate to fair value.
    
    Loans: The amounts reported for fixed rate debt are calculated by
reference to market values at the balance sheet date. Other debt is
held at variable rates and fair values approximate to book values. F-10




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS- (Continued) Derivative financial instruments From time to time the Company has entered into interest rate caps to hedge its
variable rate debt. The Company does not hold or issue derivative financial
instruments for trading purposes. The interest rate swap and cap agreements are
designated as hedges, and effectiveness is determined by matching the principal
balance and terms with that specific obligation. Amounts due to or from
interest rate swap counterparties are recorded in interest rate expense in the
period in which they accrue. The premiums paid to purchase interest rate caps
are included in net debt and amortised to interest expense over the shorter of
the original term of the agreements or the life of the financial instruments to
which they are matched. Provisions Estimated costs to be incurred in connection with restructuring measures are
provided for when the Company has a constructive obligation, which is generally
the announcement date. The announcement date is the date at which the plan is
announced officially to employees with sufficient detailed information to
enable the employees to estimate the redundancy indemnities to which they are
entitled. Borrowings Borrowings are initially stated at the fair value of the consideration received
after deduction of issue costs. Issue costs, together with finance charges are
charged to the profit and loss account over the term of the borrowings and
represent a constant proportion of the balance of capital repayments
outstanding. Unamortised issue costs are deducted from the carrying value of
related borrowings.  2
    
    Business description Lucite International Group Holdings Limited is a wholly owned subsidiary of
Lucite International Limited. Lucite International Limited does not trade and
in addition to its investment in Lucite International Group Holdings Limited it
has also invested $8 million (£5 million) into Lucite International China
Holdings Limited, an entity established in the UK to invest in the construction
and operation of an MMA facility in China. The principal shareholder and
ultimate controlling party of Lucite International Limited is Charterhouse
Capital Partners LLP. Lucite International Group Holdings Limited is a
non-trading holding company for the remainder of the subsidiary companies
included in the Lucite International Group. These subsidiary companies are
listed in Note 28 to these financial statements. Lucite International Group
Holdings Limited and subsidiary companies (together referred to as Lucite or
the Company) are engaged in the production and distribution of methacrylate
monomers, the principal building block of acrylic, and the production and
distribution of acrylic based polymers, resins, sheet and composites. These
products are manufactured at facilities located in the Americas, Europe and
Asia and are sold throughout the world. F-11




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS- (Continued)  3
    
    Segmental reporting Class of business The Companys business comprises the production and distribution of Upstream
products, being methyl methacrylate monomers and speciality methacrylates
(methacrylic acid and higher monomers) and Downstream products, being acrylic
sheet, speciality polymers, resins and composites. Turnover, operating profit, depreciation, amortisation, total assets less
current liabilities and capital expenditure attributable to each different
class of business are as follows: Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mTurnoverUpstream
    
    
    374
    
    
    
    402
    
    
    
    511Downstream
    
    
    298
    
    
    
    274
    
    
    
    276672
    
    
    
    676
    
    
    
    787Inter-class eliminations
    
    
    (95
    )
    
    
    (94
    )
    
    
    (93
    )577
    
    
    
    582
    
    
    
    694Operating profitUpstream
    
    
    16
    
    
    
    12
    
    
    
    55Downstream
    
    
    6
    
    
    
    15

    
    
    
    1422
    
    
    
    27
    
    
    
    69Exceptional operating expenses
    
    
    (4
    )
    
    
    
    
    
    
    Operating profit
    
    
    18
    
    
    
    27
    
    
    
    69DepreciationUpstream
    
    
    22
    
    
    
    31
    
    
    
    31Downstream
    
    
    12
    
    
    
    9
    
    
    
    834
    
    
    
    40
    
    
    
    39AmortisationUpstream
    
    
    3
    
    
    
    3
    
    
    
    3Downstream
    
    
    2
    
    
    
    2
    
    
    
    25
    
    
    
    5
    
    
    
    5
 The upstream business sells to third parties and within the group. The
intra-group transactions are eliminated within the inter-class eliminations
shown above. F-12




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -(Continued) 2002
    
    2003£m
    
    £mTotal assets less current liabilitiesUpstream
    
    
    336
    
    
    
    324Downstream
    
    
    162
    
    
    
    156Net operating assets
    
    
    498
    
    
    
    480Assets and liabilities that are not attributable to types of business:- cash at bank and in hand
    
    
    11
    
    
    
    30- Deferred taxation asset
    
    
    12
    
    
    
    9- bank and other borrowings (note 14 )
    
    
    (17
    )
    
    
    (12
    )504
    
    
    
    507Capital
expenditure - cash flowUpstream
    
    
    20
    
    
    
    23Downstream
    
    
    8
    
    
    
    928
    
    
    
    32
 Geographical analysis The Companys products are manufactured at facilities located in the Americas,
Europe and Asia and are sold throughout the world. Sales between group
companies are recorded at managements estimate of external market prices.
Turnover according to geographical location of the operating unit and the
geographical location of the customer together with an analysis of the net book
amount of tangible fixed assets according to the geographical location of these
assets, are presented on the following page. The Directors of the Company are of the opinion that disclosure of
profitability and trading assets by geographical location would be seriously
prejudicial to the interests of the Company. Accordingly, they have elected to
exercise the exemption from such disclosure permitted by Statement of Standard
Accounting Practice No 25, Segmental Reporting. F-13




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS- (Continued) Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mTurnover by geographical location of
operating unitEuropeExternal
    
    
    203
    
    
    
    181
    
    
    
    241Intra-group
    
    
    15
    
    
    
    13
    
    
    
    14218
    
    
    
    197
    
    
    
    255AmericasExternal
    
    
    294
    
    
    
    289
    
    
    
    319Intra-group
    
    
    10
    
    
    
    15
    
    
    
    5304
    
    
    
    304
    
    
    
    324AsiaExternal
    
    
    68
    
    
    
    99
    
    
    
    119Intra-group
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    99
    
    
    
    119Rest of worldExternal
    
    
    12
    
    
    
    13
    
    
    
    15Intra-group
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    13
    
    
    
    15602
    
    
    
    610
    
    
    
    713Intra-group eliminations
    
    
    (25
    )
    
    
    (28
    )
    
    
    (19
    )577
    
    
    
    582
    
    
    
    694
 Included in turnover for Asia are the sales recorded by Kaohsiung Monomer
Company Limited (KMC). Due to delayed completion of the sale of KMC from ICI
the Company has accounted for KMC as a joint venture to September 1, 2001.
Since September 1, 2001, following the purchase from ICI of the remaining
shares in the majority shareholder, the results of KMC have been fully
consolidated Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mTurnover by geographical location of customerEurope
    
    
    181
    
    
    
    163
    
    
    
    201Americas
    
    
    286
    
    
    
    279
    
    
    
    308Asia
    
    
    83
    
    
    
    110
    
    
    
    146Rest of world
    
    
    27
    
    
    
    30
    
    
    
    39577
    
    
    
    582
    
    
    
    694
 2002
    
    2003£m
    
    £mTangible fixed assets by geographical location of operating unitEurope
    
    
    157
    
    
    
    147Americas
    
    
    174
    
    
    
    155Asia
    
    
    24
    
    
    
    27Rest of world
    
    
    3
    
    
    
    3358
    
    
    
    332
 F-14




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS- (Continued)  4
    
    Cost of sales, gross profit, distribution costs and administrative
expenses Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mGroup turnover
    
    
    577
    
    
    
    582
    
    
    
    694Cost of sales
    
    
    (458
    )
    
    
    (457
    )
    
    
    (532
    )Gross profit
    
    
    119
    
    
    
    125
    
    
    
    162Distribution costs
    
    
    43
    
    
    
    45
    
    
    
    42Administrative expenses before
exceptional expenses, amortisation of
goodwill and research and development
costs
    
    
    40
    
    
    
    38
    
    
    
    37- exceptional operating expenses (note 5)
    
    
    4
    
    
    
    
    
    
    
    - amortisation of goodwill and other
intangible fixed assets (note 10)
    
    
    5
    
    
    
    5
    
    
    
    5Research and development costs
    
    
    9
    
    
    
    10
    
    
    
    9Total administrative expenses
    
    
    58
    
    
    
    53
    
    
    
    51Net operating costs
    
    
    101
    
    
    
    98
    
    
    
    93Total operating costs
    
    
    559
    
    
    
    555
    
    
    
    625Group operating profit
    
    
    18
    
    
    
    27
    
    
    
    69
  5
    
    Staff costs Year ended
    
    Year ended
    
    Year endedDecember
    
    December
    
    December31, 2001
    
    31, 2002
    
    31, 2003£m
    
    £m
    
    £mStaff costsSalaries
    
    
    57
    
    
    
    61
    
    
    
    61Social security costs
    
    
    5
    
    
    
    5
    
    
    
    5Pension and post retirement benefit costs
    
    
    7
    
    
    
    7
    
    
    
    11Other employment costs
    
    
    3
    
    
    
    3
    
    
    
    372
    
    
    
    76
    
    
    
    80Severance costs charged in arriving at profit before taxation
    
    
    4
    
    
    
    
    
    
    
    Employee costs charged in arriving at profit before taxation.
    
    
    76
    
    
    
    76
    
    
    
    80
 F-15




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS- (Continued) Employee numbers Average number of people employed by class of business and geographical
location of operating unit. Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003Number
    
    Number
    
    NumberUpstream
    
    
    620
    
    
    
    680
    
    
    
    676Downstream
    
    
    1,367
    
    
    
    1,320
    
    
    
    1,3061,987
    
    
    
    2,000
    
    
    
    1,982Europe
    
    
    854
    
    
    
    828
    
    
    
    811Americas
    
    
    548
    
    
    
    531
    
    
    
    515Asia
    
    
    378
    
    
    
    454
    
    
    
    462Rest of World
    
    
    207
    
    
    
    187
    
    
    
    1941,987
    
    
    
    2,000
    
    
    
    1,982
 December 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003Number
    
    Number
    
    NumberNumber of employees at period end
    
    
    2,006
    
    
    
    1,993
    
    
    
    1,995
  6
    
    Exceptional operating expenses For the year ended December 31, 2001 £4 million has been charged representing a program to reduce fixed costs in
the UK manufacturing area, including a reduction in headcount by 54. The
reductions are fully defined and announced and most of the provision has now
been paid. This initiative is part of a long term manufacturing productivity
plan.  7
    
    Profit/(loss) on ordinary activities before taxation Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mProfit/(loss) on ordinary activities
before taxation is stated after
charging:Depreciation of tangible fixed assets:- owned assets
    
    
    31
    
    
    
    37
    
    
    
    36- capitalised plant shut-down costs
    
    
    3
    
    
    
    3
    
    
    
    3Amortisation of goodwill
    
    
    5
    
    
    
    5
    
    
    
    5Hire of machinery and equipment
    
    
    1
    
    
    
    1
    
    
    
    2
 F-16




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued)  8
    
    Net interest payable and other charges Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mInterest payable on Senior Credit Facilities
    
    
    17
    
    
    
    12
    
    
    
    10Interest payable on Senior notes
    
    
    13
    
    
    
    13
    
    
    
    16Interest payable on other external bank loans and
overdrafts
    
    
    1
    
    
    
    
    
    
    
    Covenant waiver fees
    
    
    
    
    
    
    1
    
    
    
    Fees on £40m debt facility with parent company
    
    
    
    
    
    
    1
    
    
    
    2Amortisation of issue costs on Senior Credit Facilities
    
    
    1
    
    
    
    1
    
    
    
    1Foreign exchange loss arising on external debt
    
    
    
    
    
    
    1
    
    
    
    832
    
    
    
    29
    
    
    
    37Interest receivable and similar income
    
    
    (1
    )
    
    
    
    
    
    
    Foreign exchange gain arising on external debt
    
    
    (3
    )
    
    
    
    
    
    
    Net interest payable
    
    
    28
    
    
    
    29
    
    
    
    37
  9
    
    Taxation on profit/(loss) on ordinary activities Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mUnited Kingdom taxationCorporation tax at prevailing rates
    
    
    
    
    
    
    
    
    
    
    Transfer from deferred taxation
    
    
    (4
    )
    
    
    (11
    )
    
    
    (4
    )
    
    
    (11
    )
    
    
    Overseas taxationOverseas taxes
    
    
    1
    
    
    
    4
    
    
    
    6Joint ventures
    
    
    1
    
    
    
    
    
    
    
    Total current tax
    
    
    2
    
    
    
    4
    
    
    
    6Deferred taxation
    
    
    (4
    )
    
    
    5
    
    
    
    (2
    )
    
    
    9
    
    
    
    6Taxation charge/(credit) for the year
    
    
    (6
    )
    
    
    (2
    )
    
    
    6
 F-17




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS   (Continued) Factors effecting tax charge for the year Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mProfit/(loss) on ordinary activities before tax
    
    
    (8
    )
    
    
    (2
    )
    
    
    32Standard rate of corporation tax in the UK
    
    
    30
    %
    
    
    30
    %
    
    
    30
    %Profit/(loss) on ordinary activities
multiplied by the standard rate of corporation
tax in the UK
    
    
    (2
    )
    
    
    (1
    )
    
    
    10Effects of:Other non taxable/deductible income and charges
    
    
    (4
    )
    
    
    (11
    )
    
    
    (10
    )Local taxes
    
    
    1
    
    
    
    1
    
    
    
    Capital allowances in excess of depreciation
    
    
    2
    
    
    
    3
    
    
    
    Short term timing differences
    
    
    (4
    )
    
    
    2
    
    
    
    3Tax losses created not utilised
    
    
    10
    
    
    
    10
    
    
    
    3Adjustments in respect of prior periods
    
    
    (1
    )
    
    
    
    
    
    
    Current tax charge for the year
    
    
    2
    
    
    
    4
    
    
    
    6
 Factors that may effect future tax charges The group has approximately £169 million (2002: £147 million) of losses
available to carry forward to future years. On the basis of all available
evidence the directors estimate that the company will utilise approximately
£62 million (2002: £69 million) against future profits in the United States. A
deferred tax asset of £24 million (2002: £27 million) has therefore been
provided in respect of this amount. No deferred tax has been provided in
respect of the remaining losses as on the basis of all available information
there is not sufficient certainty that they will be used in the foreseeable
future. F-18




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS   (Continued)  10
    
    Intangible assets Other
    
    
    
    
    
    Negativeintangibles
    
    Goodwill
    
    goodwill
    
    Total£m
    
    £m
    
    £m
    
    £mCostAt December 31, 2001
    
    
    1
    
    
    
    105
    
    
    
    (6
    )
    
    
    100Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    At December 31, 2002
    
    
    1
    
    
    
    105
    
    
    
    (6
    )
    
    
    100Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    At December 31, 2003
    
    
    1
    
    
    
    105
    
    
    
    (6
    )
    
    
    100Accumulated amortisationAt December 31, 2001
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    12Charge for year
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5At December 31, 2002
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    17Charge/(credit) for year
    
    
    
    
    
    
    6
    
    
    
    (1
    )
    
    
    5At December 31, 2003
    
    
    
    
    
    
    23
    
    
    
    (1
    )
    
    
    22Net book amounts atDecember 31, 2001
    
    
    1
    
    
    
    93
    
    
    
    (6
    )
    
    
    88December 31, 2002
    
    
    1
    
    
    
    88
    
    
    
    (6
    )
    
    
    83December 31, 2003
    
    
    1
    
    
    
    82
    
    
    
    (5
    )
    
    
    78
 F-19




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS   (Continued)  11
    
    Tangible fixed assets Payments onaccount andassets in theLand and
    
    Plant and
    
    course ofbuildings
    
    equipment
    
    construction
    
    Total£m
    
    £m
    
    £m
    
    £mCostAt December 31, 2001
    
    
    44
    
    
    
    696
    
    
    
    43
    
    
    
    783Capital expenditure
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    28Transfers of assets into use
    
    
    
    
    
    
    22
    
    
    
    (22
    )
    
    
    Exchange adjustments
    
    
    (2
    )
    
    
    (26
    )
    
    
    (1
    )
    
    
    (29
    )Disposals
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )At December 31, 2002
    
    
    42
    
    
    
    687
    
    
    
    48
    
    
    
    777Capital expenditure
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    33Transfers of assets into use
    
    
    2
    
    
    
    40
    
    
    
    (42
    )
    
    
    Exchange adjustments
    
    
    (2
    )
    
    
    (24
    )
    
    
    (1
    )
    
    
    (27
    )Disposals
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )At December 31, 2003
    
    
    42
    
    
    
    698
    
    
    
    38
    
    
    
    778Accumulated depreciationAt December 31, 2001
    
    
    13
    
    
    
    380
    
    
    
    
    
    
    
    393Charge for year
    
    
    1
    
    
    
    39
    
    
    
    
    
    
    
    40Exchange movement
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Disposals
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )At December 31, 2002
    
    
    14
    
    
    
    405
    
    
    
    
    
    
    
    419Charge for year
    
    
    1
    
    
    
    38
    
    
    
    
    
    
    
    39Exchange movement
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Disposals
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )At December 31, 2003
    
    
    15
    
    
    
    431
    
    
    
    
    
    
    
    446Net book amounts atDecember 31, 2001
    
    
    31
    
    
    
    316
    
    
    
    43
    
    
    
    390December 31, 2002
    
    
    28
    
    
    
    282
    
    
    
    48
    
    
    
    358December 31, 2003
    
    
    27
    
    
    
    267
    
    
    
    38
    
    
    
    332
 Included in land and buildings is £9 million (2002: £8 million) in respect of
the cost of land which is not subject to depreciation. The net book value of tangible fixed assets includes capitalised finance
leases of £3 million (2002: £4 million) comprising cost of £5 million (2002:
£6 million) less accumulated depreciation of £2 million (2002: £2 million).
The depreciation charge for the year in respect of capitalised finance leases
was £0.4 million (2002: £0.4 million). 2002
    
    2003£'m
    
    £'mAnalysis of net book amount of land and buildingsFreehold
    
    
    24
    
    
    
    22Long leasehold (over 50 years unexpired)
    
    
    4
    
    
    
    528
    
    
    
    27
 F-20




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS   (Continued)  12
    
    Stocks 2002
    
    2003£m
    
    £mRaw materials and consumables
    
    
    26
    
    
    
    29Finished goods and goods for resale
    
    
    49
    
    
    
    4675
    
    
    
    75
  13
    
    Debtors 2002
    
    2003£m
    
    £mTrade debtors
    
    
    77
    
    
    
    89Other prepayments and accrued income
    
    
    2
    
    
    
    3Deferred taxation asset
    
    
    12
    
    
    
    9Other debtors
    
    
    5
    
    
    
    696
    
    
    
    107
 The deferred tax asset is due in more than one year. 14 Creditors  Amounts falling due within one year 2002
    
    2003£m
    
    £mBank and other borrowings (note 16)
    
    
    17
    
    
    
    12Trade creditors
    
    
    58
    
    
    
    60Other creditors
    
    
    23
    
    
    
    21Accruals
    
    
    21
    
    
    
    22119
    
    
    
    115
  15
    
    Creditors  Amounts falling due after more than one year 2002
    
    2003£m
    
    £mBank and other borrowings (note 16)
    
    
    326
    
    
    
    328Finance leases (note 17)
    
    
    4
    
    
    
    4330
    
    
    
    332
 F-21




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS   (Continued)  16
    
    Bank and other borrowings 2002
    
    2003£m
    
    £mSenior Credit Facilities:Term Loan A
    
    
    69
    
    
    
    37Term Loan B
    
    
    69
    
    
    
    69Term Loan C
    
    
    50
    
    
    
    45Revolving Credit Facility
    
    
    32
    
    
    
    19Senior Notes
    
    
    130
    
    
    
    176Unamortised Senior Notes Premium
    
    
    
    
    
    
    2Unamortised issue costs
    
    
    (7
    )
    
    
    (8
    )343
    
    
    
    340
 Senior Credit
Facilities
On October 3, 1999, the Company entered into a Bank Credit Agreement with
Deutsche Bank AG London Branch and Merrill Lynch Capital Corporation related to
Senior Credit Facilities. These facilities consisted of (i) a seven-year $85
million revolving credit facility (the Revolving Credit Facility), and (ii) a
seven-year £95 million aggregate principal amount Term Loan A, an eight-year
£70 million aggregate principal amount Term Loan B and a nine-year £50 million
aggregate principal amount Term Loan C (the Term Loan A, the Term Loan B
and the Term Loan C are referred to collectively as the Senior Term Loans).
The Term Loan A and the Term Loan B were drawn down in a combination of Euros
and US Dollars. The Term Loan C was drawn down in US Dollars. The balances
outstanding at the year end have been retranslated into pounds sterling at
exchange rates prevailing at that date. The Revolving Credit Facility is
available to be drawn down in US Dollars and other Optional Currencies, by way
of Revolving Advances, issue of Letters of Credit or Bank Guarantees. At
December 31, 2003, the unused proportion of this facility was $51 million
(2002: $34 million). The Senior Credit Facilities bear interest at a rate equal to the aggregate of
the cost of LIBOR funds for one, two, three or six months as the Company may
elect, plus costs to the Lender of compliance with all reserve assets,
liquidity or cash margin or other like requirements of the Bank of England,
the Financial Services Authority, the European Central Bank or in relation to
Regulation D in the United States of America as specified in the Bank Credit
Agreement, plus a margin. This margin for the Revolving Credit Facility and
the Term Loan A ranges from 1.25% to 2% per annum, determined by the Companys
most recent financial ratios and is fixed at 2.5% and 3% for the Term Loan B
and the Term Loan C, respectively. F-22




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS   (Continued) The Term Loan A is repayable in six-monthly installments commencing June 30,
2000. All installments to date have been paid on the due dates. Repayment
amounts are calculated with reference to a percentage of the total loan
balance, the percentages being specified in the Bank Credit Agreement. The
repayment profile had changed as a result of voluntary prepayments made during
the year ended December 31, 2002 and the year ended December 31, 2003. The
repayment profile for the balance of the loan outstanding will be made in eight
equal installments due June 30, and December 31, 2003, 2004 and 2005, with the
final two installments due June 30, 2006 and September 30, 2006. The Term Loan B and the Term Loan C are repayable by way of two equal
installments commencing June 30, 2007 and June 30, 2008 respectively. Any
balance outstanding on the Revolving Credit Facility is repayable in full on
the last day of each interest period over which any of the facility is drawn
down and may be rolled forward until 2006. The obligations of the Company under the Senior Credit Facilities are secured
by a first-priority interest in substantially all of the assets of the Company
and its subsidiary undertakings. The Senior Credit Facilities contain restrictive covenants that, among other
things and under certain conditions, restrict the Companys indebtedness,
liens, leasing arrangements, transactions with affiliates, asset sales,
capital expenditures, acquisitions, investments, dividend and other restricted
payments. Additionally, these covenants require that certain financial ratios
be maintained. The Senior Credit Facilities are secured on the assets of the
groups major operating subsidiaries and by guarantee from Lucite
International Holdings Limited, Lucite International Investment Limited and a
number of other subsidiaries. The debt issuance costs for the Senior Term Loans were approximately £5.5
million and are being amortised to the profit and loss account over the terms
of the Senior Term Loans. 10.25% senior notes In June 2003 with senior bank consent the company undertook a refinancing in
order to fund future investment into China by issuing 50 million of 10.25%
Senior Notes at a premium of 2 million under an indenture dated June 25,
2003. The 2 million premium is being amortised to the profit and loss account
over the term of the Senior Notes. The 10.25% Senior Notes mature in full on May 15, 2010. The Senior Notes are
denominated in euros and amount to 250 million in aggregate. The Senior
Notes are guaranteed by Lucite International Investment Limited and Lucite
International Holdings Limited on a subordinated basis. Maturity analysis of bank
and other borrowings
The maturity analysis of the Companys bank and other borrowings is as follows: 2002
    
    2003£m
    
    £mWithin 1 year or on demand
    
    
    17
    
    
    
    12Between 1 and 2 years
    
    
    18
    
    
    
    12Between 2 and 5 years
    
    
    135
    
    
    
    146Over 5 years
    
    
    180
    
    
    
    176350
    
    
    
    346Unamortised Senior Notes Premium
    
    
    
    
    
    
    2Unamortised issue costs
    
    
    (7
    )
    
    
    (8
    )343
    
    
    
    340
 F-23




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS- (Continued)  17
    
    Finance leases 2002
    
    2003£m
    
    £mObligations under finance leases comprise:Rentals due after more than 1 year:- from 1 to 2 years
    
    
    
    
    
    
    1- from 2 to 3 years
    
    
    1
    
    
    
    - from 3 to 4 years
    
    
    
    
    
    
    1- from 4 to 5 years
    
    
    1
    
    
    
    - after 5 years from the balance sheet date
    
    
    5
    
    
    
    47
    
    
    
    6Less: amounts representing interest relating to future periods
    
    
    (3
    )
    
    
    (2
    )Present value of net minimum lease payments
    
    
    4
    
    
    
    4Less current lease obligations
    
    
    
    
    
    
    Non current obligations
    
    
    4
    
    
    
    4
  18
    
    Provisions for liabilities and charges Deferred
    
    Unfunded
    
    EmployeeRestructuring
    
    taxation
    
    pensions
    
    benefits
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £mAt December 31, 2001
    
    
    7
    
    
    
    16
    
    
    
    17
    
    
    
    8
    
    
    
    48Charged to the
profit and loss
account in the
period
    
    
    
    
    
    
    (11
    )
    
    
    2
    
    
    
    1
    
    
    
    (8
    )Exchange / other
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (4
    )Utilised in the year
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (4
    )At December 31, 2002
    
    
    3
    
    
    
    5
    
    
    
    17
    
    
    
    7
    
    
    
    32Charged to the
profit and loss
account in the
period
    
    
    
    
    
    
    (2
    )
    
    
    3
    
    
    
    1
    
    
    
    2Exchange / other
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Utilised in the year
    
    
    (1
    )
    
    
    
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    (6
    )At December 31, 2003
    
    
    2
    
    
    
    3
    
    
    
    15
    
    
    
    7
    
    
    
    27
 No provision has been released or applied for any purpose other than that for
which it was established. The restructuring provision is expected to be utilised during the next year. F-24




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS   (Continued) Deferred
taxation
The amounts of deferred taxation accounted for as at the balance sheet date and
the potential amounts of deferred taxation are disclosed below: 2002
    
    2003£m
    
    £mAccounted for at the balance sheet dateTiming differences on capital allowances and depreciation
    
    
    35
    
    
    
    32Miscellaneous timing differences
    
    
    (16
    )
    
    
    (14
    )Tax losses
    
    
    (26
    )
    
    
    (24
    )(7
    )
    
    
    (6
    )Not accounted for at the balance sheet dateMiscellaneous timing differences
    
    
    
    
    
    
    (6
    )Tax losses
    
    
    (26
    )
    
    
    (35
    )(26
    )
    
    
    (41
    )
 The movement of the deferred taxation balance is as follows: Net asset
    
    Net liability
    
    Total£m
    
    £m
    
    £mAt December 31, 2001
    
    
    (18
    )
    
    
    16
    
    
    
    (2
    )Charge/ (credit) to the profit and loss account in the period
    
    
    5
    
    
    
    (11
    )
    
    
    (6
    )Exchange movement
    
    
    1
    
    
    
    
    
    
    
    1At December 31, 2002
    
    
    (12
    )
    
    
    5
    
    
    
    (7
    )Charge/ (credit) to the profit and loss account in the period
    
    
    2
    
    
    
    (2
    )
    
    
    Exchange movement
    
    
    1
    
    
    
    
    
    
    
    1At December 31, 2003
    
    
    (9
    )
    
    
    3
    
    
    
    (6
    )
 Unfunded
pensions
This provision is for the benefit obligation of unfunded pension plans and the
provision for the under-funding of funded pension schemes. Employee
benefits
The additional costs of funding post-retirement non-pension benefits (e.g.
medical care above that provided by the State but required as part of Company
Benefits Plans) have been provided. The provision relates primarily to
USA-based employees. F-25




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS   (Continued)  19
    
    Called up equity share capital Number
    
    £mAuthorised, allotted and fully paid
At December 31, 2003 and at December 31, 2002Ordinary shares of £1 each
    
    
    175,029,700
    
    
    
    175
 The ordinary shares above were issued to Lucite International Limited on
October 1, 1999.  20
    
    Financial Instruments Foreign exchange and
interest rate disclosure
The Company holds and issues financial instruments in order to finance its
operations and to manage interest and foreign currency risks arising from its
operations. The Companys major financial risks relate to movements in
exchange rates and interest rates. The Company borrows in US Dollars, Euros
and pounds sterling at variable rates and is subject to fluctuations in
interest rates on its borrowings and surplus cash. The Companys policy is to
hedge on specific borrowings against future movements in interest rates, which
is effected by using derivatives, such as interest rate swaps and caps where
appropriate. During the year ended December 31, 2003 the company did not enter
into any interest rate swap or cap arrangements The US dollar-denominated tranche B debt ($47.9m) and the US dollar-denominated
tranche C debt ($79.8m) have been rolled over under existing credit agreements
at the rate of 3.8075% for the US dollar-denominated tranche B debt and
4.33688% for the US dollar-denominated tranche C debt; both rates are inclusive
of lender margins. Both interest rates are fixed until the end of September
2004 and accordingly these loans are shown as fixed rate financial liabilities
below. In addition, a proportion of the US dollar-denominated tranche A debt
($3.8m) has been rolled over under existing credit agreements at a rate of
3.21875% until the end of June 2004 and a further ($18.9m) has been rolled over
under existing credit agreements at a rate of 3.3075% until the end of
September 2004. Both rates are inclusive of lender margins and are shown as
fixed rate liabilities below. Short term debtors and creditors have been excluded from the following
disclosures, other than the currency risk disclosures. F-26




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS   (Continued) Interest rate risk profile
of financial liabilities
As at December 31, 2002 and 2003 the Company had the following interest rate
profile for financial liabilities, after taking into account the interest rate
swaps used to manage the interest profile: At December 31, 2002Floating rate
    
    Fixed rate financial
    
    December 31, 2002financial liabilities
    
    liabilities
    
    Total£m
    
    £m
    
    £mCurrencySterling
    
    
    13
    
    
    
    
    
    
    
    13Euro
    
    
    94
    
    
    
    130
    
    
    
    224US Dollars
    
    
    33
    
    
    
    84
    
    
    
    117140
    
    
    
    214
    
    
    
    354Unamortised issue costs
    
    
    (3
    )
    
    
    (4
    )
    
    
    (7
    )At December 31, 2002
    
    
    137
    
    
    
    210
    
    
    
    347
 At December 31, 2003Floating rate
    
    Fixed rate financial
    
    December 31, 2003financial liabilities
    
    liabilities
    
    Total£m
    
    £m
    
    £mCurrencySterling
    
    
    12
    
    
    
    
    
    
    
    12Euro
    
    
    71
    
    
    
    178
    
    
    
    249US Dollars
    
    
    3
    
    
    
    88
    
    
    
    9186
    
    
    
    266
    
    
    
    352Unamortised issue costs
    
    
    (3
    )
    
    
    (5
    )
    
    
    (8
    )At December 31, 2003
    
    
    83
    
    
    
    261
    
    
    
    344
 All the groups creditors falling due within one year (other than bank and
other borrowings) are excluded from the above tables either due to the
exclusion of short-term items or because they do not meet the definition of a
financial liability. F-27




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS   (Continued) At December 31, 2002Fixed rate financial liabilitiesWeighted average interest rate
    
    Weighted average period forwhich rate is fixedCurrency
    
    %
    
    YearsSterling
    
    
    
    
    
    
    US dollars
    
    
    4.81
    
    
    
    1.5Euro
    
    
    10.25
    
    
    
    7.3At December, 31 2002
    
    
    8.13
    
    
    
    5.0
 At December 31, 2003Fixed rate financial liabilitiesWeighted average interest rate
    
    Weighted average period for which rate is fixedCurrency
    
    %
    
    YearsSterling
    
    
    
    
    
    
    US dollars
    
    
    4.16
    
    
    
    1.3Euro
    
    
    10.25
    
    
    
    6.3At December, 31 2003
    
    
    8.24
    
    
    
    4.7
 Floating rate financial liabilities bear interest at rates, based on relevant
national LIBOR equivalents, which are fixed in advance for periods of between
one month and six months. Interest rate risk of financial assets 2002
    
    2003Cash at bank and in hand
    
    Cash at bank and in handCurrency
    
    £m
    
    £mSterling
    
    
    
    
    
    
    1US Dollars
    
    
    (5
    )
    
    
    11Euro
    
    
    6
    
    
    
    3Other currencies
    
    
    10
    
    
    
    15At December, 31
    
    
    11
    
    
    
    30Floating rate
    
    
    3
    
    
    
    12Fixed rate
    
    
    8
    
    
    
    18At December, 31
    
    
    11
    
    
    
    30
 The floating rate cash earns interest based on relevant national LIBOR
equivalents. The fixed rate cash held by our subsidiaries in China and Taiwan
earns interest at approximately 1-2%. F-28




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS   (Continued) Maturity of financial
liabilities
The maturity profile of the financial liabilities of the company, other than
short term operating creditors and accruals at December 31, 2002 and 2003 were: December 31, 2002Debt
    
    Finance leases
    
    Total£m
    
    £m
    
    £mIn one year or less or on demand
    
    
    17
    
    
    
    
    
    
    
    17In more than one year but not more than two years
    
    
    18
    
    
    
    
    
    
    
    18In more than two years but not more than five years
    
    
    135
    
    
    
    2
    
    
    
    137In more than five years
    
    
    180
    
    
    
    5
    
    
    
    185350
    
    
    
    7
    
    
    
    357Less:amounts representing interest relating to future periods
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Unamortised issue costs
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )343
    
    
    
    4
    
    
    
    347
 December 31, 2003Debt
    
    Finance leases
    
    Total£m
    
    £m
    
    £mIn one year or less or on demand
    
    
    12
    
    
    
    
    
    
    
    12In more than one year but not more than two years
    
    
    12
    
    
    
    1
    
    
    
    13In more than two years but not more than five years
    
    
    146
    
    
    
    1
    
    
    
    147In more than five years
    
    
    176
    
    
    
    4
    
    
    
    180346
    
    
    
    6
    
    
    
    352Less:amounts representing interest relating to future periods
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Unamortised senior notes premium
    
    
    2
    
    
    
    
    
    
    
    2Unamortised issue costs
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )340
    
    
    
    4
    
    
    
    344
 Borrowing
facilitiesThe group has the following undrawn committed borrowing facilities available
at December 31, 2003 in respect of which all conditions had been met at that
date: Floating rate
    
    Fixed rate
    
    December 31, 2003
    
    December 31, 2002£m
    
    £m
    
    £m
    
    £mExpiring within one year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expiring between 1 and 2 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expiring after more than 2 years
    
    
    28
    
    
    
    
    
    
    
    28
    
    
    
    2128
    
    
    
    
    
    
    
    28
    
    
    
    21
 In addition to the above our parent company Lucite International Limited has a
£40 million unsecured subordinated deep discounted bond facility with
Charterhouse. In the event of a covenant under our senior bank facilities,
Lucite International Limited agreed, upon the request of our senior banks, to
borrow under the deep discount bond facility and to invest the proceeds of
such borrowings in the equity capital of Lucite International Group Holdings
Limited. The amount of the borrowing and equity investment would be the
amount required to remedy the covenant breach. No breach has occurred during
the year ended December 31, 2003. The fees associated with servicing this
facility were £1.6 million (2002: £0.8 million), which have been charged to
the profit and loss account in the year as they are payable by the group. The
facility is still in place as at December 31, 2003, but following agreement
with the Senior Banking syndicate £5 million was drawn in December 2003 by
Lucite International Limited and invested into our new China Company. The
remaining £35 million is un-drawn as at December 31, 2003 and will expire 30
days after the final report on covenant performance for the year ended
December 31, 2003 which we expect to be issued at the end of April 2004. F-29




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS- (Continued) Fair values of financial assets and financial liabilities Set out below is a comparison, by category, of book values (before debt issue
costs) and fair values of all the Companys financial liabilities as at
December 31, 2003. December 31, 2002
    
    December 31, 2003Book value
    
    Fair value
    
    Book value
    
    Fair value£m
    
    £m
    
    £m
    
    £mPrimary financial instruments held or issued to finance the
Groups operations:Short-term borrowings and current portion of long-term borrowings
    
    
    17
    
    
    
    17
    
    
    
    12
    
    
    
    12Long-term borrowings
    
    
    337
    
    
    
    336
    
    
    
    340
    
    
    
    361
 The fair value of fixed rate debt instruments is determined by reference to
market prices of those instruments. Foreign currency exposures The Company has significant operations in the US as well as other countries
outside of the UK and consequently movements in Pounds Sterling exchange rates
can significantly affect the balance sheet. In addition currency exposures
can arise from sales and purchase transactions in foreign currencies. The
Companys policy is to use foreign currency loans to hedge foreign currency
assets and liabilities. The table below shows the extent to which group companies have monetary assets
and liabilities in currencies other than their own local currency. Foreign
exchange differences on re-translation of these assets are taken to the profit
and loss account. Net foreign currency monetary assets/(liabilities) at December, 31 2002OtherSterling
    
    US dollars
    
    Euros
    
    Currencies
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £mFunctional currency:Sterling
    
    
    
    
    
    
    (118
    )
    
    
    (201
    )
    
    
    
    
    
    
    (319
    )US dollars
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Euro
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Other currencies
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Total
    
    
    
    
    
    
    (110
    )
    
    
    (199
    )
    
    
    
    
    
    
    (309
    )
 Net foreign currency monetary assets/(liabilities) at December, 31 2003OtherSterling
    
    US dollars
    
    Euros
    
    Currencies
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £mFunctional currency of operation:Sterling
    
    
    
    
    
    
    (88
    )
    
    
    (227
    )
    
    
    
    
    
    
    (315
    )US dollars
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Euro
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Other currencies
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Total
    
    
    (1
    )
    
    
    (77
    )
    
    
    (227
    )
    
    
    3
    
    
    
    (302
    )
 Financial instruments held for trading purposes The company does not trade in financial instruments. F-30




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)  21
    
    Notes to the cash flow statement  (a)
    
    Net cash inflow from operating activities Year ended
    
    Year ended
    
    Year endedDecember 31, 2001
    
    December 31, 2002
    
    December 31, 2003£m
    
    £m
    
    £mOperating profit
    
    
    18
    
    
    
    27
    
    
    
    69Depreciation and amortisation
    
    
    39
    
    
    
    45
    
    
    
    44Stocks (increase)/ decrease
    
    
    8
    
    
    
    (9
    )
    
    
    (2
    )Debtors (increase)/ decrease
    
    
    21
    
    
    
    (11
    )
    
    
    (18
    )Creditors increase/ (decrease)
    
    
    (5
    )
    
    
    6
    
    
    
    2Other movements
    
    
    2
    
    
    
    (1
    )
    
    
    (1
    )Cash inflow from operating activities
    
    
    83
    
    
    
    57
    
    
    
    94
  (b)
    
    Returns on investments and servicing of finance Year ended
    
    Year ended
    
    Year endedDecember 31, 2001
    
    December 31, 2002
    
    December 31, 2003£m
    
    £m
    
    £mInterest received
    
    
    1
    
    
    
    
    
    
    
    Interest paid
    
    
    (34
    )
    
    
    (25
    )
    
    
    (25
    )New issue High Yield Bond fees
    
    
    
    
    
    
    
    
    
    
    (2
    )Dividends paid by subsidiary
undertakings to minority
shareholders
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Distribution paid by
subsidiary undertakings to
minority shareholders
    
    
    
    
    
    
    
    
    
    
    (3
    )(33
    )
    
    
    (28
    )
    
    
    (33
    )
  (c)
    
    Capital expenditure and financial investment Year ended
    
    Year ended
    
    Year endedDecember 31, 2001
    
    December 31, 2002
    
    December 31, 2003£m
    
    £m
    
    £mPurchase of intangible fixed assets
    
    
    (1
    )
    
    
    
    
    
    
    Purchase of tangible fixed assets
    
    
    (25
    )
    
    
    (28
    )
    
    
    (32
    )(26
    )
    
    
    (28
    )
    
    
    (32
    )
 F-31




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)  (d)
    
    Acquisitions and disposalsAcquisition of ICI Acrylics Year ended
    
    Year ended
    
    Year endedDecember 31, 2001
    
    December 31, 2002
    
    December 31, 2003£m
    
    £m
    
    £mFees associated
with acquisition of
Acrylics Business
from ICI
    
    
    1
    
    
    
    
    
    
    
    Net cash outflow
    
    
    1
    
    
    
    
    
    
    
    
  Other Acquisitions Year ended
    
    Year ended
    
    Year endedDecember 31, 2001
    
    December 31, 2002
    
    December 31, 2003£m
    
    £m
    
    £mAcquisition of
remaining majority
shareholding in
Kaohsiung Monomer
Company, Taiwan
from ICI Plc
    
    
    5
    
    
    
    
    
    
    
    Cash acquired with
Kaohsiung Monomer
Company, Taiwan
    
    
    (10
    )
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
  (e)
    
    Financing Year ended
    
    Year ended
    
    Year endedDecember 31, 2001
    
    December 31, 2002
    
    December 31, 2003£m
    
    £m
    
    £mMovement in debt due within one year
    
    
    (8
    )
    
    
    (14
    )
    
    
    (14
    )Movement in debt due after one year
    
    
    (15
    )
    
    
    (6
    )
    
    
    (33
    )Issue of debt due after more than one year
    
    
    
    
    
    
    15
    
    
    
    37Equity received from minority
    
    
    
    
    
    
    
    
    
    
    5Cash (outflow)/inflow from financing
    
    
    (23
    )
    
    
    (5
    )
    
    
    (5
    )
 F-32




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued)  (f)
    
    Analysis of net debt Cash at bank
    
    Debt due
    
    Debt dueand in
    
    after one
    
    within one
    
    Financehand
    
    year
    
    year
    
    leases
    
    Net debt£m
    
    £m
    
    £m
    
    £m
    
    £mAt January 1, 2002
    
    
    20
    
    
    
    (331
    )
    
    
    (13
    )
    
    
    (5

    )
    
    
    (329
    )Cash flow
    
    
    (8
    )
    
    
    (8
    )
    
    
    13
    
    
    
    
    
    
    
    (3
    )Other non-cash changes
    
    
    (1
    )
    
    
    16
    
    
    
    (17
    )
    
    
    
    
    
    
    (2
    )Exchange movement
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    1
    
    
    
    (2
    )At December 31, 2002
    
    
    11
    
    
    
    (326
    )
    
    
    (17
    )
    
    
    (4
    )
    
    
    (336
    )Cash flow
    
    
    20
    
    
    
    (4
    )
    
    
    14
    
    
    
    
    
    
    
    30Other non-cash changes
    
    
    
    
    
    
    10
    
    
    
    (9
    )
    
    
    
    
    
    
    1Exchange movement
    
    
    (1
    )
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )At December 31, 2003
    
    
    30
    
    
    
    (328
    )
    
    
    (12
    )
    
    
    (4
    )
    
    
    (314
    )
 Cash at bank and in hand held by our subsidiaries Kaohsiung Monomer Company
(KMC) and Thai Poly Acrylic PLC (TPA) are not readily available to the group
except by means of dividends which are subject to local legal restrictions.  (g)
    
    Reconciliation of net cash flow to movement in net debt Year ended
    
    Year ended
    
    Year endedDecember 31, 2001
    
    December 31, 2002
    
    December 31, 2003£m
    
    £m
    
    £mIncrease/(decrease) in cash in the year/period
    
    
    2
    
    
    
    (9
    )
    
    
    20Cash flows from movements in debt and lease
financing
    
    
    23
    
    
    
    6
    
    
    
    10Exchange movement
    
    
    2
    
    
    
    (2
    )
    
    
    (9
    )Other non-cash changes
    
    
    (1
    )
    
    
    (2
    )
    
    
    1Movement in net debt
    
    
    26
    
    
    
    (7
    )
    
    
    22Opening net debt
    
    
    (355
    )
    
    
    (329
    )
    
    
    (336
    )Closing net debt
    
    
    (329
    )
    
    
    (336
    )
    
    
    (314
    )
 F-33




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued) 22     Pensions and other post retirement benefits Lucite International Limited has established a number of pension schemes
around the world covering many of its employees. The principal funds are the
UK pension scheme, which is a funded defined benefit scheme, the US pension
schemes, which are defined benefit schemes, the main US scheme being a funded
scheme, and the US post retirement medical benefit plan which is an unfunded
defined benefit plan. There is also a much smaller fund within KMC the assets
of which are held by the Central Trust of China. The most recent actuarial valuations of the US pension schemes and the US post
retirement medical benefit plan were at December 31, 2001, and the most recent
actuarial valuation of the UK pension scheme was at October 31, 2000. An
actuarial valuation on the UK fund is in the process of being carried out and
the basis adopted for this valuation will be used in the SSAP 24 charge for
the year ended December 31, 2004. The valuations were carried out using the
projected unit method and were carried out by Cigna for the US schemes and
Watson Wyatt for the UK scheme, both independent professionally qualified
actuaries. The main assumptions used for the valuation of the UK scheme at October 31,
2000 were a long-term investment return of 6.6%, increases in salaries of 4%,
dividend growth of 2.5% and increases in pensions of 2.5%. The market value of
the UK schemes assets was £55 million and the actuarial value of those assets
represented 100% of the benefits accrued to members after allowing for
expected future increases in earnings. The main assumptions used for the valuations of the US schemes were a
long-term investment return of 8.2% increases in salaries of 4.5%, discount
rate of 6.25% and increases in pensions of 2.5%. The market value of the US
schemes assets was $56 million and the actuarial value of those assets
represented 75% of the benefits accrued to members after allowing for expected
future increases in earnings. The funding of the US plan is subject to the
statutory funding requirements that will mean that the funding deficit is
expected to reduce over time. The main assumptions used for the valuation of the US post retirement medical
benefit plan were long-term medical claim inflation rate starting at 8.5% for
2003 and reducing to 4.5% over the next eight years and a discount rate of
6.25%. The main assumptions used for the valuation of the KMC fund were long-term
investment return of 3.25% increases in salaries 2.5% and discount rate of
3.25%. There is no assumption required regarding increases to pension costs as
all amounts are paid as lump sums. The total pension and post retirement benefit costs for the period ended
December 31, 2003 was £11 million (2002: £7 million). Provisions for unfunded
pensions and employee benefits across the group at December 31, 2003 were £15
million (2002: £17 million) and £7 million (2002: £8 million) respectively
(Note 18). Pension costs relating to foreign schemes are charged in accordance with local
best practice using different accounting policies. The US scheme is accounted
for using applicable US accounting standards; the cost of
obtaining valuations for the purpose of adjusting to the applicable UK
accounting standard is considered to be out of proportion to the benefits
gained. F-34




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued) FRS 17 Retirement Benefits The most recent actuarial valuations of the Companys major retirement benefit
schemes have been updated to December 31, 2003 to take account of the
requirements of FRS 17. The actuarial valuations have been carried out using
the projected unit method of valuation. Financial assumptions to calculate the scheme liabilities under FRS 17 are: December 31, 2001UK pension fund
    
    US Pension Plan
    
    US Healthcare Plan
    
    KMC Pension fund% p.a.
    
    % p.a.
    
    % p.a.
    
    % p.a.Discount rate
    
    
    5.80
    %
    
    
    7.25
    %
    
    
    7.25
    %
    
    
    5.00
    %Salary increases
    
    
    3.90
    %
    
    
    4.50
    %
    
    
    
    
    
    
    3.50
    %Pension increases
    
    
    2.50
    %
    
    
    3.00
    %
    
    
    
    
    
    
    Social security increases
    

    
    2.50
    %
    
    
    3.00
    %
    
    
    
    
    
    
    Ultimate health care
trend rate
    
    
    
    
    
    
    
    
    
    
    4.50
    %
    
    
    Inflation rate
    
    
    2.50
    %
    
    
    3.00
    %
    
    
    
    
    
    
    -0.01
    %Percentage funding level
    
    
    81
    %
    
    
    70
    %
    
    
    
    
    
    
    
 December 31, 2002UK pension fund
    
    US Pension Plan
    
    US Healthcare Plan
    
    KMC Pension fund% p.a.
    
    % p.a.
    
    % p.a.
    
    % p.a.Discount rate
    
    
    5.60
    %
    
    
    6.75
    %
    
    
    6.75
    %
    
    
    3.75
    %Salary increases
    
    
    3.75
    %
    
    
    4.50
    %
    
    
    
    
    
    
    2.50
    %Pension increases
    
    
    2.25
    %
    
    
    3.00
    %
    
    
    
    
    
    
    Social security increases
    
    
    2.25
    %
    
    
    3.00
    %
    
    
    
    
    
    
    Ultimate health care
trend rate
    
    
    
    
    
    
    
    
    
    
    4.50
    %
    
    
    Inflation rate
    
    
    2.25
    %
    
    
    3.00
    %
    
    
    
    
    
    
    -0.18
    %Percentage funding level
    
    
    65
    %
    
    
    48
    %
    
    
    
    
    
    
    
 December 31, 2003UK pension fund
    
    US Pension Plan
    
    US Healthcare Plan
    
    KMC pension fund% p.a.
    
    % p.a.
    
    % p.a.
    
    % p.a.Discount rate
    
    
    5.40
    %
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    3.25
    %Salary increases
    
    
    4.10
    %
    
    
    4.50
    %
    
    
    
    
    
    
    2.50
    %Pension increases
    
    
    2.60
    %
    
    
    3.00
    %
    
    
    
    
    
    
    Social security increases
    
    
    2.60
    %
    
    
    3.00
    %
    
    
    
    
    
    
    Ultimate health care
trend rate
    
    
    
    
    
    
    
    
    
    
    4.50
    %
    
    
    Inflation rate
    
    
    2.60
    %
    
    
    3.00
    %
    
    
    
    
    
    
    -0.31
    %Percentage funding level
    
    
    62
    %
    
    
    58
    %
    
    
    
    
    
    
    
 F-35




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued) The assets in the schemes and the expected rate of return were: December 31, 2001UK Pension Fund
    
    US Pension Plan
    
    US Healthcare Plan
    
    KMC pension fundValue at December
    
    Long-term rate of
    
    Value at December
    
    Long term rate of
    
    Value at December
    
    Value at December
    
    Long term rate of31, 2001
    
    return expected
    
    31, 2001
    
    return expected
    
    31, 2001
    
    31, 2001
    
    return expected£m
    
    % p.a.
    
    £m
    
    % p.a.
    
    £m
    
    £m
    
    % p.a.Bonds
    
    
    8
    
    
    
    5.00
    %
    
    
    15
    
    
    
    7.25
    %
    
    
    
    
    
    
    
    
    
    
    Equities
    
    
    41
    
    
    
    7.30
    %
    
    
    21
    
    
    
    8.75
    %
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    3
    
    
    
    5.00
    %
    
    
    2
    
    
    
    4.50
    %
    
    
    
    
    
    
    1
    
    
    
    5.00
    %Total market value of assets
    
    
    52
    
    
    
    6.81
    %
    
    
    38
    
    
    
    7.93
    %
    
    
    
    
    
    
    1
    
    
    
    5.00
    %Present value of scheme
liabilities
    
    
    (64
    )
    
    
    
    
    
    
    (54
    )
    
    
    
    
    
    
    (9
    )
    
    
    (4
    )Deficit in the scheme
    
    
    (12
    )
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (9
    )
    
    
    (3
    )Net pension liability
    
    
    (12
    )
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (9
    )
    
    
    (3
    )
 December 31, 2002UK Pension Fund
    
    US Pension Plan
    
    US Healthcare Plan
    
    KMC pension fundValue at December
    
    Long-term rate of
    
    Value at December
    
    Long term rate of
    
    Value at December
    
    Value at December
    
    Long term rate of31, 2002
    
    return expected
    
    31, 2002
    
    return expected
    
    31, 2002
    
    31, 2002
    
    return expected£m
    
    % p.a.
    
    £m
    
    % p.a.
    
    £m
    
    £m
    
    % p.a.Bonds
    
    
    9
    
    
    
    5.0
    %
    
    
    11
    
    
    
    7.5
    %
    
    
    
    
    
    
    
    
    
    
    Equities
    
    
    36
    
    
    
    8.0
    %
    
    
    14
    
    
    
    9.0
    %
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    2
    
    
    
    5.0
    %
    
    
    3
    
    
    
    9.0
    %
    
    
    
    
    
    
    1
    
    
    
    3.75
    %Total market value of assets
    
    
    47
    
    
    
    7.3
    %
    
    
    28
    
    
    
    8.5
    %
    
    
    
    
    
    
    1
    
    
    
    3.75
    %Present value of scheme
liabilities
    
    
    (72
    )
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    (10
    )
    
    
    (4
    )Deficit in the scheme
    
    
    (25
    )
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    (10
    )
    
    
    (3
    )Net pension liability
    
    
    (25
    )
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    (10
    )
    
    
    (3
    )
 December 31, 2003UK Pension Fund
    
    US Pension Plan
    
    US Healthcare Plan
    
    KMC pension fundValue at December
    
    Long-term rate of
    
    Value at December
    
    Long term rate of
    
    Value at December
    
    Value at December
    
    Long term rate of31, 2003
    
    return expected
    
    31, 2003
    
    return expected
    
    31, 2003
    
    31, 2003
    
    return expected£m
    
    % p.a.
    
    £m
    
    % p.a.
    
    £m
    
    £m
    
    % p.a.Bonds
    
    
    6
    
    
    
    5.0
    %
    
    
    10
    
    
    
    7.0
    %
    
    
    
    
    
    
    
    
    
    
    Equities
    
    
    51
    
    
    
    8.0
    %
    
    
    19
    
    
    
    8.7
    %
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    5
    
    
    
    3.5
    %
    
    
    2
    
    
    
    8.5
    %
    
    
    
    
    
    
    1
    
    
    
    3.25
    %Total market value of assets
    
    
    62
    
    
    
    7.3
    %
    
    
    31
    
    
    
    8.2
    %
    
    
    
    
    
    
    1
    
    
    
    3.25
    %Present value of scheme
liabilities
    
    
    (100
    )
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    (8
    )
    
    
    (4
    )Deficit in the scheme
    
    
    (38
    )
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    (8
    )
    
    
    (3
    )Net pension liability
    
    
    (38
    )
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    (8
    )
    
    
    (3
    )
 Deferred tax assets in relation to pension liabilities have not been
recognised as they would not be recoverable in the foreseeable future. F-36




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued) If the above amounts had been recognised in the financial statements, the
groups net assets and profit and loss reserve at December 31, 2002 and
December 31, 2003 would be as follows: Net assets 2002
    
    2003£m
    
    £mNet assets
    
    
    142
    
    
    
    148Pensions provisions in respect of material funded schemes
    
    
    24
    
    
    
    22Net assets excluding material pension provisions
    
    
    166
    
    
    
    170Pension liability
    
    
    (68
    )
    
    
    (76
    )Net assets including net pension liability under FRS17
    
    
    98
    
    
    
    94
 Reserves 2002
    
    2003£m
    
    £mProfit and loss reserve
    
    
    (45
    )
    
    
    (42
    )Pensions provisions in respect of material funded schemes
    
    
    24
    
    
    
    22Profit and loss reserve excluding material pension provisions
    
    
    (21
    )
    
    
    (20
    )Pension liability
    
    
    (68
    )
    
    
    (76
    )Profit and loss reserve including net pension liability under FRS17
    
    
    (89
    )
    
    
    (96
    )
 Analysis of the amount which would be charged to operating profit Year ended December
    
    Year ended December31, 2002
    
    31, 2003£m
    
    £mCurrent service cost
    
    
    6
    
    
    
    7Past service cost
    
    
    
    
    
    
    1Total operating charge
    
    
    6
    
    
    
    8
 Analysis of the amount which would be credited to other finance income Year ended
    
    Year endedDecember 31, 2002
    
    December 31, 2003£m
    
    £mExpected return on pension scheme assets
    
    
    7
    
    
    
    7Interest on pension scheme liabilities
    
    
    (8
    )
    
    
    (8
    )Net return
    
    
    (1
    )
    
    
    (1
    )
 Analysis of amount which would be recognised in statement of total recognised
gains and losses (STRGL) Year ended
    
    Year endedDecember 31, 2002
    
    December 31, 2003£m
    
    £mActual return less expected return on pension scheme assets
    
    
    (20
    )
    
    
    8Experience gains and losses arising on scheme liabilities
    
    
    (3
    )
    
    
    (2
    )Changes in assumptions underlying the present value of the scheme liabilities
    
    
    (5
    )
    
    
    (19
    )Actuarial loss recognised in STRGL
    
    
    (28
    )
    
    
    (13
    )
 F-37




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued) Movement in deficit during the year Year ended
    
    Year endedDecember 31, 2002
    
    December 31, 2003£m
    
    £mDeficit in scheme at beginning of the year
    
    
    (40
    )
    
    
    (68
    )Movement in the year;Current service cost
    
    
    (6
    )
    
    
    (7
    )Contributions
    
    
    4
    
    
    
    10Past service costs
    
    
    
    
    
    
    (1
    )Other finance costs
    
    
    (1
    )
    
    
    (1
    )Exchange gain
    
    
    3
    
    
    
    4Actuarial loss recognised in STRGL
    
    
    (28
    )
    
    
    (13
    )Deficit in scheme at end of the year
    
    
    (68
    )
    
    
    (76
    )
 History of experience gains and losses Year ended
    
    Year endedDecember 31, 2002
    
    December 31, 2003£m
    
    £mDifference
between the actual and expected return on scheme assets:Amount (£ million)
    
    
    (20
    )
    
    
    8Percentage of scheme assets
    
    
    26
    %
    
    
    9
    %Experience
gains and losses on scheme liabilities:Amount (£ million)
    
    
    (3
    )
    
    
    (2
    )Percentage of present value of scheme liabilities
    
    
    2
    %
    
    
    1
    %Total
amount recognised in statement of total recognised gains and
losses:Amount (£ million)
    
    
    (28
    )
    
    
    (13
    )Percentage of present value of scheme liabilities
    
    
    19
    %
    
    
    8
    %
 23     Related party transactions The following information is provided in accordance with Financial Reporting
Standard No 8, Related Party Transactions (FRS 8).  (i)
    
    Trading transactions with shareholders of the group For the twelve months ended December 31, 2001:The Company purchased management
services from Charterhouse Capital Partners LLP and paid fees to the directors
of Ineos Capital in the amounts of £50,000 and £300,000 respectively plus
related travel expenses. The Company also purchased certain third party goods and services via Ineos
PLC, a company controlled by the directors of Ineos Capital in the amount of
£53,000. Such services included the rental expenses of our Southampton offices
and sundry employee costs in respect of shared services. The Company also purchased certain third party goods and services from other
Ineos associated companies controlled by the Directors of Ineos Capital, to the
value of £11 million. We also sell some goods and services to Ineos associated
companies to the value of £2 million. These companies were acquired by Ineos
Capital during 2001 and have been included as related party transactions from
the date of each acquisition, prior to this date the transactions have been
treated as non-related. Amounts due to and from these companies at December 31, 2001 were approximately
£nil. F-38




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) For the twelve months ended December 31, 2002:The Company purchased management
services from Charterhouse Capital Partners LLP for the amount of £25,000 plus
related travel expenses. The Company also purchased certain third party goods and services from Ineos
associated companies controlled by the Directors of Ineos Capital, to the value
of £13 million. We also sell some goods and services to Ineos associated
companies to the value of £2 million. As at December 31, 2002 amounts payable to these companies totaled £2 million. For the twelve months ended December 31, 2003:The Company purchased management
services from Charterhouse Capital Partners LLP for the amount of £27,000 plus
related travel expenses. The Company also purchased certain third party goods and services from Ineos
associated companies controlled by the Directors of Ineos Capital, to the value
of £29 million. We also sell some goods and services to Ineos associated
companies to the value of £2 million. As at December 31, 2002 amounts payable to these companies totaled £2 million. (ii)      Trading transactions with other entities within the group The Company has taken advantage of the exemption conferred by FRS 8 and has not
disclosed transactions with wholly owned subsidiaries within the Lucite
International group. During normal course of business the company transacted
with Kaoshuing Monomer Company (KMC which was a joint venture until September
1, 2001 and is now a 60% owned subsidiary). Sales to and purchases from this
company for the period where it was a joint venture were as follows: Year ended December 31,2001£mProfit and loss accountSales of product
    
    
    1Purchases of product
    
    
    7
 24      Contingent liabilities and commitments 2002
    
    2003£m
    
    £mCommitments for capital expenditure not provided for:Contracts placed for future expenditure
    
    
    8
    
    
    
    32Expenditure authorised but not yet contracted
    
    
    13
    
    
    
    2521
    
    
    
    57
 The Company is involved in various legal proceedings arising out of the normal
course of business. It is not believed that the outcome of these proceedings
will have a material effect on the Companys financial position. On March 25, 2003, the Company received notification that the European
Commission is investigating Lucite International Limited and Lucite
International UK Limited with regard to possible participation in
anti-competitive practices contrary to Article 81 of the Treaty of Rome. Such
investigation is a preliminary step and does not imply that the Company has
engaged in any unlawful activities relating to anti-competitive practices.
There is no strict deadline to complete anti-competitive inquiries and their
duration is determined by the complexity of each case, the exercise of the
rights of defence and by the Commissions procedures. Lucite International
Limited is co-operating fully with the European Commission on these matters. F-39




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) The Company is also subject to contingencies pursuant to environmental laws
and regulations that in the future may require it to take action to correct
the effects on the environment of prior disposal or release of chemical
substances by the Company or other parties. The ultimate requirement for such
actions, and their cost is inherently difficult to estimate, if required
provisions are established in accordance with the Groups accounting policy.
No provisions for environmental obligations have been made at December 31,
2002 or 2003 and management believes that any cost of addressing currently
identified environmental obligations will not have a material impact on the
Companys financial position or results of operations. 25     Operating lease commitments At December 31, 2003 the company had commitments to make payments during the
next year under operating leases as follows: Land and Buildings
    
    Other Operating Leases£m
    
    £mWithin one year
    
    
    
    
    
    
    1Within two to five years
    
    
    
    
    
    
    1After five years
    
    
    
    
    
    
    
    
    
    
    2
 F-40




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) 26      Summary of significant differences between UK and US accounting
principles The financial statements are prepared and presented in accordance with UK
GAAP, which differs in certain significant respects from US GAAP. The
following is a summary of the effect on net income and shareholders equity of
the differences between UK GAAP and US GAAP. (a)   Effect on the profit/ loss for the financial year of differences between
UK GAAP and US GAAP Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003Notes
    
    £m
    
    £m
    
    £mProfit/(loss) for the financial
year under UK GAAP
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    22Adjustments to conform with US GAAP- depreciation of fixed assets
    
    (ia)
    
    
    6
    
    
    
    6
    
    
    
    6- amortisation of other intangibles
    
    (ib)
    
    
    (14
    )
    
    
    (13
    )
    
    
    (12
    )- amortisation of goodwill
    
    (ic)
    
    
    3
    
    
    
    5
    
    
    
    5Pensions
    
    (ii)
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Capitalisation of interest less
amortisation
    
    (iii)
    
    
    2
    
    
    
    3
    
    
    
    2Capitalisation of loan arrangement
fees less amortisation
    
    (iv)
    
    
    
    
    
    
    1
    
    
    
    (1
    )Foreign exchange (loss)/gain on debt
    

    (v)

    
    
    1
    
    
    
    (13
    )
    
    
    (9
    )Fair value of derivative financial
instruments
    
    (vi)
    
    
    
    
    
    
    
    
    
    
    1Deferred taxation- arising on UK GAAP results
    
    (vii)
    
    
    3
    
    
    
    15
    
    
    
    3- arising on other US GAAP
adjustments
    
    (vi)
    
    
    1
    
    
    
    2
    
    
    
    Net profit /loss under US GAAP
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    15
 F-41




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) (b)   Effect on Consolidated shareholders funds of differences between UK GAAP
and US GAAP 2002
    
    2003notes
    
    £m
    
    £mConsolidated shareholders funds under UK GAAP
    
    
    
    
    
    
    130
    
    
    
    133Business combinations
    
    (ia,b,c)
    
    
    (20
    )
    
    
    (21
    )Exchange translation differences on goodwill and intangible assets
    
    (ib)
    
    
    2
    
    
    
    (9
    )Pensions
    
    (ii)
    
    
    (3
    )
    
    
    (6
    )Capitalisation of interest less amortisation
    
    (iii)
    
    
    7
    
    
    
    9Capitalisation of loan arrangement fees
    
    (iv)
    
    
    1
    
    
    
    Fair value of derivative financial instruments
    
    (vi)
    
    
    
    
    
    
    1Deferred taxation
    
    (vii)
    
    
    28
    
    
    
    30Consolidated shareholders funds under US GAAP
    
    
    
    
    
    
    145
    
    
    
    137
 The cumulative exchange differences posted to reserves as at December 31, 2003
was a £15 million loss (2002: £7 million gain). The cumulative effect of the minimum pension liability posted to reserves as at
December 31, 2003 was £9 million loss ( 2002: £8 million loss) (c)Notes to the income statement and net asset reconciliation (i)Business combinations Differences exist between US GAAP and UK GAAP in the determination of
acquisition price and valuation of assets and liabilities at the acquisition
date. The adjustments referred to above for purchase accounting arise as a
result of these differences, as described below. (a) Depreciation of fixed assets Under US GAAP negative goodwill arising on acquisitions should be deducted
from the non-monetary fixed assets acquired as part of the acquisition. The
effect of this treatment is to reduce the fair value under US GAAP of the
tangible fixed assets acquired below the value recognised under UK GAAP.
Accordingly, the annual depreciation charge related to those assets is lower
under US GAAP than under UK GAAP. (b) Amortisation of other intangibles An intangible asset should be recognized as an asset apart from goodwill if
it arises from contractual or other legal rights (regardless of whether
those rights are transferable or separable from the acquired entity or from
other rights and obligations). If an intangible asset does not arise from
contractual or other legal rights, it should be recognized as an asset apart
from goodwill only if it is separable, that is, it is capable of being
separated or divided from the acquired entity and sold, transferred,
licensed, rented, or exchanged (regardless of whether there is an intent to
do so). An intangible asset that cannot be sold, transferred, licensed,
rented, or exchanged individually is considered separable if it can be sold,
transferred, licensed, rented, or exchanged in combination with a related
contract, asset, or liability. An assembled workforce should not be
recognized as an intangible asset apart from goodwill. F-42




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) Accordingly, the Company has recognized $195 million of definite-lived
intangible assets under US GAAP that have been included in goodwill for UK
GAAP purposes. On adoption of FAS 142 the Company reclassified $19 million
related to assembled workforce previously regarded as an intangible asset
into goodwill as it did not meet one of the criteria of FAS 141 for
recognition apart from goodwill. As such, the annual amortisation charge
related to these intangible assets is higher under US GAAP than the goodwill
amortisation charge under UK GAAP. In addition, a number of these
intangible assets have been pushed down to the business units to which they
relate for US GAAP purposes. Many of these business units are based in the
United States. These assets are retranslated at the prevailing exchange
rate at each balance sheet date into the Companys reporting currency,
giving rise to translation differences. These translation differences have
been included above in shareholders funds. (c) Amortisation of goodwill As a result of differences in the recognition of intangible assets, the
goodwill balance recognised under US GAAP is lower than that recognised
under UK GAAP. For the years ended 2001 and 2002, this resulted in a lower
goodwill amortisation charge under US GAAP. In 2002, the Company adopted
FAS 142 and ceased amortisation of goodwill under US GAAP. As such, the
adjustment for 2002 and 2003 is the reversal of the goodwill amortisation
recognised under UK GAAP for that year. (ii)     Accounting for pension costs There are four significant differences between UK GAAP (SSAP 24) and US GAAP
in accounting for pension costs:  (a)
    
    SFAS No 87, Employers Accounting for Pensions; requires that pension
plan assets are valued by reference to their fair or market related
values, whereas UK GAAP permits an alternative measurement of assets,
which, in the case of the UK retirement plan, is on the basis of the
discounted present value of expected future income streams from the
pension plan assets.(b)
    
    SFAS No 87; requires measurements of plan assets and obligations to be
made as at the date of financial statements or a date no more than three
months prior to that date. Under UK GAAP, calculations may be based on
the results of the latest actuarial valuation.(c)
    
    SFAS No 87; mandates a particular actuarial method - the projected unit
credit method - and requires that each significant assumption necessary
to determine annual pension cost reflects best estimates solely with
regard to that individual assumption. UK GAAP does not mandate a
particular method, but requires that the method and assumptions, taken as
a whole, should be compatible and lead to the actuarys best estimate of
the cost of providing the benefits promised.(d)
    
    Under SFAS No 87, a negative pension cost may arise where a significant
unrecognised net asset or gain exists at the time of implementation.
This is required to be amortised on a straight-line basis over the
average remaining service period of employees. Under UK GAAP, the policy
is not to recognise pension credits in its financial statements unless a
refund of, or reduction in, contributions is likely. F-43




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) The principal pension plans within the Company are the UK pension fund, the US
pension plan and the US Healthcare plan. Provision has been made (Note 18)
for the benefit obligation of a small number of unfunded pension plans and for
the under-funding of funded pension schemes in other parts of the group. The
disclosures required by SFAS No 132 Employers Disclosures about Pensions and
Other Retirement Benefits in respect of the Companys three principal pension
plans are set out below: The net pension cost, in accordance with SFAS No 87, for the Companys
principal pension plans is summarised as follows: For the year ended December 31, 2001UK
    
    US
    
    USPension
    
    Pension
    
    HealthcareFund
    
    Plan
    
    Plan
    
    Total£m
    
    £m
    
    £m
    
    £mComponents of pension/post retirement expense:Service cost
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    6Interest cost
    
    
    3
    
    
    
    4
    
    
    
    1
    
    
    
    8Expected return on plan assets
    
    
    (4
    )
    
    
    (4
    )
    
    
    
    
    
    
    (8
    )Net periodic pension cost
    
    
    3
    
    
    
    2
    
    
    
    1
    
    
    
    6
 For the year ended December 31, 2002UK
    
    US
    
    USPension
    
    Pension
    
    HealthcareFund
    
    Plan
    
    Plan
    
    Total£m
    
    £m
    
    £m
    
    £mComponents of pension/post retirement expense:Service cost
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    6Interest cost
    
    
    4
    
    
    
    4
    
    
    
    1
    
    
    
    9Expected return on plan assets
    
    
    (4
    )
    
    
    (4
    )
    
    
    
    
    
    
    (8
    )Other: amortisation
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Net periodic pension cost
    
    
    5
    
    
    
    2
    
    
    
    1
    
    
    
    8
 For the year ended December 31, 2003UK
    
    US
    
    USPension
    
    Pension
    
    HealthcareFund
    
    Plan
    
    Plan
    
    Total£m
    
    £m
    
    £m
    
    £mComponents of pension/post retirement expense:Service cost
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    6Prior service cost
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Interest cost
    
    
    4
    
    
    
    3
    
    
    
    1
    
    
    
    8Expected return on plan assets
    
    
    (4
    )
    
    
    (3
    )
    
    
    
    
    
    
    (7
    )Other: amortisation
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Net periodic pension cost
    
    
    7
    
    
    
    2
    
    
    
    1
    
    
    
    10
 F-44




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) The following table sets forth the funded status of the principal plans at
December 31, 2002: At December 31, 2002UK
    
    US
    
    USPension
    
    Pension
    
    HealthcareFund
    
    Plan
    
    Plan
    
    Total£m
    
    £m
    
    £m
    
    £mFair value of plan assets
    
    
    47
    
    
    
    28
    
    
    
    
    
    
    
    75Accumulated post retirement benefit obligations (APBO)
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    (10
    )Projected benefit obligation (PBO)
    
    
    (73
    )
    
    
    (58
    )
    
    
    
    
    
    
    (131
    )Funded status and accrued benefit cost
    
    
    (26
    )
    
    
    (30
    )
    
    
    (10
    )
    
    
    (66
    )Unrecognised net actuarial loss
    
    
    31
    
    
    
    18
    
    
    
    3
    
    
    
    52Exchange gain
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Balance sheet prepaid/(accrued) pension costs
    
    
    5
    
    
    
    (13
    )
    
    
    (7
    )
    
    
    (15
    )Accumulated benefit obligations (ABO)
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    49Minimum liability
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    21Intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated other comprehensive income
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    8
 The following table sets forth the funded status of the principal plans at
December 31, 2003: At December 31, 2003UK
    
    US
    
    USPension
    
    Pension
    
    HealthcareFund
    
    Plan
    
    Plan
    
    Total£m
    
    £m
    
    £m
    
    £mFair value of plan assets
    
    
    62
    
    
    
    31
    
    
    
    
    
    
    
    93Accumulated post retirement benefit obligations (APBO)
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    (8
    )Projected benefit obligation (PBO)
    
    
    (103
    )
    
    
    (58
    )
    
    
    
    
    
    
    (161
    )Funded status and accrued benefit cost
    
    
    (41
    )
    
    
    (27
    )
    
    
    (8
    )
    
    
    (76
    )Unrecognised net actuarial loss
    
    
    44
    
    
    
    17
    
    
    
    2
    
    
    
    63Exchange gain
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Balance sheet prepaid/(accrued) pension costs
    
    
    3
    
    
    
    (11
    )
    
    
    (6
    )
    
    
    (14
    )Accumulated benefit obligations (ABO)
    
    
    66
    
    
    
    44
    
    
    
    
    
    
    
    110Minimum liability
    
    
    3
    
    
    
    13
    
    
    
    
    
    
    
    26Intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated other comprehensive income
    
    
    7
    
    
    
    2
    
    
    
    
    
    
    
    9
 F-45




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) The change in benefit obligation during the year to December 31, 2002 was as
follows: At December 31,
2003UK
    
    US
    
    USPension
    
    Pension
    
    HealthcareFund
    
    Plan
    
    Plan
    
    Total£m
    
    £m
    
    £m
    
    £mPBO/APBO at December 31, 2001
    
    
    64
    
    
    
    51
    
    
    
    9
    
    
    
    124Service cost
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    6Employee contributions
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Interest cost
    
    
    4
    
    
    
    4
    

    
    
    1
    
    
    
    9Benefit payments
    
    
    (1
    )
    
    
    (3
    )
    
    
    (1
    )
    
    
    (5
    )Transfer
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Net actuarial loss
    
    
    
    
    
    
    7
    
    
    
    2
    
    
    
    9Exchange gain
    
    
    
    
    

    
    (3
    )
    
    
    (1
    )
    
    
    (4
    )PBO/APBO at December 31, 2002
    
    
    73
    
    
    
    58
    
    
    
    10
    
    
    
    141
 The change in benefit obligation during the year to December 31, 2003 was as
follows: At December 31,
2003UK
    
    US
    
    USPension
    
    Pension
    
    HealthcareFund
    
    Plan
    
    Plan
    
    Total£m
    
    £m
    
    £m
    
    £mPBO/APBO at December 31, 2002
    
    
    73
    
    
    
    58
    
    
    
    10
    
    
    
    141Service cost
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    6Employee contributions
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Plan amendments
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Interest cost
    
    
    4
    
    
    
    4
    
    
    
    1
    
    
    
    9Benefit payments
    
    
    (1
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (4
    )Net actuarial gain/(loss)
    
    
    21
    
    
    
    3
    
    
    
    (1
    )
    
    
    23Exchange gain
    
    
    
    
    
    
    (7
    )
    
    
    (1
    )
    
    
    (8
    )PBO/APBO at December 31, 2003
    
    
    103
    
    
    
    58
    
    
    
    8
    
    
    
    169
 The change in plan assets during the year to December 31, 2002 was as follows: At December 31,
2003UK
    
    US
    
    USPension
    
    Pension
    
    HealthcareFund
    
    Plan
    
    Plan
    
    Total£m
    
    £m
    
    £m
    
    £mFair value of plan assets at December 31, 2001
    
    
    52
    
    
    
    38
    
    
    
    
    
    
    
    90Employer contributions
    
    
    3
    
    
    
    
    
    
    
    1
    
    
    
    4Employee contributions
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Benefit payments
    
    
    (1
    )
    
    
    (3
    )
    
    
    (1
    )
    
    
    (5
    )Transfer
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Investment returns
    
    
    (9
    )
    
    
    (4
    )
    
    
    
    
    
    
    (13
    )Exchange loss
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Fair value of plan assets at December 31, 2002
    
    
    47
    
    
    
    28
    
    
    
    
    
    
    
    75
 F-46




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) The change in plan assets during the year to December 31, 2003 was as follows: At December 31, 2003US
    
    USUK
    
    Pension
    
    HealthcarePension Fund
    
    Plan
    
    Plan
    
    Total£m
    
    £m
    
    £m
    
    £mFair value of plan assets at December 31, 2002
    
    
    47
    
    
    
    28
    
    
    
    
    
    
    
    75Employer contributions
    
    
    6
    
    
    
    3
    
    
    
    1
    
    
    
    10Employee contributions
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Benefit payments
    
    
    (1
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (4
    )Investment returns
    
    
    9
    
    
    
    6
    
    
    
    
    
    
    
    15Exchange gain
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Fair value of plan assets at December 31, 2003
    
    
    62
    
    
    
    31
    
    
    
    
    
    
    
    93
 The assumptions used to determine the pension and post retirement costs for the
principal plans for the year to December 31, 2002 were: UK
    
    US
    
    USPension
    
    Pension
    
    HealthcareFund
    
    Plan
    
    Plan%
    
    %
    
    %Interest rate for discounting liabilities
    
    
    5.6
    
    
    
    6.75
    
    
    
    6.75Expected rate of return on assets
    
    
    7.3
    
    
    
    9.00
    
    
    
    Rate of compensation increase
    
    
    3.8
    
    
    
    4.50
    
    
    
    Rate of increase to pensions in payment
    
    
    2.3
    
    
    
    
    
    
    
    
 The assumptions used to determine the pension, post retirement costs and the
projected benefit obligation for the principal plans for the year to December
31, 2003 were: UK
    
    US
    
    USPension
    
    Pension
    
    HealthcareFund
    
    Plan
    
    Plan%
    
    %
    
    %Interest rate for discounting liabilities
    
    
    5.4
    
    
    
    6.25
    
    
    
    6.25Expected rate of return on assets
    
    
    7.4
    
    
    
    8.5
    
    
    
    Rate of compensation increase
    
    
    4.1
    
    
    
    4.5
    
    
    
    Rate of increase to pensions in payment
    
    
    2.6
    
    
    
    
    
    
    
    
 Sensitivity disclosures for the US Healthcare plan are as follows: A 1% increase in the health cost trend rates would increase the service and
interest cost components of the net periodic post-retirement benefit cost by a
total of approximately £32,000. It would increase the accumulated
post-retirement benefit obligation by approximately £440,000. A 1% decrease in the health cost trend rates would decrease the service and
interest cost components of the net periodic post-retirement benefit cost by a
total of approximately £30,000.It would decrease the accumulated
post-retirement benefit obligation by approximately £410,000. F-47




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) The actual allocation of assets by category for all domestic plans is as
follows; At December 31, 2003UK Pension FundActual
    
    Targetallocation
    
    allocation%
    
    %Equity securities
    
    
    83
    %
    
    
    40-100
    %Debt securities
    
    
    10
    %
    
    
    0-40
    %Real Estate
    
    
    
    
    
    
    015
    %Other
    
    
    7
    %
    
    
    0
    %Total
    
    
    100
    %
    
    
    100
    %
 The investment objectives of the UK (domestic) fund are;  
    
    The acquisition of suitable assets of appropriate liquidity which
will generate income and capital growth to meet, together with new
contribution from members and the employer, the cost of current future
benefits from the Fund.
    
    To limit the risk of the assets failing to meet the liabilities
over the long term, in particular in relation to the statutory Minimum
Funding Requirement.
    
    To minimise the long term costs of the Fund by maximising the
return on the assets in keeping with the objective shown above. The expected rate of return on assets has been determined by weighted averages
of actual holdings in equities, bonds and other assets as at December 31,
2003. We have assumed the expected return on equities, bonds and other classes
to be 8% pa, 5% pa and 3.5% pa respectively for each asset class as at
December 31, 2003. The expected employer pension contribution under UK GAAP SSAP 24 for the
financial year ended December 31, 2004 is £5 million. This is subject to a
full actuarial review under SSAP 24 due to be finalised in early 2004. (iii)      Capitalisation of interest Under UK GAAP the Company does not capitalise interest in its financial
statements. Under US GAAP, SFAS No 34 Capitalisation of Interest Cost,
interest incurred as part of the cost of constructing fixed assets is required
to be capitalised and amortised over the life of the asset. (iv))      Capitalisation of loan issue fees less amortisation Under UK GAAP issue costs on the arrangement of new debt facilities which have
not been drawn down are written off to the profit and loss account in the
period in which the fees were occurred. Under US GAAP such debt issue costs
are capitalised as an asset and reported in deferred charges in the balance
sheet and are amortised over the life of the facilities. Under UK GAAP issued debt is stated on the balance sheet net of the associated
unamortised issue costs. Under US GAAP such debt issue costs are capitalised
as an asset and reported as deferred charges in the balance sheet. Therefore
an adjustment to gross up the debt liability and to show the £8 million asset
as at December 31, 2003 (2002: £7 million) separately in debtors would have to
be made. (v))      Foreign exchange loss on debt Under UK GAAP the company treats loans, including the Euro denominated loans,
as an effective hedge of net investment in foreign subsidiaries which are
primarily US$ denominated. The currency translation loss on loans is offset to
the extent of the currency translation gain on net investments. Under US GAAP
hedging of a F-48




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) net investment in a foreign subsidiary with a currency other than the currency
of the subsidiary is generally not permitted. For US GAAP purposes, the company has included the translation gain on the
Euro denominated loan as a component of net loss, under UK GAAP this had been
partially hedged against US dollar-denominated assets and taken directly to
reserves. The gain on the US dollar-denominated loans have been hedged against
the loss on US$ denominated assets and taken directly to reserves under both
UK GAAP and US GAAP. (vi)          Fair value of derivative financial instruments Under US GAAP FAS 133 a hedging relationship can only qualify for hedge
accounting treatment if it is designated as such and is formally documented
and tested for its hedge effectiveness. If a hedging relationship exists, only
the portion of the movement in fair value that is deemed to be ineffective is
taken to the profit and loss account in the period. If there is no hedging
relationship, the fair value of the derivative instrument is recognised as an
asset or liability on the balance sheet with movements in fair value taken
directly to the profit and loss account. During 2003 we have entered into contractual arrangements to hedge a portion of
our raw material prices against spikes in natural gas prices. The contracts
entered into are in the form of swaps, puts and calls, with settlement possible
either way depending upon the floating price of natural gas. The fair value of
the arrangement as at December 31, 2003 equates to an asset of £1.2m compared
to the strike price of the puts/ calls and the fixed price of the swaps; this
gain made on the contracts would be taken to operating profit under US GAAP. At
December 31, 2003 a volume of 7200 mm Btu was covered by the arrangement
covering the period to October 2004. (vii)          Income taxes Under UK GAAP deferred tax assets are accounted for only to the extent that it
is more likely than not that there will be suitable sustainable taxable
surpluses from which the future reversal of the underlying temporary timing
differences can be deducted. Under US GAAP, in accordance with SFAS No 109
Accounting for Income Taxes, deferred taxes are accounted for on all timing
differences, including those arising from US GAAP adjustments to UK GAAP; a
valuation allowance is established in respect of those deferred tax assets,
where it is more likely than not on the basis of all available evidence that
some portion will not be realised. The US GAAP provision for income taxes differs from the amount of income taxes
determined by applying the applicable UK statutory income tax rate to pre-tax
increases, as a result of the following differences: Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mUK statutory income tax rate
    
    
    30
    %
    
    
    30
    %
    
    
    30
    %Income tax (expenses)/benefit at UK rate
    
    
    (3
    )
    
    
    (5
    )
    
    
    7Local taxes
    
    
    2
    
    
    
    1
    
    
    
    Movement in deferred tax not provided
    
    
    
    
    
    
    
    
    
    
    3Prior year tax
    
    
    
    
    
    
    (7
    )
    
    
    (2
    )Utilisation of b/f losses not provided
    
    
    (1
    )
    
    
    
    
    
    
    Permanent differences
    
    
    (8
    )
    
    
    (9
    )
    
    
    (8
    )Other
    
    
    
    
    
    
    
    
    
    
    3Tax on income before income taxes under
US GAAP
    
    
    (10
    )
    
    
    (20
    )
    
    
    3
 To the extent that dividends remitted from overseas subsidiaries are expected
to result in additional taxes, appropriate amounts have been provided. No
taxes have been provided for un-remitted earnings of subsidiaries when such
amounts are considered permanently re-invested. F-49




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) 2002
    
    2003£m
    
    £mDeferred tax assets:Pensions
    
    
    2
    
    
    
    2Inventories
    
    
    2
    
    
    
    1Fixed assets
    
    
    4
    
    
    
    14Losses
    
    
    56
    
    
    
    47Other
    
    
    12
    
    
    
    1076
    
    
    
    74Deferred tax liabilities:Accelerated depreciation and amortisation:UK fixed assets
    
    
    (6
    )
    
    
    (4
    )Non-UK fixed assets
    
    
    (35
    )
    
    
    (34
    )Net deferred tax asset
    
    
    35
    
    
    
    36
 Total gross deferred tax assets available to the Company amount to £90 million
at December 31, 2003 (2002: £81 million). A valuation allowance of £16 million at
December 31, 2003 (2002: £5 million) has been provided against losses and short term
timing differences and consequently the total deferred tax asset
amounts to £74
million at December 31, 2003 (2002: £76 million). (d)     US GAAP cash flow information The definition of cash flows differs between UK and US GAAP. Cash flow
under UK GAAP represents increases or decreases in cash, which is comprised
of cash in hand and repayable on demand less overdrafts. Under US GAAP cash
flow represents increases or decreases in cash and cash equivalents, which
include short term, highly liquid investments with remaining maturities of
less than 90 days when acquired, and excludes overdrafts. As at all of the
balance sheet dates included in these financial statements there is no
difference in the definition of cash between UK GAAP and US GAAP. There are also certain differences in classification of items within the cash
flow statement between UK and US GAAP. Under UK GAAP, cash flows are
presented in the following categories; (i) operating activities; (ii) returns
on investments and servicing of finance; (iii) taxation; (iv) capital
expenditure; (v) acquisitions and disposals; (vi) management of liquid
resources; and (vii) financing activities. Under US GAAP cash flows are
presented as either (i) operating activities (ii) investing or (iii) financing
activities. Cash flows from taxation, returns on investments, and servicing of finance net
of capitalised interest would be included as operating activities under US
GAAP. Capitalised interest would be included under investing activities for
US GAAP. Additionally, under US GAAP cash flows from the purchase and sale of
tangible fixed assets and the sale of debt and equity investments would be
shown within investing activities. F-50




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) Under US GAAP, the following amounts would have been reported: Year ended December
    
    Year ended December
    
    Year ended December31, 2001
    
    31, 2002
    
    31, 2003£m
    
    £m
    
    £mNet cash provided by operating activitiesUnder UK GAAP
    
    
    83
    
    
    
    57
    
    
    
    94Taxation paid
    
    
    (3
    )
    
    
    (4
    )
    
    
    (4
    )Returns from investments and servicing of
finance (excluding interest paid and
capitalised)
    
    
    (31
    )
    
    
    (26
    )
    
    
    (31
    )Under US GAAP
    
    
    49
    
    
    
    27
    
    
    
    59Net cash used in investing activitiesCapitalised interest
    
    
    2
    
    
    
    2
    
    
    
    2Capital expenditure and financial investment
    
    
    26
    
    
    
    28
    
    
    
    32Under US GAAP
    
    
    28
    
    
    
    30
    
    
    
    34
 (e)     Lucite International Share Option Plan Under the Lucite International Employee Share Plan, as described elsewhere in
this document, Charterhouse made available 550,000 ordinary one pence shares
in the company to employees (the employee shares). Shares will be allocated
between employees based on business performance criteria at a future date when
Charterhouse sells all or a substantial portion of its remaining investment in
the ordinary shares in Lucite International Limited. These shares have been
put into trust for the employees during 2003. The Company has issued rights to the US employees to purchase restricted
ordinary D shares under the US employee share scheme. These restricted
ordinary D shares will be redeemed by the company and replaced with
ordinary B shares in the event of Charterhouse selling all or a substantial portion of
its remaining investment in the ordinary shares in Lucite International
Limited. No charge in respect of the grant of options to the employees under the
employee share option plan has been made in the financial statements under
both UK GAAP and US GAAP due to the uncertainty of the timing of the sale of
Charterhouses investment. F-51




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) (f)     Additional US GAAP disclosures Goodwill and Intangible Assets The annual review of impairment required under FAS142 was carried out as at
June 2003 and the results indicated that no impairment was deemed to exist. Intangible asset carrying values and accumulated amortisation in total and by
each major class of intangible asset: Gross Carrying
    
    Accumulatedvalue as at
    
    amortisation as at
    
    Weighted averageDecember 31, 2003
    
    December 31, 2003
    
    amortisation period£m
    
    £m
    

    YearsAmortised intangible assetsCore and patented technology
    
    
    49
    
    
    
    21
    
    
    
    10Trade names
    
    
    7
    
    
    
    1
    
    
    
    20Customer relationships
    
    
    19
    
    
    
    4
    
    
    
    20Non-compete agreements
    
    
    23
    
    
    
    20
    
    
    
    5Total amortised intangible assets
    
    
    98
    
    
    
    46Unamortised intangible assetsGoodwill

    
    
    45
    
    
    
    Total intangible assets under US GAAP
    
    
    143
    
    
    
    46
 Amortisation expense for the year ended December 31, 2003 and estimated
aggregate amortisation expense for each of the five succeeding years; £mAggregate amortisation expense:For the year ended December 31, 2003
    
    
    12Estimated aggregate amortisation expense:For the year ended December 31, 2004
    
    
    10For the year ended December 31, 2005
    
    
    7For the year ended December 31, 2006
    
    
    7For the year ended December 31, 2007
    
    
    7For the year ended December 31, 2008
    
    
    7
 There were no changes to the carrying value of goodwill during the year ended
December 31, 2003. Accounting estimates The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. Shipping, freight and handling costs Under US GAAP shipping, freight and handling costs are classified as cost of
sales whereas under UK GAAP we classify these costs as distribution costs.
Therefore there would need to be a reclassification of £42 million (2002: £45
million; 2003:£43 million) from distribution costs to cost of sales. F-52




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) Exceptional items Under UK GAAP exceptional items are items which derive from events or
transactions that fall within the ordinary activities of the reporting entity
which individually or, if of a similar type, in aggregate, need to be
disclosed by virtue of their size or incidence. Under US GAAP only items which
are deemed unusual in nature and infrequent in occurrence (not reasonably
expected to recur in the foreseeable future) qualify for presentation as
extraordinary items. Extraordinary items are presented below income before
extraordinary items in the statement of profit and loss. The exceptional
items that are recorded for UK GAAP consist only of restructuring and
integration costs under US GAAP, restructuring and integration costs do not
meet the criteria for presentation as an extraordinary item. Concentrations The Company obtains a significant proportion of its raw materials and certain
services from a small number of key suppliers. Supply agreements are
currently in place but if any of these suppliers is unable to meet raw
material demand then alternative suppliers may not easily be found and as a
result, operations could be materially impacted. The Companys largest
supplier of raw materials is also its largest customer. This supplier
accounted for approximately 20% of the cost of sales and approximately 7% of
sales for the years ended December 31, 2001 through to 2003. Raw materials
from this supplier are subject to a supply contract, which expires in June
2008 with evergreen clauses thereafter. The Company is the natural supplier
of the key customer referred to above given that the Company and this customer
are located within the same chemical complexes in the United States and share
supplies and services for those complexes. However, if the Company were to
lose the business from this key customer, then operations could be materially
impacted. Guarantees Product warranty liability The company warrants to the original purchaser of its products that it will, at
its option, repair or replace, without charge, such products if they fail due
to a manufacturing defect. The term of these warranties are typically up to
twelve months after sale. The company accrues for product warranties when,
based on available information, it is probable that customers will make claims
under warranties relating to products that have been sold, and a reasonable
estimate of the costs (based on historical claims experience relative to sales)
can be made. The cost of claims made under product warranties for the year
ended December 31, 2003 were not material to the business and consequently we
have not provided a reconciliation of the movement in product warrant
liabilities for the year ended December 31, 2003. Contingencies Litigation We are from time to time involved in various legal proceedings of a nature
considered normal to our business. In the event of adverse outcomes of these
proceedings, we believe that resulting liabilities are either covered by
insurance, guarantee, established reserves or would not have a material adverse
effect on our financial condition or our results of operations. On March 25, 2003, the Company received notification that the European
Commission is investigating Lucite International Limited and Lucite
International UK Limited with regard to possible participation in
anti-competitive practices contrary to Article 81 of the Treaty of Rome. Such
investigation is a preliminary step and does not imply that the Company has
engaged in any unlawful activities relating to anti-competitive practices.
There is no strict deadline to complete anti-competitive inquiries and their
duration is determined by the complexity of each case, the exercise of the
rights of defence and by the Commissions procedures. Lucite International
Limited is co-operating fully with the European Commission on these matters.
It is not possible at this stage to estimate what the outcome of this
investigation will be. Environmental contingencies The chemicals business is highly regulated in many countries. Increasingly
stringent regulations govern our manufacturing processes, wastes and emissions
in all of the jurisdictions in which we do business and will continue to
require material ongoing costs. Given the nature of our business, violations of
environmental laws may result in substantial fines, penalties, damages or other
costs, restrictions or civil or criminal sanctions imposed on our operating
activities. In addition, potentially significant expenditures could be
necessary in order to comply with existing or future environmental laws. F-53




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) Under some environmental laws, we may be liable for the costs of investigating
and cleaning up environmental contamination on or from our properties or at
off-site locations where, for example, we disposed of or arranged for the
disposal or treatment of hazardous wastes. We are aware that there is or may be
soil or groundwater contamination at some of our facilities resulting from past
operations at these or neighbouring facilities. We may need to remediate soil
and groundwater contaminated with hazardous substances to ensure that they pose
no unacceptable risk to human health and the environment. The acquisition agreement relating to the acquisition of ICI Acrylics provides
for indemnification of Lucite International Investment Limited by ICI and
specified affiliated companies for some of these environmental liabilities,
costs, and other matters, provided that various requirements and procedures
specified in the acquisition agreement are satisfied. The extent of the
indemnification depends on the nature of the matter being indemnified, the time
from the closing of the acquisition at which the indemnification claim is made,
and other considerations and may be subject to certain deductibles and maximum
amounts, such as an aggregate deductible of £1 million and an aggregate cap of
£94 million, both of which apply to certain claims that would otherwise be
indemnifiable. Purchase commitments We have certain purchase contracts in existence of a take or pay nature that
require us to take minimum volumes of certain raw materials such as HCN,
methanol and acetone. The HCN contract requires us to take minimum volumes
until the end of June 2008, in the event of taking less than this minimum
volume a penalty directly linked to the volume shortfall is payable. The
minimum volume is less than our current production volume requirements. This
penalty is not chargeable should we need to declare Force Majeur. The purchase commitments that we have for other raw materials require us to
take minimum volumes in the current year only or pay the full price for the
volume of material not taken. The minimum volumes are less than our current
production requirements. Details of the financial obligations arising from these purchase commitments
can be seen on Item 5 section B Liquidity and Capital Resources. Recently Issued US Financial Accounting Standards On January 17, 2003, the Financial Accounting Standards Board (FASB or the
Board) issued FASB Interpretation No. 46, Consolidation of Variable Interest
Entities (FIN 46), which was amended in December 2003 when the FASB issued
FIN 46-R. Under the interpretation, as amended, certain entities known as
Variable Interest Entities (VIE) must be consolidated by the primary
beneficiary of the entity. The primary beneficiary is generally defined as
having the majority of the risks and rewards arising from the VIE. FIN 46-R
will be effective for the Company from January 1, 2004. The Company is
currently evaluating the impact of this statement on its results of operations
and financial position under US GAAP. On November 25, 2002 the FASB issued FASB Interpretation No. 45 (FIN 45 or
the Interpretation), Guarantors Accounting and Disclosure Requirements for
Guarantees of Indebtedness of Others (an interpretation of FASB Statements No.
5, 57 and 107 and rescission of FASB Interpretation No. 34). FIN 45 clarifies
the requirements of FASB Statement No. 5 (FAS 5), Accounting
for Contingencies,
relating to a guarantors accounting for, and disclosure of, the issuance of
certain types of guarantees. The Interpretations provisions for initial
recognition and measurement are to be applied on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantors fiscal year end. The guarantors previous accounting for guarantees
that were issued before the date of FIN 45s initial application may be revised
or restated to reflect the effect of the recognition and measurement provisions
of the Interpretation. The requirements of the standard have been adopted by
the Group for the fiscal year ended December 31, 2003 as disclosed on page Note
26(e) to the financial statements. F-54




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) In January 2004, the FASB issued FASB Staff Position (FSP) 106-1, Accounting
and Disclosure Requirements Related to Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act). This FSP addresses the accounting
implications of the newly issued Act to an entity that sponsors a
postretirement health care plan that provides prescription drug benefits. This
Act, signed into law in December 2003 in the United States, introduces a
prescription drug benefit under Medicare as well as a federal subsidy to
sponsors of certain retiree health care benefit plans. The FSP includes an
election to defer accounting for the implications of this new law until
specific authoritative guidance to address the accounting treatment has been
issued. As such, as a result of the absence of such guidance, any measures
included in these financial statements of the accumulated postretirement
benefit obligation (APBO) or net periodic postretirement benefit cost in the
financial statements or accompanying notes do not reflect the effects of the
Act on the plan. Authoritative guidance, when issued, could require a change
in previously reported information. Recently issued UK Financial Accounting Standards In November 2000 the ASB issued Financial Reporting Standard No. 17,
Retirement Benefits"(FRS 17). FRS 17 requires pension scheme assets to be
measured at market value and pension scheme liabilities to be measured using
specified actuarial methods using a corporate bond rate. The resulting surplus
or deficit should be immediately recognised in the balance sheet. In the
annual financial statements additional analysis was provided in accordance with
FRS 17 for which disclosure requirements have been implemented progressively
during the previous and current financial years in accordance with the
provisions of that standard. Full implementation of the standard has been
postponed until 2005. International Financial Reporting Standards (IFRS) The European Parliament and Council of the European Union issued a regulation
in 2002 that will require all EU listed companies to prepare their consolidated
financial statements in accordance with IFRS rather than the existing national
GAAP. The regulation takes effect for the accounting periods beginning after
January 1, 2005 and consequently the accounting framework under which the
Company reports will change. The Company will produce its consolidated
financial statements in accordance with IFRS for the year ended December 31,
2005. We are currently evaluating the areas that will be most affected by the
adoption of IFRS, including assessing the impact on our underlying systems and
financial statements and our US GAAP reconciliations. F-55




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)  27
    
    List of principal subsidiary companies included in the Lucite
International Group Holdings Limited consolidated financial statements at
December 31, 2003 County ofincorporation
    
    Percentageor registration
    
    holdingLucite International Investment Limited
    
    UK
    
    
    100Lucite International Holdings Limited
    
    UK
    
    
    100Lucite International Finance PLC
    
    UK
    
    
    100Lucite International Dutch Overseas Holdco BV
    
    Netherlands
    
    
    100Thai Poly Acrylic PLC
    
    Thailand
    
    
    59Lucite International Japan Limited
    
    Japan
    
    
    100Lucite International Finco Limited
    
    UK
    
    
    100Lucite International France SAS
    
    France
    
    
    100Lucite International Netherlands BV
    
    Netherlands
    
    
    100Lucite International Holland BV
    
    Netherlands
    
    
    100Lucite International UK Limited
    
    UK
    
    
    100Lucite International, Inc.
    
    USA
    
    
    100Lucite International Mexico SA de C.V.
    
    Mexico
    
    
    100Lucite International Holdco Limited
    
    UK
    
    
    100Lucite International Canada, Inc.
    
    Canada
    
    
    100Lucite International Trading Limited
    
    UK
    
    
    100Lucite
International UK Overseas Holdcol Limited
    
    UK
    
    
    100Lucite International Partnership Holdings Inc
    
    USA
    
    
    100Lucite International Holdco Inc
    
    USA
    
    
    100Lucite International Partnerco1 Limited
    
    UK
    
    
    100Lucite International Partnerco2 Limited
    
    UK
    
    
    100Lucite International Speciality Polymers and Resins Limited
    
    UK
    
    
    100Lucite International South Africa (Pty) Limited
    
    South Africa
    
    
    100Lucite International Asia Pacific Pte Limited
    
    Singapore
    
    
    100Kaohsiung Monomer Company
    
    Taiwan
    
    
    60Lucite International Alpha BV
    
    Netherlands
    
    
    100Perspex Distribution Limited
    
    UK
    
    
    100Lucite International China Holdings Ltd
    
    UK
    
    
    51Lucite International (China) Chemical Industry Company Limited
Ltd
    
    China
    
    
    51Lucite International US Delaware Holdings LLC
    
    USA
    
    
    100Lucite International US Group Holdings LLC
    
    USA
    
    
    100Lucite International US Investment Holdings LLC
    
    USA
    
    
    100
  28
    
    Controlling parties The intermediate holding company of Lucite International Group Holdings
Limited is Lucite International Limited, a company registered in England. The
ultimate controlling party of Lucite International Group Holdings Limited are
funds managed by Charterhouse Capital Partners LLP (formerly funds managed by
Charterhouse Development Capital Limited), 85 Watling Street, London, EC4M
9BX. F-56




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) 29 Supplemental consolidated financial statements Lucite International Group Holdings and the wholly owned guarantor subsidiary
of Lucite International Group Holdings, Lucite International Investments
Limited jointly and severally, fully and unconditionally guarantee Lucite
International Finance plcs debt securities. Lucite International Holdings
Limited and Lucite International Holdco Limited have also guaranteed Lucite
International Finance plcs debt securities on a subordinated basis. Presented below is consolidating information for Lucite International Finance
plc, the issuer of debt securities, its parent guarantor, Lucite International
Group Holdings Limited (carrying investments in subsidiaries at equity), Lucite
International Investments Limited, the wholly owned guarantor subsidiary of
Group Holdings Limited, Lucite International Holdings Limited and Lucite
International Holdco Limited the wholly owned subsidiaries of Lucite
International Investments Limited which have guaranteed the debt securities of
Lucite International Finance plc on a conditional basis. The Company has not provided a reconciliation from UK GAAP for the columns
relating to the guarantor entities as such a reconciliation would not
materially affect an investors understanding of the nature of the guarantee.
The majority of the reconciling items between UK GAAP and US GAAP relate to the
operating activities of the non-guarantor subsidiaries and these amounts would
only affect the guarantors investment in subsidiaries and equity earnings of
subsidiaries. F-57




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LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) Supplemental consolidating balance sheets as at December 31, 2002 Lucite
    
    Issuer andInternational
    
    unconditional
    
    SubordinatedGroup
    
    guarantor
    
    guarantor
    
    Non-Holdings
    
    subsidiaries
    
    subsidiaries
    
    guarantor
    
    
    
    
    
    ConsolidatedLimited
    
    (1)
    
    (2)
    
    subsidiaries
    
    Eliminations
    
    totals£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mFixed assetsIntangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    83Tangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    358
    
    
    
    
    
    
    
    358Investments
    
    
    149
    
    
    
    154
    
    
    
    112
    
    
    
    
    
    
    
    (415
    )
    
    
    149
    
    
    
    154
    
    
    
    112
    
    
    
    441
    
    
    
    (415
    )
    
    
    441Current assetsStocks
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    75Debtors
    
    
    
    
    
    
    166
    
    
    
    54
    
    
    
    96
    
    
    
    (220
    )
    
    
    96Cash at bank and in
hand
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    11
    
    
    
    166
    
    
    
    54
    
    
    
    182
    
    
    
    (220
    )
    
    
    182Total assets
    
    
    149
    
    
    
    320
    
    
    
    166
    
    
    
    623
    
    
    
    (635
    )
    
    
    623Creditors: amounts
falling due within
one year
    
    
    
    
    
    
    (52
    )
    
    
    (17
    )
    
    
    (140
    )
    
    
    90
    
    
    
    (119
    )Net current assets/
(liabilities)
    
    
    
    
    
    
    114
    
    
    
    37
    
    
    
    42
    
    
    
    (130
    )
    
    
    63Total assets less
current liabilities
    
    
    149
    
    
    
    268
    
    
    
    149
    
    
    
    483
    
    
    
    (545
    )
    
    
    504Creditors: amounts
falling due after
more than one year
    
    
    
    
    
    
    (126
    )
    
    
    
    
    
    
    (334
    )
    
    
    130
    
    
    
    (330
    )Provisions for
liabilities and
charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    
    
    
    
    (32
    )Net assets
    
    
    149
    
    
    
    142
    
    
    
    149
    
    
    
    117
    
    
    
    (415
    )
    
    
    142Shareholders equityCalled up equity
share capital
    
    
    175
    
    
    
    175
    
    
    
    175
    
    
    
    132
    
    
    
    (482
    )
    
    
    175Reserves
    
    
    (26
    )
    
    
    (33
    )
    
    
    (26
    )
    
    
    (27
    )
    
    
    67
    
    
    
    (45
    )Total equity
shareholders funds
    
    
    149
    
    
    
    142
    
    
    
    149
    
    
    
    105
    
    
    
    (415
    )
    
    
    130Equity minority
interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    12Capital employed
    
    
    149
    
    
    
    142
    
    
    
    149
    
    
    
    117
    
    
    
    (415
    )
    
    
    142
  (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite
International Investments Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited
and Lucite International Holdco Limited.(3)
    
    The numbers in the table above have been restated for the effects of
FRS19 deferred taxation F-58




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued) Supplemental consolidating balance sheets as at December 31, 2003 Lucite
    
    Issuer andInternational
    
    unconditional
    
    SubordinatedGroup
    
    guarantor
    
    guarantor
    
    Non-Holdings
    
    subsidiaries
    
    subsidiaries
    
    guarantor
    
    
    
    
    
    ConsolidatedLimited
    
    (1)
    
    (2)
    
    subsidiaries
    
    Eliminations
    
    totals£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mFixed assetsIntangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    78Tangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    332
    
    
    
    
    
    
    
    332Investments
    
    
    171
    
    
    
    174
    
    
    
    139
    
    
    
    
    
    
    
    (484
    )
    
    
    171
    
    
    
    174
    
    
    
    139
    
    
    
    410
    
    
    
    (484
    )
    
    
    410Current assetsStocks
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    75Debtors
    
    
    
    
    
    
    230
    
    
    
    54
    
    
    
    107
    
    
    
    (284
    )
    
    
    107Cash at bank and in
hand
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    30
    
    
    
    230
    
    
    
    54
    
    
    
    212
    
    
    
    (284
    )
    
    
    212Total assets
    
    
    171
    
    
    
    404
    
    
    
    193
    
    
    
    622
    
    
    
    (768
    )
    
    
    622Creditors: amounts
falling due within
one year
    
    
    
    
    
    
    (69
    )
    
    
    (22
    )
    
    
    (133
    )
    
    
    109
    
    
    
    (115
    )Net current assets/
(liabilities)
    
    
    
    
    
    
    161
    
    
    
    32
    
    
    
    79
    
    
    
    (175
    )
    
    
    97Total assets less
current liabilities
    
    
    171
    
    
    
    335
    
    
    
    171
    
    
    
    489
    
    
    
    (659
    )
    
    
    507Creditors: amounts
falling due after
more than one year
    
    
    
    
    
    
    (173
    )
    
    
    
    
    
    
    (335
    )
    
    
    176
    
    
    
    (332
    )Provisions for
liabilities and
charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    (27
    )Net assets
    
    
    171
    
    
    
    162
    
    
    
    171
    
    
    
    127
    
    
    
    (483
    )
    
    
    148Shareholders equityCalled up equity
share capital
    
    
    175
    
    
    
    175
    
    
    
    175
    
    
    
    140
    
    
    
    (490
    )
    
    
    175Reserves
    
    
    (4
    )
    
    
    (13
    )
    
    
    (4
    )
    
    
    (28
    )
    
    
    7
    
    
    
    (42
    )Total equity
shareholders funds
    
    
    171
    
    
    
    162
    
    
    
    171
    
    
    
    112
    
    
    
    (483
    )
    
    
    133Equity minority
interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Capital employed
    
    
    171
    
    
    
    162
    
    
    
    171
    
    
    
    127
    
    
    
    (483
    )
    
    
    148
  (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite
International Investments Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited
and Lucite International Holdco Limited. F-59




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued) Supplemental consolidating profit and loss accounts for the year to December
31, 2001 Lucite
    
    Issuer andInternational
    
    unconditional
    
    SubordinatedGroup
    
    guarantor
    
    guarantor
    
    Non-Holdings
    
    subsidiaries
    
    subsidiaries
    
    guarantor
    
    
    
    
    
    ConsolidatedLimited
    
    (1)
    
    (2)
    
    subsidiaries
    
    Eliminations
    
    totals£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mTurnover including share of
joint venture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    589Less: share of joint
ventures turnover
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Group turnover
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    577
    
    
    
    
    
    
    
    (577
    )Operating costs before
exceptional operating
expenses and amortisation
and intangible fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (550
    )
    
    
    
    
    
    
    (550
    )Exceptional operating
expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Amortisation of goodwill and
other intangible fixed
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Total operating costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (559
    )
    
    
    
    
    
    
    (559
    )Group operating profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    18Share of operating profit
from joint venture and
investments
    
    
    (3
    )
    
    
    (3
    )
    
    
    (3
    )
    
    
    2
    
    
    
    9
    
    
    
    2Operating profit including
joint venture
    
    
    (3
    )
    
    
    (3
    )
    
    
    (3
    )
    
    
    20
    
    
    
    9
    
    
    
    20Net interest payable
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    (28
    )Loss on ordinary activities
before taxation
    
    
    (3
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    (7
    )
    
    
    9
    
    
    
    (8
    )Taxation on loss on ordinary
activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6Loss on ordinary activities
after taxation
    
    
    (3
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    (1
    )
    
    
    9
    
    
    
    (2
    )Equity minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Loss for the financial period
    
    
    (3
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    9
    
    
    
    (3
    )
  (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite
International Investments Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited
and Lucite International Holdco Limited(1)
    
    The numbers in the table above have been restated for the effects of
FRS19 deferred tax. F-60




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS -(Continued) Supplemental consolidating profit and loss accounts for the year to December
31, 2002 Lucite
    
    Issuer andInternational
    
    unconditional
    
    SubordinatedGroup
    
    guarantor
    
    guarantor
    
    Non-Holdings
    
    subsidiaries
    
    subsidiaries
    
    guarantor
    
    
    
    
    
    ConsolidatedLimited
    
    (1)
    
    (2)
    
    subsidiaries
    
    Eliminations
    
    totals£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mTurnover
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    582
    
    
    
    
    
    
    
    582Operating costs before
exceptional operating
expenses and amortisation
and intangible fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (550
    )
    
    
    
    
    
    
    (550
    )Amortisation of goodwill and
other intangible fixed
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Total operating costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (555
    )
    
    
    
    
    
    
    (555
    )Group operating profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    27Share of operating profit
from investments
    
    
    (3
    )
    
    
    (3
    )
    
    
    (3
    )
    
    
    
    
    
    
    9
    
    
    
    Operating profit including
joint venture
    
    
    (3
    )
    
    
    (3
    )
    
    
    (3
    )
    
    
    27
    
    
    
    9
    
    
    
    27Net interest payable
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (29
    )Loss on ordinary activities
before taxation
    
    
    (3
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    (1
    )
    
    
    9
    
    
    
    (2
    )Taxation on loss on ordinary
activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Loss on ordinary activities
after taxation
    
    
    (3
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    1
    
    
    
    9
    
    
    
    Equity minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Loss for the financial period
    
    
    (3
    )
    
    
    (4
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    9
    
    
    
    (3
    )
  (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite
International Investments Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited
and Lucite International Holdco Limited. F-61




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued) Supplemental consolidating profit and loss accounts for the year to December 31, 2003 Lucite
    
    Issuer andInternational
    
    unconditional
    
    SubordinatedGroup
    
    guarantor
    
    guarantor
    
    Non-Holdings
    
    subsidiaries
    
    subsidiaries
    
    guarantor
    
    
    
    
    
    ConsolidatedLimited
    
    (1)
    
    (2)
    
    subsidiaries
    
    Eliminations
    
    totals£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mTurnover
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    694
    
    
    
    
    
    
    
    694Operating costs before
exceptional operating expenses
and amortisation and
intangible fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (620
    )
    
    
    
    
    
    
    (620
    )Amortisation of goodwill and
other intangible fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Total operating costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (625
    )
    
    
    
    
    
    
    (625
    )Group operating profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    
    
    
    
    69Share of operating profit from
joint venture and investments
    
    
    22
    
    
    
    22
    
    
    
    22
    
    
    
    
    
    
    
    (66
    )
    
    
    Operating profit
    
    
    22
    
    
    
    22
    
    
    
    22
    
    
    
    69
    
    
    
    (66
    )
    
    
    69Net interest payable
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (35
    )
    
    
    
    
    
    
    (37
    )Profit on ordinary activities
before taxation
    
    
    22
    
    
    
    20
    
    
    
    22
    
    
    
    34
    
    
    
    (66
    )
    
    
    32Taxation on loss on ordinary
activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Profit on ordinary activities
after taxation
    
    
    22
    
    
    
    20
    
    
    
    22
    
    
    
    28
    
    
    
    (66
    )
    
    
    26Equity minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Profit for the financial period
    
    
    22
    
    
    
    20
    
    
    
    22
    
    
    
    24
    
    
    
    (66
    )
    
    
    22
  (2)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite
International Investments Limited.(3)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited
and Lucite International Holdco Limited.(4)
    
    The numbers in the table above have been restated for the effects of
FRS19 deferred taxation F-62




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued) Supplemental consolidating cash flow statements for the year to December 31, 2001 Lucite
    
    Issuer andInternational
    
    unconditional
    
    SubordinatedGroup
    
    guarantor
    
    guarantor
    
    Non-Holdings
    
    subsidiaries
    
    subsidiaries
    
    guarantor
    
    
    
    
    
    ConsolidatedLimited
    
    (1)
    
    (2)
    
    subsidiaries
    
    Eliminations
    
    totals£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mCash flow from operating
activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    83Returns on investment and
servicing of financeNet external interest paid
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (33
    )
    
    
    13
    
    
    
    (33
    )Inter-group interest paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inter-group interest
received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    
    (13
    )
    
    
    
    
    
    
    47
    
    
    
    13
    
    
    
    47Capital expenditure and
financial investment:Acquisitions and disposals:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Capital expenditure
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    (26
    )
    
    
    
    (13
    )
    
    
    
    
    
    
    25
    
    
    
    13
    
    
    
    25FinancingRevolver drawdown
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Senior reimbursement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Intra-group loans issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Intra-group current account
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    (23
    )
    
    
    (13
    )
    
    
    (23
    )Increase in cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2
  (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite
International Investments Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited
and US Acrylics Holdco Limited. F-63




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued) Supplemental consolidating cash flow statements for the year to December 31, 2002 Lucite
    
    Issuer andInternational
    
    unconditional
    
    SubordinatedGroup
    
    guarantor
    
    guarantor
    
    Non-Holdings
    
    subsidiaries
    
    subsidiaries
    
    guarantor
    
    
    
    
    
    ConsolidatedLimited
    
    (1)
    
    (2)
    
    subsidiaries
    
    Eliminations
    
    totals£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mCash flow from operating
activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    57Returns on investment and
servicing of financeNet external interest paid
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (28
    )
    
    
    13
    
    
    
    (28
    )Inter-group interest paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inter-group interest received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )
    
    
    
    (13
    )
    
    
    
    
    
    
    25
    
    
    
    13
    
    
    
    25Capital expenditure and
financial investment:Acquisitions and disposals:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital expenditure
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (28
    )
    
    
    
    (13
    )
    
    
    
    
    
    
    (3
    )
    
    
    13
    
    
    
    (3
    )FinancingRevolver drawdown
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Senior reimbursement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    (20
    )Intra-group loans issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Intra-group current account
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    (5
    )
    
    
    (13
    )
    
    
    (5
    )Increase in cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )
  (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite
International Investments Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited
and US Acrylics Holdco Limited. F-64




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##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  (Continued) Supplemental consolidating cash flow statements for the year to December 31, 2003 Lucite
    
    Issuer andInternational
    
    unconditional
    
    SubordinatedGroup
    
    guarantor
    
    guarantor
    
    Non-Holdings
    
    subsidiaries
    
    subsidiaries
    
    guarantor
    
    
    
    
    
    ConsolidatedLimited
    
    (1)
    
    (2)
    
    subsidiaries

    
    Eliminations
    
    totals£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mCash flow from
operating
activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94Returns on
investment and
servicing of
finance:
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (33
    )
    
    
    16
    
    
    
    (33
    )Taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    (16
    )
    
    
    
    
    
    
    (33
    )
    
    
    16
    
    
    
    57Capital expenditure
and financial
investment:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    
    
    
    
    (32
    )Net cash inflow/
(outflow) before
use of liquid
resources and
financing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    16
    
    
    
    25Financing:
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    (5
    )
    
    
    (16
    )
    
    
    (5
    )Increase in cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20
  (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite
International Investments Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited
and US Acrylics Holdco Limited. F-65




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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Lucite International Holdings
Limited We have audited the accompanying consolidated balance sheets of Lucite
International Holdings Limited (the Company) as of December 31, 2003 and
2002, and the related consolidated profit and loss accounts, consolidated cash
flow statements, consolidated statement of total recognised gains and losses
and reconciliation of movements in shareholders funds for each of the three
years ended December 31, 2003. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 financial position of the Company at
December 31, 2003 and 2002, and the results of its operations and its cash
flows for each of the three years ended December 31, 2003, in conformity with
accounting principles generally accepted in the United Kingdom. Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the
United States of America. The application of the latter would have affected
results of operations for each of the three years ended December 31, 2003 and
consolidated shareholders funds at December 31, 2003 and 2002, to the extent
summarised in Note 26 to the financial statements. PricewaterhouseCoopers LLP
Chartered Accountants
London, EnglandApril 1, 2004 F-66




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##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED 
 CONSOLIDATED PROFIT AND LOSS ACCOUNTS Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003Notes
    
    £m
    
    £m
    
    £mTurnover including share of joint venture
    
    
    
    
    
    
    589
    
    
    
    582
    
    
    
    694Less: share of joint ventures turnover
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    Group turnover
    
    
    3,4
    
    
    
    577
    
    
    
    582
    
    
    
    694Operating costs before exceptional
operating expenses and amortisation of
intangible fixed assets
    
    
    
    
    
    
    (550
    )
    
    
    (550
    )
    
    
    (620
    )Exceptional operating expenses
    
    
    6
    
    
    
    (4
    )
    
    
    
    
    
    
    Amortisation of goodwill and other
intangible fixed assets
    
    
    10
    
    
    
    (5
    )
    
    
    (5
    )
    
    
    (5
    )Total operating costs
    
    
    
    
    
    
    (559
    )
    
    
    (555
    )
    
    
    (625
    )Group operating profit
    
    
    3,4
    
    
    
    18
    
    
    
    27
    
    
    
    69Share of operating profit from joint venture
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Operating profit including joint venture
    
    
    
    
    
    
    20
    
    
    
    27
    
    
    
    69Net interest payable
    
    
    8
    
    
    
    (28
    )
    
    
    (29
    )
    
    
    (37
    )Profit/(loss) on ordinary activities before
taxation
    
    
    6
    
    
    
    (8
    )
    
    
    (2
    )
    
    
    32Taxation on (profit)/loss on ordinary
activities
    
    
    9
    
    
    
    6
    
    
    
    2
    
    
    
    (6
    )Profit/(loss) on ordinary activities after
taxation
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    26Equity minority interests
    
    
    
    
    
    
    (1
    )
    
    
    (3
    )
    
    
    (4
    )Profit/(loss) for the financial year
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    22
 Group turnover and group operating profit relate entirely to continuing operations. The accompanying notes are an integral part of these financial statements. F-67




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED 
 STATEMENT OF CONSOLIDATED TOTAL RECOGNISED GAINS AND LOSSES Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mProfit/(loss) for the financial year
    
    
    (3
    )
    
    
    (3
    )
    
    
    22Currency translation differences on foreign
currency net investments
    
    
    2
    
    
    
    (21
    )
    
    
    (19
    )Total recognised gain/(loss) relating to the year
    
    
    (1
    )
    
    
    (24
    )
    
    
    3
 The accompanying notes are an integral part of these financial statements. F-68




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##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED 
 CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2003 AND 2002 Notes
    
    2002
    
    2003£m
    
    £mFixed assetsIntangible assets
    
    
    10
    
    
    
    89
    
    
    
    83Negative goodwill
    
    
    10
    
    
    
    (6
    )
    
    
    (5
    )Tangible assets
    
    
    11
    
    
    
    358
    
    
    
    332441
    
    
    
    410Current assetsStocks
    
    
    12
    
    
    
    75
    
    
    
    75Debtors
    
    
    13
    
    
    
    96
    
    
    
    107Cash at bank and in hand
    
    
    
    
    
    
    11
    
    
    
    30182
    
    
    
    212Total assets
    
    
    
    
    
    
    623
    
    
    
    622Creditors: amounts falling due within one year
    
    
    14
    
    
    
    (119
    )
    
    
    (115
    )Net current assets
    
    
    
    
    
    
    63
    
    
    
    97Total assets less current liabilities
    
    
    
    
    
    
    504
    
    
    
    507Creditors: amounts falling due after more than
one year
    
    
    15
    
    
    
    (330
    )
    
    
    (332
    )Provisions for liabilities and charges
    
    
    18
    
    
    
    (32
    )
    
    
    (27
    )Net assets
    
    
    
    
    
    
    142
    
    
    
    148Shareholders equityCalled up equity share capital
    
    
    19
    
    
    
    175
    
    
    
    175Profit and loss account
    
    
    
    
    
    
    (45
    )
    
    
    (42
    )Total equity shareholders funds
    
    
    
    
    
    
    130
    
    
    
    133Equity minority interests
    
    
    
    
    
    
    12
    
    
    
    15Capital employed
    
    
    
    
    
    
    142
    
    
    
    148
 The accompanying notes are an integral part of these financial statements. F-69




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##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED 
 CONSOLIDATED CASH FLOW STATEMENT Year ended
    
    Year ended
    
    Year endedDecember 31, 2001
    
    December 31, 2002
    
    December 31, 2003Notes
    
    £m
    
    £m
    
    £mCash flow from operating activities
    
    
    21
    (a)
    
    
    83
    
    
    
    57
    
    
    
    94Return on investments and servicing of
Finance
    
    
    21
    (b)
    
    
    (33
    )
    
    
    (28
    )
    
    
    (33
    )Taxation
    
    
    
    
    
    
    (3
    )
    
    
    (4
    )
    
    
    (4
    )47
    
    
    
    25
    
    
    
    57Capital expenditure and financial
Investment
    
    
    21
    (c)
    
    
    (26
    )
    
    
    (28
    )
    
    
    (32
    )Acquisitions and disposals
    
    
    21
    (d)Acquisition of ICI Acrylics
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    Other acquisition
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    Net cash inflow/(outflow) before use
of liquid resources and financing
    
    
    
    
    
    
    25
    
    
    
    (3
    )
    
    
    25Financing
    
    
    21
    (e)
    
    
    (23
    )
    
    
    (5
    )
    
    
    (5
    )Increase / (decrease) in cash
    
    
    21
    (f)
    
    
    2
    
    
    
    (8
    )
    
    
    20
 The accompanying notes are an integral part of these financial statements. F-70




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##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED 
 RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS FUNDS Share
    
    Profit andcapital
    
    loss account
    
    Total£m
    
    £m
    
    £mBalance as at December 31, 2000
    
    
    175
    
    
    
    (20
    )
    
    
    155Retained loss for the financial year
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Currency translation adjustment
    
    
    
    
    
    
    2
    
    
    
    2Balance as at December 31, 2001
    
    
    175
    
    
    
    (21
    )
    
    
    154Retained loss for the financial year
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Currency translation adjustment
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )Balance as at December 31, 2002
    
    
    175
    
    
    
    (45
    )
    
    
    130Retained profit for the financial year
    
    
    
    
    
    
    22
    
    
    
    22Currency translation adjustment
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Balance as at December 31, 2003
    
    
    175
    
    
    
    (42
    )
    
    
    133
 There are no significant statutory or contractual restrictions on the
distribution of current year income of subsidiary undertakings. Undistributed
profits are, in the main, employed in the business of these companies. The
undistributed income of the business overseas may be liable to overseas taxes
and/or United Kingdom taxation, after allowing for double taxation relief, if
they were to be distributed as dividends. The cumulative exchange gains and losses on the translation of foreign currency
financial statements into pounds sterling are taken into account in the above
reconciliation of movements in combined net investment and consolidated
shareholders funds. F-71




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##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED 
 NOTES TO THE FINANCIAL STATEMENTS  1
    
    BUSINESS DESCRIPTION Lucite International Holdings Limited (the Company) is a wholly owned
subsidiary of Lucite International Investment Limited and Lucite International
Investment Limited is a wholly owned subsidiary of Lucite International Group
Holdings Limited. The separate consolidated financial statements of the
Company have been included since the Company has guaranteed the 10.25% Senior
Notes of its parent companies on a subordinated basis. The consolidated
financial statements of Lucite International Group Holdings Limited are
included on pages F-2 to F-57. The parent companies of the Company, Lucite
International Investment Limited and Lucite International Group Holdings
Limited have no operations, assets, or liabilities of their own other than
investments in subsidiaries. As a result, the financial statement footnotes 1
and 3 through 28 of Lucite International Group Holdings Limited as presented on
pages F-8 through F-57 are equally applicable to the Company as are references
to Lucite International Group Holdings Limited in those footnotes. Lucite International Holdings Limited and subsidiary companies are engaged in
the production and distribution of methacrylate monomers, the principal
building block of acrylic, and the production and distribution of acrylic based
polymers, resins, sheet and composites. These products are manufactured at
facilities located in the Americas, Europe and Asia and are sold throughout the
world. As discussed above, for all financial statement footnotes listed below, please
refer to the respective footnote contained in the financial statements of
Lucite International Group Holdings Limited which are contained on pages F-2 to
F-57.  1
    
    PRINCIPAL ACCOUNTING POLICIES3
    
    SEGMENTAL REPORTING4
    
    COST OF SALES, GROSS PROFIT, DISTRIBUTION COSTS AND ADMINISTRATIVE
EXPENSES5
    
    STAFF COSTS6
    
    EXCEPTIONAL OPERATING EXPENSES7
    
    PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION8
    
    NET INTEREST PAYABLE9
    
    TAXATION ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES10
    
    INTANGIBLE FIXED ASSETS11
    
    TANGIBLE FIXED ASSETS12
    
    STOCKS13
    
    DEBTORS14
    
    CREDITORS-AMOUNTS FALLING DUE WITHIN ONE YEAR15
    
    CREDITORS-AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR16
    
    BANK AND OTHER BORROWINGS17
    
    FINANCE LEASES18
    
    PROVISIONS FOR LIABILITIES AND CHARGES19
    
    CALLED UP EQUITY SHARE CAPITAL20
    
    FINANCIAL INSTRUMENTS21
    
    NOTES TO THE CASH FLOW STATEMENTS22
    
    PENSIONS AND OTHER POST RETIREMENT BENEFITS23
    
    RELATED PARTY TRANSACTIONS24
    
    CONTINGENT LIABILITIES AND COMMITMENTS25
    
    OPERATING LEASE COMMITMENTS26
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US ACCOUNTING
PRINCIPLES F-72




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##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS  27
    
    LIST OF PRINCIPAL SUBSIDIARY COMPANIES INCLUDED IN THE LUCITE
INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED FINANCIAL STATEMENTS AT
DECEMBER 31, 2003 County ofincorporation
    
    Percentageor registration
    
    holdingLucite International Finance PLC
    
    UK
    
    
    100Lucite International Dutch Overseas Holdco BV
    
    Netherlands
    
    
    100Thai Poly Acrylic PLC
    
    Thailand
    
    
    59Lucite International Japan Limited
    
    Japan
    
    
    100Lucite International Finco Limited
    
    UK
    
    
    100Lucite International France SAS
    
    France
    
    
    100Lucite International Netherlands BV
    
    Netherlands
    
    
    100Lucite International Holland BV
    
    Netherlands
    
    
    100Lucite International UK Limited
    
    UK
    
    
    100Lucite International, Inc.
    
    USA
    
    
    100Lucite International Mexico SA de C.V.
    
    Mexico
    
    
    100Lucite International Holdco Limited
    
    UK
    
    
    100Lucite International Canada, Inc.
    
    Canada
    
    
    100Lucite International Trading Limited
    
    UK
    
    
    100Lucite
International UK Overseas Holdcol Limited
    
    UK
    
    
    100Lucite International Partnership Holdings Inc
    
    USA
    
    
    100Lucite International Holdco Inc
    
    USA
    
    
    100Lucite International Partnerco1 Limited
    
    UK
    
    
    100Lucite International Partnerco2 Limited
    
    UK
    
    
    100Lucite International Speciality Polymers and Resins Limited
    
    UK
    
    
    100Lucite International South Africa (Pty) Limited
    
    South Africa
    
    
    100Lucite International Asia Pacific Pte Limited
    
    Singapore
    
    
    100Kaohsiung Monomer Company
    
    Taiwan
    
    
    60Lucite International Alpha BV
    
    Netherlands
    
    
    100Perspex Distribution Limited
    
    UK
    
    
    100Lucite International China Holdings Ltd
    
    UK
    
    
    51Lucite
International (China) Chemical Industry Company Limited
    
    China
    
    
    51Lucite International US Delaware Holdings LLC
    
    USA
    
    
    100Lucite International US Group Holdings LLC
    
    USA
    
    
    100Lucite International US Investment Holdings LLC
    
    USA
    
    
    100
  28
    
    CONTROLLING PARTIESRefer to footnote 28 of the financial statements of Lucite International
Group Holdings Limited. F-73




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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Lucite International Holdco
Limited We have audited the accompanying consolidated balance sheets of Lucite
International Holdco Limited (the Company) as of December 31, 2003 and 2002,
and the related consolidated profit and loss accounts, consolidated cash flow
statements, consolidated statement of total recognised gains and losses and
reconciliation of movements in shareholders funds for each of the three years
ended December 31, 2003. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 financial position of the Company at
December 31, 2003 and 2002, and the results of its operations and its cash
flows for each of the three years ended December 31, 2003, in conformity with
accounting principles generally accepted in the United Kingdom. Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the
United States of America. The application of the latter would have affected
results of operations for each of the three years ended December 31, 2003 and
consolidated shareholders funds at December 31, 2003 and 2002, to the extent
summarised in Note 26 to the financial statements. PricewaterhouseCoopers LLP
Chartered Accountants
London, EnglandApril 1, 2004 F-74




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED 
 CONSOLIDATED PROFIT AND LOSS ACCOUNTS Year ended
    
    Year ended
    
    Year endedDecember
    
    December
    
    December31,
    
    31,
    
    31,2001
    
    2002
    
    2003Notes
    
    £m
    
    £m
    
    £mTurnover including share of joint venture
    
    
    
    
    
    
    589
    
    
    
    582
    
    
    
    694Less share of joint ventures turnover
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    Group turnover
    
    
    3,4
    
    
    
    577
    
    
    
    582
    
    
    
    694Operating costs before exceptional
operating expenses and amortisation of intangible fixed assets
    
    
    4
    
    
    
    (550
    )
    
    
    (550
    )
    
    
    (620
    )Exceptional operating expenses
    
    
    6
    
    
    
    (4
    )
    
    
    
    
    
    
    Amortisation of goodwill and other
intangible fixed assets
    
    
    10
    
    
    
    (5
    )
    
    
    (5
    )
    
    
    (5
    )Total operating costs
    
    
    
    
    
    
    (559
    )
    
    
    (555
    )
    
    
    (625
    )Group operating profit
    
    
    3,4
    
    
    
    18
    
    
    
    27
    
    
    
    69Share of operating profit from joint venture
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Operating profit including joint venture
    
    
    
    
    
    
    20
    
    
    
    27
    
    
    
    69Net interest payable
    
    
    8
    
    
    
    (28
    )
    
    
    (29
    )
    
    
    (37
    )Profit/(loss) on ordinary activities before
taxation
    
    
    7
    
    
    
    (8
    )
    
    
    (2
    )
    
    
    32Taxation on (profit)/loss on ordinary
activities
    
    
    9
    
    
    
    6
    
    
    
    2
    
    
    
    (6
    )Profit/(loss) on ordinary activities after
taxation
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    26Equity minority interests
    
    
    
    
    
    
    (1
    )
    
    
    (3
    )
    
    
    (4
    )Profit/(loss) for the financial year/period
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    22
 Group turnover and group operating profit relate entirely to continuing
operations. The accompanying notes are an integral part of these financial statements. F-75




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED 
 STATEMENT OF CONSOLIDATED TOTAL RECOGNISED GAINS AND LOSSES Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mProfit/(loss) for the financial year
    
    
    (3
    )
    
    
    (3
    )
    
    
    22Currency translation differences on foreign
currency net investments
    
    
    2
    
    
    
    (21
    )
    
    
    (18
    )Total recognised gain/(loss) relating to the year
    
    
    (1
    )
    
    
    (24
    )
    
    
    4
 The accompanying notes are an integral part of these financial statements. F-76




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED 
 CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2003 AND 2002 2002
    
    2003Notes


    
    £m
    
    £mFixed assetsIntangible assets
    
    
    10
    
    
    
    89
    
    
    
    83Negative goodwill
    
    
    10
    
    
    
    (6
    )
    
    
    (5
    )Tangible assets
    
    
    11
    
    
    
    358
    
    
    
    327441
    
    
    
    405Current assetsStocks
    
    
    12
    
    
    
    75
    
    
    
    75Debtors
    
    
    13
    
    
    
    96
    
    
    
    107Cash at bank and in hand
    
    
    
    
    
    
    7
    
    
    
    20178
    
    
    
    202Total assets
    
    
    
    
    
    
    619
    
    
    
    607Creditors: amounts falling due within one year
    
    
    14
    
    
    
    (148
    )
    
    
    (137
    )Net current assets
    
    
    
    
    
    
    30
    
    
    
    65Total assets less current liabilities
    
    
    
    
    
    
    471
    
    
    
    470Creditors: amounts falling due after more than
one year
    
    
    15
    
    
    
    (330
    )
    
    
    (332
    )Provisions for liabilities and charges
    
    
    18
    
    
    
    (32
    )
    
    
    (27
    )Net assets
    
    
    
    
    
    
    109
    
    
    
    111Shareholders equityCalled up equity share capital
    
    
    19
    
    
    
    115
    
    
    
    115Share premium
    
    
    19
    
    
    
    27
    
    
    
    27Profit and loss account
    
    
    
    
    
    
    (45
    )
    
    
    (41
    )Total equity shareholders funds
    
    
    
    
    
    
    97
    
    
    
    101Equity minority interests
    
    
    
    
    
    
    12
    
    
    
    10Capital employed
    
    
    
    
    
    
    109
    
    
    
    111
 The accompanying notes are an integral part of these financial statements. F-77




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED 
 CONSOLIDATED CASH FLOW STATEMENT Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003Notes
    
    £m
    
    £m
    
    £mCash flow from operating activities
    
    
    21
    (a)
    
    
    83
    
    
    
    57
    
    
    
    94Return on investments and
servicing of
Finance
    
    
    21
    (b)
    
    
    (33
    )
    
    
    (28
    )
    
    
    (33
    )Taxation
    
    
    
    
    
    
    (3
    )
    
    
    (4
    )
    
    
    (4
    )47
    
    
    
    25
    
    
    
    57Capital expenditure and financial
investment
    
    
    21
    (c)
    
    
    (26
    )
    
    
    (28
    )
    
    
    (28
    )Acquisitions and disposals
    
    
    21
    (d)Acquisition of ICI Acrylics
    
    
    21
    (d)
    
    
    (1
    )
    
    
    
    
    
    
    Other acquisition
    
    
    21
    (d)
    
    
    5
    
    
    
    
    
    
    
    Net cash (outflow)/inflow before
use of liquid resources and
financing
    
    
    
    
    
    
    25
    
    
    
    (3
    )
    
    
    29Financing
    
    
    21
    (e)
    
    
    (19
    )
    
    
    (6
    )
    
    
    (15
    )(Decrease)/increase in cash
    
    
    21
    (f)
    
    
    6
    
    
    
    (9
    )
    
    
    14
 The accompanying notes are an integral part of these financial statements. F-78




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED 
 RECONCILIATION OF MOVEMENTS IN NET INVESTMENT AND
CONSOLIDATED SHAREHOLDERS FUNDS Share
    
    Profit andcapital
    
    loss account
    
    Total£m
    
    £m
    
    £mBalance as at December 31, 2000
    
    
    142
    
    
    
    (20
    )
    
    
    122Retained loss for the financial year
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Balance as at December 31, 2001
    
    
    142
    
    
    
    (21
    )
    
    
    121Retained loss for the financial year
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Currency translation adjustment
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )Balance as at December 31, 2002
    
    
    142
    
    
    
    (45
    )
    
    
    97Retained loss for the financial year
    
    
    
    
    
    
    22
    
    
    
    22Currency translation adjustment
    
    
    
    
    
    
    (18
    )
    
    
    (18
    )Balance as at December 31, 2003
    
    
    142
    
    
    
    (41
    )
    
    
    101
 There are no significant statutory or contractual restrictions on the
distribution of current year income of subsidiary undertakings. Undistributed
profits are, in the main, employed in the business of these companies. The
undistributed income of the business overseas may be liable to overseas taxes
and/or United Kingdom taxation, after allowing for double taxation relief, if
they were to be distributed as dividends. The cumulative exchange gains and losses on the translation of foreign currency
financial statements into pounds sterling are taken into account in the above
reconciliation of movements in combined net investment and consolidated
shareholders funds. The accompanying notes are an integral part of these financial statements. F-79




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED 
 NOTES TO THE FINANCIAL STATEMENTS  1
    
    BUSINESS DESCRIPTION Lucite International Holdco Limited (the ''Company) is a wholly owned
subsidiary of Lucite International Holdings Limited. Lucite International
Holdings Limited is indirectly 100% owned by Lucite International Group
Holdings Limited, the consolidated financial statements of which are located on
pages F-2 through F-57.The parent companies of the Company have no operations, assets or liabilities
of their own other than cash of £4 million,investments in subsidiaries, and
liabilities which are reflected on a ''pushdown basis in the financial
statements of the Company as discussed in Note 16. During 2003 Lucite
International Holdings Limited invested $8 million (£5 million) into Lucite
International China Holdings Limited a company registered in the UK. Lucite
International China Holdings Limited has invested these proceeds into a wholly
owned foreign entity established in China for the purposes of constructing and
operating an MMA facility in China. The assets and liabilities of Lucite
International (China) Chemical Industry Company Limited have been fully
consolidated into the results of Lucite International Group Holdings Limited as
presented on pages F-8 to F-57. As a result some of the financial statement
footnotes of Lucite International Group Holdings Limited are equally applicable
to the Company but where they are not a separate footnote has been shown in the
financial statements of Lucite International Holdco Limited. Lucite International Holdco Limited and subsidiary companies (together referred
to as Lucite or ''the Company) are engaged in the production and
distribution of methacrylate monomers, the principal building block of acrylic,
and the production and distribution of acrylic based polymers, resins, sheet
and composites. These products are manufactured at facilities located in the
Americas, Europe and Asia and are sold throughout the world.  2
    
    PRINCIPAL ACCOUNTING POLICIESRefer to footnote 1 of the Financial Statements of Lucite International Group Holdings Limited.  3
    
    SEGMENTAL REPORTINGFor a description of the Companys business and an analysis of turnover,
operating profit and capital expenditure attributable to each different
class of business and a geographical analysis of turnover and tangible
fixed assets, refer to footnote 3 of the financial statements of Lucite
International Group Holdings Limited. F-80




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED NOTES TO THE FINANCIAL
STATEMENTS(Continued)
 Total assets less current liabilities attributable to each different class of
business are as follows: 2002
    
    2003£m
    
    £mTotal assets less current liabilitiesUpstream
    
    
    336
    
    
    
    321Downstream
    
    
    162
    
    
    
    156Net operating assets
    
    
    498
    
    
    
    477Elimination of assets and liabilities that are not attributable to types of
business:Cash at bank and in hand
    
    
    7
    
    
    
    20Deferred taxation asset
    
    
    12
    
    
    
    9Bank and other borrowings (Note 16)
    
    
    (46
    )
    
    
    (36
    )471
    
    
    
    470
  4
    
    COST OF SALES, GROSS PROFIT, DISTRIBUTION COSTS AND ADMINISTRATIVE
EXPENSESRefer to footnote 4 of the financial statements of Lucite International Group Holdings Limited.5
    
    STAFF COSTSRefer to footnote 5 of the financial statements of Lucite International Group Holdings Limited.6
    
    EXCEPTIONAL OPERATING EXPENSESRefer to footnote 6 of the financial statements of Lucite International Group Holdings Limited.7
    
    PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATIONRefer to footnote 7 of the financial statements of Lucite International Group Holdings Limited.8
    
    NET INTEREST PAYABLERefer to footnote 8 of the financial statements of Lucite International Group Holdings Limited.9
    
    TAXATION ON PROFIT/LOSS ON ORDINARY ACTIVITIESRefer to footnote 9 of the financial statements of Lucite International
Group Holdings Limited. F-81




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE FINANCIAL STATEMENTS(Continued)  10
    
    INTANGIBLE FIXED ASSETSRefer to footnote 10 of the financial statements of Lucite International Group Holdings Limited.11
    
    TANGIBLE FIXED ASSETS Payments onaccountandassets in theLand and
    
    Plant and
    
    course ofbuildings
    
    equipment
    
    construction
    
    Total£m
    
    £m
    
    £m
    
    £mCostAt December 31, 2001
    
    
    44
    
    
    
    696
    
    
    
    43
    
    
    
    783Capital expenditure
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    28Transfers of assets into
use
    
    
    
    
    
    
    22
    
    
    
    (22
    )
    
    
    Exchange adjustments
    
    
    (2
    )
    
    
    (26
    )
    
    
    (1
    )
    
    
    (29
    )Disposals
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )At December 31, 2002
    
    
    42
    
    
    
    687
    
    
    
    48
    
    
    
    777Capital expenditure
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    28Transfers of assets into
use
    
    
    
    
    
    
    40
    
    
    
    (40
    )
    
    
    Exchange adjustments
    
    
    (2
    )
    
    
    (24
    )
    
    
    (1
    )
    
    
    (27
    )Disposals
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )At December 31, 2003
    
    
    40
    
    
    
    698
    
    
    
    35
    
    
    
    773Accumulated depreciationAt December 31, 2001
    
    
    13
    
    
    
    380
    
    
    
    
    
    
    
    393Charge for year
    
    
    1
    
    
    
    39
    
    
    
    
    
    
    
    40Exchange movement
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Disposals
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )At December 31, 2002
    
    
    14
    
    
    
    405
    
    
    
    
    
    
    
    419Charge for year
    
    
    1
    
    
    
    38
    
    
    
    
    
    
    
    39Exchange movement
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Disposals
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )At December 31, 2003
    
    
    15
    
    
    
    431
    
    
    
    
    
    
    
    446Net book amounts atDecember 31, 2001
    
    
    31

    
    
    
    316
    
    
    
    43
    
    
    
    390December 31, 2002
    
    
    28
    
    
    
    282
    
    
    
    48
    
    
    
    358December 31, 2003
    
    
    25
    
    
    
    267
    
    
    
    35
    
    
    
    327
 Included in land and buildings is £7 million (2002: £8 million) in respect of
the cost of land which is not subject to depreciation. The net book value of tangible fixed assets includes capitalised finance
leases of £3 million (2002: £4 million) comprising cost of £5 million (2002:
£6 million) less accumulated depreciation of £2 million (2002: £2 million).
The depreciation charge for the year in respect of capitalised finance leases
was £0.4 million (2002: £0.4 million). 2002
    
    2003£m
    

£mAnalysis of net book amount of land and buildingsFreehold
    
    
    24
    
    
    
    22Long leasehold (over 50 years unexpired)
    
    
    4
    
    
    
    328
    
    
    
    25
 F-82




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE FINANCIAL STATEMENTS(Continued)  12
    
    STOCKSRefer to footnote 12 of the financial statements of Lucite International Group Holdings Limited.13
    
    DEBTORSRefer to the footnote 13 of the financial statements of Lucite International Group Holdings Limited.14
    
    CREDITORSAMOUNTS FALLING DUE WITHIN ONE YEAR 2002
    
    2003£m
    
    £mBank and other borrowings (note 16)
    
    
    17
    
    
    
    12Trade creditors
    
    
    58
    
    
    
    60Intra-Group financing
    
    
    29
    
    
    
    24Other creditors
    
    
    23
    
    
    
    19Accruals
    
    
    21
    
    
    
    22148
    
    
    
    137
  15
    
    CREDITORSAMOUNTS FALLING DUE AFTER MORE THAN ONE YEARRefer to footnote 15 of the financial statements of Lucite International Group Holdings Limited.16
    
    BANK AND OTHER BORROWINGSThe Senior Credit Facilities as described in footnote 16 of the financial
statements of Lucite International Group Holdings Limited are obligations
of the parent companies of the Company. These credit facilities are
reflected in the financial statements of the Company on a push
down
basis as the Companys assets are pledged as security against the Senior
Credit Facilities. The remaining obligations as described in footnote 16
to the financial statements of Lucite International Group Holdings
Limited are obligations of the Company. Refer to footnote 16 of the
financial statements of Lucite International Group Holdings Limited for a
complete description of Bank and Other Borrowings.17
    
    FINANCE LEASESRefer to footnote 17 of the financial statements of Lucite International Group Holdings Limited.18
    
    PROVISIONS FOR LIABILITIES AND CHARGESRefer to footnote 18 of the financial statements of Lucite International Group Holdings Limited.19
    
    CALLED UP EQUITY SHARE CAPITAL Number
    
    £mOrdinary shares of £1 each
    
    
    115,300,999
    
    
    
    115Share premium
    
    
    
    
    
    
    27142
 F-83




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE FINANCIAL STATEMENTS(Continued)  20
    
    FOREIGN EXCHANGE AND INTEREST RATE DISCLOSURERefer to footnote 20 of the financial statements of Lucite International
Group Holdings Limited for information relating to foreign exchange
disclosure, interest rate risk profit of financial liabilities, maturity
of financial liabilities, borrowing facilities, fair value of financial
assets and financial liabilities.Interest rate risk of financial assets 2002
    
    2003Cash at bank and in
    
    Cash at bank and inhand
    
    handCurrency
    
    £m
    
    £mSterling
    
    
    (2
    )
    
    
    US Dollars
    
    
    (6
    )
    
    
    4Euro
    
    
    5
    
    
    
    1Other currencies
    
    
    10
    
    
    
    15At December, 31
    
    
    7
    
    
    
    20Floating rate
    
    
    (1
    )
    
    
    8Fixed rate
    
    
    8
    
    
    
    12At December, 31
    
    
    7
    
    
    
    20
  The Company has significant operations in the US as well as other
countries outside of the UK and consequently movements in pounds
sterling exchange rates can significantly affect the balance sheet. In
addition currency exposures can arise from sales and purchase
transactions in foreign currencies. The Companys policy is to use
foreign currency loans to hedge foreign currency assets and liabilities.The table below shows the extent to which group companies have
monetary assets and liabilities in currencies other than their own local
currency. Foreign exchange differences on re-translation of these assets
are taken to the profit and loss account. Net foreign currency monetary assets/(liabilities) at December, 31  2002OtherSterling
    
    US dollars
    
    Euros
    
    Currencies
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £mFunctional currency:Sterling
    
    
    
    
    
    
    (118
    )
    
    
    (201
    )
    
    
    
    
    
    
    (319
    )US dollars
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Euro
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Other currencies
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Total
    
    
    
    
    
    
    (110
    )
    
    
    (199
    )
    
    
    
    
    
    
    (309
    )
 Net foreign currency monetary assets/(liabilities) at December, 31 2003OtherSterling
    
    US dollars
    
    Euros
    
    Currencies
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £mFunctional currency of operation:Sterling
    
    
    
    
    
    
    (89
    )
    
    
    (228
    )
    
    
    
    
    
    
    (317
    )US dollars
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Euro
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Other currencies
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6Total
    
    
    (1
    )
    
    
    (82
    )
    
    
    (228
    )
    
    
    3
    
    
    
    (308
    )
 F-84




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE FINANCIAL STATEMENTS(Continued)  21
    
    NOTES TO THE CASH FLOW STATEMENT(a)
    
    Net cash inflow from operating activitiesRefer to footnote 21(a) of the financial statements of Lucite
International Group Holdings Limited.(b)
    
    Returns on investments and servicing of financeRefer to footnote 21(b) of the financial statements of Lucite
International Group Holdings Limited.(c)
    
    Capital expenditure and financial investment Year ended
    
    Year ended
    
    Year endedDecember 31, 2001
    
    December 31, 2002
    
    December 31, 2003£m
    
    £m
    
    £mPurchase of intangible fixed assets
    
    
    (1
    )
    
    
    
    
    
    
    Purchase of tangible fixed assets
    
    
    (25
    )
    
    
    (28
    )
    
    
    (28
    )(26
    )
    
    
    (28
    )
    
    
    (28
    )
  (d)
    
    Acquisitions and disposalsRefer to footnote 21(d) of the financial statements of Lucite
International Group Holdings Limited.(e)
    
    Financing Year ended
    
    Year ended
    
    Year endedDecember 31,
    
    December 31,
    
    December 31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mMovement in debt due within 1 year
    
    
    (4
    )
    
    
    (15
    )
    
    
    (19
    )Movement in debt due after one year
    
    
    (15
    )
    
    
    (6
    )
    
    
    (33
    )Issue of debt due after more than
one year
    
    
    
    
    
    
    15
    
    
    
    37Cash (outflow)/inflow from
financing
    
    
    (19
    )
    
    
    (6
    )
    
    
    (15
    )
 F-85




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITEDNOTES TO THE FINANCIAL STATEMENTS(Continued)  (f)
    
    Analysis of net debt Debt
    
    DebtCash at bank
    
    due after
    
    due within
    
    Finance
    
    Netand in hand
    
    1 year
    
    1 year
    
    Leases
    
    Debt£m
    
    £m
    
    £m
    
    £m
    
    £mAt 1 January 2002
    
    
    17
    
    
    
    (331
    )
    
    
    (43
    )
    
    
    (5
    )
    
    
    (362
    )Cash flow
    
    
    (9
    )
    
    
    (8
    )
    
    
    14
    
    
    
    
    
    
    
    (3
    )Other
non-cash changes
    
    
    (1
    )
    
    
    16
    
    
    
    (17
    )
    
    
    
    
    
    
    (2
    )Exchange movement
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    1
    
    
    
    (2
    )At January 1, 2003
    
    
    7
    
    
    
    (326
    )
    
    
    (46
    )
    
    
    (4
    )
    
    
    (369
    )Cash flow
    
    
    14
    
    
    
    (4
    )
    
    
    19
    
    
    
    
    
    
    
    29Other
non-cash changes
    
    
    
    
    
    
    10
    
    
    
    (9
    )
    
    
    
    
    
    
    1Exchange movement
    
    
    (1
    )
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )At December 31, 2003
    
    
    20
    
    
    
    (328
    )
    
    
    (36
    )
    
    
    (4
    )
    
    
    (348
    )
 Year endedDecember 31,
    
    Year endedDecember 31,
    
    Year endedDecember
31,2001
    
    2002
    
    2003£m
    
    £m
    
    £mIncrease/ (decrease) in cash in the year
    
    
    6
    
    
    
    (9
    )
    
    
    14Cash flows
from movements in debt and lease financing
    
    
    23
    
    
    
    5
    
    
    
    10Cash flows from inter-group financing
    
    
    (4
    )
    
    
    1
    
    
    
    5Exchange movement
    
    
    2
    
    
    
    (2
    )
    
    
    (9
    )Other non-cash changes
    
    
    (1
    )
    
    
    (2
    )
    
    
    1Movement in net debt
    
    
    26
    
    
    
    (7
    )
    
    
    21Opening net debt
    
    
    (388
    )
    
    
    (362
    )
    
    
    (369
    )Closing net debt
    
    
    (362
    )
    
    
    (369
    )
    
    
    (348
    )
  22
    
    PENSIONS AND OTHER POST RETIREMENT BENEFITSRefer to footnote 22 of the financial statements of Lucite International Group Holdings Limited.23
    
    RELATED PARTY TRANSACTIONSRefer to footnote 23 of the financial statements of Lucite International
Group Holdings Limited. F-86




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE FINANCIAL STATEMENTS(Continued)  24
    
    CONTINGENT LIABILITIES AND COMMITMENTS 2002
    
    2003£m
    
    £mCommitments for capital expenditure not provided for:Contracts placed for future expenditure
    
    
    8
    
    
    
    8Expenditure authorised but not yet contracted
    
    
    13
    
    
    
    221
    
    
    
    10
  25
    
    OPERATING LEASE COMMITMENTSRefer to footnote 25 of the financial statements of Lucite International
Group Holdings Limited.26
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US ACCOUNTING
PRINCIPLES(a)
    
    Approximate effect on the profit/loss for the financial year/period (net
income) of differences between UK GAAP and US GAAP.Refer to footnote 26(a) of the financial statements of Lucite
International Group holdings Limited.(b)
    
    Approximate effect on and consolidated shareholders funds of differences
between UK GAAP and US GAAP 2002
    
    2003Notes
    
    £m
    
    £mConsolidated shareholders funds under UK
GAAP
    
    
    
    
    
    
    97
    
    
    
    101Purchase accounting adjustments
    
    
    
    
    
    
    (20
    )
    
    
    (21
    )Exchange revaluation of US intangibles
    
    
    
    
    
    
    2
    
    
    
    (9
    )Pensions
    
    
    
    
    
    
    (3
    )
    
    
    (5
    )Capitalisation of interest less amortisation
    
    
    
    
    
    
    7
    
    
    
    9Capitalisation of loan arrangement fees
    
    
    
    
    
    
    1
    
    
    
    Fair value of derivative financial
instruments
    
    
    
    
    
    
    
    
    
    
    1Deferred taxation
    
    
    
    
    
    
    28
    
    
    
    30Shareholders funds under US GAAP
    
    
    
    
    
    
    112
    
    
    
    106
  (c)
    
    US GAAP cash-flow informationRefer to footnote 26(d) of the financial statements of Lucite
International Group Holdings Limited.(d)
    
    Additional US GAAP disclosuresRefer to footnote 26(e) of the financial statements of Lucite
International Group Holdings Limited. F-87




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##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS(Continued)  27
    
    LIST OF PRINCIPAL SUBSIDIARY COMPANIES INCLUDED IN THE LUCITE
INTERNATIONAL HOLDCO LIMITED CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER
31, 2003 Country ofincorporation or
    
    PercentageCompany
    
    registration
    
    holdingLucite International Dutch Overseas Holdco BV
    
    Netherlands
    
    
    100Thai Poly Acrylic PLC
    
    Thailand
    
    
    59Lucite International Japan Limited
    
    Japan
    
    
    100Lucite International France SAS
    
    France
    
    
    100Lucite International Netherlands BV
    
    Netherlands
    
    
    100Lucite International Holland BV
    
    Netherlands
    
    
    100Lucite International UK Limited
    
    UK
    
    
    100Lucite International Newton Aycliffe Limited
    
    UK
    
    
    100Lucite International Inc
    
    USA
    
    
    100Lucite International Mexico SA de C.V
    
    Mexico
    
    
    100Lucite International Holdco Limited
    
    UK
    
    
    100Lucite International Canada, Inc
    
    Canada
    
    
    100Lucite International UK Trader Holdco Limited
    
    UK
    
    
    100Lucite International UK Overseas Holdco 1 Limited
    
    UK
    
    
    100Lucite International Partnership Holdings Inc
    
    USA
    
    
    100Lucite International Holdco Inc
    
    USA
    
    
    100Lucite International Partner 1 limited
    
    UK
    
    
    100Lucite International Partnerco 2 limited
    
    UK
    
    
    100Lucite International South Africa (Pty) Limited
    
    South Africa
    
    
    100Lucite International Asia Pacific Pte Limited
    
    Singapore
    
    
    100Kaohsiung Monomer Company
    
    Taiwan
    
    
    60Perspex Distribution Limited
    
    UK
    
    
    100Lucite International US Delaware Holdings LLC
    
    USA
    
    
    100Lucite International US Group Holdings LLC
    
    USA
    
    
    100Lucite International US Investment Holdings LLC
    
    USA
    
    
    100
  28
    
    CONTROLLING PARTIESRefer to footnote 28 of the financial statements of Lucite International
Group Holdings Limited. F-88