##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F o
    
    REGISTRATION STATEMENT PURSUANT
TO SECTION 12 (b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934ORþ
    
    ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004ORo
    
    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
(Exact Name of Registrant as Specified in Its Charter) ENGLAND and WALES
(Jurisdiction of incorporation or organization) 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  þ
    
    No  o
 Indicate by check mark which financial statement items the Registrant has elected to follow: Item 17  o
    
    Item 18  þ




---



##### Table of Contents



TABLE OF CONTENTS PAGEPRESENTATION OF INFORMATION
    
    
    5PART 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
    
    
    26B.
    
    LIQUIDITY AND CAPITAL RESOURCES
    
    
    33C.
    
    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
    
    
    35D.
    
    TREND INFORMATION
    
    
    36E.
    
    OFF-BALANCE SHEET ARRANGEMENTS
    
    
    37F.
    
    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
    
    
    37G.
    
    SAFE HARBOUR
    
    
    37ITEM 6
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    37A.
    
    DIRECTORS AND SENIOR MANAGEMENT
    
    
    37B.
    
    COMPENSATION
    
    
    39C.
    
    BOARD PRACTICES
    
    
    39
 2




---



##### Table of Contents



TABLE OF CONTENTS
Cont:- PAGED.
    
    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
    
    
    44ITEM 9
    
    THE OFFER AND LISTING
    
    
    44A.
    
    OFFER AND LISTING DETAILS
    
    
    44B.
    
    PLAN OF DISTRIBUTION
    
    
    44C.
    
    MARKETS
    
    
    44D.
    
    SELLING SHAREHOLDERS
    
    
    44E.
    
    DILUTION
    
    
    44F.
    
    EXPENSES OF THE ISSUE
    
    
    44ITEM 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.
    
    STATEMENT BY EXPERTS
    
    
    50H.
    
    DOCUMENTS ON DISPLAY
    
    
    50I.
    
    SUBSIDIARY INFORMATION
    
    
    50
 3




---



##### Table of Contents



TABLE OF CONTENTS
Cont:- PAGEITEM 11
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    50ITEM 12
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    52PART IIITEM 13
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    52ITEM 14
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    52ITEM 15
    
    CONTROLS AND PROCEDURES
    
    
    52ITEM 16
    
    {RESERVED}
    
    
    53ITEM 16A
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    53ITEM 16B
    
    CODE OF ETHICS
    
    
    53ITEM 16C
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    53ITEM 16D
    
    EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    53ITEM 16E
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    54PART IIIITEM 17
    
    FINANCIAL STATEMENTS
    
    
    54ITEM 18
    
    FINANCIAL STATEMENTS
    
    
    54ITEM 19
    
    EXHIBITS
    
    
    54EXHIBIT 12.1EXHIBIT 12.2
 4




---



##### Table of Contents



PRESENTATION OF INFORMATION The consolidated financial statements and the related notes thereto in this report have been
prepared in accordance with accounting principles generally accepted in the UK (UK GAAP). UK
GAAP differs in certain material respects from accounting principles generally accepted in the US
(US GAAP). For a discussion of the significant differences between UK GAAP and US GAAP with
respect to our consolidated financial statements, see Note 25 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, as amended. 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. Lucite International Investment Limited
is a wholly-owned subsidiary of Lucite International Group Holdings Limited. Lucite International
Investment Limited is a guarantor of the Groups senior credit facilities as well as the Groups
senior 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 Imperial Chemical Industries (ICI) interest in Kaoshiung 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. 5




---



##### Table of Contents



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




---



##### Table of Contents



PART I 
  ITEM 1
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORSNOT
APPLICABLE 
  ITEM 2
    
    OFFER STATISTICS AND EXPECTED TIMETABLENOT
APPLICABLE 
  ITEM 3
    
    KEY INFORMATION 
  A.

SELECTED FINANCIAL DATA The table below sets forth selected historical 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 GAAP and US GAAP, you should refer to Note 25
to the audited financial statements. You should read the data below in conjunction with the
Operating and Financial Review and Prospects (Item 5). Year ended December 31,In Millions
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004Profit and Loss Account Information:Amounts in accordance with UK GAAP:Group turnover
    
    £
    560
    
    
    £
    577
    
    
    £
    582
    
    
    £
    694
    
    
    £
    707Cost of sales
    
    
    (433
    )
    
    
    (458
    )
    
    
    (457
    )
    
    
    (532
    )
    
    
    (538
    )Gross profit
    
    
    127
    
    
    
    119
    
    
    
    125
    
    
    
    162
    
    
    
    169Net operating costs (a)
    
    
    (111
    )
    
    
    (101
    )
    
    
    (98
    )
    
    
    (93
    )
    
    
    (102
    )Share of operating profit from joint venture
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Group operating profit including joint venture
    
    
    18
    
    
    
    20
    
    
    
    27
    
    
    
    69
    
    
    
    67Net interest payable and similar charges
    
    
    (40
    )
    
    
    (28
    )
    
    
    (29
    )
    
    
    (37
    )
    
    
    (27
    )Profit/(loss) on ordinary activities after taxation
    
    
    (12
    )
    
    
    (2
    )
    
    
    
    
    
    
    26
    
    
    
    40Equity minority interests
    
    
    
    
    
    
    (1
    )
    
    
    (3
    )
    
    
    (4
    )
    
    
    (4
    )Profit/(loss) for the financial year
    
    
    (12
    )
    
    
    (3
    )
    
    
    (3
    )
    
    
    22
    
    
    
    36Amounts in accordance with US GAAP:Profit/(loss) for the financial year
    
    
    (8
    )
    
    
    (1
    )
    
    
    1
    
    
    
    15
    
    
    
    22Balance Sheet information (at end of period)Amounts in accordance with UK GAAP:Current assets
    
    
    180
    
    
    
    185
    
    
    
    182
    
    
    
    212
    
    
    
    248Total assets
    
    
    661
    
    
    
    663
    
    
    
    623
    
    
    
    622
    
    
    
    644Creditors due after more than one year
    
    
    (370
    )
    
    
    (336
    )
    
    
    (330
    )
    
    
    (332
    )
    
    
    (306
    )Total debt (net of debt issuance costs)
    
    
    369
    
    
    
    344
    
    
    
    343
    
    
    
    340
    
    
    
    321Net assets
    
    
    156
    
    
    
    168
    
    
    
    142
    
    
    
    148
    
    
    
    176Called up equity share capital
    
    
    175
    
    
    
    175
    
    
    
    175
    
    
    
    175
    
    
    
    175Amounts in accordance with US GAAP:Shareholders funds
    
    
    172
    
    
    
    170
    
    
    
    145
    
    
    
    137
    
    
    
    158Other Financial Information:Amounts in accordance with UK GAAP:Depreciation and amortisation
    
    
    39
    
    
    
    39
    
    
    
    45
    
    
    
    44
    
    
    
    44Capital expenditure and financial investment
    
    
    (28
    )
    
    
    (26
    )
    
    
    (28
    )
    
    
    (32
    )
    
    
    (38
    )
 7




---



##### Table of Contents



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; £14 million for
the year ended December 31, 2000, £4 million for the year ended December 31, 2001 and £nil for
the years ended December 31, 2002, December 31, 2003 and December 31, 2004. The £4 million of
costs charged to the UK GAAP profit and loss account for the year ended December 31, 2001
represented a program to reduce fixed costs in the UK manufacturing area, as part of a long
term manufacturing productivity plan. The £9 million of severance and relocation cost expensed
to the UK GAAP profit and loss account for the year ended December 31, 2000 has been included
in the allocation of the costs of the acquisition of ICI Acrylics as a liability assumed under
US GAAP. 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. High
    
    
    LowMonthFebruary 2005
    
    $
    1.93
    
    
    $
    1.86January 2005
    
    
    1.90
    
    
    
    1.86December 2004
    
    
    1.94
    
    
    
    1.91November 2004
    
    
    1.91
    
    
    
    1.83October 2004
    
    
    1.84
    
    
    
    1.78September 2004
    
    
    1.81
    
    
    
    1.77
 AverageYear ended December 31,2004
    
    $
    1.832003
    
    
    1.632002
    
    
    1.502001
    
    
    1.442000
    
    
    1.51
 On March 30, 2005 the exchange rate for pounds sterling, expressed in dollars per £1.00, was 1.88
per £1.00 
  B.

CAPITALISATION AND INDEBTEDNESSNOT APPLICABLE 
  C.

REASONS FOR THE OFFER AND USE OF PROCEEDSNOT APPLICABLE 8




---



##### Table of Contents



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 shareholders equity as of
December 31, 2004. As ofDecember 31,2004Total debt (net of debt issuance costs)
    
    £321 millionDebt excluding notes (net of senior debt issuance costs)
    
    £147 millionShareholders equity
    
    £161 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 of 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,
the actions of our principal investors 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, 2004, goodwill totalled £73
million in accordance with U.K. GAAP, compared to U.K. GAAP net assets of £176 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




---



##### Table of Contents



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 at
current levels. 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 5% of our total revenues. Several of
our U.S. facilities are located within DuPont chemicals complexes and are operated by DuPont under
our direction; 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 an 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 France, Japan, Mexico, The Netherlands, United
Kingdom, South Africa, Taiwan, Thailand, 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 taxation regimes; 10




---



##### Table of Contents





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 world-wide. 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 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 has 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 Risk. Key suppliers  if we are unable to retain or replace our key suppliers, especially our external
HCN suppliers, each of which 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. 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, consolidation in the methacrylate industry may result in a loss of customers if our
customers merge with competing producers and no longer require our output. If such 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-Hüls AG (including Rohm GmbH), Atofina and Mitsubishi Rayon
Co. Ltd., to a large number of smaller regional companies of varying sizes. 11




---



##### Table of Contents



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, ongoing product improvements and
obsolescence of existing products. Manufacturers periodically introduce new generations of products
or require new technological capacity to develop customised products. Our future growth will depend
on our 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 assurance 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 do not pose an 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




---



##### Table of Contents



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. Our costs for any environmental liabilities may be material and our indemnity from
ICI might not sufficiently cover those liabilities. For additional related disclosure, including a
discussion of our indemnity from ICI, 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 2004 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 have
evaluated a number of potential site options for a new production facility using our newly
developed Alpha Technology. Our plan is to have the unit built and operational by early 2008,
although there can be no assurance that we will meet this schedule. 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
1.4 billion with an insurance policy, which we believe to be in accordance with customary
industry practices. We also carry a business interruption policy in
the amount of 645 million
for specified events for up to 18 months (24 months for Beaumont and Memphis). In addition, we
carry third party liability insurance. There can be no assurance, however, that our insurance
coverage will be adequate to cover potential risks to our plant, equipment and other assets.
Moreover, we remain subject to significant increased coverage excesses (deductibles) and additional
exclusions for risks such as terrorism and earthquake loss. 13




---



##### Table of Contents



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 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 England and Wales. 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). During 2004, a further equity investment of $3 million (net of a $6 million licensing fee) was made
by Lucite International Holdings Limited, with the remainder of $11 million (net of a $3 million
licensing fee) to be made during 2005. This will result in Lucite International Holdings Limited
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, of which $30 million had been drawn as of December 31, 2004. 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 2004, our upstream business had £425 million in external sales (2003: £418 million)
and our downstream business had £282 million in external sales (2003: £276 million), representing
60% and 40% of our total sales, respectively (2003: 60% and 40% 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 were
attributable to MMA during 2004 (2003: 78%). 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




---



##### Table of Contents





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. During
2004, 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
industries 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. 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 less costly.
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




---



##### Table of Contents





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, including bone cement 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 supply & demand, as well as the market price for major raw
materials. Customers generally negotiate on the basis of volume discounts, contract length and
service. Our customers include some of the largest paints and resins producers in the world, such as DuPont;
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. Lucite International has long-standing relationships with many customers across a wide variety of
acrylic end markets. Customers purchase 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, 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 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 and some production in Asia. The primary alternative for methacrylate production is the
C4 process, favoured by Japanese producers. In 2004, we produced approximately 608 kilotonnes of
MMA, which is an increase of 6% 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 higher yields and
greater economies of scale. 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. We believe our Alpha technology will enable us
to produce MMA at attractive cost levels and without scale
limitation. We began piloting this technology in 2001, achieving
successful results by the end of 2002. We continue to pilot our
Alpha technology in order to optimise and support the design of a
commercial Alpha plant. The design for the first commercial unit
is now in progress. A decision on the preferred site will be made
soon, and our plan is to have the unit built and operational by
early 2008.

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




---



##### Table of Contents



Raw Materials and Suppliers We purchase goods and services from a wide range of suppliers. In 2004, the top ten suppliers
accounted for approximately 55% of cost of goods sold by value (2003: 49%). Prices of each of our
raw materials depend on different factors. The pricing of methanol is competitive because it is
available from a number of suppliers. The price of HCN 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, and raw material costs. 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. 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 a range of
active brands. Lucite® is our leading, globally recognised brand. Our other key brands and
trademarks in distinct product markets include: 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, Atofina, Mitsubishi Rayon Co. Ltd., Asahi Kasei
and Sumitomo. Moreover, there are only a few volume SpMAs producers, including Rohm & Haas,
Degussa-Hüls AG 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 In 1993, Lucite Internationals predecessor acquired DuPonts US acrylics business, including a MMA
plant in Beaumont, Texas, a MMA plant and an acrylic continuous cast sheet plant in Memphis,
Tennessee, a MAA plant and a SpMA plant in Belle, West Virginia, and an acrylic bead resin plant in
Parkersburg, West Virginia. Since then DuPont has been a major customer of and the biggest supplier
to our business. DuPont supplies 100% of our North American requirement for HCN to manufacture
acetone cyanodydrin, the precursor for MMA and methacrylic acid. All of the HCN we purchase from
DuPont is manufactured at their Memphis and Beaumont facilities. In addition, DuPont supplies natural gas and other goods and services to our Beaumont and Memphis
facilities. All of the facilities acquired from DuPont in 1993 remain located within shared
chemicals complexes. These facilities rely on services provided by DuPont pursuant to service and
manufacturing agreements. These supplies and services include utilities, steam, natural gas,
nitrogen, plant protection, water, fire protection and railroads. In addition, DuPont operates the
Lucite-owned facilities at Belle and Parkersburg, West Virginia, providing all manufacturing
services and labour. Our arrangements with DuPont are contracted until June 30, 2008 with evergreen
clauses providing for the continuation of those arrangements unless terminated by either party. 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. Seasonality Taken as a whole there are no material seasonal factors in business performance. 17




---



##### Table of Contents



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. These laws and regulations include 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. Moreover, additional
expenditures may be required over a number of years to meet the requirements of the European Union
Registration, Evaluation and Authorisation of Chemicals (REACH) Directive following its eventual
implementation. The nature and extent of any such expenses will be dependent upon the detailed
requirements of the REACH Directive, which have yet to be finalised. 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 may be required, 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 in the EU 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. It is likely that additional expenditures may be necessary in
some cases to meet the requirements of IPPC authorisations. Additional expenditures may also be
required at our US sites to meet the requirements of the US Environmental Protection Agencys
Miscellaneous Organics NESHAPS (National Emission Standards for Hazardous Air Pollutants) or MON
Rule, made under the provisions of the 1990 US Clean Air Act Amendments. 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 18




---



##### Table of Contents



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, 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. 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. 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. 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 defense 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. Following an audit by the US Environmental Protection Agency (EPA) of the Fite Road facility
in Memphis, Tennessee in December 2002, the EPA advised Lucite International Inc., our chief
operating subsidiary in the US, on September 23, 2004 that it considers the Fite Road facility to
be in violation of New Source Performance Standards under the US Federal Clean Air Act. Lucite
International Inc believes the Fite Road facility has operated in accordance with permits issued by
the Memphis Shelby County Health Department, which is authorised to issue such permits by the EPA.
The EPA originally proposed a settlement whereby Lucite International Inc. would pay an assessment
of less than $10 million and install certain plant improvements to comply with the New Source
Performance Standards (NSPS) within an agreed period. After continuing discussions with the EPA,
the current proposed settlement is less than $4 million. The potential settlement is still in
dispute, however, while settlement discussions between Lucite International Inc and the EPA
continue. Lucite International Inc. is cooperating fully with the EPA and is prepared to defend
itself against these allegations. It is expected that this issue will be resolved during 2005. 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
the results of operations. 19




---



##### Table of Contents



C.

ORGANISATIONAL STRUCTURE Corporate Structure The following chart sets
forth the corporate structure of our Group.  (CORPORATE STRUCTURE CHART)  (a)
    
    Charterhouse owns 78% of the common stock and 97% of the preferred stock of Lucite International Limited. Directors
of Ineos Capital and related parties own 11% of the common stock and none of the preferred stock of Lucite International
Limited.(b)
    
    Guarantor of the senior notes. Lucite International Group Holdings Limited and Lucite International Investment
Limited guaranteed the notes on a senior basis and the other guarantors guaranteed the notes on a subordinated basis.
The subordinated guarantees are subject to important conditions, including a standstill period of up to 179 days
following an event of default. In addition, the subordinated guarantors are subsidiaries of the senior guarantors. As
a result, the senior guarantees are effectively subordinated to all existing and future obligations of the subordinated
guarantors.(c)
    
    Guarantor of senior credit facility.(d)
    
    Security to lenders under senior credit facility.(e)
    
    Revolving credit facility may be borrowed by operating companies.(f)
    
    Some of these entities are guarantors of, and have pledged security under, the senior credit facility.(g)
    
    £5 million drawn on Deep Discounted Bond by Lucite International Limited for investment in new MMA facility in China.(h)
    
    An unrestricted subsidiary, the ultimate ownership, when funding is completed during 2005, will be 80% owned by
Lucite International Holdings Limited and 20% owned by Lucite International Limited.(i)
    
    A wholly-owned foreign enterprise established to construct and operate a facility producing MMA for the Chinese
market.
 A full listing of significant subsidiaries is provided in Note 26 to the financial statements. 20




---



##### Table of Contents



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. Nominal
    
    
    NominalUpstream
    
    
    DownstreamSite
    
    Products
    
    Capacity
    
    
    Capacity(in kilotonnes per year)
    
    
    (in kilotonnes per year)Beaumont TX (US)
    
    MMA
    
    
    156
    
    
    
    Belle WV (US) (a)
    
    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
    
    
    
    
    
    
    Memphis TN (US)
    
    MMA
    
    
    100
    
    
    
    Cast acrylic sheet
    
    
    168
    
    
    
    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)
    
    Polymers and resins
    
    
    
    
    
    
    12Presidents Island, Memphis, TN (US)
    
    Polymers and resins
    
    
    
    
    
    
    11Umbogintwini (South Africa)
    
    Cast acrylic sheet
    
    
    
    
    
    
    6Extruded acrylic sheet
    
    
    
    
    
    
    1Rozenburg (Netherlands)
    
    Polymers and resins
    
    
    
    
    
    
    20Bangkok (Thailand) (c)
    
    Cast acrylic sheet
    
    
    
    
    
    
    8Extruded acrylic sheet
    
    
    
    
    
    
    7Total
    
    
    
    
    756
    
    
    
    219
  (a)
    
    DuPont currently operates these facilities on our behalf pursuant to a service agreement.(b)
    
    We own approximately 60% and CPDC 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. In late 2003 we invested in a newly formed subsidiary in China. This subsidiary is a joint
venture between Lucite International Limited and Lucite International Holdings Limited and is
constructing and will 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 628 kilotonnes as of December 31, 2004. 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 $9 million
(net of 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 approximately $30
million in the MMA facility in China. The total construction cost is
approximately $111 million with
total expenditure at December 31, 2004 of $53 million. Construction of the facility commenced in
October 2003. It is located 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 21




---



##### Table of Contents



believe to be our market-leading position in that country by using proven technology to create
mainland Chinas first world-scale MMA plant. We believe 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. 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;

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 75-85% 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. During the year ended December 31, 2004,
these raw materials prices increased considerably (see Item 5A, Operating Results, for further
comments). 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. 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 2004, supply becomes tight. Most major production
facilities around the world have already been de-bottlenecked in order to release additional
capacity. As a result, spare capacity is not readily available. Barriers to entry into the market
include technology, lead time to construct a cost-effective manufacturing facility and availability
of feedstock. During the year ended December 31, 2004, our business performance was consistent with
the year ended December 31, 2003, as a result of strong operating performance by our manufacturing
facilities offsetting supply constraints and high market prices experienced for key feedstocks in
the upstream business. 22




---



##### Table of Contents



During 2003, we undertook an investment to construct and operate a new MMA facility in China to
produce 100 kilotonnes of MMA a year; this facility is expected to be on-stream by mid-2005. One of
our competitors, MRC, is currently constructing a 90 kilotonne plant in China that is expected to
be on-stream by mid-2006. We are also aware of other potential capacity increases by competitors
amounting to approximately 187 kilotonnes of additional capacity due to come on-stream between 2005
and 2008. For these reasons and with year-on-year growth, we expect that the current supply and
demand position will be sustained for at least 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 worldwide. During 2004, downstream product prices remained consistent with 2003. Competitive price pressures
within the sector resulted in continued margin pressure as raw material prices could not be fully
passed on to customers. 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. 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 active 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




---



##### 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: 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;

Perspex Distribution Limited, established to promote the Perspex brand and increase customer choice in the United
Kingdom;

more efficient overhaul programmes; and

other manufacturing and safety excellence improvement programmes combined with continued process development. 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, in particular the US dollar, and may in the future fluctuate
substantially; 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, 2004.) 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 according to US GAAP uses a discounted cash-flow
approach to value the net assets of the Company. We have calculated this at the lowest level
required, namely on a regional upstream and downstream basis. 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 flow. Substantially all of our revenue is attributable
to sales of MMA and MMA-related products, the prices of 24




---



##### Table of Contents



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 9% 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. 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. 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. 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 relating to principal 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, 2004, rate of increase in future compensation levels and health care
cost trend rates. These assumptions are updated annually and are disclosed in Note 21 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 2004 was
8.25% for the US Scheme and 7.6% for the UK scheme. The rates used to determine net periodic
pension expense for 2005 are 8.25% for the US scheme and 7.6% 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 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 6.25% at
December 31, 2003 to 5.75% at December 31, 2004. The discount rate used to value the UK liabilities
under SSAP 24 was 7.3% at December 31, 2003 and 6.8% at December 31, 2004. The assumption for the
long-term rate of increase in compensation levels was 4.5% for the US scheme 4.2% for the UK
scheme. The fair value of the US scheme assets increased from £31 million at December 31, 2003 to £35
million at December 31, 2004 including adverse exchange movements of £3 million. The fair value of
the UK scheme assets increased from £62 million at December 31, 2003 to £72 million at December 31,
2004. These increases in the scheme asset values reflect improving investment performance as well
as additional funding provided in 25




---



##### Table of Contents



the US during the year ended December 31, 2004. 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 increased from £58 million at December 31, 2003 to £59
million at December 31, 2004 including favourable exchange movements of £4 million. The fair value
of the UK scheme liabilities increased from £100 million at December 31, 2003 to £118 million at
December 31, 2004. These increases in the schemes liabilities reflect a decrease in the AA bond
rate used to discount the liabilities during the year ended December 31, 2004. 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 was completed in early 2004 which led 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 2005. This policy is considered to be critical since changes in pension assumptions could have a
significant impact on the Companys reported net profit. 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 the foreseeable future. Net deferred tax assets under UK GAAP amounted to £11 million at December 31, 2004, relating to
excess of losses and short term timing differences over accelerated capital allowances. During the year ended December 31, 2004 we recognised a credit of £6.5 million under UK GAAP
relating to short-term timing difference since it is more likely than not that we will be able to
utilise these in the foreseeable future. A potential net deferred tax credit of £3.4 million has
been generated in respect of tax losses in the period. This net credit was not recognised due to
the uncertainty of being able to relieve the underlying losses against suitable profits in the
relevant jurisdictions within the foreseeable future. If we had recognised these additional
deferred tax assets our taxation charge would have been £3 million lower for the year ended
December 31, 2004. 
  A.

OPERATING RESULTS The following table shows historical turnover and operating profit for our principal businesses for
the three years ended December 31, 2004. Year endedDecember 31,£ million2002
    
    
    2003
    
    
    2004Turnover:Upstream
    
    
    402
    
    
    
    511
    
    
    
    536Downstream
    
    
    274
    
    
    
    276
    
    
    
    282676
    
    
    
    787
    
    
    
    818Interclass eliminations
    
    
    (94
    )
    
    
    (93
    )
    
    
    (111
    )Total turnover
    
    
    582
    
    
    
    694
    
    
    
    707Operating profit:Upstream
    
    
    12
    
    
    
    55
    
    
    
    56Downstream
    
    
    15
    
    
    
    14
    
    
    
    11Total operating profit
    
    
    27
    
    
    
    69
    
    
    
    67
 26




---



##### Table of Contents



Year ended December 31, 2004 compared to the year ended December 31, 2003 Turnover Year ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    Year endedDecember 31,2003
    
    Exchange
    
    Volume/Mix
    
    Price
    
    December 31,2004£m
    
    £m
    
    £m
    
    £m
    
    £mTotal turnover
    
    
    694
    
    
    
    (63
    )
    
    
    34
    
    
    
    42
    
    
    
    707Percentage increase/(decrease)
    
    
    
    
    
    
    (9
    %)
    
    
    5
    %
    
    
    6
    %
    
    
    2
    %Upstream turnover (i)
    
    
    511
    
    
    
    (43
    )
    
    
    20
    
    
    
    48
    
    
    
    536Percentage increase/(decrease)
    
    
    
    
    
    
    (8
    %)
    
    
    4
    %
    
    
    9
    %
    
    
    5
    %Downstream turnover (i)
    
    
    276
    
    
    
    (20
    )
    
    
    25
    
    
    
    1
    
    
    
    282Percentage increase/(decrease)
    
    
    
    
    
    
    (7
    %)
    
    
    9
    %
    
    
    
    %
    
    
    2
    %
  (i)
    
    Upstream and downstream amounts include intra-company sales Turnover for the year ended December 31, 2004 was adversely affected by the translation impact
of the weaker dollar during the period. The average rate for the year ended December 31, 2004 was
$1.83 to £1.00 compared to an average rate for the year ended December 31, 2003 of $1.63 to £1.00.
Just under half of our sales are generated from US operations with another approximately 20%
generated within Asia where exchange rates are strongly linked to the dollar. Demand for methacrylate products remained strong during the year ended December 31, 2004, led by
strong consumer demand in all regions combined with a general shortage of product. Upstream volumes
during the year ended December 31, 2004 increased 3% compared to volumes during the year ended
December 31, 2003, resulting in a favourable effect on turnover of 4% when combined with favourable
mix variances. Downstream volumes increased 8% compared to volumes during the year ended December 31, 2003,
resulting in a favourable effect on turnover of 9% when combined with favourable mix variances. Raw material prices increased considerably during the year ended December 31, 2004. The higher raw
material prices are reflected in selling prices subject to lags of between three and six months.
This has resulted in upstream prices being 9% higher for the year ended December 31, 2004 compared
to the year ended December 31, 2003. Higher feedstock costs are reflected in downstream prices where possible. The ability to pass on
these higher feedstock prices to downstream products is a function of the relative competitiveness
of each downstream market and time. Downstream prices have increased for some product areas but in
aggregate downstream prices remain stable compared to the same period last year. Cost of sales Raw materialYear ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    prices net of
    

    Year endedDecember 31,
    
    
    
    
    
    
    
    Fixed Cost
    
    production cost
    
    December 31,2003
    
    Exchange
    
    Volume/Mix
    
    Spend
    
    savings
    
    2004£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mTotal cost of sales
    
    
    532
    
    
    
    (51
    )
    
    
    13
    
    
    
    (3
    )
    
    
    47
    
    
    
    538Percentage increase/(decrease)
    
    
    
    
    
    
    (10
    %)
    
    
    2
    %
    
    
    
    %
    
    
    9
    %
    
    
    1
    %Upstream cost of sales
    
    
    408
    
    
    
    (34
    )
    
    
    12
    
    
    
    
    
    
    
    39
    
    
    
    425Percentage increase/(decrease)
    
    
    
    
    
    
    (8
    %)
    
    
    3
    %
    
    
    
    %
    
    
    9
    %
    
    
    4
    %Downstream cost of sales
    
    
    217
    
    
    
    (16
    )
    
    
    13
    
    
    
    (2
    )
    
    
    12
    
    
    
    224Percentage increase/(decrease)
    
    
    
    
    
    
    (7
    %)
    
    
    6
    %
    
    
    (1
    %)
    
    
    5
    %
    
    
    3
    %
 Cost of sales for the year ended December 31, 2004 was favourably affected by the translation
impact of the weaker dollar during the period. The average rate for the year ended December 31,
2004 was $1.83 to £1.00 compared to an average rate for the year ended December 31, 2003 of $1.63
to £1.00. Approximately half of 27




---



##### Table of Contents



our production is generated from US operations with another approximately 15% generated within Asia
where exchange rates are strongly linked to the dollar. Raw material costs increased substantially during the year ended December 31, 2004, resulting in a
9% price variance within cost of sales for the upstream business. There was a 3% increase in upstream volumes during the year ended December 31, 2004 compared to the
year ended December 31, 2003. An 8% volume increase in downstream products during the year ended December 31, 2004 compared to
the year ended December, 2003 resulted in an adverse cost of sales variance of 6% when combined
with unfavorable mix effects and non-variable elements within cost of sales. Cost of sales for the year ended December 31, 2004 was favourably affected by lower employee costs
of approx £3 million in the UK as a result of reduction in performance-based bonus accrual.
Offsetting charges were incurred as part of administrative costs (see Net operating costsbelow) Net operating costs Year ended
    
    
    
    
    
    
    
    
    
    
    Year endedDecember 31,
    
    
    
    
    
    
    
    
    December 31,2003
    
    
    Exchange
    
    
    Spend
    
    
    2004£m
    
    
    £m
    
    
    £m
    
    
    £mTotal operating costs
    
    
    93
    
    
    
    (3
    )
    
    
    12
    
    
    
    102Percentage increase/(decrease)
    
    
    
    
    
    
    (3
    %)
    
    
    13
    %
    
    
    10
    %Upstream operating costs
    
    
    48
    
    
    
    (1
    )
    
    
    8
    
    
    
    55Percentage increase/(decrease)
    
    
    
    
    
    
    (2
    %)
    
    
    17
    %
    
    
    15
    %Downstream operating costs
    
    
    45
    
    
    
    (2
    )
    
    
    4
    
    
    
    47Percentage increase/(decrease)
    
    
    
    
    
    
    (5
    %)
    
    
    9
    %
    
    
    4
    %
 Net operating costs were favourably affected by the translation impact of the weaker dollar
during the year ended December 31, 2004. Net operating costs were impacted during the year ended December 31, 2004 by additional
distribution costs of approximately £2 million arising from higher sales volumes and mix effects
during the period compared to year ended December 31, 2003. The construction of the new MMA facility in China has increased upstream net operating costs by £2
million for the year ended December 31, 2004, compared to the year ended December 31, 2003.
Downstream net operating costs were £1 million higher for the year ended December 31, 2004 compared
to the year ended December 31, 2003, due to the additional costs of setting up a dedicated
distribution facility in the UK There were additional employee costs of approximately £4 million during the year ended December 31,
2004 compared to the year ended December 31, 2003, including £3 million for performance-based
bonuses. This was offset by a reduction in employee costs charged to cost of goods sold (refer Cost
of Salesabove). Net interest payable and other charges £mInterest charged for the year ended December 31, 2003
    
    
    37Exchange movements
    
    
    (7
    )Additional interest on senior notes
    
    
    1Fees on debt facility with parent company
    
    
    (1
    )Lower interest on senior debt
    
    
    (3
    )Interest charged for the year ended December 31, 2004
    
    
    27
 Only a portion of external debt denominated in non-UK currency is hedged against the assets of
the Group. A portion of exchange movements is taken to reserves based on the specific currencies
hedged and the balance is 28




---



##### Table of Contents



charged to the Profit and Loss account. This resulted in a positive exchange movement of £7 million
for the year ended December 31, 2004 compared to a negative movement of £7 million for year ended
December 31, 2003. Other movements comprise the reduction in interest payable on senior debt. This
reduction has arisen as a result of the full repayment of the revolving credit facility and a lower
rate of interest applied to the senior debt. Taxation on Profit on Ordinary Activities The taxation charge on the profit/ (loss) on ordinary activities decreased from a taxation charge
of £6 million for the year ended December 31, 2003 to a taxation charge of £nil for the year ended
December 31, 2004. Underlying current taxes remained consistent with 2003, but were reduced by
deferred tax credits related to the reversal of unutilised capital allowances from the prior year
and re-assessment of the potential utilisation of tax losses. Equity Minority Interests Equity minority interests remained at £4 million for the year ended December 31, 2004 compared to
the year ended December 31, 2003. 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
    %
 Turnover for the year ended December 31, 2003 was adversely affected 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 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 led to
improved sales volumes particularly in the upstream business during the year ended December 31,
2003 where volumes increased by approximately 8% compared to the year ended December 31, 2002. Raw material prices 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 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), offset by product mix effects during the year ended December 31,
2003 when compared to the year ended December 31, 2002. Downstream prices 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 were passed on there was some adverse impact on downstream profitability during the year
ended December 31, 2003. 29




---



##### Table of Contents



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 was favourably affected by the translation
impact of the weaker dollar during the year ended December 31, 2003 compared to the year ended
December 31, 2002. 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 led to a volume
increase in cost of sales for the upstream business as production is stepped up to meet sales
demand. Net operating expenses Year ended
    
    
    
    
    
    
    
    
    
    
    Year endedDecember 31,
    
    
    
    
    
    
    
    
    December 31,2002
    
    
    Exchange
    
    
    Cost savings
    
    
    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 were favourably affected 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
 30




---



##### Table of Contents



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 resulted in an additional
£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 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. 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 taxation 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
taxation at KMC, our 60% owned subsidiary in Taiwan, for the year ended December 31, 2003. 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, 2004. 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, 2004 Including new
    
    
    New China facility
    
    
    Excluding newfacility in China
    
    
    £m
    
    
    facility in China£m
    
    
    
    
    
    £mRevenue
    
    
    707
    
    
    
    
    
    
    
    707Operating profit
    
    
    67
    
    
    
    (2
    )
    
    
    69Fixed Assets
    
    
    396
    
    
    
    28
    
    
    
    368Cash
    
    
    33
    
    
    
    1
    
    
    
    32Total Debt
    
    
    321
    
    
    
    16
    
    
    
    305Capital expenditure (cash flow)
    
    
    (38
    )
    
    
    (18
    )
    
    
    (20
    )
 Year ended December 31, 2003 Including new
    
    
    New China facility
    
    
    Excluding newfacility in China
    
    
    £m
    
    
    facility in China£m
    
    
    
    
    
    £mRevenue
    
    
    694
    
    
    
    
    
    
    
    694Operating profit
    
    
    69
    
    
    
    
    
    
    
    69Fixed Assets
    
    
    410
    
    
    
    5
    
    
    
    405Cash
    
    
    30
    
    
    
    6
    
    
    
    24Total Debt
    
    
    340
    
    
    
    
    
    
    
    340Capital expenditure (cash flow)
    
    
    (32
    )
    
    
    (4
    )
    
    
    (28
    )
 31




---



##### Table of Contents



Debt incurred in Lucite International China Chemical Company Limited is ring-fenced from the
remainder of the Group and secured solely on the assets of Lucite International (China) Chemical
Company Limited. Recent US accounting pronouncements In May 2004, the FASB issued FSP No. FAS 106-2, Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The FSP provides
accounting guidance for the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) to a sponsor of a post-retirement health care plan that has
concluded that prescription drug benefits available under the plan are actuarially equivalent to
Medicare Part D and thus qualify for a subsidy under the Act. FAS 106-2 is effective for the Group
for the year ended December 31, 2005. We are currently evaluating the possible impact of this
pronouncement for the Group. In December 2004 the FASB issued Financial Accounting Standard No. 151, Inventory Costs  an
amendment of ARB No. 43, Chapter 4 (revised) (FAS
151). FAS 151 amends the guidance in ARB No. 43,
Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). FAS151 requires that those items
be recognised as current-period charges. In addition, FAS 151 requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity of the production
facilities. FAS 151 is effective for the Group for the year ended December 31, 2005. We are
currently evaluating the possible impact of this pronouncement for the Group. In December 2004 the FASB issued Financial Accounting Standard No. 123R, Share-Based Payment (FAS
123R). FAS 123R requires that companies expense the value of employee stock options and other
awards. FAS 123R allows companies to choose an option pricing model that appropriately reflects
their specific circumstances and the economics of their transactions, and allows companies to
select from three transition methods for adoption of the provisions of the standard. FAS 123R is
effective for the Group for the year ended December 31, 2005. We are currently evaluating the
possible impact of this announcement for the Group. In December 2004 the FASB issued Financial Accounting Standard No. 153, Exchanges of Non-monetary
Assets (FAS 153). FAS 153 amends APB Opinion No. 29, Accounting for Non-monetary Transactions, to
eliminate the exception for non-monetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of non-monetary assets that do not have commercial
substance. A non-monetary exchange has commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the exchange. FAS 153 is effective for the
Group for the year ended December 31, 2005. We are currently evaluating the possible impact of this
pronouncement for the Group. 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 is 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. With effect from January 1, 2005, the Group will
adopt the provisions of IAS 19. With effect January 1, 2005, UK GAAP will no longer be used by the Group for reporting purposes,
due to our implementation and adoption of IFRS. 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 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. The significant differences in accounting policies identified to date include: 32




---



##### Table of Contents



Pensions under UK GAAP (SSAP24), the cost of defined benefit pension schemes and healthcare
plans is determined by independent professionally qualified actuaries using the projected unit
method and recognised on a systematic basis over the employees service lives. Scheme
liabilities are discounted at a long-term stable rate. There are several options to recognise
actuarial gains and losses, as long as the same basis is applied to both gains and losses and
the basis is applied consistently from period to period. Under IFRS (IAS19) scheme liabilities
are discounted at the market rate on high quality corporate bonds. Actuarial gains and losses
can be recognised immediately in the profit and loss in the period in which they occur; the
excess cumulative amount which exceeds a 10% of the greater of the present value of the
obligation and the market value of the assets divided by the expected average remaining working
lives of the participating employees can be recognised in the profit and loss; or the actuarial
gains and losses can be recognized immediately as a separate component of shareholders equity
in the period in which they occur. IAS19 will be applied to all our material defined benefit pension funds. The full deficit of
plan assets valued at current market value versus scheme projected liabilities will be brought
onto the balance sheet. The pension charge will be split into service costs  charged through
to fixed costs on the profit and loss account and interest costs less expected return on assets
  charged through to the interest/financing line on the profit and loss account. Upon adoption
of IFRS, the reserve balance will be adjusted in the opening balance sheet to reflect the
deficit. Business combinations IFRS3 requires goodwill to be measured at cost less any impairment,
compared to the amortization of goodwill according to UK GAAP. Under IFRS goodwill is no longer
amortised and instead will be tested annually for impairment and written down if impairment is
deemed to exist. Intangible assets with finite lives, where these have been identified
separately from goodwill, will continue to be amortised. Negative goodwill will no longer be
recognised on the balance sheet and will have to be immediately written off to the profit and
loss account. We have recognised negative goodwill on the acquisition of shares in KMC made in 2001 that will
be impacted by our adoption of IFRS. Under IAS 21 any goodwill that has arisen on the
acquisition of a foreign operation will be treated as an asset of the foreign operation and as
such it would be re-translated at the closing rate. Previously goodwill was not re-translated
but held at a constant sterling value and amortised over an appropriate life. Research & Development costs IAS38 sets out certain criteria for the capitalisation of
development costs, and if these criteria are met then all the development costs have to be
capitalized. There is no choice and no partial capitalisation. Upon adoption of IFRS our
opening balance sheet will include such capitalised development costs as assets which were not
previously capitalized under UK GAAP. Under IFRS some of our development projects meet the criteria of development expenditure and as
such would be capitalised. It is our current policy to capitalise expenditure on the building
of pilot plants but not the day-to-day operating costs of the pilot plants. It is the
capitalisation of these costs that would be impacted by our adoption of IFRS. 
  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. Up to fifty percent of any
additional cash generated over and above these requirements must be applied to repay amounts
payable under our senior credit facilities (limited to twenty-five percent based on a leverage
ratio below 2.5). We expect to make such a cash payment based on the Groups performance for the
year ended December 31, 2004, subject to the issue of the report on covenant performance for 2004.
All financial covenants were achieved for the year ended December 31, 2004. Operating activities Cash flow provided by operating activities was £92 million for the year ended December 31, 2004;
£94 million for the year ended December 31, 2003 and £57 million for the year ended December 31,
2002. Working capital 33




---



##### Table of Contents



balances resulted in an outflow of £15 million for the year ended December 31, 2004 versus an
outflow of £18 million for the year ended December 31, 2003, reflecting a combination of higher
physical stocks and increase stock values due to higher raw material in anticipation of plant
overhauls, offset by an increase in creditors, and increased debtors mainly as a result of
increased selling prices during the year ended December 31, 2004, supported by days sales
outstanding remaining consistent with the year ended December 31, 2003. Management believes that
our working capital position for the year ended December 31, 2004 is adequate to meet our present
requirements. Cash generated in our subsidiaries in Taiwan (KMC) and Thailand (Thai Polymer Company or TPA) is
only available to the Group by means of dividends which are subject to local legal restrictions. Financing activities and servicing of debt We continue to have significant cash requirements for debt service. As of December 31, 2004, we
had £133 million (2003: £170 million) outstanding in term loans and revolving facilities borrowed
under our senior credit facilities and 250 million or £178 million (2003: 250 million or £178
million) aggregate principal amount of notes outstanding including the unamortised premium on
senior notes. During 2004, the outstanding balance (£19 million) on our revolving credit facility
was fully paid down. We also repaid £12 million of the senior debt balance outstanding as scheduled
during 2004. The construction of our plant in China will be funded by total equity of $39 million (including $8
million invested by Lucite International Limited) and loans taken out with a leading Chinese Bank
for approximately $72 million including planned construction and funding of working capital. As of
December 31, 2004 we had an outstanding balance of £16 million on the loan with the Chinese Bank.
As debt is incurred in the new Chinese subsidiary it is 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 2005. Summary of the investment in our new MMA facility in China: Years ended
    
    
    Year ending
    
    
    Total expected investmentDecember 31, 2004
    
    
    December 31, 2005
    
    
    in new 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
    
    
    
    11
    
    
    
    9
    
    
    
    11
    
    
    
    14
    
    
    
    22Debt with a leading Chinese Bank
    
    
    16
    
    
    
    30
    
    
    
    24
    
    
    
    42
    
    
    
    40
    
    
    
    72Total investment
    
    
    26
    
    
    
    49
    
    
    
    33
    
    
    
    53
    
    
    
    59
    
    
    
    102
 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 $85 million (£44 million) less $1 million of guarantees under
our $85 million revolving credit facility. Borrowings under our senior credit facilities bear interest at LIBOR-based floating rates for
varying interest periods. Our senior credit facilities consist of three term loan facilities for an
aggregate of £133 million ($241 million) as at December 31, 2004, and a revolving working capital
facility with a maximum commitment of up to £44 million ($85 million) which was fully unutilised at
December 31, 2004. 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. 34




---



##### Table of Contents



Capital Expenditures During the current and prior year our capital expenditure was as follows: Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,2002
    
    
    December 31,2003
    
    
    December 31,2004£m
    
    
    £m
    
    
    £mSafety, health and environment
    
    
    4
    
    
    
    4
    
    
    
    4Maintaining asset capacity
    
    
    15
    
    
    
    14
    
    
    
    13Growth projects
    
    
    9
    
    
    
    14
    
    
    
    21Total capital expenditure
    
    
    28
    
    
    
    32
    
    
    
    38
 The capital expenditure on growth projects includes approximately £18 million relating to the
construction of our new MMA facility in China. We currently anticipate that our capital
expenditures will be approx £72 million through 2005 in respect of our existing facilities,
including approximately £9 million to be spent on safety, health and the environment (SHE),
approximately £16 million on the tri-annual overhauls at our Cassel and Beaumont MMA facilities,
and approximately £20 million on the construction of the new MMA facility in China. Commitments for capital expenditure are £40 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 £22 million 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, Sterling and Taiwan
dollars and wherever possible we manage the Group cash position to satisfy our US dollar, Euro,
Sterling and Taiwan dollar 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 2003, we reset a portion of the senior debt interest at the prevailing LIBOR rate as at
September 2003 for a period of twelve months. Details of this can be seen in Note 19 to the
financial statements. In some cases we have set the interest periods for up to nine months in 2004
in order to fix our interest exposure at historically low rates. As of December 31, 2004 we did not
have any interest rate hedges in place. 
  C.

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. Our Research, Technology and Engineering Group constitute our research and development core. Since
1999 we have enhanced our management and focus of research and development expenditures. Our
investment in 2004 was £9 million on new product and process technologies (2003: £9 million, 2002:
£10 million). Productivity, measured as a 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), Darwen (United Kingdom), Memphis (USA), and Ibaraki (Japan). 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. Lucite Internationals
proprietary new monomer technology Alpha is now fully operational in a continuous pilot plant,
and design of the first commercial plant is underway. 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 2004, we spent approximately £5 million on research and development to expand and
create downstream applications for acrylic products. In 2004 sales of new products developed in the
past three years constituted approximately 20% of our downstream sales and gross margin. 35




---



##### Table of Contents



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:  

Lucite® TufCoat® and Elvakon®Lucite® TufCoat® products are targeted toward architectural capping applications such as
sidings for house construction, windows and doors. Due to their weathering characteristics,
flexibility and ability to provide a wide range of colour and sheen types, TufCoat® products
allow manufacturers of these house-building products to offer much longer consumer guarantees
than conventional paints, wood-finishes or other thermoplastic materials. From this technology,
we are developing base capping products under the Elvakon® name to meet the needs of a wide
range of automotive, appliance and lighting applications which exploit our capability to
manipulate both the material properties and processing characteristics of acrylic materials and
alloys.

Colacryl®Since the acquisition of Bonar Polymers in 2000, the high value polymers platform has been a
prominent part of Specialty Polymer and Resins business. Our research efforts in this area are
focused on working with customers to understand long term application needs and develop acrylic
material solutions, whilst ensuring a competitive range of current products.

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) products.

Light Management Solutions, including Prismex®We target Prismex®, which we market under license, at corporate and retail signage
applications. Usage of Prismex® is growing at retail outlets, showcase displays at movie
theatres and airports and retail display cabinets. Prismex® allows for significantly higher
levels of translucency than traditional sheet, a characteristic that allows for substantial
energy savings. In addition, 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 which, with our strategic partner, Solid Vision, we aim to bring to market
during 2005.

Acrylic Alloys and AdditivesWe have a carefully selected and application-targeted range of exploratory programs aimed at
exploiting the beneficial properties of acrylic in combination with other materials. Emerging
new acrylic product opportunities are anticipated to be in alloys (blends) with other
thermoplastics, as additives for modification of bulk polymers, and composite (filled) systems. 
  D.

TREND INFORMATION During 2003, the recovery in demand for methacrylates continued 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 and were maintained during
the second half of 2003. Raw material prices continued to increase to unprecedented levels during
the year ended December 31, 2003, particularly acetone and natural gas in the United States. During 2004, the methacrylates market continued to experience strong demand across all regions. Raw
material costs continued to rise achieving unprecedented levels. We also experienced some
limitations on our 36




---



##### Table of Contents



supply. The higher input costs were progressively reflected in higher selling prices of upstream
products. Competitive price pressures and price lags within the sector meant that most of the
increase in upstream raw material prices could not be fully passed on resulting in continued
downstream margin pressures in the year ended December 31, 2004. 
  E.

OFF-BALANCE SHEET ARRANGEMENTS We have no off balance sheet arrangements. 
  F.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS Our total committed contracts that will impact on our cash position over the next five years and
thereafter are as follows: Payments due by period£mContractual Obligations
    
    Total
    
    
    Less than
1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    More than
5 yearsLong-term
debt obligations (a)(b)
    
    
    326
    
    
    
    18
    
    
    
    76
    
    
    
    39
    
    
    
    186Capital
(finance) lease obligations
    
    5
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    3Purchase obligations (c)
    
    
    320
    
    
    
    145
    
    
    
    132
    
    
    
    27
    
    
    
    16Total
    
    
    651
    
    
    
    163
    
    
    
    209
    
    
    
    67
    
    
    
    205
 (a)
    
    Consist of our senior credit facilities and senior notes(b)
    
    Includes China bank loan (outstanding balance as of December 31, 2004 was £16 million)(c)
    
    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 2.10075% plus a margin for the euro-denominated debt and 2.67% plus a margin
for the US dollar-denominated debt. The margin ranges from 1.25% to 3% depending upon the maturity
date of the tranche of debt. 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
fifty percent of any additional cash generated as a prepayment against our senior credit facilities
(limited to twenty five percent based on a leverage ratio below 2.5). 
  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: 37




---



##### Table of Contents



Name
    
    Age
    
    PositionIan R Lambert
    
    
    49
    
    
    Chief Executive Officer and DirectorAnnie S Veerman
    
    
    43
    
    
    Chief Financial Officer, Secretary and DirectorJ. Jefferson Davis
    
    
    61
    
    
    President of Lucite International Inc. and VP  AmericasA. Paul Henderson
    
    
    49
    
    
    VP  Europe, Middle East and Africa and DirectorGregory Liou
    
    
    55
    
    
    VP  Asia Pacific and General Manager, KMCNeil L Sayers
    
    
    51
    
    
    VP  Technology and Manufacturing and Director
 Ian R. Lambertjoined ICI in 1985, working for the first two years in the Agrochemicals business.
In 1989, he became controller, ICI Engineering Plastics in the US. From 1991, he spent three years
as Director of Finance and IT at ICI Fiberite in Arizona, US, before becoming finance manager, ICI
Materials, based in Belgium. Mr. Lambert became financial controller of ICI Acrylics in 1995 and
Chief Financial Officer in 1997. On March 25, 2003, he was appointed Chief Executive Officer. Mr
Lambert is a chartered accountant and has an MA and MPhil from Cambridge University. Annie S Veermanjoined ICI in 1980, and worked in Australia in the fertiliser and agrochemical
business of Incitec. She then became the International Accountant for the Films business in the UK
before moving to Belgium to work on the acquisition of the DuPont Acrylics business and the sale of
the ICI Fibres business. In 1994, Ms. Veerman became a Finance Manager in ICIs Acquisitions and
Planning Department. She then spent two years based in Memphis as Finance and IT Director of ICI
Acrylics Inc before becoming Finance Director of Unichema in the Netherlands in 1998. In 1999, she
was appointed Procurement Director of Uniqema. Ms. Veerman was appointed Executive Director and
Chief Financial Officer of Lucite International on June 1, 2003. Ms. Veerman is a Certified
Practicing Accountant (Australia) with a degree in Business Studies and an MBA from Cranfield
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 Acrylics
ownership in 1994. From 1994 to 1996, Mr. Davis was Manufacturing Director, ICI Acrylics Inc.
before taking on responsibility for worldwide Manufacturing and Technology. In 2001, Mr Davis was
appointed to his current role as President, Lucite International Inc., and Executive Director,
Americas. Mr Davis has a BSc in Textile engineering from Georgia Institute of Technology. A. Paul Hendersonjoined ICI Petrochemicals in 1978. He spent time in the UK, South Africa and the
US in a number of marketing roles within the Fibre Intermediate and Aromatics businesses before
joining ICI Fibres in 1990. From 1990 to 1993, Mr Henderson managed the global sales of Nylon
Textile Filament yarns from Oestrigen in Germany. Following the 1993 sale of the ICI Nylon business
to DuPont, he transferred to DuPont in Geneva as Sales and Marketing Manager for Nylon textiles in
Europe. In 1998, Mr Henderson joined Burmah Castrol as European Managing Director for the
speciality wax blending subsidiary, Dussek Campbell. Mr. Henderson joined Lucite International in
March 2001 in his current role as Executive Director, Europe, Middle East and Africa. Mr. Henderson
has a BA (Hons) in Modern Languages (French and Spanish) from Manchester University. Gregory Lioujoined ICI China in Taiwan in 1975 and has experience in a number of commercial roles,
as Sales Manager, Dulux Paints Taiwan from 1982 to 1984, General Manager of Savlon Pharmaceuticals
from 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 ICI Acrylics in 1995 as
General Manager, Kaohsiung Monomer Company (KMC). In his current role, Mr Liou is Executive
Director, 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. 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, Mr Sayers assumed responsibility for
Global R&D. On July 1, 2001, Mr. Sayers was appointed Executive Director responsible for
Manufacturing Excellence, Technology, Safety, Health and Environment on a global basis. Mr. Sayers
has a BSc in Chemical Engineering from the University of Manchester Institute of Science and
Technology. 38




---



##### Table of Contents



B.

COMPENSATION For the year ended December 31, 2004, aggregate executive officers and directors compensation for
Lucite International was £1.3 million (2003:
£1.2 million). This includes £0.1 million (2003: £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, 2004. 
  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 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 (Non-executive Chairman), Mr GR Hunt 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 Non-executive 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. Graham R. Huntwas appointed a Non-Executive Director of Lucite International on July 27, 2004. Mr
Hunt has thirty five years experience of the chemical industry, the majority with BP. His most
recent role was as Business Leader and Chairman of BP China, in which he led the development of
their $2.7 billion joint venture with Sinopec-Shanghai Petrochemicals Company in Caojing near
Shanghai. This complex will produce one million tons per year of ethylene, plus major investment in
polyethylene, polypropylene, polystyrene and acrylonitrile units. Prior to this he was Business
Leader for the global and strategic businesses of Acetyls and acrylonitrile in BP Chemicals. He
also held a number of senior commercial and manufacturing roles in BP, including Vice President of
BP Chemicals in the USA, and Works Manager at Grangemouth, Scotland. On retirement from BP in June
2004, he became Chairman of the Supervisory Board of Verdugt bv in Holland, and is also Vice
Chairman of Red Lion Cement, in addition to the Lucite role. Mr. Hunt is 58 years of age, and
graduated in Chemical Engineering from Gonville & Caius College, Cambridge University in 1968. Our remuneration committee at December 31, 2004 consisted of Mr PR Shaw (Chairman), Mr GJ
Arbuthnott, Mr GR Hunt 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 39




---



##### Table of Contents





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. 
  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 31,2002
    
    
    December 31,2003
    
    
    December 31,2004Upstream
    
    
    680
    
    
    
    676
    
    
    
    774Downstream
    
    
    1,320
    
    
    
    1,306
    
    
    
    1,3172,000
    
    
    
    1,982
    
    
    
    2,091Europe
    
    
    828
    
    
    
    811
    
    
    
    828Americas
    
    
    531
    
    
    
    515
    
    
    
    493Asia
    
    
    454
    
    
    
    462
    
    
    
    583Rest of World
    
    
    187
    
    
    
    194
    
    
    
    1872,000
    
    
    
    1,982
    
    
    
    2,091
 December 31,2002
    
    
    December 31,2003
    
    
    December 31,2004Number of employees at period end
    
    
    1,993
    
    
    
    1,995
    
    
    
    2,098
 Movement in employee numbers during the twelve months ended December 31, 2004 is analysed as
follows: Upstream
    
    
    Downstream
    
    
    TotalEmployees as at
December 31, 2003
    
    
    671
    
    
    
    1,324
    
    
    
    1,995Movement due to new operations (1)
    
    
    63
    
    
    
    14
    
    
    
    77Net starters/(leavers)
    
    
    35
    
    
    
    (9
    )
    
    
    26Employees as at
December 31, 2004
    
    
    769
    
    
    
    1,329
    
    
    
    2,098
 (1)
    
    This movement consisted of 63 new employees in China (upstream) and 14 new employees at
Perspex Distribution Limited (downstream) 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 362,496 D Ordinary Shares. In
addition, the issued share capital of Lucite International Limited also includes 174,910,999 A
Preference Shares. These preference shares 40




---



##### Table of Contents



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 Shareholder
Agreement that imposes limitations on the voting of these shares. See Subscription and Shareholder
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. The following table sets forth information regarding the ownership of the Ordinary Shares of Lucite
International Limited as at March 31, 2005, 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. Number of
    
    
    Percent ofName
    
    Ordinary Shares
    
    
    Ordinary SharesCharterhouse Investors (a)
    
    
    7,794,091
    
    
    
    78
    %Shares to be effectively transferred to employees of Lucite International (b)
    
    
    550,000
    
    
    
    5
    %Directors of Lucite International Limited (d)
    
    
    260,000
    
    
    
    3
    %Directors of Ineos Investors (c) & related parties
    
    
    1,100,000
    
    
    
    11
    %Other
    
    
    295,909
    
    
    
    3
    %
  (a)
    
    Charterhouse Investors 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 Trust for the purposes of the Lucite International 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 362,496 of restricted D shares issued to US employees under the terms of the employee share scheme. These shares have no voting rights. A
proportion of these D shares will be redeemed by the Company and a proportion will convert into ordinary B shares effectively 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. A proportion of these ordinary D shares will be redeemed by the Company and a
proportion will be converted into ordinary B shares in the event of Charterhouse selling all or a
substantial portion of its remaining investment in the ordinary shares of Lucite International
Limited. 41




---



##### Table of Contents



The scheme has been closed to new members from 31 December 2004. 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. 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 6E Share Ownership. 
  B.

RELATED PARTY TRANSACTIONS Trading Transactions with Shareholders of the Group 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 totalled £2 million. For the twelve months ended December 31, 2003Lucite International purchased management services
from Charterhouse Capital Partners LLP for the amount of £27,000 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, in an aggregate amount of £29
million. We also sold some goods and services to Ineos companies in an aggregate amount of £2
million. 42




---



##### Table of Contents



As at December 31, 2003, amounts payable to these companies totalled £2 million. For the twelve months ended December 31, 2004Lucite International purchased management services
from Charterhouse Capital Partners LLP for the amount of £28,000 plus related travel expenses. Lucite International also purchased certain third party goods and services from Ineos associated
companies controlled by the Directors of Ineos Capital, to the value of £42 million. We also sold
some goods and services to Ineos associated companies to the value of £1 million. As at December 31, 2004, amounts payable to these companies totalled £6 million. There have been no related party activities with Charterhouse since the year-end. 
  C.

INTERESTS OF EXPERTS AND COUNSELNOT 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 defense and by the Commissions procedures. Lucite International Limited
is co-operating fully with the European Commission on these matters. Following an audit by the US Environmental Protection Agency (EPA) of the Fite Road facility
in Memphis, Tennessee in December 2002, the EPA advised Lucite International Inc., our chief
operating subsidiary in the US, on September 23, 2004 that it considers the Fite Road facility to
be in violation of New Source Performance Standards under the US Federal Clean Air Act. Lucite
International Inc believes the Fite Road facility has operated in accordance with permits issued by
the Memphis Shelby County Health Department, which is authorised to issue such permits by the EPA.
The EPA originally proposed a settlement whereby Lucite International Inc. would pay an assessment
of less than $10 million and install certain plant improvements to comply with the New Source
Performance Standards (NSPS) within an agreed period. After continuing discussions with the EPA,
the current proposed settlement is less than $4 million. The potential settlement is still in
dispute, however, while settlement discussions between Lucite International Inc and the EPA
continue. Lucite International Inc. is cooperating fully with the EPA and is prepared to defend
itself against these allegations. It is expected that this issue will be resolved during 2005. 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 provisions 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 Kaohsiung Monomer Company Ltd. There are no retained earnings available for payment of dividends under UK GAAP as at December 31,
2004. 43




---



##### Table of Contents



B.

SIGNIFICANT CHANGES There have been no significant changes since December 31, 2004. 
 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 DISTRIBUTIONNOT APPLICABLE 
  C.

MARKETSThe senior notes are listed on the Luxembourg Stock Exchange. 
  D.

SELLING SHAREHOLDERSNOT APPLICABLE 
  E.

DILUTIONNOT APPLICABLE 
  F.

EXPENSES OF THE ISSUENOT APPLICABLE 
 ITEM
10     ADDITIONAL INFORMATION 
  A.

SHARE CAPITALNOT 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. 44




---



##### Table of Contents



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. 
  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. 45




---



##### Table of Contents



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. 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 US Internal Revenue
Service (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 IRS. 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. 46




---



##### Table of Contents



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 securities
market, provided that the election is applied consistently. This election cannot be changed
without the consent of the IRS. 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 IRS) and generally will be United States source gain or loss. The
realization 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 IRS. 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 47




---



##### Table of Contents



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. 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. 48




---



##### Table of Contents



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. 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. 49




---



##### Table of Contents



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. 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 AGENTSNOT APPLICABLE 
  G.

STATEMENT BY EXPERTSNOT APPLICABLE 
  H.

DOCUMENTS ON DISPLAY We have filed this Annual Report on Form 20-F with the US Securities and Exchange Commission under
the US Securities Exchange Act of 1934, as amended (the Exchange Act). 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 US Securities and Exchange Commission. Reports and other information which we
file with the US 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 US
Securities and Exchange Commission at: 450 Fifth Street N.W.
Room 1024              
  
   Washington D.C. 20549 Copies of this material may also be obtained from the US Securities and Exchange Commissions
Internet site at http://www.sec.gov. The US Securities and Exchange Commissions telephone number
is 1-800-SEC-0330. 
  I.

SUBSIDIARY INFORMATIONNOT APPLICABLE 
 ITEM 11     QUANTITATIVE 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




---



##### Table of Contents



Interest rates Based on variable rate debt levels of £147 million at December 31, 2004, 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, 2003 and 2004 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, 2003Floating rate
    
    
    Fixed rate
    
    
    December 31, 2003financial liabilities
    
    
    financial liabilities
    
    
    Total£m
    
    
    £m
    
    
    £mCurrencySterling
    
    
    12
    
    
    
    
    
    
    
    12Euro
    
    
    71
    
    
    
    178
    
    
    
    249US Dollars
    
    
    3
    
    
    
    88
    
    
    
    9186
    
    
    
    266
    
    
    
    352Unamortised issue costs
    
    
    (3
    )
    
    
    (5
    )
    
    
    (8
    )Bank and other borrowings
    
    
    83
    
    
    
    261
    
    
    
    344
 At December 31, 2004Floating rate
    
    
    Fixed rate
    
    
    December 31, 2004financial liabilities
    
    
    financial liabilities
    
    
    Total£m
    
    
    £m
    
    
    £mCurrencyEuro
    
    
    59
    
    
    
    178
    
    
    
    237US Dollars
    
    
    81
    
    
    
    3
    
    
    
    84Chinese Renminbi
    
    
    9
    
    
    
    
    
    
    
    9149
    
    
    
    181
    
    
    
    330Unamortised issue costs
    
    
    (2
    )
    
    
    (4
    )
    
    
    (6
    )Bank and other borrowings
    
    
    147
    
    
    
    177
    
    
    
    324
 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. 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, 2004. For the Companys fixed rate and variable
rate debt, the table below presents principal amounts at December 31, 2004 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, 2004. 51




---



##### Table of Contents



Interest Rate Risk ManagementPrincipal Amount by expected maturityFair
    
    
    FairTotal
    
    
    Total
    
    
    value
    
    
    value12/31
    
    
    12/31
    
    
    12/31
    
    
    12/312005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Fixed rate (USD)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Interest rate (fixed)Fixed rate (Euro)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177
    
    
    
    177
    
    
    
    176
    
    
    
    190
    
    
    
    197Interest rate (fixed)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.25
    %Variable rate (USD)
    
    
    7
    
    
    
    4
    
    
    
    24
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    82
    
    
    
    74
    
    
    
    82Interest rate (variable)
    
    
    5.83
    %
    
    
    6.23
    %
    
    
    6.50
    %
    
    
    6.82
    %
    
    
    6.78
    %
    
    
    6.26
    %Variable rate (Euro)
    
    
    10
    
    
    
    8
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    84
    
    
    
    59
    
    
    
    84Interest rate (variable)
    
    
    4.66
    %
    
    
    4.96
    %
    
    
    5.23
    %
    
    
    4.71
    %
    
    
    4.87
    %
    
    
    5.31
    %
 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. 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 of December 31, 2004 we did not have any interest rate hedges in place. Raw materials risk management There were no raw material hedges in place at the end of 2004. 
  ITEM 12

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESNOT APPLICABLE 
 PART II 
  ITEM 13

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNONE 
  ITEM 14

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSNONE 
  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 at December 31, 2004, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the US Securities Exchange Act of 1934) are effective to ensure that
information required to be disclosed in the reports we file or submit under the US Securities
Exchange Act of 1934 is reordered, processed, summarised and reported on a timely basis. 52




---



##### Table of Contents



There have been no changes in our internal controls over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15(e) or
a15d-15(e) or in other factors that have materially affected these controls during the year ended
December 31, 2004, or subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses. 
  ITEM 16

{RESERVED} 
  ITEM 16A

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. 
  ITEM 16B

CODE OF ETHICS We currently operate a code of business conduct and ethics (the Code of Conduct) for all
personnel. The Code of Conduct was has been updated to be consistent with recent guidelines issued
by the US Securities and Exchange Commission. The Board, including the CEO and CFO, adopted the
code in 2004 and the business is in the process of cascading the updated Code to the organisation
through the first half of 2005. The Code is available, free of charge, by contacting the
registered office of Lucite International Limited at Queens Gate 15-17, Queens Terrace,
Southampton, SO14 3BP, United Kingdom. 
  ITEM 16C

PRINCIPAL ACCOUNTANT FEES AND SERVICES Year ended
    
    
    Year endedDecember 31, 2003
    
    
    December 31, 2004£000
    
    
    £000Audit fees
    
    
    273
    
    
    
    375Audit-related fees (a)
    
    
    14
    
    
    
    8Tax fees (b)
    
    
    369
    
    
    
    195All other fees (c)
    
    
    11
    
    
    
    157Total fees paid to principal accountants
    
    
    667
    
    
    
    735
  (a)
    
    Audit-related fees are in relation to pensions audit and covenant compliance reporting.(b)
    
    Tax 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.(c)
    
    All other fees are mainly fees in relation to support and advice for internal controls
documentation. The audit committee pre-approved a list of services that could be rendered by the principal
accountant in 2004 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 2004 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. 
  ITEM 16D

EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEESNOT APPLICABLE 53




---



##### Table of Contents



ITEM 16E

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNOT 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)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. 54




---



##### Table of Contents



(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.(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. 55




---



##### Table of Contents



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. Veerman
Annie S. Veerman
Chief Financial Officer
April 6, 2005 56




---



##### Table of Contents



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, 2004, the year ended
December 31, 2003 and the year ended December 31, 2002.
    
    F-3Consolidated statements of total recognised gains and losses for the year ended December 31,
2004, the year ended December 31, 2003 and the year ended December 31, 2002.
    
    F-4Consolidated balance sheets as at December 31, 2004 and 2003.
    
    F-5Consolidated cash flow statements for the year ended December 31, 2004, the year ended
December 31, 2003 and the year ended December 31, 2002.
    
    F-6Reconciliation of movements in equity shareholders funds for the year ended December 31, 2004, the year ended December 31, 2003 and the year ended December 31, 2002.
    
    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, 2004, the year ended
December 31, 2003 and the year ended December 31, 2002.
    
    F-67Consolidated statements of total recognised gains and losses for the year ended December 31,
2004, the year ended December 31, 2003 and the year ended December 31, 2002.
    
    F-68Consolidated balance sheets as at December 31, 2004 and 2003.
    
    F-69Consolidated cash flow statements for the year ended December 31, 2004, the year ended
December 31, 2003 and the year ended December 31, 2002.
    
    F-70Reconciliation of movements in equity shareholders funds for the year ended December 31, 2004,
the year ended December 31, 2003 and the year ended December 31, 2002.
    
    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, 2004, the year ended
December 31, 2003 and the year ended December 31, 2002.
    
    F-75Consolidated statements of total recognised gains and losses for the year ended December 31,
2004, the year ended December 31, 2003 and the year ended December 31, 2002.
    
    F-76Consolidated balance sheets as at December 31, 2004 and 2003
    
    F-77Consolidated cash flow statements for the year ended December 31, 2004, the year ended
December 31, 2003 and the year ended December 31, 2002.
    
    F-78Reconciliation of movements in equity shareholders funds for the year ended December 31, 2004,
the year ended December 31, 2003 and the year ended December 31, 2002.
    
    F-79Notes to the consolidated financial statements
    
    F-80
 F-1




---



##### Table of Contents



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, 2004 and 2003, and the related consolidated profit and
loss accounts, consolidated cash flow statements, consolidated statements of total recognised gains
and losses and reconciliation of movements in equity shareholders funds for each of the three
years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight
Board (United States). 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, 2004 and 2003, and the
results of its operations and its cash flows for each of the three years ended December 31, 2004,
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. Information relating
to the nature and effect of such differences is presented in Note 25 to the consolidated financial
statements.   PricewaterhouseCoopers LLP
Chartered Accountants
London, England
April 6, 2005 F-2




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED CONSOLIDATED PROFIT AND LOSS ACCOUNTS Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,2002
    
    
    December 31,2003
    
    
    December 31,2004Notes
    
    
    £m
    
    
    £m
    
    
    £mGroup turnover
    
    
    3, 4
    
    
    
    582
    
    
    
    694
    
    
    
    707Net operating costs before amortisation of
intangible fixed assets
    
    
    
    
    
    
    (550
    )
    
    
    (620
    )
    
    
    (635
    )Amortisation of goodwill and other
intangible fixed assets
    
    
    9
    
    
    
    (5
    )
    
    
    (5
    )
    
    
    (5
    )Total net operating costs
    
    
    4
    
    
    
    (555
    )
    
    
    (625
    )
    
    
    (640
    )Group operating profit
    
    
    3, 4
    
    
    
    27
    
    
    
    69
    
    
    
    67Net interest payable and similar charges
    
    
    7
    
    
    
    (29
    )
    
    
    (37
    )
    
    
    (27
    )Profit/(loss) on ordinary activities before
taxation
    
    
    6
    
    
    
    (2
    )
    
    
    32
    
    
    
    40Taxation on profit/(loss) on ordinary
activities
    
    
    8
    
    
    
    2
    
    
    
    (6
    )
    
    
    Profit on ordinary activities after taxation
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    40Equity minority interests
    
    
    
    
    
    
    (3
    )
    
    
    (4
    )
    
    
    (4
    )Profit/(loss) for the financial year
    
    
    
    
    
    
    (3
    )
    
    
    22
    
    
    
    36
 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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,2002
    
    
    December 31,2003
    
    
    December 31,2004£m
    
    
    £m
    
    
    £mProfit/(loss) for the financial year
    
    
    (3
    )
    
    
    22
    
    
    
    36Currency translation differences on foreign
currency net investments net of translation on
foreign currency borrowings
    
    
    (21
    )
    
    
    (19
    )
    
    
    (8
    )Total recognised gain/(loss) relating to the year
    
    
    (24
    )
    
    
    3
    
    
    
    28
      The accompanying notes are an integral part of these financial statements F-4




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 2004 AND 2003 2003
    
    
    2004Notes
    
    
    £m
    
    
    £mFixed assetsIntangible assets
    
    
    9
    
    
    
    83
    
    
    
    78Negative goodwill
    
    
    9
    
    
    
    (5
    )
    
    
    (5
    )Tangible assets
    
    
    10
    
    
    
    332
    
    
    
    323410
    
    
    
    396Current assetsStocks
    
    
    11
    
    
    
    75
    
    
    
    95Debtors
    
    
    12
    
    
    
    107
    
    
    
    120Cash at bank and in hand
    
    
    
    
    
    
    30
    
    
    
    33212
    
    
    
    248Total assets
    
    
    
    
    
    
    622
    
    
    
    644Creditors: amounts falling due within one year
    
    
    13
    
    
    
    (115
    )
    
    
    (141
    )Net current assets
    
    
    
    
    
    
    97
    
    
    
    107Total assets less current liabilities
    
    
    
    
    
    
    507
    
    
    
    503Creditors: amounts falling due after more than one year
    
    
    14
    
    
    
    (332
    )
    
    
    (306
    )Provisions for liabilities and charges
    
    
    17
    
    
    
    (27
    )
    
    
    (21
    )Net assets
    
    
    
    
    
    
    148
    
    
    
    176Shareholders equityCalled up equity share capital
    
    
    18
    
    
    
    175
    
    
    
    175Profit and loss account
    
    
    
    
    
    
    (42
    )
    
    
    (14
    )Total equity shareholders funds
    
    
    
    
    
    
    133
    
    
    
    161Equity minority interests
    
    
    
    
    
    
    15
    
    
    
    15Capital employed
    
    
    
    
    
    
    148
    
    
    
    176
      The accompanying notes are an integral part of these financial statements F-5




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED CONSOLIDATED CASH FLOW STATEMENTS Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,2002
    
    
    December 31,2003
    
    
    December 31,2004Notes
    
    
    £m
    
    
    £m
    
    
    £mNet cash inflow from
operating activities
    
    
    20
    (a)
    
    
    57
    
    
    
    94
    
    
    
    92Returns on investments and
servicing of finance
    
    
    20
    (b)
    
    
    (28
    )
    
    
    (33
    )
    
    
    (29
    )Taxation
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )
    
    
    (6
    )25
    
    
    
    57
    
    
    
    57Capital expenditure and
financial investment
    
    
    20
    (c)
    
    
    (28
    )
    
    
    (32
    )
    
    
    (38
    )Net cash inflow/(outflow)
before use of liquid
resources and financing
    
    
    
    
    
    
    (3
    )
    
    
    25
    
    
    
    19Financing
    
    
    20
    (d)
    
    
    (5
    )
    
    
    (5
    )
    
    
    (15
    )Increase/(decrease) in cash
    
    
    20
    (e)
    
    
    (8
    )
    
    
    20
    
    
    
    4
      The accompanying notes are an integral part of these financial statements F-6




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS FUNDS Profit and lossShare capital
    
    
    account
    
    
    Total£m
    
    
    £m
    
    
    £mBalance 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
    )
    
    
    133Profit for the financial year
    
    
    
    
    
    
    36
    
    
    
    36Currency translation adjustment
    
    
    
    
    
    
    (8
    )
    
    
    (8
    )Balance at December 31, 2004
    
    
    175
    
    
    
    (14
    )
    
    
    161
 The dividends payable by our subsidiaries in Taiwan (Kaohsiung 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 shareholders funds.      The accompanying notes are an integral part of these financial statements F-7




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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, 2004 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 to 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 intangible 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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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
    
    15-40 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 proportion 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 under SSAP 24. 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. Disclosures are also made in accordance with
the transitional provisions of FRS17. 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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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 in the
foreseeable future 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; and

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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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. Restructuring costs
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 26 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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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, 2002
    
    
    December 31, 2003
    
    
    December 31, 2004£m
    
    
    £m
    
    
    £mTurnoverUpstream
    
    
    402
    
    
    
    511
    
    
    
    536Downstream
    
    
    274
    
    
    
    276
    
    
    
    282676
    
    
    
    787
    
    
    
    818Inter-class eliminations
    
    
    (94
    )
    
    
    (93
    )
    
    
    (111
    )582
    
    
    
    694
    
    
    
    707Operating profitUpstream
    
    
    12
    
    
    
    55
    
    
    
    56Downstream
    
    
    15
    
    
    
    14
    
    
    
    11Operating profit
    
    
    27
    
    
    
    69
    
    
    
    67DepreciationUpstream
    
    
    31
    
    
    
    31
    
    
    
    31Downstream
    
    
    9
    
    
    
    8
    
    
    
    840
    
    
    
    39
    
    
    
    39Amortisation of intangible fixed assetsUpstream
    
    
    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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 2003
    
    
    2004£m
    
    
    £mTotal assets less current liabilitiesUpstream
    
    
    324
    
    
    
    326Downstream
    
    
    156
    
    
    
    148Net operating assets
    
    
    480
    
    
    
    474Assets and liabilities that are not attributable to types of business:- cash at bank and in hand
    
    
    30
    
    
    
    33- deferred taxation asset
    
    
    9
    
    
    
    14- bank and other borrowings (note 13)
    
    
    (12
    )
    
    
    (18
    )507
    
    
    
    503Capital expenditure  cash flowUpstream
    
    
    23
    
    
    
    32Downstream
    
    
    9
    
    
    
    632
    
    
    
    38
 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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2002
    
    
    December 31, 2003
    
    
    December 31, 2004£m
    
    
    £m
    
    
    £mTurnover by geographical location of operating unitEuropeExternal
    
    
    181
    
    
    
    241
    
    
    
    243Intra-group
    
    
    13
    
    
    
    14
    
    
    
    18194
    
    
    
    255
    
    
    
    261AmericasExternal
    
    
    289
    
    
    
    319
    
    
    
    318Intra-group
    
    
    15
    
    
    
    5
    
    
    
    21304
    
    
    
    324
    
    
    
    339AsiaExternal
    
    
    99
    
    
    
    119
    
    
    
    132Intra-group
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    119
    
    
    
    132Rest of worldExternal
    
    
    13
    
    
    
    15
    
    
    
    14Intra-group
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    15
    
    
    
    14610
    
    
    
    713
    
    
    
    746Intra-group eliminations
    
    
    (28
    )
    
    
    (19
    )
    
    
    (39
    )582
    
    
    
    694
    
    
    
    707
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2002
    
    
    December 31, 2003
    
    
    December 31, 2004£m
    
    
    £m
    
    
    £mTurnover by
geographical
location of
customerEurope
    
    
    163
    
    
    
    201
    
    
    
    201Americas
    
    
    279
    
    
    
    308
    
    
    
    304Asia
    
    
    110
    
    
    
    146
    
    
    
    163Rest of world
    
    
    30
    
    
    
    39
    
    
    
    39582
    
    
    
    694
    
    
    
    707
 2003
    
    
    2004£m
    
    
    £mTangible fixed assets by geographical location of operating unitEurope
    
    
    147
    
    
    
    136Americas
    
    
    155
    
    
    
    139Asia
    
    
    27
    
    
    
    45Rest of world
    
    
    3
    
    
    
    3332
    
    
    
    323
 F-14




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  5

Cost of sales, gross profit, distribution costs and administrative costs Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2002
    
    
    December 31, 2003
    
    
    December 31, 2004£m
    
    
    £m
    
    
    £mGroup turnover
    
    
    582
    
    
    
    694
    
    
    
    707Cost of sales
    
    
    (457
    )
    
    
    (532
    )
    
    
    (538
    )Gross profit
    
    
    125
    
    
    
    162
    
    
    
    169Distribution costs
    
    
    (45
    )
    
    
    (42
    )
    
    
    (44
    )Administrative costs before
amortisation of goodwill and
research and development costs
    
    
    (38
    )
    
    
    (37
    )
    
    
    (44
    )- amortisation of goodwill and
other intangible fixed assets
(note 9)
    
    
    (5
    )
    
    
    (5
    )
    
    
    (5
    )- research and development costs
    
    
    (10
    )
    
    
    (9
    )
    
    
    (9
    )Total administrative costs
    
    
    (53
    )
    
    
    (51
    )
    
    
    (58
    )Total net operating costs
    
    
    (555
    )
    
    
    (625
    )
    
    
    (640
    )Group operating profit
    
    
    27
    
    
    
    69
    
    
    
    67
  5

Staff costs Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2002
    
    
    December 31, 2003
    
    
    December 31, 2004£m
    
    
    £m
    
    
    £mStaff costsSalaries
    
    
    61
    
    
    
    61
    
    
    
    59Social security costs
    
    
    5
    
    
    
    5
    
    
    
    5Pension and post-retirement benefit costs
    
    
    7
    
    
    
    11
    
    
    
    8Other employment costs
    
    
    3
    
    
    
    3
    
    
    
    4Employee costs charged in arriving at profit before taxation
    
    
    76
    
    
    
    80
    
    
    
    76
 F-15




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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 31,2002
    
    
    2003
    
    
    2004Number
    
    
    Number
    
    
    NumberUpstream
    
    
    680
    
    
    
    676
    
    
    
    774Downstream
    
    
    1,320
    
    
    
    1,306
    
    
    
    1,3172,000
    
    
    
    1,982
    
    
    
    2,091Europe
    
    
    828
    
    
    
    811
    
    
    
    828Americas
    
    
    531
    
    
    
    515
    
    
    
    493Asia
    
    
    454
    
    
    
    462
    
    
    
    583Rest of World
    
    
    187
    
    
    
    194
    
    
    
    1872,000
    
    
    
    1,982
    
    
    
    2,091
 December 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004Number
    
    
    Number
    
    
    NumberNumber of employees at period end
    
    
    1,993
    
    
    
    1,995
    
    
    
    2,098
  6

Profit/ (loss) on ordinary activities before taxation Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mProfit/(loss) on ordinary activities
before taxation is stated after
charging:Depreciation of tangible fixed assets:- owned assets
    
    
    37
    
    
    
    36
    
    
    
    34- capitalised plant shut-down costs
    
    
    3
    
    
    
    3
    
    
    
    5Amortisation of goodwill
    
    
    5
    
    
    
    5
    
    
    
    5Hire of machinery and equipment
    
    
    1
    
    
    
    2
    
    
    
    1Other operating lease rentals
    
    
    
    
    
    
    
    
    
    
    2
 F-16




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  7

Net interest payable and similar charges Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mInterest payable on senior credit facilities
    
    
    12
    
    
    
    10
    
    
    
    7Interest payable on senior notes
    
    
    13
    
    
    
    16
    
    
    
    17Covenant waiver fees
    
    
    1
    
    
    
    
    
    
    
    Fees on debt facility with parent company
    
    
    1
    
    
    
    2
    
    
    
    1Amortisation of issue costs on senior credit facilities
    
    
    1
    
    
    
    1
    
    
    
    1Foreign exchange loss arising on cash balances
    
    
    
    
    
    
    
    
    
    
    1Foreign exchange loss arising on external debt
    
    
    1
    
    
    
    8
    
    
    
    Net interest payable
    
    
    29
    
    
    
    37
    
    
    
    27
  8

Taxation on profit/(loss) on ordinary activities Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mUnited Kingdom taxationCorporation tax at prevailing rates
    
    
    
    
    
    
    
    
    
    
    Transfer from deferred taxation
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    Overseas taxationCurrent taxation
    
    
    4
    
    
    
    6
    
    
    
    5Amounts in respect of prior periods
    
    
    
    
    
    
    
    
    
    
    1Total overseas taxation
    
    
    4
    
    
    
    6
    
    
    
    6Deferred taxation
    
    
    5
    
    
    
    
    
    
    
    (6
    )9
    
    
    
    6
    
    
    
    Taxation charge/(credit) for the year
    
    
    (2
    )
    
    
    6
    
    
    
    
 F-17




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Factors effecting tax charge for the year Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mProfit/(loss) on ordinary activities before taxation
    
    
    (2
    )
    
    
    32
    
    
    
    40Standard 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
    
    
    (1
    )
    
    
    10
    
    
    
    12Effects of:Other non taxable/deductible income and charges
    
    
    (11
    )
    
    
    (10
    )
    
    
    (3
    )Local taxes
    
    
    1
    
    
    
    
    
    
    
    2Capital allowances in excess of depreciation
    
    
    3
    
    
    
    
    
    
    
    5Short term timing differences
    
    
    2
    
    
    
    3
    
    
    
    (4
    )Tax losses created not utilised
    
    
    10
    
    
    
    3
    
    
    
    (7
    )Adjustments in respect of prior periods
    
    
    
    
    
    
    
    
    
    
    1Current tax charge for the year
    
    
    4
    
    
    
    6
    
    
    
    6
 Factors that may affect future tax charges
The Group has approximately £177 million (2003: £169 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 £57 million (2003: £62 million) against future profits predominantly in
the United States. A deferred tax asset of £21 million (2003: £24 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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  9

Intangible fixed assets Other
    
    
    
    
    
    
    Negativeintangibles
    
    
    Goodwill
    
    
    goodwill
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mCostAt December 31, 2002, 2003 and 2004
    
    
    1
    
    
    
    105
    
    
    
    (6
    )
    
    
    100Accumulated amortisationAt December 31, 2002
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    17Charge/(credit) for year
    
    
    
    
    
    
    6
    
    
    
    (1
    )
    
    
    5At December 31, 2003
    
    
    
    
    
    
    23
    
    
    
    (1
    )
    
    
    22Charge for year
    
    
    1
    
    
    
    4
    
    
    
    
    
    
    
    5At December 31, 2004
    
    
    1
    
    
    
    27
    
    
    
    (1
    )
    
    
    27Net book amounts atDecember 31, 2002
    
    
    1
    
    
    
    88
    
    
    
    (6
    )
    
    
    83December 31, 2003
    
    
    1
    
    
    
    82
    
    
    
    (5
    )
    
    
    78December 31, 2004
    
    
    
    
    
    
    78
    
    
    
    (5
    )
    
    
    73
 F-19




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  10

Tangible fixed assets Payments onaccount andassets in theLand and
buildings
    
    
    Plant and
equipment
    
    
    course of
construction
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mCostAt 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
    
    
    
    778Capital expenditure
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    42Transfers of assets into use
    
    
    
    
    
    
    14
    
    
    
    (14
    )
    
    
    Exchange adjustments
    
    
    (1
    )
    
    
    (12
    )
    
    
    (2
    )
    
    
    (15
    )Disposals
    
    
    (2
    )
    
    
    (21
    )
    
    
    
    
    
    
    (23
    )At December 31, 2004
    
    
    39
    
    
    
    679
    
    
    
    64
    
    
    
    782Accumulated depreciationAt December 31, 2002
    
    
    14
    
    
    
    405
    
    
    
    
    
    
    
    419Charge for year
    
    
    1
    
    
    
    38
    
    
    
    
    
    
    
    39Exchange movement
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Disposals
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )At December 31, 2003
    
    
    15
    
    
    
    431
    
    
    
    
    
    
    
    446Charge for year
    
    
    1
    
    
    
    38
    
    
    
    
    
    
    
    39Exchange movement
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Disposals
    
    
    (2
    )
    
    
    (21
    )
    
    
    
    
    
    
    (23
    )At December 31, 2004
    
    
    14
    
    
    
    445
    
    
    
    
    
    
    
    459Net book amounts atDecember 31, 2002
    
    
    28
    
    
    
    282
    
    
    
    48
    
    
    
    358December 31, 2003
    
    
    27
    
    
    
    267
    
    
    
    38
    
    
    
    332December 31, 2004
    
    
    25
    
    
    
    234
    
    
    
    64
    
    
    
    323
 Included in land and buildings is £8 million (2003: £9 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
(2003: £3 million) comprising cost of £5 million (2003: £5 million) less accumulated depreciation
of £2 million (2003: £2 million). The depreciation charge for the year in respect of capitalised
finance leases was £0.4 million (2003: £0.4 million). 2003
    
    
    2004£m
    
    
    £mAnalysis of net book amount of land and buildingsFreehold
    
    
    22
    
    
    
    21Long leasehold (over 50 years unexpired)
    
    
    5
    
    
    
    427
    
    
    
    25
 F-20




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  11

Stocks 2003
    
    
    2004£m
    
    
    £mRaw materials and consumables
    
    
    29
    
    
    
    31Finished goods and goods for resale
    
    
    46
    
    
    
    6475
    
    
    
    95
  12

Debtors 2003
    
    
    2004£m
    
    
    £mTrade debtors (net of provision for bad and doubtful debts)
    
    
    89
    
    
    
    94Other prepayments and accrued income
    
    
    3
    
    
    
    4Deferred taxation asset
    
    
    9
    
    
    
    14Other debtors
    
    
    6
    
    
    
    8107
    
    
    
    120
 The deferred tax asset is due in more than one year. Provision for bad and doubtful debts: 2003
    
    
    2004£m
    
    
    £mAt the beginning of the year
    
    
    4
    
    
    
    2Charge for the period
    
    
    
    
    
    
    1Amount utilised
    
    
    (2
    )
    
    
    At the end of the year
    
    
    2
    
    
    
    3
  13

Creditors  Amounts falling due within one year 2003
    
    
    2004£m
    
    
    £mBank and other borrowings (note 15)
    
    
    12
    
    
    
    18Trade creditors
    
    
    60
    
    
    
    76Other creditors
    
    
    21
    
    
    
    28Accruals
    
    
    22
    
    
    
    19115
    
    
    
    141
 F-21




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  14

Creditors  Amounts falling due after more than one year 2003
    
    
    2004£m
    
    
    £mBank and other borrowings (note 15)
    
    
    328
    
    
    
    303Finance leases (note 16)
    
    
    4
    
    
    
    3332
    
    
    
    306
  15

Bank and other borrowings 2003
    
    
    2004£m
    
    
    £mSenior Credit Facilities:Term Loan A
    
    
    37
    
    
    
    24Term Loan B
    
    
    69
    
    
    
    68Term Loan C
    
    
    45
    
    
    
    41Revolving Credit Facility
    
    
    19
    
    
    
    Senior notes
    
    
    176
    
    
    
    177Unamortised senior notes premium
    
    
    2
    
    
    
    1Unamortised issue costs
    
    
    (8
    )
    
    
    (6
    )Total excluding China bank loans
    
    
    340
    
    
    
    305China bank loans
    
    
    
    
    
    
    16340
    
    
    
    321
 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, 2004, the unused proportion of this facility was $85 million (2003:
$51 million) less $1 million of guarantees issued (2003: $2 million). The senior credit facilities bear interest at a rate equal to the aggregate of the cost of LIBOR
funds for one, two, three, six, nine or twelve 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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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, modified for voluntary and excess
cash repayments, 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, modified for
voluntary and excess cash repayments, 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
September 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: 2003
    
    
    2004£m
    
    
    £mWithin 1 year or on demand
    
    
    12
    
    
    
    18Between 1 and 2 years
    
    
    12
    
    
    
    13Between 2 and 5 years
    
    
    146
    
    
    
    109Over 5 years
    
    
    176
    
    
    
    186346
    
    
    
    326Unamortised senior notes premium
    
    
    2
    
    
    
    1Unamortised issue costs
    
    
    (8
    )
    
    
    (6
    )340
    
    
    
    321
 F-23




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  16

Finance leases 2003
    
    
    2004£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
    
    
    4
    
    
    
    36
    
    
    
    5Less: amounts representing interest relating to future periods
    
    
    (2
    )
    
    
    (2
    )Present value of net minimum lease payments
    
    
    4
    
    
    
    3Less: current lease obligations
    
    
    
    
    
    
    Non-current obligations
    
    
    4
    
    
    
    3
  17

Provisions for liabilities and charges Deferred
    
    
    Unfunded
    
    
    EmployeeRestructuring
    
    
    taxation
    
    
    pensions
    
    
    benefits
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt December 31, 2002
    
    
    3
    
    
    
    5
    
    
    
    17
    
    
    
    7
    
    
    
    32Charged/(credited)
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
    
    
    
    27Charged to the
profit and loss
account in the
period
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Exchange/other
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Utilised in the year
    
    
    (1
    )
    
    
    
    
    
    
    (6
    )
    
    
    (1
    )
    
    
    (8
    )At December 31, 2004
    
    
    1
    
    
    
    3
    
    
    
    11
    
    
    
    6
    
    
    
    21
 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. The unfunded pension provision is expected to be utilised over the estimated average remaining
service life of the participants of the scheme (see note 21). The employee benefits provision is expected to be utilised over the estimated average remaining
life of the participants of the scheme (see note 21). F-24




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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: 2003
    
    
    2004£m
    
    
    £mAccounted for at the balance sheet dateTiming differences on capital allowances and depreciation
    
    
    32
    
    
    
    25Miscellaneous timing differences
    
    
    (14
    )
    
    
    (15
    )Tax losses
    
    
    (24
    )
    
    
    (21
    )(6
    )
    
    
    (11
    )Not accounted for at the balance sheet dateMiscellaneous timing differences
    
    
    (6
    )
    
    
    (3
    )Tax losses
    
    
    (35
    )
    
    
    (37
    )(41
    )
    
    
    (40
    )
 The movement of the deferred taxation balance is as follows: Net asset
    
    
    Net liability
    
    
    Total£m
    
    
    £m
    
    
    £mAt 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
    )Charge/(credit) to the profit and loss account in the period
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Exchange movement
    
    
    1
    
    
    
    
    
    
    
    1At December 31, 2004
    
    
    (14
    )
    
    
    3
    
    
    
    (11
    )
 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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  18

Called up equity share capital Number
    
    
    £mAuthorised, allotted and fully paidAt December 31, 2004 and at December 31, 2003Ordinary shares of £1 each
    
    
    175,029,700
    
    
    
    175
 The ordinary shares above were issued to Lucite International Limited on October 1, 1999.  19

Financial Instruments Foreign exchange and interest rate disclosure
From time to time, 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, 2004 the Company did not enter into any interest rate swap or cap arrangements. As at December 31, 2004, the Company had not entered into any fixed interest rate arrangements on
the senior credit facilities. As at December 31, 2003, the US dollar-denominated tranche B debt ($47.9m) and the US
dollar-denominated tranche C debt ($79.8m) had 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 were inclusive of lender margins. Both interest rates
were fixed until the end of September 2004 and accordingly these loans were shown as fixed rate
financial liabilities below. In addition, a proportion of the US dollar-denominated tranche A debt
($3.8m) had been rolled over under existing credit agreements at a rate of 3.21875% until the end
of June 2004 and a further ($18.9m) had been rolled over under existing credit agreements at a rate
of 3.3075% until the end of September 2004. Both rates were inclusive of lender margins and are
shown as fixed rate liabilities below for the year ended December 31, 2003. Short term debtors and creditors have been excluded from the following disclosures, other than the
currency risk disclosures. F-26




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Interest rate risk profile of financial liabilities
As at December 31, 2003 and 2004 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, 2003Floating rate financial
    
    
    Fixed rate financial
    
    
    December 31, 2003liabilities
    
    
    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
 At December 31, 2004Floating rate financial
    
    
    Fixed rate financial
    
    
    December 31, 2004liabilities
    
    
    liabilities
    
    
    Total£m
    
    
    £m
    
    
    £mCurrencyEuro
    
    
    59
    
    
    
    178
    
    
    
    237US Dollars
    
    
    81
    
    
    
    3
    
    
    
    84Chinese Renminbi
    
    
    9
    
    
    
    
    
    
    
    9149
    
    
    
    181
    
    
    
    330Unamortised issue costs
    
    
    (2
    )
    
    
    (4
    )
    
    
    (6
    )At December 31, 2004
    
    
    147
    
    
    
    177
    
    
    
    324
 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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) At December 31, 2003Fixed rate financial liabilitiesWeighted average period forWeighted average interest rate
    
    
    which rate is fixedCurrency
    
    %
    
    
    YearsSterling
    
    
    
    
    
    
    US dollars
    
    
    4.16
    
    
    
    1.3Euro
    
    
    10.25
    
    
    
    6.3At December, 31 2003
    
    
    8.24
    
    
    
    4.7
 At December 31, 2004Fixed rate financial liabilitiesWeighted average period forWeighted average interest rate
    
    
    which rate is fixedCurrency
    
    %
    
    
    YearsSterling
    
    
    
    
    
    
    US dollars
    
    
    7.50
    
    
    
    12.0Euro
    
    
    10.25
    
    
    
    5.3At December, 31 2004
    
    
    10.20
    
    
    
    5.4
 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 profile of financial assets 2003
    
    
    2004Cash at bank and in hand
    
    
    Cash at bank and in handCurrency
    
    £m
    
    
    £mSterling
    
    
    1
    
    
    
    2US Dollars
    
    
    11
    
    
    
    7Euro
    
    
    3
    
    
    
    4Other currencies
    
    
    15
    
    
    
    20At December, 31
    
    
    30
    
    
    
    33Floating rate
    
    
    12
    
    
    
    21Fixed rate
    
    
    18
    
    
    
    12At December, 31
    
    
    30
    
    
    
    33
 The floating rate cash earns interest based on relevant national LIBOR equivalents. The fixed
rate cash held by our subsidiaries in Thailand and Taiwan earns interest at approximately 1%. F-28




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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, 2003 and 2004 were: 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
 December 31, 2004Debt
    
    
    Finance leases
    
    
    Total£m
    
    
    £m
    
    
    £mIn one year or less or on demand
    
    
    18
    
    
    
    
    
    
    
    18In more than one year but not more than two years
    
    
    13
    
    
    
    
    
    
    
    13In more than two years but not more than five years
    
    
    109
    
    
    
    2
    
    
    
    111In more than five years
    
    
    186
    
    
    
    3
    
    
    
    189326
    
    
    
    5
    
    
    
    331Less: amounts representing interest relating to future periods
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Unamortised senior notes premium
    
    
    1
    
    
    
    
    
    
    
    1Unamortised issue costs
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )321
    
    
    
    3
    
    
    
    324
 Borrowing facilities The Group has the following undrawn committed borrowing facilities available at December 31, 2004
in respect of which all conditions had been met at that date: Floating rate
    
    
    Fixed rate
    
    
    December 31,2004
    
    
    December 31,2003£m
    
    
    £m
    
    
    £m
    
    
    £mExpiring within one year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expiring between 1 and 2 years
    
    
    44
    
    
    
    
    
    
    
    44
    
    
    
    Expiring after more than 2 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2844
    
    
    
    
    
    
    
    44
    
    
    
    28
 F-29




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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, 2004. December 31, 2003
    
    
    December 31, 2004Book 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
    
    
    12
    
    
    
    12
    
    
    
    18
    
    
    
    18Long-term borrowings
    
    
    340
    
    
    
    361
    
    
    
    312
    
    
    
    325
 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 and liabilities are taken to the profit and loss account. Net foreign currency monetary assets/(liabilities) at December, 31 2003OtherSterling
    
    
    US dollars
    
    
    Euros
    
    
    Currencies
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFunctional currency:Sterling
    
    
    
    
    
    
    (88
    )
    
    
    (227
    )
    
    
    
    
    
    
    (315
    )US dollars
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Euro
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Other currencies
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Total
    
    
    (1
    )
    
    
    (77
    )
    
    
    (227
    )
    
    
    3
    
    
    
    (302
    )
 Net foreign currency monetary assets/(liabilities) at December, 31 2004OtherSterling
    
    
    US dollars
    
    
    Euros
    
    
    Currencies
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFunctional currency of operation:Sterling
    
    
    
    
    
    
    (85
    )
    
    
    (232
    )
    
    
    
    
    
    
    (317
    )US dollars
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Euro
    
    
    2
    
    
    
    (1
    )
    
    
    (2
    )
    
    
    
    
    
    
    (1
    )Other currencies
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )Total
    
    
    1
    
    
    
    (87
    )
    
    
    (234
    )
    
    
    3
    
    
    
    (317
    )
 Financial instruments held for trading purposes
The Company does not trade in financial instruments. F-30




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  20

Notes to the cash flow statements  (a)

Net cash inflow from operating activities Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,2002
    
    
    December 31,2003
    
    
    December 31,2004£m
    
    
    £m
    
    
    £mOperating profit
    
    
    27
    
    
    
    69
    
    
    
    67Depreciation and amortisation
    
    
    45
    
    
    
    44
    
    
    
    44Stocks (increase)/decrease
    
    
    (9
    )
    
    
    (2
    )
    
    
    (23
    )Debtors (increase)/decrease
    
    
    (11
    )
    
    
    (18
    )
    
    
    (10
    )Creditors increase/(decrease)
    
    
    6
    
    
    
    2
    
    
    
    18Other movements
    
    
    (1
    )
    
    
    (1
    )
    
    
    (4
    )Cash inflow from operating activities
    
    
    57
    
    
    
    94
    
    
    
    92
  (b)

Returns on investments and servicing of finance Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,2002
    
    
    December 31,2003
    
    
    December 31,2004£m
    
    
    £m
    
    
    £mInterest paid
    
    
    (25
    )
    
    
    (25
    )
    
    
    (25
    )New issue High Yield Bond fees
    
    
    
    
    
    
    (2
    )
    
    
    Dividends paid by subsidiary
undertakings to minority
shareholders
    
    
    (3
    )
    
    
    (3
    )
    
    
    (4
    )Distribution paid by
subsidiary undertakings to
minority shareholders
    
    
    
    
    
    
    (3
    )
    
    
    (28
    )
    
    
    (33
    )
    
    
    (29
    )
  (c)

Capital expenditure and financial investment Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,2002
    
    
    December 31,2003
    
    
    December 31,2004£m
    
    
    £m
    
    
    £mPurchase of tangible fixed assets
    
    
    (28
    )
    
    
    (32
    )
    
    
    (38
    )
 F-31




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (d)

Financing Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,2002
    
    
    December 31,2003
    
    
    December 31,2004£m
    
    
    £m
    
    
    £mMovement in debt due within one year
    
    
    (14
    )
    
    
    (14
    )
    
    
    (12
    )Movement in debt due after one year
    
    
    (6
    )
    
    
    (33
    )
    
    
    (19
    )Issue of debt due after more than one year
    
    
    15
    
    
    
    37
    
    
    
    16Equity received from minority
    
    
    
    
    
    
    5
    
    
    
    Cash (outflow)/inflow from financing
    
    
    (5
    )
    
    
    (5
    )
    
    
    (15
    )
  (e)

Analysis of net debt Debt due
    
    
    Debt dueCash at bank
    
    
    after one
    
    
    within one
    
    
    Financeand in hand
    
    
    year
    
    
    year
    
    
    leases
    
    
    Net debt£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt January 1, 2003
    
    
    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 flow
    
    
    4
    
    
    
    3
    
    
    
    12
    
    
    
    
    
    
    
    19Other non-cash changes
    
    
    
    
    
    
    17
    
    
    
    (18
    )
    
    
    
    
    
    
    (1
    )Exchange movement
    
    
    (1
    )
    
    
    5
    
    
    
    
    
    
    
    1
    
    
    
    5At December 31, 2004
    
    
    33
    
    
    
    (303
    )
    
    
    (18
    )
    
    
    (3
    )
    
    
    (291
    )
 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.  (f)

Reconciliation of net cash flow to movement in net debt Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,2002
    
    
    December 31,2003
    
    
    December 31,2004£m
    
    
    £m
    
    
    £mIncrease/(decrease) in cash in the year/period
    
    
    (9
    )
    
    
    20
    
    
    
    4Cash flows from movements in debt and lease financing
    
    
    6
    
    
    
    10
    
    
    
    15Exchange movement
    
    
    (2
    )
    
    
    (9
    )
    
    
    5Other non-cash changes
    
    
    (2
    )
    
    
    1
    
    
    
    (1
    )Movement in net debt
    
    
    (7
    )
    
    
    22
    
    
    
    23Opening net debt
    
    
    (329
    )
    
    
    (336
    )
    
    
    (314
    )Closing net debt
    
    
    (336
    )
    
    
    (314
    )
    
    
    (291
    )
 F-32




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  21

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. All of the schemes are accounted for under SSAP 24. The most recent actuarial valuations of the US pension schemes and the US post-retirement medical
benefit plan were at December 31, 2004 and the most recent actuarial valuation of the UK pension
scheme was at December 31, 2003. The valuations were carried out using the projected unit method
and were carried out by the Prudential Retirement Insurance and Annuity Company 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 December 31, 2003 in accordance
with SSAP 24 were a long-term investment return of 7.3% for existing assets and 6.8% for future
contributions, increases in salaries of 4.2%, inflation of 2.7% and increases in pensions of 2.7%.
The market value of the UK schemes assets was £62 million and the actuarial value of those assets
represented 91% 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 at December 31, 2004 were a
long-term investment return of 8.25%, increases in salaries of 4.5%, a discount rate of 5.75% and
increases in pensions of 3%. The market value of the US schemes assets was $68 million. The main assumptions used for the valuation of the US post-retirement medical benefit plan at
December 31, 2004 were long-term medical claim inflation rate starting at 8% for 2004 and
ultimately reducing to 4.5% and a discount rate of 5.75%. The main assumptions used for the valuation of the KMC fund were a long-term investment return of
3.25%,increases in salaries of 3.0% and a 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, 2004 was £8
million (2003: £11 million). The costs for the period ended December 31, 2003 included variation
costs, early retirement and augmentation costs of approximately £3 million. Provisions for
unfunded pensions and employee benefits across the Group at December 31, 2004 were £11 million
(2003: £15 million) and £6 million (2003: £7 million) respectively (Note 17). 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-33




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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, 2004 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, 2002UKpension fund
    
    
    USPension Plan
    
    
    USHealthcarePlan
    
    
    KMCPension 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, 2003UKpension fund
    
    
    USPension Plan
    
    
    USHealthcarePlan
    
    
    KMCPension 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
    %
    
    
    
    
    
    
    
 December 31, 2004UKpension fund
    
    
    USPension Plan
    
    
    USHealthcarePlan
    
    
    KMCpension fund% p.a.
    
    
    % p.a.
    
    
    % p.a.
    
    
    % p.a.Discount rate
    
    
    5.30
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    3.25
    %Salary increases
    
    
    4.20
    %
    
    
    4.50
    %
    
    
    
    
    
    
    3.00
    %Pension increases
    
    
    2.70
    %
    
    
    3.00
    %
    
    
    
    
    
    
    Social security increases
    
    
    2.70
    %
    
    
    3.00
    %
    
    
    
    
    
    
    Ultimate health care
trend rate
    
    
    
    
    
    
    
    
    
    
    4.50
    %
    
    
    Inflation rate
    
    
    2.70
    %
    
    
    3.00
    %
    
    
    3.00
    %
    
    
    1.60
    %Percentage funding level
    
    
    61
    %
    
    
    64
    %
    
    
    
    
    
    
    
 F-34




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The assets in the schemes and the expected rate of return were: December 31, 2002UK Pension Fund
    
    
    US Pension Plan
    
    

USHealthcarePlan
    
    
    KMC pension fundValue at
    
    
    Long-term
    
    
    Value at
    
    
    Long term
    
    
    Value at
    
    
    Value at
    
    
    Long termDecember 31,
    
    
    rate of
    
    
    December 31,
    
    
    rate of
    
    
    December 31,
    
    
    December 31,
    
    
    rate of2002
    
    
    return
expected
    
    
    2002
    
    
    return
expected
    
    
    2002
    
    
    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
    
    

USHealthcarePlan
    
    
    KMC pension fundValue at
    
    
    Long-term
    
    
    Value at
    
    
    Long term
    
    
    Value at
    
    
    Value at
    
    
    Long termDecember 31,
    
    
    rate of
    
    
    December 31,
    
    
    rate of
    
    
    December 31,
    
    
    December 31,
    
    
    rate of2003
    
    
    returnexpected
    
    
    2003
    
    
    returnexpected
    
    
    2003
    
    
    2003
    
    
    returnexpected£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
    
    
    
    7.4
    %
    
    
    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
    )
 December
31, 2004UK Pension Fund
    
    
    US Pension Plan
    
    

USHealthcarePlan
    
    
    KMC pension fundValue at
    
    
    Long-term
    
    
    Value at
    
    
    Long term
    
    
    Value at
    
    
    Value at
    
    
    Long termDecember 31,
    
    
    rate of
    
    
    December 31,
    
    
    rate of
    
    
    December 31,
    
    
    December 31,
    
    
    rate of2004
    
    
    returnexpected
    
    
    2004
    
    
    returnexpected
    
    
    2004
    
    
    2004
    
    
    returnexpected£m
    
    
    % p.a.
    
    
    £m
    
    
    % p.a.
    
    
    £m
    
    
    £m
    
    
    % p.a.Bonds
    
    
    4
    
    
    
    5.0
    %
    
    
    11
    
    
    
    7.0
    %
    
    
    
    
    
    
    
    
    
    
    Equities
    
    
    63
    
    
    
    8.0
    %
    
    
    19
    
    
    
    9.0
    %
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    5
    
    
    
    3.5
    %
    
    
    5
    
    
    
    8.5
    %
    
    
    
    
    
    
    2
    
    
    
    3.25
    %Total market value of assets
    
    
    72
    
    
    
    7.6
    %
    
    
    35
    
    
    
    8.25
    %
    
    
    
    
    
    
    2
    
    
    
    3.25
    %Present value of scheme
liabilities
    
    
    (118
    )
    
    
    
    
    
    
    (59
    )
    
    
    
    
    
    
    (7
    )
    
    
    (5
    )Deficit in the scheme
    
    
    (46
    )
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    (7
    )
    
    
    (3
    )Net pension liability
    
    
    (46
    )
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    (7
    )
    
    
    (3
    )
 Deferred tax assets in relation to pension liabilities have not been recognised as they would
not be recoverable in the foreseeable future. F-35




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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, 2003 and December 31, 2004 would be as follows: Net assets 2003
    
    
    2004£m
    
    
    £mNet assets
    
    
    148
    
    
    
    176Pensions provisions in respect of material funded schemes
    
    
    22
    
    
    
    17Net assets excluding material pension provisions
    
    
    170
    
    
    
    193Pension liability
    
    
    (76
    )
    
    
    (80
    )Net assets including net pension liability under FRS17
    
    
    94
    
    
    
    113
 Reserves 2003
    
    
    2004£m
    
    
    £mProfit and loss reserve
    
    
    (42
    )
    
    
    (14
    )Pensions provisions in respect of material funded schemes
    
    
    22
    
    
    
    17Profit and loss reserve excluding material pension provisions
    
    
    (20
    )
    
    
    3Pension liability
    
    
    (76
    )
    
    
    (80
    )Profit and loss reserve including net pension liability under FRS17
    
    
    (96
    )
    
    
    (77
    )
 Analysis of the amount which would be charged to operating profit Year ended
    
    
    Year endedDecember 31,2003
    
    
    December 31,2004£m
    
    
    £mCurrent service cost
    
    
    7
    
    
    
    8Past service cost
    
    
    1
    
    
    
    (1
    )Total operating charge
    
    
    8
    
    
    
    7
 Analysis of the amount which would be credited to other finance income Year ended
    
    
    Year endedDecember 31,2003
    
    
    December 31,2004£m
    
    
    £mExpected return on pension scheme assets
    
    
    7
    
    
    
    8Interest on pension scheme liabilities
    
    
    (8
    )
    
    
    (9
    )Net return
    
    
    (1
    )
    
    
    (1
    )
 Analysis of amount which would be recognised in statement of total recognisedgains and losses (STRGL) Year ended
    
    
    Year endedDecember 31,2003
    
    
    December 31,2004£m
    
    
    £mActual return less expected return on pension scheme assets
    
    
    8
    
    
    
    1Experience gains and losses arising on scheme liabilities
    
    
    (2
    )
    
    
    1Changes in assumptions underlying the present value of the scheme liabilities
    
    
    (19
    )
    
    
    (11
    )Actuarial loss recognised in STRGL
    
    
    (13
    )
    
    
    (9
    )
 F-36




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Movement in deficit during the year Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2003
    
    
    2004£m
    
    
    £mDeficit in scheme at beginning of the year
    
    
    (68
    )
    
    
    (76
    )Movement in the year;Current service cost
    
    
    (7
    )
    
    
    (8
    )Contributions
    
    
    10
    
    
    
    10Past service costs
    
    
    (1
    )
    
    
    1Other finance costs
    
    
    (1
    )
    
    
    (1
    )Exchange gain
    
    
    4
    
    
    
    3Actuarial loss recognised in STRGL
    
    
    (13
    )
    
    
    (9
    )Deficit in scheme at end of the year
    
    
    (76
    )
    
    
    (80
    )
 History of experience gains and losses Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004Difference between the actual and expected return on scheme assets:Amount (£ million)
    
    
    (20
    )
    
    
    8
    
    
    
    1Percentage of scheme assets
    
    
    26
    %
    
    
    9
    %
    
    
    1
    %Experience gains and losses on scheme liabilities:Amount (£ million)
    
    
    (3
    )
    
    
    (2
    )
    
    
    1Percentage of present value of scheme liabilities
    
    
    2
    %
    
    
    1
    %
    
    
    Total amount recognised in statement of total recognised gains and
losses:Amount (£ million)
    
    
    (28
    )
    
    
    (13
    )
    
    
    (9
    )Percentage of present value of scheme liabilities
    
    
    19
    %
    
    
    8
    %
    
    
    5
    %
  22

Related party transactions The following information is provided in accordance with Financial Reporting Standard No 8,
Related Party Transactions (FRS 8). Trading transactions with shareholders of the Group 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 sold some goods
and services to Ineos associated companies to the value of £2 million. As at December 31, 2002 amounts payable to these companies totalled £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 sold some goods
and services to Ineos associated companies to the value of £2 million. As at December 31, 2003 amounts payable to these companies totalled £2 million F-37




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) For the twelve months ended December 31, 2004:The Company purchased management services from
Charterhouse Capital Partners LLP for the amount of £28,000 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 £42 million. We also sold some goods
and services to Ineos associated companies to the value of £1 million. As at December 31, 2004 amounts payable to these companies totalled £6 million 23 Contingent liabilities and commitments 2003
    
    
    2004£m
    
    
    £mCommitments for capital expenditure not provided for:Contracts placed for future expenditure
    
    
    32
    
    
    
    12Expenditure authorised but not yet contracted
    
    
    25
    
    
    
    5057
    
    
    
    62
 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. Following an audit by the US Environmental Protection Agency (EPA) of the Fite Road facility
in Memphis, Tennessee in December 2002, the EPA advised Lucite International Inc., our chief
operating subsidiary in the US, on September 23, 2004 that it considers the Fite Road facility to
be in violation of New Source Performance Standards under the US Federal Clean Air Act. Lucite
International Inc. believes the Fite Road facility has operated in accordance with permits issued
by the Memphis Shelby County Health Department, which is authorised to issue such permits by the
EPA. The EPA originally proposed a settlement whereby Lucite International Inc. would pay an
assessment of less than $10 million and install certain plant improvements to comply with the New
Source Performance Standards (NSPS) within an agreed period. After continuing discussions with the
EPA, the current proposed settlement is less than $4 million. The potential settlement is still in
dispute, however, while settlement discussions between Lucite International Inc and the EPA
continue. Lucite International Inc. is cooperating fully with the EPA and is prepared to defend
itself against these allegations and is confident with its position therefore does not feel that a
provision needs to be made in the accounts at this stage. It is expected that this issue will be
resolved during 2005. 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, 2003 or 2004 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. F-38




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  24

Operating lease commitments At December 31, 2004 the Group had commitments to make payments under operating leases as follows: 2003
    
    
    2004Other
    
    
    
    
    
    
    OtherLand and
    
    
    Operating
    
    
    Land and
    
    
    OperatingBuildings
    
    
    Leases
    
    
    Buildings
    
    
    Leases£m
    
    
    £m
    
    
    £m
    
    
    £mAnnual commitments
under non-cancellable
operating leases
expiring:Within one year
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Within two to five years
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    1After five years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    1
    
    
    
    4
  25

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 shareholders 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 Notes
    
    
    Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,2002
    
    
    December 31,2003
    
    
    December 31,2004£m
    
    
    £m
    
    
    £mProfit/(loss) for the financial year under UK
GAAP
    
    
    
    
    
    
    (3
    )
    
    
    22
    
    
    
    36Adjustments to conform with US GAAP- depreciation of fixed assets
    
    (ia)
    
    
    6
    
    
    
    6
    
    
    
    6- amortisation of other intangibles
    
    (ib)
    
    
    (13
    )
    
    
    (12
    )
    
    
    (10
    )- amortisation of goodwill
    
    (ic)
    
    
    5
    
    
    
    5
    
    
    
    5Pensions
    
    (ii)
    
    
    (2
    )
    
    
    (2
    )
    
    
    (5
    )Capitalisation of interest less amortisation
    
    (iii)
    
    
    3
    
    
    
    2
    
    
    
    3Capitalisation of loan issue fees less
amortisation
    
    (iv)
    
    
    1
    
    
    
    (1
    )
    
    
    Foreign exchange (loss)/gain on debt
    
    
    (v)
    
    
    
    (13
    )
    
    
    (9
    )
    
    
    (1
    )Fair value of derivative financial instruments
    
    (vi)
    
    
    
    
    
    
    1
    
    
    
    (1
    )Deferred taxation- arising on UK GAAP results
    
    (vii)
    
    
    15
    
    
    
    3
    
    
    
    (14
    )- arising on other US GAAP adjustments
    
    (vii)
    
    
    2
    
    
    
    
    
    
    
    3Net profit for the financial year under US
GAAP
    
    
    
    
    
    
    1
    
    
    
    15
    
    
    
    22
 F-39




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (b) Effect on Consolidated shareholders funds of differences between UK GAAP and US GAAP 2003
    
    
    2004notes
    
    
    £m
    
    
    £mConsolidated shareholders funds under UK GAAP
    
    
    
    
    
    
    133
    
    
    
    161Business combinations
    
    (ia,b,c)
    
    
    (21
    )
    
    
    (20
    )Exchange translation differences on goodwill and intangible assets
    
    (ib)
    
    
    (9
    )
    
    
    (4
    )Pensions
    
    (ii)
    
    
    (6
    )
    
    
    (10
    )Capitalisation of interest less amortisation
    
    (iii)
    
    
    9
    
    
    
    12Fair value of derivative financial instruments
    
    (vi)
    
    
    1
    
    
    
    Deferred taxation
    
    (vii)
    
    
    30
    
    
    
    19Consolidated shareholders funds under US GAAP
    
    
    
    
    
    
    137
    
    
    
    158
 The cumulative exchange differences posted to reserves as at December 31, 2004 was a £18
million loss (2003: £15 million loss). The cumulative effect of the minimum pension liability posted to reserves as at December 31, 2004
was £10 million loss (2003: £9 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 assetsUnder 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 intangiblesAn intangible asset should be recognised 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 recognised 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 recognised as an intangible asset
apart from goodwill. F-40




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  Accordingly, the Company has recognised $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 shareholders funds.(c)    Amortisation of goodwillAs 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. In 2002, the Company
adopted FAS 142 and ceased amortisation of goodwill under US GAAP. As such, the adjustment for
2002, 2003 and 2004 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-41




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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 17) 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 Company uses a December 31 date for its plans. The disclosures required by
SFAS No 132(R) 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, 2002US
    
    
    USUK
    
    
    Pension
    
    
    HealthcarePension Fund
    
    
    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, 2003US
    
    
    USUK
    
    
    Pension
    
    
    HealthcarePension Fund
    
    
    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
 For the year ended December 31, 2004US
    
    
    USUK
    
    
    Pension
    
    
    HealthcarePension Fund
    
    
    Plan
    
    
    Plan
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mComponents of pension/post-retirement expense:Service cost
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    8Prior service cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest cost
    
    
    5
    
    
    
    3
    
    
    
    
    
    
    
    8Expected return on plan assets
    
    
    (5
    )
    
    
    (3
    )
    
    
    
    
    
    
    (8
    )Other: amortisation
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Net periodic pension cost
    
    
    9
    
    
    
    2
    
    
    
    
    
    
    
    11
 F-42




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The following table sets forth the funded status of the principal plans at December 31, 2003: At December 31, 2003US
    
    
    USUK
    
    
    Pension
    
    
    HealthcarePension Fund
    
    
    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
    
    
    
    
    
    
    
    16Intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated other comprehensive income
    
    
    7
    
    
    
    2
    
    
    
    
    
    
    
    9
 The following table sets forth the funded status of the principal plans at December 31, 2004: At December 31, 2004US
    
    
    USUK
    
    
    Pension
    
    
    HealthcarePension Fund
    
    
    Plan
    
    
    Plan
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mFair value of plan assets
    
    
    72
    
    
    
    35
    
    
    
    
    
    
    
    107Accumulated post retirement benefit obligations (APBO)
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )Projected benefit obligation (PBO)
    
    
    (121
    )
    
    
    (59
    )
    
    
    
    
    
    
    (180
    )Funded status and accrued benefit cost
    
    
    (49
    )
    
    
    (24
    )
    
    
    (7
    )
    
    
    (80
    )Unrecognised net actuarial loss
    
    
    48
    
    
    
    18
    
    
    
    1
    
    
    
    67Exchange gain
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Balance sheet accrued pension costs
    
    
    (1
    )
    
    
    (7
    )
    
    
    (6
    )
    
    
    (14
    )Accumulated benefit obligations (ABO)
    
    
    76
    
    
    
    49
    
    
    
    
    
    
    
    125Minimum liability
    
    
    4
    
    
    
    14
    
    
    
    
    
    
    
    18Intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated other comprehensive income
    
    
    3
    
    
    
    7
    
    
    
    
    
    
    
    10
 F-43




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The change in benefit obligation during the year to December 31, 2003 was as follows: At December 31, 2003US
    
    
    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 benefit obligation during the year to December 31, 2004 was as follows: At December 31, 2004US
    
    
    US
    
    
    USPension
    
    
    Pension
    
    
    HealthcareFund
    
    
    Plan
    
    
    Plan
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mPBO/APBO at December 31, 2003
    
    
    103
    
    
    
    58
    
    
    
    8
    
    
    
    169Service cost
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    8Employee contributions
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Plan amendments
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Interest cost
    
    
    5
    
    
    
    3
    
    
    
    
    
    
    
    8Benefit payments
    
    
    (1
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (4
    )Net actuarial loss
    
    
    7
    
    
    
    3
    
    
    
    
    
    
    
    10Exchange (gain)
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )PBO/APBO at December 31, 2004
    
    
    121
    
    
    
    59
    
    
    
    7
    
    
    
    187
 The change in plan assets during the year to December 31, 2003 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, 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
 F-44




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The change in plan assets during the year to December 31, 2004 was as follows: At December 31, 2004UK
    
    
    US
    
    
    USPension
    
    
    Pension
    
    
    HealthcareFund
    
    
    Plan
    
    
    Plan
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mFair value of plan assets at December 31, 2003
    
    
    62
    
    
    
    31
    
    
    
    
    
    
    
    93Employer contributions
    
    
    4
    
    
    
    5
    
    
    
    1
    
    
    
    10Employee contributions
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Benefit payments
    
    
    (1
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (4
    )Investment returns
    
    
    6
    
    
    
    3
    
    
    
    
    
    
    
    9Exchange (gain)
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Fair value of plan assets at December 31, 2004
    
    
    72
    
    
    
    35
    
    
    
    
    
    
    
    107
 The assumptions used to determine 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
    
    
    
    6.25Rate of compensation increase
    
    
    4.1
    
    
    
    4.5
    
    
    
    
 The assumptions used to determine the projected benefit obligation for the principal plans for
the year to December 31, 2004 were: UK
    
    
    US
    
    
    USPension
    
    
    Pension
    
    
    HealthcareFund
    
    
    Plan
    
    
    Plan%
    
    
    %
    
    
    %Interest rate for discounting liabilities
    
    
    5.3
    
    
    
    5.75
    
    
    
    5.75Rate of compensation increase
    
    
    4.2
    
    
    
    4.5
    
    
    
    
 The assumptions used to determine the net periodic benefit cost for the principal plans for
the year to December 31, 2003 were: UK
    
    
    US
    
    
    USPension
    
    
    Pension
    
    
    HealthcareFund
    
    
    Plan
    
    
    Plan%
    
    
    %
    
    
    %Interest rate for discounting liabilities
    
    
    5.6
    
    
    
    6.75
    
    
    
    6.75Expected rate of return on assets
    
    
    7.3
    
    
    
    8.5
    
    
    
    Rate of compensation increase
    
    
    3.75
    
    
    
    4.5
    
    
    
    
 The assumptions used to determine the net periodic benefit cost for the principal plans for
the year to December 31, 2004 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
    
    
    
    8.25
    
    
    
    Rate of compensation increase
    
    
    4.1
    
    
    
    4.5
    
    
    
    
 F-45




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Estimated future benefit payments are: UK
    
    
    US
    
    
    USPension
    
    
    Pension
    
    
    HealthcareFund
    
    
    Plan
    
    
    Plan
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mFinancial year ending December 31, 2005
    
    
    1
    
    
    
    3
    
    
    
    1
    
    
    
    5Financial year ending December 31, 2006
    
    
    1
    
    
    
    2
    
    
    
    1
    
    
    
    4Financial year ending December 31, 2007
    
    
    1
    
    
    
    2
    
    
    
    1
    
    
    
    4Financial year ending December 31, 2008
    
    
    1
    
    
    
    3
    
    
    
    1
    
    
    
    5Financial year ending December 31, 2009
    
    
    2
    
    
    
    3
    
    
    
    1
    
    
    
    6Financial years ending December 31,
2010 to December 31, 2014 in aggregate
    
    
    16
    
    
    
    17
    
    
    
    4
    
    
    
    37
 The Company expects to contribute the following amounts to its principal pension plans: UK
    
    
    US
    
    
    USPension
    
    
    Pension
    
    
    HealthcareFund
    
    
    Plan
    
    
    Plan
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mFinancial year ending December 31, 2005
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    8
 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 £19,000.
It would increase the accumulated post-retirement benefit obligation by approximately £279,000. 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 £18,000.
It would decrease the accumulated post-retirement benefit obligation by approximately £269,000. The actual allocation of assets by category for the UK and US funds is as follows; At December 31, 2003UK Pension Fund
    
    
    US Pension PlanActual
    
    
    Target
    
    
    Actual
    
    
    Targetallocation
    
    
    allocation
    
    
    allocation
    
    
    allocation%
    
    
    %
    
    
    %
    
    
    %Equity securities
    
    
    83
    %
    
    
    40-100
    %
    
    
    70
    %
    
    
    65
    %Debt securities
    
    
    10
    %
    
    
    0-40
    %
    
    
    30
    %
    
    
    35
    %Real Estate
    
    
    
    
    
    
    0-315
    %
    
    
    
    
    
    
    Other
    
    
    7
    %
    
    
    0
    %
    
    
    
    
    
    
    Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 F-46




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) At December 31, 2004UK Pension Fund
    
    
    US Pension PlanActual
    
    
    Target
    
    
    Actual
    
    
    Targetallocation
    
    
    allocation
    
    
    allocation
    
    
    allocation%
    
    
    %
    
    
    %
    
    
    %Equity securities
    
    
    88
    %
    
    
    40-100
    %
    
    
    65
    %
    
    
    65
    %Debt securities
    
    
    5
    %
    
    
    0-40
    %
    
    
    35
    %
    
    
    35
    %Real Estate
    
    
    
    
    
    
    0-15
    %
    
    
    
    
    
    
    Other
    
    
    7
    %
    
    
    0
    %
    
    
    
    
    
    
    Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 The investment objectives of the UK 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, 2004. 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, 2004. The investment strategy of the US pension plan is predicated on its investment objectives and the
risk and return expectation of asset classes appropriate for the plan. Investment objectives have
been established by considering the plans liquidity needs and time horizon and the fiduciary
standards under ERISA. The asset allocation strategy is developed to meet the plans long term
needs in a manner designed to control volatility and to reflect the plan sponsors risk tolerance. 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, 2004. We have assumed the expected return
on equities, bonds and other classes to be 9% pa, 7% pa and 8.5% pa respectively for each asset
class as at December 31, 2004. The plans asset allocation is designed using modern portfolio theory which quantifies the impact
of the diversification among various asset classes. In determining the long-term rate of return on pension plan assets, the target allocation is first
reviewed. An expected long-term real rate of return is assumed for each asset class and an
underlying inflation rate assumption is also made. The effects of asset diversification and
periodic fund rebalancing are also considered. F-47




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (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 incurred.
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 £6 million asset as at December 31, 2004 (2003: £8 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 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. At December 31, 2004 there were no contractual arrangements to hedge raw material prices in place. F-48




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (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 temporary
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 31,2002
    
    
    December 31,2003
    
    
    December 31,2004£m
    
    
    £m
    
    
    £mUK statutory income tax rate
    
    
    30
    %
    
    
    30
    %
    
    
    30
    %Income tax (expenses)/benefit at UK rate
    
    
    (5
    )
    
    
    7
    
    
    
    11Local taxes
    
    
    1
    
    
    
    
    
    
    
    2Movement in deferred tax
    
    
    
    
    
    
    3
    
    
    
    (1
    )Prior year tax
    
    
    (7
    )
    
    
    (2
    )
    
    
    1Permanent differences
    
    
    (9
    )
    
    
    (8
    )
    
    
    (2
    )Other
    
    
    
    
    
    
    3
    
    
    
    Tax on income before income taxes under
US GAAP
    
    
    (20
    )
    
    
    3
    
    
    
    11
 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. 2003
    
    
    2004£m
    
    
    £mDeferred tax assets:Pensions
    
    
    2
    
    
    
    3Inventories
    
    
    1
    
    
    
    1Fixed assets
    
    
    14
    
    
    
    23Losses
    
    
    47
    
    
    
    26Other
    
    
    10
    
    
    
    1374
    
    
    
    66Deferred tax liabilities:Accelerated depreciation and amortisation:UK fixed assets
    
    
    (4
    )
    
    
    Non-UK fixed assets
    
    
    (34
    )
    
    
    (36
    )Net deferred tax asset
    
    
    36
    
    
    
    30
 Total gross deferred tax assets available to the Company amount to £100 million at December
31, 2004 (2003: £90 million). Valuation allowance of £34 million at December 31, 2004 (2003: 16
million) has been provided against losses and short term timing differences and consequently the
total deferred tax asset amounts to £66 million at December 31, 2004 (2003: £74 million). F-49




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (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.
Under US GAAP, the following amounts would have been reported: Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,2002
    
    
    December 31,2003
    
    
    December 31,2004£m
    
    
    £m
    
    
    £mNet cash provided by operating activitiesUnder UK GAAP
    
    
    57
    
    
    
    94
    
    
    
    92Taxation paid
    
    
    (4
    )
    
    
    (4
    )
    
    
    (6
    )Returns from investments and servicing of
finance (excluding interest paid and
capitalised)
    
    
    (26
    )
    
    
    (31
    )
    
    
    (26
    )Under US GAAP
    
    
    27
    
    
    
    59
    
    
    
    60Net cash used in investing activitiesCapitalised interest
    
    
    2
    
    
    
    2
    
    
    
    3Capital expenditure and financial investment
    
    
    28
    
    
    
    32
    
    
    
    38Under US GAAP
    
    
    30
    
    
    
    34
    
    
    
    41
  (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 were put into
trust for the employees during 2003. The Company has also issued restricted ordinary D shares to the US employees under the US employee
share scheme. A proportion of these ordinary D shares will be redeemed by the Company and a
proportion will be converted into ordinary B shares in the event of Charterhouse selling all or a
substantial portion of its remaining investment in the ordinary shares of 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. The scheme has been closed to new members from 31 December 2004. F-50




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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 2004 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,
    
    
    December 31,
    
    
    amortisation period2004
    
    
    2004
    
    
    Years£m
    
    
    £mAmortised intangible assetsCore and patented technology
    
    
    46
    
    
    
    24
    
    
    
    10Trade names
    
    
    6
    
    
    
    2
    
    
    
    20Customer relationships
    
    
    18
    
    
    
    5
    
    
    
    20Non-compete agreements
    
    
    21
    
    
    
    21
    
    
    
    5Total amortised intangible assets
    
    
    91
    
    
    
    52Unamortised intangible assetsGoodwill
    
    
    45
    
    
    
    Total intangible assets under US GAAP
    
    
    136
    
    
    
    52
 Amortisation expense for the year ended December 31, 2004 and estimated aggregate amortisation
expense for each of the five succeeding years: £mAggregate amortisation expense:For the year ended December 31, 2004
    
    
    9Estimated aggregate amortisation expense:For the year ended December 31, 2005
    
    
    6For the year ended December 31, 2006
    
    
    6For the year ended December 31, 2007
    
    
    6For the year ended December 31, 2008
    
    
    6For the year ended December 31, 2009
    
    
    6
 There were no changes to the carrying value of goodwill during the year ended December 31,
2004. 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 £44 million (2003: £42 million; 2002: £45 million) from distribution costs to
cost of sales. F-51




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 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 19% of the cost
of sales and approximately 7% of sales for the years ended December 31, 2002 through to 2004. 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 to meet agreed specifications. 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 years ended December 31, 2004 and 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, 2004. 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. Information relating contingencies arising from litigation is disclosed in note 23 to the
consolidated financial statements. F-52




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 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. 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 In May 2004, the FASB issued FSP No. FAS 106-2, Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The FSP provides
accounting guidance for the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) to a sponsor of a post-retirement health care plan that has
concluded that prescription drug benefits available under the plan are actuarially equivalent to
Medicare Part D and thus qualify for a subsidy under the Act. FAS 106-2 is effective for the Group
for the year ended December 31, 2005. We are currently evaluating the possible impact of this
pronouncement for the Group. In December 2004 the FASB issued Financial Accounting Standard No. 151, Inventory Costs  an
amendment of ARB No. 43, Chapter 4 (revised ) (FAS 151). FAS 151 amends the guidance in ARB No.
43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). FAS151 requires that those items
be recognised as current-period charges. In addition, FAS 151 requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity of the production
facilities. FAS 151 is effective for the Group for the year ended December 31, 2005. We are
currently evaluating the possible impact of this pronouncement for the Group. F-53




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) In December 2004 the FASB issued Financial Accounting Standard No. 123R, Share-Based Payment (FAS
123R). FAS 123R requires that companies expense the value of employee stock options and other
awards. FAS 123R allows companies to choose an option pricing model that appropriately reflects
their specific circumstances and the economics of their transactions, and allows companies to
select from three transition methods for adoption of the provisions of the standard. FAS 123R is
effective for the Group for the year ended December 31, 2005. We are currently evaluating the
possible impact of this announcement for the Group. In December 2004 the FASB issued Financial Accounting Standard No. 153, Exchanges of Non-monetary
Assets (FAS 153). FAS 153 amends APB Opinion No. 29, Accounting for Non-monetary Transactions, to
eliminate the exception for non-monetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of non-monetary assets that do not have commercial
substance. A non-monetary exchange has commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the exchange. FAS 153 is effective for the
Group for the year ended December 31, 2005. We are currently evaluating the possible impact of this
pronouncement for the Group. 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 is 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. With effect from January 1, 2005, the Group will
adopt the provisions of IAS 19. With effect January 1, 2005, UK GAAP will no longer be used by the Group for reporting purposes,
due to our implementation and adoption of IFRS. 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 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. The significant differences in accounting policies identified to date include: F-54




---



##### Table of Contents



Pensions  under UK GAAP (SSAP24), the cost of defined benefit pension schemes and healthcare
plans is determined by independent professionally qualified actuaries using the projected unit
method and recognised on a systematic basis over the employees service lives. Scheme
liabilities are discounted at a long-term stable rate. There are several options to recognise
actuarial gains and losses, as long as the same basis is applied to both gains and losses and
the basis is applied consistently from period to period. Under IFRS (IAS19) scheme liabilities
are discounted at the market rate on high quality corporate bonds. Actuarial gains and losses
can be recognised immediately in the profit and loss in the period in which they occur; the
excess cumulative amount which exceeds a 10% of the greater of the present value of the
obligation and the market value of the assets divided by the expected average remaining working
lives of the participating employees can be recognised in the profit and loss; or the actuarial
gains and losses can be recognized immediately as a separate component of shareholders equity
in the period in which they occur.IAS19 will be applied to all our material defined benefit pension funds. The full deficit of
plan assets valued at current market value versus scheme projected liabilities will be brought
onto the balance sheet. The pension charge will be split into service costs  charged through
to fixed costs on the profit and loss account and interest costs less expected return on assets
  charged through to the interest/financing line on the profit and loss account. Upon adoption
of IFRS, the reserve balance will be adjusted in the opening balance sheet to reflect the
deficit.Business combinations  IFRS3 requires goodwill to be measured at cost less any impairment,
compared to the amortization of goodwill according to UK GAAP. Under IFRS goodwill is no longer
amortised and instead will be tested annually for impairment and written down if impairment is
deemed to exist. Intangible assets with finite lives, where these have been identified
separately from goodwill, will continue to be amortised. Negative goodwill will no longer be
recognised on the balance sheet and will have to be immediately written off to the profit and
loss account.We have recognised negative goodwill on the acquisition of shares in KMC made in 2001 that will
be impacted by our adoption of IFRS. Under IAS 21 any goodwill that has arisen on the
acquisition of a foreign operation will be treated as an asset of the foreign operation and as
such it would be re-translated at the closing rate. Previously goodwill was not re-translated
but held at a constant sterling value and amortised over an appropriate life.Research & Development costs  IAS38 sets out certain criteria for the capitalisation of
development costs, and if these criteria are met then all the development costs have to be
capitalized. There is no choice and no partial capitalisation. Upon adoption of IFRS our
opening balance sheet will include such capitalised development costs as assets which were not
previously capitalized under UK GAAP.Under IFRS some of our development projects meet the criteria of development expenditure and as
such would be capitalised. It is our current policy to capitalise expenditure on the building
of pilot plants but not the day-to-day operating costs of the pilot plants. It is the
capitalisation of these costs that would be impacted by our adoption of IFRS. F-55




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  26

List of principal subsidiary companies included in the Lucite International Group Holdings
Limited consolidated financial statements at December 31, 2004 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 Holdco1 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
    
    
    66Lucite International (China) Chemical Industry Company Limited
Ltd
    
    China
    
    
    66Lucite International US Delaware Holdings LLC
    
    USA
    
    
    100Lucite International US Group Holdings LLC
    
    USA
    
    
    100Lucite International US Investment Holdings LLC
    
    USA
    
    
    100Lucite International (Shanghai) Trading Co Limited
    
    China
    
    
    100Lucite International US Investment Limited
    
    UK
    
    
    100Lucite International Euro Finco Limited
    
    UK
    
    
    100Lucite International Dollar Finco Limited
    
    UK
    
    
    100
 F-56




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  27

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 is funds managed by Charterhouse Capital Partners LLP
(formerly funds managed by Charterhouse Development Capital Limited), 7th Floor,
Warwick Court, Paternoster Square, London, EC4M 7DX.  28

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




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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
    )
    
    
    148Shareholders equityCalled up equity
share capital
    
    
    175
    
    
    
    175
    
    
    
    175
    
    
    
    140
    
    
    
    (490
    )
    
    
    175Reserves
    
    
    (4
    )
    
    
    (13
    )
    
    
    (4
    )
    
    
    (28
    )
    
    
    7
    
    
    
    (42
    )Total equity
shareholders 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
Investment Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited and Lucite
International Holdco Limited. F-58




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Supplemental consolidating balance sheets as at December 31, 2004 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    73Tangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    323
    
    
    
    
    
    
    
    323Investments
    
    
    207
    
    
    
    210
    
    
    
    409
    
    
    
    
    
    
    
    (826
    )
    
    
    207
    
    
    
    210
    
    
    
    409
    
    
    
    396
    
    
    
    (826
    )
    
    
    396Current assetsStocks
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    95Debtors
    
    
    
    
    
    
    251
    
    
    
    54
    
    
    
    347
    
    
    
    (532
    )
    
    
    120Cash at bank and in
hand
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    33
    
    
    
    251
    
    
    
    54
    
    
    
    475
    
    
    
    (532
    )
    
    
    248Total assets
    
    
    207
    
    
    
    461
    
    
    
    463
    
    
    
    871
    
    
    
    (1,358
    )
    
    
    644Creditors: amounts
falling due within
one year
    
    
    
    
    
    
    (87
    )
    
    
    (269
    )
    
    
    (141
    )
    
    
    356
    
    
    
    (141
    )Net current assets/(liabilities)
    
    
    
    
    
    
    164
    
    
    
    (215
    )
    
    
    334
    
    
    
    (176
    )
    
    
    107Total assets less
current liabilities
    
    
    207
    
    
    
    374
    
    
    
    194
    
    
    
    730
    
    
    
    (1,002
    )
    
    
    503Creditors: amounts
falling due after
more than one year
    
    
    
    
    
    
    (174
    )
    
    
    
    
    
    
    (309
    )
    
    
    177
    
    
    
    (306
    )Provisions for
liabilities and
charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (21
    )Net assets
    
    
    207
    
    
    
    200
    
    
    
    194
    
    
    
    400
    
    
    
    (825
    )
    
    
    176Shareholders equityCalled up equity
share capital
    
    
    175
    
    
    
    175
    
    
    
    175
    
    
    
    367
    
    
    
    (717
    )
    
    
    175Reserves
    
    
    32
    
    
    
    25
    
    
    
    19
    
    
    
    18
    
    
    
    (108
    )
    
    
    (14
    )Total equity
shareholders funds
    
    
    207
    
    
    
    200
    
    
    
    194
    
    
    
    385
    
    
    
    (825
    )
    
    
    161Equity minority
interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Capital employed
    
    
    207
    
    
    
    200
    
    
    
    194
    
    
    
    400
    
    
    
    (825
    )
    
    
    176
 (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite International
Investment 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 CONSOLIDATED 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
amortisation of 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
Investment Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited and Lucite
International Holdco Limited F-60




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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
amortisation of 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
investments
    
    
    22
    
    
    
    22
    
    
    
    22
    
    
    
    
    
    
    
    (66
    )
    
    
    Operating profit including
joint venture
    
    
    22
    
    
    
    22
    
    
    
    22
    
    
    
    69
    
    
    
    (66
    )
    
    
    69Net interest payable
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (35
    )
    
    
    
    
    
    
    (37
    )Profit on ordinary activities
before taxation
    
    
    22
    
    
    
    20
    
    
    
    22
    
    
    
    34
    
    
    
    (66
    )
    
    
    32Taxation on profit 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
 (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite International
Investment 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 CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Supplemental consolidating profit and loss accounts for the year to December 31, 2004 Lucite
    
    
    Issuer andInternational
    
    
    unconditional
    
    
    SubordinatedGroup
    
    
    guarantor
    
    
    guarantor
    
    
    Non-Holdings
    
    
    subsidiaries
    
    
    subsidiaries
    
    
    guarantor
    
    
    
    
    
    ConsolidatedLimited
    
    
    (1)
    
    
    (2)
    
    
    subsidiaries
    
    
    Eliminations
    
    
    totals£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mTurnover
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    707
    
    
    
    
    
    
    
    707Operating costs before
amortisation of intangible
fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (635
    )
    
    
    
    
    
    
    (635
    )Amortisation of goodwill and
other intangible fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Total operating costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (640
    )
    
    
    
    
    
    
    (640
    )Group operating profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    67Share of operating profit from
investments
    
    
    36
    
    
    
    36
    
    
    
    36
    
    
    
    
    
    
    
    (108
    )
    
    
    Operating profit
    
    
    36
    
    
    
    36
    
    
    
    36
    
    
    
    67
    
    
    
    (108
    )
    
    
    67Net interest
receivable/(payable)
    
    
    
    
    
    
    1
    
    
    
    (14
    )
    
    
    (14
    )
    
    
    
    
    
    
    (27
    )Profit on ordinary activities
before taxation
    
    
    36
    
    
    
    37
    
    
    
    22
    
    
    
    53
    
    
    
    (108
    )
    
    
    40Taxation on loss on ordinary
activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Profit on ordinary activities
after taxation
    
    
    36
    
    
    
    37
    
    
    
    22
    
    
    
    53
    
    
    
    (108
    )
    
    
    40Equity minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Profit for the financial period
    
    
    36
    
    
    
    37
    
    
    
    22
    
    
    
    49
    
    
    
    (108
    )
    
    
    36
 (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite International
Investment Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited and Lucite
International Holdco Limited. F-62




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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
Investment Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited and Lucite
International Holdco Limited. F-63




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    94Returns on
investment and
servicing of
finance
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (33
    )
    
    
    16
    
    
    
    (33
    )Taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )
    
    
    
    (16
    )
    
    
    
    
    
    
    57
    
    
    
    16
    
    
    
    57Capital expenditure
and financial
investment:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    
    
    
    
    (32
    )Net cash inflow/
(outflow) before
use of liquid
resources and
financing
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    25
    
    
    
    16
    
    
    
    25Financing
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    (5
    )
    
    
    (16
    )
    
    
    (5
    )Increase in cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20
 (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite International
Investment Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited and Lucite
International Holdco Limited. F-64




---



##### Table of Contents



LUCITE INTERNATIONAL GROUP HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Supplemental consolidating cash flow statements for the year to December 31, 2004 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    92Returns on
investment and
servicing of
finance:
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    (29
    )
    
    
    18
    
    
    
    (29
    )Taxation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )
    
    
    
    (18
    )
    
    
    
    
    
    
    57
    
    
    
    18
    
    
    
    57Capital expenditure
and financial
investment:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    (38
    )Net cash inflow/(outflow) before
use of liquid
resources and
financing
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    19
    
    
    
    18
    
    
    
    19Financing:
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    (15
    )
    
    
    (18
    )
    
    
    (15
    )Increase in cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4
 (1)
    
    Unconditional Guarantor subsidiaries consist of the Issuer and Lucite International
Investment Limited.(2)
    
    Subordinated Guarantors consist of Lucite International Holdings Limited and Lucite
International Holdco Limited. F-65




---



##### 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, 2004 and 2003, and the related consolidated profit and
loss accounts, consolidated cash flow statements, consolidated statements of total recognised gains
and losses and reconciliation of movements in shareholders funds for each of the three years in
the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight
Board (United States). 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, 2004 and 2003, and the
results of its operations and its cash flows for each of the three years ended December 31, 2004,
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. Information relating
to the nature and effect of such differences is presented in Note 25 to the consolidated financial
statements.  PricewaterhouseCoopers LLP
Chartered Accountants
London, England
April 6, 2005 F-66




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED PROFIT AND LOSS ACCOUNTS Year ended
    
    
    Year ended
    
    
    Year endedNotes
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mGroup turnover
    
    
    3,4
    
    
    
    582
    
    
    
    694
    
    
    
    707Operating costs before amortisation of
intangible fixed assets
    
    
    
    
    
    
    (550
    )
    
    
    (620
    )
    
    
    (635
    )Amortisation of goodwill and other
intangible fixed assets
    
    
    9
    
    
    
    (5
    )
    
    
    (5
    )
    
    
    (5
    )Total net operating costs
    
    
    4
    
    
    
    (555
    )
    
    
    (625
    )
    
    
    (640
    )Group operating profit
    
    
    3,4
    
    
    
    27
    
    
    
    69
    
    
    
    67Net interest payable and similar charges
    
    
    7
    
    
    
    (29
    )
    
    
    (37
    )
    
    
    (27
    )Profit/(loss) on ordinary activities
before taxation
    
    
    6
    
    
    
    (2
    )
    
    
    32
    
    
    
    40Taxation on (profit)/loss on ordinary
activities
    
    
    8
    
    
    
    2
    
    
    
    (6
    )
    
    
    Profit on ordinary activities after
taxation
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    40Equity minority interests
    
    
    
    
    
    
    (3
    )
    
    
    (4
    )
    
    
    (4
    )Profit/(loss) for the financial year
    
    
    
    
    
    
    (3
    )
    
    
    22
    
    
    
    36
 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-67




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mProfit/(loss) for the financial year
    
    
    (3
    )
    
    
    22
    
    
    
    36Currency translation differences on foreign
currency net investments net of translation on
foreign currency borrowings
    
    
    (21
    )
    
    
    (19
    )
    
    
    (8
    )Total recognised gain/(loss) relating to the year
    
    
    (24
    )
    
    
    3
    
    
    
    28
      The accompanying notes are an integral part of these financial statements. F-68




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2004 AND 2003 Notes
    
    
    2003
    
    
    2004£m
    
    
    £mFixed assetsIntangible assets
    
    
    9
    
    
    
    83
    
    
    
    78Negative goodwill
    
    
    9
    
    
    
    (5
    )
    
    
    (5
    )Tangible assets
    
    
    10
    
    
    
    332
    
    
    
    323410
    
    
    
    396Current assetsStocks
    
    
    11
    
    
    
    75
    
    
    
    95Debtors
    
    
    12
    
    
    
    107
    
    
    
    120Cash at bank and in hand
    
    
    
    
    
    
    30
    
    
    
    33212
    
    
    
    248Total assets
    
    
    
    
    
    
    622
    
    
    
    644Creditors: amounts falling due within one year
    
    
    13
    
    
    
    (115
    )
    
    
    (141
    )Net current assets
    
    
    
    
    
    
    97
    
    
    
    107Total assets less current liabilities
    
    
    
    
    
    
    507
    
    
    
    503Creditors: amounts falling due after more
than one year
    
    
    14
    
    
    
    (332
    )
    
    
    (306
    )Provisions for liabilities and charges
    
    
    17
    
    
    
    (27
    )
    
    
    (21
    )Net assets
    
    
    
    
    
    
    148
    
    
    
    176Shareholders equityCalled up equity share capital
    
    
    18
    
    
    
    175
    
    
    
    175Profit and loss account
    
    
    
    
    
    
    (42
    )
    
    
    (14
    )Total equity shareholders funds
    
    
    
    
    
    
    133
    
    
    
    161Equity minority interests
    
    
    
    
    
    
    15
    
    
    
    15Capital employed
    
    
    
    
    
    
    148
    
    
    
    176
      The accompanying notes are an integral part of these financial statements. F-69




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED CASH FLOW STATEMENTS Year ended
    
    
    Year ended
    
    
    Year endedNotes
    
    
    December 31,2002
    
    
    December 31,2003
    
    
    December 31,2004£m
    
    
    £m
    
    
    £mNet Cash inflow from operating
activities
    
    
    20
    (a)
    
    
    57
    
    
    
    94
    
    
    
    92Return on investments and servicing of
finance
    
    
    20
    (b)
    
    
    (28
    )
    
    
    (33
    )
    
    
    (29
    )Taxation
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )
    
    
    (6
    )25
    
    
    
    57
    
    
    
    57Capital expenditure and financial
investment
    
    
    20
    (c)
    
    
    (28
    )
    
    
    (32
    )
    
    
    (38
    )Net cash inflow/(outflow) before use
of liquid resources and financing
    
    
    
    
    
    
    (3
    )
    
    
    25
    
    
    
    19Financing
    
    
    20
    (d)
    
    
    (5
    )
    
    
    (5
    )
    
    
    (15
    )Increase/(decrease) in cash
    
    
    20
    (e)
    
    
    (8
    )
    
    
    20
    
    
    
    4
      The accompanying notes are an integral part of these financial statements. F-70




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED RECONCILIATION
OF MOVEMENTS IN EQUITY SHAREHOLDERS FUNDS Share
    
    
    Profit andcapital
    
    
    loss account
    
    
    Total£m
    
    
    £m
    
    
    £mBalance 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
    )
    
    
    133Retained profit for the financial year
    
    
    
    
    
    
    36
    
    
    
    36Currency translation adjustment
    
    
    
    
    
    
    (8
    )
    
    
    (8
    )Balance as at December 31, 2004
    
    
    175
    
    
    
    (14
    )
    
    
    161
 The dividends payable by our subsidiaries in Taiwan (Kaohsiung 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 shareholders funds. F-71




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED NOTES
TO THE CONSOLIDATED 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-65. 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 25 and 27 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
    
    ACCOUNTING POLICIES3
    
    SEGMENTAL REPORTING4
    
    COST OF SALES, GROSS PROFIT, DISTRIBUTION COSTS AND ADMINISTRATIVE COSTS5
    
    STAFF COSTS6
    
    PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION7
    
    NET INTEREST PAYABLE AND SIMILAR CHARGES8
    
    TAXATION ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES9
    
    INTANGIBLE FIXED ASSETS10
    
    TANGIBLE FIXED ASSETS11
    
    STOCKS12
    
    DEBTORS13
    
    CREDITORS-AMOUNTS FALLING DUE WITHIN ONE YEAR14
    
    CREDITORS-AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR15
    
    BANK AND OTHER BORROWINGS16
    
    FINANCE LEASES17
    
    PROVISIONS FOR LIABILITIES AND CHARGES18
    
    CALLED UPEQUITY SHARE CAPITAL19
    
    FINANCIAL INSTRUMENTS20
    
    NOTES TO THE CASH FLOW STATEMENTS21
    
    PENSIONS AND OTHER POST RETIREMENT BENEFITS22
    
    RELATED PARTY TRANSACTIONS23
    
    CONTINGENT LIABILITIES AND COMMITMENTS24
    
    OPERATING LEASE COMMITMENTS25
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US ACCOUNTING PRINCIPLES
 F-72




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDINGS LIMITED NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS  26

LIST OF PRINCIPAL SUBSIDIARY COMPANIES INCLUDED IN THE LUCITE INTERNATIONAL HOLDINGS LIMITED CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2004 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 Holdco1 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
    
    
    66Lucite International (China) Chemical Industry Company Limited
    
    China
    
    
    66Lucite International US Delaware Holdings LLC
    
    USA
    
    
    100Lucite International US Group Holdings LLC
    
    USA
    
    
    100Lucite International US Investment Holdings LLC
    
    USA
    
    
    100Lucite International (Shanghai) Trading Co Limited
    
    China
    
    
    100Lucite International US Investment Limited
    
    UK
    
    
    100Lucite International Euro Finco Limited
    
    UK
    
    
    100Lucite International Dollar Finco Limited
    
    UK
    
    
    100
  27

CONTROLLING PARTIES Refer to footnote 27 of the financial statements of Lucite International Group Holdings Limited. F-73




---



##### 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, 2004 and 2003, and the related consolidated profit and loss
accounts, consolidated cash flow statements, consolidated statements of total recognised gains and
losses and reconciliation of movements in shareholders funds for each of the three years in the
period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight
Board (United States). 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, 2004 and 2003, and the
results of its operations and its cash flows for each of the three years ended December 31, 2004,
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. Information
relating to the nature and effect of such differences is presented in Note 25 to the consolidated
financial statements.   PricewaterhouseCoopers LLP
Chartered Accountants
London, England
April 6, 2005 F-74




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
 CONSOLIDATED PROFIT AND LOSS ACCOUNTS Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,Notes
    
    
    2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mGroup turnover
    
    
    3,4
    
    
    
    582
    
    
    
    694
    
    
    
    707Operating costs before amortisation of
intangible fixed assets
    
    
    
    
    
    
    (550
    )
    
    
    (620
    )
    
    
    (630
    )Amortisation of goodwill and other
intangible fixed assets
    
    
    9
    
    
    
    (5
    )
    
    
    (5
    )
    
    
    (5
    )Total operating costs
    
    
    4
    
    
    
    (555
    )
    
    
    (625
    )
    
    
    (635
    )Group operating profit
    
    
    3,4
    
    
    
    27
    
    
    
    69
    
    
    
    72Net interest payable
    
    
    7
    
    
    
    (29
    )
    
    
    (37
    )
    
    
    (27
    )Profit/(loss) on ordinary activities
before taxation
    
    
    6
    
    
    
    (2
    )
    
    
    32
    
    
    
    45Taxation on (profit)/loss on ordinary
activities
    
    
    8
    
    
    
    2
    
    
    
    (6
    )
    
    
    Profit/(loss) on ordinary activities after
taxation
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    45Equity minority interests
    
    
    
    
    
    
    (3
    )
    
    
    (4
    )
    
    
    (4
    )Profit/(loss) for the financial year/period
    
    
    
    
    
    
    (3
    )
    
    
    22
    
    
    
    41
 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-75




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED CONSOLIDATED
STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mProfit/(loss) for the financial year
    
    
    (3
    )
    
    
    22
    
    
    
    41Currency translation differences on foreign
currency net investments
    
    
    (21
    )
    
    
    (18
    )
    
    
    (7
    )Total recognised gain/(loss) relating to the year
    
    
    (24
    )
    
    
    4
    
    
    
    34
       The accompanying notes are an integral part of these financial statements. F-76




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED CONSOLIDATED
BALANCE SHEETS AT DECEMBER 31, 2004 AND 2003 Notes
    
    
    2003
    
    
    2004£m
    
    
    £mFixed assetsIntangible assets
    
    
    9
    
    
    
    83
    
    
    
    78Negative goodwill
    
    
    9
    
    
    
    (5
    )
    
    
    (5
    )Tangible assets
    
    
    10
    
    
    
    327
    
    
    
    295405
    
    
    
    368Current assetsStocks
    
    
    11
    
    
    
    75
    
    
    
    95Debtors
    
    
    12
    
    
    
    107
    
    
    
    120Cash at bank and in hand
    
    
    
    
    
    
    20
    
    
    
    26202
    
    
    
    241Total assets
    
    
    
    
    
    
    607
    
    
    
    609Creditors: amounts falling due within one year
    
    
    13
    
    
    
    (137
    )
    
    
    (153
    )Net current assets
    
    
    
    
    
    
    65
    
    
    
    88Total assets less current liabilities
    
    
    
    
    
    
    470
    
    
    
    456Creditors: amounts falling due after more than
one year
    
    
    14
    
    
    
    (332
    )
    
    
    (290
    )Provisions for liabilities and charges
    
    
    17
    
    
    
    (27
    )
    
    
    (21
    )Net assets
    
    
    
    
    
    
    111
    
    
    
    145Shareholders equityCalled up equity share capital
    
    
    18
    
    
    
    115
    
    
    
    115Share premium
    
    
    18
    
    
    
    27
    
    
    
    27Profit and loss account
    
    
    
    
    
    
    (41
    )
    
    
    (7
    )Total equity shareholders funds
    
    
    
    
    
    
    101
    
    
    
    135Equity minority interests
    
    
    
    
    
    
    10
    
    
    
    10Capital employed
    
    
    
    
    
    
    111
    
    
    
    145
       The accompanying notes are an integral part of these financial statements. F-77




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED CONSOLIDATED
CASH FLOW STATEMENTS Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,Notes
    
    
    2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mNet cash inflow from operating activities
    
    
    20
    (a)
    
    
    57
    
    
    
    94
    
    
    
    97Return on investments and servicing of
Finance
    
    
    20
    (b)
    
    
    (28
    )
    
    
    (33
    )
    
    
    (29
    )Taxation
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )
    
    
    (6
    )25
    
    
    
    57
    
    
    
    62Capital expenditure and financial
investment
    
    
    20
    (c)
    
    
    (28
    )
    
    
    (28
    )
    
    
    (18
    )Net cash (outflow)/inflow before use of
liquid resources and financing
    
    
    
    
    
    
    (3
    )
    
    
    29
    
    
    
    44Financing
    
    
    20
    (d)
    
    
    (6
    )
    
    
    (15
    )
    
    
    (37
    )(Decrease)/increase in cash
    
    
    20
    (e)
    
    
    (9
    )
    
    
    14
    
    
    
    7
       The accompanying notes are an integral part of these financial statements. F-78




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED RECONCILIATION
OF MOVEMENTS EQUITY SHAREHOLDERS FUNDS Share
    
    
    Profit andcapital
    
    
    loss account
    
    
    Total£m
    
    
    £m
    
    
    £mBalance 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 profit for the financial year
    
    
    
    
    
    
    22
    
    
    
    22Currency translation adjustment
    
    
    
    
    
    
    (18
    )
    
    
    (18
    )Balance as at December 31, 2003
    
    
    142
    
    
    
    (41
    )
    
    
    101Retained profit for the financial year
    
    
    
    
    
    
    41
    
    
    
    41Currency translation adjustment
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )Balance as at December 31, 2004
    
    
    142
    
    
    
    (7
    )
    
    
    135
 The dividends payable by our subsidiaries in Taiwan (Kaohsiung 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 shareholders funds.       The accompanying notes are an integral part of these financial statements. F-79




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED NOTES
TO THE CONSOLIDATED 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-65.
The parent companies of the Company have no operations, assets or liabilities of their own other
than cash of £6 million,investments in subsidiaries, and liabilities which are reflected on a
pushdown basis in the financial statements of the Company as discussed in Note 15. During 2004
Lucite International Holdings Limited invested $8 million (£4 million) (2003 $8 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-2 to F-65. 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 POLICIES Refer to footnote 1 of the Financial Statements of Lucite International Group Holdings Limited.  3

SEGMENTAL REPORTING For a description of the Companys business and an analysis of turnover attributable to each
different class of business and a geographical analysis of turnover, refer to footnote 3 of the
financial statements of Lucite International Group Holdings Limited. F-80




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued) Operating profit, 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 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mOperating profitUpstream
    
    
    12
    
    
    
    55
    
    
    
    61Downstream
    
    
    15
    
    
    
    14
    
    
    
    11Operating profit
    
    
    27
    
    
    
    69
    
    
    
    72
 2003
    
    
    2004£m
    
    
    £mTotal assets less current liabilitiesUpstream
    
    
    321
    
    
    
    304Downstream
    
    
    156
    
    
    
    148Net operating assets
    
    
    477
    
    
    
    452Elimination of assets and liabilities that
are not attributable to types of business:Cash at bank and in hand
    
    
    20
    
    
    
    26Deferred taxation asset
    
    
    9
    
    
    
    14Bank and other borrowings (Note 13)
    
    
    (36
    )
    
    
    (36
    )470
    
    
    
    456Capital
expenditure  cash flowUpstream
    
    
    19
    
    
    
    12Downstream
    
    
    9
    
    
    
    628
    
    
    
    18
 The tangible fixed assets by geographical location of operating unit are as follows: 2003
    
    
    2004£m
    
    
    £mTangible fixed assets by geographical location of operating unitEurope
    
    
    147
    
    
    
    136Americas
    
    
    155
    
    
    
    139Asia
    
    
    22
    
    
    
    17Rest of world
    
    
    3
    
    
    
    3327
    
    
    
    295
 F-81




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)  4

COST OF SALES, GROSS PROFIT, DISTRIBUTION COSTS AND ADMINISTRATIVE EXPENSES Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mGroup turnover
    
    
    582
    
    
    
    694
    
    
    
    707Cost of sales
    
    
    (457
    )
    
    
    (532
    )
    
    
    (534
    )Gross profit
    
    
    125
    
    
    
    162
    
    
    
    173Distribution costs
    
    
    (45
    )
    
    
    (42
    )
    
    
    (44
    )Administrative costs,
amortisation of goodwill and
research and development costs
    
    
    (38
    )
    
    
    (37
    )
    
    
    (43
    )- amortisation of goodwill and
other intangible fixed assets
(note 9)
    
    
    (5
    )
    
    
    (5
    )
    
    
    (5
    )- research and development costs
    
    
    (10
    )
    
    
    (9
    )
    
    
    (9
    )Total administrative expenses
    
    
    (53
    )
    
    
    (51
    )
    
    
    (57
    )Net operating costs
    
    
    (98
    )
    
    
    (93
    )
    
    
    (101
    )Total operating costs
    
    
    (555
    )
    
    
    (625
    )
    
    
    (635
    )Group operating profit
    
    
    27
    
    
    
    69
    
    
    
    72
  5

STAFF COSTS Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mStaff costsSalaries
    
    
    61
    
    
    
    61
    
    
    
    58Social security costs
    
    
    5
    
    
    
    5
    
    
    
    5Pension and post retirement benefit costs
    
    
    7
    
    
    
    11
    
    
    
    8Other employment costs
    
    
    3
    
    
    
    3
    
    
    
    4Employee costs charged in arriving at profit before taxation
    
    
    76
    
    
    
    80
    
    
    
    75
 F-82




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED 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 31,2002
    
    
    2003
    
    
    2004Number
    
    
    Number
    
    
    NumberUpstream
    
    
    680
    
    
    
    676
    
    
    
    700Downstream
    
    
    1,320
    
    
    
    1,306
    
    
    
    1,3172,000
    
    
    
    1,982
    
    
    
    2,017Europe
    
    
    828
    
    
    
    811
    
    
    
    828Americas
    
    
    531
    
    
    
    515
    
    
    
    493Asia
    
    
    454
    
    
    
    462
    
    
    
    509Rest of World
    
    
    187
    
    
    
    194
    
    
    
    1872,000
    
    
    
    1,982
    
    
    
    2,017
 December 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004Number
    
    
    Number
    
    
    NumberNumber of employees at period end
    
    
    1,993
    
    
    
    1,995
    
    
    
    2,024
  6

PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION Refer to footnote 6 of the financial statements of Lucite International Group Holdings Limited.  7

NET INTEREST PAYABLE Refer to footnote 7 of the financial statements of Lucite International Group Holdings Limited.  8

TAXATION ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES Refer to footnote 8 of the financial statements of Lucite International Group Holdings Limited. F-83




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)  9

INTANGIBLE FIXED ASSETS Refer to footnote 9 of the financial statements of Lucite International Group Holdings Limited.  10

TANGIBLE FIXED ASSETS Paymentson accountand assets inLand and
    
    
    Plant and
    
    
    the course ofbuildings
    
    
    equipment
    
    
    construction
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mCostAt 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
    
    
    
    773Capital expenditure
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18Transfers of assets into
use
    
    
    
    
    
    
    14
    
    
    
    (14
    )
    
    
    Exchange adjustments
    
    
    (1
    )
    
    
    (12
    )
    
    
    (1
    )
    
    
    (14
    )Disposals
    
    
    (2
    )
    
    
    (21
    )
    
    
    
    
    
    
    (23
    )At December 31, 2004
    
    
    37
    
    
    
    679
    
    
    
    38
    
    
    
    754Accumulated depreciationAt December 31, 2002
    
    
    14
    
    
    
    405
    
    
    
    
    
    
    
    419Charge for year
    
    
    1
    
    
    
    38
    
    
    
    
    
    
    
    39Exchange movement
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Disposals
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )At December 31, 2003
    
    
    15
    
    
    
    431
    
    
    
    
    
    
    
    446Charge for year
    
    
    1
    
    
    
    38
    
    
    
    
    
    
    
    39Exchange movement
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Disposals
    
    
    (2
    )
    
    
    (21
    )
    
    
    
    
    
    
    (23
    )At December 31, 2004
    
    
    14
    
    
    
    445
    
    
    
    
    
    
    
    459Net book amounts atDecember 31, 2002
    
    
    28
    
    
    
    282
    
    
    
    48
    
    
    
    358December 31, 2003
    
    
    25
    
    
    
    267
    
    
    
    35
    
    
    
    327December 31, 2004
    
    
    23
    
    
    
    234
    
    
    
    38
    
    
    
    295
 Included in land and buildings is £6 million (2003: £7 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
(2003: £3 million) comprising cost of £5 million (2003: £5 million) less accumulated depreciation
of £2 million (2003: £2 million). The depreciation charge for the year in respect of capitalised
finance leases was £0.4 million (2003: £0.4 million). 2003
    
    
    2004£m
    
    
    £mAnalysis of net book amount of land and buildingsFreehold
    
    
    22
    
    
    
    21Long leasehold (over 50 years unexpired)
    
    
    3
    
    
    
    225
    
    
    
    23
 F-84




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)  11

STOCKS Refer to footnote 11 of the financial statements of Lucite International Group Holdings Limited.  12

DEBTORS Refer to the footnote 12 of the financial statements of Lucite International Group Holdings
Limited.  13

CREDITORSAMOUNTS FALLING DUE WITHIN ONE YEAR 2003
    
    
    2004£m
    
    
    £mBank and other borrowings (note 15)
    
    
    12
    
    
    
    18Trade creditors
    
    
    60
    
    
    
    76Intra-group financing
    
    
    24
    
    
    
    18Other creditors
    
    
    19
    
    
    
    22Accruals
    
    
    22
    
    
    
    19137
    
    
    
    153
  14

CREDITORSAMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 2003
    
    
    2004£m
    
    
    £mBank and other borrowings (note 15)
    
    
    328
    
    
    
    287Finance leases (note 16)
    
    
    4
    
    
    
    3332
    
    
    
    290
  15

BANK AND OTHER BORROWINGS The senior credit facilities as described in footnote 15 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 apart from the China bank loan as described in footnote 15 to the financial statements
of Lucite International Group Holdings Limited are obligations of the Company. Refer to footnote 15
of the financial statements of Lucite International Group Holdings Limited for a complete
description of the senior credit facilities and senior notes. F-85




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued) 2003
    
    
    2004£m
    
    
    £mSenior Credit Facilities:Term Loan A
    
    
    37
    
    
    
    24Term Loan B
    
    
    69
    
    
    
    68Term Loan C
    
    
    45
    
    
    
    41Revolving Credit Facility
    
    
    19
    
    
    
    Senior notes
    
    
    176
    
    
    
    177Unamortised senior notes premium
    
    
    2
    
    
    
    1Unamortised issue costs
    
    
    (8
    )
    
    
    (6
    )340
    
    
    
    305
 Maturity analysis of bank and other borrowings
The maturity analysis of the Companys bank and other borrowings is as follows: 2003
    
    
    2004£m
    
    
    £mWithin 1 year or on demand
    
    
    12
    
    
    
    18Between 1 and 2 years
    
    
    12
    
    
    
    11Between 2 and 5 years
    
    
    146
    
    
    
    104Over 5 years
    
    
    176
    
    
    
    177346
    
    
    
    310Unamortised senior notes premium
    
    
    2
    
    
    
    1Unamortised issue costs
    
    
    (8
    )
    
    
    (6
    )340
    
    
    
    305
  16

FINANCE LEASES Refer to footnote 16 of the financial statements of Lucite International Group Holdings Limited.  17

PROVISIONS FOR LIABILITIES AND CHARGES Refer to footnote 17 of the financial statements of Lucite International Group Holdings Limited.  18

CALLED UP EQUITY SHARE CAPITAL Number
    
    
    £mOrdinary shares of £1 each
    
    
    115,300,999
    
    
    
    115Share premium
    
    
    
    
    
    
    27142
 F-86




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)  19

FOREIGN EXCHANGE AND INTEREST RATE DISCLOSURE Refer to footnote 19 of the financial statements of Lucite International Group Holdings Limited for
information relating to foreign exchange disclosure, borrowing facilities, and additional
disclosure relating to fixed rate financial liabilities. As at December 31, 2003 and 2004 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, 2003Floating rate
    
    
    Fixed rate
    
    
    December 31,financial
    
    
    financial
    
    
    2003liabilities
    
    
    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
 At December 31, 2004Floating rate
    
    
    Fixed rate
    
    
    December 31,financial
    
    
    financial
    
    
    2004liabilities
    
    
    liabilities
    
    
    Total£m
    
    
    £m
    
    
    £mCurrencyEuro
    
    
    59
    
    
    
    178
    
    
    
    237US Dollars
    
    
    74
    
    
    
    3
    
    
    
    77133
    
    
    
    181
    
    
    
    314Unamortised issue costs
    
    
    (2
    )
    
    
    (4
    )
    
    
    (6
    )At December 31, 2004
    
    
    131
    
    
    
    177
    
    
    
    308
 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-87




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued) Interest rate risk of financial assets 2003
    
    
    2004Cash at bank
    
    
    Cash at bankand in hand
    
    
    and in handCurrency
    
    £m
    
    
    £mSterling
    
    
    
    
    
    
    US Dollars
    
    
    4
    
    
    
    6Euro
    
    
    1
    
    
    
    1Other currencies
    
    
    15
    
    
    
    19At December, 31
    
    
    20
    
    
    
    26Floating rate
    
    
    8
    
    
    
    14Fixed rate
    
    
    12
    
    
    
    12At December, 31
    
    
    20
    
    
    
    26
 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, 2003 and 2004 were: 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
 December 31, 2004Debt
    
    
    Finance leases
    
    
    Total£m
    
    
    £m
    
    
    £mIn one year or less or on demand
    
    
    18
    
    
    
    
    
    
    
    18In more than one year but not more than two years
    
    
    11
    
    
    
    
    
    
    
    11In more than two years but not more than five years
    
    
    104
    
    
    
    2
    
    
    
    106In more than five years
    
    
    177
    
    
    
    3
    
    
    
    180310
    
    
    
    5
    
    
    
    315Less: amounts representing interest relating to future periods
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Unamortised senior notes premium
    
    
    1
    
    
    
    
    
    
    
    1Unamortised issue costs
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )305
    
    
    
    3
    
    
    
    308
 F-88




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED 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, 2004. December 31, 2003
    
    
    December 31, 2004Book 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
    
    
    12
    
    
    
    12
    
    
    
    18
    
    
    
    18Long-term borrowings
    
    
    340
    
    
    
    361
    
    
    
    296
    
    
    
    309
 The fair value of fixed rate debt instruments is determined by reference to market prices of
those instruments. 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, 2003OtherSterling
    
    
    US dollars
    
    
    Euros
    
    
    Currencies
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFunctional currency:Sterling
    
    
    
    
    
    
    (89
    )
    
    
    (228
    )
    
    
    
    
    
    
    (317
    )US dollars
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Euro
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Other currencies
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6Total
    
    
    (1
    )
    
    
    (82
    )
    
    
    (228
    )
    
    
    3
    
    
    
    (308
    )
 Net foreign currency monetary assets/(liabilities) at December 31, 2004OtherSterling
    
    
    US dollars
    
    
    Euros
    
    
    Currencies
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFunctional currency of operation:Sterling
    
    
    
    
    
    
    (85
    )
    
    
    (236
    )
    
    
    
    
    
    
    (321
    )US dollars
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Euro
    
    
    1
    
    
    
    (1
    )
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Other currencies
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Total
    
    
    1
    
    
    
    (78
    )
    
    
    (238
    )
    
    
    3
    
    
    
    (312
    )
 F-89




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)  20

NOTES TO THE CASH FLOW STATEMENT  (a)

Net cash inflow from operating activities Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mOperating profit
    
    
    27
    
    
    
    69
    
    
    
    72Depreciation and amortisation
    
    
    45
    
    
    
    44
    
    
    
    44Stocks (increase)/decrease
    
    
    (9
    )
    
    
    (2
    )
    
    
    (23
    )Debtors (increase)/decrease
    
    
    (11
    )
    
    
    (18
    )
    
    
    (10
    )Creditors increase/(decrease)
    
    
    6
    
    
    
    2
    
    
    
    18Other movements
    
    
    (1
    )
    
    
    (1
    )
    
    
    (4
    )Cash inflow from operating activities
    
    
    57
    
    
    
    94
    
    
    
    97
  (b)

Returns on investments and servicing of finance Refer to footnote 20(b) of the financial statements of Lucite International Group Holdings Limited.  (c)

Capital expenditure and financial investment Year ended
    
    
    Year ended
    
    
    Year endedDecember 31
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mPurchase of tangible fixed assets
    
    
    (28
    )
    
    
    (28
    )
    
    
    (18
    )(28
    )
    
    
    (28
    )
    
    
    (18
    )
  (d)

Financing Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mMovement in debt due within 1 year
    
    
    (15
    )
    
    
    (19
    )
    
    
    (18
    )Movement in debt due after one year
    
    
    (6
    )
    
    
    (33
    )
    
    
    (19
    )Issue of debt due after more than one
year
    
    
    15
    
    
    
    37
    
    
    
    Cash (outflow)/inflow from financing
    
    
    (6
    )
    
    
    (15
    )
    
    
    (37
    )
 F-90




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)  (e)

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 2003
    
    
    7
    
    
    
    (326
    )
    
    
    (46
    )
    
    
    (4
    )
    
    
    (369
    )Cash flow
    
    
    14
    
    
    
    (4
    )
    
    
    19
    
    
    
    
    
    
    
    29Other
non-cash changes
    
    
    
    
    
    
    10
    
    
    
    (9
    )
    
    
    
    
    
    
    1Exchange movement
    
    
    (1
    )
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )At January 1, 2004
    
    
    20
    
    
    
    (328
    )
    
    
    (36
    )
    
    
    (4
    )
    
    
    (348
    )Cash flow
    
    
    7
    
    
    
    19
    
    
    
    18
    
    
    
    
    
    
    
    44Other
non-cash changes
    
    
    
    
    
    
    17
    
    
    
    (18
    )
    
    
    
    
    
    
    (1
    )Exchange movement
    
    
    (1
    )
    
    
    5
    
    
    
    
    
    
    
    1
    
    
    
    5At December 31, 2004
    
    
    26
    
    
    
    (287
    )
    
    
    (36
    )
    
    
    (3
    )
    
    
    (300
    )
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mIncrease/(decrease) in cash in the year
    
    
    (9
    )
    
    
    14
    
    
    
    7Cash flows from movements in debt and lease
financing
    
    
    5
    
    
    
    10
    
    
    
    31Cash flows from inter-group financing
    
    
    1
    
    
    
    5
    
    
    
    6Exchange movement
    
    
    (2
    )
    
    
    (9
    )
    
    
    5Other non-cash changes
    
    
    (2
    )
    
    
    1
    
    
    
    (1
    )Movement in net debt
    
    
    (7
    )
    
    
    21
    
    
    
    48Opening net debt
    
    
    (362
    )
    
    
    (369
    )
    
    
    (348
    )Closing net debt
    
    
    (369
    )
    
    
    (348
    )
    
    
    (300
    )
  21

PENSIONS AND OTHER POST RETIREMENT BENEFITS Refer to footnote 21 of the financial statements of Lucite International Group Holdings Limited.  22

RELATED PARTY TRANSACTIONS Refer to footnote 22 of the financial statements of Lucite International Group Holdings Limited. F-91




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)  23

CONTINGENT LIABILITIES AND COMMITMENTS 2003
    
    
    2004£m
    
    
    £mCommitments for capital expenditure not provided for:Contracts placed for future expenditure
    
    
    8
    
    
    
    8Expenditure authorised but not yet contracted
    
    
    2
    
    
    
    3210
    
    
    
    40
 Refer to footnote 23 of the financial statements of Lucite International Group Holdings
Limited for further disclosures regarding legal proceedings.  24

OPERATING LEASE COMMITMENTS At December 31, 2004 the Group had commitments to make payments under operating leases as follows: 2003
    
    
    2004Other
    
    
    
    
    
    
    OtherLand and
    
    
    Operating
    
    
    Land and
    
    
    OperatingBuildings
    
    
    Leases
    
    
    Buildings
    
    
    Leases£m
    
    
    £m
    
    
    £m
    
    
    £mAnnual commitments
under non-cancellable
operating leases
expiring:Within one year
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Within two to five years
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    1After five years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1
    
    
    
    2
 F-92




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)  25

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. Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,Note
    
    2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mProfit/(loss) for the financial year under UK GAAP
    
    
    
    
    (3
    )
    
    
    22
    
    
    
    41Adjustments to conform with US GAAP- depreciation of fixed assets
    
    (ia)
    
    
    6
    
    
    
    6
    
    
    
    6- amortisation of other intangibles
    
    (ib)
    
    
    (13
    )
    
    
    (12
    )
    
    
    (10
    )- amortisation of goodwill
    
    (ic)
    
    
    5
    
    
    
    5
    
    
    
    5Pensions
    
    (ii)
    
    
    (2
    )
    
    
    (2
    )
    
    
    (5
    )Capitalisation of interest less amortisation
    
    (iii)
    
    
    3
    
    
    
    2
    
    
    
    3Capitalisation of loan issue fees less
amortisation
    
    (iv)
    
    
    1
    
    
    
    (1
    )
    
    
    Foreign exchange (loss)/gain on debt
    
    (v)
    
    
    (13
    )
    
    
    (9
    )
    
    
    (1
    )Fair value of derivative financial instruments
    
    (vi)
    
    
    
    
    
    
    1
    
    
    
    (1
    )Deferred taxation- arising on UK GAAP results
    
    (vii)
    
    
    15
    
    
    
    3
    
    
    
    (14
    )- arising on other US GAAP adjustments
    
    (vii)
    
    
    2
    
    
    
    
    
    
    
    3Net profit for the financial year under US GAAP
    
    
    
    
    1
    
    
    
    15
    
    
    
    27
  (b)

Approximate effect on and consolidated shareholders funds of differences between UK GAAP
and US GAAP Notes
    
    
    2003
    
    
    2004£m
    
    
    £mConsolidated shareholders funds under UK GAAP
    
    
    
    
    
    
    101
    
    
    
    135Business combinations
    
    
    
    
    
    
    (21
    )
    
    
    (20
    )Exchange translation differences on goodwill and intangible
assets
    
    
    
    
    
    
    (9
    )
    
    
    (4
    )Pensions
    
    
    
    
    
    
    (6
    )
    
    
    (10
    )Capitalisation of interest less amortisation
    
    
    
    
    
    
    9
    
    
    
    12Fair value of derivative financial instruments
    
    
    
    
    
    
    1
    
    
    
    Deferred taxation
    
    
    
    
    
    
    30
    
    
    
    19Consolidated Shareholders funds under US GAAP
    
    
    
    
    
    
    105
    
    
    
    132
 F-93




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)  (c)

Notes to the income statement and net asset reconciliation Refer to footnote 25(c) of the financial statements of Lucite International Group Holdings Limited.  (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.
Under US GAAP, the following amounts would have been reported: Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2002
    
    
    2003
    
    
    2004£m
    
    
    £m
    
    
    £mNet cash provided by operating activitiesUnder UK GAAP
    
    
    57
    
    
    
    94
    
    
    
    97Taxation paid
    
    
    (4
    )
    
    
    (4
    )
    
    
    (6
    )Returns from investments and servicing of
finance (excluding interest paid and
capitalised)
    
    
    (26
    )
    
    
    (31
    )
    
    
    (26
    )Under US GAAP
    
    
    27
    
    
    
    59
    
    
    
    65Net cash used in investing activitiesCapitalised interest
    
    
    2
    
    
    
    2
    
    
    
    3Capital expenditure and financial investment
    
    
    28
    
    
    
    32
    
    
    
    18Under US GAAP
    
    
    30
    
    
    
    34
    
    
    
    21
  (e)

Lucite International Share Option Plan Refer to footnote 25(e) of the financial statements of Lucite International Group Holdings Limited.  (f)

Additional US GAAP disclosures Refer to footnote 25(f) of the financial statements of Lucite International Group Holdings Limited. F-94




---



##### Table of Contents



LUCITE INTERNATIONAL HOLDCO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)  26

LIST OF PRINCIPAL SUBSIDIARY COMPANIES INCLUDED IN THE LUCITE INTERNATIONAL HOLDCO LIMITED
CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2004 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 Speciality Polymers and Resins 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 Holdco1 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 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 US Delaware Holdings LLC
    
    USA
    
    100Lucite International US Group Holdings LLC
    
    USA
    
    100Lucite International US Investment Holdings LLC
    
    USA
    
    100Lucite International US Investment Limited
    
    UK
    
    100Lucite International (Shanghai) Trading Co Limited
    
    China
    
    100
  27

CONTROLLING PARTIES Refer to footnote 27 of the financial statements of Lucite International Group Holdings Limited. F-95