Managed Service Provider Income Statement - Excel by kuz59397

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									Investcorp S.A.
Auditors’ report to the shareholders


We have audited the accompanying consolidated balance sheet of Investcorp S.A. (the Company) and its subsidiaries (the Group) as of
December 31, 2001, and the related consolidated statements of income, changes in shareholders’ funds and cash flows for the year then ended.
These financial statements are the responsibility of the Company’s Board of Directors. Our responsibility is to express an opinion on these
financial statements based on our audit.
   We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
   In our opinion the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of
December 31, 2001 and the results of its operations and its cash flows for the year then ended in accordance with International
Accounting Standards.



Luxembourg                                           Ernst & Young
January 7, 2002                                      Société Anonyme
                                                     Réviseurs d’entreprises




                                                     Kenneth A. Hay
Investcorp S.A.
Consolidated balance sheet
December 31, 2001



($ thousands)                                                                                          Note        2001         2000

Assets
Cash and short-term funds                                                                                        24,151        4,215
Deposits with banks                                                                                              34,014       51,268
Managed funds                                                                                             4   1,529,539    1,301,167
Accounts receivable                                                                                       5     328,855      197,273
Accrued interest and other assets                                                                         6     101,611      116,180
Investments                                                                                               7   1,286,872    1,186,088
Fixed assets                                                                                              9      33,387       35,321
Total assets                                                                                                  3,338,429    2,891,512



Liabilities and shareholders’ funds
Liabilities
Deposits from clients and Islamic financing                                                                     594,959      640,990
Accrued interest and other payables                                                                      10     146,951      115,231
Medium-term facilities                                                                                   11     925,000      660,000
Long-term notes                                                                                          12     752,063      639,526
Total liabilities                                                                                             2,418,973    2,055,747

Shareholders’ funds
Preference share capital                                                                                 13     200,000            –
Ordinary share capital                                                                                   13     100,000      100,000
Reserves                                                                                                         80,304       79,079
Retained earnings                                                                                               623,044      621,001
Proposed ordinary share dividend                                                                         14      36,914       30,000
Proposed preference share dividend                                                                       14       5,205            –
Fair value adjustments                                                                                   15    (126,011)       5,685
Total shareholders’ funds                                                                                       919,456      835,765
Total liabilities and shareholders’ funds                                                                     3,338,429    2,891,512
The attached notes 1 to 27 form part of these financial statements.




Abdul-Rahman Salim Al-Ateeqi                                          Nemir A. Kirdar
Chairman                                                              President and Chief Executive Officer
Investcorp S.A.
Consolidated statements of income and changes in shareholders’ funds
For the year ended December 31, 2001



($ thousands)                                                          Note        2001       2000

Consolidated statement of income
Interest income                                                                 50,995      83,552
Income from managed funds                                                      119,163     184,405
Gross asset-based income                                                       170,158     267,957
Interest expense                                                               132,843     164,156
Net asset-based income                                                          37,315     103,801
Investment-related income                                               16     206,886     202,671
Provisions for investments                                               8      75,794     118,434
Net investment-related income                                                  131,092      84,237
Operating income                                                               168,407     188,038
Staff compensation and benefits                                                 68,827      70,408
Professional fees                                                               16,528      10,877
Travel and business development                                                  9,843       9,130
Administration                                                                   8,850      13,123
Corporate information                                                            1,298       1,965
Technology and communication                                                     3,156       2,488
Premises                                                                         7,380       7,653
Other                                                                            2,403       2,355
Operating expenses                                                             118,285     117,999
Net income before appropriation expenses                                        50,122      70,039
Less:
Appropriation expenses incurred at parent level                                  2,662       3,141
Net income for the year                                                         47,460      66,898

Consolidated statement of changes in shareholders’ funds
Preference shares issued during the year                                13     200,000           –
Ordinary share capital                                                  13     100,000     100,000
Legal reserve at beginning of the year                                          29,079      29,079
Add:
Transfer from retained earnings                                                  1,225           –
Legal reserve at end of the year                                        17      30,304      29,079
General reserve                                                         18      50,000      50,000
Reserves                                                                        80,304      79,079
Retained earnings at beginning of the year                                     621,001     584,103
Net income for the year                                                         47,460      66,898
Less:
Proposed preference share dividend                                      14        5,205          –
Proposed ordinary share dividend                                        14       36,914     30,000
Preference share issue expenses                                                   2,073          –
Transfer to legal reserve                                                         1,225          –
Retained earnings at end of the year                                            623,044    621,001
Proposed dividends                                                               42,119     30,000
Shareholders’ funds before fair value adjustments                             1,045,467    830,080
Fair value adjustments at beginning of the year                                   5,685          –
Movements during the year                                                      (131,696)     5,685
Fair value adjustments at end of the year                               15     (126,011)     5,685
Shareholders’ funds at end of the year                                          919,456    835,765
The attached notes 1 to 27 form part of these financial statements.
Investcorp S.A.
Consolidated statement of cash flows
For the year ended December 31, 2001



($ thousands)                                                                     2001        2000

Cash flow used in operating activities
Net income for the year                                                        47,460      66,898
Adjustments to reconcile net income to net cash:
Depreciation                                                                     4,458      4,542
Provisions for investments                                                      75,794    118,434
Net cash from operating activities before changes in managed funds             127,712    189,874
Increase in managed funds other than funds with enhanced cash managers        (214,245)   (72,024)
Net cash (used in) from operating activities after changes in managed funds    (86,533)   117,850

Changes in other operating assets and liabilities
(Increase) decrease in accounts receivable                                    (131,582)     57,075
Decrease (increase) in accrued interest and other assets                        14,569     (50,406)
Increase in investments                                                       (291,066)   (257,345)
Additions to fixed assets                                                       (2,660)     (8,623)
Disposals of fixed assets                                                          136         696
Decrease in deposits from banks                                                      –     (10,000)
Decrease in deposits from clients and Islamic financing                        (46,031)   (117,383)
Increase (decrease) in accrued interest and other payables                      14,512     (59,150)
Net cash used in operating activities                                         (528,655)   (327,286)



Cash flow from (used in) financing activities
Medium-term facilities repaid                                                 (160,000)   (475,000)
Medium-term facilities received                                                425,000     260,000
Long-term notes issued                                                         129,878     148,738
Long-term notes redeemed                                                       (17,341)          –
Preference shares issued                                                       200,000           –
Preference share issue expenses                                                 (2,073)          –
Dividends paid                                                                 (30,000)    (30,000)
Net cash from (used in) financing activities                                   545,464     (96,262)
Net increase (decrease) in cash and cash equivalents                            16,809    (423,548)
Cash and cash equivalents at beginning of the year                             246,200     669,748
Cash and cash equivalents at end of the year                                   263,009     246,200
                                                                                16,809    (423,548)

Cash and cash equivalents comprise
Cash and short-term funds                                                      24,151       4,215
Deposits with banks                                                            34,014      51,268
Funds with enhanced cash managers                                             204,844     190,717
                                                                              263,009     246,200
The attached notes 1 to 27 form part of these financial statements.
Investcorp S.A.
Notes to the consolidated financial statements
December 31, 2001




1. Incorporation and activities
Investcorp S.A. (the Company) is incorporated as a limited liability company in the Grand Duchy of Luxembourg and qualifies as a financial
holding company. Its registered office is at 4th Floor, 68-70 boulevard de la Petrusse, L -2320 Luxembourg, P.O. Box 1361,
L -1013 Luxembourg.
    The principal activities of the Company and its subsidiaries (the Group), are investment in, and advisory services relating to, money market
operations, corporate, real estate and technology investments, and managed funds. The consolidated financial statements are prepared in U.S.
dollars, this being the principal currency of the Group’s business.
    The Company is wholly owned by Investcorp Holdings Limited (incorporated in the Cayman Islands). Investcorp Bank E.C. (incorporated in
the State of Bahrain) is the parent company of Investcorp Holdings Limited. Audited consolidated financial statements are prepared separately
for Investcorp Bank E.C. and Investcorp Holdings Limited.
    The financial statements of the Group for the year ended December 31, 2001 were authorized for issue in accordance with the resolution
of the Board of Directors on January 6, 2002.



2. Significant accounting policies
The consolidated financial statements of the Company are prepared in accordance with International Accounting Standards and the
Interpretations of the Standing Interpretations Committee.
    The International Accounting Standard – (IAS) 39: Financial Instruments – Recognition and Measurement was implemented for the year
ended December 31, 2000.
    The following is a summary of the significant accounting policies adopted in preparing the consolidated financial statements.

a) Accounting convention
The consolidated financial statements are prepared under the historical cost convention as modified for the measurement at fair value of
managed funds, investments, hedged long-term notes and derivatives.

b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. The results of subsidiaries are
included in the consolidated statement of income from the effective date of formation or acquisition. All intercompany balances, transactions
and income have been eliminated on consolidation.
    Subsidiary companies formed or acquired with the intention of sale in the near future are not consolidated as control is intended to
be temporary.

c) Managed funds
Managed funds are classed as held-for-trading and are stated at market value at the balance sheet date. Gains and losses on sales and market
value adjustments are taken to income.

d) Accounts receivable
Provisions are made against accounts receivable as soon as they are considered doubtful.

e) Investments
All investments are initially recognized at cost, being the fair value of the consideration given including acquisition charges associated with
the investment.
    After initial recognition, “available-for-sale” investments are remeasured to fair value. Unrealized gains and losses arising from the
remeasurement to fair value of available-for-sale investments, after adjusting for illiquidity constraints, where appropriate, are reported as a
separate component of shareholders’ funds. When the investment is sold or otherwise disposed of, the cumulative gain or loss previously
reported in shareholders’ funds is included in the statement of income for the period.
    An assessment is made for all investments at the balance sheet date to determine whether there is objective evidence that an investment
may be impaired. If such evidence exists, the estimated recoverable amount of such investment is determined and any potential impairment
loss is recognized in the statement of income for the period.
    For investments actively traded in organized financial markets, fair value is generally determined by reference to quoted market prices at
the close of business on the balance sheet date.
    Holdings in unquoted investments that are available-for-sale are separated into two classes for the purpose of estimating fair values.
These classes are corporate and technology, and real estate investments.
    These investment classes are valued in accordance with the valuation policies set out below:
i) Corporate and technology investments
These investments are valued based on the projected sale value if an exit is imminent or negotiations for sale are in progress. Alternatively,
if a recent significant capitalization event involving third parties has occurred or is in progress, then the investment is valued at the valuation
implied by the event.
    In all other circumstances fair value is based on values derived from comparable companies.
ii) Real estate investments
These investments, which are held through investment holding companies, are generally valued based on discounted estimated future cash
flows of the underlying real estate assets.

f) Fixed assets and depreciation
Fixed assets are recorded at cost.
    The cost of fixed assets is depreciated by equal annual installments over their expected useful lives. Depreciation is charged from the date
the asset is commissioned.
g) Accruals for expenses and commitments
Accruals are made when the Group has a present obligation as a result of a past event, it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

h) Borrowings
Borrowings, represented by medium-term facilities and long-term notes, are recognized initially at cost, being their issue proceeds, net of
direct transaction costs incurred. Subsequently, borrowings are stated at amortized cost, and any difference between net proceeds and the
redemption value is recognized in the statement of income over the period of the borrowings. Hedge accounting rules are applied to
borrowings that are hedged.

i) Income
Interest receivable and payable are recognized on a time-proportion basis taking account of the principal outstanding and the rate applicable.
    Income from managed funds and investments held-for-trading is recognized on the basis of changes in the market value of the
underlying investments.
    Fees receivable and payable are recognized when earned.
    Realized capital gains on investments are taken to income at the time of disposal.

j) Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term funds, deposits with banks maturing within 90 days of the balance sheet date,
and funds with enhanced cash managers.

k) Trade date accounting
All regular way purchases and sales of financial assets are recognized on the “trade date”, i.e., the date that the entity commits to purchase
or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame
generally established by regulation or convention in the market place.

l) Foreign currencies
Foreign currency transactions are recorded at rates of exchange prevailing at the value dates of the transactions. Monetary assets and liabilities
in foreign currencies are retranslated at market rates of exchange prevailing at the balance sheet date. Gains and losses on translating assets
and liabilities which form part of a cash flow hedge are recognized directly in shareholders’ funds until the related asset or liability is disposed
of or settled, together with the gain or loss on the related and qualifying hedging instrument. Any other gains and losses are taken to income.

m) Fiduciary assets
Assets held in trust or in a fiduciary capacity are not treated as assets of the Group and accordingly are not included in the consolidated
balance sheet.

n) Derivative financial instruments
The Group enters into derivative instruments including futures, forwards, swaps, caps and options in the foreign exchange and capital markets.
Derivatives are stated at fair value. The fair value of a derivative is the equivalent of the unrealized gain or loss from marking to market the
derivative using prevailing market rates or internal pricing models. Derivatives with positive market values (unrealized gains) are included
in other assets and derivatives with negative market values (unrealized losses) are included in other payables in the balance sheet.
    The resultant gains and losses from derivatives held for trading purposes are included in the statement of income.
    For the purposes of hedge accounting, hedges are classified into two categories: (a) fair value hedges which hedge the exposure to
changes in the fair value of a recognized asset or liability; and (b) cash flow hedges, which hedge exposure to variability in cash flows that
is either attributable to a particular risk associated with a recognized asset or liability or a forecasted transaction.
    The Group’s criteria for a derivative financial instrument to be accounted for as a hedge include:
n the hedging instrument, the related hedged item, the nature of the risk being hedged and the risk management objective and strategy
    must be formally documented at the inception of the hedge;
n it must be clearly demonstrated that the hedge is expected to be highly effective in offsetting the changes in fair values or cash flows
    attributable to the hedged risk in the hedged item;
n the effectiveness of the hedge must be capable of being reliably measured; and
n the hedge must be assessed on an ongoing basis and determined to have actually been highly effective throughout the financial
    reporting period.
    In relation to fair value hedges which meet the conditions for hedge accounting, any gain or loss from remeasuring the hedging instrument
to fair value is recognized immediately in the statement of income. Any gain or loss on the hedged item attributable to the hedged risk is
adjusted against the carrying amount of the hedged item and recognized in the statement of income.
    In relation to cash flow hedges which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument
that is determined to be an effective hedge is recognized directly in shareholders’ funds and the ineffective portion is recognized in the
statement of income. For cash flow hedges affecting future transactions, the gains or losses which are recognized in shareholders’ funds are
transferred to the statement of income in the same period in which the hedged transaction affects the statement of income. Where the hedged
transaction results in the recognition of an asset or a liability, then at the time the asset or liability is recognized, the associated gains or losses
that had previously been recognized in shareholders’ funds are included in the initial measurement of the acquisition cost or other carrying
amount of the asset or liability.
    For hedges which do not qualify for hedge accounting, any gains or losses arising from changes in the fair value of the hedging instrument
are taken directly to the statement of income for the period.
    Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge
accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognized in shareholders’ funds is kept there until
the forecasted transaction occurs. Where the hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized
in equity is transferred to the statement of income. In the case of fair value hedges of interest-bearing financial instruments, any adjustment
relating to the hedge is amortized over the remaining term to maturity.
o) Employee benefit costs
Provision is made for amounts payable in accordance with contractual and statutory obligations and other benefit plans approved by the Board
of Directors.
p) Offsetting
Financial assets and financial liabilities are only offset and the net amount reported in the balance sheet when there is a legally enforceable right
to set off the recognized amounts and the Group intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously.



3. Subsidiary companies
The Company has the following significant wholly owned subsidiaries consolidated into these financial statements:

                                                                                                                                 Country of incorporation

Investcorp International Limited                                                                                                 England
Investcorp Securities Limited                                                                                                    England
Investcorp Financial and Investment Services S.A.                                                                                Switzerland
Investcorp International Inc.                                                                                                    U.S.
Investcorp Trading Limited                                                                                                       Cayman Islands
Investcorp Investment Holdings Limited                                                                                           Cayman Islands
Investcorp Funding Limited                                                                                                       Cayman Islands
Investcorp Management Services Limited                                                                                           Cayman Islands
Global Strategy Limited                                                                                                          Cayman Islands
Investcorp A.M.P. Limited                                                                                                        Cayman Islands
Invifin S.A.                                                                                                                     Luxembourg
Investcorp Ireland Financial Services Limited                                                                                    Ireland



4. Managed funds
($ thousands)                                                                                                                            2001           2000

Funds with enhanced cash managers                                                                                                   204,844        190,717
Funds with fixed income managers                                                                                                    328,337        240,932
Funds with hedge fund managers                                                                                                      996,358        869,518
                                                                                                                                  1,529,539      1,301,167

Managed funds represent funds placed for investment with external asset managers.
    The enhanced cash program deploys the Group’s excess short-term liquidity into highly liquid fixed income investments and targets returns
of $ LIBOR plus 100 basis points.
    Funds with fixed income managers are invested in high investment grade instruments. The objective of the fixed income program is to
outperform $ LIBOR by several percentage points.
    Funds with hedge fund managers are invested in stocks, derivatives, bonds and other liquid instruments with the objective of generating
superior returns on a risk-adjusted basis through a portfolio having a diversified profile. The underlying assets in this program have a lower
standard deviation or volatility of returns than similar traditional asset classes.



5. Accounts receivable
($ thousands)                                                                                                                            2001           2000

Subscriptions receivable                                                                                                            252,514         88,803
Managed funds fees receivable                                                                                                         5,654          3,831
Management fees and other receivables                                                                                                70,687        104,639
                                                                                                                                    328,855        197,273



6. Accrued interest and other assets
($ thousands)                                                                                                                            2001           2000

Accrued interest receivable                                                                                                          10,477         17,067
Prepaid expenses                                                                                                                     13,162          7,065
Facilitated investment program                                                                                                       58,266         44,847
Fair value of derivatives (note 26)                                                                                                  12,892         15,385
Other assets                                                                                                                          6,814         31,816
                                                                                                                                    101,611        116,180

Facilitated investment program represents the amount invested in managed funds in connection with a facilitated investment program for
employees and carries interest at market rates.



7. Investments
These investments, held as available-for-sale, comprise the Group’s share in corporate, real estate and technology investments and are stated
net of provision for any impairment.
($ thousands)                                                                                                                            2001           2000

Investments – Short-term                                                                                                            439,605   357,317
Investments – Long-term                                                                                                             955,505   822,521
Fair value adjustments                                                                                                             (108,238)    6,250
                                                                                                                                  1,286,872 1,186,088
Short-term investments are comprised of investments for which placement is in progress at year-end and the Group’s share in corporate,
real estate and technology investments that are held with the intention of resale in the short- to medium-term depending on market conditions
prevailing. Long-term investments are comprised of the Group’s share in corporate, real estate and technology investments that are held with
the intention of sale in the longer term.
($ thousands)                                                                                                                      2001           2000

Short-term quoted investments                                                                                                  250,781     157,537
Short-term unquoted investments                                                                                                188,824     199,780
                                                                                                                               439,605     357,317

Long-term unquoted investments
Aspective                                                                                                                       24,615          25,065
The first European application service provider to offer integrated front office and e-commerce applications
via the Internet.
Avecia                                                                                                                          88,782          87,474
A leading worldwide manufacturer and marketer of specialty chemicals.
Callahan Broadband                                                                                                              18,401          15,749
A company formed for the purpose of acquiring broadband fixed wireless licenses.
Callahan German Cable                                                                                                           17,824          18,871
A company formed to pursue a strategy to benefit from the deregulation of the German Cable TV industry.
Carvel                                                                                                                          58,574          52,081
A manufacturer and distributor of ice cream and ice cream cakes in the eastern United States and California.
CityReach                                                                                                                             –         17,447
A European provider of secure internet infrastructure services.
Colo.com                                                                                                                              –         33,578
A provider of neutral office colocation facilities to telecom, Internet and application service providers.
Gerresheimer Glas                                                                                                               17,523          17,128
A world leader in tubular and specialty glass packaging.
Harborside                                                                                                                      55,531          37,915
A leading operator of long-term healthcare facilities in the eastern United States.
Helly Hansen                                                                                                                    29,158          28,877
A Norwegian manufacturer of outdoor apparel.
Independent Wireless One                                                                                                              –         25,127
A wireless telecommunication services provider in the north-eastern United States.
Jostens                                                                                                                         39,965          37,862
A leading manufacturer and distributor of school affinity products.
NationsRent                                                                                                                     61,780          42,970
The fourth largest equipment rental company in the United States.
Polestar                                                                                                                       195,606          60,326
The largest independent printing group in Europe.
Synthetic                                                                                                                       64,678          58,565
A leading U.S. manufacturer and marketer of polypropylene fabrics and fibers for the home furnishing,
construction, environmental and agricultural industries.
TelePacific                                                                                                                     55,320          53,054
A telecom service provider based on the west coast of the United States.
Welcome Break                                                                                                                   60,148          58,779
The second largest U.K. operator of motorway service areas, including the supply of fuel, catering, retailing
and lodging services on the motorway network.
Werner                                                                                                                          23,808          21,818
A U.S. manufacturer of climbing equipment and aluminum components.
Other                                                                                                                          143,792     129,835
This represents the Group’s share of real estate investments and other corporate and technology
investments of less than $10 million each.
                                                                                                                               955,505   822,521
Total investments before fair value adjustments                                                                              1,395,110 1,179,838
Fair value adjustments (note 15)                                                                                              (108,238)    6,250
Total investments after fair value adjustments                                                                               1,286,872 1,186,088

The Group’s management uses its best judgment in estimating the fair value of unquoted investments. The fair value estimates presented herein
are not necessarily indicative of an amount that the Group would realize in a current transaction and, because of the inherent uncertainty of
valuations, do not represent amounts that will be ultimately realized, since such amounts depend on future circumstances, and the differences
could be material.



8. Provisions for investments
The provisions for the impairment of investments, including related receivables, were as follows:
($ thousands)                                                                                                                      2001           2000

At January 1                                                                                                                    58,294      244,506
Charge for the year                                                                                                             75,794      118,434
Other movement                                                                                                                  28,867            –
Written off                                                                                                                    (75,922)    (304,646)
At December 31                                                                                                                  87,033       58,294
The gross carrying value of the investments, including related receivables, against which the above provisions are carried was $148 million at
December 31, 2001 (2000: $113 million). Other movement represents transfer of provision against receivables that have been capitalized during
the year.



9. Fixed assets
The estimated useful lives of fixed assets for the calculation of depreciation are as follows:
Leasehold and buildings improvements                                                                                                           10-15 years
Operating assets                                                                                                                                3-10 years

                                                                                                                 Leasehold and
                                                                                                                       buildings   Operating
($ thousands)                                                                                                     improvements       assets           Total

Cost
At December 31, 2000                                                                                                   41,298       22,081         63,379
Additions during the year                                                                                               2,094          566          2,660
Cost of disposals                                                                                                        (119)      (1,882)        (2,001)
At December 31, 2001                                                                                                   43,273       20,765         64,038

Depreciation
At December 31, 2000                                                                                                   11,626       16,432         28,058
Charge for the year                                                                                                     2,208        2,250          4,458
Relating to disposals                                                                                                     (30)      (1,835)        (1,865)
At December 31, 2001                                                                                                   13,804       16,847         30,651

Net book amounts
At December 31, 2000                                                                                                   29,672        5,649         35,321
At December 31, 2001                                                                                                   29,469        3,918         33,387



10. Accrued interest and other payables
($ thousands)                                                                                                                          2001           2000

Accrued interest payable                                                                                                            15,993          6,357
Deferred income                                                                                                                      4,429          3,810
Loan                                                                                                                                 4,499          4,251
Provision for guarantees and commitments                                                                                               554          5,634
Accrued expenses and other payables                                                                                                 78,564         66,744
Fair value of derivatives (note 26)                                                                                                 42,912         28,435
                                                                                                                                   146,951        115,231



11. Medium-term facilities
The amounts outstanding at the year-end represent the utilized portion under the following facilities:
($ thousands)                                                                                                                          2001           2000

Term facilities
a) Two-year $75 million Murabaha which matured in July 2001                                                                              –         75,000
b) Five-year $250 million Eurodollar term facility maturing in May 2003                                                            250,000        250,000
c) Five-year $175 million Eurodollar term facility maturing in April 2005                                                          175,000        175,000
d) Five-year $75 million Eurodollar term facility maturing in June 2006                                                             75,000         75,000
e) Five-year $225 million Eurodollar term facility maturing in July 2006                                                           225,000              –

Revolving facilities
a) Five-year $175 million Eurodollar revolving facility maturing in April 2005                                                           –         85,000
b) Five-year $75 million Eurodollar revolving facility maturing in June 2006                                                             –              –
c) Five-year $225 million Eurodollar revolving facility maturing in July 2006                                                      200,000              –
                                                                                                                                   925,000        660,000

The facilities are the joint and several responsibility of Investcorp Bank E.C. and the Company.
   The Eurodollar facilities carry $ LIBOR based floating rates of interest. Consistent with the covenants contained in these facilities, at least
95% of the consolidated assets of Investcorp Bank E.C. are held through the Company or in companies that are owned directly or indirectly by
the Company.
Investcorp S.A.
Notes to the consolidated financial statements
December 31, 2001




12. Long-term notes
The amounts outstanding at year-end represent the following guaranteed notes, which carry fixed rates of interest.
                                                                                         Currency of                 Interest rate
($ thousands)                                                                                  issue     Maturity      per annum           2001         2000
European Bonds                                                                                Euro     Jun-2006           5.75%       169,855       191,215
Series A Guaranteed Senior Notes                                                              USD      Oct-2005           7.29%        37,000        37,000
Series B Guaranteed Senior Notes                                                              USD      Oct-2008           7.54%       143,000       143,000
Series A Guaranteed Senior Notes                                                              USD      May-2009           7.50%        55,000        55,000
Series B Guaranteed Senior Notes                                                              USD      May-2011           7.70%        15,000        15,000
Guaranteed Senior Notes                                                                       GBP      Jan-2010           7.22%        36,385        37,328
Guaranteed Senior Notes                                                                       GBP      Sep-2011           7.35%        29,331             –
Private placement                                                                             JPY      Mar-2030           3.50%       266,492       160,983
                                                                                                                                      752,063       639,526

The above represent amounts received from Investcorp Capital Limited, a related party, arising from its issue of long-term notes. The
tenure, interest and repayment terms attached to these long-term notes are as stated above.
   All the above notes have been unconditionally and irrevocably guaranteed by the Company and Investcorp Bank E.C., and are their joint
and several responsibility.



13. Share capital
At January 1, 2001, the subscribed share capital comprised 10 million ordinary shares of $10 each, which were fully paid.
    Following a resolution of the shareholders at an Extraordinary meeting held on September 28, 2001, the 10 million ordinary shares of
$10 each were redesignated to 100,000 ordinary shares of $1,000 each. On the same date, the subscribed share capital was increased by
200,000 Series A redeemable preference shares of $1,000 each which were issued, subscribed and fully paid.
    The preference shares are non-cumulative, non-participating and perpetual in nature and carry a dividend of 10% per annum up to
December 31, 2006. Thereafter the annual dividend will be reset at a floating rate equal to 12 month $ LIBOR plus a margin of 4.08%.
These shares take priority over the Company’s ordinary shares for the payment of dividends and the distribution of assets in the event of
a liquidation or dissolution of the Company.



14. Proposed dividends
The directors have proposed dividends of $5 million for preference shares and $37 million for ordinary shares relating to the year ended
December 31, 2001, for formal approval at the annual general meeting.



15. Fair value adjustments                                                                                                             Available
                                                                                                                       Cash flow         for sale
($ thousands)                                                                                                            hedges      investments        Total

Balance at January 1, 2000                                                                                                  (29)             –           (29)
Net realized losses                                                                                                          29              –            29
Net unrealized (losses) gains                                                                                              (565)         6,250         5,685
Balance at December 31, 2000                                                                                               (565)         6,250         5,685

Net realized losses (gains)                                                                                                565        (14,799)       (14,234)
Net unrealized losses                                                                                                  (17,773)       (99,689)      (117,462)
Balance at December 31, 2001                                                                                           (17,773)      (108,238)      (126,011)



16. Investment related income

($ thousands)                                                                                                                              2001         2000

Acquisition income                                                                                                                    110,758        126,448
Exit income                                                                                                                            58,133         62,910
Managed funds fees                                                                                                                     19,289         12,161
Management fees and other income                                                                                                       18,706          1,152
                                                                                                                                      206,886        202,671
17. Legal reserve
Luxembourg companies are required to transfer to legal reserve a minimum of 5% of the unconsolidated annual net income, after
deducting any losses brought forward, until this reserve equals 10% of the nominal value of the issued share capital. This reserve, up to
10% of issued capital, may not be distributed in the form of cash dividends, or otherwise, during the life of the Company.



18. General reserve
The general reserve is only distributable following a special resolution of the annual general meeting.



19. Maturity profile of assets and liabilities
The maturity profile of assets and liabilities at the year-end determined on the basis of the remaining contractual maturity from that date,
where applicable, was as follows:


                                                                                                 Up to    3 months to     1 year to         Over
($ thousands)                                                                                 3 months        1 year       5 years       5 years        Total
2001
Assets
Cash and short-term funds                                                                     24,151             –              –            –        24,151
Deposits with banks                                                                           34,014             –              –            –        34,014
Managed funds                                                                              1,130,560       372,742         26,237            –     1,529,539
Accounts receivable                                                                          294,385        34,470              –            –       328,855
Accrued interest and other assets                                                             12,807        59,938         22,742        6,124       101,611
Investments                                                                                        –       224,622      1,062,250            –     1,286,872
Fixed assets                                                                                       –             –              –       33,387        33,387
Total assets                                                                               1,495,917       691,772      1,111,229       39,511     3,338,429

Liabilities
Deposits from clients and Islamic financing                                                  564,533              –             –       30,426       594,959
Accrued interest and other payables                                                          123,759          3,868        19,324            –       146,951
Medium-term facilities                                                                             –              –       925,000            –       925,000
Long-term notes                                                                                    –              –       206,855      545,208       752,063
Total liabilities                                                                            688,292          3,868     1,151,179      575,634     2,418,973

2000
Assets
Cash and short-term funds                                                                      4,215             –              –            –         4,215
Deposits with banks                                                                           51,268             –              –            –        51,268
Managed funds                                                                                965,702       292,614         42,851            –     1,301,167
Accounts receivable                                                                          162,805        34,468              –            –       197,273
Accrued interest and other assets                                                             15,841        93,337          1,390        5,612       116,180
Investments                                                                                        –       113,408      1,072,680            –     1,186,088
Fixed assets                                                                                       –             –              –       35,321        35,321
Total assets                                                                               1,199,831       533,827      1,116,921       40,933     2,891,512

Liabilities
Deposits from clients and Islamic financing                                                  608,864             –             –        32,126       640,990
Accrued interest and other payables                                                           93,927        17,481         3,823             –       115,231
Medium-term facilities                                                                             –        75,000       585,000             –       660,000
Long-term notes                                                                                    –             –        37,000       602,526       639,526
Total liabilities                                                                            702,791        92,481       625,823       634,652     2,055,747



20. Interest rate risk management
The Group closely monitors interest rate movements, and seeks to limit its exposure to such movements by managing the interest rate
and maturity structure of assets and liabilities, including use of the value-at-risk methodology. To the extent that such measures are
insufficient to avoid mismatches, the Group uses financial futures, swaps and other off-balance sheet financial instruments. In addition,
the management regularly reviews the Group’s overall asset and liability structure.
   The Group’s interest rate sensitivity position at the year-end, determined on the basis of the earlier of the repricing and maturity dates,
 was as follows:
                                                                                                                             Not exposed
                                                                              Up to   3 months to    1 year to       Over      to interest
($ thousands)                                                              3 months       1 year      5 years      5 years       rate risk        Total
2001
Assets
Cash and short-term funds                                                  23,620            –            –           66           465          24,151
Deposits with banks                                                        34,014            –            –            –             –          34,014
Managed funds                                                           1,130,561      372,741       26,237            –             –       1,529,539
Accounts receivable                                                             –            –            –            –       328,855         328,855
Accrued interest and other assets                                          58,266            –            –            –        43,345         101,611
Investments                                                                54,466       24,503      112,697            –     1,095,206       1,286,872
Fixed assets                                                                    –            –            –            –        33,387          33,387
Total assets                                                            1,300,927      397,244      138,934           66     1,501,258       3,338,429

Liabilities and shareholders’ funds
Deposits from clients and Islamic financing                               551,484            –            –            –        43,475         594,959
Accrued interest and other payables                                         4,499            –            –            –       142,452         146,951
Medium-term facilities                                                    750,000      175,000            –            –             –         925,000
Long-term notes                                                                 –            –      197,717      554,346             –         752,063
Shareholders’ funds                                                             –            –            –      200,000       719,456         919,456
Total liabilities and shareholders’ funds                               1,305,983      175,000      197,717      754,346       905,383       3,338,429

On-balance sheet gap                                                       (5,056)     222,244       (58,783)    (754,280)
Off-balance sheet gap                                                     170,892     (516,936)       65,143      280,901
Total interest rate sensitivity gap                                       165,836     (294,692)        6,360     (473,379)
Cumulative interest rate sensitivity gap                                  165,836     (128,856)     (122,496)    (595,875)

2000
Total interest rate sensitivity gap                                       131,543       (8,959)      (33,428)    (333,613)
Cumulative interest rate sensitivity gap                                  131,543      122,584        89,156     (244,457)

The off-balance sheet gap represents the net notional amounts of off-balance sheet financial instruments, such as forward rate agreements
and interest rate swaps, which are used to manage interest rate risk.
   Given the above interest rate sensitivity position at December 31, 2001 and assuming no management action, an immediate and sustained
1% rise in interest rates across all maturities would not have a significant effect on the Group’s income or shareholders’ funds over the
next 12 months. Potentially significant variances in interest rate sensitivity may exist at dates other than the year-end.
   All of the Group’s interest bearing assets and liabilities carry floating rates of interest except for the following:
n investments amounting to US $185 million (2000: US $266 million) which earn interest at an effective rate of 11.12% (2000: 11.52%)
   per annum;
n deposits from clients amounting to US $96 million (2000: US $83 million) on which interest is paid at an effective rate of 6.50%
   (2000: 7.26%) per annum reflecting the underlying maturity structure; and
n long-term notes which carry fixed rates of interest as disclosed in note 12.
Investcorp S.A.
Notes to the consolidated financial statements
December 31, 2001




21. Concentration of assets, liabilities and off-balance sheet items
                                                                                                2001                                         2000
                                                                                                         Off-balance                                  Off-balance
($ thousands)                                                                 Assets       Liabilities         sheet        Assets      Liabilities         sheet

Geographical region
North America                                                             2,026,929        258,462         259,855      1,869,385      252,330          297,291
Europe                                                                      899,540      1,233,393       2,852,251        726,552      836,581        2,007,776
Middle East                                                                 410,249        659,660         150,309        288,735      792,052           75,666
Other                                                                         1,711        267,458               –          6,840      174,784                –
Total                                                                     3,338,429      2,418,973       3,262,415      2,891,512    2,055,747        2,380,733

Industry sector
Banking and finance                                                       1,693,246      2,022,650       3,213,185      1,535,747    1,644,083        2,380,733
Food processing                                                              58,556              –               –         52,003            –                –
Luxury merchandise                                                            4,787              –           1,752          5,266          108                –
Retail                                                                      209,104              –               –        169,435           16                –
Real estate                                                                 113,390            980               –        203,963        3,927                –
Manufacturing and services                                                  684,680          5,280               –        423,376          180                –
Technology and telecommunications                                           220,497             33               –        309,749            –                –
Other                                                                       354,169        390,030          47,478        191,973      407,433                –
Total                                                                     3,338,429      2,418,973       3,262,415      2,891,512    2,055,747        2,380,733

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial
loss. It is the standard practice for Group companies to have policies and procedures in place to limit the amount of credit exposure to any
counterparty for both on- and off-balance sheet items. These procedures and the broad geographical and industry spread of Group companies’
activities limit the Group’s exposure to any concentrations of credit risk.



22. Segmental information
The Group’s major lines of businesses are corporate and technology investments, real estate investments and asset management. The Group
reports its primary segmental information on these business lines.
   Segmental information for the years ended December 31, 2001 and 2000 is as follows:
                                                                                       Corporate and
                                                                                          technology      Real estate        Asset     Corporate
($ thousands)                                                                            investments     investments    management   management             Total
2001
Income
Revenue                                                                                    200,031          30,830        103,170       43,013         377,044
Interest expense                                                                            27,535           6,561         42,874       55,873         132,843
Operating expenses                                                                          37,674           5,080          4,446       73,747         120,947
Income from operations                                                                     134,822          19,189         55,850      (86,607)        123,254
Provisions                                                                                  75,794               –              –            –          75,794
Net income for the year                                                                     59,028          19,189         55,850      (86,607)         47,460

Assets
Segment assets                                                                           1,434,569         137,920        996,537      769,403
Total assets                                                                                                                                          3,338,429

2000
Income
Revenue                                                                                    225,456          33,996        145,432       65,744         470,628
Interest expense                                                                            49,000           8,391         45,191       61,574         164,156
Operating expenses                                                                          36,826           4,600          5,386       74,328         121,140
Income from operations                                                                     139,630          21,005         94,855      (70,158)        185,332
Provisions                                                                                 118,434               –              –            –         118,434
Net income for the year                                                                     21,196          21,005         94,855      (70,158)         66,898

Assets
Segment assets                                                                           1,046,908         210,414        869,815      764,375
Total assets                                                                                                                                          2,891,512

The basis of presentation of results of business lines:
    Operating expenses of each line of business are the direct costs of infrastructure and resources for the Unit. Support overhead costs
are included under Corporate Management. Interest expense is allocated to each business segment based on its average net assets and an
appropriately risk adjusted capital structure.
    All significant activities of the Group are performed on an integrated, worldwide basis. The Group’s clients and trading partners also operate
in the international market place, and neither their domicile nor the geographical location of a transaction is necessarily related to the country in
which the asset or liability underlying the transaction is located. Consequently, any segmentation of liabilities would be potentially misleading.
As such, neither segmentation of liabilities nor information in respect of geographical segments has been provided.



23. Funds under management
At December 31, 2001 clients’ funds managed in a fiduciary capacity, without risk or recourse to the Group, amounted to $4,560 million
(2000: $3,596 million).



24. Commitments and contingent liabilities
At the balance sheet date, the Group’s investment related commitments amounted to $107 million (2000: $88 million).
    At December 31, 2001 the Group had commitments in respect of non-cancelable operating leases amounting to $7 million
(2000: $9 million) relating to leasehold premises. Of the commitments in respect of operating leases, $2 million expires within
one year (2000: $2 million) and the remaining expire within four years.
    Guarantees issued to third parties and outstanding at the balance sheet date amounted to $92 million (2000: $63 million).
    The United Kingdom (U.K.) Inland Revenue Authorities have made claims with regard to personal taxation of certain employees of the
U.K. subsidiaries of the Group. At this stage it is not possible to predict the outcome of these claims. However, the directors believe that
amounts, if any, that may eventually become payable are unlikely to be material in relation to these financial statements.



25. Transactions with related parties
In the course of the Group’s investment activities, a significant proportion of the Group’s interest income and a portion of investment-related
income arise from transactions with companies over which the Group exerts significant influence and with third-party investment funds
managed by the Group. Other related parties, such as shareholders, directors and officers of the Company, their families and/or companies of
which they are principal owners, also enter into transactions with the Group as clients and investors. This represents a small portion of the
Group’s investment and banking transactions. The terms and conditions for these transactions are approved by the management.
    The related party balances included in these financial statements are as follows:
($ thousands)                                                                                                                            2001            2000

Assets
Accounts receivable                                                                                                                   92,781           70,629
Accrued interest and other assets                                                                                                     10,305           44,609
Investments                                                                                                                           44,075           55,899

Liabilities
Deposits from clients and Islamic financing                                                                                          594,959         630,990
Accrued interest and other payables                                                                                                   54,206          50,185

Commitments and contingent liabilities
Guarantees issued on behalf of related parties                                                                                        91,800           62,835



26. Derivative financial instruments
In the normal course of its business the Group utilizes derivative financial instruments to manage its exposure to fluctuations in interest and
foreign exchange rates. Derivative financial instruments include financial contracts, the values of which are derived from underlying assets or
interest or exchange rates. These instruments include forwards, futures, swaps and options transactions in the foreign exchange and capital
markets.
    During the year the Group utilized currency swaps and forward contracts to manage its exposure to fluctuations in foreign exchange rates.
    The Group had the following significant foreign currency exposures at the year-end:
                                                                                                                2001                         2000
($ thousands)                                                                                              Gross        Hedged          Gross          Hedged

Assets
Euro                                                                                                     82,875         77,441        78,039          78,039
Pounds sterling                                                                                         278,569         59,069       256,128         229,078
                                                                                                        361,444        336,510       334,167         307,117

Liabilities
Japanese yen                                                                                            345,817        209,238       229,400         192,369
Pounds sterling                                                                                         100,644         96,059        64,183          57,404
Euro                                                                                                    221,536        194,214       206,362         211,611
Kuwaiti dinar                                                                                            68,065         68,228        41,882          41,370
                                                                                                        736,062        567,739       541,827         502,754

In addition to conventional hedging strategies, the Group also utilizes dynamic hedging techniques, through specialized institutions, to manage
its exposure to fluctuations in foreign exchange rates. Under this hedging technique the amount of exposure to be hedged is not determined
on the absolute foreign currency exposure but is discounted based on certain factors which affect the volatility of the foreign currency being
hedged. The main factors which affect the dynamic hedging decision include the following:
n past history and trend of the foreign currency movements against the Group’s base currency;
n probability of a significant fluctuation in the foreign currency exchange rate based on economic, political, market and other conditions; and
n relative demand for the foreign currency at the time of making the hedging decision.
    Further, the Group utilizes interest rate swaps to manage its exposure to fluctuations in interest rates for specific transactions or a group of
transactions. For interest rate swaps, counterparties exchange fixed and floating rate interest payments based on a notional value in a single
currency. For cross-currency interest rate swaps, notional amounts and fixed and floating interest payments are exchanged in different
currencies.
    Derivative transactions result, to varying degrees, in credit as well as market risks.
    The Group’s measure of derivative related credit risk is the cost of replacing contracts at current market rates should the counterparty
default prior to the settlement date and is limited to the positive fair value of instruments that are favourable to the Group.
    Market risk arises as interest and foreign exchange rates fluctuate affecting the value of a contract. For risk management purposes and to
control these activities, the Group has established appropriate procedures and limits approved by the Board of Directors.
    The table below shows the fair value of the derivative financial instruments, which are equivalent to the market values, together with the
notional amounts analysed by the term to maturity. The positive and negative fair values are subject to netting arrangements. The notional
amount is the value of the derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives
are measured. The notional amounts indicate the volume of transactions outstanding at year-end and are neither indicative of the market risk
nor credit risk.
    The total return swaps relate to the managed funds program.

                                                                                             Notional amounts by term to maturity
                                                                Positive     Negative           Up to    3 months to        1 year to            Over
($ thousands)                                                 fair value    fair value       3 months        1 year          5 years          5 years              Total
2001
Derivatives held for trading
Total return swaps                                                  –               –        57,865            90,378             –                  –       148,243
Interest rate swaps                                               492               –             –                 –        34,726                  –        34,726
Derivatives held as fair value hedges
Forward foreign exchange contracts                             4,624        (25,033)               –          698,602            –               –           698,602
Interest rate swaps                                           12,299         (4,571)               –                –      215,143         375,911           591,054

Derivatives held as cash flow hedges
Forward foreign exchange contracts                             5,744        (15,105)        424,602      1,016,758               –               –         1,441,360
Interest rate swaps                                                –         (9,991)              –        100,000         100,000               –           200,000
Interest rate cap                                              1,521              –               –              –          50,000               –            50,000
                                                              24,680        (54,700)        482,467      1,905,738         399,869         375,911         3,163,985

2000
Derivatives held for trading
Total return swaps                                                    –             –              –          160,477               –                –       160,477

Derivatives held as fair value hedges
Forward foreign exchange contracts                            24,131        (18,364)        337,420           444,775        47,177              –           829,372
Interest rate swaps                                            3,685        (13,865)              –                 –             –        372,362           372,362

Derivatives held as cash flow hedges
Forward foreign exchange contracts                            24,125        (31,290)         14,424        586,486          50,347               –           651,257
Interest rate swaps                                                –         (2,745)              –              –         200,000          54,430           254,430
Interest rate cap                                              1,273              –               –              –               –          50,000            50,000
                                                              53,214        (66,264)        351,844      1,191,738         297,524         476,792         2,317,898

The table below shows a summary of hedged items, the nature of the risk being hedged, the type of hedge, the hedging instrument and its
fair value.
                                                                                                                                               Positive         Negative
                                   Fair value         Cost   Risk being      Type of                                                         fair value        fair value
Description of hedged item     ($ thousands) ($ thousands)      hedged        hedge      Hedging instrument                             ($ thousands)     ($ thousands)

2001
Long-term notes                   465,678       456,878    Currency        Fair value Forward foreign exchange contracts                      4,190           (24,892)
                                                        Interest rate                 Interest rate swaps                                    12,299            (3,499)
Long-term notes                    37,686        36,385    Currency        Fair value Forward foreign exchange contracts                        390              (141)
Coupon on long-term notes          73,623        81,688    Currency        Cash flow Forward foreign exchange contracts                       1,243            (9,308)
Floating interest
   rate facilities                250,000       250,000 Interest rate      Cash flow Interest rate swaps                                           –            (9,991)
                                                        Interest rate                 Interest rate cap                                        1,521                 –
Investments                       508,922       473,280    Currency        Cash flow Forward foreign exchange contracts                        4,501            (5,797)
Deposits from clients              32,699        32,699    Currency        Fair value Forward foreign exchange contracts                          44                 –
                                                        Interest rate      Fair value Interest rate swaps                                          –            (1,072)

2000
Long-term notes                   351,707       362,378    Currency        Fair value Forward foreign exchange contracts                       7,542                –
                                                        Interest rate                 Interest rate swaps                                          –          (10,180)
Long-term notes                    38,692        37,328    Currency        Fair value Forward foreign exchange contracts                         147                –
Floating interest
   rate facilities                660,000       660,000 Interest rate      Cash flow Interest rate swaps                                           –            (2,745)
                                                        Interest rate                 Interest rate cap                                        1,273                 –
Investments                       341,678       392,351    Currency        Cash flow Forward foreign exchange contracts                            –            (7,165)
Deposits from clients              59,085        59,085    Currency        Fair value Forward foreign exchange contracts                           –            (1,922)
The hedges of exposures to investments are matched to the anticipated sale date in future periods, at which time the effect of the fair value of
the hedging instrument will be reflected in the statement of income.



27. Fair value of financial instruments
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length
transaction. Consequently, differences can arise between carrying values and the fair value estimates.
    Underlying the definition of fair value is the presumption that the Company is a going concern without any intention or requirement to
curtail materially the scale of its operations or to undertake a transaction on adverse terms.
    The fair values of financial assets and liabilities, which have not been adjusted to reflect fair values, approximate their respective
carrying values.

								
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