SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of November 1999.
DENISON INTERNATIONAL plc
---------------------------------
(Translation of registrant's name into English)
Masters House
107 Hammersmith Road
London W14 0QH
England
(Address of principal executive offices)
DENISON INTERNATIONAL plc
TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998 2
Condensed Consolidated Statements of Operations for the three and nine months
ended September 30, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 9
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share data)
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
Current assets:
Cash and cash equivalents $31,811 $35,799
Accounts receivable, less allowances of
$1,517 and $2,395 at September 30, 1999
and December 31, 1998 respectively 27,800 29,716
Inventories 33,536 38,236
Other current assets 3,417 4,513
-------- --------
Total current assets 96,564 108,264
Property, plant and equipment, net 26,303 24,726
Other assets 1,366 2,013
Goodwill, net of accumulated amortization of
$283 and $145 at September 30, 1999 and
December 31, 1998 respectively 7,617 8,454
-------- --------
Total assets $131,850 $143,457
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 5,643 $ 12,532
Accounts payable 8,953 10,973
Other accrued liabilities 14,639 18,016
Current portion of capital lease obligations 130 311
-------- --------
Total current liabilities 29,365 41,832
Noncurrent liabilities:
Capital lease obligations, less
current portion 20 38
Pension accrual 11,102 10,785
Other noncurrent liabilities 4,639 5,921
Negative goodwill, net of accumulated
amortization of $5,863 and $4,823 at
September 30, 1999 and December 31, 1998
respectively 5,256 6,354
-------- --------
21,017 23,098
Shareholders' equity:
'A' ordinary shares (pound)8.00 par value;
7,125 shares authorized, and 7,015
issued and outstanding at September 30, 1999
and December 31, 1998 86 86
Ordinary shares $0.01 par value;
15,000,000 shares authorized, and
11,113,950 and 11,097,450 issued and outstanding
at September 30, 1999 and December 31, 1998 111 111
Additional paid-in capital 5,479 5,453
Capital redemption reserve 1,090 1,090
Retained earnings 81,049 74,405
Accumulated other comprehensive income (loss) (6,347) (2,618)
-------- --------
Total shareholders' equity 81,468 78,527
-------- --------
Total liabilities and shareholders' equity $131,850 $143,457
======== ========
The accompanying notes are an integral part of these statements.
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(U.S. dollars in thousands, except share data)
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Net sales $30,192 $34,016 $101,254 $106,730
Cost of sales 21,021 21,096 67,111 65,868
------- ------- -------- --------
Gross profit 9,171 12,920 34,143 40,862
Selling, general and
administrative expenses 7,446 7,633 24,292 23,961
------- ------- -------- --------
Operating income 1,725 5,287 9,851 16,901
Other expense (261) -- (442) --
Interest
income, net 64 408 199 900
------- ------- -------- --------
Income before taxes 1,528 5,695 9,608 17,801
Provision for income taxes 643 1,483 2,964 4,882
------- ------- -------- --------
Net income $ 885 $ 4,212 $ 6,644 $12,919
======= ======= ======== ========
Basic earnings per share $ .08 $ .38 $ .60 $ 1.17
======= ======= ======== ========
Diluted earnings per share $ .08 $ .38 $ .60 $ 1.16
======= ------- -------- ========
The accompanying notes are an integral part of these statements.
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)
Nine months ended
September 30,
1999 1998
---- ----
Net cash provided by
operating activities $10,578 $11,125
------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property, plant
and equipment (5,752) (6,734)
Proceeds from disposal of
property, plant and
equipment 70 42
------- -------
Net cash used in investing
activities (5,682) (6,692)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net repayment
on lines of credit (7,092) (1,041)
Repayment of capital lease
obligations (192) (502)
Proceeds from exercise of
Stock options 26 42
------- -------
Net cash used in financing
activities (7,258) (1,501)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (1,626) 1,288
------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (3,988) 4,220
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 35,799 30,337
------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $31,811 $34,557
======= =======
The accompanying notes are an integral part of these statements.
DENISON INTERNATIONAL plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Financial Statements
Interim Financial Information
The financial information at September 30, 1999 and for the nine months
ended September 30, 1999 and September 30, 1998 is unaudited but includes all
adjustments which Denison International plc (the "Company") considers necessary
for a fair presentation of financial position at such date and the operating
results and cash flows for those periods. All adjustments made were of a normal,
recurring nature. Results for the interim period are not necessarily indicative
of results that may be expected for the entire year. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with United States generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission Rules
and Regulations. These condensed consolidated financial statements should be
read in conjunction with the Company's audited financial statements for the year
ended December 31, 1998 included in the Company's Annual Report on Form 20-F.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
United States generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from these estimates.
2. Inventories
Inventories consisted of the following:
(U.S. dollars in thousands)
September 30, December 31,
1999 1998
Finished goods $17,910 $22,486
Work-in-progress 3,087 3,343
Raw materials and supplies 12,539 12,407
------- -------
$33,536 $38,236
======= =======
3. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
(U.S. dollars and shares in thousands Three months ended Nine months ended
except per share data) September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
Net income $ 885 $4,212 $6,644 $12,919
====== ====== ====== -------
Denominator:
Denominator for basic
earnings per share
weighted-average shares 11,121 11,103 11,121 11,085
Effect of dilutive stock options 2 27 11 52
------ ------ ------ -------
Denominator for diluted
earnings per share -
adjusted weighted-average shares 11,123 11,130 11,132 11,137
====== ====== ====== =======
Basic earnings per share $ .08 $ .38 $ .60 $ 1.17
====== ====== ====== =======
Diluted earnings per share $ .08 $ .38 $ .60 $ 1.16
====== ====== ====== =======
4. Comprehensive Income
The Company's total comprehensive income was as follows (US dollars in
thousands):
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Net income $ 885 $4,212 $6,644 $12,919
Foreign currency translation
adjustment, net of tax
benefit 1,274 2,449 (3,729) 1,711
------ ------ ------ -------
Comprehensive net income $2,159 $6,661 $2,915 $14,630
====== ====== ====== =======
The components of accumulated other comprehensive income (loss), net of related
tax, at December 31, 1998 and September 30, 1999 are as follows:
Accumulated
Pension Foreign Other
Liability Currency Comprehensive
Adjustment Translation Income (loss)
---------- ----------- -------------
Balance at December 31, 1998 $ (43) $ (2,575) $ (2,618)
Current period other
comprehensive income (loss) -- (3,729) (3,729)
--------- --------- ---------
Balance at September 30, 1999 $ (43) $ (6,304) $ (6,347)
========= ========= =========
5) Segment Information
A summary of the Company's operations by geographic area follows:
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
Sales to unaffiliated companies:
United Kingdom $ 2,121 $ 2,434 $ 6,914 $ 8,049
France 3,530 4,117 12,359 12,878
Germany 2,722 3,517 8,557 9,884
Rest of Europe 9,060 7,825 29,937 23,903
------- -------- -------- --------
Total Europe 17,433 17,893 57,767 54,714
United States 6,565 10,671 25,641 34,141
Canada 1,521 1,945 4,929 6,141
------- -------- -------- --------
Total N. America 8,086 12,616 30,570 40,282
Asia-Pacific 4,673 3,507 12,917 11,734
------- -------- -------- --------
Total consolidated $30,192 $34,016 $101,254 $106,730
======= ======== ======== ========
Transfers between geographic areas:
United Kingdom $ 48 $ 20 $ 79 $ 45
France 4,248 6,440 16,467 20,362
Germany 3,524 4,410 11,427 13,109
Rest of Europe 77 67 183 184
------- -------- -------- --------
Total Europe 7,897 10,937 28,156 33,700
United States 1,427 2,613 6,230 9,124
Canada -- -- -- --
------- -------- -------- --------
Total N. America 1,427 2,613 6,230 9,124
Asia-Pacific 21 10 54 42
------- -------- -------- --------
Total transfers 9,345 13,560 34,440 42,866
Elimination's (9,345) (13,560) (34,440) (42,866)
------- -------- -------- --------
Total consolidated $ 0 $ 0 $ 0 $ 0
======= ======== ======== ========
Operating income (loss):
United Kingdom $ 963 $ 566 $ 1,872 $ 1,641
France 765 1,882 4,703 5,810
Germany (216) 1,102 33 2,552
Rest of Europe 1,120 446 3,623 1,650
------- -------- -------- --------
Total Europe 2,632 $ 3,996 10,231 11,653
United States (1,000) 1,158 (568) 4,597
Canada 86 135 363 772
------- -------- -------- --------
Total N. America (914) 1,293 (205) 5,369
Asia-Pacific 7 (2) (175) (121)
------- -------- -------- --------
Total consolidated $1,725 $ 5,287 $ 9,851 $ 16,901
======= ======== ======== ========
September 30, 1999 December 31, 1998
------------------ -----------------
Identifiable assets:
United Kingdom $ 15,851 $ 9,211
France 21,544 33,035
Germany 15,234 17,615
Rest of Europe 33,971 36,308
-------- --------
Total Europe 86,600 96,169
United States 27,012 29,007
Canada 3,597 3,950
-------- --------
Total N. America 30,609 32,957
Asia-Pacific 14,641 14,331
-------- --------
Total consolidated $131,850 $143,457
======== ========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Although the Company reports its financial results in U.S. dollars,
approximately 76% of the Company's revenues and expenses are incurred in foreign
currencies. The fluctuation of the functional currencies earned by the Company
against the U.S. dollar has had the effect of increasing or decreasing (as
applicable) U.S. dollar reported net sales, as well as the cost of goods sold,
gross profit, selling, general and administrative expenses denominated in such
foreign currencies when translated into U.S. dollars as compared to prior
periods.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared with Three Months Ended September
30, 1998
The Company's net sales decreased 11.2% to $30.2 million in the three month
period ended September 30, 1999 from $34.0 million in the comparable period in
1998. During the same period, net sales in North America decreased 35.9% to $8.1
million from $12.6 million; net sales in Europe decreased 2.5% to $17.4 million
from $17.9 million; and net sales in the Asia-Pacific region increased 33.2% to
$4.7 million from $3.5 million. The decrease in net sales is attributed to the
slow North American market, particularly in the oil and gas exploration markets,
de-stocking by the Company's North American distributors and slower sales in the
European markets. Partially offsetting these factors was the continuing recovery
in the Asia-Pacific region and a full quarter of results for Lokomec Oy, a
company acquired late in 1998.
Restated (at average exchange rates for the three month period ended
September 30, 1998), net sales for the three month period ended September 30,
1999, were $30.5 million, a 10.2% decrease over the comparable 1998 period. The
increased sales revenue for the period attributable to the exchange rate
differences was $.3 million. Restated (at average exchange rates for the three
month period ended September 30, 1998), net sales for the three month period
ended September 30, 1999 for the Company's European operations increased 2.7% to
$18.4 million from $17.9 million, and net sales for the Asia-Pacific operations
increased 16.6% to $4.1 million from $3.5 million.
The Company's gross profit decreased 29.0% to $9.2 million in the three
month period ended September 30, 1999 from $12.9 million in the comparable 1998
period. Gross profit as a percentage of net sales decreased to 30.4% in the
three months ended September 30, 1999 from 38.0% in the comparable period in
1998. The decrease in gross profit was the result of the lower sales volume
recorded, combined with the impact of planned production curtailments to reduce
inventories in the quarter, and the effects of a 10 week labor strike at the
Company's Marysville Ohio facility that began in June. The Company reduced
inventories by $1.1 million in the quarter ($2.5 million without the impact of
currency changes) and the associated impact on costs is reflected in the reduced
gross earnings.
Gross profit in Europe decreased 18.8% to $6.3 million in the three months
ended September 30, 1999 from $7.8 million in the comparable 1998 period, while
gross profit in North America decreased 68.1% to $1.2 million in the three
months ended September 30, 1999 from $4.0 million in the comparable 1998 period.
Gross profit in the Asia-Pacific region increased 10.6% to $1.3 million in the
three months ended September 30, 1999 from $1.2 million in the comparable period
in 1998. The decline in gross profit in North America was due primarily to the
lower sales revenues recorded combined with the effects of the inventory
reduction and work stoppage, while the decline in the gross profits in the
European region resulted from lower production volume to reduce inventories,
partially offset by the full quarter results of Lokomec Oy. In Asia-Pacific the
increase in gross profit resulted from the increased sales volume achieved,
partially offset by competitive pricing pressures.
Restated (at average exchange rates for the three months ended September
30, 1998), gross profit in Europe was $6.7 million, unfavorable to the gross
profit of $7.8 million achieved in the comparable 1998 period, and gross profit
in the Asia-Pacific region was $1.1 million, or a 1.5% decrease over the
comparable 1998 period. The total increased gross profit for the period
attributable to the exchange rate differences was $.2 million. On a consolidated
basis restated gross profit decreased by 27.4%, or $3.5 million, to $9.4 million
from $12.9 million in the same period 1998. Restated, gross profit as a
percentage of net sales decreased to 30.7% for the three months ended September
30, 1999 compared to 38.0% for the comparable period in 1998.
Selling, general and administrative ("SG&A") expense decreased 2.5% to $7.4
million in the three month period ended September 30, 1999 from $7.6 million in
the comparable 1998 period. These expenses as a percentage of net sales
increased to 24.7% in the three month period ended September 30, 1999 compared
to 22.4% in the comparable 1998 period. The decrease in these expenses for the
three month period ended September 30, 1999 as compared to the same 1998 period,
resulted from cost reductions made primarily in the Company's US operations,
partially offset by the addition of expenses for Lokomec Oy, acquired late in
1998. The increase as a percentage of net sales is due generally to the
reduction in revenues recorded.
Operating income decreased by 67.3% to $1.7 million in the three months
ended September 30, 1999 from $5.3 million in the comparable 1998 period.
Operating income as a percentage of net sales decreased to 5.7% in 1999 from
15.5% in the comparable 1998 period. Restated (at average exchange rates for the
three months ended September 30, 1998), operating income decreased 64.9% to $1.9
million (6.1% of net sales) in 1999, from $5.3 million (15.5% of net sales) in
1998.
Net interest income was $.1 million in the three month period ended
September 30, 1999 compared to $.4 million of interest income in the comparable
1998 period. The decrease in net interest income was primarily due to lower
interest rates on short term securities primarily in the Company's European
operations, combined with lower balances of cash on hand versus the comparable
period in 1998 and interest charges on short term debt obligations.
The effective tax rate for the three month period ended September 30, 1999
was 42.0% compared to 26.1% for the comparable 1998 period. The increase in the
effective tax rate reflects an increased profit contribution from those
countries with a higher effective tax rate than the contribution mix in 1998.
The provision for taxes decreased 56.7% to $.6 million for 1999 compared to $1.5
million for the same 1998 period. This provision as a percentage of net sales
decreased to 2.1% in 1999 from 4.4% in the same 1998 period.
Nine Months Ended September 30, 1999 Compared with Nine Months Ended September
30, 1998
The Company's net sales decreased 5.1% to $101.3 million in the nine months
ended September 30, 1999 from $106.7 million in the comparable period in 1998.
During the same period, net sales in North America decreased 24.1% to $30.6
million from $40.3 million; net sales in Europe increased 5.6% to $57.8 million
from $54.7 million; and net sales in the Asia-Pacific region increased 10.1% to
$12.9 million versus 1998 results of $11.7 million. The decrease in net sales is
attributed to the slow North American market, particularly in the oil and gas
exploration markets and de-stocking by the Company's North American
distributors, combined with lower sales in the Company's European markets.
Partially offsetting these factors were strong year to date results of Lokomec
Oy, a company acquired late in 1998, combined with recovering sales in the
Company's Asia-Pacific operations.
Restated (at average exchange rates for the nine months ended September 30,
1998), net sales for the nine months ended September 30, 1999, were $101.4
million, a 4.9% decrease over the comparable 1998 period. The increased sales
revenue for the period attributable to the exchange rate differences was $.1
million. Restated (at average exchange rates for the nine month period ended
September 30, 1998), net sales for the nine months ended September 30, 1999 for
the Company's European operations increased 7.5% to $58.8 million from $54.7
million, while net sales for the Asia-Pacific increased 1.7% to $11.9 million
from $11.7 million.
The Company's gross profit decreased 16.4% to $34.1 million in the nine
months ended September 30, 1999 from $40.9 million for the same period in1998.
Gross profit as a percentage of net sales decreased to 33.7% in the nine months
ended September 30, 1999 from 38.3% for year to date 1998. The decrease in gross
profit was the result of the impact of planned production curtailments to reduce
inventories in 1999, combined with the effects of a 10 week labor strike at the
Company's Marysville Ohio facility that began in June and overall lower sales
volume. The Company reduced inventories by approximately $5.0 million to date in
1999, compared to inventory balances at December 31, 1998, along with decreases
in the stocks at the Company's US distributors. The associated impact on the
Company's costs of both the internal and
external inventory reductions are reflected in the reduced gross earnings.
Gross profit in Europe decreased 2.8% to $23.8 million in the nine months
ended September 30, 1999 from $24.5 million for the nine months ended September
30, 1998, while gross profit in North America decreased 51.2% to $6.2 million in
the nine months ended September 30, 1999 from $12.8 million in the comparable
1998 period. Gross profit in the Asia-Pacific region increased 6.0% to $3.8
million in the nine months ended September 30, 1999 from $3.6 million in the
comparable period in 1998. The decline in gross profit in North America was due
primarily to the lower sales revenues recorded combined with the effects of the
inventory reductions and the work stoppage, while the increase in gross profits
in the European region resulted from the results of Lokomec Oy, partially offset
by the impact of planned production curtailments to reduce inventories. In
Asia-Pacific the increase in gross profit resulted from higher volume, partially
offset by competitive pricing pressures.
Restated (at average exchange rates for the nine months ended September 30,
1998), gross profit in Europe was $24.2 million, a decrease of 1.3%, or $.3
million versus the comparable 1998 period, and gross profit in the Asia-Pacific
region was $3.6 million, equal to year to date September 1998. The total
increased gross profit for the period attributable to the exchange rate
differences was $.2 million. On a consolidated basis restated gross profit
decreased by 16.0%, or $6.6 million, to $34.3 million from $40.9 million in the
same period 1998. Restated (at average exchange rates for the nine months ended
September 30, 1998), gross profit as a percentage of net sales decreased to
33.8% for the nine months ended September 30, 1999 compared to 38.3% for the
comparable period in 1998.
Selling, general and administrative ("SG&A") expense increased 1.4% to
$24.3 million in the nine months ended September 30, 1999 from $24.0 million for
the nine months ended September 30, 1998. These expenses as a percentage of net
sales increased to 24.0% in the nine months ended September 30, 1999 compared to
22.5% in the comparable 1998 period. The increase in these expenses for the nine
months ended September 30, 1999 as compared to the same 1998 period, resulted
from the addition of Lokomec Oy in 1999, partially offset by the impact of cost
reductions implemented in 1998, while the increase as a percentage of net sales
is due generally to the reduction in revenues recorded.
Operating income decreased by 41.7% to $9.9 million in the nine months
ended September 30, 1999 from $16.9 million in the comparable 1998 period.
Operating income as a percentage of net sales decreased to 9.7% in 1999 from
15.8% for 1998. Restated (at average exchange rates for the nine months ended
September 30, 1998), operating income decreased 40.7% to $10.0 million (9.9% of
net sales) in 1999, from $16.9 million (15.8% of net sales) in 1998.
Net interest income was $.2 million in the nine months ended September 30,
1999 compared to $.9 million of net interest income in the comparable 1998
period. The decrease in interest income was primarily due to lower investable
balances of cash on hand versus the comparable period in 1998, combined with
lower short term interest rates primarily in the Company's European operations
and the interest charges on short term debt obligations primarily utilized to
purchase Lokomec Oy.
The effective tax rate for the nine months ended September 30, 1999 was
30.8% compared to 27.4% for the comparable 1998 period, reflecting the mix in
1999 of profits from the Company's operations with higher effective tax rates
versus 1998. The provision for taxes decreased 39.3% to $3.0 million for 1999
compared to $4.9 million for the same 1998 period. This provision as a
percentage of net sales decreased to 2.9% in 1999 from 4.6% in the same 1998
period.
LIQUIDITY AND CAPITAL RESOURCES
Nine Months Ended and At September 30,
--------------------------------------
1999 1998
--------------------------------------
(Dollars in thousands)
Cash & cash equivalents 31,811 34,557
Net cash provided by operating activities 10,578 11,125
Net cash used in investing activities (5,682) (6,692)
Net cash used in financing activities (7,258) (1,501)
Effect of exchange rate changes on cash (1,626) 1,288
Net cash provided by operating activities for the nine months ended
September 30, 1999 decreased to $10.6 million from $11.1 million as compared to
the same 1998 period. The decrease in the Company's cash generated from
operations reflects the lower net income recorded versus 1998 (net income of
$6.6 million for the nine months ended September 30, 1999 versus $12.9 million
of the same 1998 period), partially offset by decreases achieved in working
capital requirements. The $0.5 million decrease in net cash provided by
operating activities for the nine months ended September 30, 1999 as compared to
the same 1998 period was attributable to a $6.3 million decrease in net income,
$11.0 million net decrease in cash used for inventories, a $1.5 million decrease
in cash used for other assets, a $.3 million net increase in depreciation &
amortization, a $2.1 increase in cash provided by accounts payable and a $5.2
million increase in cash provided by accrued expenses and other liabilities. The
Company anticipates that operating cash and capital expenditure requirements
will continue to be funded by cash flow from operations, cash on hand and bank
borrowings.
Net cash used in investing activities decreased to $5.7 million for the
nine months ended September 30, 1999 from $6.7 million in the comparable 1998
period. Investing activities consisted primarily of investments in manufacturing
machinery and equipment for the Company's four production facilities. A majority
of the investment in machinery and equipment for the nine months ended September
30, 1999 related to projects initiated in 1998.
Net cash used in financing activities increased to $7.3 million for the
nine months ended September 30, 1999 from $1.5 million in the comparable 1998
period. The increase of $5.8 million in net cash used in financing activities
was primarily attributable to a reduction in the short term debt utilized for
the Lokomec Oy acquisition.
The effect of exchange rate changes on cash and cash equivalents was a
negative impact of $1.6 million versus a positive impact of $1.3 million for the
nine months ended September 30, 1999 and 1998, respectively. As approximately
three quarters of the Company's business is transacted in currencies other than
the U.S. dollar, foreign currency fluctuations had a significant adverse impact
on dollar reported balances for the nine months ended September 30, 1999
compared to the same period in 1998. The $2.9 million increase in the exchange
rate impact on cash and cash equivalents was attributable to a strengthening
U.S. dollar against most of the functional currencies earned by the Company in
its European operations, partially offset by the impact of a weakening US dollar
against the functional currencies earned by the Company in its Asia-Pacific
operations.
In December 1998, the Company's U.S. subsidiary entered into an unsecured
time note with a bank that provided $12.0 million for working capital and
acquisitions. In April 1999 the unsecured time note was converted into a
revolving line of credit. Borrowings under the credit line are secured by a
guarantee by the Company. Interest on the line, which is based on LIBOR plus
0.875%, is payable monthly. At September 30, 1999, $3.5 million was outstanding
under the line.
Short-term borrowings outside the United States under available informal
credit facilities are typically a result of overdrafts. At September 30, 1999,
the Company had $2.1 million of foreign debt outstanding. The Company also has
an additional $1.5 million of unused foreign credit facilities. The banks may
withdraw these facilities at any time.
Year 2000 (Millennium) Issues
In the past, many computer systems and software products were coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. The Company and third parties with which the Company does business
rely on numerous computer programs in their day to day operations. The Company
has evaluated the Year 2000 issue, and its relationship to the Company's
internal computer systems and third party computer systems with which the
Company interacts. The following describes the Company's status regarding these
issues.
The Company's State of Readiness
- --------------------------------
The Company has been formally addressing its year 2000 Issues over the past
several fiscal years. These efforts involve assessments, conversion plans,
conversion implementations and testing of all internal systems running on a
variety
of computer platforms ranging from mainframe computers to programmable logic
controllers.
All mainframe computer systems have been assessed, action plans have been
established and required conversion or reinstallation of computer programs is
approximately 90% complete. Full conversion, implementation and testing is
expected to be completed by November 1999. In addition, assessment of all
non-mainframe applications has been completed with conversion action plans
developed, and in the majority of cases, implemented.
In summary the Company believes that its internal systems will be year 2000
compliant in all material aspects by December 1999. However, the Company's
ability to execute its plan in a timely manner may be adversely affected by a
variety of factors, some of which are beyond the Company's control, including
turnover of key employees, availability and continuity of consultants and the
potential for unforeseen implementation problems.
In addition to these efforts with respect to internal systems, the Company
is in the final stages of the process of assessing the state of readiness of its
major suppliers. These suppliers include raw material, energy and production
supply providers as well as providers of communication and logistics services.
While analysis of the responses received leads the Company to believe that it
will not incur any major problems, there can be no assurance that these
suppliers will be compliant or that the Company will not be adversely affected
by their state of readiness. The Company plans to continue this assessment
effort and plans to have this effort completed by November 1999.
The Company has a large, diverse world wide customer base. No customer
represents a majority of the Company's sales. The Company has begun an
assessment of the state of readiness of its customers and many customers have
requested from the Company information regarding its year 2000 issues. Major
customers have been contacted to determine if any significant loss of business
would be expected because of their inability to correct their year 2000 issues
on a timely basis. At the present time, based on the responses received from
major customers, the Company does not expect any major adverse affects from any
potential customer non-compliance with year 2000 issues.
Costs to Address the Company's Year 2000 Issues
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The following is a summary of the past and expected future costs to
remediate the Company's year 2000 issues:
1997 1998 1999 Total
---------------- --------------- --------------- ----------
(In Millions)
Costs Charged to Income Before Taxes (1) $ 0.2 $ 0.3 $ 0.5 $ 1.0
Capitalized Software and Hardware (2) 0.3 0.3 0.3 0.9
Total Year 2000 Costs $ 0.5 $ 0.6 $ 0.8 $ 1.9
(1) The majority of these costs are for outside consultants and programmers, were in addition to the
normal operating budget for information systems, and were paid currently. No major systems projects
have been deferred to future periods.
(2) Costs to replace non-Year 2000 compliant systems.
Risk of Year 2000 Issues and Contingency Plans
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As previously stated, the Company expects that its systems will be fully
operational and will not cause any material disruptions resulting from
unresolved year 2000 issues. Because of the uncertainties associated with
assessing customers and suppliers, there is a risk of adverse effects on the
Company's future results of operations if the Company's customers and suppliers
are not capable of correcting their year 2000 issues, if any. The Company plans
to continue assessing these risks by analyzing responses received from customers
and suppliers. Contingency plans have been developed to deal with any potential
year 2000 issues that may arise as a result of customer or supplier year 2000
issues.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DENISON INTERNATIONAL plc
By: /s/ Bruce A. Smith
--------------------
Bruce A. Smith
Chief Financial Officer
Date: November 15, 1999