As filed with the Securities and Exchange Commission on November 24, 2003
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Report for the three and nine months ended September 30, 2003
DYNEA INTERNATIONAL OY
13 Snellmaninkatu, Helsinki, Finland
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
Form 20-F [ ] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): N/A
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.
DYNEA INTERNATIONAL OY
By: /s/ Filip Frankenhaeuser
-------------------------------
Name: Filip Frankenhaeuser
Title: Chief Financial Officer
Date: November 24, 2003
Dynea International Oy
Management discussion and analysis for the three and nine month periods ended
September 30, 2003
This discussion and analysis should be read together with the consolidated
financial statements of Dynea International, and the notes related to those
financial statements.
Some statements in this discussion are not historical facts and are
"forward-looking." Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause Dynea International's actual
results, performance or achievements or industry results to be materially
different from those expressed or implied by forward-looking statements. A
discussion of important factors that could cause Dynea International's actual
results of operations or financial condition to differ from expectations is set
forth from time to time in its periodic filings with the U.S. Securities and
Exchange Commission. Dynea International's results for the period from January
1, 2003 to September 30, 2003 are not necessarily indicative of results that
will be achieved during the year ending December 31, 2003.
Beginning in the first quarter of 2003, Dynea International divided its Bonding
and Surfacing business segment into the Panel Board Resins and Industrial and
Surfacing operating segments, to better reflect the ongoing operations of its
business. Prior periods have been restated to reflect this change. In addition,
Other Operations and Discontinued Operations are reported separately.
The operating segments listed below are described in this report for the three
and nine month periods ended September 30, 2003:
Panel Board Resins consist of businesses related to mainly formaldehyde-based
resins that are used in manufacture of particle board, plywood, medium density
fiberboard and oriented strand board. Dynea International manufactures such
panel board resins in 32 plants in 21 countries. Most of the panel board resins
plants also manufacture products for the industrial and surfacing segment.
Industrial and Surfacing consists of businesses related to industrial resins,
wood and specialty adhesives and paper overlays products. Industrial resins are
used for producing paper overlays, insulation materials and specialty products
for applications such as abrasives, foam, friction products, filters, resins for
foundry and molding compounds. Wood adhesives are used in manufacture of
engineered and interior wood products whereas specialty adhesives are used for
paper and packaging applications. Paper overlays manufacture both industrial and
decorative paper overlays.
Other Operations includes several small non-core operations such as a polyvinyl
chloride manufacturing plant in Finland, and certain business support, corporate
functions and treasury operations.
Discontinued Operations includes oil field chemical production operations for
chemicals that are used to facilitate oil production and transportation. These
operations were sold in January 2003.
Operating results for the three month period and nine month period ended
September 30, 2003, compared to operating results for the three month period and
nine month period ended September 30, 2002.
The financial data for the three and nine month periods set out below are
derived from Dynea International's consolidated profit and loss accounts for
that period. These consolidated financial statements were prepared in accordance
with International Financial Reporting Standards ("IFRS").
All amounts in (euro) millions 3 months ended 3 months ended 9 months ended 9 months ended
September 30, 2003 September 30, 2002 September 30, 2003 September 30 2002
Sales
Panel Board Resins 123.2 115.3 369.1 349.6
Industrial and Surfacing 112.5 96.8 352.7 295.7
Other Operations 6.3 6.3 21.0 19.3
Discontinued Operations - 16.3 - 53.3
- --------------------------------------- -------------------- ------------------- ------------------ ------------------
Total................ 242.0 234.7 742.8 717.9
Primary Operating Expenses (1)
Panel Board Resins (113.8) (103.1) (341.4) (310.4)
Industrial and Surfacing (106.7) (88.2) (327.3) (262.0)
Other Operations (9.8) (9.2) (30.5) (27.2)
Discontinued Operations - (14.8) - (48.0)
- --------------------------------------- -------------------- ------------------- ------------------ ------------------
Total................ (230.3) (215.3) (699.2) (647.6)
EBITDA (2)
Panel Board Resins 9.4 12.2 27.7 39.2
Industrial and Surfacing 5.8 8.6 25.4 33.7
Other Operations (3.5) (2.9) (9.5) (7.9)
Discontinued Operations - 1.5 - 5.3
- --------------------------------------- -------------------- ------------------- ------------------ ------------------
Total............... 11.7 19.4 43.6 70.3
Depreciation and Amortization
Panel Board Resins (5.1) (4.9) (15.5) (15.2)
Industrial and Surfacing (6.8) (6.5) (20.7) (19.9)
Other Operations (0.9) (0.8) (2.4) (2.3)
Discontinued Operations - (0.9) - (2.7)
- --------------------------------------- -------------------- ------------------- ------------------ ------------------
Total.............. (12.8) (13.1) (38.6) 40.1
Restructuring and Impairment
Other Operations - 0.7 - 0.7
Profit on Sale of Operations
Discontinued Operations - - 3.8 -
Operating Profit
Panel Board Resins 4.3 7.3 12.2 24.0
Industrial and Surfacing (1.0) 2.1 4.7 13.8
Other Operations (4.4) (3.0) (11.9) (9.5)
Discontinued Operations - 0.6 3.8 2.6
- --------------------------------------- -------------------- ------------------- ------------------ ------------------
Total............... (1.1) 7.0 8.8 30.9
Finance Costs............ (13.9) (16.5) (46.8) (35.2)
Shares of Results of Associates
and Joint Ventures.... 4.0 5.0 13.4 4.2
Income Tax Expense (1.4) (1.1) (18.6) (4.2)
Minority Interest......... (0.5) (1.0) (1.8) (2.6)
- --------------------------------------- -------------------- ------------------- ------------------ ------------------
Net Loss.................. (12.9) (6.6) (45.0) (6.9)
- --------------------------------------- -------------------- ------------------- ------------------ ------------------
- --------
(1) Primary operating expenses represent changes in inventories of finished
goods and work in progress, raw materials and consumables used, services
and rents, staff costs, and other operating expenses, offset by other
income and are equivalent to the sum of variable and fixed costs, less
restructuring and impairment charges, in prior periods.
(2) EBITDA, as defined by the company, represents operating income excluding
restructuring and impairment charges and depreciation and amortization
charges. Because EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to other similarly titled
measures of other companies. We have included the EBITDA, a non-GAAP
measure, because we understand that EBITDA is used by certain investors,
not as a measure of our operating results, but as a measure of our
historical ability to meet debt service and capital expenditure
requirements. We have excluded restructuring and repositioning charges from
EBITDA because we believe this presentation increases comparability from
period to period. EBITDA should not be considered as an alternative measure
of operating results, cash flow from operations, or debt determined under
generally accepted accounting priciples (GAAP).
Sales
Dynea International's sales in the three months ended September 30, 2003
increased 3% to (euro)242.0 million from (euro)234.7 in the three months ended
September 30, 2002. Similarly, Dynea International's sales in the first nine
months of 2003 increased 3% to (euro)742.8 million from (euro)717.9 million in
the first nine months of 2002. Excluding the impact of foreign exchange rate
fluctuations, Dynea International's sales increased 14% in the first nine months
of 2003.
Panel Board Resins
Sales values from panel board resins increased 7% to (euro)123.2 million in the
third quarter of 2003 from (euro)115.3 million in the third quarter of 2002. In
addition, sales values from panel board resins increased 6% to (euro)369.1
million in the first nine months of 2003 from (euro)349.6 million in the first
nine months of 2002. Sales volumes increased by 1% in the third quarter of 2003
from the corresponding period in 2002. However, sales volumes decreased by 3% in
the first nine months of 2003 compared to the first nine months of 2002. The
increase in sales value in both the third quarter and first nine months of 2003
is primarily attributable to higher average prices during the first nine months
of 2003. Panel board resin product prices are influenced by raw material prices
and due to increases in raw material prices during this period, product prices
were higher than in the previous year.
In Europe, sales volumes from panel board resins increased by 7% in the third
quarter of 2003 compared with the same period in 2002. In the first nine months
of 2003, especially in Central Europe, the weak economy and difficult market
conditions resulted in a decline in panel board production and sales volumes
from panel board resins stayed unchanged compared with the same period in 2002.
As sales prices increased during the first nine months of 2003 as a result of
higher raw material prices, total sales value from panel board resins in Europe
grew 11% compared to the same period in 2002. In the third quarter of 2003 total
sales value increased by 7% compared to the same period in 2003.
In North America, sales volumes from panel board resins decreased by 1% in the
third quarter of 2003 and by 3% in the first nine months of 2003 due to
shutdowns and curtailments among Dynea International's customers during the
period resulting from overcapacity in the panel board industry. Sales value
increased by 7% during the third quarter and by 1% first nine months of 2003
compared to the same periods in 2002. Excluding the impact of foreign exchange
rate fluctuations, sales value from panel board resins in North America
increased 17% in the third quarter and 18% in the first nine months of 2003
compared with the same periods in 2002.
In Asia Pacific, the slowdown in demand for panel board resins resulted in a
decrease of 9% in sales volume in the third quarter of 2003 compared to the
third quarter of 2002. Similarly, during the first nine months of 2003, sales
volumes of panel board resins decreased 9% from the first nine months of 2002.
Sales values increased by 6% in the third quarter of 2003 compared to the same
period in 2002 and total sales value for the nine months of 2003 increased by 3%
compared to the nine months ended September 30, 2002. The increases in sales
values are due to increased sales prices as a result of higher raw material
prices.
Industrial and Surfacing
Sales values from industrial and surfacing increased 16% to (euro)112.5 million
in the three months ended September 30, 2003 from (euro)96.8 million in the
three months ended September 30, 2002. Similarly, sales values from industrial
and surfacing increased 19% to (euro)352.7 million in the first nine months of
2003 from (euro)295.7 million in the first nine months of 2002.
Within industrial and surfacing, sales values from industrial resins increased
by 75% during the third quarter of 2003 compared to the third quarter of 2002.
Similarly, sales values from industrial resins increased by 71% during the first
nine months of 2003 compared to the corresponding period in 2002. Sales volumes
of industrial resins grew 41% in the three months ended September 30, 2003 from
the three months ended September 30, 2002. Also, sales volumes of industrial
resins were 40% higher in the first nine months of 2003 compared to the same
period in 2002. The Chemitec companies, which Dynea International acquired from
its parent, Dynea Oy, in January 2003, contributed 68% of the increase in sales
and 35% of the increase in volume in the first nine months of 2003.
Sales values of wood and specialty adhesives decreased 3% in the third quarter
and 1% first nine months of 2003 from the corresponding periods in 2002 due to
lower demand in North America and Asia Pacific as well as lower demand for
powder products. Sales volume stayed at the same level during the third quarter
and first nine months of 2003 compared to the same periods in 2002.
Sales values of paper overlays products decreased 16% in the third quarter of
2003 and 10% in the first nine months of 2003 compared to the corresponding
periods in 2002, primarily due to an unfavorable product mix and the weak U.S.
dollar. Sales values declined notwithstanding the fact that sales volumes grew
5% in the third quarter of 2003 and 10% in the first nine months of 2003
compared to the corresponding periods in 2002 due to increased demand for paper
overlays products during the periods.
Other operations
Sales in other operations totaled (euro)6.3 million in the three months ended
September 30, 2003 and 2002. Sales in other operations totaled (euro)21.0
million in the nine months ended September 30, 2003 compared to (euro)19.3
million in the nine months ended September 30, 2002. These sales were
predominantly from the operations of Dynea International's PVC manufacturing
plant.
Discontinued operations
There were no sales reported from discontinued operations in the three or nine
months ended September 30, 2003 as opposed to (euro)16.3 million in the three
months ended September 30, 2002 and (euro)53.3 million in the nine months ended
September 30, 2002, due to sale of the Oil Field Chemicals business in January
2003.
Operating profit
Dynea International's operating profit in the third quarter of 2003 decreased to
a loss of (euro)1.1 million from a profit of (euro)7.0 million in the third
quarter of 2002. In addition, Dynea International's operating profit in the nine
months ended September 30, 2003 decreased 72% to (euro)8.8 million from
(euro)30.9 million in the nine months ended September 30, 2002. The decline for
both the third quarter and the nine months ended September 30, 2003 compared to
the prior periods was predominantly due to raw material cost increases and a
highly competitive environment resulting in an inability to fully pass these
cost increases to our customers.
Depreciation and amortization charges amounted to (euro)12.8 million and
(euro)38.6 million in the three and nine months ended September 30, 2003
compared with (euro)13.1 million and (euro)40.1 million in the three and nine
months ended September 30, 2002, respectively. Depreciation and amortization
charges included goodwill amortization of (euro)2.7 million and (euro)8.2
million in the three and nine months ended September 30, 2003 compared with
(euro)3.6 million and (euro)11.0 million in the in the three and nine months
ended September 30, 2002, respectively. The decrease in goodwill amortization
was due to the sale of the Oil Field Chemicals business.
Panel Board Resins
Operating profit for panel board resins products decreased 41% to (euro)4.3
million in the three months ended September 30, 2003 compared with (euro)7.3
million in the three months ended September 30, 2002. Similarly, operating
profit for panel board resins products decreased 49% to (euro)12.2 million in
the first nine months of 2003 compared with (euro)24.0 million in the
corresponding period of 2002.
The decrease in operating profit in the third quarter of 2003 and in the first
nine months of 2003 compared to the same periods in 2002 was mainly attributable
to increases in operating expenses, which increased 10% to (euro)113.8 million
in the third quarter of 2003 from (euro)103.1 million in the third quarter of
2002, and 10% to (euro)341.4 million in the first nine months of 2003 from
(euro)310.4 million in the first nine months of 2002. The increase in operating
expenses was attributable to the increase in the prices of the main raw
materials used to make panel board resins products (methanol, phenol, urea and
melamine) during the first nine months of 2003 as compared to first nine months
of 2002. The increase in average methanol prices was approximately 50% and for
other raw materials the increase varied from 10% to 60% depending on the raw
material and market area.
In Europe, difficult market conditions continued during the third quarter of
2003 and operating profit from panel board resins in Europe decreased during the
three and nine months ended in June 2003 compared to same periods in 2002.
In North America, in the third quarter of 2003, Dynea International's operating
profit from panel board resins improved compared to the prior quarters of the
year due to lower raw material prices. Operating profit from panel board resins
in the third quarter and the first nine months of 2003 decreased from the
corresponding periods in 2002 as a result of the difficult business environment
in the North American market and general economic downturn, which affected the
Dynea International's customer industries.
In Asia Pacific, operating profit was lower for the three and nine months ended
September 30, 2003 compared to the three and nine months ended September 30,
2002 due to increased raw material prices and general market downturn in certain
areas.
Depreciation and amortization charges with respect to the panel board resins
segment amounted to (euro)5.1 million and (euro)15.5 million in the three and
nine months ended September 30, 2003 compared with (euro)4.9 million and
(euro)15.2 million in the three and nine months ended September 30, 2002,
respectively. Depreciation and amortization charges included goodwill
amortization of (euro)0.7 million and (euro)2.0 million in the three and nine
months ended September 30, 2003 and 2002.
Industrial and Surfacing
Operating profit for industrial and surfacing decreased to a loss of (euro)1.0
million in the three months ended September 30, 2003 from a profit of (euro)2.1
million in the three months ended September 30, 2002. Similarly, operating
profit for industrial and surfacing decreased 66% to (euro)4.7 million over the
course of the nine months ended September 30, 2003 from (euro)13.8 million in
the corresponding period of 2002.
Operating profit for industrial resins increased in the third quarter of 2003
from the corresponding period in 2002. However, operating profit for the first
nine months of 2003 decreased from the corresponding period in 2002 due to
intensive competition, which placed downward pressure on prices, increased raw
material prices and economic slowdown in the markets in which Dynea
International sells industrial resins.
Operating profit for wood and specialty adhesives decreased in both three and
nine months ended September 30, 2003 compared to the same periods in 2002 as a
result of increases in raw material costs for wood and specialty adhesives
during 2003.
High raw material prices and the switch to a less profitable product mix led to
a decrease in the operating profit for paper overlays in the third quarter and
first nine months of 2003 compared with the same periods in 2002.
Depreciation and amortization charges amounted to (euro)6.8 million in the three
months ended September 30, 2003 compared with (euro)6.5 million in the
corresponding period of 2002. Depreciation and amortization charges amounted to
(euro)20.7 million in the first nine months of 2003 compared with (euro)19.9
million in the corresponding period of 2002. Depreciation and amortization
charges included goodwill amortization of (euro)2.1 million and (euro)2.3
million in the third quarter of 2003 and 2002, respectively, and (euro)6.2
million and (euro)6.9 million in the nine months ended September 30, 2003 and
2002, respectively.
Other operations
Operating loss associated with other operations increased to (euro)4.4 million
in the third quarter of 2003 from a loss of (euro)3.0 million in the third
quarter of 2002 due to the increases in administrative expenses of corporate
functions. Similarly, operating loss associated with other operations increased
to (euro)11.9 million in the nine months ended September 30, 2003 from a loss of
(euro)9.5 million in the nine months ended September 30, 2002. Depreciation and
amortization charges for other operations were (euro)2.3 million for the nine
months period ended September 30, 2003.
Discontinued operations
Operating profit reported from discontinued operations in the nine months ended
September 30, 2003 was (euro)3.8 million, which consisted of the gain on the
sale of the Oil Field Chemicals business in January 2003.
Finance costs
Interest costs continued to decrease in the three months ended September 30,
2003. Net interest expense amounted to (euro)11.1 million during the period,
compared to (euro)15.9 million in the three months ended September 30, 2002. The
net interest expense reduction of (euro)4.8 million in the third quarter of 2003
resulted mainly from decreasing interest rates, which reduced the cost of our
senior bank financing, and from the prepayment of senior bank loans with the
proceeds from the sale of the Oil Field Chemicals business.
The adverse change of (euro)2.2 million in other financial items in the three
months ended September 30, 2003 is attributable mainly to foreign exchange gains
and losses, which showed a loss of (euro)0.5 million compared to a gain of
(euro)0.9 million in the three months ended September 30, 2002. The remaining
(euro)0.8 million of the adverse change results mainly from lower fair value
gains from the interest rate swaps. Total finance costs decreased to (euro)13.9
million in the third quarter of 2003 from (euro)16.5 million in the
corresponding period of 2002.
Net interest expense amounted to (euro)37.1 million in the nine months ended
September 30, 2003 compared to (euro)46.8 million in the nine months ended
September 30, 2002. The net interest expense reduction of (euro)9.7 million in
the first nine months of 2003 resulted mainly from decreasing interest rates,
which reduced the cost of our senior bank financing, and from the prepayment of
senior bank loans with the proceeds from the sale of the Oil Field Chemicals
business.
The adverse change of (euro)21.3 million in other financial items is
attributable mainly to foreign exchange gains and losses, which showed a loss of
(euro)2.0 million in the first nine months of 2003 compared to a (euro)15.9
million gain in the first nine months of 2002. The remaining (euro)3.4 million
of the increase results mainly from lower fair value gains from the interest
rate swaps and from additional amortization of capitalized arrangement fees
relating to the prepayments of senior bank loans with proceeds from the sale of
the Oil Field Chemicals business. Total finance costs increased to (euro)46.8
million in the first nine months of 2003 from (euro)35.2 million in the
corresponding period of 2002.
Share of results in associates and joint ventures
Share of results in associates and joint ventures decreased to a (euro)4.0
million profit in the third quarter of 2003 from a (euro)5.0 million profit in
the third quarter of 2002. Share of results in associates and joint ventures
increased to a (euro)13.4 million profit in the nine months ended September 30,
2003 from a (euro)4.2 million profit in the nine months ended September 30,
2002. The increase was mainly attributable to the performance of Dynea
International's 40% investment in the Methanor v.o.f. joint venture. The share
of result for the first nine months of 2003 improved as a result of increasing
methanol prices during the year.
Income tax expense
Income tax expense increased to (euro)1.4 million in the three months ended
September 30, 2003 compared with (euro)1.1 million in the three months ended
September 30, 2002. During the first nine months in 2003, income tax expense
increased to (euro)18.6 million compared with (euro)4.2 million in the nine
months ended September 30, 2002 due to the tax effect of the disposal of the Oil
Field Chemicals business.
Liquidity and financial condition
Dynea International's liquidity situation improved during the first nine months
of 2003, due to the sale of the Oil Field Chemicals business for gross proceeds
of (euro)73.9 million and net proceeds after tax and expenses of around
(euro)55.0 million (post-closing adjustments related to the sale of the Oil
Field Chemicals business are pending and they may affect the final proceeds) and
due to the company wide working capital reduction project, named "Cash Race
2003", that was launched in the beginning of 2003. There was a reduction in net
working capital of (euro)2.6 million despite increased sales prices for the nine
months ended on September 30, 2003.
Relating to the sale of Oil Field Chemicals business, it was agreed with the
lenders under Dynea International's senior bank facility that (euro)25.0 million
of these proceeds is used to prepay senior term loans, of which, (euro)18.0
million was prepaid in the first quarter of 2003, and the remaining part was
prepaid in the second quarter of 2003. Additionally, the Chemitec companies were
acquired from Dynea Oy, the parent company of Dynea International, for a price
of (euro)36.2 million and a capital contribution worth (euro)35.0 million was
received from the owners of Dynea International.
At the end of June 2003, Dynea International made a scheduled biannual repayment
of senior term-loans of (euro)8.7 million. During the second quarter of 2003, a
group contribution of (euro)5.0 million was received from the owners of Dynea
International to further strengthen liquidity.
During the third quarter of 2003, (euro)2.7 million of short-term loans were
drawn under the revolving credit facility, and consequently at the end of
September 2003 the total balance drawn from Dynea International's revolving
credit facility was (euro)69.8 million, consisting of (euro)56.5 million
short-term loans and (euro)13.3 million guarantees and letters of credit.
In the first nine months of 2003, interest paid amounted to (euro)46.5 million
and interest received totaled (euro)1.1 million. During the same period, working
capital decreased by (euro)2.6 million and cash levels decreased by (euro)2.2
million, resulting in a total cash balance of (euro)29.7 million at September
30, 2003 compared to (euro)31.9 million at December 31, 2002.
The lenders under Dynea International's senior bank facility agreed to waive all
breaches of financial covenants relating to the 12 months ending December 31,
2002. The lenders under Dynea International's senior bank facility also agreed
to waive all breaches of financial covenants relating to the three months ending
September 30, 2003, subject to the approval of the majority lenders of the
company's business plan for the period 2004 to 2006.
At September 30, 2003, Dynea International's net debt stood as follows:
September 30, 2003 December 31, 2002
((euro)millions) ((euro)millions)
Gross debt, nominal value 535.5 631.1
Capitalized fees -23.1 -26.3
Gross debt, carrying value 512.4 604.8
Cash 29.7 31.9
Marketable securities 1.4 1.4
Net Debt 481.3 571.5
As reported in the report for the 6 months ended June 30, 2003, Dynea
International has been advised by its parent company, Dynea Oy, that Dynea Oy
had purchased approximately 25% of Dynea International's outstanding 12 1/4%
notes due 2010 in open market and privately negotiated transactions. Although
Dynea Oy has advised that no further purchases have been made since the date of
that report, it is Dynea International's understanding that, depending on market
conditions and the trading price of the notes, Dynea Oy or its affiliates may
from time to time purchase additional notes in open market or privately
negotiated transactions.
Current Performance
Although many markets in which Dynea International operates continue to be weak,
Dynea International expects its financial performance for the fourth quarter of
2003 to be at the same level as, or slightly ahead of, the performance for the
same period in 2002.
Investing Activities
Investing activities generated cash of (euro)22.0 million in the first nine
months of 2003 compared to the cash used of (euro)15.4 million in the first nine
months of 2002. Acquisitions consisted of the purchase of the Chemitec companies
totaling (euro)36.2 million, including (euro)1.2 million net cash, during the
first nine months of 2003. The disposal of the Oil Field Chemicals business
generated (euro)73.9 million. Post-closing adjustments related to the sale of
the Oil Field Chemicals business are pending and they may affect the final
disposal value. Purchases of property, plant and equipment amounted to
(euro)18.4 million in the first nine months of 2003, of which approximately
(euro)7.4 million related to investments in new plants in China, Thailand and
the USA. The remaining capital expenditure of (euro)11.0 million was for
replacement investments at several sites during the nine months ended September
30, 2003 compared to (euro)14.3 million during the nine months ended September
30, 2002. Other investing cash flow included a (euro)2.7 million sale of real
estate in France and Poland.
Quantitative and Qualitative Market Risk Disclosure
Financial Risk Management
Dynea International's business operations give rise to exposure to market risks
due to changes in foreign exchange rates and interest rates. In addition, Dynea
International's high level of debt exposes it to the effects of changes in
interest rates. To manage these risks, Dynea International enters into hedging
transactions and generally uses derivative financial instruments, pursuant to
established guidelines and policies, which enable Dynea International to
mitigate the adverse effects of financial market risk. These hedging instruments
are classified in a manner consistent with the item being hedged, meaning that
the associated asset and liability items are marked-to-market at each balance
sheet date through current period earnings.
Dynea International does not anticipate any material adverse effect on its
consolidated position, result of operations, or cash flows, resulting from the
use of derivative financial instruments. Dynea International cannot guarantee,
however, that its hedging strategies will be effective, or that translation
losses can be minimized or forecasted accurately.
Foreign Exchange Risk and Interest Rate Risk
Dynea International's operations are conducted by many entities in many
countries, and accordingly, its results of operations are subject to currency
transaction risk and currency translation risk. Dynea International's historical
results were particularly affected by exchange rate fluctuations between the
euro and other currencies, such as the U.S. dollar, the Norwegian kroner, and
the Canadian dollar and also by exchange rate fluctuations between the Norwegian
kroner against other currencies, such as the U.S. dollar. Foreign exchange
exposures are managed against various local currencies, as Dynea International
has a significant amount of worldwide production and sales.
Because Dynea International has global investments, production facilities and
other operations, Dynea International has assets and liabilities and cash flows
in currencies other than the euro. The equity changes caused by movements in
foreign exchange rates are shown as translation difference in its financial
statements. Dynea International hedges its exposures on a net exposure basis
using foreign currency forward contracts. Dynea International's main exposures
are related to assets and liabilities denominated in the U.S. dollar, Canadian
dollar, and Norwegian kroner. Dynea International's businesses include a large
portion of cross border and other sales incurring foreign exchange transaction
risks, as well as raw material sourcing and other costs in various currencies.
However, Dynea International's main adhesive resin business sales are largely
conducted within a limited geographic area near its production sites, which
somewhat limits its foreign exchange transaction exposures.
Dynea International's main objective of interest rate risk management will
continue to be to reduce its total funding cost and to alter its interest rate
exposure to the desired risk profile. Under the terms of the senior credit
agreement, Dynea International was required to hedge at least 50% of the
aggregate amount of the senior term loans through interest rate protection
agreements for a period of at least three years. Historically, Dynea
International has primarily borrowed in the euro, U.S. dollar, Canadian dollar,
and Norwegian kroner, among other currencies. Its historical policy was to hedge
approximately 50% of borrowings against future movements in interest rates.
Interest Rate Exposure
As of September 30, 2003, Dynea International had (euro)222.1 million in
syndicated long-term variable rate debt, of which (euro)105.9 million was hedged
through LIBOR-based interest rate swaps, of which (euro)37.4 million were
participating swaps. The participating swaps effectively hedge for 50% interest
rate change until a capped rate of interest, after which the hedge is 100%. As
of September 30, 2003, the swaps had a remaining average life of approximately
1.7 years, the first one maturing in October 2003 (as shown in the table below).
The capped interest rate for Norwegian kroner was 8% as of September 30, 2003.
An interest rates average increase of 25 basis points would cause Dynea
International's annual interest expense to increase about (euro)0.4 million,
with those interest rates being below the capped interest rates.
Interest rate swaps involve the exchange of floating for fixed rate interest
payments to effectively convert floating rate debt into fixed rate debt. The net
fair values of Dynea International's interest rate derivatives outstanding as of
September 30, 2003 and September 30, 2002 were negative (euro)0.9 and negative
(euro)1.6 million, respectively.
Interest Rate Swaps Notional
Amount Maturity
---------------- ----------------------------
((euro) million)
Variable to Fixed:
Norwegian kroner ....... 37.4 October 2003
U.S. dollar ............ 55.8 November 2004 / March 2005 /
August 2006 / September 2006
Canadian dollar ........ 12.7 March 2006
Short-term loans also involve interest rate risk. The Company mainly borrows
under a revolving credit facility to cover working capital and other needs. The
balance of the revolving credit facility was (euro)55.2 million as of September
30, 2003.
Foreign Currency Exchange Rate Exposure
At September 30, 2003, Dynea International had foreign exchange contracts
outstanding in various currencies. Dynea International's primary net foreign
currency exposures at September 30, 2003 included exposures to the U.S. dollar,
Norwegian kroner and Canadian dollar. Consistent with the nature of the economic
hedge of such foreign currency exchange contracts, decreases or increases in the
underlying instrument or transaction being hedged would offset the corresponding
unrealized gains or losses, respectively. The net fair values of Dynea
International's foreign exchange forward contracts that were outstanding as of
September 30, 2003 and September 30, 2002, were positive (euro)0.4 million and
(euro)1.4 million, respectively.
Procedures and Controls
Dynea International has carried out an evaluation under the supervision and with
the participation of Dynea International's management, including the CEO and the
CFO, of the effectiveness of the design and operation of Dynea International's
disclosure controls and procedures. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls
and procedures. Accordingly, even effective disclosure controls and procedures
can only provide reasonable assurance of achieving their control objectives.
Based upon Dynea International's evaluation, the CEO and the CFO have concluded
that, as of September 30, 2003, the disclosure controls and procedures are
effective to provide reasonable assurance that information required to be
disclosed in the reports Dynea International files and submits under the
Exchange Act is recorded, processed, summarized and reported as and when
required. There has been no change in Dynea International's internal control
during the three months ending September 30, 2003 that has materially affected,
or is reasonably likely to materially affect, Dynea International's internal
control over financial reporting.
Dynea International Oy and Subsidiaries 10 (15)
Consolidated condensed income statement
(unaudited)
(all amounts in (euro) millions )
3 months ended 3 months ended 9 months ended 9 months ended 12 months ended
September 30, September 30, September 30, September 30, December 31,
2003 2002 2003 2002 2002
Sales 242.0 234.7 742.8 717.9 955.8
Other operating income 2.1 3.3 7.4 9.9 13.8
Expenses (232.4) (218.6) (706.6) (657.5) (887.8)
Depreciation and Amortization (12.8) (13.1) (38.6) (40.1) (53.8)
Profit on sale of operations - - 3.8 - -
Restructuring and other related items - 0.7 - 0.7 0.7
---------------------------------------------------------------------------------------
Operating (loss)/profit (1.1) 7.0 8.8 30.9 28.7
Finance costs
Interest expense, net (11.1) (15.9) (37.1) (46.8) (61.6)
Other financial (expense)/income (2.8) (0.6) (9.7) 11.6 11.6
Total finance costs (13.9) (16.5) (46.8) (35.2) (50.0)
Share of result
of associates and joint ventures 4.0 5.0 13.4 4.2 3.3
---------------------------------------------------------------------------------------
Loss before income tax
and minority interests (11.0) (4.5) (24.6) (0.1) (18.0)
Income tax (expense)/benefit (1.4) (1.1) (18.6) (4.2) 5.2
Minority interest (0.5) (1.0) (1.8) (2.6) (2.5)
---------------------------------------------------------------------------------------
Net loss (12.9) (6.6) (45.0) (6.9) (15.3)
=======================================================================================
Dynea International Oy and Subsidiaries 11 (15)
Consolidated condensed balance sheet
(unaudited)
(all amounts in (euro) millions )
As at September 30, As at September 30, As at December 31,
2003 2002 2002
ASSETS
Non-current assets
Property, plant and equipment 424.2 426.6 417.3
Intangible assets 180.9 256.9 252.7
Investments in associates and joint ventures 43.0 42.3 37.7
Other non-current assets 2.9 3.7 2.9
------------------------------------------------------------------
651.0 729.5 710.6
Current assets
Inventories 57.7 73.6 75.3
Receivables 129.6 139.3 139.6
Other current assets 9.0 10.3 11.7
Cash and cash equivalents 29.7 33.9 31.9
------------------------------------------------------------------
226.0 257.1 258.5
Total assets 877.0 986.6 969.1
==================================================================
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders equity
Share capital 293.0 288.0 288.0
Share premium 35.0 - -
Retained deficit (199.3) (143.1) (159.6)
------------------------------------------------------------------
128.7 144.9 128.4
Minority interest 11.5 12.1 11.0
Non-current liabilities
Borrowings 433.8 500.5 482.8
Other non-current liabilities 78.5 80.3 64.4
------------------------------------------------------------------
512.3 580.8 547.2
Current liabilities
Accounts payable 84.8 78.3 94.2
Borrowings and current portion of long-term debt 78.7 110.7 122.0
Other current liabilities 61.0 59.8 66.3
------------------------------------------------------------------
224.5 248.8 282.5
Total liabilities 736.8 829.6 829.7
Total equity and liabilities 877.0 986.6 969.1
==================================================================
Dynea International Oy and Subsidiaries 12 (15)
Consolidated condensed cash flow statement
(unaudited)
(all amounts in (euro) millions )
9 months ended 9 months ended 12 months ended
September 30, September 30, December 31,
2003 2002 2002
Cash flow from operating activities
Net loss (45.0) (6.9) (15.3)
Adjustments, total 88.6 76.9 97.1
Change in net working capital 2.6 (10.0) 4.2
Cash generated from operations 46.2 60.0 86.0
Interest received 1.1 0.7 0.7
Interest paid (46.5) (53.9) (64.9)
Other financial expense and income 13.2 0.4 2.4
Dividends from associates 8.3 0.6 1.3
Income taxes paid (4.7) (6.0) (10.6)
Net cash provided by operating activities 17.6 1.8 14.9
Acquisitions (36.2) (1.1) (1.1)
Disposals of businesses 73.9 - -
Purchase of property, plant and equipment (18.4) (14.3) (25.0)
Other investing cash flow, net 2.7 - 1.0
------------------------------------------------
Net cash provided by/(used in) investing activities 22.0 (15.4) (25.1)
Issuance of share capital/capital contribution 40.0 15.2 15.2
Dividends to minority shareholders (1.0) (0.7) (1.1)
Net proceeds/(payments) from borrowings (79.3) (27.2) (31.8)
------------------------------------------------
Net cash used in financing activities (40.3) (12.7) (17.7)
Decrease in cash and cash equivalents (0.7) (26.3) (27.9)
Movement in cash and cash equivalents
At start of the interim period 31.9 59.5 59.5
Effect of exchange rates (1.5) 0.7 0.3
Decrease (0.7) (26.3) (27.9)
------------------------------------------------
At end of the interim period 29.7 33.9 31.9
================================================
Consolidated condensed statement of
changes in equity
Share Share Related Party Retained Translation
Capital Premium Transactions Deficit Adjustment Total
Balance at 1 January 2002 281.0 - 38.2 (121.5) (25.0) 172.7
Shares issued 7.0 7.0
Translation adjustment (27.9) (27.9)
Net loss (6.9) (6.9)
---------------------------------------------------------------------------------------------
Balance at 30 September 2002 288.0 - 38.2 (128.4) (52.9) 144.9
Balance at 1 January 2003 288.0 - 33.1 (136.8) (55.9) 128.4
Shares issued 5.0 35.0 40.0
Group contribution 5.0 5.0
Transaction under common control (8.9) (8.9)
Translation adjustment and other 9.2 9.2
Net loss (45.0) (45.0)
---------------------------------------------------------------------------------------------
Balance at 30 September 2003 293.0 35.0 29.2 (181.8) (46.7) 128.7
Dynea International Oy and Subsidiaries 13 (15)
Notes to interim consolidated condensed financial statements
1. Accounting policies
These unaudited interim consolidated condensed financial statements are prepared
in accordance with International Accounting Standard 34 Interim Financial
Reporting. The accounting policies used in the preparation of the interim
financial statements are consistent with those used in the Company's
consolidated financial statements for the year ended December 31, 2002.
Income tax expense is recognised based on the best estimate of the weighted
average annual income tax rate expected for the full financial year.
2. Segment information
(unaudited)
(all amounts in (euro) millions )
3 months ended 3 months ended 9 months ended 9 months ended 12 months ended
September 30, September 30, September 30, September 30, December 31,
2003 2002 2003 2002 2002
Sales
Panel Board Resins 123.2 115.3 369.1 349.6 468.0
Industrial and Surfacing 112.5 96.8 352.7 295.7 389.5
Other Operations 6.3 6.3 21.0 19.3 27.1
Discontinued Operations - 16.3 - 53.3 71.2
--------------------------------------------------------------------------------------------------------------------
Total sales 242.0 234.7 742.8 717.9 955.8
Operating profit/(loss)
Panel Board Resins 4.3 7.3 12.2 24.0 27.3
Industrial and Surfacing (1.0) 2.1 4.7 13.8 10.2
Other Operations (4.4) (3.0) (11.9) (9.5) (11.1)
Discontinued Operations - 0.6 3.8 2.6 2.3
--------------------------------------------------------------------------------------------------------------------
Total (1.1) 7.0 8.8 30.9 28.7
Beginning in the first quarter of 2003, the Company divided its Bonding and
Surfacing business segment into the Panel Board Resins and Industrial and
Surfacing operating segments, to better reflect the ongoing operations.
Prior periods have been restated to reflect this change.
Other operations includes several small non-core operations such as a
polyvinyl chloride manufacturing plant in Finland, and certain business
support, corporate functions and treasury operations.
In 2002 the reported sales and operating profit in respect of discontinued
operations included the Oil Field Chemicals segment that was sold in
January 2003. The 2003 operating profit of discontinued operations consists
of the gain of the sale of the Oil Field Chemicals segment.
Dynea International Oy and Subsidiaries 14 (15)
Notes to interim consolidated condensed financial statements
(unaudited)
(all amounts in (euro) millions )
3. Commitments and contingencies
9 months ended 12 months ended
September 30, 2003 December 31, 2002
Mortgages, pledges and
other guarantees given:
Chattel mortgages 90.3 58.9
Real estate mortgages 205.7 219.6
Investments in subsidiaries at historical cost 1,264.5 1,269.5
Other pledges given 201.7 210.4
Other guarantees given 1.9 3.3
Leasing commitments
Portion falling due during the next
financial year 2.8 3.4
Portion for subsequent years 23.5 28.7
------------------------------------------
Total 26.3 32.1
Nominal values of derivative financial instruments
9 months ended 12 months ended
September 30, 2003 December 31, 2002
Interest rate swaps, caps, and futures contracts 124.6 148.9
Foreign exchange forward contracts 117.9 209.3
Maturity of interest rate swap contracts:
Under 1 year 37.4 73.2
2-5 years 68.5 19.1
Fair values of derivative financial instruments
9 months ended 12 months ended
September 30,2003 December 31, 2002
------------------------------------------------------------------------------
Positive Negative Net Net
Fair Values Fair Values Fair Values Fair Values
------------------------------------------------------------------------------
Interest rate swaps, caps, and
futures contracts - (0.9) (0.9) (0.4)
Foreign exchange forward contracts 1.0 (0.6) 0.4 4.4
Maturity of interest rate swap contracts:
Under 1 year - 0.0 0.0 (0.2)
2-5 years - (0.9) (0.9) (0.2)
Fair values of the interest rate swaps, caps, futures, and foreign exchange
forward contracts are recognised in the Balance Sheet under Current Assets or
Current Liabilities. Positive and negative fair values of financial instruments
are shown under Receivables or Other Current Liabilities in accordance with IAS
39. The nominal amounts of derivatives summarized in the above table do not
represent amounts exchanged by parties and, thus, are not a measure of Dynea
International's exposure from its use of derivatives. The nominal amounts for
the forward exchange contracts include positions, which have been effectively
closed off.
Dynea International Oy and Subsidiaries 15 (15)
Notes to interim consolidated condensed financial statements
(unaudited)
(all amounts in (euro) millions )
4. Discontinued Operations
On January 28, 2003 Dynea International sold its Oil Field Chemicals business
segment to M-I L.C.C. The deal became effective as of January 1, 2003. The
pretax gain on sale of Oil Field Chemicals segment was (euro)3.8 million.
5. Related Party Transactions and Balances
Effective January 1, 2003 Dynea International acquired from its parent company
Dynea the Chemitec companies Dynea Erkner Gmbh and Dynea Holding B.V. with its
subsidiaries for a consideration of (euro)36.2 million. The acquisition was
regarded as a transaction between parties under common control and handled as a
pooling. The value of net identifiable assets of the companies was (euro)45.1
million at the date of acquisition. The resulting difference of (euro)8.9
million was recorded as an adjustment to equity.
The gross amount of negative goodwill (euro)17.0 is recognised as income over 18
years.
The cumulative amount of negative goodwill recognised as income amounted to
(euro)1.1 million at January 1, 2003 and (euro)1.8 million at September 30,
2003. The negative goodwill is recognised as income in the line Depreciation and
and amortization of the income statement. The carrying amount at the end of the
period was (euro)15.3 million.
The assets and liabilities arising from the acquisition are as follows:
(all amounts in(euro)millions )
Property, plant and equipment 40.1
Other assets less liabilities 5.0
-----------------------------------------------------------------------
Book value of net assets 45.1
Difference taken to shareholders' equity (8.9)
-----------------------------------------------------------------------
Total purchase consideration 36.2
Related Party Transactions 9 months ended 9 months ended
September 30, 2003 September 30, 2002
Sales to associates 5.2 0.5
Sales to other related parties 8.8 9.1
Purchases from associates 16.7 10.9
Purchases from other related parties 8.2 1.8
Other income from other related parties 0.1 -
Other expenses to other related parties 0.1 -
Interest expenses to other related parties 4.8
Management service charges from related parties 5.8 5.6
Related Party Balances As at September 30, As at September 30,
2003 2002
Loans receivables from associates 0.6 0.7
Accounts receivables from associates 0.5 0.3
Accounts receivables from other related parties 1.6 2.3
Other current receivables from other related parties 1.1 0.2
Loans payables to other related parties 58.0 0.1
Accounts payables to associates 1.6 2.3
Accounts payables to other related parties 4.1 0.4
Purchase price payables to other related parties 0.7 1.3
Other current liabilities to other related parties 2.3 5.6
In June 2003, Dynea Chemicals received a group contribution of (euro)5.0 million
from its parent company Dynea.
6. Subsequent event
There are no major subsequent events.