<PAGE>
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 1998
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
<PAGE>
DENISON INTERNATIONAL plc
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 3
Condensed Consolidated Statements of Operations for the three and 5
nine months ended September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for the nine months 6
ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations 9
2
<PAGE>
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share data)
ASSETS
September 30, December 31,
1998 1997
(Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 34,557 $ 30,337
Accounts receivable, less allowances of 28,921 29,212
$2,467 and $3,087 at September 30, 1998
and December 31, 1997 respectively
Inventories 36,729 28,182
Other current assets 3,577 3,327
Total current assets 103,784 91,058
Property, plant and equipment, 19,998 14,948
Other assets 1,822 1,487
Total assets $ 125,604 $ 107,493
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 411 $ 1,472
Accounts payable 10,732 9,413
Other accrued liabilities 18,808 15,677
Current portion of capital lease obligations 369 662
Total current liabilities 30,320 27,224
Noncurrent liabilities:
Capital lease obligations, less current portion 146 344
Pension accrual 11,041 9,482
Other noncurrent liabilities 6,171 6,733
Negative goodwill, net of accumulated
amortization of $3,975 and $3,406 at
September 30, 1998 and December 31, 1997
respectively 3,702 4,158
Total noncurrent Liabilities 21,060 20,717
Shareholders' equity:
'A' ordinary shares (pound)8.00 par value;
7,125 shares authorized, and 7,015
issued and outstanding at September
30, 1998 and December 31, 1997 86 86
Ordinary shares $0.01 par value;
15,000,000 shares authorized;
3
<PAGE>
11,097,450 and 11,057,700 issued and
outstanding at September 30, 1998 and
December 31, 1997 111 111
Additional paid-in capital 5,453 5,411
Capital redemption reserve 1,090 1,090
Retained earnings 71,034 58,115
Accumulated other comprehensive income (3,550) (5,261)
Total shareholders' equity 74,224 59,552
Total liabilities and shareholders' equity $125,604 $ 107,493
Note: The Balance Sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information in
footnotes required by general accounting principles for complete financial
statements.
The accompanying notes are an integral part of these statements.
4
<PAGE>
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,
1998 1997 1998 1997
Net sales $ 34,016 $ 36,163 $106,730 $111,244
Cost of sale 21,096 22,601 65,868 70,543
Gross profit 12,920 13,562 40,862 40,701
Selling, general and
administrative expenses 7,633 8,472 23,961 24,846
Operating income 5,287 5,090 16,901 15,855
Other income -- 2,151 -- 2,175
Interest income, net 408 80 900 130
Income before taxes 5,695 7,321 17,801 18,160
Provision for income taxes 1,483 1,724 4,882 4,159
Net income $ 4,212 $ 5,597 $12,919 $ 14,001
Basic earnings per share $.38 $.52 $1.17 $1.32
Diluted earnings per share $.38 $.51 $1.16 $1.30
The accompanying notes are an integral part of these statements.
5
<PAGE>
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)
Nine months ended
September 30,
1998 1997
Net cash provided by operating activities $ 11,125 $ 12,967
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (6,734) (3,604)
Proceeds from disposal of property, plant
and equipment 42 2,175
Net cash used in investing activities (6,692) (1,429)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment on lines of credit (1,04 1) (709)
Redemption of preferred stock -- (1,090)
Net proceeds from sale of ordinary shares -- 4,805
Repayment of capital lease obligations (502) (855)
Proceeds from exercise of stock options 42 78
Net cash provided by (used in) financing activities (1,501) 2,229
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,288 (1,882)
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,220 11,885
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 30,337 19,144
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34,557 $ 31,029
The accompanying notes are an integral part of these statements.
6
<PAGE>
DENISON INTERNATIONAL plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Financial Statements
Interim Financial Information
The financial information at September 30, 1998 and for the periods ended
September 30, 1998 and September 30, 1997 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 rules and regulations promulgated by the
Securities and Exchange Commission. These condensed consolidated financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1997 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 on 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.
7
<PAGE>
2. Inventories
Inventories consisted of the following:
(U.S. dollars in thousands)
September 30, December 31,
1998 1997
(Unaudited)
Finished goods $ 22,157 $ 16,365
Work-in-progress 3,653 2,861
Raw materials and supplies 10,919 8,956
$ 36,729 $ 28,182
3. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
Unaudited
(U.S. dollars in thousands except Three months ended Nine months ended
share and per share data) September 30, September 30,
1998 1997 1998 1997
Numerator:
Net income $ 4,212 $ 5,597 $ 12,919 $ 14,001
Denominator:
Denominator for basic earnings
per share - weighted-average 11,102,769 10,812,854 11,084,600 10,619,330
shares outstanding
Effect of dilutive stock options 27,546 134,301 52,229 138,980
Denominator for diluted earnings
per share - adjusted weighted-
average shares outstanding 11,130,315 10,947,155 11,136,829 10,758,310
Basic earnings per share $.38 $.52 $1.17 $1.32
Diluted earnings per share $.38 $.51 $1.16 $1.30
Options to purchase 50,000 shares at $17.60 per share and 5,000 shares at $17.38
per share were outstanding during the three-month period ending September 30,
1998, but were not included in the computation of diluted earnings per share
because the exercise price was greater than the average market price of the
common shares, and therefore the effect would be antidilutive.
8
<PAGE>
4. Comprehensive Income
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). The Company adopted this statement as of the beginning of 1998. SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however the adoption of SFAS 130 had no impact on the Company's
net income or shareholders equity. SFAS 130 requires foreign currency
translation adjustments and minimum pension liability adjustments, which prior
to adoption were reported separately in shareholders equity, to be included in
other comprehensive income. SFAS 130 also requires that all items recognized
under accounting standards as components of comprehensive earnings be reported
in an annual financial statement that is displayed with the same prominence as
other annual financial statements. The Company's annual financial statements for
prior periods will be reclassified, as required.
Total comprehensive income was as follows:
Unaudited
(U.S. dollars in thousands)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
Net income $4,212 $5,597 $12,919 $14,001
Foreign currency translation
adjustment, net of tax benefit 2,449 1,821 1,711 (1,966)
Comprehensive net income $6,661 $7,418 $14,630 $12,035
The components of accumulated other comprehensive income, net of related tax, at
December 31, 1997 and September 30, 1998 are as follows:
Pension Foreign Accumulated
Liability Other Currency Comprehensive
Adjustment Translation Income
Balance at December 31, 1997 $(43) $(5,218) $(5,261)
Current period other compre-
hensive income -- 1,711 1,711
Balance at September 30, 1998 $(43) $(3,507) $(3,550)
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Although the Company reports its financial results in U.S. dollars,
approximately 65% 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, cost of goods sold, gross profit,
and
9
<PAGE>
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, 1998 compared with Three Months ended September
30, 1997.
The Company's net sales decreased 5.9% to $34.0 million in the three month
period ended September 30, 1998 from $36.2 million in the comparable period in
1997. During the same period, net sales in North America decreased 14.4% to
$12.6 million from $14.7 million, net sales in Europe increased 16.8% to $17.9
million from $15.4 million, and net sales in the Asia-Pacific region decreased
42.5% to $3.5 million from $6.1 million. The decrease in net sales is
attributable to the current economic conditions in the Asian market, and, in
turn, slower sales to North American customers who have substantial exports into
the Asian markets. Partially offsetting these conditions were continued
strengthening conditions in the European market.
Restated (at average exchange rates for the three month period ended September
30, 1997), net sales for the three month period ended September 30, 1998, were
$34.5 million, a 4.7% decrease over the comparable period in 1997. The increased
sales revenue for the period attributable to the exchange rate differences was
$0.4 million. Restated (at average exchange rates for the three month period
ended September 30, 1997), net sales for the three month period ended September
30, 1998 for the Company's European operations increased 14.6% to $17.6 million
from $15.3 million in the comparable period in 1997, and net sales for the
Asia-Pacific decreased 32.9% to $4.1 million from $6.1 million in the comparable
period in 1997.
The Company's gross profit decreased 4.7% to $12.9 million in the three
month period ended September 30, 1998 from $13.6 million in the comparable
period in 1997. Gross profit as a percentage of net sales increased to 38.0% in
the three months ended September 30, 1998 from 37.5% in the comparable period in
1997. Despite the lower revenues realized, gross profits were strong in the
three month period ending September 30, 1998 resulting from the effects of a
continued favorable product mix shift towards the Company's higher margin vane
pump product line, compared to the same period in 1997. Margins were further
enhanced by the effects of manufacturing and operational cost efficiencies
implemented by the Company. Also favorably impacting gross profits for the three
months ended September 30, 1998 were adjustments made to certain reserves and
accruals, reflecting current business conditions. These adjustments had no
impact on the results for the nine months ended September 30, 1998.
Gross profit in Europe increased by 31.4% to $7.7 million in the three
months ended September 30, 1998 from $5.9 million in the comparable period in
1997, while gross profit in North America decreased by 25.3% to $4.0 million in
the three months ended September 30, 1998 from $5.4 million in the comparable
period in 1997, and gross profit in the Asia-Pacific region decreased 50.2% to
$1.2 million in the three months ended September 30, 1998 from $2.3 million in
the comparable period in 1997. Slightly higher volume levels, combined with the
strength of the Company's vane pump product line and the benefits of implemented
manufacturing cost improvements, accounted for the improvement in the Company's
European gross profits. The overall depressed economic conditions in the
Asia-Pacific region, combined with the strengthening U.S. dollar relative to the
functional currencies in Australia, Japan and Singapore, reduced sales volume to
that region, and subsequently reduced gross profits. The impact of the overall
Asia-Pacific economy also impacted volume in the North American markets by
reducing exports to customers in the Asia-Pacific region, and reduced gross
profits.
10
<PAGE>
Restated (at average exchange rates for the three month period ended
September 30, 1997), gross profit in Europe was $7.6 million, a 28.6% increase
over the comparable period in 1997, and gross profit in the Asia-Pacific region
was $1.4 million, a 41.6% decrease versus the comparable period in 1997. On a
consolidated basis, restated (at average exchange rates for the three month
period ended September 30, 1997), gross profit decreased by 4.1%, or $0.6
million, to $13.0 million from $13.6 million in the same period in 1997.
Restated (at average exchange rates for the three month period ended September
30, 1997), gross profit as a percentage of net sales increased to 37.8% for the
three months ended September 30, 1998 compared to 37.5% for the same period in
1997.
Selling, general and administrative ("SG&A") expenses decreased 9.9% to
$7.6 million in the three month period ended September 30, 1998 from $8.5
million in the comparable period in 1997. SG&A expenses as a percentage of net
sales decreased to 22.4% in the three months ended September 30, 1998 compared
to 23.4% for the same period in 1997. Cost reductions and operating efficiencies
accounted for the overall reduction in SG&A spending for the three months ended
September 30, 1998 versus the comparable period in 1997.
Operating income increased 3.9% to $5.3 million in the three months ended
September 30, 1998 from $5.1 million for the comparable period in 1997.
Operating income as a percentage of net sales increased to 15.6% from 14.1% for
the comparable period in 1997. Restated (at average exchange rates for the three
month period ended September 30, 1997), operating income for the three month
period ended September 30, 1998 increased 2.5% to $5.2 million from $5.1 million
in the same period in 1997. The decrease in operating income for the three month
period ended September 30, 1998 attributable to the exchange rate was $0.1
million.
The Company had no other income for the quarter ended September 30, 1998 as
compared to $2.2 million of other income for the comparable period in 1997. The
other income recorded in the quarter ended September 30, 1997 related to the
non-recurring gain on the sale of property at the Company's Hilden, Germany
location.
Net interest income was $0.4 million in the three month period ended
September 30, 1998 compared to $0.08 million of interest income in the
comparable period in 1997. Unused portions of the net proceeds of the Company's
initial public offering held in August 1997 combined with lower investing and
financing activities increased interest bearing cash balances for the period,
and, subsequently, net interest income.
The effective tax rate for the three month period ended September 30, 1998
was 26.0% compared to 23.5% for the comparable period in 1997. The provision for
taxes decreased 14.0% to $1.5 million for the three month period ended September
30, 1998 compared to $1.7 million for the same period in 1997. This provision as
a percentage of net sales decreased to 4.4% for the three month period ended
September 30, 1998 from 4.8% in the same period in 1997. Full utilization of net
operating loss carryforwards in 1997 for North American operations, unavailable
for use in 1998, was the primary reason for the increase in the effective tax
rate.
Nine Months Ended September 30, 1998 compared with Nine Months Ended September
30, 1997.
Net sales decreased 4.1% to $106.7 million in the nine months ended
September 30, 1998 from $111.2 million in the comparable period in 1997. For the
nine months ended September 30, 1998 versus the same period in 1997, net sales
in Europe increased 7.7% to $54.7 million from $50.8 million, while net sales in
North America decreased 8.2% to $40.3 million from $43.9 million, and net sales
in the Asia-
11
<PAGE>
Pacific region decreased 29.0% to $11.7 million from $16.5 million. A weak Asian
economy, combined with a strengthening U.S. dollar against most of the
functional currencies used by the Company, were the primary reasons for the
decline in sales revenue during the nine months ended September 30, 1998 versus
the same period in 1997.
Restated (at average exchange rates for the nine month period ended
September 30, 1997), net sales for the nine months ended September 30, 1998,
were $110.4 million, a 0.8% decrease over the comparable period in 1997. The
increased revenue for the period attributable to the exchange rate difference
was $3.7 million. Restated (at average exchange rates for the nine month period
ended September 30, 1997), net sales for the Company's European operations
increased 11.2% to $56.5 million for the nine months ended September 30, 1998
from $50.8 million in the comparable period in 1997, while net sales for the
Asia-Pacific operations decreased 20.0% to $13.2 million for the nine months
ended September 30, 1998 from $16.5 million in the comparable period in 1997.
Gross profit increased by 0.4% to $40.9 million in the nine months ended
September 30, 1998, from $40.7 million in the comparable period in 1997. Gross
profit as a percentage of net sales increased to 38.3% for the nine months ended
September 30, 1998 versus 36.6% in the same period for 1997. Despite the lower
revenues recorded for the period, gross profits and margins were strong
reflecting the continued shift towards the Company's higher profit margin vane
pump product line, combined with the favorable effects of previously implemented
manufacturing cost improvement programs.
Gross profit for the Company's North American operations was $12.8 million
for the nine months ended September 30, 1998, a 12.8% decrease from the $14.6
million recorded in the comparable period in 1997, and gross profit in the
Asia-Pacific region decreased 39.2% to $3.6 million for the nine months ended
September 30, 1998 from $6.0 million in the comparable period in 1997. Gross
profit for the Company's European operations was $24.5 million for the nine
months ended September 30, 1998, a 21.7% increase from the $20.1 million gross
profit recorded in the comparable period in 1997. The decrease in Asia-Pacific
and North American gross profit can be directly related to the reduction in net
sales, partially offset by cost and operating efficiencies in the North American
manufacturing facilities, while the increased gross profit in the Company's
European operations is the result of higher sales volume, cost and operating
efficiencies and the strong market for the Company's higher profit vane pump
product line.
Restated (at average exchange rates for the nine month period ended
September 30, 1997), gross profits were $42.2 million for the nine months ended
September 30, 1998, a 3.7% increase over the same period in 1997. Gross profit
increased by $1.3 million due to the effects of the exchange rate differences.
Restated (at average exchange rates for the nine month period ended September
30, 1997), gross profit for the Company's European operations was $25.3 million
for the nine months ended September 30, 1998, a 25.6% increase over the
comparable period in 1997, and gross profit in the Asia-Pacific region was $4.1
million for the nine months ended September 30, 1998, a 31.2% decrease over the
comparable period in 1997. Restated (at average exchange rates for the nine
month period ended September 30, 1997), gross profit as a percentage of net
sales increased to 38.3% for the nine months ended September 30, 1998 versus
36.6% for the same period in 1997.
SG&A expenses for the nine months ended September 30, 1998 decreased by
$0.9 million to $24.0 million for the nine months ended September 30, 1998
versus $24.9 million for the comparable period in 1997. These expenses as a
percentage of net sales were 22.5% for the nine month period ended September 30,
1998 compared to 22.3% for the comparable period in 1997. Despite the lower
revenues recorded, SG&A expenses were reduced due to cost reductions focused
primarily in the Company's Asia-Pacific region operations.
12
<PAGE>
Operating income for the nine months ended September 30, 1998 increased by
6.6% to $16.9 million from $15.9 million for the comparable period in 1997.
Operating income as a percentage of net sales increased to 15.8% for the nine
months ended September 30, 1998 from 14.3% in the comparable period in 1997.
Restated (at average exchange rates for the nine month period ended September
30, 1997), operating income increased by 8.9% to $17.3 million (15.6% of net
sales) for the nine months ended September 30, 1998 from $15.9 million (14.3% of
net sales) in the same period in 1997. The increased operating income for the
nine month period ended September 30, 1998 attributable to the exchange rate
differences was $0.4 million.
The Company had no other income for the nine months ended September 30,
1998 as compared to $2.2 million of other income for the comparable period in
1997. The other income recorded in the nine months ended September 30, 1997
related to the non-recurring gain on the sale of property at the Company's
Hilden, Germany location.
Higher profitability, combined with the unused portion of the proceeds from
the Company's initial public offering in August 1997, resulted in higher
interest bearing cash balances for the nine months ended September 30, 1998
compared to the same period in 1997. With higher interest bearing cash balances
available, interest income rose 592% to $0.9 million for the nine months ended
September 30, 1998 from $0.1 million in the comparable period of 1997.
The effective tax rate for the nine month period ending September 30, 1998
was 27.4% (i.e., $4.9 million) versus a tax rate for the same period in 1997 of
22.9% (i.e., $4.2 million). This provision as a percentage of net sales rose to
4.6% in 1998 from 3.7% in the comparable period for 1997. Full utilization of
net operating loss carryforwards in 1997 for North American operations,
unavailable for use in 1998, was the primary reason for the increase in the tax
rate.
13
<PAGE>
Liquidity and Capital Resources
Nine Months Ended and At September 30,
1998 1997
(U.S. dollars in thousands)
Cash and cash equivalents 34,557 31,029
Net cash provided by operating activities 11,125 12,967
Net cash used in investing activities (6,692) (1,429)
Net cash provided by (used in) financing activities (1,501) 2,229
Effect of exchange rate changes on cash 1,288 (1,882)
Net cash provided by operating activities for the nine months ended
September 30, 1998 decreased to $11.1 million from $13.0 million as compared to
the same period in 1997. The decrease in the Company's cash generated from
operating activities primarily resulted from additional working capital
requirements. The $1.9 million decrease in net cash provided by operating
activities for the nine month period ended September 30, 1998 as compared to the
same period in 1997 was primarily attributable to a $4.8 million net increase in
cash utilized for inventories, partially offset by a $3.6 million increase in
cash provided from accounts receivables. The Company anticipates that operating
activities and capital expenditure requirements will continue to be funded
utilizing cash flow from operations, cash on hand, and, if necessary, bank
borrowings.
Net cash utilized in investing activities increased to $6.7 million for the
nine month period ended September 30, 1998 from $1.4 million in the comparable
period in 1997. Investing activities consisted primarily of investment in
machinery and equipment for the Company's three production facilities. Purchases
of machinery and equipment were $6.7 million for the nine months ended September
30, 1998 as compared to $3.6 million for the comparable period in 1997. The
Company anticipates that it will incur approximately $8.5 million in capital
expenditures for fiscal year 1998.
Net cash utilized in financing activities increased to $1.5 million in the
nine months ended September 30, 1998 from $2.2 million provided by financing
activities in the comparable period in 1997. The increase of $3.7 million in net
cash utilized by financing activities was primarily attributable to $4.8 million
received from the Company's initial public offering in the nine months ended
September 30, 1997, partially offset by a reduction of $1.1 million in the nine
month period ended September 30, 1998 compared to the same period in 1997 for
nonrecurring costs associated with the redemption of preferred stock.
The effects of exchange rate fluctuations on cash and cash equivalents were
a $1.3 million increase and a $1.9 million decrease for the nine months ended
September 30, 1998 and September 30, 1997, respectively. Since approximately
two-thirds of the Company's business is transacted in currencies other than the
U.S. dollar, foreign currency fluctuations had a significant impact on U.S.
dollar reported balances for the nine month period ended September 30, 1998
compared to the same period in 1997. The $3.2 million change in the exchange
rate fluctuations 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 and Asia-Pacific operations. The average
dollar-weighted foreign currency decline for the nine month period ended
September 30, 1998 for the Company's European and Asia-Pacific operations was
3.3% and 12.7%, respectively.
In September 1995, the Company's U.S. subsidiary entered into a loan
agreement with a bank that provides for a revolving line of credit of up to $3.0
million. The loan agreement was renewed in September 1997. Borrowings under the
loan agreement are secured by substantially all of the U.S. subsidiary's assets.
Interest on
14
<PAGE>
the revolving line of credit, which is at the prime rate (8.0% at September 30,
1998) minus 0.5%, is payable monthly. The loan agreement contains various
restrictions and financial maintenance requirements, including the requirement
to maintain a compensating balance of $100,000. At September 30, 1998, the
Company's U.S. subsidiary had $3.0 million of unused credit available under this
facility.
Short-term borrowings outside the United States under available informal
credit facilities are typically a result of overdrafts. At September 30, 1998,
the Company had $0.4 million of foreign debt outstanding. The Company also has
an additional $2.3 million of unused foreign credit facilities. The banks may
withdraw these facilities at any time.
Use of proceeds
The Company has not used the net proceeds of the initial public offering
held in August 1997. The net proceeds totaling approximately $4.8 million are
currently being held in cash and short-term investments.
Year 2000 (Millennium) Issues
Currently, many computer systems and software products are 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 may 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 is evaluating the
Year 2000 issue, and as it relates 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 75% complete. Full conversion and implementation is expected to be
completed by June 1999.
Assessment of all non-mainframe applications has been completed with
conversion action plans developed.
In summary, the Company believes that its internal systems will be Year
2000 compliant in all material aspects by December 1999.
In addition to these efforts as regards to internal systems, the Company
has begun 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. An
analysis of the responses received leads the Company to believe that it will not
incur any major potential problems. The Company plans to continue this
assessment effort and plans to have this effort completed by June 1999.
15
<PAGE>
The Company has a large, diverse world wide customer base. No customer
represents a majority of the Company's sales. While the Company has not begun an
assessment of the state of readiness of its customers, many customers have
requested from the Company information regarding its Year 2000 issues. Major
customers will be contacted within the next year 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.
Costs to Address the Company's Year 2000 Issues
The following is a summary of the past and expected future costs to remediate
any of the Company's year 2000 issues:
Year-to-Date Estimated
Fiscal 1997 Fiscal 1998 Future
(U.S. dollars) Costs Costs Costs Total
Costs Charged to Income
Before Taxes (1) $200,000 $300,000 $300,000 $800,000
Capitalized Software
And Hardware (2) 300,000 300,000 300,000 900,000
Total Year 2000 Costs $500,000 $600,000 $600,000 $1,700,000
(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
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 through reviews with customers and suppliers.
Contingency plans will be developed to deal with any potential Year 2000 issues
that may arise as a result of these reviews. Contingency plans relating to
suppliers, if necessary, will be developed by June 1999. Any necessary
contingency plans relating to customers will be developed by September 1999.
16
<PAGE>
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 16, 1998
17
