<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 May 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)
<PAGE>
DENISON INTERNATIONAL plc
TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 3
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 10
2
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DENISON INTERNATIONAL plc
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share data)
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $25,699 $35,799
Accounts receivable, less allowances of
$2,039 and $2,395 at March 31, 1999
and December 31, 1998 respectively 30,689 29,716
Inventories 36,361 38,236
Other current assets 4,301 4,513
------ -------
Total current assets 97,050 108,264
Property, plant and equipment, net 25,774 24,726
Other assets 1,423 2,013
Goodwill, net of accumulated amortization of
$283 and $145 at March 31, 1999 and December
31, 1998 respectively 7,674 8,454
----- -----
Total assets $131,921 $143,457
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to bank $ 4,511 $ 12,532
Accounts payable 10,665 10,973
Other accrued liabilities 17,593 18,016
Current portion of capital lease obligations 155 311
------ ------
Total current liabilities 32,924 41,832
Noncurrent liabilities:
Capital lease obligations, less
current portion 26 38
Pension accrual 10,197 10,785
Other noncurrent liabilities 5,779 5,921
Negative goodwill, net of accumulated
amortization of $5,171 and $4,823 at
March 31, 1999 and December 31, 1998
respectively 5,829 6,354
------ ------
21,831 23,098
Shareholders' equity:
`A' ordinary shares (pound)8.00 par value;
7,125 shares authorized, and 7,015
issued and outstanding at March 31, 1999
and December 31, 1998 86 86
Ordinary shares $0.01 par value;
15,000,000 shares authorized, and
11,097,450 issued and outstanding
at March 31, 1999 and December 31, 1998 111 111
Additional paid-in capital 5,453 5,453
Capital redemption reserve 1,090 1,090
Retained earnings 77,291 74,405
Accumulated other comprehensive income (6,865) (2,618)
--------- --------
Total shareholders' equity 77,166 78,527
--------- ---------
Total liabilities and shareholders' equity $131,921 $143,457
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
DENISON INTERNATIONAL plc
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(U.S. dollars in thousands, except share data)
<CAPTION>
Three months ended
March 31,
<S> <C> <C>
1999 1998
---- ----
Net sales $36,469 $37,371
Cost of sales 23,908 23,509
------- --------
Gross profit 12,561 13,862
Selling, general and
administrative expenses 8,625 8,540
------ -------
Operating income 3,936 5,322
Other income -- --
Interest (expense)
income, net 71 158
------- -------
Income before taxes 4,007 5,480
Provision for income taxes 1,121 1,603
------- -------
Net income $ 2,886 $ 3,877
======= =======
Basic earnings per share $ .26 $ .35
======= ========
Diluted earnings per share $ .26 $ .35
======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
DENISON INTERNATIONAL plc
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)
<CAPTION>
Three months ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Net cash provided by
operating activities $2,933 $3,230
------ ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property, plant
and equipment (2,982) (1,300)
Proceeds from disposal of
property, plant and
equipment 5 --
----- -------
Net cash used in investing
activities (2,977) (1,300)
------ -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (repayment)
on lines of credit (8,020) (84)
Repayment of capital lease
obligations (161) (162)
------ ------
Net cash used in financing
activities (8,181) (246)
------- ------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (1,875) (564)
-------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (10,100) 1,120
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR/
PERIOD 35,799 30,337
------- ------
CASH AND CASH EQUIVALENTS
AT END OF YEAR/PERIOD $25,699 $31,457
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
DENISON INTERNATIONAL plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Financial Statements
Interim Financial Information
The financial information at March 31, 1999 and for the three months
ended March 31, 1999 and March 31, 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 three month period ending March 31, 1999 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 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.
2. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
(U.S. dollars in thousands)
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Finished goods $22,078 $22,486
Work-in-progress 2,892 3,343
Raw materials and supplies 11,391 12,407
-------- ---------
$36,361 $38,236
======= =======
</TABLE>
3. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
(U.S. dollars in thousands Three months ended
except per share data) March 31,
1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income $2,886 $3,877
====== ======
Denominator:
Denominator for basic
earnings per share
weighted-average shares 11,104 11,065
6
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Effect of dilutive stock options 15 62
---------- ---------
Denominator for diluted
earnings per share -
adjusted weighted-average shares 11,119 11,127
======= =======
Basic earnings per share $ .26 $ .35
========== ==========
Diluted earnings per share $ .26 $ .35
========== ==========
</TABLE>
Options to purchase 609,500 shares were outstanding during the 3-month period
ending March 31, 1998, but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the common shares, and therefore the effect would be
antidilutive.
4) Comprehensive Income
The Company's total comprehensive income was as follows:
<TABLE>
<CAPTION>
Three month ended
March 31,
1999 1998
<S> <C> <C>
Net income $2,886 $3,877
Foreign currency translation
adjustment, net of tax
benefit (4,247) (698)
------- ----------
Comprehensive net income (loss) ($1,361) $3,179
======== ======
</TABLE>
The components of accumulated other comprehensive income, net of related tax, at
December 31, 1998 and March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Accumulated
Pension Foreign Other
Liability Currency Comprehensive
Adjustment Translation Income
<S> <C> <C> <C>
Balance at December 31, 1998 $ (43) $ (2,575) $ (2,618)
Current period other
comprehensive income -- (4,247) (4,247)
------------ ----------- ----------
Balance at March 31, 1999 $ (43) $ (6,822) $ (6,865)
============ ============ ===========
</TABLE>
5) Segment Information
In 1998, the Company adopted SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Company's reportable segments are
based on geographic area.
A summary of the Company's operations by geographic area follows:
7
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<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
<S> <C> <C>
Sales to unaffiliated companies:
United Kingdom $2,482 $2,642
France 4,475 4,486
Germany 3,114 3,194
Rest of Europe 10,644 8,199
------ -------
Total Europe 20,715 18,521
United States 9,708 12,046
Canada 2,076 2,310
-------- -------
Total N. America 11,784 14,356
Asia-Pacific 3,970 4,494
------- -------
Total consolidated $36,469 $37,371
======= =======
Transfers between geographic areas:
United Kingdom $ 13 $ 13
France 6,354 7,319
Germany 4,303 4,543
Rest of Europe 44 58
---------- ----------
Total Europe 10,714 11,933
United States 2,757 3,355
Canada -- --
----------- ---------
Total N. America 2,757 3,355
Asia-Pacific 18 16
---------- ---------
Total transfers 13,489 15,304
Eliminations (13,489) (15,304)
-------- --------
Total consolidated $ 0 $ 0
======= =======
Operating income (loss):
United Kingdom $ 402 $ 313
France 1,881 1,916
Germany 186 389
Rest of Europe 1,441 597
----------- ----------
Total Europe 3,910 3,215
United States (42) 1,847
Canada 212 298
-------- --------
Total N. America 170 2,145
Asia-Pacific (144) (38)
--------- ---------
Total consolidated $ 3,936 $ 5,322
======== =========
Identifiable assets:
United Kingdom $ 12,046
France 22,850
Germany 15,604
Rest of Europe 34,166
----------
Total Europe 84,666
United States 29,555
Canada 3,686
Total N. America 33,241
Asia-Pacific 14,014
Total consolidated $ 131,921
</TABLE>
8
<PAGE>
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 March 31, 1999 Compared with Three Months Ended
March 31, 1998
The Company's net sales decreased 2.4% to $36.5 million in the three
month period ended March 31, 1999 from $37.4 million in the comparable period in
1998. During the same period, net sales in North America decreased 17.9% to
$11.8 million from $14.4 million; net sales in Europe increased 11.8% to $20.7
million from $18.5 million; and net sales in the Asia-Pacific region decreased
11.7% to $4.0 million from $4.5 million. The decrease in net sales is attributed
to the current economic conditions in the Asian-Pacific region, combined with a
slow North American market and de-stocking by the Company's North American
distributors. Partially offsetting these factors was the full quarter results of
Lokomec Oy, a company acquired late in 1998, along with strong sales in the rest
of the Company's European operations.
Restated (at average exchange rates for the three month period ended
March 31, 1998), net sales for the three month period ended March 31, 1999, were
$35.9 million, a 3.9% decrease over the comparable 1998 period. The decreased
sales revenue for the period attributable to the exchange rate differences was
$.6 million. Restated (at average exchange rates for the three month period
ended March 31, 1998), net sales for the three month period ended March 31, 1999
for the Company's European operations increased 8.8% to $20.1 million from $18.5
million, and net sales for the Asia-Pacific decreased 14.1% to $3.9 million from
$4.5 million.
The Company's gross profit decreased 9.4% to $12.6 million in the three
month period ended March 31, 1999 from $13.9 million in the comparable 1998
period. Gross profit as a percentage of net sales decreased to 34.4% in the
three months ended March 31, 1999 from 37.1% in the comparable period in 1998.
The decrease in gross profit was the result of the lower sales volume realized
combined with the impact of planned production curtailments to reduce
inventories in the quarter. The Company reduced inventories by $1.9 million in
the quarter and the associated impact on costs is reflected in the reduced gross
earnings.
Gross profit in Europe increased 14.3% to $9.0 million in the three
months ended March 31, 1999 from $7.8 million in the comparable 1998 period,
while gross profit in North America decreased 49.7% to $2.4 million in the three
months ended March 31, 1999 from $4.7 million in the comparable 1998 period.
Gross profit in the Asia-Pacific region decreased 6.0% to $1.2 million in the
three months ended March 31, 1999 from $1.3 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, while the decline in the gross profits in the Asian-Pacific region
resulted entirely from lower volume. In Europe the increase in gross profit
resulted from a full quarter impact of results from Lokomec Oy, a company
acquired late in 1998, combined with gross profits for existing operations equal
to 1998 performance.
Restated (at average exchange rates for the three months ended March
31, 1998), gross profit in Europe was $8.7 million, or a 11.1% increase over the
comparable 1998 period, and gross profit in the Asia-Pacific region was
$1.2 million, or a 7.1% decrease over the comparable 1998 period. The total
9
<PAGE>
decreased gross profit for the period attributable to the exchange rate
differences was $.2 million. On a consolidated basis restated gross profit
decreased by 11.1%, or $1.6 million, to $12.3 million from $13.9 million in the
same period 1998. Restated, gross profit as a percentage of net sales decreased
to 34.3% for the three months ended March 31, 1999 compared to 37.1% for the
comparable period in 1998.
Selling, general and administrative ("SG&A") expense increased 1.0% to
$8.6 million in the three month period ended March 31, 1999 from $8.5 million in
the comparable 1998 period. These expenses as a percentage of net sales
increased to 23.7% in the three month period ended March 31, 1999 compared to
22.8% in the comparable 1998 period. The increase in these expenses as a
percentage of net sales for the three month period ended March 31, 1999 as
compared to the same 1998 period, is due generally to the reduction in revenues
recorded, spread across a relatively static SG&A cost base.
Operating income decreased 26.0% to $3.9 million in the three months
ended March 31, 1999 from $5.3 million in the comparable 1998 period. Operating
income as a percentage of net sales decreased to 10.8% in 1999 from 14.2% in the
comparable 1998 period. Restated (at average exchange rates for the three months
ended March 31, 1998), operating income decreased 27.2% to $3.9 million (10.8%
of net sales) in 1999, from $5.3 million (14.2% of net sales) in 1998.
Net interest income was $.1 million in the three month period ended
March 31, 1999 compared to $.2 million of interest income in the comparable 1998
period. The decrease in interest income was primarily due to lower investable
balances of on hand cash versus the comparable period in 1998.
The effective tax rate for the three month period ended March 31, 1999
was 28.0% compared to 29.2% for the comparable 1998 period. The provision for
taxes decreased 30.0% to $1.1 million for 1999 compared to $1.6 million for the
same 1998 period. This provision as a percentage of net sales decreased to 3.1%
in 1999 from 4.2% in the same 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Three Months Ended and At March 31,
------------------------------------
1999 1998
------------------------------- ----
(Dollars in thousands)
<S> <C> <C>
Cash & cash equivalents 25,699 31,457
Net cash provided by operating activities 2,933 3,230
Net cash used in investing activities (2,977) (1,300)
Net cash used in financing activities (8,181) (246)
Effect of exchange rate changes on cash (1,875) (564)
</TABLE>
Net cash provided by operating activities for the three month period
ended March 31,1999 decreased to $2.9 million from $3.2 million as compared to
the same 1998 period. The decrease in the Company's cash generated from
operations reflects primarily the lower profits realized, combined with a
decrease in working capital requirements. The $0.3 million decrease in net cash
provided by operating activities for the three months ended March 31, 1999 as
compared to the same 1998 period was attributable to a $3.4 million net decrease
in cash used for inventories, a $.9 million net increase in cash used for
receivables, and a $2.8 million increase in cash used for accrued 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 increased to $3.0 million for the
three month period ended March 31, 1999 from $1.3 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 three months ended March
31, 1999 related to projects initiated in 1998.
10
<PAGE>
Net cash used in financing activities increased to $8.2 million for the
three months ended March 31, 1999 from $.2 million in the comparable 1998
period. The increase of $8.0 million in net cash used by 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
$1.9 million and $.6 million for the three month period ended March 31, 1999 and
1998, respectively. As 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 dollar reported balances for the three
month period ended March 31, 1999 compared to the same period in 1998. The $1.3
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 and 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. Borrowings under the agreement are secured by a guarantee by
the Company. Interest on the line, which is based on LIBOR plus 0.875%, is
payable monthly. At March 31, 1999, $3.5 million was outstanding under this time
note.
Short-term borrowings outside the United States under available
informal credit facilities are typically a result of overdrafts. At March 31,
1999, the Company had $1.0 million of foreign debt outstanding. The Company also
has an additional $1.8 million of unused foreign credit facilities. The banks
may withdraw these facilities at any time.
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 80% complete. Full conversion and implementation is expected to
be completed by June 1999. In addition, 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. 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 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. 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 June 1999.
11
<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 six months 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 the Company's year 2000 issues:
<TABLE>
<CAPTION>
1997 1998 1999 and Total
Future
-------------------------------------------------------------
(In Millions)
<S> <C> <C> <C> <C>
Costs Charged to Income Before Taxes (1) $ 0.2 $ 0.3 $ 0.3 $ 0.8
Capitalized Software and Hardware (2) 0.3 0.3 0.3 0.9
--------- --------- --------- --------
Total Year 2000 Costs $ 0.5 $ 0.6 $ 0.6 $ 1.7
========= ========= ========= ==========
(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.
</TABLE>
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 by 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.
12
<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: May 14, 1999
13
