UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM_________TO ___________
Commission file number 000-29358
DENISON INTERNATIONAL plc
(Exact name of registrant as specified in its charter)
England and Wales Not Applicable
---------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
14249 Industrial Parkway
Marysville, Ohio 43040
-------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(937) 644-4437
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Ordinary Shares, $0.01 Par Value, 11,113,950 shares as of August 12,
2000 "A" Ordinary Shares, (pound)8.00 par value, 7,015 shares as of
August 12, 2000
<PAGE>
TABLE OF CONTENTS
FORM 10-Q
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1 Financial Statements 1
Condensed Consolidated Balance Sheets
(Unaudited) 1
Condensed Consolidated Statements of Operations
(Unaudited) 2
Condensed Consolidated Statements of Cash Flows
(Unaudited) 3
Notes to Condensed Consolidated Financial
Statements (Unaudited) 4
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Results of Operations 8
Liquidity and Capital Resources 12
Impact of Inflation 13
Exposure to Currency Fluctuations 13
Order Receipts and Backlog 14
Market Risk 14
Forward-looking Statements 14
Item 3 Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Exhibit Index 17
Signatures 18
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except per share data)
June 30, December 31,
2000 1999
---- ----
(Unaudited)
Current assets:
Cash and cash equivalents $30,921 $31,174
Accounts receivable, less allowances of 33,924 28,267
$1,743 and $2,175 at June 30, 2000
and December 31, 1999 respectively
Inventories 34,282 31,453
Other current assets 4,705 3,566
------ ------
Total current assets 103,832 94,460
Property, plant and equipment, net 25,329 24,519
Other assets 2,,595 2,727
Goodwill, net of accumulated amortization of
$475 and $345 at June 30, 2000 and
December 31, 1999 respectively 8,186 7,114
------ ------
Total assets $139,942 $128,820
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current assets:
Notes payable to bank $ 5,924 $ 5,586
Accounts payable 10,595 9,027
Other accrued liabilities 16,942 13,203
Current portion of capital lease obligations 86 111
--- ----
Total current liabilities 33,547 27,927
Noncurrent liabilities:
Pension accrual 11,655 10,506
Other noncurrent liabilities 4,907 4,516
Negative goodwill, net of accumulated
amortization of $5,628 and $4,966 at
June 30, 2000 and December 31, 1999
respectively 3,873 4,811
------ ------
20,435 19,833
Shareholders' equity:
`A' ordinary shares (pound)8.00 par
value; 7,125 shares authorized, and
7,015 shares issued and outstanding
at June 30, 2000 and December 31, 1999 86 86
Ordinary shares $0.01 par value;
15,000,000 shares authorized, and
11,113,950 shares issued and outstanding
at June 30, 2000 and December 31, 1999 111 111
Additional paid-in-capital 5,479 5,479
Capital redemption reserver 1,090 1,090
Retained earnings 89,710 82,691
Accumulated other comprehensive
income (loss) (10,516) (8,397)
--------- --------
Total shareholders' equity 85,960 81,060
------- -------
Total liabilities and shareholders'
equity $139,942 $128,820
======== ========
The accompanying notes are an integral part of these statements
1
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DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(U.S. dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Net sales $39,959 $34,593 $76,992 $71,062
Cost of Sales 25,930 22,182 49,619 46,090
------ ------ ------ ------
Gross profit 14,029 12,411 27,373 24,972
Selling, general and
administrative expenses 8,821 8,221 17,695 16,846
----- ----- ------ ------
Operating income 5,208 4,190 9,678 8,126
Other income (expense) 41 (181) 143 (181)
Interest income, net 35 64 133 135
--- -- --- ---
Income before taxes 5,284 4,073 9,954 8,080
Provision for income taxes 1,427 1,200 2,935 2,321
----- ------ ------ -----
Net income $ 3,857 $ 2,873 $ 7,019 $ 5,759
======= ======= ======= =======
Basic earnings per share $ .35 $ .26 $ .63 $ .52
====== ====== ====== ======
Diluted earnings per share $ .35 $ .26 $ .63 $ .52
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
2
<PAGE>
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)
Six Months Ended
June 30,
2000 1999
---- ----
Net cash provided by operating activities $7,033 $5,355
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,687) (4,471)
Proceeds from disposal of property,
plant and equipment 145 5
Purchase of subsidiary (4,015) --
------ ------
Net cash used in investing activities (5,557) (4,466)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment on lines of credit (1,396) (8,020)
Proceeds from bank loan -- 993
Repayment of capital lease
obligations (25) (180)
Proceeds from exercise of Stock options -- 26
-- --
Net cash used in financing activities (1,421) (7,181)
------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (308) (2,431)
------ ------
NET INCREASE (DECREASE IN CASH AND CASH EQUIVALENTS (253) (8,723)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,174 35,799
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $30,921 $27,076
======= =======
The accompanying notes are an integral part of these statements.
3
<PAGE>
DENISON INTERNATIONAL plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Financial Statements
Interim Financial Information
The financial information at June 30, 2000 and for the three and six
month periods ended June 30, 2000 and June 30, 1999 is unaudited but includes
all adjustments which Denison International plc (the "Company") considers
necessary for a fair presentation of financial position at such date and the
operating results and cash flows for those periods. All adjustments made were of
a normal, recurring nature. Results for the interim period are not necessarily
indicative of results that may be expected for the entire year. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with United States generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission Rules and Regulations. These condensed consolidated
financial statements should be read in conjunction with the Company's audited
financial statements and the notes thereto for the year ended December 31, 1999
included in the Company's Annual Report on Form 10-K.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. Significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with United States generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from these estimates.
2. Acquisitions
On April 12, 2000 the Company completed its acquisition of 100% of the
outstanding shares of Riva Calzoni Oleodinamica S.p.A. ("Calzoni"), a wholly
subsidiary of Intek S.p.A., effective as of April 1, 2000. The cash purchase
price was $4,015,000 ($5,354,000 net of cash acquired and debt assumed). Calzoni
designs, manufacturers and distributes radial piston oil-pressure motors for
industrial hydraulics applications, and is located in Bologna, Italy. The
acquisition has been accounted for utilizing the purchase method of accounting,
and the operating results of Calzoni have been included in the operating results
of the Company from April 1, 2000. Goodwill of $838,000 is being amortized by
the straight-line method over 30 years.
The following unaudited pro forma summary presents the Company's
combined results as if the acquisition occurred at January 1, 1999, after giving
effect to certain adjustments
4
<PAGE>
including goodwill amortization. These pro forma results are not necessarily
indicative of those that would have occurred had the acquisition actually
occurred at January 1, 1999:
Six months ended June 30,
2000 1999
-------------------- -------------------
(U.S. dollars in thousands)
Revenue $ 80,651 $ 78,382
Net Income $ 7,213 $ 6,160
Basic Earnings per share $ .65 $ .55
Diluted earnings per share $ .65 $ .55
3. Inventories
Inventories consisted of the following:
(U.S. dollars in thousands)
June 30, December 31,
2000 1999
---- ----
Finished goods $ 20,997 $ 18,482
Work-in-progress 3,416 2,565
Raw materials and supplies 9,869 10,406
--------- ---------
$ 34,282 $ 31,453
======== ========
4. Property, Plant and Equipment
Property, plant and equipment,net,
consisted of the following: June 30, December 31,
2000 1999
---- ----
Cost:
Land and buildings $ 4,486 $ 3,952
Machinery and equipment 36,010 33,859
Motor vehicles 962 911
-------- --------
41,458 38,722
Less accumulated depreciation (16,129) (14,203)
-------- --------
Property, plant and equipment, net $ 25,329 $24,519
======== =======
5. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
(U.S. dollars and shares in Three months ended Six months ended
thousands except per share data) June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Numerator:
Net income $3,857 $2,873 $7,019 $5,759
======== ======== ======== ========
Denominator:
Denominator for basic
earnings per share
weighted-average shares 11,121 11,110 11,121 11,107
Effect of dilutive stock
options 0 16 0 16
-------- -------- -------- --------
5
<PAGE>
Denominator for diluted
earnings per share -
adjusted weighted-average
shares 11,121 11,126 11,121 11,123
======== ======== ======== ========
Basic earnings per share $ .35 $ .26 $ .63 $ .52
======== ======== ======== ========
Diluted earnings per share $ .35 $ .26 $ .63 $ .52
======== ======== ======== ========
6. Comprehensive Income
The Company's total comprehensive income was as follows (US dollars in
thousands):
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Net income $3,857 $2,873 7,019 $5,759
Foreign currency
translation adjustment,
net of tax
benefit (408) (1,641) (2,119) (5,888)
-------- ------- ------- -------
Comprehensive net income
(loss) $3,449 $1,232 $4,900 $ (129)
====== ====== ====== =======
The components of accumulated other comprehensive income (loss), net of related
tax, at December 31, 1999 and June 30, 2000 are as follows:
Accumulated
Pension Foreign Other
Liability Currency Comprehensive
Adjustment Translation Income (loss)
---------- ----------- ---------------
Balance at December 31,
1999 $ (43) $ (8,354) $ (8,397)
Current period other
comprehensive income
(loss) -- (2,119) (2,119)
------------- --------------- ------------
Balance at June 30, 2000 $ (43) $ (10,473) $ (10,516)
============ ============= ===========
7. Segment Information
A summary of the Company's operations by geographic area follows:
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
Sales to unaffiliated
companies:
United Kingdom $ 1,779 $ 2,311 $ 4,357 $ 4,793
France 3,919 4,354 8,083 8,829
Germany 2,867 2,721 5,752 5,835
Italy 6,044 2,717 8,397 5,439
Rest of Europe 7,726 7,516 15,357 15,438
----- ----- ------ ------
Total Europe 22,335 19,619 41,946 40,334
United States 10,487 9,368 21,374 19,076
Canada 1,943 1,332 4,165 3,408
----- ----- ----- -----
Total N. America 12,430 10,700 25,539 22,484
6
<PAGE>
Asia-Pacific 5,194 4,274 9,507 8,244
----- ----- ----- -----
Total consolidated $ 39,959 $ 34,593 $ 76,992 $ 71,062
======== ======== ======== =========
Transfers between geographic
areas:
United Kingdom $ 18 $ 18 $ 127 $ 31
France 6,224 5,865 12,395 12,219
Germany 3,485 3,600 7,489 7,903
Italy - - - -
Rest of Europe 57 62 91 106
Total Europe 9,784 9,545 20,102 20,259
United States 3,158 2,046 6,629 4,803
Canada - - - -
Total N. America 3,158 2,046 6,629 4,803
Asia-Pacific 29 15 37 33
------- ------- ------- -------
Total transfers 12,971 11,606 26,768 25,095
Eliminations (12,971) (11,606) (26,768) (25,095)
------- ------- ------- -------
Total consolidated $ 0 $ 0 $ 0 $ 0
======== ========= ========= =========
Operating income (loss):
United Kingdom $ 626 $ 507 $ 739 $ 909
France 1,660 2,057 3,112 3,938
Germany 228 63 577 249
Italy 594 160 739 370
Rest of Europe 865 902 1,802 2,133
--- --- ----- -----
Total Europe 3,973 3,689 6,969 7,599
United States 649 474 1,821 432
Canada 248 65 579 277
--- -- --- ---
Total N. America 897 539 2,400 709
Asia-Pacific 338 (38) 309 (182)
--- --- --- ----
Total consolidated $ 5,208 $ 4,190 $ 9,678 $ 8,126
========= ======== ======== ========
June 30, 2000 December 31, 1999
------------- -----------------
Identifiable assets:
United Kingdom $ 11,655 $ 15,461
France 20,695 21,274
Germany 14,083 14,214
Italy 18,624 6,237
Rest of Europe 28,177 25,903
------ ------
Total Europe 93,234 83,089
United States 26,480 26,182
Canada 4,467 4,183
----- -----
Total N. America 30,947 30,365
Asia-Pacific 15,761 15,366
Total consolidated $ 139,942 $ 128,820
========= =========
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and the Notes related thereto
appearing in Item 1. Financial Statements.
Although the Company reports its financial results in U.S. dollars,
approximately 70% 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.
On April 12, 2000 the Company completed its acquisition of 100% of the
outstanding shares of Riva Calzoni Oleodinamica S.p.A. ("Calzoni"), a wholly
subsidiary of Intek S.p.A., effective as of April 1, 2000. The cash purchase
price was $4,015,000 ($5,354,000 net of cash acquired and debt assumed). Calzoni
designs, manufacturers and distributes radial piston oil-pressure motors for
industrial hydraulics applications, and is located in Bologna, Italy. The
acquisition has been accounted for utilizing the purchase method of accounting,
and the operating results of Calzoni have been included in the operating results
of the Company from April 1, 2000. Goodwill of $838,000 is being amortized by
the straight-line method over 30 years.
RESULTS OF OPERATIONS
Second Quarter ended June 30, 2000 Compared with Second Quarter ended June 30,
1999
The Company's net sales increased 15.5% to $40.0 million in the three
months ended June 30, 2000 from $34.6 million for the same period in 1999. Net
sales, without the impact of the Calzoni acquisition, increased 4.9% to $36.3
million for the three months ended June 30, 2000 as compared to the same period
in 1999. During the same period, net sales in North America increased 16.2% to
$12.4 million from $10.7 million; net sales in Europe increased 13.5% to $22.3
million (net sales in Europe, without the impact of the Calzoni acquisition,
decreased 5.2% to $18.6 million) from $19.6 million; and net sales in
Asia-Pacific region increased 21.5% to $5.2 million from $4.3 million. The
primary reason for the increased volume in the second quarter of 2000 compared
with the second quarter of 1999 is the increased product demand for all of the
Company's products, particularly in the Company's North American markets, due to
a partial recovery from the 1999 slowdown in the mining and gas and oil
exploration markets, combined with the impact of the Calzoni acquisition. Also
impacting revenues was the continuing recovery of the economies in the
Asia-Pacific region, combined with the Company's increased efforts to further
penetrate those markets. Partially offsetting these increases was the continued
strengthening of the US dollar against most of the functional currencies
utilized in the Company's European operations.
Restated (at average exchange rates for the second quarter of 1999),
without the impact of the Calzoni acquisition, net sales for the quarter ended
June 30, 2000 were $38.3
8
<PAGE>
million, a 10.7% increase from the quarter ended June 30, 1999. The decreased
sales revenue for the period attributable to the changes in exchange rate was
$2.0 million. Restated (at average exchange rates for the second quarter of
1999), without the impact of the Calzoni acquisition, net sales for the
Company's European operations increased 6.1% to $20.8 million in the quarter
ended June 30, 2000 from $19.6 million in the quarter ended June 30, 1999, while
net sales for the Asia-Pacific region increased 16.1% to $5.0 million from $4.3
million.
The Company's gross profit increased to $14.0 million for the quarter
ended June 30, 2000 from $12.4 million in the same period of 1999. Gross profit
as a percentage of net sales decreased to 35.1% in the quarter ended June 30,
2000 from 35.9% in the comparable period of 1999. The increased gross profit was
primarily attributable to the increased volume demand realized and the impact of
the Calzoni acquisition, combined with the impacts of cost reductions made
throughout 1999 and prior fiscal years. Partially offsetting these increases was
the continued strengthening of the US dollar against most of the functional
currencies utilized in the Company's European operations.
Gross profit in North America increased 43.4% to $3.7 million for the
three months ended June 30, 2000 from $2.6 million in the same period of 1999.
Gross profit in Europe of $8.5 million was equal to 1999 gross profit. Gross
profit in Europe, without the impact of the Calzoni acquisition, decreased 11.9%
to $7.5 million in the quarter ended June 30, 2000 from $8.5 million in the
quarter ended June 30, 1999. Asia-Pacific gross profit increased 29.5% to $1.7
million from $1.3 million. Restated (at average exchange rates for the second
quarter of 1999), without the impact of the Calzoni acquisition, gross profit in
Europe was $8.4 million, or a 1.2% decrease over the comparable period in 1999,
and gross profit in the Asia-Pacific region was $1.7 million, or a 25.2%
increase over the comparable period in 1999. The total gross profit decrease for
the period attributable to the exchange rate differences was $0.9 million.
Restated (at average exchange rates for the second quarter of 1999),
consolidated gross profit as a percentage of net sales decreased to 35.5% for
2000 compared to 35.9% for the comparable period in 1999.
Selling, general and administrative ("SG&A") expenses increased 7.3%
to $8.8 million for the quarter ended June 30, 2000 from $8.2 million for the
quarter ended June 30, 1999. SG&A expenses, without the impact of the Calzoni
acquisition, were $8.3 million for the three months ended June 30, 2000, a 0.4%
increase over the comparable period in 1999. These expenses as a percentage of
net sales were 22.1% (22.7% without the impact of the Calzoni acquisition) for
2000 as compared to 23.8% for 1999. Restated (at average exchange rates for the
second quarter of 1999), without the impact of the Calzoni acquisition, SG&A
increased 6.1% to $8.7 million (22.8% of net sales) in the second quarter of
2000 from $8.2 million (23.8% of net sales) in the second quarter of 1999. The
increase in these expenses for the quarter ended June 30, 2000 as compared to
the quarter ended June 30, 1999 is due primarily to the impact of the Calzoni
acquisition, combined with the increases relating to the increased net sales
volume recorded.
Operating income increased 24.3% to $5.2 million in the three month
period ended June 30, 2000 from $4.2 million in the comparable period of 1999.
9
<PAGE>
Operating income, without the impact of the Calzoni acquisition, increased 14.1%
to $4.8 million for the three months ended June 30, 2000 as compared to $4.2
million for the comparable period in 1999. Operating income as a percentage of
net sales increased to 13.0% in the quarter ended June 30, 2000 from 12.1% in
the quarter ended June 30, 1999. Restated (at average exchange rates for the
second quarter of 1999), without the impact of the Calzoni acquisition,
operating income increased 23.5% to $5.2 million (13.5% of net sales) in the
quarter ended June 30, 2000 from $4.2 million (12.1% of net sales) in the
comparable period of 1999. The changes in exchange rates had the effect of
deceasing operating income for the period by $0.4 million, excluding the impact
of the Calzoni acquisition.
Other income was recorded in the quarter ended June 30, 2000 of
$41,000 (0.1% of net sales) as compared with other expense of $181,000 for the
comparable period of 1999. The increase in other income was the result of
recognition of non-cash currency gains on inter-company loans for the quarter
ended June 30, 2000, as compared with losses recorded on these transactions in
the comparable period of 1999.
Net interest income was $35,000 for the quarter ended June 30, 2000,
as compared with net interest income of $64,000 for the comparable period in
1999.
The effective tax rate for the three months ended June 30, 2000 was
27.0% compared with 29.5% for the three months ended June 30, 1999, resulting
from the mix of profits generated in the Company's overseas operations, with
varying effective tax rates, as opposed to the mix recorded in the second
quarter of 1999. The provision for taxes increased 18.9% to $1.4 million in the
second quarter of 2000 compared to $1.2 million in the comparable period of
1999. This provision as a percentage of net sales increased to 3.6% in the
quarter ended June 30, 2000 from 3.5% in the quarter ended June 30, 1999.
Six months ended June 30, 2000 Compared with six months ended June 30, 1999
The Company's net sales increased 8.3% to $77.0 million in the six
months ended June 30, 2000 from $71.1 million for the same period in 1999. Net
sales, without the impact of the Calzoni acquisition, increased 3.2% to $73.3
million for the six months ended June 30, 2000 as compared to the same period in
1999. During the same period, net sales in North America increased 13.6% to
$25.5 million from $22.5 million; net sales in Europe increased 3.8% to $41.9
million (net sales in Europe, without the impact of the Calzoni acquisition,
decreased 5.3% to $38.2 million) from $40.3 million; and net sales in
Asia-Pacific region increased 15.3% to $9.5 million from $8.2 million. The
primary reasons for the increased volume are the increased product demand for
all of the Company's products, particularly in the Company's North American
markets, due to a partial recovery from the 1999 slowdown in the mining and gas
and oil exploration markets and the recovery of the Company's Asia-Pacific
markets, combined with the impact of the Calzoni acquisition. Partially
offsetting these increases was the continued strengthening of the US dollar
against most of the functional currencies utilized in the Company's European
operations.
Restated (at average exchange rates for the six months ended June 30,
1999), without the impact of the Calzoni acquisition, net sales for the six
months ended June 30, 2000 were $77.3 million, an 8.8% increase versus 1999. The
decreased sales revenue for the period attributable to the changes in exchange
rate was $4.0 million, excluding the impact of the Calzoni acquisition. Restated
(at average exchange rates for the six months ended June 30,
10
<PAGE>
1999), without the impact of the Calzoni acquisition, net sales for the
Company's European operations, increased 5.9% to $42.7 million in the six months
ended June 30, 2000 from $40.3 million in the six months ended June 30, 1999,
while net sales for the Asia-Pacific region increased 10.0% to $9.1 million from
$8.2 million.
The Company's gross profit increased to $27.4 million for the six
months ended June 30, 2000 from $25.0 million in the same period of 1999. Gross
profit as a percentage of net sales increased to 35.6% in the six-month period
ended June 30, 2000 from 35.1% in the comparable period of 1999. The increased
gross profit was primarily attributable to the increased volume demand realized
and the impact of the Calzoni acquisition, combined with the impacts of cost
reductions made throughout 2000 and prior fiscal years. Partially offsetting
these increases was the continued strengthening of the US dollar against the
functional currencies utilized by the Company's European operations.
Gross profit in North America increased 53.9% to $7.6 million for the
six months ended June 30, 2000 from $5.0 million in the same period of 1999.
Gross profit in Europe of $16.4 million was unfavorable to 1999 gross profit of
$17.5 million. Gross profit in Europe, without the impact of the Calzoni
acquisition, decreased 11.5% to $15.4 million in the six months ended June 30,
2000 from $17.5 million in the six months ended June 30, 1999. Asia-Pacific
gross profit increased 24.5% to $3.2 million from $2.6 million. Restated (at
average exchange rates for the six months ended June 30, 1999), without the
impact of the Calzoni acquisition, gross profit in Europe was $17.3 million, or
a 0.9% decrease over the comparable period in 1999, and gross profit in the
Asia-Pacific region was $3.1 million, or a 19.8% increase over the comparable
period in 1999. The total gross profit decrease for the period attributable to
the exchange rate differences was $0.8 million. Restated (at average exchange
rates for the second quarter of 1999), consolidated gross profit as a percentage
of net sales increased to 35.9% for 2000 compared to 35.1% for the comparable
period in 1999.
SG&A expenses increased 5.0% to $17.7 million for the six months ended
June 30, 2000 from $16.8 million for the six months ended June 30, 1999. SG&A
expenses, without the impact of the Calzoni acquisition, were $17.1 million for
the six months ended June 30, 2000, a 1.7% increase over the comparable period
in 1999. These expenses as a percentage of net sales were 23.0% (23.4% without
the impact of the Calzoni acquisition) for 2000 as compared to 23.7% for 1999.
Restated (at average exchange rates for the six months ended June 30, 1999),
without the impact of the Calzoni acquisition, SG&A increased 7.3% to $18.1
million (23.4% of net sales) in the six months ended June 30, 2000 from $16.8
million (23.7% of net sales) in the six months ended June 30, 1999. The increase
in these expenses for the six months ended June 30, 2000 as compared to the six
months ended June 30, 1999 is due primarily to the impact of the Calzoni
acquisition, combined with the increases relating to the increased net sales
volume recorded and a full period of amortization expenses related to the
Company's new software installed as part of its Y2K program as compared to 1999.
Operating income increased 19.1% to $9.7 million in the six month
period ended June 30, 2000 from $8.1 million in the comparable period of 1999.
Operating income, without the impact of the Calzoni acquisition, increased 13.8%
to $9.3 million for the six months ended June 30, 2000 as compared to $8.1
million for the comparable period in 1999. Operating income as a percentage of
net sales increased to 12.6% in the six-month period ended June 30, 2000
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from 11.4% in the six-month period ended June 30, 1999. Restated (at average
exchange rates for the six months ended June 30, 1999), without the impact of
the Calzoni acquisition, operating income increased 23.3% to $10.0 million
(13.0% of net sales) in the six months ended June 30, 2000 from $8.1 million
(11.4% of net sales) in the comparable period of 1999. The changes in exchange
rates had the effect of decreasing operating income for the period by $0.7
million, excluding the impact of the Calzoni acquisition.
Other income was recorded in the six month period ended June 30, 2000
of $143,000 (0.2% of net sales) as compared with other expense of $181,000 for
the comparable period of 1999. The increase in other income was the result of
recognition of non-cash currency gains on inter-company loans for the six months
ended June 30, 2000, as compared with losses recorded on these transactions in
the comparable period of 1999.
Net interest income was $133,000 for the six months ended June
30, 2000, as compared with net interest income of $135,000 for the comparable
period in 1999.
The effective tax rate for the six months ended June 30, 2000
was 29.5% compared with 28.7% for the six months ended June 30, 1999, resulting
from the mix of profits generated in the Company's overseas operations, with
varying effective tax rates, as opposed to the mix recorded year to date in
1999. The provision for taxes increased 26.5% to $2.9 million in the six months
ended June 30, 2000 compared to $2.3 million in the comparable period of 1999.
This provision as a percentage of net sales increased to 3.8% in the six months
ended June 30, 2000 from 3.3% in the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Six months ended and at June 30,
2000 1999
---- ----
(U.S. dollars in thousands)
Cash & Cash Equivalents $30,921 $27,076
Net cash provided by operating activities 7,033 5,355
Net cash used in investing activities (5,557) (4,466)
Net cash used in financing activities (1,421) (7,181)
Effect of exchange rate changes on cash (308) (2,431)
Historically, the Company has funded its cash requirements through
cash flow from operations, although short-term fluctuations in working capital
requirements for some of the Company's subsidiaries have been met through
borrowings under revolving lines of credit obtained locally. The Company's
primary uses of cash have been to fund capital expenditures and acquisitions and
to service and repay debt.
Net cash provided by operating activities for the six months ended
June 30, 2000 increased to $7.0 million from $5.4 million for the same period in
1999. The $1.6 million increase in net cash provided by operating activities for
the six months ended June 30, 2000 compared to the comparable period in 1999 was
attributable to a $1.3 million increase in net income combined with a $.5
million increase in non current liabilities, partially offset by a $0.2 million
increase in cash utilized for working capital. The Company anticipates that
operating
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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 was $5.6 million for the six
months ended June 30, 2000, compared to $4.5 million for the same period in
1999. Investing activities in the six month period ended June 30, 2000 consisted
of the purchase of subsidiary ($4.0 million) and investment in manufacturing
equipment for the Company's four production facilities of $1.6 million. For the
six months ended June 30, 1999 investing activities consisted entirely of
investment in manufacturing equipment for the Company's four production
facilities of $4.5 million.
Net cash used by financing activities was $1.4 million for the six
months ended June 30, 2000 as compared to $7.2 million for the same period in
1999. The decrease of $5.6 million in cash used for financing activities for the
six months ended June 30, 2000 as compared with the same period in 1999 was
primarily attributable to the partial repayment during the six months ended June
30, 1999 of the $12.0 million of short term bank borrowings obtained to
facilitate the Lokomec acquisition. The activity in the six months ended June
30, 2000 relates to the repayment of debt assumed in connection with the Calzoni
acquisition.
The effect of exchange rate changes on cash and cash equivalents was
$0.3 million and $2.4 million for the six months ended June 30, 2000 and 1999,
respectively. As approximately 70% of the Company's business is transacted in
currencies other than the US dollar, foreign currency fluctuations can have a
significant impact on dollar reported balances for the Company. The $2.1 million
decrease in the exchange rate impact on cash and cash equivalents is
attributable to a rapid strengthening, during the first six months of 1999, of
the US dollar against most of the functional currencies earned by the Company in
its European operations, as compared to the first six months of 2000.
IMPACT OF INFLATION
The impact of inflation on the operating results of the Company has
been moderate in recent years reflecting generally lower rates of inflation in
the economy and relative stability in the Company's cost structure. Although
inflation has not had, and the Company does not expect that it will have, a
material impact on operating results, there is no assurance that the Company's
business will not be affected by inflation in the future.
EXPOSURE TO CURRENCY FLUCTUATIONS
A significant portion of the Company's business is conducted in
currencies other than the dollar, including pounds sterling, equivalent European
euro currencies and Japanese yen. The Company's financial statements are
prepared in dollars, and therefore fluctuations in exchange rates in the pound
sterling and other currencies in which the Company does business relative to the
dollar may cause fluctuations in reported financial information, which are not
necessarily related to the Company's operations. In 1999, for example, the
Company experienced a 1.7% increase in net sales in the European region
(denominated in local currencies); however, the dollar-translated net sales
figures showed a net increase due to the fluctuation of the dollar against the
local currencies of 6.1%. Due to the volatility of currency exchange rates, the
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Company cannot predict the effect of exchange rate fluctuations upon future
operating results. Although the Company currently engages in transactions to
hedge a portion of the risks associated with fluctuations in currency exchange
rates, it may not do so in the future. There can be no assurance that the
Company's business, financial condition and results of operations will not be
materially adversely affected by exchange rate fluctuations or that any hedging
techniques implemented by the Company will be effective.
MARKET RISK
Information regarding market risk of the Company as of December 31,
1999 is presented under the caption "Quantitative and Qualitative Disclosures
About Market Risk" which is included in Item 7A of the Company's annual report
on Form 10-K for the year ended December 31, 1999. There have been no material
changes in the Company's exposure to market risk during the three and six month
periods ended June 30, 2000.
ORDER RECEIPTS AND BACKLOG
Worldwide customer order receipts were $43.2 million ($39.2 million
without the impact of the Calzoni acquisition) for the quarter ended June 30,
2000, a 21.0% increase over the same period in 1999. On a volume basis,
utilizing constant currency exchange rates, order receipts for the quarter ended
June 30, 2000 were $45.8 million ($41.5 million without the impact of the
Calzoni acquisition) and represent a 28.1% increase over the quarter ended June
30, 1999.
Year to date worldwide customer order receipts were $84.6 million
($80.7 million without the impact of the Calzoni acquisition) and represent a
13.3% increase over the same period in 1999. On a volume basis, utilizing
constant currency exchange rates, order receipts for the six months ended June
30, 2000 were $89.6 million ($85.3 million without the impact of the Calzoni
acquisition) and represent a 19.8% increase over the six months ended June 30,
1999.
The worldwide backlog of unshipped orders at June 30, 2000 totaled
$34.5 million ($30.8 million without the impact of the Calzoni acquisition), a
$6.7 million or 27.8% over the backlog at June 30, 1999, and a $7.1 million or
30% increase over the backlog at December 31, 1999.
FORWARD-LOOKING INFORMATION
This form 10-Q includes and incorporates forward-looking statements
within the meaning of section 27A of the Securities act of 1933 and section 21E
of the Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included or incorporated in this Form 10-Q regarding the
Company's strategy, future operations, financial position, future revenues,
projected costs, prospects, plans and objectives of management are
forward-looking statements. The words "anticipates," "believes," "estimates,"
"expects," "intends," "may," "suggests," "plans," "projects," "will," "would,"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these words. The Company
cannot guarantee that it will actually achieve the plans, intentions or
expectations disclosed in its forward-looking statements and undue reliance
should not be placed on the Company's forward-looking statements. Actual results
or events could differ materially from the
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plans, intentions or expectations disclosed in the forward-looking statements.
The Company has included important factors in the cautionary statements included
or incorporated in this Form 10-Q that the Company believes could cause actual
results or events to differ materially from the forward-looking statements made.
These important factors include, but are not limited to, demand for the
Company's products, competition by rival developers of hydraulic components and
systems, changes in technology, customer preferences, growth in the hydraulics
industries, fluctuations in the functional currencies of the Company and general
economic and business conditions. In addition the Company's forward-looking
statements do not reflect the potential impact of any future acquisitions,
mergers, dispositions, joint ventures or investments the Company may make These
important factors and other factors, which could affect the Company's results,
are detailed in the Company's filings with the Securities and Exchange
Commission and are included herein by reference. The Company assumes no
obligation to update the information in this filing.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information regarding market risk of the registrant is presented under
the caption "Market Risk" which is included in Item 2 of this report and is
incorporated herein by reference.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in certain legal proceedings incidental to the
normal conduct of its business. The company does not believe that any
liabilities relating to any of the legal proceedings to which it is a party are
likely to be, individually or in the aggregate, material to its consolidated
financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
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Exhibit 2.1 - Stock Purchase Agreement dated March 14,
2000 by and between Denison
International plc and Intex S.p.A for the
acquisition of 100% of the outstanding
shares of Riva Calzoni Oleodinamica S.p.A.*
Exhibit 27.1 - Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
None
* Filed as an exhibit to the Company's Form 10-Q for the
period ended March 31, 2000 and incorporated herein by
reference.
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Index To Exhibits
Exhibit No. Description
2.1 Stock Purchase Agreement dated March 14, 2000 by and between
Denison International plc and Intek S.p.A, for the
acquisition of 100% of the outstanding shares of Riva
Calzoni Oleodinamica S.p.A.*
27.1 Financial Data Schedule
* Filed as an exhibit to the Company's Form 10-Q for the period ended
March 31, 2000 and incorporated herein by reference.
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SIGNATURE
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
Date: August 14, 2000 By /s/ Bruce A. Smith
------------------
Bruce A. Smith
Director and Chief Financial Officer
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