<PAGE>
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 September 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 practical date.
Ordinary Shares, $0.01 Par Value, 11,038,950 shares as of November 14, 2000
"A" Ordinary Shares, (pound)8.00 par value, 7,015 shares as of November 14,
2000
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
FORM 10-Q
PART I - FINANCIAL INFORMATION
PAGE
----
<S> <C> <C>
Item 1 Financial Statements 2
Condensed Consolidated Balance Sheets (Unaudited) 2
Condensed Consolidated Statements of Operations (Unaudited) 3
Condensed Consolidated Statements of Cash Flows (Unaudited) 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Results of Operations 9
Liquidity and Capital Resources 12
Impact of Inflation 13
Market Risk 13
Order Receipts and Backlog 13
Forward-looking Statements 13
Item 3 Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6 Exhibits and Reports on Form 8-K 15
Exhibit Index 16
Signatures 17
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share data)
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $32,947 $31,174
Accounts receivable, less allowances of
$1,705 and $2,175 at September 30, 2000
and December 31, 1999 respectively 31,222 28,267
Inventories 33,620 31,453
Other current assets 4,324 3,566
-------- --------
Total current assets 102,113 94,460
Property, plant and equipment, net 23,772 24,519
Other assets 3,752 2,727
Goodwill, net of accumulated amortization of
$543 and $345 at September 30, 2000 and
December 31, 1999 respectively 7,521 7,114
-------- --------
Total assets $137,158 $128,820
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to bank $ 5,938 $ 5,586
Accounts payable 9,861 9,027
Other accrued liabilities 17,371 13,203
Current portion of capital lease obligations 86 111
-------- --------
Total current liabilities 33,256 27,927
Noncurrent liabilities:
Pension accrual 10,900 10,506
Other noncurrent liabilities 4,663 4,516
Negative goodwill, net of accumulated
amortization of $5,942 and $4,966 at
September 30, 2000 and December 31, 1999
respectively 3,451 4,811
-------- --------
19,014 19,833
Shareholders' equity:
`A' ordinary shares (pound)8.00 par value; 7,125 shares authorized, and
7,015 shares issued and outstanding at September 30, 2000
and December 31, 1999 86 86
Ordinary shares $0.01 par value;
15,000,000 shares authorized, and 11,038,950 and
11,113,950 shares issued and outstanding
at September 30, 2000 and December 31, 1999 110 111
Additional paid-in capital 4,455 5,479
Capital redemption reserve 1,090 1,090
Retained earnings 93,001 82,691
Accumulated other comprehensive income (loss) (13,854) (8,397)
-------- --------
Total shareholders' equity 84,888 81,060
-------- --------
Total liabilities and shareholders' equity $137,158 $128,820
======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(U.S. dollars in thousands, except share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $36,744 $30,192 $113,736 $101,254
Cost of sales 24,430 21,021 74,049 67,111
------- ------- -------- --------
Gross profit 12,314 9,171 39,687 34,143
Selling, general and
administrative expenses 8,058 7,446 25,753 24,292
------- ------- -------- --------
Operating income 4,256 1,725 13,934 9,851
Other income (expense) 27 (261) 170 (442)
Interest
income, net 342 64 475 199
------- ------- -------- --------
Income before taxes 4,625 1,528 14,579 9,608
Provision for income taxes 1,334 643 4,269 2,964
------- ------- -------- --------
Net income $ 3,291 $ 885 $ 10,310 $ 6,644
======= ======= ======== ========
Basic earnings per share $ .30 $ .08 $ .93 $ .60
======= ======= ======== ========
Diluted earnings per share $ .30 $ .08 $ .93 $ .60
======= ======= ======== ========
The accompanying notes are an integral part of these statements.
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</TABLE>
<PAGE>
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)
Nine months ended
September 30,
2000 1999
-------- --------
Net cash provided by
operating activities $11,419 $10,578
-------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property, plant
and equipment (2,575) (5,752)
Proceeds from disposal of
property, plant and
equipment 185 70
Purchase of subsidiary (4,015) --
-------- --------
Net cash used in investing
activities (6,405) (5,682)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net repayment
on lines of credit (1,328) (7,092)
Repayment of capital lease
obligations (25) (192)
Buyback of stock (1,025) --
Proceeds from exercise of
Stock options -- 26
-------- --------
Net cash used in financing
activities (2,378) (7,258)
-------- --------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (863) (1,626)
-------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,773 (3,988)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 31,174 35,799
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $32,947 $31,811
======== ========
The accompanying notes are an integral part of these statements.
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<PAGE>
DENISON INTERNATIONAL plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Financial Statements
Interim Financial Information
The financial information at September 30, 2000 and for the three and nine
month periods ended September 30, 2000 and September 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. Recent Accounting Developments
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," as amended in June 2000 by Statement of Financial Accounting
Standards No. 138 ("SFAS 138"), "Accounting for Certain Derivative Instruments
and Certain Hedging Activities," which requires companies to recognize all
derivatives as either assets or liabilities in the balance sheet and measure
such instruments at fair value. As amended by Statement of Financial Accounting
Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,"
the provisions of SFAS 133 will require adoption no later than the beginning of
the Company's fiscal year ending December 2001. The Company has determined that
adoption of SFAS 133, as amended by SFAS 138, is not expected to have a material
impact on the Company's consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." An
analysis of the Company's shipping policies and terms to customers indicates
that no change in internal accounting policy or restatement of financial
statements is required as a result of the issuance of Staff Accounting Bulletin
101.
3. 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.
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<PAGE>
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 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:
Nine months ended September 30,
2000 1999
-------- --------
(U.S. dollars in thousands)
Revenue $117,395 $111,318
Net Income $ 10,496 $ 7,283
Basic Earnings per share $ .94 $ .65
Diluted earnings per share $ .94 $ .65
4. Inventories
Inventories consisted of the following:
(U.S. dollars in thousands)
September 30, December 31,
2000 1999
-------- --------
Finished goods $ 19,966 $ 18,482
Work-in-progress 3,754 2,565
Raw materials and supplies 9,900 10,406
-------- --------
$ 33,620 $ 31,453
======== ========
5. Property, Plant and Equipment
Property, plant and equipment, net, consisted of the following:
September 30, December 31,
2000 1999
-------- --------
Cost:
Land and buildings $ 4,296 $ 3,952
Machinery and equipment 34,868 33,859
Motor vehicles 918 911
-------- --------
40,082 38,722
Less accumulated depreciation (16,310) (14,203)
-------- --------
Property, plant and equipment, net $ 23,772 $ 24,519
6. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
(U.S. dollars and shares in thousands Three months ended Nine months ended
except per share data) September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 3,291 $ 885 $ 10,310 $ 6,644
======== ======== ======== ========
Denominator:
Denominator for basic
earnings per share
weighted-average shares 11,114 11,121 11,118 11,121
Effect of dilutive stock options 2 2 1 11
-------- -------- -------- --------
Denominator for diluted
earnings per share -
adjusted weighted-average shares 11,116 11,123 11,119 11,132
======== ======== ======== ========
Basic earnings per share $ .30 $ .08 $ .93 $ .60
======== ======== ======== ========
Diluted earnings per share $ .30 $ .08 $ .93 $ .60
======== ======== ======== ========
</TABLE>
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<PAGE>
7. Shareholders Equity
At the Company's 2000 Annual General Meeting of Shareholders held on May 8,
2000, shareholders unanimously approved a plan under which the Company may
purchase up to 1,111,395 of its ordinary shares under certain terms and
conditions. The approval will expire on November 8, 2001. During the third
quarter and first nine months of fiscal 2000, 75,000 shares were purchased and
retired under this plan for an aggregate price of $1.0.million. As of September
30, 2000, the Company had remaining authorization for future purchases under the
plan of 1,036,395 shares or approximately $14 million at market prices as of
November 13, 2000.
8. Comprehensive Income
The Company's total comprehensive income was as follows (US dollars in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 3,291 $ 885 $ 10,310 $ 6,644
Foreign currency translation
adjustment, net of tax
benefit (3,338) 2,159 (5,457) (3,729)
-------- -------- -------- --------
Comprehensive net income (loss) $ (47) $ 3,044 $ 4,853 $ 2,915
========= ======== ======== ========
</TABLE>
The components of accumulated other comprehensive income (loss), net of related
tax, at December 31, 1999 and September 30, 2000 are as follows:
<TABLE>
<CAPTION>
Accumulated
Pension Foreign Other
Liability Currency Comprehensive
Adjustment Translation Income (loss)
---------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1999 $ (43) $ (8,354) $ (8,397)
Current period other
comprehensive income (loss) -- (5,457) (5,457)
-------- -------- --------
Balance at September 30, 2000 $ (43) $(13,811) $(13,854)
======== ======== ========
</TABLE>
9. Segment Information
A summary of the Company's operations by geographic area follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales to unaffiliated companies:
Europe $ 19,344 $ 17,433 $ 61,218 $ 57,767
North America 12,342 8,085 37,882 30,569
Asia-Pacific 5,130 4,674 14,636 12,918
Corporate (72) -- -- --
-------- -------- -------- --------
Total consolidated $ 36,744 $ 30,192 $113,736 $101,254
======== ======== ======== ========
-7-
<PAGE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Transfers between geographic areas:
Europe $ 8,324 $ 7,897 $ 28,426 $ 28,156
North America 3,316 1,427 9,945 6,230
Asia-Pacific 10 21 47 54
-------- -------- -------- --------
Total transfers 11,650 9,345 38,418 34,440
Eliminations (11,650) (9,345) (38,418) (34,440)
-------- -------- -------- --------
Total consolidated $ 0 $ 0 $ 0 $ 0
======== ======== ======== ========
Operating income (loss):
Europe $ 3,375 $ 1,853 $ 9,943 $ 9,302
North America 494 (914) 2,894 (205)
Asia-Pacific 224 7 532 (175)
Corporate 163 779 565 929
-------- -------- -------- --------
Total consolidated $ 4,256 $ 1,725 $ 13,934 $ 9,851
======== ======== ======== ========
<CAPTION>
September 30, 2000 December 31, 1999
<S> <C> <C>
Identifiable assets:
Europe $ 91,067 $ 83,089
North America 30,480 30,365
Asia-Pacific 15,611 15,366
-------- --------
Total consolidated $137,158 $128,820
======== ========
</TABLE>
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<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.
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
owned 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. Certain references
herein are made to results on a "Pre-acquisition" basis. Such references reflect
results excluding the impact of the Calzoni acquisition.
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. The table below summarizes the results of operations for the three and
nine months ended September 30, 2000 as reported at the actual currency rates
utilized for the periods and as adjusted utilizing the currency rates in effect
for the comparable periods of 1999.
<TABLE>
<CAPTION>
(US dollars in thousands)
Three Months Ended Nine Months Ended
September 30, 2000 September 30, 2000
------------------ ------------------
Adjusted Utilizing 1999 Adjusted Utilizing 1999
As Reported Currency Rates As Reported Currency Rates
----------- ----------------------- ----------- -----------------------
<S> <C> <C> <C> <C>
Net Sales $ 36,744 $ 39,207 $113,736 $120,172
Gross Profit 12,314 13,387 39,687 42,479
S,G&A Expenses 8,058 8,653 25,753 27,298
Operating Income 4,256 4,734 13,934 15,181
</TABLE>
RESULTS OF OPERATIONS
Third Quarter ended September 30, 2000 Compared with Third Quarter ended
September 30, 1999
The Company's net sales increased 21.7% to $36.7 million in the three
months ended September 30, 2000 from $30.2 million for the same period in 1999.
Pre-acquisition net sales increased 12.6% to $34.0 million for the three months
ended September 30, 2000 as compared to the same period in 1999. During the same
period, net sales in North America increased 52.6% to $12.3 million from $8.1
million; net sales in Europe increased 11.0% to $19.3 million from $17.4
million; and net sales in Asia-Pacific region increased 9.8% to $5.1 million
from $4.7 million. The primary reason for the increased volume in the third
quarter of 2000 compared with the third 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.
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<PAGE>
The Company's gross profit increased to $12.3 million for the quarter ended
September 30, 2000 from $9.2 million in the same period of 1999. Gross profit as
a percentage of net sales increased to 33.5% in the quarter ended September 30,
2000 from 30.4% in the comparable period of 1999. Pre-acquisition gross profits
were $11.4 million for the quarter ended September 30, 2000, up from $9.2
million in the same period of 1999, while Pre-acquisition gross profits as a
percent of sales increased to 33.4% for 2000 versus 30.4% for 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. Gross profits in
the period for 1999 were hurt by the impact of a labor dispute at the Company's
Marysville, Ohio manufacturing facility. Partially offsetting the increases in
2000 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 112.8% to $2.7 million for the
three months ended September 30, 2000 from $1.3 million in the same period of
1999. Gross profit in Europe of $7.9 million increased 25.4% or $1.6 million
versus gross profit recorded in the comparable period of 1999. Asia-Pacific
gross profit increased 31.6% to $1.7 million from $1.3 million.
Selling, general and administrative ("SG&A") expenses increased 8.2% to
$8.1 million for the quarter ended September 30, 2000 from $7.4 million for the
quarter ended September 30, 1999. Pre-acquisition SG&A expenses were $7.5
million for the three months ended September 30, 2000, a 0.1% increase over the
comparable period in 1999. These expenses as a percentage of net sales were
21.9% (22.1% on a Pre-acquisition basis) for 2000 as compared to 24.7% for 1999.
The increase in these expenses for the quarter ended September 30, 2000 as
compared to the quarter ended September 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 146.7% to $4.3 million in the three month period
ended September 30, 2000 from $1.7 million in the comparable period of 1999.
Pre-acquisition operating income increased 11.3% to $3.8 million for the three
months ended September 30, 2000 as compared to $1.7 million for the comparable
period in 1999. Operating income as a percentage of net sales increased to 11.6%
in the quarter ended September 30, 2000 from 5.7% in the quarter ended September
30, 1999. The changes in exchange rates had the effect of decreasing operating
income for the period by $0.5 million.
Other income was recorded in the quarter ended September 30, 2000 of
$27,000 (0.1% of net sales) versus other expense of $261,000 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 September
30, 2000, versus losses recorded on these transactions in the comparable period
of 1999.
Net interest income was $342,000 for the quarter ended September 30, 2000,
as compared to net interest income of $64,000 for the comparable period in 1999.
The effective tax rate for the three months ended September 30, 2000 was
28.8% compared with 42.1%for the three months ended September 30, 1999,
resulting from the mix of profits generated in the Company's overseas
operations, with varying effective tax rates and previously unrealized net
operating loss carryforwards, as opposed to the mix recorded in the third
quarter of 1999.
Nine months ended September 30, 2000 Compared with Nine months ended September
30, 1999
The Company's net sales increased 12.3% to $113.7 million in the nine
months ended September 30, 2000 from $101.3 million for the same period in 1999.
Pre-acquisition net sales increased 6.0% to $107.3 million for the nine months
ended September 30, 2000 as compared to the same period in 1999. During the same
period, net sales in North America increased 23.9% to $37.9 million from $30.6
million; net sales in Europe increased 6.0% to $61.2 million from $57.8 million;
and net sales in Asia-Pacific region increased 13.3% to $14.6 million from $12.9
million. The primary reason for the increased volume recorded year to date 2000
compared with the same period in 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,
-10-
<PAGE>
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.
The Company's gross profit increased 16.2% to $39.7 million for the nine
months ended September 30, 2000 from $34.1 million in the same period of 1999.
Gross profit as a percentage of net sales increased to 34.9% for year to date
2000 from 33.7% in the comparable period of 1999. Pre-acquisition gross profits
were $37.7 million for the nine months ended September 30, 2000 from $34.1
million in the same period of 1999, while Pre-acquisition gross profits as a
percent of sales increased to 35.2% for 2000 versus 33.7% for the same period in
1999. The increased gross profit was primarily attributable to increased
production at the Company's manufacturing facilities resulting from the 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 the functional currencies utilized in the Company's European
operations, and its impact on the cost to acquire goods produced in the
Company's US operations by its European companies.
Gross profit in North America increased 65.9% to $10.3 million for the nine
months ended September 30, 2000 from $6.2 million in the same period of 1999.
Gross profit in Europe of $24.4 million increased 2.5% or $0.6 million versus
gross profit recorded in the comparable period of 1999. Asia-Pacific gross
profit increased 26.9% to $4.9 million from $3.8 million.
Selling, general and administrative ("SG&A") expenses increased 6.0% to
$25.8 million for the nine months ended September 30, 2000 from $24.3 million
for the nine months ended September 30, 1999. Pre-acquisition SG&A expenses were
$24.7 million for the nine months ended September 30, 2000, a 0.1% increase over
the comparable period in 1999. S,G&A expenses as a percentage of net sales were
22.6% (23.0% on a Pre-acquisition basis) for 2000 as compared to 24.0% for 1999.
The increase in these expenses for the nine months ended September 30, 2000 as
compared to the nine months ended September 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 41.4% to $13.9 million in the nine month period
ended September 30, 2000 from $9.9 million in the comparable period of 1999.
Pre-acquisition operating income increased 32.8% to $13.1 million for the nine
months ended September 30, 2000 as compared to $9.9 million for the comparable
period in 1999. Operating income as a percentage of net sales increased to 12.3%
in the nine months ended September 30, 2000 from 9.7% in the nine months ended
September 30, 1999. The changes in exchange rates had the effect of decreasing
operating income for the period by $1.2 million.
Other income was recorded in the nine months ended September 30, 2000 of
$170,000 (0.1% of net sales) as compared to other expense of $442,000 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 nine
months ended September 30, 2000, versus losses recorded on these transactions in
the comparable period of 1999.
Net interest income was $475,000 for the nine months ended September 30,
2000, as compared to net interest income of $199,000 for the comparable period
in 1999.
The effective tax rate for the nine months ended September 30, 2000 was
29.3% compared with 30.8%for the nine months ended September 30, 1999, resulting
from the mix of profits generated in the Company's overseas operations, with
varying effective tax rates and previously unrealized net operating loss
carryforwards, as opposed to the mix recorded for 1999.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
(US dollars in thousands)
Nine months ended September 30,
2000 1999
-------- --------
Cash & Cash Equivalents $ 32,947 $ 31,811
Net cash provided by operating activities 11,419 10,578
Net cash used in investing activities (6,405) (5,682)
Net cash used in financing activities (2,378) (7,258)
Effect of exchange rate changes on cash (863) (1,626)
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, acquisitions and to
service and repay debt.
Net cash provided by operating activities for the nine months ended
September 30, 2000 increased to $11.4 million from $10.6 million for the same
period in 1999. The $0.8 million increase in net cash provided by operating
activities for the nine months ended September 30, 2000 compared to the
comparable period in 1999 was attributable to a $3.7 million increase in net
income, partially offset by a $3.1 million increase in cash utilized for working
capital. 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 was $6.4 million for the nine months
ended September 30, 2000, compared to $5.7 million for the same period in 1999.
Investing activities in the nine month period ended September 30, 2000 consisted
of the purchase of subsidiary ($4.0 million) and investment in manufacturing
equipment for the Company's four production facilities of $2.6 million. For the
nine months ended September 30, 1999 investing activities consisted entirely of
investment in manufacturing equipment for the Company's four production
facilities of $5.7 million.
Net cash used by financing activities was $2.4 million for the nine months
ended September 30, 2000 as compared to $7.3 million for the same period in
1999. The decrease of $4.9 million in cash used for financing activities for the
nine months ended September 30, 2000 as compared to the same period in 1999 was
primarially attributable to the partial repayment during the nine months ended
September 30, 1999 of the $12.0 million of short term bank borrowings obtained
to facilitate the Lokomec acquisition. The activity in the nine months ended
September 30, 2000 relates to the repayment of debt assumed from the Calzoni
acquisition of $1.3 million and funds utilized to repurchase 75,000 shares of
the Company's common stock totaling $1.0 million.
The effect of exchange rate changes on cash and cash equivalents was $0.9
million and $1.6 million for the nine months ended September 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 potentially
can have a significant impact on dollar reported balances for the Company. The
$0.9 million decrease in the exchange rate impact on cash and cash equivalents
is attributable to a strengthening, during the first nine 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 nine 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.
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<PAGE>
EXPOSURE TO CURRENCY FLUCUATIONS
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. For the nine months ended September 30,
2000 as compared to the nine months ended September 30, 1999, for example, the
Company experienced a Pre-acquisition 6.9% increase in net sales in the European
region (denominated in local currencies); however, the dollar-translated
Pre-acquisition net sales figures showed a net decrease due to the fluctuation
of the dollar against the local currencies of 5.1%. Due to the volatility of
currency exchange rates, the 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 nine month periods
ended September 30, 2000.
ORDER RECEIPTS AND BACKLOG
Worldwide customer order receipts were $39.4 million ($35.9 million on a
Pre-acquisition basis) for the quarter ended September 30, 2000, a 23.8%
increase over the same period in 1999. On a volume basis, utilizing constant
currency exchange rates, order receipts for the quarter ended September 30, 2000
were $42.4 million ($38.3 million on a Pre-acquisition basis) and represent a
33.3% increase over the quarter ended September 30, 1999.
Year to date worldwide customer order receipts were $124.0 million ($116.6
million on a Pre-acquisition basis) and represent a 20.3% increase over the same
period in 1999. On a volume basis, utilizing constant currency exchange rates,
order receipts for the nine months ended September 30, 2000 were $132.0 million
($123.6 million on a Pre-acquisition basis) and represent a 28.0% increase over
the nine months ended September 30, 1999.
The worldwide backlog of unshipped orders at September 30, 2000 totaled
$35.3 million ($31.3 million on a Pre-acquisition basis), a $10.3 million or
41.2% over the backlog at September 30, 1999, and an $11.6 million or 48.9%
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 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
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<PAGE>
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 to its business. The Company does not believe that any
liabilities relating to any of the legal proceedingsto 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 Security Holders
At the 2000 Annual General Meeting of shareholders on May 8, 2000, the
shareholders of the Company voted on the following proposals:
Proposal 1. The shareholders of the Company re-elected the following
Directors of the Company. The number of Votes cast for each of the nominees was
as follows:
<TABLE>
<CAPTION>
Common Stock
-------------------------------------
For Against Abstentions Broker Nonvotes
--- ------- ----------- ---------------
<S> <C> <C> <C> <C>
Christopher H. B. Mills 5,807,475 2,350 200 None
David L. Weir 5,806,375 3,450 200 None
</TABLE>
Proposal 2. The appointment of Ernst & Young LLP as the independent public
accountants of the Company for the fiscal year ended December 31, 2000, was
ratified by a vote of 5,810,025 shares of Common Stock for, and 0 share against,
with 0 shares abstaining.
Proposal 3. The shareholders of the Company approved a special resolution
authorizing the Company to enter into an agreement between the Company and ING
Barings LLP whereby ING Barings would act as an agent to purchase, on behalf of
the Company, up to 1,111,395 of the Company's outstanding shares by a vote of
5,807,062 shares for, and 100 shares against, with 0 shares abstaining.
Item 5. Other Information
None.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
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
(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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<PAGE>
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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<PAGE>
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 November 14, 2000 By /s/ Bruce A. Smith
----------------- ------------------------------
Bruce A. Smith
Director and Chief Financial Officer
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