SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September, 1998.
Texon International plc
(Translation of Registrant's Name Into English)
SEC File Number: 1058980
100 Ross Walk
Leicester LE4 5BX England
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F [ ]
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes [ ] No X
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Texon International plc
-----------------------
Nine Months Ended September 30, 1998
Index
Page No
PART I Financial Information
Item 1 Financial Statements
Condensed Consolidated Profit and Loss Accounts
Three months and nine months ended
September 30, 1998 and 1997 1
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997 2
Condensed Consolidated Cash Flow Statement
Nine months ended September 30, 1998 3
Reconciliation of net cash flow to movement in debt 4
Consolidated Statement of Total Recognised
Gains and Losses Three months and nine months
ended September 30, 1998 and 1997 5
Reconciliation of Movements in Shareholders' Funds
Three months and nine months ended
September 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition And Results of Operations 8-13
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 - Reports on Form 8-K 14
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TEXON INTERNATIONAL plc
-----------------------
CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNTS
-----------------------------------------------
(Pounds Sterling In Thousands)
Unaudited
------------------------------------------------
Nine months ended Three months ended
September September September September
30, 30, 30, 30,
1998 1997 1998 1997
(pound) (pound) (pound) (pound)
------- ------- ------- -------
Sales turnover 84,311 92,150 24,732 27,843
Cost of sales (55,026) (59,754) (16,329) (18,104)
------- ------- ------- -------
Gross profit 29,285 32,396 8,403 9,739
Selling, marketing and
administrative Expenses (19,649) (21,506) (5,443) (6,809)
------- ------- ------ ------
Operating profit 9,636 10,890 2,960 2,930
----- ------ ----- -----
Profit on the disposal
of fixed assets 1,000 0 1,000 0
Interest receivable 117 65 74 6
Interest payable
and similar charges (7,853) (7,432) (2,760) (2,517)
------ ------ ------ ------
Profit on ordinary
activities
before taxation 2,900 3,523 1,274 419
Taxation on profit
on ordinary activities (750) (1,239) (99) (421)
---- ------ --- ----
Profit on ordinary
activities after taxation 2,150 2,284 1,175 (2)
Minority equity interests (83) (206) (22) (43)
----- ----- ----- -----
Net profit for the
financial period 2,067 2,078 1,153 (45)
Preference dividend (1,950) 0 (650) 0
------ ------ ------ ------
Retained profit/(loss)
for the period
for equity shareholders 117 2,078 503 (45)
------ ------ ------ ------
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TEXON INTERNATIONAL plc
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Pounds Sterling In Thousands)
Unaudited
as at September December 31,
Notes 30, 1998 1997
(pound) (pound)
------- -------
FIXED ASSETS
Tangible assets 12,656 17,098
CURRENT ASSETS
Stocks 2 16,511 16,716
Debtors 23,609 19,345
Cash at bank and in hand 1,397 1,156
------- -------
41,517 37,217
CREDITORS (amounts
falling due
within one year) (28,698) (114,393)
------- -------
NET CURRENT ASSETS/(LIABILITIES)
Due within one year 11,851 (78,038)
Debtors due after one year 968 862
------- -------
TOTAL NET CURRENT ASSETS/(LIABILITIES)
12,819 (77,176)
TOTAL ASSETS LESS CURRENT LIABILITIES 25,475 (60,078)
------- -------
CREDITORS (amounts falling
due after more than one year) 91,301 698
Provisions for liabilities and charges 7,404 6,422
CAPITAL AND RESERVES
Called up share capital 3,920 13
Preference shares 5,200 -
Share premium 46,800 -
Share capital to be issued (including share premium) - 55,600
Profit and loss account reserve (129,636) (124,242)
------- -------
Shareholders' deficit
Equity interest (125,716) (68,629)
Non-equity interests 52,000 -
(73,716) (68,629)
Minority equity interests 486 1,431
------- -------
(73,230) (67,198)
------- -------
25,475 (60,078)
======= =======
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TEXON INTERNATIONAL plc
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------------
(Pounds Sterling, In Thousands)
Unaudited
---------
(pound)
Cash flow from operating activities 2,929
Returns on investments and servicing of finance (14,809)
Taxation (711)
Capital expenditure and financial investment (1,145)
Acquisitions and disposals (24,000)
-------
Cash (outflow) before financing (37,738)
Financing - Increase in debt 38,628
-------
Increase in cash in the period 890
-------
The Condensed Consolidated Cashflow statement is shown only for the nine months
ended September 30, 1998 with no comparative data for 1997 due to the recent
demerger and acquisition of the business.
Texon International plc acquired the Materials business of United Texon Limited
on December 31, 1997. In May 1997 United Texon Limited had separated its two
businesses, Materials and Machinery and on December 31, 1997 demerged them into
two groups, retaining the Materials business, with the Machinery business being
sold to a new company formed by the shareholders of United Texon Limited.
Prior to May 1997, United Texon Limited operated common treasury functions which
historically handled cash management, accounts payable, billing and collections
for both the Materials and Machinery businesses. This management decision was
intended to reduce administrative overheads at a time when businesses were under
common ownership.
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Reconciliation of net cash flow to movement in net debt
For the NINE Months Ended SEPTEMBER 30, 1998
--------------------------------------------
(Pounds Sterling, In Thousands)
Unaudited
(pound)
Increase in cash in the period 890
Cash (outflow) from debt and lease financing (38,628)
-------
Change in net debt resulting from cash flows (37,738)
Non cash movements in debt 5,324
Translation difference (5,049)
-------
Movement in net debt in the period (37,462)
-------
Net debt at the opening date (64,162)
-------
Net debt at the closing date (101,625)
-------
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TEXON INTERNATIONAL plc
CONSOLIDATED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
------------------------------------------------------------
(Pounds Sterling, In Thousands)
Unaudited
-------------------------------------
Nine months end Three months ended
September September September September
30, 30, 30, 30,
1998 1997 1998 1997
(pound) (pound) (pound) (pound)
------- ------- ------- -------
Net profit for the period 2,067 2,078 1,153 (45)
Currency translation differences
on foreign currency working capital/
net tangible assets and goodwill 1,025 (1,518) 2,643 332
Currency translation differences on
foreign currency borrowings (4,886) (489) (6,187) 480
Elimination of currency translation
differences on goodwill included in
the profit and loss account reserves (1,067) 693 (2,795) (938)
------ --- ------ ----
Total recognized gains/(losses)
in the period (2,861) 764 (5,186) (171)
====== === ====== ====
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TEXON INTERNATIONAL plc
RECONCILIATION OF MOVEMENTS IN TOTAL SHAREHOLDERS' FUNDS
(Pounds Sterling, In Thousands)
Unaudited
-------------------------------------
Nine months end Three months ended
September September September September
30, 30, 30, 30,
1998 1997 1998 1997
(pound) (pound) (pound) (pound)
------- ------- ------- -------
Retained profit for the period for
equity shareholders of the company 2,067 2,078 1,153 (45)
Preference dividend (1,950) 0 (650) 0
----- ----- ----- -----
117 2,078 503 (45)
New share capital issued 306 0 0 0
Goodwill purchased during the period (582) 0 0 0
Foreign exchange adjustments (4,928) (1,314) (6,339) 126
----- ----- ----- -----
Net decrease/(increase) to
shareholders' deficit (5,087) 764 (5,836) (171)
Opening shareholders' deficit (68,629) (60,223) (67,880) (59,288)
----- ----- ----- -----
Closing shareholders' deficit (73,716) (59,459) (73,716) (59,459)
----- ----- ----- -----
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<PAGE>
Texon International plc
Notes to the Unaudited Condensed Consolidated
Financial Statements September 30, 1998,
September 30, 1997 and December 31, 1997
1 The accompanying unaudited condensed consolidated financial statements
have been prepared by Texon International plc and its subsidiaries
("the Company") in accordance with UK generally accepted accounting
principles. The unaudited condensed consolidated financial statements
and condensed notes are presented in accordance with Form 10-Q and do
not contain all the information required in the Company's annual
consolidated financial statements and notes. The operating results for
the three and nine month periods are not necessarily indicative of the
results which may be expected for the full year. In the opinion of
management, all material adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of the results
of operations, financial position and cash flows for each period shown,
have been included.
2 Inventory is valued by the Company at the lower of cost or market value
using the first-in, first-out (FIFO) method. Inventories are summarised
as follows :
September 30, December 31,
1998 1997
(Pounds sterling in thousands)
(pound) (pound)
Finished goods and goods for resale 12,892 13,285
Work in progress 1,354 1,148
Raw materials 2,265 2,283
------ ------
16,511 16,716
------ ------
Included within the above inventory figures for September 30, 1998 is
an inventory reserve of (pound)1,194,000 ((pound)1,296,000 December 31,
1997).
3 Preference shares
The terms of the preference shares are scheduled to be changed in
November 1998. The original terms were that the dividend rate was 15%
through September 30, 2002, however, any preference dividend payments
due on or prior to December 31, 2000, which are paid on or prior to the
due date, would be deemed to satisfy three times the amount of the
preference dividend so paid. Under the new terms the dividend rate will
be 6.75% through September 30, 2000 with any payment due on or prior to
June 30, 2000, which is paid on or prior to the due date, satisfying
1.35 times the amount of the preference dividend so paid. As of
September 30, 2000 the terms will be reviewed again in light of the
Company's situation at that time.
4 Changes in UK Accounting Standards
Financial Reporting Standard 10 "Goodwill and Intangible Assets" is
regarded as standard in respect of financial statements relating to
accounting periods ending on or after 23 December 1998. This standard
specifies "eliminated goodwill should not be shown as a debit balance
on a separate goodwill write off reserve but should be offset against
the profit and loss account or another appropriate reserve. The amount
by which the reserve has been reduced by the elimination of goodwill
(or increased by the addition of negative goodwill) should not be shown
separately on the face of the balance sheet". The Company has adopted
this standard in the presentation of the balance sheet included
herewith.
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<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto included in this report, in
the Registration Statement on Form F.4 filed by the Company with the Securities
and Exchange Commission (the "Commission") on May 27, 1998 and in the Company's
periodic reports filed with the Commission.
Except for the historical data set forth herein, the following discussion
contains certain forward-looking information. The Company's actual results may
differ significantly from the projected results. Factors that could cause or
contribute to such differences include, but are not limited to, level of sales
to customers, actions by competitors, fluctuations in the price of primary raw
materials and foreign currency exchange rates and political and economic
instability in the Company's markets.
General
- -------
The Company is the world's largest manufacturer and marketer of structural
materials essential for the manufacture of footwear. The Company operates a
global business, with sales that are widely diversified by geographic region and
product line. During the first nine months of 1998 sales of insoles, stiffeners,
other footwear materials and industrial products accounted for 49%, 17%, 22% and
12% of total sales, respectively. In the same period, through the Company's
extensive marketing and distribution network, 49% of sales were made to Europe,
28% to Asia and the Pacific, 18% to the Americas and 5% to the rest of the
World.
On April 30, 1998 the Company acquired a further 30% of the shares in Foshan
Texon Cellulose Board Manufacturing Co Limited, its joint venture in China. The
consideration was $2.6 million payable in three annual instalments. The Company
now owns 87.6% of the joint venture. This has been consolidated in both
accounting periods.
Results of Operations
- ---------------------
Although the Company's sales for the third quarter of 1998 are down 11% on the
comparable period of 1997 the Company's profit of (pound)3.96 million is
(pound)1.03 million or 35% higher than the comparable period in 1997. Excluding
a one-off gain on the disposal of the land in Leicester, UK, operating profits
were substantially similar in the third quarters of 1998 and 1997 as a result of
the management's efforts to reduce costs during this period of difficulty for
the global footwear industry.
The decrease in sales from the comparable period in 1997 should be seen in
context of a soft footwear market. The Company believes that this market has
been depressed for a number of reasons, including reduced athletic footwear
sales in the key North American market, economic uncertainty in Asia and unusual
weather patterns in many parts of the World.
Three Months Ended September 30, 1998 Compared to the Three Months Ended
September 30, 1997.
Sales turnover. Sales decreased (pound)3.1 million or 11.2%, to (pound)24.7
million during the three months ended September 30, 1998 from (pound)27.8
million in the comparable period of 1997.
On a constant currency basis sales decreased by (pound)2.9 million or 10.6%
during the three months ended September 30, 1998 from the comparable period in
1997.
Sales of insoles, on a constant currency basis, decreased by 12% during the
third quarter of 1998 from the comparable period in 1997 reflecting the
difficult market conditions in the global footwear industry as noted above.
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<PAGE>
During the three months ended September 30, 1998 sales of stiffeners decreased
18% from the comparable period in 1997. This product group experienced a larger
decrease than the other product groups as it is principally produced in the UK
and its major sales areas included the UK and Europe.
Sales of other footwear materials decreased by 10% in the three months ended
September 30, 1998 from the comparable period in 1997 as a result of the reasons
noted above.
On a geographical basis sales for the three months ended September 30, 1998 were
lower in Europe by 9%, South America by 40%, Asia by 6%, Australasia by 16% and
the rest of the world by 59%, whereas sales in North America were 5% higher from
the comparable period in 1997. The Company believes that the principal reason
for the decline in South America was that a major footwear manufacturing
co-operative which purchased excessive quantities in 1997 is consuming the
excess inventory held as at the end of December 1997. The decrease in sales in
the rest of the world is mainly in the Middle East where sales greatly depend on
import licences being granted by the authorities in individual countries. As yet
during 1998 no such licences have been issued as compared to 1997 when several
licences were issued. The other major shortfall is in sales to Turkey which
depends heavily on exports to Russia.
Gross Profit. Gross profit for the three months ended September 30, 1998
decreased by (pound)1.3 million to (pound)8.4 million compared to (pound) 9.7
million in the comparable period in 1997. When expressed as a percentage of
sales, gross profit was 34.0% for the three months ended September 30, 1998 as
compared to 35.0% for the comparable period in 1997.
The Company believes that the strength of the Pound sterling against both the
major European currencies and the US dollar has been a factor in depressing
gross profit performance. The other contributing factor is under-recoveries of
fixed costs in the factories where the lower level of production reduced the
Company's margin by almost one percentage point between the second and third
quarters of 1998. A part of this reduction can be attributed to seasonal
fluctuations because of the timing of vacations in the Company's European
manufacturing plants and the remainder is due to the overall soft market for
footwear.
Selling, Marketing and Administrative Costs. Selling, marketing and
administrative costs, decreased by (pound)1.4 million or 20% to (pound)5.4
million for the three months ended September 30, 1998 from (pound)6.8 million
from the comparable period in 1997, reflecting management's efforts to reduce
the Company's cost base in line with the reduction in business. This represents
a decrease from 24.5% to 21.9% when expressed as a percentage of sales.
Operating Profit. Operating profit for the three months ended September 30, 1998
was (pound)3.0 million, which equals the operating profit for the comparable
period in 1997.
Interest. Interest expense increased by (pound)0.2 million or 7% for the three
months ended September 30, 1998 compared to the same period in 1997. No direct
comparison can be made to the comparable period in 1997 due to the restructuring
of the Company's debt through the issuance of senior notes (the "Senior Notes")
in January 1998.
Taxation. The tax charge for the three months ended September 30, 1998 reflects
the sale of the Leicester land which does not attract taxation.
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
30, 1997.
Sales turnover. Sales for the first three quarters of 1998 are (pound)84.3
million, a decrease of (pound)7.8 million or 8.5% from the first three quarters
of 1997.
On a constant currency basis sales decreased by (pound)4.7 million or 5.2%
during the nine months ended September 30, 1998 compared to the nine months
ended September 30, 1997.
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<PAGE>
The Company believes that the reason for the decline is a combination of
problems in European export production to Russia, continuing slowdown in the
athletic footwear market and a retail sales drop in the UK which has
particularly affected UK footwear production.
Gross profit. For the first nine months of 1998 gross profit has decreased by
(pound)3.1 million to (pound)29.3 million compared to (pound) 32.4 million in
the comparable period of 1997. When expressed at a percentage of sales, gross
profit was 34.7% for the nine months of 1998 as compared to 35.2% for the
comparable period in 1997.
Selling, marketing and administrative costs. For the first nine months in 1998,
selling, marketing and administrative costs, excluding the restructuring charge
of (pound)0.5 million, decreased by (pound)2.3 million or 11% to (pound)19.1
million from (pound)21.5 million for the comparable period in 1997. This
represents a decrease from 23.3% to 22.7% when expressed as a percentage of
sales.
Operating profit. For the nine months ended September 30, 1998 operating profit
excluding the restructuring charge and exceptional profit on the sale of the
land, decreased (pound)0.8 million to (pound)10.1 million for the nine months
ended September 30, 1998 compared to the comparable period in 1997.
Interest. Interest expense increased by (pound)0.4 million or 5% for the nine
months ended September 30, 1998 compared to the same period in 1997. No direct
comparison can be made to the comparable period in 1997 due to the restructuring
of the Company's debt through the issuance of Senior Notes in January 1998.
Taxation. The tax charge for the nine months ended September 30, 1998 is based
on the estimated percentage tax rate the Company will incur for the full year.
Financial Condition and Liquidity
- ---------------------------------
The Company's liquidity needs arise primarily from debt service obligations on
the indebtedness incurred in connection with the Senior Notes and Revolving
Facility, working capital needs and the funding of capital expenditures. The
total liabilities at September 30, 1998 were (pound)127.4 million including
consolidated indebtedness of (pound)98.1 million which compares to total assets
of (pound)54.2 million. The excess of liabilities over assets of (pound)73.2
million is owing to the writing off of goodwill.
The increase in indebtedness during the third quarter 1998 of (pound)8.7 million
is mainly a consequence of the exchange rate movement between the Deutsche Mark
and the Pound which increased the value of the Senior Notes by (pound)6.7
million. On a constant currency basis the indebtedness for the three months
ended September 30,1998 increased by (pound)1.9 million. During this same period
the Company paid interest on the Senior Notes of (pound)4.2 million therefore
the free cashflow before interest for the quarter was (pound)2.3 million.
The shareholders deficit as at September 30, 1998 of (pound)73.7 million
compares with (pound) 68.6 million as at December 31, 1997.
The Company's primary sources of liquidity are cash flows from operations and
borrowings under the Company's (pound)15.0 million Revolving Facility. The net
cash flow from operating activities for the nine months ended September 30, 1998
was (pound)2.9 million. Inventories as at September 30, 1998 were (pound)16.5
million compared to (pound)16.7 million at December 31, 1997, while trade
receivables at September 30, 1998 were (pound)16.2 million compared to
(pound)16.9 million at December 31,1997.
Included in the (pound)14.8 million figure for returns on investments and
servicing of finance is (pound)4.6 million relating to the issuance costs of the
Senior Notes.
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<PAGE>
Acquisitions and disposals cash outflow consist of (pound)23.5 million paid to
the shareholders of United Texon Limited and (pound)0.5 million for the 30%
stake in the Foshan Texon Cellulose Board Manufacturing Co Limited, the joint
venture in China.
Land disposal
- -------------
The land and buildings owned by Texon UK and partly rented to a third party
company were sold to a property developer on October 9, 1998. As an irrevocable
contract was in place as of September 30, 1998 the Company has accounted for the
sale in the three months ended September 30, 1998. The terms of the sale include
a sale price of (pound)8.0 million, (pound)4.0 million paid in cash and a
(pound)4.0 million interest-bearing loan note issued by the developer. As an
incentive for the Company's tenant to sign a long term rental agreement
(pound)1.0 million of the loan note has been assigned to them. The Company
believes that as the loan note does not have a fixed repayment date it would not
be consistent with UK GAAP to recognise the full (pound)3.0 million gain on
disposal immediately. As such (pound)1.0 million has been included in the
Company's results for the three months ended September 30, 1998.
Financial Instruments and Market Risks
- --------------------------------------
The Company's operations are conducted by entities in many countries, and
accordingly, the Company's results of operations are subject to currency
translation risk and currency transaction risk. With respect to currency
translation risk, the financial condition and results of operations of each of
these entities is reported in the relevant local currency and then translated
into Sterling at the applicable currency exchange rate for inclusion in the
Company's financial statements. The appreciation of Sterling against certain
European currencies will have a negative impact on the reported sales and
operating margin. Based on average exchange rates throughout the nine months to
September 30, 1998, Sterling appreciated 5.0% against the Deutsche Mark compared
to the similar period in 1997. For this purpose the Deutsche Mark is taken as
representative of the currencies which are members of the European Monetary
System ("EMS"). Conversely, the depreciation of Sterling against such currencies
will have a positive impact. Fluctuations in the exchange rate between Sterling
and other currencies may also affect the book value of the Company's assets and
the amount of the Company's shareholders' equity.
In addition to currency translation risk, the Company incurs currency
transaction risk because the Company's operations involve transactions in a
variety of currencies. Fluctuations in currency exchange rates may significantly
affect the Company's results of operations because many of its subsidiaries'
costs are incurred in currencies different from those that are received from the
sale of their products, and there is normally a time lag between the incurrence
of such costs and collection of the related sales proceeds. Currency hedging is
generally used by businesses to protect against transaction risk. The Company
engages in hedging its transaction exposure through the use of foreign exchange
forward contracts to cover exposures arising on outstanding purchase and sales
invoices. It has not covered outstanding purchase or sales orders unless they
are firm commitments. The Company may cover such exposures in the future if it
is within its financing ability. The present hedging covers all traded
currencies to which the Company is exposed, which include Deutsche Mark and US
dollar, as well as other major European currencies, the Hong Kong and Taiwan
dollar and the Australian and New Zealand dollar. Given the volatility of
currency exchange rates, there can be no assurance that the Company will be able
to effectively manage its currency transaction risks or that any volatility in
currency exchange rates will not have a material adverse effect on the Company's
financial condition or results of operations.
A significant portion of the Company's revenues and expenses will be denominated
in currencies other than the Deutsche Mark, the currency in which interest on
and the principal of the Company's Senior Notes must be paid. Significant
increases in the value of the Deutsche Mark relative to other currencies in
which the Company conducts its operations could have an adverse effect on the
Company's ability to meet interest and principal obligations on foreign currency
denominated debt, including the Senior Notes.
Under the treaty on the European Economic and Monetary Union (the "Treaty"), to
which the Federal Republic of Germany is a signatory, on or before January 1,
1999, and subject to the fulfilment of certain conditions, the "Euro" may
replace all or some of the currencies of the Member states of the European Union
(the "EU") including the Deutsche
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<PAGE>
Mark. If, pursuant to the Treaty, the Deutsche Mark is replaced by the Euro, the
payment of principal of, and interest on, the Senior Notes will be effected in
Euro in conformity with legally applicable measures taken pursuant to, or by
virtue of, the Treaty. In addition, the regulations of the EU relating to the
Euro will apply to the Senior Notes and the Indenture governing the terms of the
Senior Notes.
International Operations
- ------------------------
The Company conducts operations in countries around the world including through
manufacturing facilities in the UK, the United States, Germany, Italy, Spain and
China. The Company's global operations may be subject to some volatility because
of currency fluctuations, inflation and changes in political and economic
conditions in these countries.
The financial position and results of operations of the Company's businesses
outside the UK are measured using the local currency as the functional currency.
Most of the revenues and expenses of the Company's operations are denominated in
local currencies whereas the majority of raw material purchases are denominated
in US dollars. Assets and liabilities of the Company's subsidiaries outside the
UK are translated at the balance sheet exchange rate and statement of operations
accounts are translated at the average rate prevailing during the relevant
period.
Although 28% of the Company's sales are to Asia and the Pacific, these sales are
to major footwear companies' subcontractors located in the region who export the
substantial majority of their production. As such management estimates that less
than 5% of their sales are used in footwear which is sold in Asia. Therefore the
Company believes that the recent economic and banking problems experienced by
some of the Asian countries should not have a material impact on the Company's
results of operations and revenues.
The recent devaluation of certain Asian currencies has benefited some of the
Company's competitors who manufacture their products in the region. However, as
labor and overhead relative to raw materials which are substantially denominated
in US dollars represent a small proportion of the cost of goods sold, management
does not expect a material impact on the operations of the Company.
The Company's financial performance in future periods may be adversely impacted
as a result of changes in the above factors which are largely beyond the control
of the Company.
Year 2000 Compliance
- --------------------
Following a comprehensive review of the Company's computer systems and plant and
equipment which incorporate microprocessors, the Company is in the process of
formulating and implementing a program designed to ensure that the software used
in connection with the Company's business and operations will manage and
manipulate data involving the transition of dates from 1999 to 2000 without
functional or data abnormality and without inaccurate results related to such
dates. This program includes both updating existing software and the
implementation of new software at various locations and will substantially
completed during the second quarter of 1999. The Company currently estimates
that the additional costs to be incurred in connection with such a program shall
be approximately (pound)200,000 although there can be no assurance that this
will be the case or that the Company will not incur additional costs in
connection with such a program. All costs are expensed when incurred. To date no
significant issues have been identified that management has not addressed.
The general expectation by those who have studied best practice in managing the
Year 2000 problem is that even the best run projects will face some Year 2000
compliance failures. There can be no assurance that Year 2000 projects will be
successful or that the date change from 1999 to 2000 will not materially affect
an organization's operations and financial results. Businesses, including the
Company, may also be affected by the inability of third parties to manage the
Year 2000 problem.
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<PAGE>
Exchange Rate Information
- -------------------------
The table below shows the major exchange rates, expressed per Pound Sterling,
used in the preparation of the condensed consolidated financial statements
included herewith.
1998 Average Rate Period End Rate
----------------- ---------------
US Dollar 1.65 1.70
Deutschemark 2.96 2.79
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<PAGE>
Part II Other Information
Item 1 Legal Proceedings
From time to time, the Company is involved in routine litigation
incidental to its business. The Company is not a party to any
threatened legal proceedings which the Company believe would have
a material adverse effect on the Company's results or operations
or financial condition.
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
None.
Item 5 Other Information
None.
Item 6 Exhibits and Report on Form 8 - K
None.
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<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.
Texon International plc
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(Registrant)
Date 11/17/98 By /s/ J. Neil Fleming
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J. Neil Fleming
Finance Director and
Chief Accounting Officer
