SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 quarter ended March 31, 2000.
Texon International plc
(Translation of Registrant's Name Into English)
SEC File Number: 333-49619
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 the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Not applicable
(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
<PAGE>
Texon International plc
Three Months Ended March 31, 2000
Index
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Profit and Loss Accounts
Three months ended March 31, 2000 and 1999 3
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 4
Condensed Consolidated Cash Flow Statement
Three months ended March 31, 2000 and 1999 5
Reconciliation of net cash flow to movement in debt
Three months ended March 31, 2000 and 1999 6
Consolidated Statement of Total Recognised Gains and Losses
Three months ended March 31, 2000 and 1999 7
Reconciliation of Movements in Shareholders' Funds
Three months ended March 31, 2000 and 1999 8
Notes to Condensed Consolidated Financial Statements 9-10
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-16
PART II OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 2 Changes in Securities and Use of Proceeds 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits - Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
TEXON INTERNATIONAL plc
CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNTS
(Pounds Sterling In Thousands)
Unaudited
-----------------------
Three months ended
March March
31, 31,
2000 1999
Sales turnover 36,688 28,315
Cost of sales (25,355) (18,648)
-------- -------
Gross profit 11,333 9,667
Selling, general and
administrative expenses (8,354) (6,898)
-------- -------
Operating profit 2,979 2,769
Interest receivable 109 193
Interest payable and similar charges (2,969) (2,795)
-------- -------
Profit on ordinary activities before
taxation 119 167
Taxation on profit on ordinary
activities (60) (48)
-------- -------
Profit on ordinary activities after
taxation 59 119
Minority equity interests 4 (43)
-------- -------
Net profit for the financial period 63 76
Other finance charges in respect of non
equity shares (1,000) (937)
-------- -------
Retained loss for the period
for equity shareholders (937) (861)
-------- -------
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TEXON INTERNATIONAL plc
CONDENSED CONSOLIDATED BALANCE SHEETS
(Pounds Sterling In Thousands)
<TABLE>
<CAPTION>
Unaudited Audited
as at March December
Notes 31, 2000 31, 1999
------------ ---------
<S> <C> <C> <C
FIXED ASSETS
Intangible assets:
Intellectual property 1,500 -
Goodwill 13,322 12,707
Tangible assets 21,211 20,973
Investment 14 14
------ ------
36,047 33,694
CURRENT ASSETS
Stocks 2 22,839 21,466
Debtors due within one year 28,733 26,491
Debtors due after one year 3,620 3,348
Cash at bank and in hand 926 1,025
------- --------
56,118 52,330
CREDITORS
Amounts falling due within one year (44,031) (40,391)
------- --------
NET CURRENT ASSETS 12,087 11,939
------- --------
TOTAL ASSETS LESS CURRENT
LIABILITIES 48,134 45,633
------- --------
CREDITORS
Amounts falling due after more than
one year (96,633) (97,832)
Provisions for liabilities and charges (6,800) (7,038)
------- -------
(55,299) (59,237)
======= =======
CAPITAL AND RESERVES
Called up share capital 9,757 9,120
Share premium 46,800 46,800
Profit and loss account (121,146) (123,059)
Premium on redemption reserve 8,257 7,257
--------- --------
Shareholders' deficit
Equity interests (116,589) (119,139)
Non-equity interests 60,257 59,257
-------- --------
(56,332) (59,882)
Minority equity interests 1,033 645
-------- --------
(55,299) (59,237)
======== ========
</TABLE>
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TEXON INTERNATIONAL plc
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
(Pounds Sterling, In Thousands)
Unaudited
-----------------------
Three months ended
March March
31, 31,
2000 1999
-------- --------
Cash inflow from operating activities 3,952 5,512
Returns on investments and servicing of finance (5,368) (4,580)
Taxation (237) (390)
Capital expenditure and financial investment (420) (967)
Acquisitions and disposals (1,909) (1,262)
------- -------
Cash outflow before financing (3,982) (1,687)
Financing 2,159 2,009
------- -------
(Decrease)/increase in cash and overdrafts in
the period (1,823) 322
------- -------
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TEXON INTERNATIONAL plc
Reconciliation of net cash flow to movement in net debt
(Pounds Sterling, In Thousands)
Unaudited
-----------------------
Three months ended
March March
31, 31,
2000 1999
-------- --------
(Decrease)/increase in cash and overdrafts in
the period (1,823) 322
Cash outflow from debt and lease financing (2,159) (2,009)
-------- -------
Change in net debt resulting from cash flows (3,982) (1,687)
Loans and finance leases acquired with subsidiary (462) (2,039)
Issue of shares 637 -
Non cash movements in debt (212) (179)
Translation difference 3,625 3,696
------ ------
Movement in net debt in the period (394) (209)
------ ------
Net debt at the opening date (108,063) (91,063)
-------- -------
Net debt at the closing date (108,457) (91,272)
--------- -------
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TEXON INTERNATIONAL plc
CONSOLIDATED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
(Pounds Sterling, In Thousands)
Unaudited
-----------------------
Three months ended
March March
31, 31,
2000 1999
-------- --------
Net profit for the financial period 63 76
Currency translation differences
on foreign currency 2,850 4,020
----- -----
Total recognized gains in the period 2,913 4,096
===== =====
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TEXON INTERNATIONAL plc
RECONCILIATION OF MOVEMENTS IN TOTAL SHAREHOLDERS' FUNDS
(Pounds Sterling, In Thousands)
Unaudited
-----------------------
Three months ended
March March
31, 31,
2000 1999
-------- --------
Retained profit for the period for
equity shareholders of the Company 63 76
Other finance charges in respect of
non equity shares (1,000) (937)
------- -------
(937) (861)
Issue of Shares 637 -
Premium on redemption reserve 1,000 937
Foreign exchange adjustments 2,850 4,020
------- -------
Net decrease to shareholders' deficit 3,550 4,096
Opening shareholders' deficit (59,882) (73,619)
------- -------
Closing shareholders' deficit (56,332) (69,523)
======= =======
-8-
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Texon International plc
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2000, March 31, 1999 and December 31, 1999
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 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 items of a normal recurring
nature, considered necessary for a fair presentation of the results of
operations, the financial position and the cash flows for each period
shown, have been included.
Where necessary comparatives are adjusted to ensure consistency with
current periods.
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 :
March 31, December 31,
2000 1999
(Pounds sterling in thousands)
Finished goods and goods for resale 16,749 14,969
Work in progress 1,424 1,442
Raw materials 4,666 5,055
------ ------
22,839 21,466
------ ------
Included within the above inventory figures for March 31, 2000 is an
inventory reserve of (pound)1,645,000 ((pound)1,631,000 December 31,
1999). Inventory has increased during the three months ended March 31,
2000 partly due to the inclusion of (pound)0.3 million for Boxflex.
3 Issue of Share Capital
The acquisition of Crispin Dynamics was partly funded by new equity of
(pound)0.7 million from Texon's investors and management.
This comprised a rights issue during the period ended March 31, 2000
issuing 301,138 Ordinary A voting shares, 14,348 Ordinary A non-voting
shares, and 35,054 Ordinary B voting shares all issued at a nominal
value of (pound)1. There was also a rights issue of redeemable
cumulative preference shares of 3,154,860 issued at a nominal value of
(pound)0.10. The Ordinary B voting shares were only partly paid as at
March 31, 2000.
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<PAGE>
4 Changes in UK Accounting Standards
The Accounting Standards Board ("ASB") has issued FRS 15, which is
effective for all accounting periods ending on or after March 23, 2000.
FRS 15 provides accounting and reporting standards for tangible fixed
assets and replaces SSAP 12 on depreciation. Its objective is to change
and/or clarify: initial measurement (i.e., cost), and subsequent
expenditure on maintaining or part-replacing; valuation, and treatment
of consequent gains/losses; depreciation; and disclosure of tangible
fixed assets. It eliminates "cherry-picking" valuations by requiring
valuation and updating by entire classes of assets. It clarifies in
particular the circumstances in which depreciation may be regarded as
immaterial, and the consequences for accounting. The Company will apply
the provisions of FRS 15 prospectively in 2000.
The ASB has also issued FRS 16, which is effective for all accounting
periods ending on or after March 23, 2000. FRS 16 provides an
accounting and reporting standard for Current tax. Its objective is to
require tax to be reported using enacted tax rates, and excluding any
notional tax charges or credits. It will mean that the grossing up for
"tax credit" on incoming or outgoing UK dividends will cease, and
amounts paid or received subject to withholding tax continue to be
grossed up. The Company will apply the provisions of FRS 16
prospectively in 2000.
5 Esjot Acquisition
The goodwill relating to acquisitions during the period has been
calculated using provisional estimates of costs and the fair values of
the assets and liabilities acquired. The estimates may be adjusted as
further information becomes available.
The following unaudited proforma information has been prepared as if
the Esjot acquisition occurred on January 01, 1998. In addition to
aggregating the results of Esjot with those of Texon International plc
proforma adjustments have been made to reflect the amortization of
goodwill arising on the acquisition and interest costs incurred on the
funding taken out.
Unaudited
------------------------------
Three months ended
March March
31, 31,
2000 1999
(Pounds sterling In Thousands)
Trade sales 36,688 33,745
Net profit for the financial
period 63 438
----- -----
In accordance with the policies adopted by the Company goodwill of
(pounds)1.2 million arising on acquisitions in the period has been
capitalised in the balance sheet and is being amortized over 20 years.
All acquisitions have been accounted for using the acquisition method.
For all acquisitions with the exception of Cornwell Industries Ltd the
fair values assigned to assets and liabilities are provisional because
the Directors have not been able to finalize the adjustments required
prior to the date of signing these financial statements.
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<PAGE>
ITEM 2 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, levels of sales
to customers, actions by competitors, fluctuations in the price of primary raw
materials, foreign currency exchange rates and political and economic
instability in the Company's markets.
The forward-looking statements contained herein are qualified by the cautionary
statements appearing on pages 4 and 5 of the Company's annual report, a copy of
which is available on request.
RECENT DEVELOPMENTS
Acquisition of Crispin Dynamics
- -------------------------------
On February 29, 2000, Texon UK Ltd, a wholly owned subsidiary of Texon
International plc acquired the Leicester, UK based business of Crispin Dynamics
for a consideration of approximately (pound)2.5 million cash including deferred
payments of (pound)1.5 million to be paid during 2000. The net cash payment was
(pound)1.0 million and was met from new equity of (pound)0.7 million from
Texon's investors and management and the remainder from its current bank
facilities. Management believes Crispin Dynamics is the global market leader in
computer aided design software for the footwear industry. Crispin has
approximately 40 employees based in its UK headquarters and its other facilities
in Asia and Europe.
Acquisition of Boxflex
- ----------------------
On March 23, 2000, Texon Italia SpA, a wholly owned subsidiary of Texon
International plc acquired a 50% shareholding in Boxflex Componentes Para
Calcados Ltda for a consideration of approximately US$1.4 million, which was met
from the Company's current bank facilities. The Company was then renamed Boxflex
Texon Componentes Para Calcados Ltda ("Boxflex"). Boxflex is a leading
manufacturer of stiffener and insole materials in Brazil and is located in the
main footwear production area near Porto Allegre. Boxflex has approximately 42
employees based in South America.
On March 31, 2000 Mr D Gamble resigned as Company Secretary of Texon
International plc and Mr JN Fleming was appointed.
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 and operates seventeen manufacturing facilities in the U.K., the
United States, Brazil, Germany, Italy, France, Australia and China.
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<PAGE>
During the first three months of 2000 sales of insoles, stiffeners, other
footwear materials, industrial products, plastic products and metal products
accounted for 38%, 20%, 9%, 9%, 11% and 13% of total sales, respectively. In the
same period, through the Company's extensive marketing and distribution network,
52% of sales were made to Europe, 31% to Asia and the Pacific, 14% to the
Americas and 3% to the rest of the world.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2000 to the Three Months Ended
March 31, 1999.
Sales turnover. Sales increased (pound)8,373 million or 29.6%, to (pound)36,688
million during the three months ended March 31, 2000 from (pound)28,315 million
in the comparable period of 1999. This increase was primarily due to the
acquisitions made by the Company in 1999 of Cornwell, Esjot, Claravon and
Chamberlain Phipps and some sales reported by Crispin, which was acquired on
February 29, 2000. There are no trading results reported for Boxflex for the
three months ended March 31, 2000, as it was acquired on March 23, 2000. After
subtracting the sales made by the Company's 1999 acquisitions and Crispin, sales
for the three months ended March 31, 2000 were (pound)0.4 million higher than
those of the similar period in 1999. At constant exchange rates sales excluding
acquisitions increased by 5.2% for the first quarter.
Sales of insoles at constant exchange rates, increased by 6.3% during the first
quarter of 2000 from the comparable period in 1999, predominately because of an
increase in the non-woven insole business in Asia.
During the three months ended March 31, 2000, sales of stiffeners at constant
exchange rates increased 18.6% from the comparable period in 1999. This increase
is primarily the result of the Company increasing its' market share in sales to
major athletic footwear manufacturers in Asia.
During the three months ended March 31, 2000, sales of industrial products at
constant exchange rates decreased 2.9% from the comparable period in 1999,
primarily due to the sale of the pipeliner division in October 1999.
Sales of other footwear materials at constant exchange rates decreased by 13.9%
in the three months ended March 31, 2000 from the comparable period in 1999.
These products, although sold throughout the world, hold strong positions in the
UK and some European countries where, management believes, footwear production
has declined as a result of weak market conditions.
During the three months ended March 31, 2000, there were sales of plastic
products of (pound)3.9 million, sales of metal products of (pound)4.7 million
and sales of Crispin products of (pound)0.2 million. These are the principal
acquisitions made by the Company during the latter part of 1999 and 2000 and
therefore do not have a direct comparison to the first quarter of 1999.
On a geographical basis sales for the three months ended March 31, 2000,
increased in Europe by 37.2%, Asia by 30.0%, Australasia by 90.5%, North America
by 4.3%, and South America by 14.8% and the rest of the world decreased by
22.2%, each from the comparable period in 1999.
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<PAGE>
Although the Company believes that footwear production in Europe continues to
decline due to the transfer of production to the Far East, European sales were
(pound)5.1 million higher than the comparable period in 1999. This increase is
due to the inclusion of the sales in Europe from the 1999 and 2000 acquisitions.
Asian sales increased by (pound)2.1 million from the comparable period in 1999
due to the sales initiatives for stiffner products as well as strong market
share gains made in China for insoles.
Australasian sales increased by (pound)1.2 million from the comparable period in
1999 due to the acquisition in October 1999 of Claravon.
In North America, sales were (pound)0.2 million higher in the first quarter of
2000 as against the comparable period in 1999.
South American sales were approximately (pound)0.1 million higher from the
comparable period in 1999.
Sales to the rest of the world decreased by (pound)0.4 million from the
comparable period in 1999 due primarily to the irregularity of business
contracts in the Middle East which require import licences issued by
governmental authorities.
Gross Profit. Gross profit for the three months ended March 31, 2000 increased
by (pound)1.6 million to (pound)11.3 million compared to (pound)9.7 million in
the comparable period in 1999. When expressed as a percentage of sales, gross
profit was 30.9% for the three months ended March 31, 2000 a decrease of 3.2%
from the comparable period in 1999. Excluding the acquisitions completed in 1999
and 2000, gross profit margin was 32.2% in the three months ended March 31,
2000, a decrease of 1.8% points over the comparable period in 1999. The decrease
in overall margin as compared to last year is due to the Cornwell and Esjot
acquisitions which generate gross profit margins of 25 and 30% respectively.
Selling, General and Administrative Costs. Selling, general and administrative
costs ("S G + A"), for the three months ended March 31, 2000 were (pound)8.4
million compared with (pound)6.9 million for the same period in 1999.
The S G + A costs for the three months ended March 31, 2000 have increased
compared with the same period in 1999 principally due to the expenses of the
acquired businesses.
Operating Profit. Operating profit for the three months ended March 31, 2000 was
(pound)3.0 million, which is an increase of 7.6% from the comparable period in
1999.
Earnings before Interest Depreciation and Amortisation ("EBITDA"). EBITDA for
the three months ended March 31, 2000 was (pound)4.2 million compared to
(pound)3.4 million for the same period in 1999. At constant exchange rates
EBITDA increased by (pound)1.1 million or 35.5%.
Interest payable and similar charges has increased by (pound)0.2 million to
(pound)3.0 million for the three months ended March 31, 2000 from (pound)2.8
million from the comparable period in 1999. This increase is due to the new debt
incurred on July 22, 1999 to finance the acquisition of Esjot. Included in the
(pound)3.0 million charge is amortization of debt issuance costs of (pound)0.2
million.
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<PAGE>
Taxation. The tax charge for the three months ended March 31, 2000 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 will arise primarily from debt service obligations
on the indebtedness incurred in connection with the Senior Secured Notes, the
Revolving Credit Facility, working capital needs and the funding of capital
expenditures. The total liabilities at March 31, 2000 were (pound)147.5 million,
including consolidated indebtedness of (pound)108.5 million which compares to
total assets of (pound)92.2 million. The excess of liabilities over assets of
(pound)55.3 million is due to the writing off of goodwill in earlier periods.
The shareholders' deficit as at March 31, 2000 of (pound)56.3 million has been
reduced by (pound)3.6 million from (pound)59.9 million as at December 31, 1999.
This has occurred due to foreign currency translation differences, the issuance
of share capital and also due to the change in the rights of preference
shareholders. Under the new rights the shareholders receive a redemption premium
at 6.75% (which is accrued in other reserves) instead of a preference dividend
at 5% (which was previously included in creditors, but was reversed out as a
result of its' retrospective replacement by the redemption premium). This has
resulted in a decrease of (pound)1.0 million in the shareholders' deficit.
The Company's primary sources of liquidity are cash flows from operations and
borrowings under the Company's (euro)15.0 million Revolving Credit Facility and
several local facilities in Germany, Italy, Spain, France, China, Australia, New
Zealand and the UK.
The net cash inflow from operating activities for the three months ended March
31, 2000 was (pound)4.0 million compared to (pound)5.5 million for the
comparable period in 1999. This decrease of (pound)1.5 million is primarily
attributable to the increased trading activity during the quarter creating
higher receivables than for the comparable period in 1999.
Inventories as at March 31, 2000 were (pound)22.8 million compared to
(pound)21.5 million at December 31, 1999. The 2000 inventories include
(pound)0.3 million for Crispin and (pound)0.4 million for Boxflex.
Trade receivables at March 31, 2000 were (pound)25.9 million compared to
(pound)24.5 million at December 31,1999. The 2000 trade receivables include
(pound)0.3 million for Boxflex.
Returns on investments and servicing of finance for the three months ended March
31, 2000 were (pound)5.4 million compared to (pound)4.6 million for the three
months ended March 31, 1999. The increase is primarily due to interest paid on
additional debt incurred to finance the acquisitions made in 1999.
Capital expenditures in the quarter ended March 31, 2000 were (pound)0.4
million, as compared to (pound)1.0 million for the comparable period in 1999.
Capital expenditures during the quarter related primarily to plant and equipment
acquisitions and the global implementation of an enterprise resource planning
system utilising BaaN software.
Acquisitions and disposals cash outflow for the three months ended March 31,
2000 consisted of (pound)1.0 million for the purchase of Crispin Dynamics on
February 29, 2000. The remaining consideration of (pound)1.5 million is due to
be paid in three quarterly instalments of (pound)0.5 million beginning in April
2000. There was also a cash outflow for the acquisition of Boxflex of (pound)0.9
million on March 23, 2000.
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<PAGE>
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 depreciation of Sterling against such
currencies will have a positive impact on the reported sales and operating
margin. Based on average exchange rates throughout the first three months of
2000, Sterling appreciated 11.5% against the Deutsche Mark compared to the
similar period in 1999. For this purpose the Deutsche Mark is taken as
representative of the currencies which are members of the European Monetary
System ("EMS"). Conversely, the appreciation of Sterling against certain
European currencies will have a negative impact on the reported sales and
operating margin. 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 Secured 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 Secured Notes.
Under the treaty on the European Economic and Monetary Union (the "Treaty"), to
which the Federal Republic of Germany is a signatory, from January 1, 1999, the
"Euro" can be used concurrently with some of the currencies of the Member states
of the European Union (the "EU") including the Deutsche Mark.
On January 29, 2000 the Company paid interest on it's Senior Secured Notes
primarily in Euros. Since the Deutsche Mark being a legacy currency of the Euro,
the Company can value the Senior Secured Notes in Deutsche Marks or Euros
without any exchange variance. The Company does however anticipate the Deutsche
Mark being replaced by the Euro pursuant to the Treaty, and the payment of
principal of, and
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<PAGE>
interest on, the Senior Secured 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 Secured Notes and the Indenture governing the terms of the Senior Secured
Notes. Foreign exchange forward contracts have been used by the Company to cover
interest payments due for July 2000 and January 2001 in Euros.
The Euro has been used as a trading currency by the Company during the three
months ended March 31, 2000 and there have been no material costs to the
business other than through exchange rate effects.
INTERNATIONAL OPERATIONS
The Company conducts operations in countries around the world including through
manufacturing facilities in the UK, the United States, Brazil, Germany, Italy,
France, Australia 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 date exchange rate and statement of
operations accounts are translated at the average rate prevailing during the
relevant period.
Although 31% 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 sales are used in footwear which is sold in Asia. Therefore, the
Company believes that the 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 devaluation of certain Asian currencies has benefited some of the Company's
competitors that 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.
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.
2000 Average Rate Period End Rate
----------------- ---------------
US Dollar 1.60 1.59
Euro 1.63 1.67
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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
-----------------------
(Registrant)
Date: May 24, 2000 By: /s/ J. Neil Fleming
-----------------------------
J. Neil Fleming
Finance Director and
Chief Accounting Officer
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