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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, 2002
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, 10,117,700 shares as of November 14, 2002
"A" Ordinary Shares,(pound)8.00 par value, 7,015 shares as of November 14, 2002
TABLE OF CONTENTS
FORM 10-Q
PART I - FINANCIAL INFORMATION
PAGE
----
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
Critical Accounting Policies and Estimates 10
Impact of Recently Adopted Accounting Pronouncements 11
Results of Operations 11
Liquidity and Capital Resources 13
Contractual Obligations 14
Impact of Inflation 14
Exposure to Currency Fluctuations 14
Market Risk 14
Order Receipts and Backlog 14
Forward-looking Information 15
Item 3 Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 2 Changes in Securities and Use of Proceeds 16
Item 3 Defaults upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 17
Certifications 18
Exhibit Index 20
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars in thousands, except share data)
September 30, December 31,
2002 2001
------------- ------------
Current assets:
Cash and cash equivalents $ 38,670 $ 43,245
Accounts receivable, less allowances of
$2,187 and $2,185 at September 30, 2002
and December 31, 2001 respectively 33,228 27,715
Inventories 42,404 39,257
Other current assets 4,705 4,680
--------- ---------
Total current assets 119,007 114,897
Property, plant and equipment, net 29,374 27,912
Other assets 5,314 5,022
Goodwill, net of accumulated amortization of
$920 12,165 8,984
--------- ---------
Total assets $ 165,860 $ 156,815
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 945 $ 10,545
Accounts payable 12,130 11,921
Other accrued liabilities 23,211 19,808
--------- ---------
Total current liabilities 36,286 42,274
Noncurrent liabilities:
Pension accrual 12,829 11,345
Other noncurrent liabilities 5,702 5,113
Negative goodwill, net of accumulated
amortization of $8,715 at
December 31, 2001 -- 1,858
--------- ---------
18,531 18,316
Shareholders' equity:
`A' ordinary shares(pound)8.00 par value;
7,125 shares authorized, and 7,015
issued and outstanding at September 30, 2002
and December 31, 2001 86 86
Ordinary shares $0.01 par value;
15,000,000 shares authorized, and 10,317,700
and 10,563,950 issued and outstanding at
September 30, 2002 and December 31, 2001 respectively 105 107
Additional paid-in capital 5,116 5,150
Capital redemption reserve 1,090 1,090
Retained earnings 110,798 103,107
Accumulated other comprehensive (loss) (6,152) (13,315)
--------- ---------
Total shareholders' equity 111,043 96,225
--------- ---------
Total liabilities and shareholders' equity $ 165,860 $ 156,815
========= =========
The accompanying notes are an integral part of these statements.
2
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(U.S. dollars in thousands, except share data)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 38,925 $ 36,612 $ 116,731 $ 120,400
Cost of sales 24,728 23,739 74,936 77,934
--------- --------- --------- ---------
Gross profit 14,197 12,873 41,795 42,466
Selling, general and
administrative expenses 10,007 8,653 29,235 26,916
--------- --------- --------- ---------
Operating income 4,190 4,220 12,560 15,550
Other income/(expense) (110) 207 (332) 171
Interest income, net 270 233 713 707
--------- --------- --------- ---------
Income before taxes 4,350 4,660 12,941 16,428
Provision for income taxes 1,130 1,441 3,348 4,885
--------- --------- --------- ---------
Net income, before cumulative
effect of a change in
accounting principle 3,220 3,219 9,593 11,543
Cumulative effect of a change
in accounting principle, net
of taxes -- -- 1,858 --
--------- --------- --------- ---------
Net income $ 3,220 $ 3,219 $ 11,451 $ 11,543
========= ========= ========= =========
Basic earnings per share,
before cumulative effect of a
change in accounting principle $ .31 $ .31 $ .91 $ 1.09
Cumulative effect of a change
in accounting principle -- -- .18 --
--------- --------- --------- ---------
Basic earnings per share $ .31 $ .31 $ 1.09 $ 1.09
========= ========= ========= =========
Diluted earnings per share $ .31 $ .30 $ 1.08 $ 1.09
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
3
DENISON INTERNATIONAL plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)
Nine months ended
September 30,
2002 2001
---- ----
Net cash provided by
operating activities $ 13,002 $ 14,022
-------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property, plant
and equipment (4,339) (6,923)
Proceeds from disposal of
property, plant and
equipment (150) (34)
Purchase of subsidiary, net of cash acquired (2,749) (1,109)
-------- --------
Net cash used in investing activities (7,238) (8,066)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings / (repayments)
on lines of credit (9,669) 1,637
Buyback of stock (3,010) --
Exercise of stock options 34 --
-------- --------
Net cash provided by (used in) financing activities (12,645) 1,637
-------- --------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 2,306 (1,406)
-------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (4,575) 6,187
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 43,245 32,097
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 38,670 $ 38,284
======== ========
The accompanying notes are an integral part of these statements.
4
DENISON INTERNATIONAL plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Financial Statements
Interim Financial Information
The financial information at September 30, 2002 and for the three and nine
month periods ended September 30, 2002 and September 30, 2001 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, 2001
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. The intercompany accounts
and transactions have been eliminated in consolidation.
Effective Income Tax Rate
The effective tax rate for the nine months ended September 30, 2002, on
income before taxes and the cumulative effect of a change in accounting
principle reflects the Company's additional recognition of $450,000 in deferred
tax assets from its Germany subsidiary. There were no such additional
recognitions of deferred tax assets for the three months ended September 30,
2002.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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 July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), Business
Combinations, and Statement of Financial Accounting Standards No. 142 ("SFAS
142"), Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 and prohibits the use of the pooling-of-interests method. SFAS 142
changes the accounting for goodwill from an amortization method to an
impairment-only approach. The amortization of goodwill from past business
combinations ceased upon adoption of this Statement on January 1, 2002. Goodwill
and intangible assets acquired in business combinations completed after June 30,
2001 must comply with the provisions of this Statement. Also under this
Statement, companies are required to evaluate all existing goodwill for
impairment within six months of adoption by comparing the fair value of each
reporting unit to its carrying value at the date of adoption. During 2002, the
Company has performed the required transitional impairment tests of goodwill as
of January 1, 2002. The Company has determined, after performing the
transitional impairment tests, that the fair value of each reporting unit
exceeds its carrying value, and therefore there is no impact on the earnings and
financial position of the Company arising from any impairment of goodwill upon
the adoption of SFAS 142 on January 1, 2002.
Additionally, SFAS 141 requires that in a business combination in which the
fair value of the net assets acquired exceeds cost, any resulting negative
goodwill is recognized as an extraordinary gain in the period in which the
business combination is initially recognized. The transition provision of SFAS
141 requires that upon adoption of the new accounting rules, any existing
negative goodwill be adjusted as a cumulative effect of a change in accounting
principle in the statement of operations. In the first quarter of 2002, the
Company recorded a cumulative effect of a change in accounting principle
adjustment for its remaining unamortized negative goodwill totaling $1.9
million.
5
A reconciliation of previously reported net income before cumulative effect
of a change in accounting principle and related per share amounts to the amounts
adjusted for the exclusion of goodwill and negative goodwill amortization net of
the related income tax effect follows:
Three months ended Nine months ended
September 30, September 30,
(U.S. dollars in thousands, 2002 2001 2002 2001
except per share data) ---- ---- ---- ----
Net income, before cumulative
effect of a change in accounting
principle as reported $ 3,220 $ 3,219 $ 9,593 $ 11,543
Add back: goodwill amortization -- 81 -- 231
Less: Negative goodwill amortization -- (316) -- (916)
Adjusted net income, before --------- --------- --------- ----------
cumulative effect of a change
in accounting principle as adjusted $ 3,220 $ 2,984 $ 9,593 $ 10,858
Basic earnings per share:
Net income, before cumulative
effect of a change in accounting
principle as reported $ .31 $ .31 $ .91 $ 1.09
Add back: goodwill amortization -- .01 -- .02
Less: Negative goodwill amortization -- (.03) -- (.09)
Adjusted net income, before --------- --------- --------- ----------
cumulative effect of a change
in accounting principle as adjusted $ .31 $ .29 $ .91 $ 1.02
Diluted earnings per share:
Net income, before cumulative
effect of a change in accounting
principle as reported $ .31 $ .30 $ .90 $ 1.09
Add back: goodwill amortization -- .01 -- .02
Less: Negative goodwill amortization -- (.03) -- (.09)
Adjusted net income, before --------- --------- --------- ----------
cumulative effect of a change
in accounting principle as adjusted $ .31 $ .28 $ .90 $ 1.02
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development or normal use of the
asset. SFAS No. 143 is effective January 1, 2003. The Company has determined
that the adoption of SFAS 143 will have no impact on its financial position or
results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for Impairment
or Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations -- Reporting the Transactions for the Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 144 requires that long-lived assets that are to be
disposed of by sale be measured at the lower of book value or fair value less
cost to sell. SFAS No. 144 also sets forth requirements for recognizing and
measuring impairment losses on certain long-lived assets to be held or used.
SFAS No. 144 was effective January 1, 2002. The adoption of SFAS No. 144 had no
impact on the Company's financial statements.
1. Acquisitions
On May 31, 2002 the Company completed its acquisition of 100% of the
outstanding shares of Rander & Company Hydraulick-Systeme und Anlagenbau GmbH
("Rander"), effective as of June 1, 2002. The cash purchase price was $3,300,000
($2,749,000 net of cash acquired and debt assumed). Rander designs, manufactures
and distributes hydraulic systems for industrial and mobile hydraulics
applications, and is located in Stuhr, Germany. The acquisition has been
accounted for utilizing the purchase method of accounting, and the operating
results of Rander have been included in the operating results of the Company
from June 1, 2002. The purchase price resulted in $2.2 million of goodwill. The
Company preformed an evaluation of the operations of Rander and determined that
there were no identifiable intangible assets.
6
The following unaudited pro forma summary presents the Company's combined
results as if the acquisition occurred at January 1, 2001, after giving effect
to certain adjustments. These pro forma results are not necessarily indicative
of those that would have occurred had the acquisition actually occurred at
January 1, 2001:
Nine months ended
(U.S. dollars in thousands) September 30, 2002 September 30, 2001
------------------ ------------------
Revenue $ 119,526 $ 123,243
Net Income $ 11,646 $ 11,827
Basic Earnings per share $ 1.10 $ 1.12
Diluted earnings per share $ 1.10 $ 1.12
In December 2001 the Company acquired certain assets (accounts receivable,
inventories and fixed assets) of a California distributor of the Company's U.S.
subsidiary for $963,000. The Company began operations utilizing the assets
establishing West Coast Fluid Power, a division of the Company's U.S.
subsidiary, on January 1, 2002 as a distributor serving the general hydraulics
market in California.
4. Inventory
(U.S. dollars in thousands)
September 30, December 31,
2002 2001
---- ----
Inventories consisted of the following:
Finished goods $ 23,955 $ 21,111
Work-in-progress 3,454 3,510
Raw materials and supplies 14,995 14,636
--------- ---------
$ 42,404 $ 39,257
========= =========
5. Property, Plant and Equipment
(U.S. dollars in thousands)
September 30, December 31,
2002 2001
---- ----
Property, plant and equipment, net,
consisted of the following:
Cost:
Land and buildings $ 6,467 $ 5,384
Machinery and equipment 49,783 43,960
Motor vehicles 901 827
--------- ---------
57,151 50,171
Less accumulated depreciation (27,777) (22,259)
--------- ---------
Property, plant and equipment, net $ 29,374 $ 27,912
========= =========
6. Financial and Derivative Instruments
The Company's worldwide manufacturing facilities sell products to the
Company's sales and marketing subsidiaries under various currencies. In
addition, certain of the Company's subsidiaries record billings of export sales
in the customer's functional currency. Accordingly, the U.S. dollar-equivalent
cash flows may vary due to changes in related foreign currency exchange rates.
To reduce that risk, the Company enters into foreign currency forward contracts
with a maximum hedging period of 12 months. The Company has no other
freestanding or embedded derivative instruments.
Under the cash flow hedging model, gains and losses on the foreign currency
forward contracts are recorded in other comprehensive income (equity) to the
extent that the hedges are effective until the underlying sale or purchase
transactions are recognized in earnings. Gains and losses on sale and purchase
transactions are classified as sales or cost of sales, respectively.
The $271,000 gain recorded in equity at September 30, 2002 is expected to
be reclassified to earnings over the twelve-month period ending September 30,
2003. The actual amounts that will be reclassified to earnings over the next
twelve months will vary from this amount as a result of changes in market
conditions. No amounts were reclassified to earnings during the three and nine
months ended September 30, 2002 in connection with forecasted transactions that
were no longer considered probable of occurring.
7
7. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
(U.S. dollars and shares in thousands Three months ended Nine months ended
except per share data) September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Numerator:
Net income $ 3,220 $ 3,219 $11,451 $11,543
======= ======= ======= =======
Denominator:
Denominator for basic earnings per
share weighted-average shares 10,511 10,564 10,548 10,564
Effect of dilutive stock options 15 23 42 18
------- ------- ------- -------
Denominator for diluted earnings per
share - adjusted weighted-average shares 10,526 10,587 10,590 10,582
======= ======= ======= =======
Basic earnings per share $ .31 $ .31 $ 1.09 $ 1.09
======= ======= ======= =======
Diluted earnings per share $ .31 $ .30 $ 1.08 $ 1.09
======= ======= ======= =======
8. Shareholders Equity
At the Company's 2002 Annual General Meeting of Shareholders held on May
28, 2002, shareholders unanimously approved a plan under which the Company may
purchase up to 1,056,770 of its ordinary shares under certain terms and
conditions. The approval will expire on November 7, 2003. During the third
quarter of fiscal 2002, 250,000 shares were purchased and retired under this
plan for an aggregate price of $3.8 million. As of September 30, 2002, the
Company had remaining authorization for future purchases under the plan of
806,770 shares or approximately $12.0 million at market price as of September
30, 2002.
9. Comprehensive Income
The Company's total comprehensive income (loss) was as follows (U.S. dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net income $ 3,220 $ 3,219 $11,451 $11,543
Foreign currency translation
adjustment (822) 3,535 6,830 (1,809)
Derivative instruments, net of tax (268) 745 333 200
-------- ------- ------- -------
Comprehensive income $ 2,130 $ 7,499 $18,614 $ 9,934
======== ======= ======= =======
The components of accumulated other comprehensive income (loss), net of related
tax, at December 31, 2001 and September 30, 2002 is as follows:
Foreign Accumulated Other
Currency Derivative Comprehensive
Translation Instruments Income (loss)
----------- ----------- -------------
Balance at December 31, 2001 $(13,253) $ (62) $(13,315)
Current period other
Comprehensive Income 6,830 333 7,163
-------- -------- --------
Balance at September 30, 2002 $ (6,423) $ 271 $ (6,152)
======== ======== ========
8
10. Segment Information
A summary of the Company's operations by geographic area follows:
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Sales to unaffiliated companies:
Europe $ 21,488 $ 20,668 $ 64,810 $ 66,223
North America 11,568 10,574 35,064 38,395
Asia-Pacific 5,869 5,370 16,857 15,782
--------- --------- --------- ---------
Total consolidated $ 38,925 $ 36,612 $ 116,731 $ 120,400
========= ========= ========= =========
Transfers between geographic areas:
Europe $ 10,376 $ 9,307 $ 29,619 $ 32,322
North America 3,308 4,086 9,757 10,924
Asia-Pacific 51 44 190 50
--------- --------- --------- ---------
Total transfers 13,735 13,437 39,566 43,296
Eliminations (13,735) (13,437) (39,566) (43,296)
--------- --------- --------- ---------
Total consolidated $ 0 $ 0 $ 0 $ 0
========= ========= ========= =========
Operating Income (Loss):
Europe $ 3,094 $ 3,328 $ 9,265 $ 12,076
North America 928 410 2,070 2,280
Asia-Pacific 359 520 1,072 1,368
Corporate (191) (38) 153 (174)
--------- --------- --------- ---------
Total consolidated $ 4,190 $ 4,220 $ 12,560 $ 15,550
========= ========= ========= =========
Identifiable assets: September 30, 2002 December 31, 2001
------------------ -----------------
Europe $ 112,807 $ 107,952
North America 34,590 31,400
Asia-Pacific 18,463 17,463
Total consolidated $ 165,860 $ 156,815
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following should be read in conjunction with the Company's Condensed
Consolidated Financial Statements and the Notes related thereto appearing in
Item 1. Financial Statements.
Although the Company reports its financial results in U.S. dollars,
approximately 74% 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 and 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, 2002 at the actual currency rates utilized for
the period and as adjusted utilizing the currency rates in effect for the
comparable period of 2001.
9
Three Months Ended Nine Months Ended
September 30, 2002 September 30, 2002
------------------ ------------------
(U.S. dollars in thousands)
Adjusted Adjusted
Utilizing 2001 Utilizing 2001
As Reported Currency Rates As Reported Currency Rates
----------- -------------- ----------- --------------
Net Sales $ 38,925 $ 36,820 $116,731 $115,152
Gross Profit 14,197 13,367 41,795 41,143
SG&A Expenses 10,007 9,452 29,235 28,797
Operating Income 4,190 3,915 12,560 12,346
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, management evaluates its
estimates and judgments, including those related to revenue recognition,
allowance for doubtful accounts, inventories, warranty obligations and deferred
tax assets. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), as
amended by SAB 101A and 101B. SAB 101 requires that four basic criteria must be
met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the fee charged for services rendered and products delivered and the
collectibility of those fees. Should changes in conditions cause management to
determine these criteria are not met for certain future transactions, revenue
recognized for any reporting period could be adversely affected.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.
Inventory
The Company establishes reserves against its inventory for estimated
obsolescence or unmarketable inventory based upon the difference between the
cost of inventory and the estimated market value based upon assumptions about
future demand and market conditions. If actual future demand or market
conditions are less favorable than those projected by management, additional
inventory reserves may be required.
Warranties
Products sold are generally covered by a warranty for a period of one year.
The Company accrues a warranty reserve for estimated costs to provide warranty
services. The Company's estimate of costs to service its warranty obligations is
based on historical experience and expectation of future conditions. To the
extent the Company experiences increased warranty claim activity or increased
costs associated with servicing those claims, its warranty accrual will increase
resulting in decreased profits.
10
Deferred Tax Assets
Carrying value of the Company's net deferred tax assets assumes that the
Company will be able to generate sufficient future taxable income in certain tax
jurisdictions, based on estimates and assumptions. If these estimates and
related assumptions change in the future, the Company may be required to record
additional valuation allowances against its deferred tax assets resulting in
additional income tax expense in the Company's consolidated statement of
operations. Likewise, should the Company determine that it would be able to
realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would result in a decrease in
the Company's income tax expense in the Company's consolidated statement of
operations. Management evaluates the extent to which it will realize the future
benefits of the deferred tax assets annually and assesses the need for
adjustments in its valuation allowances. For the nine months ended September 30,
2002 the Company has recorded additional deferred tax assets associated with its
German operations based on an analysis of the additional future amounts to be
realized. The additional amount realized had the impact of reducing income tax
expense, on a one time basis, for the nine months ended September 30, 2002, by
$450,000.
IMPACT OF RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142 in the first quarter of 2002. Its adoption had a twofold impact on the
Company's results for the nine months ended September 30, 2002. SFAS 142
provisions pertaining to the immediate elimination of negative goodwill resulted
in a cumulative effect of a change in accounting principle and had a one time
after tax benefit to earnings in the first quarter of 2002 of $1.9 million, or
$0.18 per diluted share. There were no such impacts from a change in accounting
principle for the nine months ended September 30, 2001. In addition, SFAS 142
provisions pertaining to the systematic elimination of amortization of goodwill
(approximately $75,000 per quarter) has a recurring benefit of less than $0.01
per diluted share per quarter. The Company has completed its transitional
impairment tests of goodwill. The transitional impairment tests resulted in no
impact on the Company's earnings and financial position.
RESULTS OF OPERATIONS
Third Quarter September 30, 2002 Compared with Third Quarter ended
September 30, 2001
The Company's net sales increased 6.3% to $38.9 million in the three months
ended September 30, 2002 from $36.6 million for the same period in 2001. During
the same period, net sales in Europe increased 3.9% to $21.5 million from $20.7
million; net sales in North America increased 9.4% to $11.6 million from $10.6
million; and net sales in Asia-Pacific region increased 9.3% to $5.9 million
from $5.4 million. The increased sales in the third quarter of 2002 compared
with the third quarter of 2001 resulted from stronger sales from the Company's
distributor customers in its North American segment, combined with the impact of
a strong Euro throughout the quarter and the resulting impact on the translation
of the Company's European operations. Also adding to the sales performance in
the third quarter of 2002 was $875,000 of incremental sales from Rander, an
acquisition completed in the second quarter of 2002.
The Company's gross profit increased to $14.2 million for the quarter ended
September 30, 2002 from $12.9 million in the same period of 2001. Gross profit
as a percentage of net sales of 36.5% in the quarter ended September 30, 2002
was favorable to the gross profit as a percentage of net sales of 35.2% recorded
for the quarter ended September 30, 2001. The increased dollar value and
percentage of gross profit can be attributed to the increase in net sales volume
recorded, combined with the impact of higher production activity at the
Company's manufacturing facilities and cost controls implemented.
Gross profit in Europe increased 6.2% to $8.6 million for the three months
ended September 30, 2002 from $8.1 million in the same period of 2001. Gross
profit in North America of $3.7 million increased 19.3% or $0.6 million versus
gross profit recorded in the comparable period of 2001. Asia-Pacific gross
profit of $1.9 million was unchanged compared to the gross profit recorded for
the same period of 2001.
Selling, general and administrative ("SG&A") expenses increased by 14.9% to
$10.0 million for the quarter ended September 30, 2002 versus SG&A expenses of
$8.7 million for the quarter ended September 30, 2001. These expenses as a
percentage of net sales were 25.7% for 2002 as compared to 23.8% for 2001. The
increase in these expenses in dollar value and as a percentage of net sales for
the quarter ended September 30, 2002 as compared to the quarter ended September
30, 2001 is due primarily to the absence of amortization of negative goodwill of
$316,000 in the 2002 period, combined with the incremental expenses for Rander
of $267,000. In addition the Company incurred
11
expenses in the third quarter of 2002 of $175,000 to increase its reserve for
doubtful accounts relating to a customer bankruptcy in its subsidiary in Japan.
Operating income of $4.2 million was unchanged compared to the operating
income recorded in the comparable period of 2001. Operating income as a
percentage of net sales decreased to 10.8% in the quarter ended September 30,
2002 from 11.5% in the quarter ended September 30, 2001. The changes in exchange
rates had the effect of increasing operating income for the period by $0.3
million. The reduction in operating income as a percentage of net sales resulted
from the variances noted in gross profit and SG&A expenses.
Other expense was recorded in the quarter ended September 30, 2002 of
$110,000 (0.3% of net sales) versus other income of $207,000 (0.6% of net sales)
for the comparable period of 2001. The other expense recorded for the third
quarter of 2002 was the result of the recognition of non-cash currency losses on
inter-company loans versus gains recorded for the comparable period in 2001 as
other income. The change in non-cash currency losses for 2002 versus the gains
in 2001 can be attributed to the weakening dollar and its impact on translation.
Net interest income was $270,000 for the quarter ended September 30, 2002,
as compared to net interest income of $233,000 for the comparable period in
2001. The increase reflects higher investable cash balances in the Company's
worldwide operations, partially offset by lower short term interest rates
worldwide.
The effective tax rate for the three months ended September 30, 2002 was
26.0% compared with 30.9% for the three months ended September 30, 2001,
resulting from a mix of profits generated in the Company's overseas operations,
with varying effective tax rates and benefits recognized from previously
unrecognized net operating loss carryforwards ("NOL's") available for use. In
the three months ended September 30, 2002, 34% of the Company's earnings before
tax were generated by operations that recognized a benefit from NOL's available
for use as compared to 11% for the same period in 2001.
Net income, before and after the cumulative effect of the change in
accounting principle, for the three months ended September 30, 2002, was $3.2
million, or $0.31 per diluted share, compared to $3.2 million, or $0.30 per
diluted share for the comparable period in 2001.
Nine months ended September 30, 2002 Compared with Nine months ended September
30, 2001
The Company's net sales decreased 3.1% to $116.7 million in the nine months
ended September 30, 2002 from $120.4 million for the same period in 2001. During
the same period, net sales in North America decreased 8.6% to $35.1 million from
$38.4 million; net sales in Europe decreased 2.1% to $64.8 million from $66.2
million; and net sales in the Asia-Pacific region increased 7.0% to $16.9
million from $15.8 million. The primary reasons for the decreased volume
recorded year to date 2002 compared with the same period in 2001 were the slow
economic and general hydraulic market conditions in the Company's North American
and European segments. Partially offsetting these negative factors were the
continuing recovery of the economies in the Asia-Pacific segment, combined with
the Company's increased efforts to further penetrate those markets, and the
stronger Euro currency experienced to date for 2002.
The Company's gross profit decreased 1.7% to $41.8 million for the nine
months ended September 30, 2002 from $42.5 million in the same period of 2001.
Gross profit as a percentage of net sales increased to 35.8% for year to date
2002 from 35.3% in the comparable period of 2001. The decreased gross profit was
primarily attributable to the lower sales volumes recorded, while the favorable
showing of gross profits as a percentage of net sales was the result of the
impacts of cost reductions made throughout 2002 at the Company's manufacturing
facilities.
Gross profit in North America increased 2.9% to $10.7 million for the nine
months ended September 30, 2002 from $10.4 million in the same period of 2001.
Gross profit in Europe of $25.2 million decreased 7.4% or $2.0 million versus
gross profit recorded in the comparable period of 2001. Asia-Pacific gross
profit increased 3.8% to $5.5 million from $5.3 million.
SG&A expenses increased 8.6% to $29.2 million for the nine months ended
September 30, 2002 from $26.9 million for the nine months ended September 30,
2001. SG&A expenses as a percentage of net sales were 25.0% for 2002 as compared
to 22.3% for 2001. The increase in these expenses for the nine months ended
September 30, 2002 as compared to the nine months ended September 30, 2001 is
due primarily to the absence of amortization of negative goodwill of $916,000 in
the 2002 period and the incremental increase in operating expenses at Rander of
$355,000. The Rander acquisition was completed in June of 2002.
Operating income decreased 19.1% to $12.6 million in the nine month period
ended September 30, 2002 from $15.6 million in the comparable period of 2001.
Operating income as a percentage of net sales decreased to 10.8% in the nine
months ended September 30, 2002 from 13.0% in the nine months ended September
30, 2001. The
12
decreased operating income and operating income as a percentage of net sales
resulted from the variances noted above for gross income and SG&A expenses.
Other expense was recorded in the nine months ended September 30, 2002 of
$332,000 as compared to other income of $171,000 for the comparable period of
2001. The other expense was the result of recognition of non-cash currency
losses on inter-company loans for the nine months ended September 30, 2002,
versus gains recorded in the comparable period of 2001 as other income. The
change in non-cash currency losses for 2002 versus the gains in 2001 can be
attributed to the weakening dollar and its impact on translation.
Net interest income was $713,000 for the nine months ended September 30,
2002, as compared to net interest income of $707,000 for the comparable period
in 2001 as the Company's higher investable cash balances were offset by lower
worldwide short term interest rates.
The effective tax rate for the nine months ended September 30, 2002, on
income before taxes and the cumulative of a change in accounting principal, was
25.9% compared with 29.7% for the nine months ended September 30, 2001. The
lower effective tax rates for the nine months ended September 30, 2002 reflects
the additional one time recognition of deferred tax assets for the Company's
German operations of $450,000, combined with a favorable mix of pretax profits
from those subsidiaries with NOL's available for utilization.
Net income, before cumulative effect of the change in accounting principle,
for the nine months ended September 30, 2002, as detailed above, was $9.6
million, or $0.90 per diluted share, compared to $11.5 million, or $1.09 per
diluted share for the comparable period in 2001.
The cumulative effect of a change in accounting principle, net of taxes,
resulted in a benefit of $1.9 million, or $0.18 per diluted share for the nine
months ended September 30, 2002. There was no such effect in the nine months
ended September 30, 2001.
Net income, after the effects of the change in accounting principle, was
$11.4 million, or $1.08 per diluted share for the nine months ended September
30, 2002 versus net income of $11.5 million, or $1.09 per diluted share for the
comparable period of 2001.
LIQUIDITY AND CAPITAL RESOURCES
(U.S. dollars in thousands)
Nine months ended September 30,
2002 2001
---- ----
Cash & Cash Equivalents $ 38,670 $ 38,284
Net cash provided by operating activities 13,002 14,022
Net cash used in investing activities (7,238) (8,066)
Net cash provided by financing activities (12,645) 1,637
Effect of exchange rate changes on cash 2,306 (1,406)
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 (used in) operating activities for the nine months
ended September 30, 2002 decreased to $13.0 million from $14.0 million for the
same period in 2001. The $1.0 million decrease in net cash provided by operating
activities for the nine months ended September 30, 2002 compared to the
comparable period in 2001 was attributable to a $2.0 million decrease in net
income, before a cumulative change in accounting principle, partially offset by
a $1.0 million decrease in cash primarily 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 $7.2 million for the nine months
ended September 30, 2002, compared to $8.1 million for the same period in 2001.
Investing activities in the nine month period ended September 30, 2002 consisted
of investment in manufacturing equipment for the Company's six production
facilities of $4.3 million and $2.7 million for the acquisition of Rander & Co.,
net of cash acquired and debt assumed.
13
Net cash used in financing activities was $12.6 million for the nine months
ended September 30, 2002 as compared to cash provided of $1.6 million for the
same period in 2001. The decrease of $14.2 million in cash provided by financing
activities for the nine months ended September 30, 2002 as compared to the same
period in 2001 was primarily attributable to repayments made on certain of the
Company's credit facilities of $9.6 million and funds utilized to repurchase
200,000 shares of the Company's common stock totaling $3.0 million. In total
during the three months ended September 30, 2002, the Company entered into
transactions to repurchase 250,000 shares of its common stock totaling $3.8
million. At September 30, 2002, transactions for the purchase of 50,000 shares
totaling $800,000 were payable and as such did not effect cash flows used in
financing activities for the quarter ended September 30, 2002.
The effect of exchange rate changes on cash and cash equivalents was $2.3
million of cash provided and $1.4 million of cash utilized for the nine months
ended September 30, 2002 and 2001, respectively. As approximately 74% of the
Company's business is transacted in currencies other than the U.S. dollar,
foreign currency fluctuations potentially can have a significant impact on
dollar reported balances for the Company. The $3.7 million increase in the
exchange rate impact on cash and cash equivalents is attributable to a
strengthening, during the first nine months of 2002, of most of the functional
currencies earned by the Company in its European and Asia-Pacific operations
against the U.S. dollar, as compared to the impact of weakening of most of the
functional currencies earned by the Company in its European operations during
the first nine months of 2001.
CONTRACTUAL OBLIGATIONS
As of September 30, 2002, the Company had the following contractual
obligations (U.S. dollars in thousands):
Payments Due By Period
Less
Than After
Total 1 Year 1-3 years 4-5 years 5 years
------ ------ --------- --------- -------
Notes payable to bank $ 845 $ 845 -- -- --
Short-term borrowings 100 100 -- -- --
Purchase commitments 1,200 1,200 -- -- --
Non-cancelable
Operating leases 3,164 1,552 1,510 102 --
----------------------------------------------------
Total contractual cash
Obligations $5,309 $3,697 $1,510 $102 $ --
====================================================
IMPACT OF INFLATION
The impact of inflation on the operating results of the Company has been
moderate in recent years reflecting generally lower rates of inflation in the
economy and relative stability in the Company's cost structure. Although
inflation has not had, and the Company does not expect that it will have, a
material impact on operating results, there is no assurance that the Company's
business will not be affected by inflation in the future.
EXPOSURE TO CURRENCY FLUCTUATIONS
A significant portion of the Company's business is conducted in currencies
other than the dollar, including pounds sterling, equivalent European euro
currencies and Japanese yen. The Company's financial statements are prepared in
dollars, and therefore fluctuations in exchange rates in the pound sterling and
other currencies in which the Company does business relative to the dollar may
cause fluctuations in reported financial information, which are not necessarily
related to the Company's operations. For the nine months ended September 30,
2002 as compared to the nine months ended September 30, 2001, for example, the
Company experienced a 5.1% decrease in net sales in its European segment
(denominated in local currencies); however, the dollar-translated net sales
figures showed a net decrease of only 2.1% due to the fluctuation of the dollar
against the local currencies. Another example can be shown in the increase in
the Company's primary working capital, which increased from $72.6 million at
December 31, 2001 to $82.7 million at September 30, 2002; an increase of $10.1
million. Of the $10.1 million increase in primary working capital nearly 80% or
$8.0 million can be attributed to the weakening US dollar against primarily the
Euro. 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
14
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, 2001 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, 2001. There have been no material changes
in the Company's exposure to market risk during the nine month period ended
September 30, 2002.
ORDER RECEIPTS AND BACKLOG
Worldwide customer order receipts were $37.6 million for the quarter ended
September 30, 2002, a 5.0% increase over the same period in 2001. On a volume
basis, utilizing constant currency exchange rates, order receipts for the
quarter ended September 30, 2002 were $35.5 million and represent a 1.0%
decrease over the quarter ended September 30, 2001.
Worldwide customer order receipts were $115.9 million for the nine months
ended September 30, 2002, a 1.6% decrease over the same period in 2001. On a
volume basis, utilizing constant currency exchange rates, order receipts for the
nine months ended September 30, 2002 were $112.5 million and represent a 2.9%
decrease over the nine months ended September 30, 2001.
The worldwide backlog of unshipped orders at September 30, 2002 totaled
$28.2 million, a $.4 million or 1.4% decrease versus the backlog at Sept 30,
2001, and represents a 16.5% increase versus the order backlog at December 31,
2001.
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 identifying 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 and expectations
disclosed in the forward-looking statements. The Company has included important
factors in the cautionary statements included or incorporated in this Form 10-Q
that the Company believes could cause actual results or events to differ
materially from the forward-looking statements made. These important factors
include, but are not limited to, demand for the Company's products, competition
by rival developers of hydraulic components and systems, changes in technology,
customer preferences, growth in the hydraulics industries, fluctuations in the
functional currencies of the Company and general economic and business
conditions. In addition the Company's forward-looking statements do not reflect
the potential impact of any future acquisitions, mergers, dispositions, joint
ventures or investments the Company may make. These important factors and other
factors, which could affect the Company's results, are detailed in the Company's
filings with the Securities and Exchange Commission and are included herein by
reference. The Company assumes no obligation to update the information in this
filing.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information regarding market risk of the registrant is presented under the
caption "Market Risk" which is included in Item 2 of this report and is
incorporated herein by reference.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
The Company's chief executive officer and chief financial officer, after
evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities
Exchange Act of 1934) as of a date (the "Evaluation Date") within 90 days before
the filing date of this quarterly
15
report, have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures were effective and designed to ensure that material
information relating to the Company and the Company's consolidated subsidiaries
would be accumulated and communicated to the Company's management, as
appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal controls.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect those controls subsequent to the
Evaluation Date.
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 proceedings to which it is a party are
likely to be, individually or in the aggregate, material to its consolidated
financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 Agreement, dated May 31, 2002, by and among Denison Hydraulicks GmbH
and the shareholders of Rander & Co. Hydraulick-Systeme und
Anlagenbau GmbH ("Rander"), for the acquisition of 100% of the
outstanding shares of Rander. *
99.1 Certification of Principal Executive Officer, David L. Weir,
Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to ss. 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of Principal Financial Officer, Bruce A. Smith,
Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to ss. 906 of
the Sarbanes-Oxley Act of 2002.
* Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 2002 and incorporated herein by reference.
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed in the period.
16
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
(Registrant)
Date: November 14, 2002 /s/ Bruce A. Smith
----------------- ------------------------------
Bruce A. Smith
Director and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
17
CERTIFICATIONS
I, David L. Weir, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Denison
International plc;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material aspects the financial condition, results of operations and
cash flows of the registrant as of, and for the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and audit
committee of registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ David L. Weir
----------------- ------------------------------
Chief Executive Officer
and President
18
CERTIFICATIONS
I, Bruce A. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Denison
International plc;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material aspects the financial condition, results of operations and
cash flows of the registrant as of, and for the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and audit
committee of registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Bruce A. Smith
----------------- ------------------------------
Chief Financial Officer
19
Index To Exhibits
Exhibit No. Description
- ----------- -----------
2.1 Agreement, dated May 31, 2002, by and among Denison Hydraulicks
GmbH and the shareholders of Rander & Co. Hydraulick-Systeme und
Anlagenbau GmbH ("Rander"), for the acquisition of 100% of the
outstanding shares of Rander. *
99.1 Certification of Principal Executive Officer, David L. Weir,
Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Principal Financial Officer, Bruce A. Smith,
Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002.
* Filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 2002 and incorporated herein
by reference.
20