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 September 30, 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
Nine Months Ended September 30, 2000
Index
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I Financial Information
Item 1 Financial Statements
Condensed Consolidated Profit and Loss Accounts
Three months and Nine months ended September 30, 2000 and 1999 3
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 4
Condensed Consolidated Cash Flow Statement
Nine months ended September 30, 2000 and 1999 5
Reconciliation of net cash flow to movement in debt
Nine months ended September 30, 2000 and 1999 6
Consolidated Statement of Total Recognised Gains and Losses
Three months and nine months ended September 30, 2000 and 1999 7
Reconciliation of Movements in Shareholders' Funds
Three months and nine months ended September 30, 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 11-18
PART II Other Information
Item 1 Legal Proceedings 19
Item 2 Changes in Securities and Use of Proceeds 19
Item 3 Defaults Upon Senior Securities 19
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 5 Other Information 19
Item 6 Exhibits - Reports on Form 8-K 19
</TABLE>
-2-
<PAGE>
TEXON INTERNATIONAL plc
CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNTS
(Pounds Sterling In Thousands)
<TABLE>
<CAPTION>
Unaudited
---------------------------------------------------------------
Nine months ended Three months ended
---------------------------- --------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales turnover 112,032 90,4 32 35,454 29,499
Cost of sales (77,968) (59,523) (24,880) (19,517)
-------- -------- -------- -------
Gross profit 34,064 30,909 10,574 9,982
Selling, general and
administrative expenses (25,397) (21,313) (8,583) (6,993)
-------- -------- -------- -------
Operating profit 8,667 9,596 1,991 2,989
Profit on disposal of property 1,000 - 500 -
-------- -------- -------- -------
Profit on ordinary activities before interest 9,667 9,596 2,491 2,989
Interest receivable 208 420 52 176
Interest payable and similar charges (9,241) (8,555) (3,097) (3,071)
-------- -------- -------- --------
Profit/(loss) on ordinary activities before
taxation 634 1,461 (554) 94
Taxation on profit on ordinary
activities (507) (805) 325 (306)
-------- -------- -------- -------
Profit/(loss) on ordinary activities after
taxation 127 656 (229) (212)
Minority equity interests (146) (156) (101) (46)
-------- -------- -------- --------
Net (loss)/profit for the financial period (19) 500 (330) (258)
Other finance charges in respect of non
Equity shares (3,000) (3,493) (1,000) (1,316)
-------- -------- -------- --------
Retained loss for the period
for equity shareholders (3,019) (2,993) (1,330) (1,574)
-------- -------- -------- -------
</TABLE>
-3-
<PAGE>
TEXON INTERNATIONAL plc
CONDENSED CONSOLIDATED BALANCE SHEETS
(Pounds Sterling In Thousands)
<TABLE>
<CAPTION>
Unaudited Audited
as at September 30, December 31,
Notes 2000 1999
----- ------------------- ------------
<S> <C> <C> <C>
FIXED ASSETS
Intangible assets:
Intellectual property 500 -
Goodwill 21,164 12,707
Tangible assets 22,451 20,973
Investment 15 14
-------- --------
44,130 33,694
CURRENT ASSETS
Stocks 2 25,237 21,466
Debtors due within one year 28,093 26,491
Debtors due after one year 4,559 3,348
Cash at bank and in hand 1,083 1,025
-------- --------
58,972 52,330
CREDITORS
Amounts falling due within one year (45,134) (40,391)
-------- --------
NET CURRENT ASSETS 13,838 11,939
-------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES 57,968 45,633
-------- --------
CREDITORS
Amounts falling due after more than
one year (101,946) (97,832)
Provisions for liabilities and charges (8,406) (7,038)
---------- --------
(52,384) (59,237)
---------- --------
CAPITAL AND RESERVES
Called up share capital 12,459 9,120
Share premium 46,800 46,800
Profit and loss account (123,105) (123,059)
Premium on redemption reserve 10,257 7,257
--------- ---------
Shareholders' deficit
Equity interests (118,605) (119,139)
Non-equity interests 65,016 59,257
--------- ---------
(53,589) (59,882)
Minority equity interests 1,205 645
--------- ---------
(52,384) (59,237)
========= =========
</TABLE>
-4-
<PAGE>
TEXON INTERNATIONAL plc
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
(Pounds Sterling, In Thousands)
<TABLE>
<CAPTION>
Unaudited
------------------------------
Nine months ended
September 30, September 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash inflow from operating activities 8,398 14,430
Returns on investments and servicing of finance (11,321) (10,589)
Taxation (2,126) (1,341)
Capital expenditure and financial investment 102 (2,468)
Acquisitions and disposals (6,545) (19,982)
------- -------
Cash outflow before financing (11,492) (19,950)
Financing 11,298 18,639
------- -------
Increase in cash and overdrafts in
the period (194) (1,311)
======= =======
</TABLE>
-5-
<PAGE>
TEXON INTERNATIONAL plc
Reconciliation of net cash flow to movement in net debt
(Pounds Sterling, In Thousands)
<TABLE>
<CAPTION>
Unaudited
------------------------------
Nine months ended
September 30, September 30,
2000 1999
Restated
<S> <C> <C>
Increase/(decrease) in cash and overdrafts in
the period (194) (1,311)
Cash outflow from debt and lease financing (11,298) (18,639)
-------- --------
Change in net debt resulting from cash flows (11,492) (19,950)
Loans and finance leases acquired with subsidiary (462) (5,580)
Issue of shares 3,338 -
Non cash movements in debt (625) 360
Translation difference 2,853 7,896
-------- --------
Movement in net debt in the period (6,388) (17,274)
-------- --------
Net debt at the opening date (108,002) (91,063)
-------- --------
Net debt at the closing date (114,390) (108,337)
======== ========
</TABLE>
-6-
<PAGE>
TEXON INTERNATIONAL plc
CONSOLIDATED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
(Pounds Sterling, In Thousands)
<TABLE>
<CAPTION>
Unaudited
---------------------------------------------------------------
Nine months ended Three months ended
---------------------------- --------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net (loss)/profit for the financial
period (19) 500 (330) (258)
Currency translation differences
on foreign currency 2,974 6,894 3,301 2,156
----- ----- ----- -----
Total recognized (losses)/gains in
the period 2,955 7,394 2,971 1,898
</TABLE>
-7-
<PAGE>
TEXON INTERNATIONAL plc
RECONCILIATION OF MOVEMENTS IN TOTAL SHAREHOLDERS' FUNDS
(Pounds Sterling, In Thousands)
<TABLE>
<CAPTION>
Unaudited
---------------------------------------------------------------
Nine months ended Three months ended
---------------------------- --------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Retained profit for the period for
equity shareholders of the Company (19) 500 (330) (258)
Other finance charges in respect of
non equity shares (3,000) (3,493) (1,000) (1,316)
------- ------ ------ ------
(3,019) (2,993) (1,330) (1,574)
Issue of shares 3,338 - 2,632 -
Preference dividend transferred to
reserves - 2,600 - -
Premium on redemption reserve 3,000 3,493 1,000 1,316
Foreign exchange adjustments 2,974 6,894 3,301 2,156
------- ------- ------- -------
Net decrease/(increase) to
shareholders' deficit 6,293 9,994 5,603 1,898
Opening shareholders' deficit (59,882) (73,619) (59,192) (65,523)
------- ------- ------- -------
Closing shareholders' deficit (53,589) (63,625) (53,589) (63,625)
======= ======= ======= =======
</TABLE>
-8-
<PAGE>
TEXON INTERNATIONAL plc
Notes to the Unaudited Condensed Consolidated Financial Statements
September 30, 2000, September 30, 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 nine month periods are not necessarily indicative of the results
which may be expected for the full year. In the opinion of management,
all material adjustments, consisting of 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 :
September 30, December 31,
2000 1999
------------- ------------
(Pounds sterling in thousands)
Finished goods and goods for resale 18,511 14,969
Work in progress 2,334 1,442
Raw materials 4,392 5,055
------ ------
25,237 21,466
------ ------
Included within the above inventory figures for September 30, 2000 is
an inventory reserve of (pound)1,594,000, (pound)1,631,000 December 31,
1999. Inventory has increased during the nine months ended September
30, 2000 partly due to the inclusion of (pound)0.3 million for Crispin,
(pound)0.6 million for Boxflex and (pound)2.5 million from the
acquisition of Foss.
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 September 30,
2000 resulting in the issuance of 301,138 Ordinary A voting shares,
14,348 Ordinary A non-voting shares, and 35,054 Ordinary B voting
shares all at a nominal value of (pound)1.00. There was also a rights
issue of redeemable cumulative preference shares of 3,154,860 issued at
a nominal value of (pound)0.10.
-9-
<PAGE>
The acquisition of the footwear components manufacturing, sale and
distribution business and assets of Foss Manufacturing Company Inc was
partly funded by new equity of (US Dollars)4.0 million issued to the
sellers.
4 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 1, 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.
<TABLE>
<CAPTION>
Unaudited
(Pounds sterling in thousands)
---------------------------------------------------------------
Nine months ended Three months ended
---------------------------- --------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Trade sales 112,032 101,069 35,454 29,499
Net profit/(loss) for the financial
period (19) 1,219 (330) (258)
------- ------- ------ ------
</TABLE>
In accordance with the policies adopted by the Company goodwill of
(pounds)9.1 million arising on acquisitions in the nine months ended
September 30, 2000 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.
The loan note consideration has been reduced that was issued for the
acquisition of Cornwell Industries Ltd by (pound)61,000. These loan
notes were issued on condition that a tax debtor was recovered within
18 months of the issue date (or completion of its 1999 accounts if
earlier).
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto included in this report, in
the Annual Report on Form 20-F filed by the Company with the Securities and
Exchange Commission (the "Commission") on May 2, 2000 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
-------------------
On July 26, 2000 Texon International plc purchased the footwear business unit of
Foss Manufacturing Company, Inc. The Company believes that the acquisition will
confirm Texon International plc as the leading supplier of stiffener products in
the footwear market.
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. The Company operates seventeen manufacturing facilities in the
U.K., the United States, Brazil, Germany, Italy, France, Australia and China.
During the nine months of 2000 sales of insoles, stiffeners, other footwear
materials, industrial products, plastic products, metal products, Crispin
computer aided design products and Foss footwear products accounted for 36%,
20%, 11%, 9%, 10%, 12%, 1% and 1% of total sales, respectively. In the same
period, through the Company's extensive marketing and distribution network, 48%
of sales were made to Europe, 32% to Asia and the Pacific, 16% to the Americas
and 4% to the rest of the world.
Results of Operations
---------------------
Comparison of the Three Months Ended September 30, 2000 to the Three Months
Ended September 30, 1999.
Sales turnover. Sales increased (pound)6.0 million or 20.2%, to (pound)35.5
million during the three months ended September 30, 2000 from (pound)29.5
million in the comparable period of 1999. This increase was primarily due to the
acquisitions made by the Company in 1999 of Esjot, Claravon and Chamberlain
Phipps and sales reported for the quarter by Crispin, which was acquired on
February 29, 2000, Boxflex which was acquired on March 23, 2000 and Foss which
was acquired on July 26, 2000. At constant exchange rates and after subtracting
-11-
<PAGE>
the sales made by the businesses acquired by the Company in 1999 and 2000, sales
for the three months ended September 30, 2000 were (pound)0.4 million or 2%
higher than those of the similar period in 1999.
Sales of insoles at constant exchange rates, during the third quarter of 2000
were comparable with the same period in 1999. There was growth for both the
cellulose and non-woven products in China and Italy but this was offset by a
decline in sales in the US owing to Texon changing its method of accounting for
the sales of foam products from direct sales to a commission basis.
During the three months ended September 30, 2000, sales of stiffeners at
constant exchange rates increased 27% but this includes the Foss footwear
manufacturing acquisition which was completed at the end of July. Otherwise
sales grew by 6% from the comparable period in 1999. This increase is primarily
the result of market share gains in Asia for the thermoplastic stiffeners.
During the three months ended September 30, 2000, sales of industrial products
at constant exchange rates increased 4% from the comparable period in 1999, this
was mainly owing to an increase in sales to a US carpet gripper manufacturer of
specialised pins.
Sales of other footwear materials at constant exchange rates increased by 14% in
the three months ended September 30, 2000 from the comparable period in 1999 as
a result of the acquisition of Boxflex in March 2000.
During the three months ended September 30, 2000, there were sales of plastic
products of (pound)3.4 million, sales of metal products of (pound)3.9 million,
sales of Crispin products of (pound)0.8 million and sales of Foss footwear
products of (pound)1.7 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 third quarter of 1999.
On a geographical basis sales for the three months ended September 30, 2000,
increased in Europe by 10.8%, Asia by 24.0%, Australasia by 46.4%, North America
by 24.7%, and South America by 163.6% and decreased in the rest of the world by
11.7%, each from the comparable period in 1999. These increased sales were
mainly as a result of the various acquisitions made during the last twelve
months as explained above.
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)1.6 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)1.9 million from the comparable period in 1999
due to the sales initiatives for stiffener products as well as strong market
share gains made in China for insoles.
Australasian sales increased by (pound)0.6 million from the comparable period in
1999 due to the acquisition in October 1999 of Claravon.
In North America, sales were (pound)0.9 million higher in the third quarter of
2000 as against the comparable period in 1999 as a result of the above sales to
the US carpet gripper manufacturer and sales of Foss footwear products as a
result of the recent acquisition.
-12-
<PAGE>
South American sales were approximately (pound)1.2 million higher from the
comparable period in 1999, predominately due to the acquisition of Boxflex in
Brazil which contributed sales of (pound)1.3 million in the period.
Gross Profit. Gross profit for the three months ended September 30, 2000
increased by (pound)0.6 million to (pound)10.6 million compared to (pound)10.0
million in the comparable period in 1999. When expressed as a percentage of
sales, gross profit was 30% for the three months ended September 30, 2000 a
decrease of 4.0% from the comparable period in 1999. The decrease in overall
margin as compared to last year is due to the Claravon, Boxflex and Foss
footwear acquisitions which generate gross profit margins in the 25% range.
Excluding the acquisitions completed in 1999 and 2000, the gross profit margin
in the three months ended September 30, 2000, decreased by 4.8% from the
comparable period in 1999. The decrease in the gross profit margin as compared
to last year is mainly due to rising raw material costs, especially pulp prices
for cellulose production and the weakness of the Euro as compared to
(pound)sterling and US$.
Selling, General and Administrative Costs. Selling, general and administrative
costs ("S G + A"), for the three months ended September 30, 2000 were (pound)8.6
million compared with (pound)7.0 million for the same period in 1999. Of the
total increase of (pound)1.6 million, (pound)1.3 million relates to the
businesses acquired during the last year, including reorganisation costs of
(pound)0.3 million. The remaining (pound)0.3 million increase relates to higher
distribution costs as a result of higher sales levels, an increase in the global
provision for bad debts and a small exchange rate loss on forward contracts as
compared to a gain booked in the same period in 1999.
Profit on ordinary activities. Included in the profit on ordinary activities of
(pound)2.5 million is a charge of (pound)0.3 million relating to the
restructuring of the businesses acquired during 1999 and (pound)0.3 million for
the amortization of goodwill arising on the consolidation of the acquired
businesses. Excluding these charges, profit on ordinary activities for the three
months ended September 30, 2000 was (pound)3.1 million, which is equal to the
comparable period in 1999.
Earnings before Interest Depreciation and Amortisation ("EBITDA"). EBITDA for
the three months ended September 30, 2000 remained constant at (pound)3.9
million when compared with the same period in 1999.
Interest payable and similar charges remained constant at (pound)3.1 million for
the three months ended September 30, 2000 when compared with the same period in
1999. Included in the charge is (pound)0.2 million relating to the amortisation
of debt issuance costs.
Taxation. The tax charge for the three months ended September 30, 2000 is based
on the estimated percentage tax rate the Company will incur for the full year.
Comparison of the Nine Months Ended September 30, 2000 to the Nine Months Ended
September 30, 1999.
-13-
<PAGE>
Sales turnover. Sales increased (pound)21.6 million or 23.9%, to (pound)112.0
million during the nine months ended September 30, 2000 from (pound)90.4 million
in the comparable period of 1999. This increase was primarily due to the
acquisitions made by the Company in 1999 of Esjot, Claravon and Chamberlain
Phipps and sales reported for the period by Crispin, which was acquired on
February 29, 2000, Boxflex which was acquired on March 23, 2000 and Foss
footwear which was acquired on July 26, 2000.
On a constant currency basis, sales increased by (pound)24.0 million or 26.8%
during the nine months ended September 30, 2000 from the comparable period in
1999.
Gross Profit. Gross profit for the nine months ended September 30, 2000 was
(pound)34.1 million which was an increase of (pound)3.1 million on the
comparable period in 1999. When expressed as a percentage of sales, gross profit
was 30% for the nine months ended September 30, 2000 compared to a gross profit
of 34% for the same period in 1999. The decrease in the gross profit margin as
compared to last year is mainly due to rising raw material costs, especially
pulp prices for cellulose production.
Selling, General and Administrative Costs. Selling, general and administrative
costs ("S G + A"), increased by (pound)4.1 million or 19% to (pound)25.4 million
for the nine months ended September 30, 2000 from (pound)21.3 million from the
comparable period in 1999, principally due to the increased expenses of the
acquired businesses and other costs reported above.
Profit on ordinary activities. Profit on ordinary activities for the nine months
ended September 30, 2000 was (pound)9.7 million, an increase of (pound)0.1
million from (pound)9.6 million for the comparable period in 1999 as a result of
increased restructuring costs of the acquired businesses and goodwill
amortization.
Earnings before depreciation and amortisation ("EBITDA") for the nine months
ended September 30, 2000 was (pound)13.6 million (excluding reorganisation costs
(pound)0.6 million for the nine months ended September 30, 2000 and (pound)0.2
million for the same period in 1999) as compared to (pound)12.1 million for the
comparable period in 1999.
Interest payable and similar charges increased by (pound)0.6 million to
(pound)9.2 million for the nine months ended September 30, 2000 from (pound)8.6
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)9.2 million charge is amortization of debt issuance costs of (pound)0.6
million and a loss made on the resale of the senior loan notes of (pound)0.1
million.
Taxation. The tax charge for the nine months ended September 30, 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 September 30, 2000 were (pound)155.5
million, including consolidated indebtedness of (pound)114.4 million which
compares to total assets of (pound)103.1 million. The excess of liabilities over
assets of (pound)52.4 million is due mainly to the writing off of goodwill in
earlier periods.
-14-
<PAGE>
The shareholders' deficit as at September 30, 2000 of (pound)53.6 million has
been reduced by (pound)6.3 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).
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 nine months ended
September 30, 2000 was (pound)8.4 million compared to (pound)14.4 million for
the comparable period in 1999. This decrease of (pound)6.0 million is primarily
attributable to movements in exchange rates. At constant exchange rates the cash
inflow from operating activities would have been (pound)14.2 million.
Inventories as at June 30, 2000 were (pound)22.4 million compared to (pound)21.5
million at December 31, 1999. The 2000 inventories include (pound)0.3 million
for Crispin and (pound)0.5 million for Boxflex and (pound)2.5 million for Foss
footwear manufacturing products.
Returns on investments and servicing of finance for the six months ended June
30, 2000 were (pound)6.0 million compared to (pound)5.1 million for the six
months ended June 30, 1999. The increase is primarily due to interest paid on
additional debt incurred to finance the acquisitions made in 1999 and 2000. It
also includes the loss on the sale of the senior loan notes and loss on foreign
exchange contracts covering the interest payment on the senior loan notes.
Capital expenditures, in the second quarter ended June 30, 2000 were (pound)0.5
million, as compared to (pound)1.1 million for the comparable period in 1999.
Capital expenditures during the quarter related primarily to small plant and
equipment acquisitions.
Acquisitions and disposals cash outflow for the nine months ended September 30,
2000 consisted of (pound)2.0 million for the purchase of Crispin Dynamics. In
October 2000 the final quarterly payment of (pound)0.5 million was paid. There
was also a cash outflow for the acquisition of Boxflex of (pound)0.9 million and
the Company paid (pound)0.6 million for the final instalment for the purchase of
the additional 30% of the ordinary shares in Foshan Texon Cellulose Board
Manufacturing Co Limited, the operation in China. The cash outflow also includes
an initial payment for the Foss footwear manufacturing acquisition of (pound)3.0
million.
-15-
<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 nine months of 2000,
Sterling appreciated 8.8% 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.
-16-
<PAGE>
On January 29, 2000 and July 31, 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 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
January 2001 and July 2001 in Euros.
The Euro has been used as a trading currency by the Company during the nine
months ended September 30, 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 32% 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.
-17-
<PAGE>
Exchange Rate Information
The table below shows the major exchange rates, expressed per Pound Sterling,
used in the preparation of the condensed consolidated financial statements
included herewith.
2000 Average Rate Period End Rate
----------------- ---------------
US Dollar 1.54 1.46
Euro 1.63 1.66
-18-
<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
10.79 Umbrella Agreement for the Sale and Purchase of the business
and assets of Foss Manufacturing Company Inc. and its
subsidiary companies, dated July 26, 2000, between Texon
International plc, as purchaser, and Foss Manufacturing
Company Inc., as seller. P
10.80 USA Agreement for the Sale and Purchase of the US business and
assets of Foss Manufacturing Company Inc., dated July 26,
2000, between Texon USA Inc., as purchaser, and Foss
Manufacturing Company Inc., as seller. P
10.81 French Agreement for the Sale and Purchase of the French
business and assets of Foss Manufacturing Company Inc. and its
subsidiary companies, and all of the share capital of SCI
Lambiotte Immobiliere, dated July 26, 2000, between Texon
France S.A., as purchaser, and Lambiotte Foss S.A., as seller.
P
10.82 Distribution Agreement, dated July 26, 2000, between Texon USA
Inc. and Foss Manufacturing Company Inc. P
10.83 Patent, Know-How and Trademark Licensing Agreement, dated July
26, 2000, between Texon International plc and Foss
Manufacturing Company Inc. P
10.84 Assignment of Patents, Know How and Trademarks, dated July 26,
2000, between Texon International plc and Foss Manufacturing
Company Inc. P
P This exhibit has been filed in paper format with the
Securities and Exchange Commission under cover of Form SE on
November 15, 2000.
-19-
<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: 14 November 2000 By /s/ J. Neil Fleming
----------------------------
J. Neil Fleming
Finance Director and
Chief Accounting Officer
-20-
