SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Interim Report
Quarter ended September 30, 1999
CONSOLTEX GROUP INC.
(Translation of Registrant's Name Into English)
8555, route Transcanadienne, Saint-Laurent, Quebec, H4S 1Z6, Canada
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F |X| Form 40-F |_|
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also hereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes |_| No |X|
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-______)
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CONSOLTEX GROUP INC.
[GRAPHIC OMITTED]
The quality is woven right in
INTERIM REPORT
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FOR THE QUARTER ENDED
SEPTEMBER 30, 1999
<PAGE>
INTERIM REPORT
For the quarter ended
September 30, 1999
CONSOLTEX THIRD QUARTER RESULTS
Consoltex Group Inc. reported a loss of $2.8 million during the quarter ended
September 30, 1999 compared to a loss of $0.9 million reported for the
comparable quarter last year. Consolidated sales were $126.2 million, or 12.0%
higher than the quarter ended September 30, 1998. The increase in sales results
from sales generated by the two business acquisitions completed in 1999. In
February 1999, Consoltex acquired Royalton, a garment manufacturer in Mexico,
which generated additional sales of $2.0 million during the quarter. In July
1999, the Company acquired Marino Technologies, a manufacturer of intermediate
bulk container bags with operations in the United States and Mexico. Marino
Technologies contributed an additional $11.2 million in revenues during the
quarter. The Marino Technologies acquisition was financed with a US$25 million
Term Loan from the Company's current banking syndicate.
The decrease in earnings during the current quarter compared to the same quarter
last year, relates to a decrease in margins attributed to continuing difficult
market conditions affecting our Textile Operations and, in particular, the
demand for polyester-based fabrics and apparel linings for the men's and women's
tailored clothing markets in the United States and Canada. Results for the
quarter were also adversely affected by manufacturing under recovery of overhead
costs at our primary polypropylene weaving plant in South Carolina.
The current quarter results also include non-recurring expenses of $2.2 million
related to the privatization process for the Company which was completed in
October 1999. These costs include the independent valuation of the Company's
shares, as well as legal and other fees related to the privatization process.
The increase in amortization of goodwill and interest expense relates to
additional costs related to the two business acquisitions completed in 1999.
<PAGE>
-2-
Home Furnishings and Fashion Sector
Sales in the Home Furnishings and Fashion sector decreased by 10.3% in the
quarter ended September 30, 1999 compared to the same quarter last year. This
Sector's apparel-related product lines have been adversely affected by increased
import competition from fabrics and garments entering the North American market
from countries with low cost labour. The significantly lower sales in the
polyester-based fashion apparel fabrics was partly offset by an increase in
sales of home furnishings curtaining fabrics. EBITDA in this sector was $7.4
million in the September 1998 quarter as compared to $5.9 million in the
September 1999 quarter.
Performance Fabrics Sector
Sales in the Performance Fabrics sector increased by 11.2% during the current
quarter compared to the same quarter last year. This increase is attributed to
increased sales of higher margined nylon and industrial fabrics. The increase is
also attributed to an additional $2.0 million in sales revenue from Royalton
acquired in February 1999. This sector's sales increase was partly offset by
weaker sales in the apparel linings fabrics business which is being affected by
the lower production by North American apparel manufacturers. EBITDA in this
sector increased from $2.1 million in the September 1998 quarter to $2.9 million
in the September 1999 quarter as a result of higher sales and improved product
mix.
Polypropylene Sector
Sales in the Polypropylene sector increased by 28.6% compared to the same
quarter last year. This increase relates primarily to additional sales
contributed by the Marino Technologies acquisition, growth in bulk bag sales in
Mexico, offset by lower sales of woven geotextiles and intermediate bulk
container fabrics in the United States. EBITDA for the quarter increased from
$6.3 million in the September 1998 quarter to $6.8 million during the current
quarter as a result of additional EBITDA contributed by the Marino acquisition.
Nine-Month Results
Sales for the nine months ended September 30, 1999 are 1.3% higher than reported
for the same period in 1998. The increase in sales is due to additional sales
generated by business acquisitions and good growth in nylon-based fabric sales
offset by difficult market conditions experienced by the North American textile
manufacturers for tailored clothing. The loss for the nine months ended
September 30, 1999 was $1.4 million compared to earnings of $4.7 million in the
prior year. The lower earnings are attributed to slightly lower gross margins,
higher financing costs and the inclusion in the 1999 results of certain
non-recurring expenses related to the privatization of the Company as well as
certain severance and rationalization costs recorded in the Textile Operations.
<PAGE>
-3-
Year 2000 Update
The Company's ongoing Year 2000 Program is progressing on schedule. As of
September 30th, 1999, on average, approximately 95% of the conversion of key
components and systems was tested and completed. The remaining few items are
well defined and scheduled for timely completion prior to year end. As
previously reported, the total cost for addressing the Year 2000 issue is
estimated to be $5 million.
Consoltex continues to follow-up on the work performed by its key business
partners with respect to the implementation of their Year 2000 readiness
program. We are satisfied with the progress made to date. However, there can be
no assurance that the Year 2000 issue will not cause any disruptions mostly
because of the aspects that are beyond Consoltex's control.
Each business unit is in the process of developing or have completed, a
contingency and action plan to rapidly restore critical activities following
unexpected interruptions or failures that could occur. Throughout the remainder
of the year these plans will be updated to adapt to changing business
circumstances.
Outlook
The restructuring changes we have made in our Textile Operations combined with
the expected improvement in market conditions should result in improved
performance. The Polypropylene Operations, with its recently announced
acquisition of Marino Technologies should improve its operating performance over
the short to mid-term.
<PAGE>
CONSOLTEX GROUP INC.
CONSOLIDATED
STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
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(in thousands of Canadian dollars, except per share amounts) Quarter ended September 30 Nine months ended September 30
(unaudited) 1999 1998 (1) 1999 1998 (1)
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(restated) (restated)
<S> <C> <C> <C> <C>
Sales - Canada $ 18,253 $ 17,179 $ 63,052 $ 61,834
- Exports from Canada 22,158 24,372 67,698 72,954
- United States 63,996 54,455 175,932 172,012
- Latin America 21,825 16,690 61,098 56,367
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126,232 112,696 367,780 363,167
Cost of sales 98,705 86,564 283,771 276,779
Selling and administrative expenses 13,132 11,715 40,230 36,427
Foreign exchange (gain) loss 151 1,861 (583) 3,088
Depreciation and amortization 6,416 5,041 18,140 15,940
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Earnings from operations 7,828 7,515 26,222 30,933
Other income (expense) (2,191) -- (2,327) --
Financing costs:
Interest expense, net 7,461 6,585 20,170 19,091
Factor expenses 585 578 1,711 1,611
Amortization of deferred financing expenses 602 412 1,446 1,288
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8,648 7,575 23,327 21,990
Earnings (loss) before income taxes (3,011) (60) 568 8,943
Provision for (recovery of) income taxes (218) 851 1,959 4,215
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Net earnings (loss) $ (2,793) $ (911) $ (1,391) $ 4,728
=================================================================
EBITDA (2) $ 14,395 $ 14,417 $ 43,779 $ 49,961
Earnings (loss) per share - Basic $ (0.16) $ (0.05) $ (0.08) $ 0.28
- Fully diluted * * * $ 0.27
Average number of shares outstanding 17,040,217 17,032,717 17,037,217 17,030,217
</TABLE>
o Non-dilutive or anti-dilutive
(1) In the first quarter of 1999, the Company retroactively adopted the
Canadian Institute of Chartered Accountants new recommendations for the
accounting for income taxes which require the use of the liability method.
As a result, prior years' balance sheets, income statements and statements
of cash flows have been restated.
(2) Earnings before interest, taxes, depreciation, amortization, foreign
exchange gain or loss and items included in other income (expense).
<PAGE>
CONSOLTEX GROUP INC.
CONSOLIDATED
BALANCE SHEET
<TABLE>
<CAPTION>
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Actual Actual
(in thousands of Canadian dollars) September 30 December 31
(unaudited) 1999 1998 (1)
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<S> <C> <C>
ASSETS (restated)
Current assets -
Cash $ 2,207 $ 3,883
Accounts receivable and prepaid expenses 80,312 55,633
Inventories 137,900 110,382
Current portion of future income tax assets 2,982 3,017
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233,401 172,915
Fixed assets, net 162,261 162,106
Goodwill 108,019 74,091
Other assets 10,994 15,558
Future income tax assets 10,931 9,742
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Total assets $ 515,606 $ 434,412
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities -
Bank loans $ 64,146 $ 42,515
Accounts payable and accrued liabilities 71,944 46,371
Income taxes payable 5,006 6,934
Current portion of long-term debt 10,315 10,714
Current portion of long-term liabilities 6,690 --
Current portion of future income tax liabilities 4,844 4,900
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162,945 111,434
Long-term debt 223,619 202,026
Other long-term liabilities 14,486 4,687
Future income tax liabilities 41,505 41,993
Shareholders' equity -
Share capital 93,006 92,998
Retained earnings 10,422 11,813
Deferred translation adjustment (30,377) (30,539)
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73,051 74,272
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Total liabilities and shareholders' equity $ 515,606 $ 434,412
======================
</TABLE>
(1) In the first quarter of 1999, the Company retroactively adopted the
Canadian Institute of Chartered Accountants new recommendations for the
accounting for income taxes which require the use of the liability method.
As a result, prior years' balance sheets, income statements and statements
of cash flows have been restated
<PAGE>
CONSOLTEX GROUP INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
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(in thousands of Canadian dollars) Quarter ended September 30 Nine months ended September 30
(unaudited) 1999 1998 (1) 1999 1998 (1)
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(restated) (restated)
<S> <C> <C> <C> <C>
Funds provided by (used for) operations:
Net earnings (loss) for the period $ (2,793) $ (911) $ (1,391) $ 4,728
Depreciation 4,940 3,941 14,665 12,010
Amortization of goodwill and other assets 1,476 1,100 3,475 3,930
Amortization of deferred financing expense 602 412 1,446 1,288
Gain on sale of land -- -- -- (745)
Future income taxes (364) (289) (841) (1,055)
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3,861 4,253 17,354 20,156
Changes in -
Accounts receivable and prepaid expenses 807 1,758 (18,213) (22,350)
Inventories (7,861) (4,741) (23,409) (11,034)
Accounts payable and accrued liabilities (2,010) 3,107 18,306 11,501
Income taxes payable (2,310) 256 (2,628) 962
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Net funds provide by (used for) operations (7,513) 4,633 (8,590) (765)
Investments:
Purchase of fixed assets (3,372) (7,644) (11,955) (17,446)
Proceeds on sale of land -- -- -- 328
Acquisition of Royalton S.A. de C.V -- -- (5,314) --
Acquisition of Marino Technologies Inc. (39,720) -- (39,720) --
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Net funds used before financial transactions (50,605) (3,011) (65,579) (17,883)
Financial transactions:
Increase in bank loans 5,589 6,103 21,631 27,042
Issuance of long-term debt 36,840 -- 36,840 --
Repayment of long-term debt (5,222) (2,638) (10,447) (6,428)
Increase in other long-term liabilities 12,329 921 13,540 1,178
Issuance of share capital 8 -- 8 20
Others 107 (1,574) 2,331 (3,211)
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Increase (decrease) in cash (954) (199) (1,676) 718
Cash at the beginning of the period 3,161 1,791 3,883 874
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Cash at the end of the period $ 2,207 $ 1,592 $ 2,207 $ 1,592
================================================================
</TABLE>
(1) In the first quarter of 1999, the Company retroactively adopted the
Canadian Institute of Chartered Accountants new recommendations for the
accounting for income taxes which require the use of the liability method.
As a result, prior years' balance sheets, income statements and statements
of cash flows have been restated
<PAGE>
CONSOLTEX GROUP INC.
CONSOLIDATED
SEGMENT DISCLOSURES
<TABLE>
<CAPTION>
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(in thousands of Canadian dollars) Quarter ended September 30 Nine months ended September 30
(unaudited) 1999 1998 (1) 1999 1998 (1)
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(restated) (restated)
<S> <C> <C> <C> <C>
Sales:
Home Furnishings and Fashion sector -
From external customers $ 25,224 $ 28,127 $ 78,294 $ 85,281
Intersegment sales 687 249 2,231 815
Performance Fabrics sector -
From external customers 49,587 44,586 156,164 149,164
Intersegment sales 461 860 2,192 2,769
Polypropylene sector -
From external customers 51,421 39,983 133,322 128,722
Intersegment sales -- -- -- --
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Total for reportable segments 127,380 113,805 372,203 366,751
Intersegment sales (1,148) (1,109) (4,423) (3,584)
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Consolidated sales $ 126,232 $ 112,696 $ 367,780 $ 363,167
==================================================================
EBITDA:
Home Furnishings and Fashion sector $ 5,879 $ 7,423 $ 18,198 $ 22,293
Performance Fabrics sector 2,911 2,133 10,308 10,642
Polypropylene sector 6,772 6,335 19,399 21,055
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Total for reportable segments 15,562 15,891 47,905 53,990
Corporate (1,167) (1,474) (4,126) (4,029)
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Consolidated EBITDA 14,395 14,417 43,779 49,961
Foreign exchange (gain) loss 151 1,861 (583) 3,088
Depreciation and amortization 6,416 5,041 18,140 15,940
Other income (expense) (2,191) -- (2,327) --
Financing costs 8,648 7,575 23,327 21,990
Income taxes (recovery) (218) 851 1,959 4,215
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Net earnings (loss) $ (2,793) $ (911) $ (1,391) $ 4,728
==================================================================
<CAPTION>
September 30 December 31
1999 1998
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<S> <C> <C>
Segment assets:
Home Furnishings and Fashion sector $ 84,723 $ 78,569
Performance Fabrics sector 148,077 125,942
Polypropylene sector 277,010 225,613
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Total for reportable segments 509,810 430,124
Corporate 5,796 4,288
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Consolidated total assets $ 515,606 $ 434,412
===========================
</TABLE>
(1) In the first quarter of 1999, the Company retroactively adopted the
Canadian Institute of Chartered Accountants new recommendation for the
accounting for income taxes which require the use of the liability method.
As a result, prior years' balance sheets, income statements and statements
of cash flows have been restated.
<PAGE>
Subsequent Event
On October 18, 1999, American Industrial Partners ("AIP"), a private investment
partnership purchased, through an indirect wholly-owned subsidiary, over 14.7
million of Consoltex Group Inc.'s Subordinate Voting Shares which had been
tendered under AIP's take-over bid for a price of $5.60 per share. AIP intends
to acquire the balance of Consoltex Group Inc.'s untendered Subordinate Voting
Shares, thus taking the Company private.
